-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, POwka5JrETzNjX8chudHwfVHs/Ba+TKaD8GFAxRKBd6yoIaqrKGvKSOY+8ikBvGF gC8N3hDw1eGlvXm1i0py+A== /in/edgar/work/0000950131-00-005531/0000950131-00-005531.txt : 20000930 0000950131-00-005531.hdr.sgml : 20000930 ACCESSION NUMBER: 0000950131-00-005531 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IFX CORP CENTRAL INDEX KEY: 0000792861 STANDARD INDUSTRIAL CLASSIFICATION: [7370 ] IRS NUMBER: 363399452 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15187 FILM NUMBER: 731424 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: CARL JACK 312 FUTURES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: 312 FUTURES INC DATE OF NAME CHANGE: 19860916 10-K 1 0001.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From ___________________ to ____________________ Commission file number 0-15187 IFX Corporation (Exact name of registrant as specified in it's charter) Delaware 36-3399452 - ------------------------------------------- ---------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 707 Skokie Blvd Ste 580, Northbrook, Illinois 60062 - ---------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (847) 412-9411 -------------- Securities registered pursuant to Section 12(g) of the Act: $.02 Par Value Common Stock 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 definitive 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 September 15, 2000, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $31,843,760. As of September 15, 2000, there were 13,337,943 outstanding shares of the Registrant's common stock. PART I Item 1 - Business - -------------------------------------------------------------------------------- Overview IFX Corporation, a Delaware corporation (IFX Corporation and its subsidiaries are referred to herein as "IFX", "IFX Networks" or the "Company") was incorporated in 1985. IFX's operations are headquartered in Miami, Florida. Since November 1998, IFX has established a pan-regional Internet Protocol ("IP") network through a series of acquisitions and Company-start-up operations. The IFX network currently covers 15 countries: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, El Salvador, Honduras, Guatemala, Mexico, Nicaragua, Panama, Uruguay, Venezuela and the United States. IFX has over 450 employees in the US and Latin America and a network that covers over 58 cities in the Latin American region. IFX's network infrastructure, which will be marketed under the IFX Networks brand name, provides Internet network connectivity and a broad range of value- added services to small and medium-sized businesses in Latin America. To provide the best service, IFX has built up an extensive geographic network in the region using the latest 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. During the past twelve months IFX has become a region-wide provider of Internet access and value-added IP based services focused on offering network solutions to small and 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 collocation, 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 58 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 14 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.com, Inc, a leading provider of free Internet access on a pan-regional level. Tutopia.com, which was a majority-owned subsidiary of IFX until August 31, 2000, pioneered free Internet access on a regional basis starting in January 2000 and currently operates in 10 countries - Argentina, Brazil, Chile, Colombia, El Salvador, Guatemala, Honduras, Mexico, Panama and Venezuela, with over 1,300,000 registered users in the region. IFX currently has a 47% investment stake in 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. IFX 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 owns and 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 has pursued an extensive acquisition strategy focused on acquiring established ISPs with POPs in the major markets in Latin America and with skilled local management teams. IFX currently offers one of the most extensive IP-based network coverages available in Latin America. IFX believes that having its network infrastructure in place provides us with important first-to-market competitive advantages because of the time required to build a network in Latin America and the difficulty of locating in Latin America acquisition candidates with suitable network characteristics and skilled management. The time required to build an IP network in Latin America is extensive due to the time it takes to secure real estate, purchase and import equipment, lease local transmission capacity, obtain international Internet access, secure necessary licenses, hire skilled management, and customize billing and back-office support. . 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. A point of presence, or 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 or using a dedicated connection. The IFX network currently includes approximately 58 POPs owned by the Company and 32 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. Our 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. IFX's network includes POPs in the following cities: Argentina Porlamar --------- Maturin Buenos Aires Valencia Cordoba Mendoza Brazil Rosario ------ Curitiba Mexico Florianopolis ------ Salvador Mexico City Porto Alegre Monterrey Sao Paulo Guadalajara Rio de Janeiro Toluca Belo Horizonte Cd Acuna Recife Fortaleza Chile Joinville ----- Canoas Santiago Novo Hamburgo Valparaiso Sao Leopoldo Concepcion Pelotas Antofagasta Santa Maria Temuco Campmo Born Rancagua La Serena Bolivia Talca ------- La Paz Panama Santa Cruz ------ Panama City El Salvador Colon ----------- San Salvador Guatemala --------- Costa Rica Guatemala City ---------- San Jose Colombia -------- Nicaragua Bogota --------- Cali Managua Medellin Barranquilla Honduras -------- Venezuela Tegucigalapa --------- San Pedro Sula Caracas Coro Uruguay Punto Fijo ------- Pto La Cruz Montevideo Valera Barquisimeto United States ------------- Miami, Florida Since the end of 1998, IFX has made significant progress in implementing its business plan by making the following acquisitions, strategic investments and business start-ups:
Date Acquisition / Investment / Start-Up* Business Country / Region - --------------- ------------------------------------------- ----------------------------------- ---------------------- December 1998 ePagos.com, Inc. (minority ownership) E-Commerce Merchant Services Latin America March 1999 Argentine start-up ISP Argentina April 1999 Interweb Mexico ISP Mexico International Connection Service ISP Venezuela Eldish Marketing ISP Venezuela Yupi Internet (minority ownership) Spanish language portal Latin America Costa Rican start-up Internet Services Costa Rica May 1999 Interaccess ISP Chile Zupernet ISP Bolivia Colombian start-up ISP Colombia July 1999 Sistemas de Diseno y Manufactura ISP Mexico Interactiva ISP Chile August 1999 Intermedia ISP Chile E-Net Teleinformatica ISP Brazil Vianet ISP El Salvador ITS Networks ISP Honduras October 1999 NetSpace ISP Mexico The Conex Group ISP Brazil November 1999 Sistemas Integrales, Servicios y ISP Mexico Comunicaciones December 1999 Panaweb Web design Panama Networks de Mexico ISP Mexico Zalhe Informatica ISP Brazil Nicanet ISP Nicaragua Parmil ISP Uruguay January 2000 Brasilnet Comunicacoes ISP Brazil Openway ISP Colombia Tutopia.com launch (47% ownership) Free ISP Latin America March 2000 Guatemalan start-up ISP Guatemala April 2000 Centronet.com (minority ownership) Online travel agency Latin America June 2000 Mr. Help Informatica Web Hosting Brazil Ludix Internet ISP Brazil - ---------------------------------------------------------------------------------------------------------------------------------
* Current ownership is 100% of the equity interests except as otherwise noted. Ownership amounts are approximate. . 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, which 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. IFX is currently implementing Infranet developed by Portal Software, a customized software that provides a central, standardized billing and administration platform. Through Portal, IFX's customer service representatives will have access to current, detailed customer profiles, which chronicle customer service and account histories. IFX is currently implementing out this billing and administration platform to its regional operations. . Sales and Marketing. IFX offers its services through a consultative 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 will allow us 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 experienced Internet sales representatives. IFX is focusing efforts on expanding its IFX Networks direct sales force, developing indirect sales channels and optimizing lead generation techniques to reduce the cost of new customer acquisitions. IFX is also developing company-wide reseller and referral programs that will permit us to increase the number of indirect sales channels available to us. IFX expects to use these programs to expand the local relationships it currently has to a region-wide basis. IFX also has dedicated sales people who work with advertisers that advertise on Tutopia's Web site. In February 2000, IFX launched a substantial marketing initiative to build awareness of Tutopia and to develop the Tutopia brand in Latin America. To achieve this, IFX has advertised on billboards and through radio, television and magazine advertisements. IFX also distributed free software to start an account with Tutopia in locations throughout Latin America. These sales personnel have now been transferred to Tutopia following the UBS-led investment, discussed below. . Customer Service. IFX provides business customers with technical support and customer service through its local customer service representatives. IFX's business customers can access customer service representatives by dialing a toll free number. Through IFX's customized Portal software, customer service representatives will have instant access to current, detailed customer profiles, which chronicle customer service and account histories. Market Opportunity Although divided by geographical and political boundaries, Latin Americans share many cultural affinities, including common languages and religions, as well as a similar heritage. Consequently, the Latin American market represents a highly desirable demographic profile for advertisers and businesses and encompasses some of the largest potential telecommunications markets in the world. The Internet experienced rapid growth in the 1990's and has emerged as a global medium for communications and commerce. Internet access and services represent two of the fastest growing segments of the telecommunications services market. This growth is driven by a number of factors, including: . The large and increasing number of personal computers and other devices, in both offices and homes, that are linked to the Internet; Advances in network design which allow for rapid retrieval of information from the Internet; . Increased availability of Internet-based software and applications; . The emergence of useful content and e-commerce technologies; and . Internet access becoming more widely available, convenient and inexpensive. IFX believes that the Internet presents a compelling profit opportunity for businesses by enabling them to reduce operating costs and reach new markets. A company with Internet access is able to use e-mail, access valuable information, and communicate and conduct transactions with employees, customers and suppliers. A Web site provides a company with an identity and interactive presence on the Internet, allowing it to post information and automate business processes such as sales, order entry and customer service. Recently, the Latin American market has seen the emergence of "free Internet" services allowing access to the Internet at no charge. IFX believes that the advent of free Internet access creates an opportunity for us because free access brings a large number of Internet users on-line, which, in turn, makes it more important for small and medium-sized businesses to have an Internet presence and access to these new users. Business Strategy IFX's goal is to become a leading provider of Internet Protocol, or IP, based network solutions to small and medium-sized businesses in Latin America and, through the use of the Company's network, to grow the wholesale Internet access. . Deliver Single Source Internet Solutions. IFX believes that small and medium-sized 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 both their corporate offices and their employees who travel, thereby creating demand for region-wide dedicated and dial-up Internet access. In addition, IFX believes that within the business marketplace there is a significant opportunity to upgrade customers to increasingly higher margin value-added services. IFX also believes businesses will continue to seek to outsource certain information technology functions to full-service IP-based network providers such as us in order to reduce costs and improve results. To provide an easy and cost effective way for the Company's customers to start or expand their Internet presence, IFX offers a suite of bundled corporate Internet services under the IFX Networks brand. IFX believes these services should allow it to attract new customers or strengthen its relationships with its existing customers and offer them higher margin services. . Continue to Build a Capital Efficient Network Infrastructure. IFX intends to improve and expand its network where economically justifiable and to match its capital commitment with market demand. By using complementary Internet access technologies including satellite, fiber optic and wireless networks, IFX believes that it can provide low cost Internet solutions to its customers while opportunistically expanding its network as trans- oceanic and land-based network capacity becomes commercially available. IFX believes that its strategy of utilizing a capital efficient network infrastructure should enable us to exploit new and existing technologies as cost or performance improvements become available. IFX continues to expand its market opportunities by building new Internet POPs in Latin America and by increasing its Web hosting, server collocation, data storage and processing capacities in major urban centers. . Provide Seamless Pan Latin-American IP Network Coverage. IFX believes that there are numerous competitive advantages that should be realized through the development of region-wide brand recognition and network coverage including the ability to: . provide region-wide wholesale Internet access services or "outsourced POPs" to multinational and domestic customers; . establish region-wide marketing programs and customer acquisition channels through, for example, PC and product bundling; and . provide local Internet access to users both in their home country and across countries in Latin America through free "roaming" services; and . realize economies of scale with respect to management, marketing, MIS and back-end support systems, including billing and network monitoring. . Provide superior customer service through continued investment in billing, back office and customer care systems. IFX provides all its business customers with technical support and customer service. In addition, IFX is implementing a customized, multi-currency billing system and administration software that was developed by Portal Software. Through Portal, IFX's customer service representatives will have instant access to current, detailed customer profiles, which chronicle customer service and account histories. . Establish and Maintain Strategic Relationships. IFX believes that its IFX Networks business unit should make it a partner of choice for stategic alliances and marketing arrangements. IFX's region-wide IP network can provide its local and international partners with a Latin American platform that offers both extensive region-wide coverage and a large target audience. IFX intends to pursue acquisitions, partnerships, strategic alliances and joint ventures relating to companies, assets and technologies that complement its current product and services offerings and enhance its business. Products and Services Business Products and Services IFX offers dedicated and dial-up Internet access, wholesale Internet access and a broad range of value-added Internet products and services to small and medium-sized businesses in Latin America under the IFX Networks brand. . Dedicated and Dial-Up Internet Access. IFX provides Internet access services through a variety of dedicated and dial-up access solutions. IFX's principal focus for small and medium-sized business customers is its dedicated Internet connection through both wire-line and wireless dedicated connections. A dedicated line is a telecommunications line dedicated or reserved for use by particular customers along predetermined routes. IFX currently offers dedicated Internet access at speeds ranging from 64K to 2MB. IFX also offers premium dial-up services, which give its customers unlimited access to its IFX Network throughout Latin America. Customers typically subscribe for dial-up services on a month-to-month basis. Users can dial into our network in over 100 cities in Latin America and most major cities in the United States and Canada through a local number without incurring roaming fees. IFX currently offers only a premium dial-up Internet access service for a single fee. However, IFX has allowed customers that were on various rate plans to continue those plans. IFX intends to encourage these users to migrate to its premium dial-up plan, or if they desire a more basic service, to use the free access services of Tutopia. As of June 30, 2000, IFX had approximately 45,000 paying dial-up Internet access customers. . Wholesale Internet Access Services. IFX also provides wholesale services that enable companies to provide Internet products and services on a turnkey basis under a private or branded label to their customers without the need to invest in their own technology, engineering, systems and infrastructure. Potential wholesale Internet access customers include multinational and consumer-oriented entities with existing sales and marketing capabilities seeking to add Internet products and services to their product offerings. . Value-Added IP Products and Services. IFX also provides value-added IP products and services to its small and medium-sized business customers. IFX believes that providing these products and services should enable it to grow revenues at higher margins and enhance customer retention as small and medium-sized businesses will increasingly rely on these value-added products and services to use the Internet as a business tool. IFX offers the following value-added products and services: . Web Hosting. IFX offers web hosting products and services allowing its customers to use its web servers to maintain their own 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. As of June 30, 2000, IFX hosted Web sites for approximately 6,000 customers. . Server Collocation. IFX offers basic collocation services at its local POPs. Using IFX's collocation services, its customers can own their own web servers without having to maintain and manage the related data facilities. IFX is implementing emerging content distribution technologies such as local content replication, or mirroring, and caching, for enhanced end user performance. IFX also plans to develop regional data facilities where its customers can co-locate their web servers. . Virtual Private Networks, or VPNs. A VPN is a public circuit- switched data service that makes use of the public switched telephone network. Circuit switching refers to the process of setting up and keeping a circuit open between two or more users, such that the users have exclusive and full use of the circuit until the connection is released. The public switched telephone network refers to the worldwide voice telephone network accessible to all those with telephone and access privileges. IFX's VPN service offerings provide companies with a secure transmission of private Internet traffic at a lower cost than the alternative of wide area network. IFX can also provide companies with intranet and extranet products and services. Intranets are corporate networks that rely on Internet-based technologies to provide secure links between offices. Extranets expand that network to select businesses through secured Internet links. These intranet and extranet products and services allow customer employees to have remote access to private networks from home or while traveling. . Domain Name Registration. IFX processes all documentation necessary to register a domain name in any of the countries in which it operates. . Region-wide Roaming. IFX offers the ability for its customers' employees to access the Internet and their e-mail while they are traveling. Most ISPs do not currently offer local access service throughout the region, or if they do, they charge roaming fees. . Other Value-Added Products and Services. IFX also has the capacity and intends to offer the following value-added products and services for small and medium-sized businesses in the next twelve months: . Communication Products and Services. IFX intends to provide Internet telephony, fax and audio and video conferencing products and services. These products and services would also permit customers to send and receive faxes over the Internet and to engage in audio and video conferences over the Internet. . Electronic commerce solutions. Electronic commerce, or e-commerce, solutions provide businesses with the ability to process transactions and perform business functions over the Internet. Through its relationship with e-Pagos, IFX intends to provide e- commerce solutions that should allow its customers to sell products or services directly to their customers, purchase supplies, coordinate inventory systems with suppliers, process electronic payments, track shipments and perform other business functions, all in a secure on-line environment. IFX intends to develop additional single-source e-commerce applications and hosting environments using its own software development capabilities and those of third- party partners. Consumer Internet Products and Services IFX's region-wide IP network provides a competitive advantage in the offering of consumer Internet products and services in Latin America. IFX intends to leverage its region-wide network presence and available capacity to gain first-to-market advantages in the offering of consumer Internet products and services. Given the low fees for dial-up Internet access across Latin America and the corresponding billing and servicing costs associated with dial-up subscribers, IFX decided to pursue a business model that provides free, unlimited Internet access to users and a powerful direct marketing tool for advertisers and sponsors. To draw a distinction between its corporate network services and consumer Internet services, in January 2000 IFX formed a subsidiary, Tutopia.com, Inc., which offers users free, unlimited Internet access to users in Argentina, Brazil, Chile, Colombia, El Salvador, Guatemala, Honduras, Mexico, Panama and Venezuela. As of September 15, 2000, Tutopia had approximately 1.3 million registered users. On August 31, 2000, Tutopia.com, Inc., received $20 million of private equity financing from a group led by UBS Capital Americas III, L.P. ("UBS Capital Americas"). An entity controlled by Mr. Lee Casty participated in this group, and accounted for approximately $4.9 million of the group's investment. Following this financing, assuming the exchange of the Tutopia Series A Preferred Stock received by the group for Tutopia Common Stock, IFX will own approximately 47% of the outstanding stock of Tutopia. UBS Capital Americas and its affiliates which purchased Tutopia Series A Preferred Stock have the right to appoint a majority of Tutopia's directors, the entity controlled by Mr. Casty has the right to appoint one director of Tutopia, and IFX has the right to appoint one director of Tutopia. Prior to the UBS-led investment, Tutopia represented one of our two major business lines. Following the UBS-led investment, we anticipate that Tutopia will be our largest single customer, accounting for approximately 50% of our revenues. IFX has entered into an agreement with Tutopia to provide Internet connectivity services to Tutopia for a period of three years. Either IFX or Tutopia can renew the interconnectivity agreement for a fourth year. After that agreement terminates, there can be no assurances that Tutopia will continue to use the IFX network after the end of the three-year period. Strategic Investments. IFX has made various strategic investments in companies that are aligned with its business models, including: . Yupi Internet, Inc. In April 1999, IFX invested $3.1 million to purchase approximately 12% of the then outstanding capital stock of Yupi, one of the largest Spanish language portals on the Internet. Yupi offers its Spanish- speaking users a broad range of products and services through its portal. Yupi's services include directories, a search engine, e-mail, chat services, homepage creation and web hosting. See Section "Recent Developments" regarding "Sale of a portion of Yupi Shares." . ePagos.com, Inc. In December 1998, IFX invested $200,000 to purchase approximately 20% of the then outstanding equity interests in Telcom.net, L.P. In January 2000, Telcom.net changed its name to ePagos, Inc. ePagos provides merchant service solutions for the Latin American e-commerce marketplace. IFX currently owns approximately 17% of ePagos' stock on a fully-diluted basis. ePagos provides a comprehensive suite of high- performance Internet-based software products that enable businesses to engage in a full range of e-commerce and e-business transactions throughout Latin America. At the ePagos web site, merchants can register a domain name, create a customized Web site and advertise goods and services. Also, merchants can use the Web site to accept orders, process credit card payments, coordinate fulfillment of orders, calculate tariffs, taxes and shipping charges, monitor and reorder inventory and generate financial statements and sales reports. Competition The market for Internet access and value-added products and services has become increasingly more competitive in Latin America as Internet usage has grown, and we expect 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. The small, local providers often focus on consumer dial-up Internet access and frequently do not have the services or expertise to assist small and medium-sized businesses in establishing a presence on the Internet or creating an Internet platform to support their business processes. The large international and regional providers also often focus on consumer dial-up Internet access. While these large Internet service providers may have the range of services required to meet the needs of small and medium-sized businesses, they may not have the local personnel and market expertise to effectively implement solutions for this customer base. IFX believes it can compete effectively with both large and small Internet services providers by combining local market expertise and service with IFX's region-wide network and a wide range of services targeted towards small and medium-sized business customers. . Telecommunications companies. Many of the major international telecommunications companies offer Internet services in the same markets as the Company. Some telecommunications providers are subsidized or government owned. In several markets in which the Company operates, former telecommunications monopolies have been deregulated and privatized, and have also become providers of Internet services. New telecommunications company entrants to these markets are beginning to use high-speed wireless technology to bypass overcrowded, existing networks and 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. IFX believes that its focus on providing products and services that meet the Internet needs of small and medium-sized businesses should allow us to compete effectively with telecommunications company competitors. . 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. IFX therefore expects these companies to present relatively little competition with respect to small and medium-sized business customers in the Company's markets. IFX believes that it 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 arise 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. 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 we offer or intend to develop or that 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 the Company. Government Regulation To date, government regulations have not materially restricted the Company's ability to offer our Internet products and services in our core target countries. However, the legal and regulatory environment that pertains to the Internet is uncertain and may change, especially in Latin America. New laws and regulations may be adopted. 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 in use of the Internet generally 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 our business. The growth of the Internet, coupled with publicity regarding Internet fraud, may also lead to the enactment of more stringent consumer protection laws. These laws may impose additional burdens on IFX's business. IFX intends to support proposals designed to enhance market access and competition in the offering of both dial-up and high-speed interactive services in our target markets and believe that the adoption of these proposals would have a beneficial effect on the development of the interactive services medium. IFX is unable, at this time, to predict whether any of these proposals will be adopted. Employees As of June 30, 2000, IFX employed approximately 450 employees, most of which are based in Latin America. IFX believes that its success is dependent in part upon our ability to attract and retain qualified, experienced employees. IFX believes that its relations with its employees are good. 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, we pursue the registration of our trademarks for marks that we believe are unique and that will be used by us 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 impeding 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 we provide 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. Item 2 - Properties - -------------------------------------------------------------------------------- The Company's corporate headquarters are at 707 Skokie Boulevard, Northbrook, Illinois 60062. The Company's offices for coordinating and supporting our Latin American operations are located in approximately 12,500 square feet of office space in Miami Lakes, Florida, under a lease that expires in July 2004. This lease provides for aggregate payments totaling approximately $1.2 million over the next 4 years. 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 also leases offices in 14 Latin America countries that are used for general operations, for sales offices and for equipment collocation. In August 1999, we signed a five-year lease for office new space in Hallandale, Florida, commencing October 1, 1999. This lease provides for aggregate payments totaling approximately $0.3 million over the next 5 years. 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. On May 16, 1996, Index Futures Group, Inc. ("Index") filed suit in the Circuit Court of Cook County-Law Division against Doug Niemann, a former customer, for breach of contract, seeking to recover a debit balance of $88,200 (Index Futures Group, Inc. v. Doug Niemann, case no. 96L-5506). On January 14, 1997, Niemann filed a counterclaim for $688,236.50. The parties agreed to submit the matter to binding arbitration. A hearing was held on the merits, and on May 25, 2000 the arbitrator dismissed Niemann's claims and awarded Index the debit balance plus interest at 5%. In April 1994, 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 $2.8 million given the exchange rate as of September 20, 2000), filed a lawsuit in September 1998, in Germany, against an affiliate of MINC, which is a unit of E.D.& F. Man Group. The complaint arouse 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 December 28, 1998, John and Christina Blazina, filed an NFA arbitration against Index and others, alleging breach of fiduciary duty, fraud, breach of contract and negligence in the solicitation and trading of a series of managed accounts opened at Index in 1995. Claimant seeks an award of $500,000, composed of alleged actual damages of $262,500, punitive damages of $170,000 and various other costs and fees. A hearing was held on the merits, and in November 1999 the arbitrator dismissed Blazina's claims and terminated proceeding, however, no award was granted. 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. Item 4 - Submission of Matters to a Vote of Security Holders - -------------------------------------------------------------------------------- No matters were submitted to a vote of IFX's security holders, through solicitation of proxies or otherwise, during the fourth quarter of fiscal year 2000. 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. All previously disclosed data has been restated for the one-for- five reverse split of common stock effected on January 12, 1999. On September 25, 2000, the closing price per share of common stock, as reported through NASDAQ, in the over-the-counter market was $7.375.
Fiscal Year 1998 (July 1, 1997 - June 30, 1998): High Low --------------------------- First Quarter......................................... $ 1.09 $ 0.94 Second Quarter........................................ 2.50 0.94 Third Quarter......................................... 2.63 1.41 Fourth Quarter........................................ 2.94 1.81 Fiscal Year 1999 (July 1, 1998 - June 30, 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 Fiscal Year 2000 (July 1, 1999 - June 30, 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
Approximate Number of Holders of Securities As of September 25, 2000, there were 191 holders of record of the Registrant's common stock. The Registrant believes it has a greater number of stockholders because the Registrant believes that a substantial number of shares of its common stock are held of record in street name by broker-dealers for their customers. Dividends The Registrant has never paid a cash dividend on its common stock and does not expect to pay a cash dividend in the foreseeable future, but intends to devote all funds to the operation of its business. Item 6 - Selected Financial Data - -------------------------------------------------------------------------------- The following table summarizes selected historical financial information of the Registrant and its subsidiaries for each of the last five years. All amounts presented have been restated on a continuing operations basis. Accordingly, the operating results of discontinued operations have been segregated from continuing operations and reported as a separate line item on the statement of operations. The selected financial information shown below has been derived from the Registrant's consolidated financial statements. This table should be read in conjunction with the other financial information of the Registrant, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial results included elsewhere herein.
Year Ended June 30, 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Statement Of Operations Data: - -------------------------------------------------------------------------------------------------------------------------------- Revenues from continuing operations..................... $ 9,685,900 $ 725,300 $ - $ - $ - - -------------------------------------------------------------------------------------------------------------------------------- Cost and expenses from continuing operations: Cost of revenues........................................ 8,217,200 445,500 - - - General and administrative.............................. 22,283,800 2,691,800 729,400 1,306,000 1,566,700 Sales and Marketing..................................... 9,177,400 247,600 3,700 Depreciation and amortization........................... 8,148,700 232,400 - - 62,300 Non-cash stock compensation............................. 6,359,100 39,000 - - - Contract cancellation costs............................. 6,815,700 - - - - - -------------------------------------------------------------------------------------------------------------------------------- Total operating expenses................................ 61,001,900 3,656,300 733,100 1,306,000 1,629,000 - -------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------------- Operating loss from continuing operations............... (51,316,000) (2,931,000) (733,100) (1,306,000) (1,629,000) - -------------------------------------------------------------------------------------------------------------------------------- Other income (expense): Interest income......................................... 414,800 376,100 290,100 410,600 5,028,700 Interest expense........................................ (595,300) - - - - Minority interest in subsidiary......................... 1,110,100 - - - - Loss on operations of equity investee................... (330,200) (107,700) - - - Other................................................... 101,200 136,200 126,500 247,100 - - -------------------------------------------------------------------------------------------------------------------------------- Total other income...................................... 700,600 404,600 416,600 657,700 5,028,700 - -------------------------------------------------------------------------------------------------------------------------------- (Loss) income from continuing operations before income taxes..................................... (50,615,400) (2,526,400) (316,500) (648,300) 3,399,700 Income tax benefit (provision).......................... 2,771,400 811,000 108,000 220,000 (452,800) - -------------------------------------------------------------------------------------------------------------------------------- (Loss) income from continuing operations................ (47,844,000) (1,715,400) (208,500) (428,300) 2,946,900 - -------------------------------------------------------------------------------------------------------------------------------- Discontinued operations, net of taxes................... 1,967,000 3,117,600 3,575,200 3,612,100 (4,080,000) - -------------------------------------------------------------------------------------------------------------------------------- Net (loss) income....................................... (45,877,000) 1,402,200 3,366,700 3,183,800 (1,133,100) - -------------------------------------------------------------------------------------------------------------------------------- Assumed cumulative dividend on Class A preferred stock................................. - - - (23,300) (40,000) - -------------------------------------------------------------------------------------------------------------------------------- Net (loss) income available to common stockholders..................................... $(45,877,000) $ 1,402,200 $ 3,366,700 $ 3,160,500 $(1,173,100) ================================================================================================================================== Basic And Diluted (Loss) Income Per Share: (Loss) income from continuing operations................ $ (4.71) $ (0.26) $ (0.03) $ (0.07) $ 0.44 (Loss) income from discontinued operations.............. $ 0.19 $ 0.48 $ 0.57 $ 0.55 $ (0.61) - -------------------------------------------------------------------------------------------------------------------------------- Net (loss) income....................................... $ (4.52) $ 0.22 $ 0.54 $ 0.48 $ (0.17) ================================================================================================================================== Weighted Average Common Shares Outstanding: Basic and Diluted....................................... 10,153,565 6,498,204 6,246,545 6,616,893 6,744,236 ================================================================================================================================== Balance Sheet Data: Cash and cash equivalents............................... $ 15,049,300 $ 5,482,800 $ 5,633,200 $ 2,211,100 $ - Total assets............................................ $ 62,530,900 $18,861,500 $11,543,400 $10,030,900 $ 6,331,000 Capital lease obligations............................... $ 10,967,800 $ - $ - $ - $ - Total debt.............................................. $ 374,700 $ 316,900 $ - $ 1,586,600 $ -
Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations for the Year Ended June 30, 2000 - -------------------------------------------------------------------------------- The following discussion should be read in conjunction with the Company's Consolidated Financial Statements and notes that are 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 2000, 1999 and 1998; and in the Company's Consolidated balance sheet for Fiscal Years 2000 and 1999 included elsewhere herein. IFX Corporation, a Delaware corporation (IFX Corporation and its subsidiaries are referred to herein as "IFX", "IFX Networks" or the "Company") was incorporated in 1985. IFX has created an extensive pan-regional Internet platform as a leading provider of Internet-based products and services throughout Latin America. IFX's operations are headquartered in Miami, Florida. Since November 1998, IFX has established a pan-regional Internet Protocol ("IP") network through a series of acquisitions and Company-start-up operations. The IFX network currently covers 15 countries: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, El Salvador, Honduras, Guatemala, Mexico, Nicaragua, Panama, Uruguay, Venezuela and the United States. IFX has over 450 employees in the US and Latin America and a network that covers over 58 cities in the Latin American region. 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 thorough 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. IFX 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. IFX's network infrastructure, which will be marketed under the IFX Networks brand name, provides Internet network connectivity and a broad range of value- added services to small and medium-sized businesses in Latin America. To provide the best service, IFX has built up an extensive geographic network in the region using the latest 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. During the past twelve months IFX has become a region-wide provider of Internet access and value-added IP based services focused on offering network solutions to small and 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 collocation, 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 58 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 14 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.com, Inc, a leading provider of free Internet access on a pan-regional level. Tutopia.com, which was a majority-owned subsidiary of IFX until August 31, 2000, pioneered free Internet access on a regional basis starting in January 2000 and currently operates in 10 countries - Argentina, Brazil, Chile, Colombia, El Salvador, Guatemala, Honduras, Mexico, Panama and Venezuela, with over 1,300,000 registered users in the region. IFX currently has a 47% investment stake in Tutopia. In addition, IFX has minority holdings in the following companies: . Yupi Internet, Inc. IFX holds a minority interest in this Latin American Internet portal, currently believed to be one of the largest regional Spanish-language portals in the world. . ePagos.com, Inc. IFX currently has a minority ownership stake in this Internet software development company that specializes in Internet- based merchant services for the Latin American e-commerce marketplace. Recent Developments Agreement with International Technology Investments, LC. In November 1998, IFX entered into an agreement with International Technology Investments, LC ("International Technology") with respect to the provision of Internet services and the acquisition of existing Internet service providers (ISPs) and related businesses, primarily in Latin America and other international markets. IFX pursued this agreement because it believed that International Technology had extensive experience and existing business relationships with participants in the computer distribution industry in Latin America, which relationships would be useful in developing IFX's Internet access and related services business in these markets. As part of the agreement, International Technology contributed an initial $1 million to IFX in exchange for 500,000 shares of common stock and options to purchase an additional 5,500,000 shares of IFX common stock, at a price of $2.00 per share. During fiscal year 2000, International Technology exercised the 5,500,000 options at $2.00 per share, which resulted in proceeds to IFX of $11 million. In total, International Technology has received 6,000,000 shares of Common Stock from IFX, at a purchase price of $2.00 per share. Michael Shalom, the Company's Chief Executive Officer and a director of the Company, is an affiliate of International Technology. Credit line with Lucent Technologies. In August 1999 the Company entered into a conditional sale agreement with Lucent Technologies, Inc., providing the Company with the option to purchase up to $10 million of Lucent networking equipment. The equipment will be used to expand and to upgrade our Internet operations. Through June 30, 2000, IFX has purchased approximately $7.3 million of equipment under the agreement. In April 2000, IFX received $2.7 million from Lucent Technologies to finance Lucent equipment that IFX had acquired in Brazil. The amounts will go under the existing $10 million credit line that IFX has established with Lucent and will be repaid in 30 equal monthly installments of principal and interest beginning on the first day of the month which is six months following the date of the first scheduled interest payment. Credit agreement with Softech Financial. During July 1999, the Company entered into an $0.5 million lease agreement with Softech Financial (the "Softech Lease"), a division of EAB Leasing Corporation, to provide the financing for the cost of the Company's implementation of Portal Software. Graham Group. In January 2000, the Company signed a four-year lease agreement with the Graham Group for 12,500 square feet of office space in Miami Lakes, Florida. This lease commenced in January 2000 and it provides for aggregate payments totaling approximately $1.2 million over the next 4 years. Sale of a portion of the Yupi Shares. On February 24, 2000, IFX Online, a wholly-owned subsidiary of IFX, entered into a Stock Purchase Agreement ("agreement") with Lee Casty, a significant shareholder of IFX. The agreement is for the sale to Mr. Casty of a certain number shares of Yupi Internet, Inc. ("Yupi") Preferred Stock owned by IFX. The sale proceeds of $5,000,000 were used for the Company's working capital. On June 12, 2000, we amended the Yupi Stock Purchase Agreement dated February 24, 2000 with Lee Casty, to reflect certain provisions that were not originally contained in that agreement nor contemplated by the parties at the time of the original agreement. The exact number of Yupi preferred shares to be transferred by IFX to Mr. Casty will be fixed upon the initial public offering of Yupi shares, or, in the absence of a Yupi public offering, then upon the occurrence of certain other valuation events, but in no event will the number of shares be fixed later than February 24, 2001. IBM Global Financing. In March 2000, IFX entered into a leasing agreement with IBM Credit Corporation. The agreement provided IFX with the financing to purchase approximately $0.4 million of IBM equipment. During August 2000, IBM increased the amount of financing available under this agreement by $2.2 million subject to certain conditions. UBS Capital Americas III, L.P., $25 million investment in IFX. On June 16, 2000, IFX announced that it had secured a $25 million round of private equity financing lead by UBS Capital Americas III, L.P. ("UBS Capital Americas"). On that date, the Company received $14.9 million and the remaining $10.1 was received on July 17, 2000. In exchange, IFX issued a total of 2,030,869 Preferred Shares. Each Series A Preferred Share is currently exchangeable for 1 share of IFX common stock. The proceeds will be used in part to further the integration of IFX's information systems infrastructure, to increase marketing activities and to expand the Company's direct sales force to service the small and medium enterprise market in Latin America. In addition, IFX plans to use the proceeds to further increase the number of company-owned POPs in Latin America as well as broaden its value-added service offerings to its growing corporate customers. UBS Capital Americas III, L.P. led $20 million investment in Tutopia.com. On August 31, 2000, Tutopia.com, Inc., received $20 million of private equity financing from a group led by UBS Capital Americas III, L.P. ("UBS Capital Americas"). An entity controlled by Mr. Lee Casty participated in this group, and accounted for approximately $4.9 million of the group's investment. Following this financing, assuming the exchange of the Tutopia Series A Preferred Stock received by the group for Tutopia Common Stock, IFX will own approximately 47% of the outstanding stock of Tutopia. UBS Capital Americas and its affiliates which purchased Tutopia Series A Preferred Stock have the right to appoint a majority of Tutopia's directors, the entity controlled by Mr. Casty has the right to appoint one director of Tutopia, and IFX has the right to appoint one director of Tutopia. Prior to the UBS-led investment, Tutopia represented one of our two major business lines. Following the UBS-led investment, we expect that Tutopia will be our largest single customer, accounting for approximately 50% of our revenues. IFX has entered into an agreement with Tutopia to provide Internet connectivity services to Tutopia for a period of three years. Either IFX or Tutopia can renew the interconnectivity agreement for a fourth year. After that agreement terminates, there can be no assurances that we will be the sole supplier of Internet connectivity services to Tutopia. Speedcom Wireless International Corporation. During July 2000, the Company entered into an $1.2 million lease agreement with Speedcom, a wireless equipment provider. Under the terms of the agreement, IFX will lease up to $1.2 million of wireless equipment from Speedcom to help develop the Company's network across all Latin America. As of August 31, 2000, IFX has leased approximately $0.6 million under this agreement. Network Appliance. During September 2000, IFX entered into a $1.4 million lease agreement with Network Appliance, a storage and caching provider. Under the terms of the agreement, IFX has the option to lease up to $1.4 million of storage and caching equipment from Network Appliance. As of September 15, 2000, IFX had utilized approximately $0.4 million under this lease agreement. RESULTS OF OPERATIONS - FISCAL YEAR 2000 COMPARED TO FISCAL YEAR 1999 AND FISCAL YEAR 1999 COMPARED TO FISCAL YEAR 1998 - -------------------------------------------------------------------------------- Revenues The companies that we have acquired generally had both business and consumer customers at the time we acquired them. We plan to grow IFX's customer base and revenues primarily by marketing Internet access and value-added services to the small and medium sized businesses in our markets. In light of our focus, we expect the number of our business customers to grow more rapidly than the number of our consumer customers. We also expect that revenue from the sale of our value-added services will increase more rapidly than revenue from the sale of Internet access services. As a result, our current customer and revenue mix is not expected to be indicative of our future customer and revenue mix. We provide Internet access service to our customers under contracts that typically range from one month for dial-up access services to one year or more for dedicated access services. Existing dial-up subscribers will continue to pay at the end of each subscription month. Following the introduction of our Portal software, all new dial-up access customers will pay their subscription fees in advance. We currently offer only a premium dial-up Internet access service for a single fee. However, we have allowed customers that were on various rate plans to continue those plans. We intend to encourage these users to migrate to our premium dial-up plan or, if they desire a more basic service, to use free access services through Tutopia. If a significant number of users migrate to free Tutopia access services, revenues from dial-up subscribers will decrease. All of our access revenues are recognized as they are earned. We also derive revenues from 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. Revenues from our wholesale Internet access services are recognized in the period in which the services are provided. Our revenues from value-added Internet services come from web hosting, domain name registration and collocation services. Services such as web hosting and collocation services are sold on a monthly subscription basis and are paid for in advance. Our domain name registration service is billed through a one- time fee. 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 we do business, depending on competition, economic and regulatory environments and other market factors. In some markets, we have reduced prices, especially for access services, as a result of competitive pressure. We expect that this pressure will continue in our 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. Revenues from continuing operations increased to $9.7 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 its user base resulting from its acquisitions in Latin America and the growth in value added services such as dedicated access.
Revenue in 2000 Revenue in 1999 % Increase ----------------------------------------------------------------------- Dial-up $7,250,600 $616,300 1,076% Dedicated line services 1,351,100 28,200 4,691% Web hosting and design services 379,000 80,800 369% Other 705,200 - - - --------------------------------------------------------------------------------------------------------------- Total $9,685,900 $725,300 1,235%
Revenues for the year ended June 30, 1999 were $0.7 million compared to $0 for the year ended June 30, 1998. The increase in revenues was related to the Company's acquisitions of ISPs in Latin America and the discontinuance of the Company's prior business. In 1998, the Company had no Internet operations.
Revenue in 1999 Revenue in 1998 % increase ----------------------------------------------------------------------- Dial-up $616,300 $ - NA Dedicated line services 28,200 - NA Web hosting and design services 80,800 - NA Other - - NA - --------------------------------------------------------------------------------------------------------------- Total 725,300 $ - NA
Costs of Revenues Our cost of revenues from providing Internet services are the costs we incur to carry customer traffic to and over the Internet. We lease lines that connect our POPs to our national hubs. We pay other network providers for transit, which allows us to transmit our customers' information to or from the Internet over their networks. We also have other recurring telecommunications costs, including the cost of local telephone lines our customers use to reach our POPs and access our services, and satellite bandwidth costs to connect the national hubs to the Internet backbone via our Miami facilities. We expect that our operating costs from providing Internet services will increase as we increase capacity to meet customer demand. We expect that these costs will decline as a percentage of revenue, however, as we expand our owned network facilities and as competition drives the overall price we pay for network capacity down. We also expect it to go down as wireless technology usage expands and the telecommunication markets in Latin America deregulate. Cost of revenues increased to $8.2 million for the year ended June 30, 2000 from $0.4 million for the year ended June 30, 1999. The increase was related to our network expansion in order to accommodate the growth in the user base, especially for Tutopia and for dedicated access. Cost of revenues were $0.4 million for the year ended June 30, 1999 compared to $0 for the year ended June 30, 1998. The increase was related to Internet connectivity expenses we had as we entered the ISP market. General and Administrative Expenses Our 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, insurance and professional fees. We expect that our general and administrative expenses will increase to support our growth. General and administrative expenses increased to $22.3 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 the legal, the accounting and the consulting fees related to the Company's continued expansion in Latin America. General and administrative expenses increased to $2.7 million for the year ended June 30, 1999 from $0.7 million for the year ended June 30, 1998. General and administrative expenses increased primarily because of the increase in payroll, for the legal, accounting and consulting fees related to the Company's expansion in Latin America. Sales and Marketing Sales and marketing expenses consist primarily of advertising costs, distribution costs and related production costs. The amount increased between years due primarily to costs associated with our growth in advertising designed to increase awareness of the Tutopia brand, including costs associated with our launch of a television, radio and newspaper advertising campaign. Sales and marketing expenses increased to $9.2 million for the year ended June 30, 2000 from $0.2 million for the year ended June 30, 1999 and from $0 for the year ended June 30, 1998. Depreciation and amortization A large component of our depreciation and amortization expense is the amortization of our acquired customer base. The value of our acquired customer bases, which we amortize over three years using the straight-line method, was created as a result of the allocation of the price we paid to acquire a company which was in excess of the value of its tangible assets. We also recognize depreciation expense primarily related to telecommunications equipment, computers and network infrastructure. We depreciate these assets over their useful lives, generally ranging from three to five years. We expect that our depreciation expense will increase as we expand our network infrastructure. 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 is attributable to the increase in fixed assets, capitalized software and capital leases of approximately $16.6 million. Amortization expenses are related to approximately $26.7 million in acquired customer base due to acquisitions the Company completed in Latin America. Depreciation and amortization expenses increased to $0.2 million for the year ended June 30, 1999 from $0, for the year ended June 30, 1998. The dollar increase in depreciation is attributable to the increase in fixed assets and capital leases of approximately $2.3 million. Amortization expenses are related to approximately $3.0 million in acquired customer base due to acquisitions the Company completed in Latin America. Non-Cash Stock-Based Compensation Expense For the fiscal year ended June 30, 2000, we recorded non-cash stock compensation expense of approximately $6.4 million, of which approximately $1.1 million was related to variable option grants. For the fiscal year ended June 30, 1999, our non-cash stock compensation expense was approximately $39,000. The increase is attributable predominantly to the current-year amortization related to the issuance of additional employee option grants during the year. Also, as of June 30, 2000, we reflected as a reduction of Stockholders Equity approximately $12.1 million of deferred compensation, which will be amortized in future years over the vesting period of the individual options (generally 3 years). Contract cancellation costs During fiscal 2000, we recorded $6.8 million relating to the cancellation of certain contracts, which represented one-time charges of a non-recurring nature for certain items including: . the acceleration and settlement of certain consulting agreements. The amounts were paid in shares of IFX common stock with an approximated value of $4.1 million at the time of the issuance. . the termination of the agreement between Tutopia and Spinway related to the use of the Spinway's technology with Tutopia's users. The expense was for $250,000 paid in cash and the non-cash expense for the fair value of the 210,000 warrants issued to settle the agreement was calculated using the Black-Scholes model for approximately $1.7 million Interest Income We earn interest income primarily by investing available cash in short term securities. We expect to incur interest expense in the future from purchase and lease financing. Interest income increased slightly to $0.41 million for the year ended June 30, 2000 from $0.38 million for the year ended June 30, 1999. Interest income increased as a result of the in increase in interest earning cash equivalents. Interest income increased to $0.38 million for the year ended June 30, 1999, compared to $0.29 million for the year ended June 30, 1998. Interest income increased as a result of the in increase in interest earning cash equivalents. Income from discontinued operations, net For the year ended June 30, 2000, the Company earned net of taxes approximately $2 million from its discontinued operations. That compares to $3.1 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. For the year ended June 30, 1999, the Company earned net of taxes approximately $3.1 million from its discontinued operations. That compares to $3.6 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. Income tax provision 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 benefit consists of 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 which could not be utilized to recover prior year tax liabilities have been fully reserved with a valuation allowance at June 30, 2000 and 1999. For the year ended June 30, 1999, the Company recorded a tax benefit of approximately $0.8 million from its continuing operations compared to a benefit of $0.1 million for the year ended June 30, 1998. The effective tax rate for 1999 and 1998 was 32% and 34%, respectively. Net income (loss) and income (loss) per share As a result of the factors discussed above, IFX's loss from continuing operations for the year ended June 30, 2000 was approximately $47.8 million, or $(4.71) per share, compared to a net loss of $1.7 million, or $(0.26) per share, for the year ended June 30, 1999. The loss of $47.8 million includes non-cash charges of $20.3 million related to depreciation, amortization, stock compensation, and certain contract cancellation costs. Including discontinued operations, the Company lost $45.9 million, or $(4.52) per share, compared to a net income of $1.4 million, or $0.22 per share, for the year ended June 30, 1999. IFX's loss from continuing operations for the year ended June 30, 1999 was approximately $1.7 million, or $(0.26) per share, compared to a net loss of $0.2 million, or $(0.03) per share, for the year ended June 30, 1998. Including discontinued operations, the Company earned $1.4 million, or $0.22 per share for the year ended June 30, 1999, compared to a net income of $3.4 million, or $0.54 per share, for the year ended June 30, 1998. FINANCIAL CONDITION Liquidity and Capital Resources For the year ended June 30, 2000, cash used by ongoing and discontinued operations was approximately $19.7 million compared to cash provided by ongoing and discontinued operations of $3.6 million for fiscal 1999. The majority of cash in fiscal 2000 was provided by the revenues from the Internet operations and the earn-out payments related to discontinued operations. The cash used in operations is mainly related to the connectivity expenses of our network, operating leases, payroll and advertising. In addition, the Company 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, 2000, the Company held approximately $15.0 million in cash and equivalents. For the year ended June 30, 2000, cash used in investing activities was approximately $2.9 million compared to cash used in investing activities of $4.8 million for the same period in fiscal 1999. Cash used in investing activities was related to the $5 million in proceeds from the sale of some Yupi Internet, Inc. shares, of which $4.5 was recorded as a deferred gain, to the purchase of property and equipment of approximately $4.6 million, and to the $2.4 million paid in cash for the Company's acquisitions. For the year ended June 30, 2000, cash provided by financing activities was approximately $32.5 million compared to cash provided by financing activities of $1.0 million for fiscal 1999. The increase is primarily related to the $14.9 million investment by UBS Capital Americas, the $11 million investment received from International Technology Investments in exchange for 5,500,000 shares, and the $5.5 million received for the Tutopia private placement held in April, 2000. The Company entered into capital leases of approximately $11 million. Management believes existing cash and cash-equivalents together with operating cash flows from the earn-out payments from the sale of assets and amounts to be paid by Tutopia should provide adequate resources to fund ongoing operating requirements and future capital expenditures related to the expansion of existing businesses and development of new projects through June 30, 2001. Forward-Looking Statements The statements contained herein that are not historical facts are "forward- looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995). The safe harbor provisions provided in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), apply to forward-looking statements the Company makes. These statements can be identified by the use of forward-looking terminology such as "believes," "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 ISPs, the revenue and profitability levels of the ISPs in which the Company invests, the anticipated reduction in operating costs resulting from the integration and optimization of those ISPs, 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 considered 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. 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 the Company 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 US Dollars. Interest Rate Risk The Company's short-term investments are classified as cash and cash equivalents with original maturities of three month or less. Therefore, changes in the market's interest rates do not affect the value of the investments as recorded by IFX. Item 8 - Financial Statements and Supplementary Data - -------------------------------------------------------------------------------- For financial information, see the financial statements and notes thereto set forth at Item 14 hereof. Item 9 - Changes In and Disagreements With Accountants On Accounting and Financial Disclosures - -------------------------------------------------------------------------------- On July 1, 1999, IFX filed a Current Report on Form 8-K with the Securities and Exchange Commission to disclose that on June 28, 1999 it had dismissed Arthur Andersen LLP and appointed Ernst & Young LLP as its independent auditors for the fiscal year ending June 30, 1999. The decision to dismiss Arthur Andersen LLP was not based upon any disagreement between IFX and Arthur Andersen LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. The reports of Arthur Andersen LLP as of and for the fiscal years ended June 30, 1998 and 1997 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or application of accounting principles. During the registrant's fiscal years ended June 30, 1998 and 1997, and during the subsequent interim periods prior to June 28, 1999, there were no (i) disagreements between the registrant and Arthur Andersen LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which disagreements, if not resolved to the satisfaction of Arthur Andersen LLP, would have caused it to make reference to the subject matter of the disagreement in connection with its reports on the registrant's financial statements, or (ii) "reportable events" within the meaning of Item 304(a)(1)(v) of Regulation S-K promulgated under the Securities Act of 1933, as amended. PART III - ------------------------------------------------------------------------------- Item 10 - Directors and Executive Officers The Directors and Executive Officers of IFX as of September 15, 2000 are as follows:
Name Age Office - ------------------------------------------------------------------------------------------------------------ Joel M. Eidelstein 33 Chairman of the Board, President and Director Michael Shalom 29 Chief Executive Officer and Director Jose Leiman 40 Chief Financial Officer Zalman Lekach 33 Chief Operating Officer, Vice President of Mergers and Acquisitions, and Director George A. Myers 50 Director Burton J. Meyer 53 Director Mark O. Lama 38 Director Charles Moore 35 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. From June 1988 until June 1996, he was an independent commodity futures trader and a floor manager with Index Futures Group, Inc. 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 Emerging Networks, Inc., 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 group 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 at 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. Zalman Lekach has served as a director of the Company since February 1997. Mr. Lekach has served as the Company's Vice President of Mergers and Acquisitions since May 24, 1999 and, since February 2000, as the Company's Chief Operating Officer. Prior to joining IFX, Mr. Lekach served as President and Chief Operating Officer of Parlux Fragrances, Inc., an international designer, manufacturer and marketer of fragrances ("Parlux") from 1995 until December 1998. He became a director and an executive officer of Parlux, S.A., Parlux's French subsidiary, in May 1990. Mr. Lekach received a B.A. from Cornell University. 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. 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, an international futures and conglomerate brokerage, from July 1996 to June 30, 2000. Mark O. Lama was elected to the board of directors IFX in June 2000 and Tutopia in August 2000. Mr. Lama is a principal 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. 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. 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 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 this role, Mr. Moore has senior responsibility for all telecommunications-related investments of UBS Capital Americas. Prior to joining UBS Capital Americas, 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 Pan-Latin ISP), 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. 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. Pursuant to a Stockholders' Agreement dated as of June 16, 2000, as amended as of July 28, 2000, among IFX, UBS Capital Americas III, L.P. ("UBS Capital Americas III"), UBS Capital LLC ("UBS LLC," and, together with UBS Capital Americas IV, "UBS Capital Americas"), the Casty Grantor Subtrust, Joel M. Eidelstein and Lee S. Casty, UBS Capital Americas, ITI and the Casty Grantor Subtrust agree to use their reasonable best efforts to vote their IFX shares to elect to our Board of Directors two individuals nominated by UBS Capital Americas (currently, Mark O. Lama and Charles W. Moore), one individual nominated by ITI (currently, Michael Shalom), one individual nominated by Joel M. Eidelstein (currently, Joel M. Eidelstein), and one individual nominated jointly by Mr. Eidelstein and ITI (currently, Zalman Lekach). SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company's officers and directors, and persons who own more than 10% of the Company's Common Stock, to file with the Securities and Exchange Commission reports of ownership and changes in ownership and to provide copies of such reports to the Company and to the Nasdaq Stock Market. Based solely on a review of the copies of such reports furnished to the Company, or written representations that no reports on Form 5 were required, the Company believes that all officers, directors and 10% beneficial owners complied with all Section 16(a) filing requirements during fiscal year 2000, except for Burton G. Meyer, George A. Meyers, Joel M. Eidelstein, Mike Shalom and Jose Leiman, each of whom filed one late report required to be filed on Form 5, and Zalman Lekach, who has filed one late report required to be filed on Form 5 and one late report required to be filed on Form 4. Item 11 - Executive Compensation - -------------------------------------------------------------------------------- Compensation Committee Interlocks and Insider Participation The Company's board of directors has established a standing compensation committee. The current members of the compensation committee are George A. Myers, Burton J. Meyer, Charles W. Moore and Mark O. Lama. Mr. Meyer previously served as an officer of IFX from 1987 to June 1996. On July 1, 1996, IFX sold assets to E.D.& F. Man International, Inc. Burton J. Meyer, a director of IFX and a member of IFX's Compensation Committee, served as Executive Vice President of E.D.& F. Man International, Inc. from July 1996 to June 30, 2000. Mr. Moore is a partner and Mr. Lama a principal of UBS Capital Americas, LLC, an affiliate of UBS Capital Americas III, L.P. and UBS Capital LLC, which together purchased $25 million of IFX Preferred Stock in June and July 2000 and $20 million of preferred stock in Tutopia.com, Inc. in August 2000. Mr. Moore and Mr. Lama have an investment interest in UBS and thus may benefit from both sides of transactions involving UBS and IFX-related entities. Director Compensation The Company grants stock options under our Directors Stock Option Plan to each director who is not an IFX employee. Under this plan, we grant each non- employee director an option to buy 450 shares of our common stock when the director is first elected and an option to buy an additional 450 shares of common stock at each annual meeting until he or she is no longer a director. If a director serves on a committee of the board, he or she is granted an additional option to buy 75 shares for each year of service. The exercise price for the options is equal to 100% of the fair market value of our common stock on the date of grant. The options cannot be exercised until six months after the date of grant. Each option terminates on the earlier of a director's termination for cause, one year after a director's death, or ten years from the date of grant. Each of Burton J. Meyer and George A. Myers were granted an option to buy 600 shares of common stock, as of November 9, 1999. Mr. Eidelstein, Mr. Lekach and Mr. Shalom, as employees, did not receive any options under the plan. Executive Compensation The following table presents the total compensation paid or accrued during fiscal years 2000, 1999 and 1998 to each of our executive officers. Summary Compensation Table
Annual Long Term All other Compensation Compensation Compensation ----------------------- ------------------ ------------- Securities Name and Principal Year Ended Salary Bonus Underlying Options Position June 30 ($) ($) (#) - ---------------------- ---------- ----------- ---------- ------------------ Michael F. Shalom, CEO 2000 $162,500 $ 50,000 30,000 -- 1999 -- -- -- -- 1998 -- -- -- -- Joel M. Eidelstein, 2000 $150,000 $ 50,000 300,000 -- President 1999 $ 50,000 -- 300,000 -- 1998 $ 24,000 -- -- -- Jose Leiman, CFO 2000 $225,000 $ 25,000 227,500 -- 1999 -- -- -- -- 1998 -- -- -- -- Zalman Lekach, COO 2000 $151,200 $225,000 374,167 -- 1999 $ 24,600 -- -- -- 1998 -- -- --
Option Grants and Exercises in Fiscal Year 2000- The following table sets forth information with respect to options that were granted in fiscal year 2000 to our executive officers. Option Grants Table
Option Grants in Fiscal Year 2000 - ------------------------------------------------------------------------------------------------------------------ Number of Percent of Total Potential Realizable Value at Securities Options Granted Exercise Assumed Annual Rates of Underlying To Employees Price Stock Options in Expiration Price Appreciation for Option Name Granted Fiscal Year ($/Share) Date (1) Term (2) - -------------- ----------- -------------- --------- ----------- ------------------------------------ 0% 5% 10% -- -- --- Michael F. Shalom 12,892 1% 8.75 01/01/2010 298,128 556,559 953,047 17,108 1% 8.75 06/12/2010 46,512 169,905 359,216 Joel M. Eidelstein 128,924 7% 8.75 01/01/2010 2,981,368 5,565,761 9,530,766 171,076 9% 8.75 06/12/2010 465,113 1,699,013 3,592,075 Jose Leiman 33,333 2% 12.00 07/01/2009 210,415 594,296 1,183,250 15,000 1% 15.00 07/01/2009 49,688 222,436 487,468 33,333 2% 15.00 07/01/2009 110,416 494,297 1,083,252 33,334 2% 18.00 07/01/2009 10,417 394,309 983,282 12,500 1% 20.00 12/01/2009 -- 141,952 374,119 42,975 2% 8.75 01/01/2010 116,812 1,855,268 3,176,947 57,025 3% 8.75 06/12/2010 155,037 566,334 1,197,351 Zalman Lekach 15,000 1% 15.00 05/24/2009 51,563 225,490 492,331 8,308 - 8.75 07/01/2009 79,445 175,125 321,917 19,134 1% 8.75 10/01/2009 263,093 533,839 949,221 12,500 1% 20.00 12/01/2009 -- 141,952 374,119 19,225 1% 8.75 01/01/2010 444,578 829,960 1,421,217 128,924 7% 8.75 01/01/2010 2,981,368 5,565,761 9,530,766 171,076 9% 8.75 06/12/2010 465,010 1,699,013 3,592,075
(1) Options that expire on June 12, 2010 are subject to stockholder approval of additional options under the stock option plan. (2) The amounts shown in these columns are the result of calculations at assumed annual rates required by the SEC and are not intended to forecast possible future appreciation, if any, of the price of the Company's Common Stock. The Company did not use an alternative formula for a grant date valuation, as the Company is not aware of any formula that will determine with reasonable accuracy a present value based on future unknown or volatile factors. The following table sets forth information with respect to options to purchase shares of the Company's Common Stock that were granted in fiscal year 2000 to each of the executive officers named in the Summary Compensation Table above. No stock appreciation rights ("SARs") were granted to any of the persons listed on the table below during fiscal year 2000. No stock options were exercised by any of our directors or executive officers during fiscal year 2000. Individual Grants -----------------
Number of Securities Underlying Unexercised Options/SARs at June 30, ------------------------ 2000 ---- Name Shares Acquired on Value Realized ($) - ------------------- ------------------ --------------------- Exercise Exercisable/Unexercisable -------------------- ------------------------- Michael F. Shalom 0 0 0 / 30,000 Joel M. Eidelstein 0 0 201,000 / 399,000 Jose Leiman 0 0 39,102 / 188,398 Zalman Lekach 0 0 14,546 / 359,621
Employee Stock Option Plan In February 1999, IFX adopted the Employee Stock Option and Incentive Plan and reserved 900,000 shares for issuance under the Plan. On November 9, 1999, IFX's stockholders approved an increase in the number of shares available for issuance under the Plan to 1,800,000 shares. On June 12, 2000, the Board of Directors voted to increase the number of shares available under the Plan to 2,400,000 shares, subject to stockholders' approval. We have not yet received stockholder's approval. The Plan permits option grants to be made to employees subject to stockholders' approval. Under the Plan, IFX can grant incentive stock options, nonqualified stock options, shares of phantom stock, stock appreciation rights and issue shares of restricted common stock to the Company's officers, employees, non-employee directors, independent contractors, consultants, or candidates for employment. Stock options, stock appreciation rights, and restricted shares of our common stock may be granted under the plan from time to time when hiring new personnel, as incentive compensation or to reward employees for outstanding performance. The options granted under the Plan generally vest in fixed increments over a three-year period and terminate 10 years after the date of grant The Compensation Committee of the Company's board of directors administers the Plan. Options are granted on a routine basis. Restricted shares are not granted on a routine basis. Employee compensation is predominantly cash-based. As of June 30, 2000, options to purchase approximately 2.3 million shares had been granted and 9,033 shares of our common stock had been issued under the Plan. Employment and Change of Control Agreements Mr. Eidelstein serves as the President of the Company pursuant to a three- year employment agreement which commenced on January 1, 2000. The term of the employment agreement is subject to automatic extensions unless notified otherwise by either the Company or Mr. Eidelstein. Mr. Eidelstein's base salary is $225,000 per year for the year 2000 and $250,000 per year thereafter. He is eligible to receive a $50,000 bonus per year if certain performance criteria are met. If Mr. Eidelstein is involuntarily terminated during the term of the employment agreement (except for cause) he receives a lump sum amount of accrued but unpaid salary and a pro-rata bonus. All of his options immediately vest. He also receives an amount equal to the product of the number of whole and fractional years remaining until the end of the employment agreement's term multiplied by his annualized current salary plus bonus for the prior year. If Mr. Eidelstein is terminated within two years after a "Change of Control", he receives an amount equal to the product of the number of whole and fractional years remaining until the end of the employment agreement's term multiplied by three times his annualized current salary and highest previous annual bonus. The agreement prohibits Mr. Eidelstein from disclosing confidential information regarding the Company, and during the period of his employment with the Company and for one year thereafter, being involved in any capacity with any business competitive with the Company in the United States, Latin America or in any other market in which the Company is then conducting business. Mr. Shalom serves as the Chief Executive Officer of the Company pursuant to a three-year employment agreement that which commenced on January 1, 2000. The term of the employment agreement is subject to automatic extensions unless notified otherwise by either the Company or Mr. Shalom. Mr. Shalom's base salary is $225,000 per year for the year 2000 and $250,000 per year thereafter. He is eligible to receive a $50,000 bonus per year if certain performance criteria are met. If Mr. Shalom is involuntarily terminated during the term of the employment agreement (except for cause) he receives a lump sum amount of accrued but unpaid salary and a pro-rata bonus. All of his options immediately vest. He also receives an amount equal to the product of the number of whole and fractional years remaining until the end of the employment agreement's term multiplied by his annualized current salary plus bonus for the prior year. If Mr. Shalom is terminated within two years after a "Change of Control", he receives an amount equal to the product of the number of whole and fractional years remaining until the end of the employment agreement's term multiplied by three times his annualized current salary and highest previous annual bonus. The agreement prohibits Mr. Shalom from disclosing confidential information regarding the Company, and during the period of his employment with the Company and for one year thereafter being involved in any capacity with any business competitive with the Company in the United States, Latin America or in any other market in which the Company is then conducting business. Under the agreements of Messrs. Eidelstein and Shalom, a "Change of Control" is defined as occurrence of any one of the following events: (a) any consolidation, merger or other similar transaction involving IFX, if IFX is not the continuing or surviving corporation, 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 25% or more of the outstanding shares of voting stock of IFX; provided, however, that for purposes of the foregoing, ----------------- "person" excludes Lee S. Casty, International Technology Investments, LC or any of their Affiliates, any underwriter purchasing shares of IFX with the intent of reselling them, or any sale to GEM (or its affiliates); 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. Mr. Leiman serves as the Chief Financial Officer of the Company pursuant to an employment agreement which commenced on July 1, 2000 and terminates on June 30, 2001. Mr. Leiman's base salary is $225,000 per year. He is eligible to receive a bonus based on the discretion of the Board of Directors. If Mr. Leiman is involuntarily terminated during the term of the employment agreement (except for cause) he receives a lump sum amount of all remaining base salary until the end of the term and all of his options immediately vest. In the event of a "Change of Control", he receives a lump sum amount equal to twice his annual base salary and his options become exercisable immediately prior to the date of the Change of Control. A "Change of Control" is defined as (i) the dissolution or liquidation of IFX, (ii) either A) the occurrence of a merger or consolidation, B) a transaction in which IFX becomes a subsidiary of another corporation, and in either case, in which the voting securities of IFX which are outstanding immediately prior thereto do not continue to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting securities of IFX or such surviving entity immediately after such merger or consolidation, (iii) such time that Lee S. Casty and his affiliates and ITI and its affiliates own less than one-third of the outstanding voting securities of IFX, (iv) an acquisition by a person or entity of voting securities of IFX entitling such person to the same voting power (or greater voting power) as held by Lee S. Casty and ITI combined, or (v) the sale of all or substantially all of the assets of the Employer. The agreement prohibits Mr. Leiman from disclosing confidential information regarding the Company, and during the period of his employment with the Company and for one year thereafter (unless he is involuntarily terminated without cause) being involved in any capacity with any business competitive with the Company in the United States, Latin America or in any other market in which the Company is then conducting business. Mr. Lekach serves as the Chief Operating Officer of the Company pursuant to an employment agreement dated as of May 24, 1999, as amended on April 1, 2000. The agreement terminates on May 23, 2001 but is automatically extended for a period of two years unless prior notice is given by either party. Mr. Lekach's current base salary is $185,000 per year and shall be increased to $200,000 per year on December 1, 2000. If Mr. Lekach is involuntarily terminated during the term of the employment agreement (except for cause) he receives all of his remaining base salary for the entire length of the term and all of his options immediately vest. The agreement prohibits Mr. Lekach from disclosing confidential information regarding the Company, and during the period of his employment with the Company and for one year thereafter (unless he is involuntarily terminated without cause) being involved in any capacity with any business competitive with the Company in the United States, Latin America or in any other market in which the Company is then conducting business. Item 12 - Security Ownership of Certain Beneficial Owners and Management - ------------------------------------------------------------------------------- The following table sets forth, as of September 15, 2000, certain information regarding the Common Stock beneficially owned by (i) each director of the Company, (ii) each executive officer of the Company, (iii) each person known by the Company to own more than five percent of the Common Stock of the Company, and (iv) the executive officers and directors of the Company, as a group.
Amount and Nature of Beneficial Approximate Percent of Class Name / Address (1) Ownership Michael Shalom 6,000,000 (2) 44.98 % Joel Eidelstein 225,000 (3) 1.66 % Jose Leiman 46,090 (4) * Zalman Lekach 42,774 (5) * Burton J. Meyer 365,412 (6) 2.63 % George A. Myers 1,333 (7) * Casty Grantor Sub-Trust(8) 3,060,282 (9) 22.94 % International Technology 6,000,000 44.98 % Investments(10) Mark Lama(11) 2,030,869 (12) 13.21 % Charles Moore(11) 2,030,869 (12) 13.21 % UBS Capital Americas III(11) 2,030,869 (12) 13.21 % - ---------------------------------------------------------------------------------------------- ALL OFFICERS AND DIRECTORS AS A 8,706,478 39.50 % GROUP
* Less than one percent. (1) The business address for Messrs. Eidelstein, Lekach, Shalom, Meyer, and Myers is in care of IFX, 707 Skokie Blvd., 5th Floor, Northbrook, IL 60062. (2) Includes 6,000,000 shares of Common Stock held by International Technology. Mr. Shalom may be deemed to be an affiliate of International Technology and, accordingly, Mr. Shalom may be deemed to beneficially own the shares of Common Stock held by such entity. (3) Includes 225,000 shares of Common Stock subject to an option granted to Mr. Eidelstein pursuant to the IFX 1999 Stock Option and Incentive Plan, which option currently is exercisable. (4) Consists of 46,090 shares of Common Stock that Mr. Leiman may acquire upon exercise of currently exercisable options granted to him pursuant to the IFX 1999 Stock Option Plan. (5) Includes 34,198 shares of Common Stock that Mr. Lekach may acquire upon exercise of currently exercisable options granted to him pursuant to the IFX 1999 Stock Option Plan. (6) Includes 100,000 shares of Common Stock that Mr. Meyer may acquire upon exercise of an option granted to him by Lee S. Casty, which option currently is exercisable and 600 shares of Common Stock that Mr. Meyer may acquire upon exercise of an option granted to him by the Company, which option is currently exercisable. Also includes 237,812 shares of Common Stock that Mr. Meyer owns jointly with his spouse and 27,000 shares of Common Stock owned by Mr. Myer's Individual Retirement Account. (7) Consists of 333 shares of Common Stock held by Mr. Myers' spouse as custodian for Mr. Myers' minor children, 400 shares of Common Stock held by Mr. Myers under the Uniform Gifts to Minors Act as custodian for two of his minor children, and 600 shares of Common Stock that Mr. Myers may acquire upon exercise of an option granted to by the Company, which option is currently exercisable. (8) The Casty Grantor Sub-Trust's address is 2 North LaSalle, Suite 2200, Chicago, IL 60602. (9) Includes 100,000 shares subject to an option granted to Burton J. Meyer. (10) International Technology's address is in care of Adorno & Zeder, 2801 S. Bayshore Drive, Suite 1600, Miami, Florida 33133. (11) The address of Messrs. Lama, Moore and UBS Capital Americas III is 299 Park Avenue, New York, New York 10171. (12) These shares are preferred shares which are convertible on a one-for-one basis into Common Stock. Includes 101,544 preferred shares owned by UBS Capital LLC, an affiliate of UBS Capital Americas III. Messrs. Lama and Moore as principals of an affiliate of UBS Capital Americas may be deemed to beneficially own the shares held by UBS. Messrs. Lama and Moore disclaim such ownership. Item 13 - Certain Relationships and Related Transactions - ------------------------------------------------------------------------------- C. Adams Note Receivable. Prior to fiscal year 1996, FX Chicago, Inc. made loans of $611,400 to C. Adam Ltd. (successor in interest to SRC, Inc.), an entity affiliated with Lee Casty, a then significant stockholder of IFX. The loans were evidenced by a demand note bearing interest at 8%, which rate subsequently was amended to equal the prime rate. On May 10, 2000, the amounts outstanding under the note were repaid by transferring to FX Chicago, Inc. 31,480 shares of IFX Common Stock with an aggregate fair market value equal to the amount outstanding. The fair market value of shares tendered to repay the note were valued at the average of the closing bid and ask price of Common Stock as reported by the Nasdaq SmallCap Market on each of the three trading days ending on the trading date immediately prior to the delivery of the Common Stock to FX Chicago, Inc. The Company earned interest income of $29,800, $39,400 and $52,400 on this note, on a consolidated basis, during the fiscal years ended June 30, 2000, 1999, and 1998, respectively. Loans to ePagos, Inc. During fiscal year 2000, the Company made a short- term loan to ePagos, Inc. (formerly Telcom.Net, L.P.) in the amount of $50,000 and paid expenses of approximately $65,000 on their behalf. As of June 30, 2000, all amounts owed to the Company had been collected. Joel Eidelstein, President of the Company, indirectly owns a minority interest in ePagos. IFX currently owns approximately 17% of ePagos' stock on a fully-diluted basis. International Technology Investments. Each of Joseph M. Matalon, a former director of the Company, and Michael Shalom, the Company's Chief Executive Officer, is an affiliate of International Technology Investments, LC ("International Technology" or "ITI"). In November 1998, IFX entered into an agreement with International Technology in which ITI contributed $1 million to IFX and International Technology received 500,000 shares of Common Stock from IFX, at a price of $2.00 per share, for its contribution and the option to acquire 5.5 million IFX shares. As of the date of this report, International Technology has contributed $11 million in additional capital to IFX in exchange for 5,500,000 additional shares of Common Stock from IFX, at a purchase price of $2.00 per share. In January 2000, in connection with the exercise of its options to purchase IFX shares, ITI issued a note to the Company in the principal amount of $4,950,000, with an interest rate of 7%. The note was repaid in its entirety in May 2000. Facilito.com IFX owns approximately a 49.9% interest in Facilito, a company which provides e-commerce solutions. The remaining 50.1% interest in Facilito is held by The Intcomex Group. The Intcomex Group is owned by family members of Michael Shalom, IFX's Chief Executive Officer. Facilito intends to source a significant portion of its merchandise for its e-commerce sales from Intcomex. In addition, during April 2000, IFX entered into an agreement with Facilito in which it agreed to provide Facilito with web referrals from its Tutopia customers and network services in exchange for certain fees. Yupi Shares. Pursuant to an Amended and Restated Stock Purchase Agreement, dated as of June 12, between IFX Online, a subsidiary of the Company, and Lee Casty, a then 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 $5 million. The proceeds were used for the Company's working capital. The exact number of Yupi preferred shares to be transferred by IFX to Mr. Casty will be fixed upon the initial public offering of Yupi shares, or, in the absence of a Yupi public offering, then upon the occurrence of certain other valuation events, but in no event will the number of shares be fixed later than February 24, 2001. Tutopia.com, Inc. On August 31, 2000, an entity controlled by Lee Casty purchased approximately 2,317,500 preferred shares of Tutopia.com, Inc. in exchange for $4.9 million. At the time of this transaction, IFX controlled approximately 85% of the Tutopia.com, Inc. stock. UBS Capital Americas. Mr. Moore is a director and Mr. Lama a principal of UBS Capital Americas, LLC, an affiliate of UBS Capital Americas III, L.P. and UBS Capital LLC, which together purchased $25 million of IFX Preferred Stock in June and July 2000 and $15 million of preferred stock in Tutopia.com, Inc., 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. IFX's legal counsel. Scott J. Bakal is the trustee of the Casty Grantor Subtrust, which owns 22.94% of the outstanding stock of IFX. Mr. Bakal is a partner in the law firm of Neal, Gerber & Eisenberg which provides legal services on a regular basis to IFX. Tutopia Share Purchases. During the past fiscal year, James Casty, a trust established for Scott Casty, and Nikrey Investment Group LP, a company substantially all of which is owned by Ronald Casty, purchased shares of Class B Common Stock of Tutopia at a price of $3.00 per share. James Casty, Scott Casty and Ronald Casty are brothers of Lee Casty, who was then a significant stockholder of IFX. The purchases were made pursuant to a private placement of $4,500,000 of Class B Common Stock of Tutopia. James Casty purchased 53,333 shares in the offering; the trust benefiting Scott Casty purchased 53,333 shares; and Nikrey purchased 26,667 shares. Additionally, on August 31, 2000, James Casty purchased 53,591 shares of preferred stock of Tutopia. The purchase was made pursuant to a private placement of $20,000,000 of preferred stock of Tutopia. The Company believes that all transactions disclosed above 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. 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 commencing on page 39. Page No ------- Report of Independent Certified Public Accountants............. 39 Report of Independent Certified Public Accountants............. 40 Consolidated Balance Sheets as of June 30, 2000 and 1999....... 41 Consolidated Statements of Operations for the Years ended June 30, 2000, 1999 and 1998............................ 42 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended June 30, 2000, 1999 and 1998....... 43 Consolidated Statements of Cash Flows for the Years ended June 30, 2000, 1999 and 1998........................... 44 Notes to Consolidated Financial Statements..................... 45 2. Financial Statement Schedules Schedule II - Valuation and qualifying accounts 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. 3. Exhibits The exhibits to this report are listed in the Exhibit Index included elsewhere herein. (b) Report on Form 8-K dated June 15, 2000 regarding the UBS Capital Americas preferred stock investment.
IFX Corporation Exhibit Index ----------------------------- Exhibit Number Description of Exhibit -------------- ---------------------- 3(i)/1/ Restated Certificate of Incorporation of the Registrant 3(ii)/1/ By-laws, effective June 15, 2000 4.1/1/ Certificate of Designation, Powers, Preferences and Rights of Series A Convertible Preferred Stock of the Registrant 4.2/1/ Registration Rights Agreement dated as of June 15, 2000 among the Registrant, UBS Capital Americas III, L.P., UBS Capital LLC, International Technology Investments, LC and Lee S. Casty 10.1/1/ Stockholders Agreement dated as of June 15, 2000 among Registrant, UBS Capital Americas III, L.P., UBS Capital LLC, International Technology Investments, LC, Joel Eidelstein, Michael Shalom and Lee S. Casty 10.2/1/ Stock Purchase Agreement dated as of June 15, 2000 among the Registrant, UBS Capital Americas III, L.P. and UBS Capital LLC 10.3/1/ Form of Non-Qualified Stock Option Agreement between the Registrant and employee with attached schedule describing actual option grants 10.4/1/ Employment Agreement dated as of January 1, 2000 between Joel Eidelstein and the Registrant 10.5/1/ Stock Option Agreement dated as of November 10, 1998, between Joel Eidelstein and the Registrant 10.6/1/ Employment Agreement dated as of January 1, 2000 between Michael Shalom and the Registrant 10.7/1/ Amendment to Employment Agreement dated as of April 1, 2000 between Zalman Lekach and the Registrant 10.8/1/ Stock Option Agreement dated as of January 1, 2000, between Zalman Lekach and the Registrant 10.9/1/ Employment Agreement dated as of June 26, 1999 between Jose Leiman and the Registrant 10.10/1/ Amended and Restated Stock Purchase Agreement dated as of June 12, 2000 between the Registrant and Lee S. Casty 10.11/1/ Form of Directors Stock Option Agreement with attached schedule describing actual option grants 10.12 Termination of Co-Branded Free ISP Agreement, effective as of June 1, 2000 Tutopia.com, Inc. and Spinway, Inc. 10.13 Amendment No. 1 to Stockholders Agreement among the Registrant, UBS Capital Americas III, L.P., UBS Capital LLC, International Technology Investments, LC, Joel Eidelstein, Michael Shalom and Lee S. Casty dated as of July 28, 2000 among the Registrant, UBS Capital Americas III, L.P., UBS Capital LLC, International Technology Investments, LC, Joel Eidelstein, Michael Shalom, Lee S. Casty and the Casty Grantor Subtrust 10.14 Stock Purchase Agreement dated as of August 7, 2000 among Tutopia.com, Inc., the Registrant, UBS Capital Americas, III, L.P., UBS Capital LLC, LSC, LLC, Glacier Internet Investments, Ltd. and William and Brenda Viner, Beth Ann Viner, Andy Eli Viner and Steven Shenitzer 10.15 Dial Access Agreement dated as of August 31, 2000 between Tutopia.com, Inc. and the Registrant 10.16 Revenue Sharing Agreement dated as of August 31, 2000 between Tutopia.com, Inc. and the Registrant 10.17 Inter-Company Services Agreement dated as of August 31, 2000 between Tutopia.com, Inc. and the Registrant 10.18 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 11.2/2/ Lucent Technologies Agreement 21.1 List of subsidiaries of the Company 23.1 Consent of Ernst & Young LLP 23.2 Consent of Arthur Andersen LLP 27 Financial Data Schedule
- ------------------------- /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 November 15, 1999 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, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years then ended. Our audits also included the financial statement schedule for the years ended June 30, 2000 and 1999 and listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 as of June 30, 2000 and 1999, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule for the years ended June 30, 2000 and 1999, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Miami, Florida September 22, 2000 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - -------------------------------------------------------------------------------- To the Stockholders of IFX Corporation and Subsidiaries: We have audited the accompanying consolidated statements of operations, changes in stockholders' equity and cash flows of IFX Corporation (a Delaware corporation) and subsidiaries ("the Company") for the year ended June 30, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with accounting principles 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of IFX Corporation and subsidiaries for the year ended June 30, 1998, in conformity with accounting principles generally accepted in the United States. /s/ ARTHUR ANDERSEN LLP Chicago, Illinois, September 24, 1999 IFX Corporation and Subsidiaries Consolidated Balance Sheets
June 30, 2000 June 30, 1999 -------------- -------------- ASSETS CURRENT ASSETS: Cash and cash equivalents................................................................ $ 15,049,300 $ 5,482,800 Receivables, net of allowance for doubtful accounts of $922,500 and 1,295,900 458,300 $80,100 at June 30, 2000 and 1999, respectively................................. Net assets of discontinued operations.................................................... 952,600 3,726,900 Income taxes receivable.................................................................. 1,632,600 -- - -------------------------------------------------------------------------------------------------------------------------- Total current assets............................................................. 18,930,400 9,668,000 - -------------------------------------------------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT, NET................................................................ 15,505,400 1,884,200 - -------------------------------------------------------------------------------------------------------------------------- OTHER ASSETS: Acquired customer base, net of accumulated amortization of $5,511,800 and $155,500, 21,220,500 2,686,600 respectively..................................................................... Investments, cost basis.................................................................. 2,865,500 3,113,500 Investments, equity basis................................................................ 315,100 241,500 Prepaid expenses......................................................................... 749,500 -- Notes receivable......................................................................... -- 612,500 Foreign taxes recoverable................................................................ 1,637,500 -- Other assets............................................................................. 1,307,000 655,200 - -------------------------------------------------------------------------------------------------------------------------- Total other assets............................................................... 28,095,100 7,309,300 - -------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS............................................................................... $ 62,530,900 $18,861,500 ========================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable......................................................................... $ 7,534,000 $ 1,152,100 Accrued expenses......................................................................... 4,393,800 1,295,100 Deferred revenues........................................................................ 391,100 -- Liabilities related to acquisitions...................................................... 1,568,000 -- Current portion of capital lease obligations............................................. 1,935,300 -- - -------------------------------------------------------------------------------------------------------------------------- Total current liabilities........................................................ 15,822,200 2,447,200 - -------------------------------------------------------------------------------------------------------------------------- LONG-TERM LIABILITIES: Notes payable............................................................................ 374,700 316,900 Deferred gain on sale of investment...................................................... 4,451,900 -- Capital lease obligations, less current portion.......................................... 9,032,500 -- - -------------------------------------------------------------------------------------------------------------------------- Total long-term liabilities...................................................... 13,859,100 316,900 - -------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES.......................................................................... 29,681,300 2,764,100 ========================================================================================================================== - -------------------------------------------------------------------------------------------------------------------------- Minority interest in subsidiary.......................................................... 4,394,900 -- - -------------------------------------------------------------------------------------------------------------------------- STOCKHOLDERS EQUITY: Preferred Stock, $.02 par value; 10,000,000 shares authorized, 1,210,398 issued and outstanding at June 30, 2000.......................................... 14,900,000 -- Common stock, $.02 par value; 50,000,000 shares authorized, 13,295,183 and 6,830,240 shares issued and outstanding at June 30, 2000 and 1999, respectively 265,900 136,600 Additional paid-in capital............................................................... 66,818,300 11,299,100 (Accumulated deficit) retained earnings.................................................. (41,059,800) 4,817,200 Accumulated other comprehensive loss..................................................... (337,200) (26,000) Deferred compensation.................................................................... (12,132,500) (129,500) - -------------------------------------------------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY................................................................. 28,454,700 16,097,400 ========================================================================================================================== TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................................. $ 62,530,900 $18,861,500 ==========================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. IFX Corporation and Subsidiaries Consolidated Statements Of Operations
- ------------------------------------------------------------------------------------------------------- 12 Months Ended June 30, ------------------------------------------- 2000 1999 1998 ------------------------------------------- REVENUES: Dial-up.................................................... $ 7,250,600 $ 616,300 $ - Dedicated line services.................................... 1,351,100 28,200 - Web hosting and design services............................ 379,000 80,800 - Other...................................................... 705,200 - - - ------------------------------------------------------------------------------------------------------- Total revenues........................................ 9,685,900 725,300 - - ------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES: Cost of revenues........................................... 8,217,200 445,500 - General and administrative................................. 22,283,800 2,691,800 729,400 Sales and marketing........................................ 9,177,400 247,600 3,700 Depreciation and amortization.............................. 8,148,700 232,400 - Non-cash stock compensation............................. 6,359,100 39,000 - Contract cancellation costs............................. 6,815,700 - - - ------------------------------------------------------------------------------------------------------- Total operating expenses........................... 61,001,900 3,656,300 733,100 - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- Operating loss from continuing operations.......... (51,316,000) (2,931,000) (733,100) - ------------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE): Interest income............................................ 414,800 376,100 290,100 Interest expense........................................... (595,300) - - Minority interest in subsidiary............................ 1,110,100 - - Loss from operations of equity investees................... (330,200) (107,700) - Other................................................... 101,200 136,200 126,500 - ------------------------------------------------------------------------------------------------------- Total other income, net.............................. 700,600 404,600 416,600 - ------------------------------------------------------------------------------------------------------- Loss from continuing operations before income taxes......... (50,615,400) (2,526,400) (316,500) Income tax benefit.......................................... 2,771,400 811,000 108,000 - ------------------------------------------------------------------------------------------------------- Loss from continuing operations............................. (47,844,000) (1,715,400) (208,500) - ------------------------------------------------------------------------------------------------------- Income from discontinued operations, net of taxes........... 1,967,000 3,117,600 3,575,200 - ------------------------------------------------------------------------------------------------------- Net (loss) income.................................... $(45,877,000) $ 1,402,200 $3,366,700 - ------------------------------------------------------------------------------------------------------- BASIC AND DILUTED (LOSS) INCOME PER SHARE: Continuing operations...................................... $(4.71) $(0.26) $ (0.03) Discontinued operations.................................... $0.19 $0.48 $ 0.57 - ------------------------------------------------------------------------------------------------------- Net (loss) income.................................... $(4.52) $0.22 $ 0.54 ======================================================================================================= WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic and diluted.......................................... 10,153,565 6,498,204 6,246,545 =======================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. IFX Corporation and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity For the Years Ended June 30, 2000, 1999 and 1998
Common Stock ------------------------ Accumulated Retained Other Preferred Paid-in Deferred Earnings Comprehensive Stock Shares Amount Capital Compensation (Deficit) Income (loss) Total ------------------------------------------------------------------------------------------------------------------ Balance June 30, 1997............. 6,279,130 $125,600 $ 8,075,500 $ - $ 48,300 $(45,700) $ 8,203,700 Repurchase of fractional shares pursuant to one-for five reverse split.... - (10) - - - - - Repurchase of common stock and odd lots......... - (123,580) (2,500) (232,800) - - (235,300) Net and comprehensive income........... - - - - 3,366,700 - 3,366,700 ------------------------------------------------------------------------------------------------------------------ Balance 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 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 warrants for contract termination...... - - - 1,659,000 - - - 1,659,000 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) Net loss......... - - - - - (45,877,000) - (45,877,000) Foreign currency translation... - - - - - - (311,200) (311,200) --------------- Comprehensive loss............. - - - - - - - (46,188,200) ------------------------------------------------------------------------------------------------------------------ Balance June 30, 2000............. $14,900,000 13,295,183 $265,900 $66,818,300 $(12,132,500) $(41,059,800) $(337,200) $ 28,454,700 ==================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. IFX Corporation and Subsidiaries Consolidated Statements Of Cash Flows
For the Year Ended June 30, 2000 1999 1998 ------------ ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income.............................. $(45,877,000) $ 1,402,200 $ 3,366,700 Adjustments to reconcile net (loss) income to - net cash (used in) provided by operating activities: Depreciation.............................. 2,792,400 76,900 1,700 Amortization.............................. 5,356,300 155,500 - Bad debt expense.......................... 842,400 80,100 - Compensation associated with stock options 6,359,100 39,000 - Compensation associated with consulting agreements............................... 4,156,700 - - Expense associated with stock warrants.... 1,659,000 - - Equity in net (income) loss of equity investees................................ 330,200 107,700 (70,200) Minority interest in subsidiary........... (1,110,100) - - Change in net assets of discontinued operations..................................... 2,774,300 1,307,600 1,853,500 Changes in operating asset and liabilities: Foreign taxes recoverable................. (1,637,500) - - Receivables............................... (1,188,900) (218,700) (89,500) Income taxes receivable................... (1,632,600) - - Other assets.............................. (1,237,600) (129,500) 1,900 Due from affiliates....................... 114,100 - - Deferred revenues......................... 391,100 - - Accrued expenses.......................... 3,098,700 - - Accounts payable.......................... 5,139,100 800,700 (32,400) - ------------------------------------------------------------------------------------------------- Cash (used) provided by operating activities... (19,670,300) 3,621,500 5,031,700 - ------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale Yupi Internet, Inc. shares.. 5,000,000 (3,113,500) - Investment, cost basis......................... (300,000) - - Acquisitions, primarily customer base.......... (2,443,900) (443,800) - (Increase) decrease in investments, equity (528,500) (229,000) 219,200 basis......................................... Increase (decrease) in notes receivable........ (2,700) (1,100) 7,500 Purchases of property and equipment............ (4,646,900) (991,200) (14,400) - ------------------------------------------------------------------------------------------------- Cash (used) provided by investing activities... (2,922,000) (4,778,600) 212,300 - ------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds (payments) of notes payable........... 34,900 (13,000) (1,586,600) Proceeds from short-term vendor financing...... 898,500 - - Issuance (repurchase) of common stock.......... 11,131,600 1,000,000 (235,300) Issuance of preferred stock.................... 14,900,000 - - Minority interest.............................. 5,505,000 - - - ------------------------------------------------------------------------------------------------- Cash provided (used) by financing activities... 32,470,000 987,000 (1,821,900) - ------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents.............................. (311,200) (19,700) - - ------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents................................... 9,566,500 (150,400) 3,422,100 Cash and cash equivalents, beginning of period. 5,482,800 5,633,200 2,211,100 - ------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period....... $ 15,049,300 $ 5,482,800 $ 5,633,200 =================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended June 30, 2000, 1999 and 1998 Supplemental Information of Non-Cash Investing and Financing Activities and Other Cash Flow Data 2000 During the year ended June 30, 2000, the Company acquired several entities (see note 3). In connection with those acquisitions, the Company assumed liabilities in the amount of $0.7 million and issued stock valued at approximately $20.9 million. The non-cash effects of the acquisitions is excluded from the accompanying consolidated statement of cash flows. Interest paid during the year ended June 30, 2000 was approximately $0.6 million, which was mostly related to capital leases. Income tax refund received during the year ended June 30, 2000 was approximately $0.5 million. The Company acquired equipment of approximately $11 million under capital leases. The majority of the capital leases is related to Lucent Technologies. Prior to fiscal year 1996, FX Chicago, Inc. made loans of approximately $0.6 million to C. Adam Ltd. an entity affiliated with Lee Casty, a then significant stockholder of IFX. The loans were evidenced by a demand note bearing interest at 8%, which rate subsequently was amended to equal the prime rate. On May 10, 2000, the amounts outstanding under the note were repaid by transferring to FX Chicago, Inc. 31,480 shares of IFX Common Stock with an aggregate fair market value equal to the amount outstanding. The fair market value of shares tendered to repay the note were valued at the average of the closing bid and ask price of Common Stock as reported by the Nasdaq SmallCap Market on each of the three trading days ending on the trading date immediately prior to the delivery of the Common Stock to FX Chicago, Inc. 1999 During the year ended June 30, 1999, the Company acquired several entities. In connection with those acquisitions, the Company assumed liabilities in the amount of $1.8 million and issued stock valued at approximately $2.3 million. The non-cash effects of the acquisitions is excluded from the accompanying consolidated statements of cash flows. Interest paid during the year ended June 30, 1999, was $1,000, substantially all of which was paid to related parties. Income taxes paid during the year ended June 30, 1999, was approximately $1 million. Interest payments to customers related to discontinued operations during the years ended June 30, 2000, was approximately $0.8 million. 1998 Interest paid during the year ended June 30, 1998 was $53,900, substantially all of which was paid to related parties. Income taxes paid during the year ended June 30, 1998 was $0.8 million. Interest payments to customers related to discontinued operations during the year ended June 30, 1998 was approximately $1.9 million. IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Description of Business The consolidated financial statements include the accounts of IFX Corporation and its wholly-owned subsidiaries and majority-owned subsidiary, Tutopia.com, in which the Company had an 85% interest at June 30, 2000. (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. IFX was incorporated under Illinois law in 1985 and changed its state of incorporation to Delaware in 1995. The Company's fiscal year end is June 30. References herein to fiscal 2000, 1999 and 1998 refer to the twelve-month periods ended June 30, 2000, 1999 and 1998, respectively. IFX has created an extensive pan-regional Internet platform as a leading provider of Internet-based network products and services throughout Latin America. IFX's Internet operations are based in Miami, Florida. Since November 1998, IFX has acquired 24 ISPs and Internet businesses and has commenced four ISP operations. The IFX network currently covers 15 countries: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, El Salvador, Honduras, Guatemala, Mexico, Nicaragua, Panama, Uruguay, Venezuela and the United States. IFX has over 450 employees, and has offices and a network that covers over 58 cities in the Latin American region. 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 is 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 is recognized as earned. Revenues from the earn-out payments related to the discontinued operations are recorded as they are earned. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements". SAB 101 explains how the SEC staff applies by analogy the existing rules on revenue recognition to other transactions not covered by such rules. The four criteria that must be met to recognise revenue are: (a) persuasive evidence of an arrangement exists, (b) delivery has occurred or services have been rendered, (c) the price is fixed or determinable, and (d) collectibility is reasonably assured. In June 2000, the SEC issued SAB 101B delays the effective date of SAB 101 until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999 (fourth quarter of 2000 for calendar year companies). The Company does not believe the adoption of SAB 101 will have a material impact on the Company's results of operations. However, the Company understands the SEC staff will issue additional guidance in the form of a Frequently Asked Questions (FAQ) document in the third quarter of 2000, at which time the Company will reevaluate the impact of SAB 101. 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 maintains cash and cash equivalents with various financial institutions. These financial institutions are located throughout the country and the Company's policy is designed to limit exposure to any one institution. 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, limits the risks of these losses. In addition, the concentration of credit risk is mitigated by the large number of customers comprising the Company's customer base. 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 all financial instruments with a maturity of three months or less when purchased to be cash equivalents. Fair Value of Financial Instruments IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The carrying amounts of the Company's cash and cash equivalents, receivables, accounts payable and notes payable approximate fair value. Long-Lived Assets In the event that facts and circumstances indicate that the costs of assets may be impaired, an evaluation of the 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 to market value is required. The Company evaluates the possible impairment of long-lived assets by reviewing cash flows generated on a country- by-country basis, which is consistent with the way the Company's segments are reported. In addition, during fiscal 2000, the Company's Tutopia subsidiary began offering free Internet access to subscribers. The Company included in its analysis of recoverability the Company's proportionate share of the fair value or future cash flows to be derived from the free users of Tutopia. The Company does not believe that any impairment has occurred at June 30, 2000. Investments The Company has investments in ePagos.com, Inc., Yupi Internet, Inc and Centronet.com, Inc., in which the Company does not have the ability to exercise significant influence over either investee. Accordingly, the Company accounts for these investments under the cost method. The Company has a 49.9% investment in Facilito.com, Inc. Accordingly, the Company accounts for this investment under the equity method. 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. Leasehold improvements are amortized using the straight-line method over the lesser of their useful lives or the remaining terms of the leases. 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 ("ISPs"). Subscriber acquisition costs capitalized at June 30, 2000 were approximately $26.7 million. Amortization is provided using the straight-line method over three years commencing when the customer base is acquired. Amortization expense for the year ended June 30, 2000, was approximately $5.5 million and for the year ended June 30, 1999 was $0.2 million. Advertising and Marketing Expenses The Company expenses all advertising and marketing costs as they are incurred. Advertising expense was $9.2 million, $0.2 million and $0 during fiscal 2000, 1999 and 1998, respectively. Income Taxes The Company uses the liability method of accounting for income taxes, whereby deferred income taxes are provided on items recognized for the differences in the basis of assets and liabilities for financial reporting and income tax purposes. 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; loss from continuing operations; negative cash flow and fluctuations in operating results; funding expansion and acquisitions; international operations; dependence on key personnel; dependence on suppliers; 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 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 on the date of the grant is above the exercise prize of the options. Computation of Earnings or Loss per Common Share Basic earnings per share is 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 consist 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 from continued operations since their effect would have been anti-dilutive. Approximately 2.3 million such potentially dilutive securities were excluded from the June 30, 2000, earnings per share calculation. New Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". In June 1999, the FASB issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" which amended SFAS No. 133 to delay the effective date to fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company plans to adopt SFAS No. 133, as amended, in fiscal 2001 and is currently assessing the impact this statement will have on its consolidated financial statements. 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, 2000, the Company capitalized $2.5 million of software that was developed for internal use. 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. The financial statements of subsidiaries located in countries with highly inflationary economies are re-measured as if the functional currency were the U.S. Dollar. The re-measurement creates translation adjustments that are reflected in net income. IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Comprehensive Income As of July 1, 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive Income". The adoption of SFAS No. 130 had no impact on the Company's net (loss) income or stockholders' equity. SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components. SFAS No. 130 requires foreign currency translation adjustments to be included in other comprehensive income. 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 earn-out payments from IFX Ltd. On May 31, 1996, the Company sold substantially all of its brokerage accounts and related assets maintained by Index, one of its subsidiaries. The purchase price is payable by the buyer based on a percentage of net income (as defined by the sales agreement) during a sixty-six month period following the sale. The sales contract required Lee S. Casty to sign a non-competition agreement. As compensation for providing such an agreement, a portion of the purchase price was to be paid to Lee S. Casty. Mr. Casty irrevocably transferred his right to receive payments under such agreement to the Company. Accordingly, a portion of the purchase price which would otherwise have been received by Lee S. Casty is being included in revenue by the Company. In addition, in conjunction with the sale, the Company issued a limited indemnification agreement to the buyer. The agreement covers potential customer claims arising from activity prior to the sale. The following table summarizes financial information related to the Company's discontinued operations:
Year Ended June 30, --------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Income from discontinued operations before income taxes.............. $ 3,026,100 $ 4,785,500 $ 5,852,400 Income tax provision on discontinued operation....................... (1,059,100) (1,667,900) (2,277,200) --------------------------------------- Income from discontinued operations, net of taxes.................... $ 1,967,000 $ 3,117,600 $ 3,575,200 =======================================
The information set forth in the remaining Notes to Consolidated Financial Statements relates to continuing operations unless otherwise specified. 3. ACQUISITIONS During fiscal 2000, the Company acquired 18 companies for a total purchase price of approximately $26 million, of which approximately $2.8 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 will be paid with cash or shares of common stock of the Company and the Company assumed approximately $0.7 million in liabilities. The Company accounted for the 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. The excess purchase price over the fair value of the net assets acquired has been allocated to Acquired Customer Base. Acquired Customer Base resulting from such acquisitions of approximately $23.9 million is being amortized using the straight-line method over three years. The following table summarizes the Company's acquisitions during fiscal year 2000: IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------- Date Acquisition/Investment/ Business Country - ---------------- --------------------------------------------------- ------------ ------------------- July 1999 Sistemas de Diseno y Manufactura ISP Mexico Interactiva ISP Chile August 1999 Intermedia ISP Chile E-Net Teleinformatica ISP Brazil Vianet ISP El Salvador ITS Networks ISP Honduras October 1999 NetSpace ISP Mexico The Conex Group ISP Brazil November 1999 Sistemas Integrales, Servicios y Comunicaciones ISP Mexico December 1999 Panaweb Web design Panama Networks de Mexico ISP Mexico Zalhe Informatica ISP Brazil Nicanet ISP Nicaragua Parmil ISP Uruguay January 2000 Brasilnet Comunicacoes ISP Brazil Openway ISP Colombia June 2000 Mr. Help Informatica Web hosting Brazil Ludix Internet ISP Brazil
The following unaudited pro forma data summarizes the results of operations for the periods indicated as if all of the Company's acquisitions had been completed on July 1, 1998, the beginning of fiscal 1999. 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, 1998 or that may be obtained in the future. The pro forma data does not give effect to acquisitions completed subsequent to June 30, 2000.
Year Ended June 30, ----------------------------- 2000 1999 ------------ ----------- (Unaudited) Total revenues.............................................. $ 13,303,100 $12,181,100 Net loss.................................................... (54,978,400) (7,511,800) Basic and diluted net loss per common share................. $ (5.41) $ (0.74)
4. STOCK-BASED COMPENSATION PLANS Directors Stock Option Plan On October 13, 1999, the Company filed a Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934, in which, among other things, it requested shareholder approval for the IFX Corporation Directors Stock Option Plan (the "Directors Plan"). The purpose of the Directors Plan is to assist the Company in securing individuals who are not already employees or officers of the Company to serve on its Board of Directors, and to provide financial incentives to such directors to exert their best efforts on behalf of the Company. In general, the Directors Plan provides that each 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. On November 9, the shareholders voted in favor of the Directors Plan. Employee Stock Option Plan On October 13, 1999, the Company filed a Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934, in which, among other things, it requested shareholder approval for an amendment to the IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. On November 9, 1999, the shareholders voted in favor of the amendment increasing the number of common shares available under the Option Plan from 900,000 to 1,800,000. In June 2000, the directors voted to increase the size of the Option Plan by an additional 600,000 shares, subject to stockholder approval, and an additional 600,000 shares were reserved for issuance pursuant to the 1998 Stock Option Plan. Options generally 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. In connection with the granting of stock options to employees in fiscal 2000 and 1999, the Company recorded deferred compensation of approximately $17.2 million and $0.1 million, respectively. Deferred compensation is being amortized for financial reporting purposes over the vesting period of the options. The amortization amount recognized as expense during fiscal 2000 and 1999 amounted to approximately $5.2 million and $3,700, respectively. In addition, the Company has recognized as expense for variable options $1.1 million and $35,300 during fiscal 2000 and 1999, respectively. The following table summarizes the Company's stock option activity:
Weighted Average Shares Exercise Price ---------------------------------------------- Outstanding at June 30, 1998 - $ - Granted 442,500 5.97 Canceled - - ---------------------------------------------- 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 ==============================================
The following table summarizes information concerning outstanding options at June 30, 2000:
Weighted Average Exercise Price Number of Weighted Average Remaining Contractual Number Weighted Average Range Shares Exercise Price Life (in years) Exercisable Exercise Price - ------------------------------------------------------------------------------------------------------------------------- $3.00 to 5.00 301,000 $ 3.01 8.3 years 225,333 $ 3.00 5.01 to 10.00 1,037,634 8.57 9.7 years 97,475 7.86 10.01 to 15.00 398,916 14.12 9.1 years 103,583 13.20 15.01 to 20.00 537,334 19.28 9.4 years 78,500 17.29 20.01 to 30.00 20,000 26.25 9.2 years 20,000 26.25 --------------- --------------- 2,294,884 11.47 9.3 years 524,891 9.16 =============== ===============
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. No options were granted during fiscal 1998. IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Year Ended June 30, ------------------------------------------- 2000 1999 ------------------------------------------- Risk-Free Interest Rate 6.00% 5.50% Expected Dividend Yield 0.00% 0.00% Expected Lives 5.0 years 5.0 years Expected Volatility 0.96 1.25
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which 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 2000 and 1999 was $13.76 and $3.59, respectively. If compensation cost for IFX's stock-based compensation plans had been determined under SFAS No. 123 "Accounting for Stock-Based Compensation," IFX's net income and earnings per share would have been the pro forma amounts indicated below:
Year Ended June 30, --------------------------------------------- 2000 1999 --------------------------------------------- Net (loss) Income As reported $(45,877,000) $1,402,200 Pro forma $(55,119,000) $1,288,600 Basic and diluted earnings (loss) per share As reported $ (4.52) $ 0.22 Pro forma $ (5.43) $ 0.20
5. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
June 30, 2000 1999 -------------------------------------------- Computer equipment........................................... $ 5,207,700 $1,833,100 Furniture and fixtures....................................... 671,800 176,600 Leasehold improvements....................................... 728,600 243,800 Assets under capital lease agreements........................ 9,569,300 -- Software..................................................... 2,472,400 -- Other........................................................ 162,500 -- -------------------------------------------- 18,812,300 2,253,500 Less accumulated depreciation and amortization............... (3,306,900) (369,300) -------------------------------------------- Property and equipment, net.................................. $15,505,400 $1,884,200 ============================================
Accumulated amortization of assets under capital lease agreements was approximately $1.2 million at June 30, 2000. 6. NOTES PAYABLE In connection with certain acquisitions, the Company assumed notes payable aggregating to a principal amount of approximately $0.4 million. IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. ACCRUED EXPENSES The accrued expenses consist of the following:
Fiscal year end -------------------------------------------- 2000 1999 -------------------------------------------- Salaries and employee benefits.................... $ 603,200 $ 189,000 Advertising....................................... 396,600 - Legal and professional fees....................... 1,327,900 303,200 Telecommunications................................ 763,600 114,900 Accrued taxes..................................... 915,900 223,400 All other......................................... 386,600 464,600 -------------------------------------------- Total...................................... $4,393,800 $1,295,100 ============================================
8. STOCKHOLDERS' EQUITY General IFX's certificate of incorporation provides that it may issue up to 50,000,000 shares of common stock, par value $.02 per share and 10,000,000 shares of preferred stock. As of June 30, 2000, IFX had approximately 191 holders of record of its common stock with a total of 13,295,183 shares of common stock outstanding, and 1,210,398 shares of preferred stock outstanding. IFX's common stock is listed on The Nasdaq SmallCap Market under the symbol "FUTR." Common Stock On January 8, 1998, the Company authorized a one-for-five reverse split of its common stock, par value $.004, effective on January 12, 1998 (the "Effective Date"). Each five shares of such common stock was reclassified and reflected as one share of common stock having a par value of $.02, as of January 12, 1998. Outstanding shares of the Company's common stock were reduced to 6,279,130 shares from 31,395,649 shares outstanding before the split. In November 1998, IFX entered into an agreement ("Agreement") with International Technology Investments, LC ("ITI"), a then unrelated third party, and another major shareholder, pursuant to which the Company formed Emerging Networks Inc., a wholly-owned subsidiary of IFX, and other related companies to pursue opportunities in providing Internet services in Latin America and other international locales. During fiscal 2000, in connection with the Agreement, the Company issued to ITI 5,500,000 shares of Common Stock for $2.00 per share (the "Purchase Right"), for total proceeds to the Company of $11 million. The Company has issued approximately 6,496,400 and has retired 31,480 common shares in fiscal 2000. As of June 30, 2000, there were 13,295,183 outstanding shares of common stock, approximately 2,460,000 shares of the Company's common stock reserved for stock options and warrants, and 210,000 warrants had been issued in order to terminate a certain agreement with Spinway. 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. On November 9, 1999, the shareholders approved an amendment to the Company's Restated Certificate of Incorporation providing the Company the authority to issue up to 10,000,000 shares of preferred stock and, with respect to such shares, to establish among other things, the price and the rate and nature of dividends, the terms and conditions on which shares may be redeemed, the terms and conditions for conversion or exchange into any other class or series of the stock and the voting rights. IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) On June 16, 2000, IFX entered into a stock purchase agreement (the "Stock Purchase Agreement") for $25 million in funding, of which $14.9 million was received by the Company on June 16, 2000 and $10.1 million was received on July 17, 2000, from UBS Capital Americas III, L.P. and UBS Capital LLC (collectively, "UBS Capital Americas"), to be used for working capital purposes. Pursuant to the Stock Purchase Agreement, IFX has issued 1,210,398 shares of IFX Class I Series A Preferred Stock and IFX Class II Series A Preferred Stock to UBS Capital Americas III, L.P. and UBS Capital LLC in exchange for $25 million. Each share is exchangeable for 1 share of common stock, subject to adjustment if IFX issues shares of common stock (or certain common stock equivalents) at less than $12.31 per share. Each share of preferred stock has a liquidation preference equal to the sum of: a) $12.31 per share and b) $12.31 for each year that the preferred share is outstanding. The liquidation preference is payable both on 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. The holders of the preferred stock have the right to elect one director to IFX's Board of Directors. In addition, under a Stockholders Agreement entered into as of June 15, 2000, as amended, UBS Capital Americas, International Technology and the Casty Grantor Subtrust have agreed to vote for the election of an additional director designated by UBS Capital Americas, a director designated by Mr. Eidelstein, a director designated by International Technology, a director jointly designated by International Technology and Mr. Eidelstein, and two independent directors reasonably acceptable to the UBS Capital Americas. In accordance with the terms of the Stock Purchase Agreement, the number of members of the Board of Directors of IFX was increased from six to seven. Under the terms of the Certificate of Designation, UBS Capital Americas are entitled to elect one director to the Board of Directors of IFX. Under a Stockholders Agreement entered into as of June 16, 2000, as amended on July 25, 2000, the parties thereto have agreed to vote for the election of an additional director designated by UBS Capital Americas, a director designated by Mr. Eidelstein (the Company's President), a director designated by ITI, a director jointly designated by ITI and Mr. Eidelstein, and two independent directors reasonably acceptable to UBS Capital Americas. The Stockholders Agreement replaces a terminated agreement among Messrs. Casty, Shalom and ITI regarding voting for directors. 9. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
Year ended June 30, ------------------------------------------- 2000 1999 1998 ------------------------------------------- Loss from continuing operations........................................ $(47,844,000) $(1,715,400) $ (208,500) Income from discontinued operations, net of taxes...................... 1,967,000 3,117,600 3,575,200 - ------------------------------------------------------------------------------------------------------------------ Net (loss) income $(45,877,000) 1,402,200 3,366,700 Weighted average shares of common stock outstanding.................... 10,153,565 6,498,204 6,246,545 Basic and diluted (loss) earnings per share: Continued operations........................................... $ (4.71) $ (0.26) $ (0.03) Discontinued operations........................................ 0.19 0.48 0.57 - ------------------------------------------------------------------------------------------------------------------ (Loss) earnings per share.............................................. $ (4.52) $ 0.22 $ 0.54 - ------------------------------------------------------------------------------------------------------------------
Outstanding options and warrants to purchase shares of the Company's Common Stock at June 30, 2000, 1999 and 1998 were excluded from the computation of diluted earnings per share because their effect on loss per share from continuing operations was antidilutive. 10. RELATED PARTY TRANSACTIONS C. Adams Note Receivable. Prior to fiscal year 1996, FX Chicago, Inc. made loans of $611,400 to C. Adam Ltd. (successor in interest to SRC, Inc.), an entity affiliated with Lee Casty, a then significant stockholder of IFX. The loans were evidenced by a demand note bearing interest at 8%, which rate subsequently was amended to equal the prime rate. On May 10, 2000, the amounts outstanding under the note were repaid by transferring to FX Chicago, Inc. 31,480 shares of IFX Common Stock with an aggregate fair market value equal to the amount outstanding. The fair market value of shares tendered to repay the note were valued at the average of the closing bid and ask price of Common Stock as reported by the Nasdaq SmallCap Market on each of the three trading days ending on the trading date immediately prior to the delivery of the Common Stock to FX Chicago, Inc. The Company earned interest income of $29,800, $39,400 and $52,400 on this note, on a consolidated basis, during the fiscal years ended June 30, 2000, 1999, and 1998, respectively. Loans to ePagos, Inc. During fiscal year 1999, the Company made a short- term loan to ePagos, Inc. (formerly Telcom.Net, L.P.) in the amount of $50,000 and paid expenses of approximately $65,000 on their behalf. As of June 30, 2000, all amounts owed to the Company had been collected. Joel Eidelstein, President of the Company, indirectly owns a minority interest in ePagos. IFX currently owns approximately 17% of ePagos' stock on a fully-diluted basis. International Technology Investments. Each of Joseph M. Matalon, a former director of the Company, and Michael Shalom, the Company's Chief Executive Officer, is an affiliate of International Technology Investments, LC ("International Technology"). In November 1998, IFX entered into an agreement with International IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Technology in which ITI contributed $1 million to IFX and International Technology received 500,000 shares of Common Stock from IFX, at a price of $2.00 per share, for its contribution and the option to acquire 5.5 million IFX shares. As of the date of this report, International Technology has contributed $11 million in additional capital to IFX in exchange for 5,500,000 additional shares of Common Stock from IFX, at a purchase price of $2.00 per share. In January 2000, in connection with the exercise of its options to purchase IFX shares, ITI issued a note to the Company in the principal amount of $4,950,000, with an interest rate of 7%. The note was repaid in its entirety in May 2000. Facilito.com IFX owns approximately a 49.9% interest in Facilito, a company which provides e-commerce solutions. The remaining 50.1% interest in Facilito is held by The Intcomex Group. The Intcomex Group is owned by family members of Michael Shalom, IFX's Chief Executive Officer. Facilito intends to source a significant portion of its merchandise for its e-commerce sales from Intcomex. In addition, during April 2000, IFX entered into an agreement with Facilito in which it agreed to provide Facilito with web referrals from its Tutopia customers and network services in exchange for certain fees. Yupi Shares. Pursuant to an Amended and Restated Stock Purchase Agreement, dated as of June 12, between IFX Online, a subsidiary of the Company, and Lee Casty, a then 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 $5 million. The proceeds were used for the Company's working capital. The exact number of Yupi preferred shares to be transferred by IFX to Mr. Casty will be fixed upon the initial public offering of Yupi shares, or, in the absence of a Yupi public offering, then upon the occurrence of certain other valuation events, but in no event will the number of shares be fixed later than February 24, 2001. Tutopia.com, Inc. On August 31, 2000, an entity controlled by Lee Casty, purchased approximately 2,317,500 preferred shares of Tutopia.com, Inc. in exchange for $4.9 million. At the time of this transaction, IFX controlled approximately 85% of the Tutopia.com, Inc. stock. UBS Capital Americas. Mr. Moore is a director and Mr. Lama a principal of UBS Capital Americas, LLC, an affiliate of UBS Capital Americas III, L.P. and UBS Capital LLC, which together purchased $25 million of IFX Preferred Stock in June and July 2000 and $15 million of preferred stock in Tutopia.com, Inc., 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. IFX's legal counsel. Scott J. Bakal is the trustee of the Casty Grantor Subtrust, which owns 22.94% of the outstanding stock of IFX. Mr. Bakal is a partner in the law firm of Neal, Gerber & Eisenberg which provides legal services on a regular basis to IFX. Tutopia Share Purchases. During the past fiscal year, James Casty, a trust established for Scott Casty, and Nikrey Investment Group LP, a company substantially all of which is owned by Ronald Casty and James Casty, purchased shares of Class B Common Stock of Tutopia at a price of $3.00 per share. James Casty, Scott Casty and Ronald Casty are brothers of Lee Casty, who was then a significant stockholder of IFX. The purchases were made pursuant to a private placement of $5,000,000 of Class B Common Stock of Tutopia. James Casty purchased 53,333 shares in the offering; the trust benefiting Scott Casty purchased 53,333 shares; and Nikrey purchased 53,333 shares. Additionally, on August 31, 2000, James Casty purchased 53,591 shares of preferred stock of Tutopia. The purchase was made pursuant to a private placement of $20,000,000 of preferred stock of Tutopia. The Company believes that all transactions disclosed above 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. IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. GEOGRAPHIC INFORMATION In fiscal 1999, the Company adopted SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information". The new standard changes the information the Company reports about its operating segments. Operating segment information for prior years has been restated to conform to the 2000 presentation. The Company is structured primarily around the geographic markets it serves and operates reportable segments in Argentina, Bolivia, Brazil, Chile, Mexico, United States and Venezuela. All of the segments provide Internet related services. The accounting policies of the segments are the same as those described in footnote 1. The Company evaluates performance based on profit or loss from operations before income taxes excluding interest income and expense, income (loss) from investees accounted for under the equity method, and gains or losses from securities and other investments. The Company did not derive more than 10% of its revenue from any individual customer. Selected financial information for the years ended June 30, 2000 and 1999 by segment is presented below:
2000 1999 ------------------------------------------------------------- ---------------------------------------------------------- Depreciation Loss Depreciation Loss and from continuing Total and from continuing Total Revenues Amortization operations Assets Revenues Amortization operations Assets before taxes before taxes ------------------------------------------------------------- ---------------------------------------------------------- Brazil $2,764,400 $ 124,100 $ (4,813,800) $19,627,800 $ - $ - $ - $ - Chile 1,974,300 279,900 (1,965,400) 7,139,700 200,200 2,800 (77,800) 1,623,300 Mexico 1,461,900 104,700 (2,804,900) 8,530,200 137,600 7,600 (104,400) 990,600 Venezuela 1,633,300 121,200 (573,800) 3,237,900 335,000 23,600 (16,000) 1,785,400 Bolivia 660,100 194,900 (816,200) 1,366,100 61,500 5,100 (7,300) 1,015,600 Argentina 70,300 128,600 (3,226,800) 988,200 - 600 (141,900) 134,500 United States 67,200 407,300 (24,775,900) 19,063,900 - 27,700 (1,394,700) 11,242,400 All Other 1,054,400 6,788,000 (11,638,600) 2,577,100 (9,000) 165,000 (784,300) 2,069,700 ------------------------------------------------------------- ---------------------------------------------------------- Total $9,685,900 $8,148,700 $(50,615,400) $62,530,900 $725,300 $232,400 $(2,526,400) $18,861,500 ============================================================= ==========================================================
12. LIABILITIES RELATED TO ACQUISITIONS On most of IFX's acquisitions, the Company pays a certain amount at the closing ("first payment") and another amount 60 to 360 days after closing ("second payment"). The amounts owed by IFX to the ISP's it has acquired are classified as liabilities related to acquisitions. As of June 30, 2000, IFX had accrued liabilities on acquisitions of approximately $1.6 million payable in cash or payable in common stock of the Company at the fair market value on the date the obligation is settled. 13. 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, 2000, IFX had a net difference of approximately $1.6 million which is classified as Foreign Taxes Recoverable in the accompanying consolidated balance sheets. IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. 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 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 for relating to income taxes for each of the years ended June 30, is as follows:
Year ended June 30, ----------------------------------------- 2000 1999 1998 ----------------------------------------- Current $2,771,400 $811,000 $108,000 Deferred - - - ----------------------------------------- Total Benefit $2,771,400 $811,000 $108,000 =========================================
The benefit reflected is due to the carry-back of current year net operating losses to recover prior year taxes paid. 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: IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Year End ---------------------------------------------- 2000 1999 ---------------------------------------------- DEFERRED TAX ASSETS: Bad debt reserve $ 347,100 $ 62,500 Depreciation 59,600 59,600 Other accruals 56,100 38,300 Amortization 1,390,500 43,800 Gain on investment 1,674,500 -- Other assets -- 179,300 Tax credits 761,400 -- NOL carry-forward 9,639,100 -- ---------------------------------------------- Deferred tax assets 13,928,300 383,500 Less valuation allowance (13,702,900) - ---------------------------------------------- Total deferred tax assets $ 225,400 $ 383,500 Deferred tax liabilities: Other liabilities (225,400) (383,500) Total deferred tax liabilities (225,400) (383,500) ---------------------------------------------- Total net deferred taxes $ (0) $ (0) ==============================================
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 $13.7 million valuation allowance is appropriate. The change in the valuation allowance for the current year is $13.7 million. At June 30, 2000, the Company has available net operating loss carry forwards as follows:
Losses expiring in fiscal 2001-2003 ----------------------------------- El Salvador $ (419,900) Guatemala (202,700) Costa Rica (296,100) Honduras (248,100) Uruguay (46,000) Venezuela (573,800) Losses expiring in fiscal 2004-2005 ----------------------------------- Nicaragua $ (27,200) Argentina (3,226,800) Colombia (1,127,900) Panama (256,400) Losses expiring after 2010 -------------------------- Mexico $ (3,320,600) United States (35,682,900) Losses with indefinite life: ---------------------------- Bolivia $ (710,300) Brazil (4,813,800) Chile (1,965,400)
IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The United States and foreign components of loss from continuing operations before income taxes are as follows:
For the Year Ending June 30, -------------------------------------------------- 2000 1999 1998 -------------------------------------------------- United States $(24,775,900) $(1,458,500) $(316,500) Foreign (25,839,500) (1,067,900) - -------------------------------------------------- Total $(50,615,400) $(2,526,400) $(316,500) ==================================================
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 ------------------------------------------------------------------ 2000 1999 1998 ------------------------------------------------------------------ Tax at U.S. statutory rate (34)% (34)% (34)% State taxes, net of federal benefit (2)% -- -- Stock option expense 3% -- -- Warrant expense 1% -- -- Other -- 2% -- Change in valuation allowance 27% -- -- (5)% (32)% (34)% ==================================================================
During fiscal year 2000, IFX received a refund of approximately $0.5 million related to the carry back of net operating loss which were recorded in fiscal 1999. 15. COMMITMENTS AND CONTINGENCIES 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. In addition, the company leases satellite bandwidth from various vendors. At June 30, 2000, the operating lease commitments for these facilities and for satellite bandwidth were approximately $4.8 million through the year 2005. The majority of this commitment is related to office space leased in Miami Lakes, Florida, which serves as the Company's base operations for Latin America, and amounts paid to lease satellite bandwidth. IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. Lease expense related to continuing operations, amounted to $2 million, $60,400 and $28,800 in fiscal 2000, 1999 and 1998, respectively. In fiscal 2000, the Company entered into lease agreements in the United States for offices in Miami Lakes, Florida; and internationally, for offices in a majority of its Latin American operations. At June 30, 2000, the Company had capital lease obligations of approximately $13.9 million. All the capital leases entered into by the Company were to finance equipment and software for the Company's Latin American network. The majority of those payments are made to Lucent Technologies, Softech Financial, and IBM Global Financing. 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, 2000:
Operating Lease Net Operating Lease Capital Lease Fiscal Year Obligations Sublease Rentals Obligations Obligations Total Obligations - ----------- --------------- ---------------- ------------------- ------------- ----------------- 2001 $3,059,000 $ (385,800) $2,673,200 $ 3,265,000 $ 5,938,200 2002 1,328,200 (397,500) 930,700 4,448,900 5,379,600 2003 822,600 (66,600) 756,000 4,704,100 5,460,100 2004 391,200 - 391,200 1,377,300 1,768,500 2005 57,400 - 57,400 72,400 129,800 ----------------------------------------------------------------------------------------------------------- Total lease obligations $5,658,400 $ (849,900) $4,808,500 $13,867,700 $18,676,200 Amount representing interest 2,899,900 ----------------- Present value of net minimum lease payments $10,967,800 =================
Acquisition Agreements The Company is liable to the former shareholders of certain entities which were acquired in fiscal 2000 for approximately $1.6 million. The amount is payable in common stock of the Company at the fair market value on the date the obligation is settled. 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 of between $200,000-$250,000 per year, each, and provide other benefits subsequent to termination or change of control in the Company. In addition, any unvested stock options held by the officers immediately vest upon employment termination or change in control of the Company. 16. LITIGATION 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. In addition, certain of the Company's discontinued operations are involved in litigation which may impact the Company in the event of an unfavorable outcome. The Company believes that any loss which may be incurred will not have a material effect in the Company's financial position or results of operations. 17. SUBSEQUENT EVENTS IBM Global Financing. During August 2000, IBM Global financing increased the amount of borrowings available under the lease agreement from $0.4 million to $2.2 million subject to certain conditions. IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Speedcom Wireless International Corporation. During July 2000, the Company entered into an $1.2 million lease agreement with Speedcom, a wireless equipment provider. Under the terms of the agreement, IFX will lease up to $1.2 million of wireless equipment from Speedcom to develop the Company's network across all Latin America. As of August 31, 2000, IFX has leased approximately $0.6 million under this agreement. Network Appliance. During September 2000, IFX entered into a $1.4 million lease agreement with Network Appliance, a storage and caching provider. Under the terms of the agreement, IFX has the option to lease up to $1.4 million of storage and caching equipment from Network Appliance. As of September 15, 2000, IFX had approximately $0.4 million under this lease agreement. UBS Capital Americas III, L.P., $25 million investment in IFX. On June 16, 2000, IFX announced that it had secured a $25 million round of private equity financing lead by UBS Capital Americas III, L.P. ("UBS Capital Americas"). On that date, the Company received $14.9 million and the remaining $10.1 was received on July 21, 2000. In exchange, IFX issued a total of 2,030,869 Preferred Shares. Each Series A Preferred Share is currently exchangeable for 1 share of IFX common stock. The proceeds will be used in part to further the integration of IFX's information systems infrastructure, to increase marketing activities and to expand the Company's direct sales force to service the small and medium enterprise market in Latin America. In addition, IFX plans to use the proceeds to expand further to increase the number of company-owned POPs in Latin America as well as broaden its value-added service offerings to its growing corporate customers. UBS Capital Americas III, L.P. led $20 million investment in Tutopia.com. On August 31, 2000, Tutopia.com, Inc., received $20 million of private equity financing from a group led by UBS Capital Americas. An entity controlled by Mr. Lee Casty participated in this group, and accounted for approximately $4.9 million of the group's investment. Following this financing, assuming the exchange of the Tutopia Series A Preferred Stock received by the group for Tutopia Common Stock, IFX will own approximately 47% of the outstanding stock of Tutopia. UBS Capital Americas and its affiliates which purchased Tutopia Series A Preferred Stock have the right to appoint a majority of Tutopia's directors, the entity controlled by Mr. Casty has the right to appoint one director of Tutopia, and IFX has the right to appoint one director of Tutopia. Prior to the UBS-led investment, Tutopia represented one of our two major business lines. Following the UBS-led investment, we expect that Tutopia will be our largest single customer. IFX has entered into am agreement with Tutopia to provide Internet connectivity services to Tutopia for a period of three years. Either IFX or Tutopia can renew the interconnectivity agreement for a fourth year. After that agreement terminates, there can be no assurances that we will be the sole supplier of Internet connectivity services to Tutopia. The following pro forma statement of operations reflects how IFX's statement of operations would look if Tutopia had been treated as a minority subsidiary of IFX as of July 1, 1999. IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------- IFX Consolidated Tutopia Adjustments IFX Pro Forma ---------------- ------------------- -------------- REVENUES: Dial-up.................................................... $ 7,250,600 $ - $ 7,250,600 Dedicated line services.................................... 1,351,100 - 1,351,100 Web hosting and design services............................ 379,000 - 379,000 Other...................................................... 705,200 4,060,600 4,765,800 - ------------------------------------------------------------------------------------------------------------------------- Total revenues........................................ 9,685,900 4,060,600 13,746,500 - ------------------------------------------------------------------------------------------------------------------------- COSTS AND EXPENSES: Cost of revenues........................................... 8,217,200 - 8,217,200 General and administrative................................. 22,283,800 (3,635,800) 18,648,000 Sales and marketing........................................ 9,177,400 (6,986,700) 2,190,700 Depreciation and amortization.............................. 8,148,700 (95,600) 8,053,100 Non-cash stock compensation................................ 6,359,100 - 6,359,100 Contract cancellation costs................................ 6,815,700 (1,909,000) 4,906,700 - ------------------------------------------------------------------------------------------------------------------------- Total operating expenses........................... 61,001,900 (12,627,100) 48,374,800 - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- Operating loss from continuing operations.......... (51,316,000) 16,687,700 (34,628,300) - ------------------------------------------------------------------------------------------------------------------------- OTHER INCOME (EXPENSE): Interest income............................................ 414,800 (71,500) 343,300 Interest expense........................................... (595,300) - (595,300) Minority interest in subsidiary............................ 1,110,100 (8,919,700) (7,809,600) Loss from operations of equity investees................... (330,200) - (330,200) Other................................................... 101,200 - 101,200 - ------------------------------------------------------------------------------------------------------------------------- Total other income, net.............................. 700,600 (8,991,200) (8,290,600) - ------------------------------------------------------------------------------------------------------------------------- Loss from continuing operations before income taxes......... (50,615,400) 7,696,500 (42,918,900) Income tax benefit.......................................... 2,771,400 - 2,771,400 - ------------------------------------------------------------------------------------------------------------------------- Loss from continuing operations............................. (47,844,000) 7,696,500 (40,147,500) - ------------------------------------------------------------------------------------------------------------------------- Income from discontinued operations, net of taxes........... 1,967,000 - 1,967,000 - ------------------------------------------------------------------------------------------------------------------------- Net (loss) income.................................... $(45,877,000) 7,696,500 $(38,180,500) - ------------------------------------------------------------------------------------------------------------------------- BASIC AND DILUTED (LOSS) INCOME PER SHARE: Continuing operations...................................... $(4.71) - $(3.95) Discontinued operations.................................... 0.19 - 0.19 - ------------------------------------------------------------------------------------------------------------------------- Net (loss) income.................................... $(4.52) - $(3.76) - ------------------------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic and diluted.......................................... 10,153,565 - 10,153,565 =========================================================================================================================
IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarters ended 9/30/99 12/31/99 3/31/00 6/30/00 Total -------------------------------------------------------------------------------- Revenue $ 1,218,600 $ 2,598,000 $ 3,269,200 $ 2,599,200 $ 9,685,000 Operating loss (5,101,000) (7,036,700) (13,696,600) (25,481,700) (51,316,000) Loss from continuing operations (4,131,500) (6,396,400) (11,762,900) (25,553,200) (47,844,000) 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) Quarters ended 9/30/98 12/31/98 3/31/99 6/30/99 Total -------------------------------------------------------------------------------- Revenue $ - $ - $ - $ 725,300 $ 725,300 Operating loss (150,300) (302,200) (647,800) (1,830,700) (2,931,000) Loss from continuing operations (123,500) (135,700) (542,000) (914,200) (1,715,400) Income from discontinued operations, net 946,700 784,800 1,036,000 350,100 3,117,600 Net income (loss) $ 823,200 $ 649,100 $ 494,000 $ (564,100) $ 1,402,200 Per share - basic and diluted: Continuing operations $ (0.02) $ (0.02) $ (0.08) $ (0.14) $ (0.26) Discontinued operations $ 0.15 $ 0.12 $ 0.16 $ 0.05 $ 0.48 Net income (loss) $ 0.13 $ 0.10 $ 0.07 $ (0.08) $ 0.22
SCHEDULE II IFX CORPORATION AND SUBSIDIARIES Valuation and Qualifying Accounts (For Continuing Operations)
Additions ------------------------------------------ Balance at Charged to Beginning of (Benefits Against) Charged to Other Deductions Balance at End Description Period Costs and Expenses Accounts (Describe) (Describe) of Period - ------------------------------------------------------------------------------------------------------------------------------------ Allowance for Doubtful Accounts For the year ended June 30, 2000 $80,100 $842,400 $ -- $ -- $ 922,500 For the year ended June 30, 1999 (a) -- 80,100 -- -- $ 80,100 For the year ended June 30, 1998 (a) -- -- -- -- $ --
- ------------------- (a) Reclassified to net assets of discontinued operations. SIGNATURES - -------------------------------------------------------------------------------- Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 10-K and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miami, State of Florida, on September 27, 2000. IFX CORPORATION /s/ Jose Leiman By:_______________________ Jose Leiman, Chief Financial Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jose Leiman, 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 Act of 1933, this registration statement has been signed by the following persons in the capacities and the on the dates indicated:
Signature Title Date - --------- ----- ---- /s/ Michael Shalom ______________________________ Chief Executive Officer September 28, 2000 Michael Shalom (Principal Executive Officer) /s/ Jose Leiman _____________________________ Chief Financial Officer September 28, 2000 Jose Leiman (Principal Financial and Accounting Officer) /s/ Joel M. Eidelstein ______________________________ President and Director September 28, 2000 Joel M. Eidelstein /s/ Charles Moore ______________________________ Director September 28, 2000 Charles Moore /s/ Mark O. Lama ______________________________ Director September 28, 2000 Mark O. Lama /s/ George A. Myers ______________________________ Director September 28, 2000 George A. Myers /s/ Zalman Lekach ______________________________ Vice President and Director September 28, 2000 Zalman Lekach /s/ Burton J. Meyer ______________________________ Director September 28, 2000 Burton J. Meyer
EX-10.12 2 0002.txt TERMINATION OF CO-BRANDED FREE ISP AGREEMENT Exhibit 10.12 TERMINATION OF CO-BRANDED FREE ISP AGREEMENT This Termination of Co-Branded Free ISP Agreement amends and replaces the Termination Agreement executed by the parties on June 12, 2000. This Agreement is hereby dated June 14, 2000. Spinway, Inc., (formerly Spin Media Network, Inc.) a California corporation with its principal place of business at 925 Commercial Street, Palo Alto, CA 94303 ("Spinway") and Tutopia.com, inc., a Delaware corporation with a principal place of business at 15050 N.W. 79th Court, Miami Lakes, Florida 33016 (the "Company") (collectively, the "Parties") entered into The Co-Branded Free ISP Agreement (the "Agreement") as of January 24, 2000. Whereas, Spinway is an advertising solution and free Internet Service Provider ("ISP") that owns and operates a service that allows people to receive free access to the Internet (the "Spinway Service"); Whereas, the Company has approximately 17,000 Service Users currently using the Spinway Client (the "Spinway Service Users"); Whereas, Company paid a $50,000 development fee to Spinway pursuant to the Agreement; Whereas, the Parties, pursuant to Section 12.4 of the Agreement, now mutually desire to terminate the Agreement; Now, Therefore, Spinway and Company hereby agree, for and in consideration of the mutual covenants set forth herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, as follows: 1. All capitalized terms used herein that are not otherwise defined in this termination agreement shall have the same meanings as in the Agreement. 2. Company will provide network support the 17,000 Spinway Service Users at least until August 1, 2000. Company will no longer be required to provide support to the Spinway Service Users. Company and Spinway shall maintain co-ownership rights of all user information relating to those Spinway Service Users. Spinway shall maintain ownership rights to all Spinway Service User information, including, but not limited to, name and email address. 3. Company agrees to pay to Spinway (via electronic wire directly to Spinway's bank account at Silicon Valley Bank) an additional and final development fee of $250,000 (U.S.) on or before 5:00p.m. Pacific Standard Time on Thursday June 15, 2000. 4. Company agrees to issue to Spinway a warrant to purchase 210,000 shares (equal to approximately 1.5% of the total outstanding and fully diluted shares of IFX Corporation) of IFX Corp. ("IFX") common stock (the "Warrants"). The Warrants shall be fully vested and exercisable immediately after pricing and shall expire four (4) years after the issuance. The Warrants shall be priced at a price equivalent to the common stock per share price of the next private equity round investment in IFX, but in no event will the price exceed $14.50 per share or be lower than $9.00 per share. If IFX does not complete a private equity round on or before August 1, 2000, then the Warrant shall be priced at $9.00 per share. The shares issuable upon the exercise of the Warrant shall be subject to the same piggyback and S3 registration rights as the investors in the private equity round referenced in this paragraph. Exhibit 10.12 5. The Parties hereby terminate the Agreement and except with respect to breaches of this Termination of Co-branded Free ISP Agreement, neither the Company nor Spinway will be liable for damages or compensation of any kind.Spinway and Company hereby release the other from any and all claims, demands, debts, damages, costs, losses, expenses, commissions, actions, causes of action, rights, liabilities, obligations and chooses in action of whatever nature or type which any of Spinway or Company may have, or may have, or which have been, or could have been, or in the future otherwise might have been asserted other than those that arise under this Termination Agreement. 6. The Effective Date of this Termination of Co-Branded Free ISP Agreement is June 14, 2000. Spinway, Inc. ("Spinway"): Company: By: /s/ Billy McNair By: /s/ Michael Shalom ------------------------------ Name: Billy McNair_______________ Name: Michael Shalom_____________ Title: VP, Business Development Title: CEO --------------------------- ---- June 14, 2000 June 14, 2000 - --------------------------------- --------------------------------- IFX Corp.: By: /s/ Joel Eidelstein --------------- Name: Joel Eidelstein Title: President June 13, 2000 EX-10.13 3 0003.txt AMENDMENT NO 1 TO STOCKHOLDER AGREEMENT Exhibit 10.13 AMENDMENT NUMBER 1 TO STOCKHOLDERS AGREEMENT AMONG IFX CORPORATION, UBS CAPITAL AMERICAS III, L.P., UBS CAPITAL LLC, INTERNATIONAL TECHNOLOGY INVESTMENTS, LC, JOEL EIDELSTEIN, MICHAEL SHALOM AND LEE S. CASTY THIS AMENDMENT NUMBER 1 TO STOCKHOLDERS AGREEMENT (the "Stockholders Agreement") AMONG IFX CORPORATION ("IFX"), UBS CAPITAL AMERICAS III, L.P., UBS CAPITAL LLC (collectively "UBS"), INTERNATIONAL TECHNOLOGY INVESTMENTS, LC ("ITI"), JOEL EIDELSTEIN ("Eidelstein"), MICHAEL SHALOM ("Shalom") and LEE S. CASTY ("Casty") is entered into as of July 28, 2000, by and among the undersigned. WHEREAS, Casty has entered into that certain Stock Purchase Agreement dated as of July 12, 2000, between Casty and Scott J. Bakal, not individually but solely as Trustee of the Casty Grantor Subtrust (the "Subtrust"), pursuant to which Casty will sell all of his shares of IFX to the Subtrust (the "Transaction"); WHEREAS, Casty desires to relinquish his ability to designate a director to be elected to the Board of Directors of IFX; and WHEREAS, the undersigned are willing to agree that Casty shall not be required to vote shares held by the Subtrust. NOW, THEREFORE, the undersigned agrees as follows: 1. In Section 1.1, the phrase "Casty Representative" shall be changed to "Eidelstein Representative." 2. Section 2.1 is amended to read as follows: SECTION 2.1 Board Representation. -------------------- (a) Effective on the date hereof, the Board shall, except as otherwise provided below, be comprised of seven (7) Directors of whom: (i) two (2) shall be designees of the Investor Stockholders (the "Investor Representatives"), (ii) one (1) shall be a designee of ITI (the "ITI Representative"), (iii) one (1) shall be a designee of Eidelstein (the "Eidelstein Representative"), (iv) one (1) shall be jointly designated by ITI and Eidelstein (the "Joint Representative") and (v) the others shall be Independent Directors acceptable to the Investor Stockholders (with such consent not to be unreasonably withheld) who, commencing with the election of Directors at the next annual meeting of stockholders, have been elected by the holders of a majority of the outstanding Voting Securities. The initial Investor Representatives shall be Charles W. Moore and Mark O. Lama, the initial ITI Representative shall be Michael Shalom, the initial Eidelstein Representative Exhibit 10.13 shall be Joel Eidelstein, and the initial Joint Representative shall be Zalman Lekach. If, at any time, ITI and Eidelstein are unable to agree upon the designation of a Joint Representative, the Joint Representative shall be designated by Jose Leiman. Notwithstanding the foregoing, at such time as an Independent Director acceptable to the Investor Stockholders (with such consent not to be unreasonably withheld) and the holders of a majority of the outstanding Voting Securities has been elected to the Board, the Investor Stockholders shall only be entitled to designate one Investor Representative, and the Investor Stockholders shall thereafter, as promptly as practicable, take all action necessary to cause one of the Investor Representatives to resign from the Board. (b) The Company shall take such action as may be required under applicable law (i) to cause the Board to consist of the number of Directors specified in clause (a), (ii) to include in the slate of nominees recommended by the Board the Investor Representatives, the ITI Representative, the Eidelstein Representative and the Joint Representative (collectively, the "Representatives"), with the remaining Directors to be Independent Directors acceptable to the Investor Stockholders (with such acceptance not to be unreasonably withheld) and (iii) to cause the Investor Representatives to be duly appointed in accordance with the foregoing and the Certificate of Designation. The Company agrees to use its reasonable best efforts to cause the election of the Representatives to the Board, including nominating such individuals to be elected as Directors as provided herein. (c) Each of the Investor Stockholders, ITI and Casty agrees to vote, or act by written consent with respect to any Voting Securities beneficially owned by him or it, at each annual or special meeting of the stockholders of the Company at which Directors are to be elected or to take all actions by written consent in lieu of any such meeting as are necessary to cause the Representatives designated by the others in accordance with the terms of this Agreement to be elected to the Board and agrees to use his or its reasonable best efforts to cause the election of each such designee to the Board, including nominating such individuals to be elected as Directors. (d) In the event that a vacancy is created at any time by the death, disability, retirement, resignation or removal (with or without cause) of any Representative, the remaining Directors and the Company shall cause the vacancy created thereby to be filled by a new designee of the party or parties that designated such Director as soon as possible, who is designated in the manner specified in this Section 2.1. Each of the Company, each Investor Stockholders, ITI and Casty hereby agrees to take, at any time and from time to time, all actions necessary to accomplish the same. Upon the written request of the Investor Stockholders, ITI and/or Eidelstein, as the case may be, each of the others shall vote, or act by written consent with respect to all Voting Securities beneficially owned by him or it and otherwise take or 2 Exhibit 10.13 cause to be taken all actions necessary to remove any Director designated by the former. Unless the Investor Stockholders, ITI and/or Eidelstein, as the case may be, shall otherwise request in writing, none of the others shall take any action to cause the removal of any Director designated by the former. (e) Without the written consent of the Investor Stockholders, each of the Company, ITI and Casty agrees not to take any action that would cause the number of Directors constituting the entire Board to be other than seven (7). (f) The covenants and agreements set forth herein shall be subject to the fiduciary obligations of the designees of the Investor Stockholders, ITI and Eidelstein now or hereafter serving on the Board and shall not prevent the designees of the Investor Stockholders, ITI or Eidelstein now or hereafter serving on the Board from taking any action or refraining to take any action while acting in the capacity as a Director of the Company. The foregoing shall not limit the obligations of the Investor Stockholders, ITI and Eidelstein in their capacity as stockholders of the Company hereunder. 3. Section 3.4 is amended to read as follows: SECTION 3.4 Transfers by Casty. ------------------ (a) Casty agrees that neither he nor any of his Affiliates shall Transfer more than the number of Shares of Common Stock permitted under Rule 144(e) of the Securities Act without the written consent of the Investor Stockholders, which consent shall not be unreasonably withheld or delayed or without compliance with Sections 3.5 and 3.6. Notwithstanding the foregoing, Casty may Transfer all or any of his Equity Securities (a) to any member of such Stockholder's family or to any trust for the benefit of any such family member of such Stockholder or to any other Affiliate, provided that any such transferee shall agree in writing with the Company and the Investor Stockholders as a condition to such Transfer, to be bound by all of the provisions of this Agreement to the same extent as if such transferee were such Stockholder, or (b) by will or the laws of descent and distribution, and further any transferee of Casty may Transfer Equity Securities to Casty; provided, however, in such event each such transferee shall be bound by all of the provisions of this Agreement to the same extent as if such transferee were such Stockholder; and provided, further, that each such transferee (other than the Subtrust) shall execute an irrevocable proxy appointing the original Stockholder (except in the case of death of the original Stockholder) transferring such shares as proxy to vote all such shares so transferred, such appointment shall be coupled with an interest, and all stock certificates representing such shares shall bear a legend providing notice of such appointment of proxy and the restrictions contained in this Agreement. (b) The provisions of this Section 3.4 shall terminate upon the earlier of: (i) a Qualified Public Offering and (ii) the time at which the Investor 3 Exhibit 10.13 Stockholders and the other Holders own fewer than 50% of the number of shares of Common Stock (determined on an as converted basis) that the Investor Stockholders owned as of the Subsequent Closing (adjusted for stock splits, combinations, stock dividends and the like). 4. The undersigned waive any of their rights under Sections 3.5 and 3.6 with respect to Transfers between Casty and the Subtrust. 5. Casty represents and warrants that as of the date hereof, he individually owns 3,061,410 shares of the $.02 par value Common Stock of IFX and that immediately after the effectiveness of the Transaction, that he will own no shares. 6. The Subtrust represents and warrants that as of the date hereof, it owns no shares of IFX and that immediately after the Transaction, it will own 3,061,410 Shares. The Subtrust further represents and warrants that the sole beneficiaries of the Subtrust are Affiliates of Lee S. Casty. 7. The Subtrust acknowledges that it is subject to the provisions of the Stockholders Agreement (including but not limited to Sections 3.4 and 2.1), to the same extent as if it were Casty. 8. Casty acknowledges that he shall be subject to Sections 3.4 and 2.1 of the Stockholders Agreement with respect to Shares that he acquires after the date hereof. 9. The undersigned affirm and hereby ratify all other provisions of the Agreement. IN WITNESS WHEREOF, the parties hereto have executed the AMENDMENT NUMBER 1 TO STOCKHOLDERS AGREEMENT as of the date set forth in the first paragraph hereof. IFX CORPORATION By: /s/ Joel Eidelstein ----------------------------------------- Name: Joel Eidelstein Title: President UBS CAPITAL AMERICAS III, L.P. By: UBS Capital Americas (LA-Advisors), LLC 4 Exhibit 10.13 By: /s/ Mark Unger ------------------------------ Name: Mark Unger Title: Chief Financial Officer By: /s/ Mark Lama ------------------------------ Name: Mark Lama Title: Principal UBS CAPITAL LLC By: /s/ Mark Unger ------------------------------ Name: Mark Unger Title: Attorney-in-fact By: /s/ Justin Maccarone ------------------------------ Name: Justin Maccarone Title: Attorney-in-fact INTERNATIONAL TECHNOLOGY INVESTMENTS, LC By: /s/ Michael Shalom ------------------------------ Name: Michael Shalom Title: Manager /s/ Joel Eidelstein ----------------------------------- Joel Eidelstein /s/ Lee S. Casty ----------------------------------- Lee S. Casty 5 Exhibit 10.13 /s/ Michael Shalom ------------------------------------ Michael Shalom CASTY GRANTOR SUBTRUST /s/ Scott J. Bakal ------------------------------------ By: Scott J. Bakal Its: Trustee 6 EX-10.14 4 0004.txt STOCK PURCHASE AGREEMENT Exhibit 10.14 ------------------------------------- TUTOPIA.COM, INC. PURCHASE AGREEMENT Series A Convertible Preferred Stock ______________________________________ Dated as of August 7, 2000 Exhibit 10.14 TABLE OF CONTENTS Page ---- 1. AUTHORIZATION OF THE SECURITIES; NATURE OF AGREEMENT....................... 1 (a) Series A Preferred Stock............................................ 1 (b) Nature of Agreement................................................. 1 2. SALE AND PURCHASE OF SERIES A PREFERRED STOCK.............................. 1 (a) Purchase and Sale at the Initial Closing............................ 2 (b) Purchases and Sales Subsequent to the Initial Closing............... 2 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................. 3 (a) Organization and Good Standing...................................... 3 (b) Authorization. Except as set forth in the Schedule of Exceptions:.. 3 (c) Capital Stock....................................................... 4 (d) Subsidiaries........................................................ 6 (e) Compliance With Material Instruments................................ 7 (f) Good Title.......................................................... 7 (g) Litigation.......................................................... 7 (h) Tax Matters......................................................... 8 (i) Registration Rights................................................. 8 (j) Offering............................................................ 8 (k) Insurance........................................................... 8 (l) Certain Transactions................................................ 9 (m) Contracts........................................................... 9 (n) Governmental Consents...............................................12 (o) Officers, Employees and Labor.......................................13 (p) Compliance with Laws................................................13 (q) Intellectual Property...............................................13 (r) Environmental Matters...............................................14 (s) Certain Practices...................................................15 (t) Brokers.............................................................15 (u) No Undisclosed Liabilities..........................................15 (v) Disclosure..........................................................16 (w) Financial Statements................................................16 (x) Availability and Transfer of Foreign Currency.......................16 (y) Absence of Changes..................................................16 (z) Real Property Holding Company.......................................18 (aa) Investment Company Act..............................................18 (bb) Subchapter S........................................................18 (cc) State Takeover Statutes.............................................18 (dd) Funded Indebtedness.................................................18 (ee) Business Operations.................................................18 i Exhibit 10.14 Page 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS...........................18 (a) Investment Intent...................................................18 (b) Sophistication......................................................19 (c) Illiquidity.........................................................19 (d) Accredited Investor.................................................19 (e) Brokers.............................................................19 (f) Organization and Good Standing......................................19 (g) Requisite Power and Authority.......................................19 (h) No Conflict.........................................................19 5. COVENANTS..................................................................20 (a) Pre-Closing Actions.................................................20 (b) Conduct of Business.................................................20 (c) Access and Cooperation..............................................22 (d) Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976..........................................22 (e) No Solicitation.....................................................22 (f) Books and Records...................................................23 (g) Post-Closing Covenants..............................................23 (h) Inspection Rights...................................................24 (i) Covenant Not to Compete.............................................24 (j) Stockholder Solicitation............................................25 (k) Stock Option Agreements.............................................25 (l) Funded Indebtedness.................................................25 6. CONDITIONS TO OBLIGATIONS OF THE PURCHASERS................................26 (a) Representations and Warranties......................................26 (b) Performance.........................................................26 (c) Absence of Litigation...............................................26 (d) Opinion of Counsel to the Company and Subsidiaries..................26 (e) Consents............................................................27 (f) Assignment of Intellectual Property.................................27 (g) Contemporaneous Transactions........................................27 (h) Closing Papers......................................................28 (i) Absence of Material Adverse Effect..................................28 (j) Proceedings.........................................................28 (k) Legends.............................................................29 (l) Private Equity Fee..................................................29 7. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY...............................29 (a) Representations and Warranties......................................29 (b) Performance.........................................................29 (c) Payment.............................................................29 (d) Absence of Litigation...............................................29 ii Exhibit 10.14 Page 8. SURVIVAL..................................................................30 9. TERMINATION...............................................................30 10. EFFECT OF TERMINATION.....................................................30 11. MISCELLANEOUS PROVISIONS..................................................30 (a) Acknowledgment.......................................................30 (b) Notices..............................................................30 (c) Severability.........................................................31 (d) Governing Law........................................................31 (e) Publicity............................................................32 (f) Captions and Section Headings........................................32 (g) Amendments and Waivers...............................................32 (h) Successors and Assigns...............................................32 (i) Expenses.............................................................33 (j) Entire Agreement.....................................................33 (k) Exhibits.............................................................33 (l) Further Assurances...................................................33 (m) Counterparts.........................................................33 (n) Attorneys' Fees......................................................33 (o) Disclosure Generally.................................................33 12. DEFINITIONS...............................................................34 (a) Definitions..........................................................34 (b) Other Definitional Provisions........................................40 iii Exhibit 10.14 EXHIBITS EXHIBIT A SCHEDULE OF PURCHASERS...........................................A-1 EXHIBIT B CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A PREFERRED STOCK OF TUTOPIA.COM, INC.................................................B-1 EXHIBIT C SCHEDULE OF EXCEPTIONS...........................................C-1 EXHIBIT D FORM OF OPINION OF COMPANY COUNSEL...............................D-1 EXHIBIT E FORM OF RESTATED STOCKHOLDERS AGREEMENT..........................E-1 EXHIBIT F-1 FORM OF DIAL ACCESS AGREEMENT....................................F-1 EXHIBIT F-2 FORM OF REVENUE SHARING AGREEMENT................................F-2 EXHIBIT G FORM OF INTER-COMPANY SERVICES AGREEMENT........................G-1 EXHIBIT H FORM OF EMPLOYMENT AGREEMENT AMENDMENT AND WAIVER.............................................H-1 EXHIBIT I FINANCIAL STATEMENTS.............................................I-1 EXHIBIT J FORM OF RESTATED CERTIFICATE OF INCORPORATION....................J-1 EXHIBIT K FORM OF STOCK OPTION PLAN........................................K-1 EXHIBIT L FORM OF STOCK OPTION AGREEMENT...................................L-1 EXHIBIT M EXISTING STOCKHOLDERS AGREEMENT..................................M-1 EXHIBIT N FORM OF RESTATED BY-LAWS.........................................N-1 iv Exhibit 10.14 TUTOPIA.COM, INC. PURCHASE AGREEMENT This Purchase Agreement is made and entered into as of the 7th day of August, 2000, by and among IFX Corporation, a Delaware corporation ("IFX"), Latin Guide, Inc., a Delaware corporation ("Latin Guide") and Tutopia.com, Inc., a Delaware corporation (the "Company;" IFX, Latin Guide and the Company are hereinafter collectively referred to as the "Sellers" and individually as a "Seller"), and each Person listed on the Schedule of Purchasers attached as Exhibit A hereto (the "Schedule of Purchasers") who executes this Agreement as a Purchaser (such Persons are referred to in this Agreement, collectively, as the "Purchasers" and individually, as a "Purchaser"). Unless defined elsewhere herein, capitalized and other defined terms shall have the meanings specified in Section 12. RECITALS The Company desires to sell to the Purchasers, and the Purchasers desire to purchase from the Company, an aggregate of up to 11,890,606 shares (the "Shares") of the Series A Convertible Preferred Stock, all on the terms and conditions set forth herein. AGREEMENT In consideration of the premises and the mutual covenants, agreements, hereinafter set forth, the parties to this Agreement agree as follows: 1. Authorization of the Securities; Nature of Agreement. ---------------------------------------------------- (a) Series A Preferred Stock. The Company has authorized the issuance and sale pursuant to the terms and conditions of this Agreement of up to 11,890,606 shares of its Preferred Stock, $.001 par value per share, to be designated as Series A Convertible Preferred Stock (the "Series A Preferred Stock"). The shares of Series A Preferred Stock shall have all of the rights, preferences, privileges and restrictions set forth in the Certificate of Designation, Number, Powers, Preferences and Relative, Participating, Optional and Other Rights of Series A Convertible Preferred Stock of Tutopia.com, Inc., a copy of which, in the form to be filed with the Secretary of State of the State of Delaware, is attached hereto as Exhibit B hereto (the "Certificate"). (b) Nature of Agreement. This Agreement insofar as it relates to the purchase of a particular number of the Series A Preferred Stock by any Purchaser is a separate agreement between that Purchaser and the Company. But this Agreement insofar as it relates to the rights, duties and remedies of the Company and the Purchasers, from and after the Closing, shall be deemed to be one Agreement. 2. Sale and Purchase of Series A Preferred Stock. --------------------------------------------- Exhibit 10.14 (a) Purchase and Sale at the Initial Closing. Subject to the terms and conditions set forth in this Agreement, the Company agrees to sell to the Purchasers, and each of the Purchasers severally (and not jointly) agrees to purchase from the Company, the number of shares of Series A Preferred Stock indicated opposite such Purchaser's name on the Schedule of Purchasers for a price of $2.1025 per share. The sale and purchase of the Series A Preferred Stock shall take place at the offices of Kaye, Scholer, Fierman, Hays & Handler, LLP, 425 Park Avenue, New York, New York 10022, at 10:00 a.m., New York City time, at a closing (the "Initial Closing") to occur as soon as practicable after satisfaction or waiver of the conditions to Closing set forth in Sections 6 and 7. At the Initial Closing, the Company will deliver to each Purchaser the Series A Preferred Stock to be purchased by such Purchaser in the form of a single certificate (or such greater number of certificates representing such shares as such Purchaser may request), each dated the date of the Initial Closing and registered in such Purchaser's name (or in the name of such Purchaser's nominee(s)), against delivery by such Purchaser to the Company or its order of immediately available funds in the amount of the purchase price for such shares of Series A Preferred Stock. If at the Initial Closing, the Company shall fail to tender to any Purchaser the Series A Preferred Stock to be purchased by such Purchaser, or any of the conditions specified in Section 6 shall not have been fulfilled to the satisfaction of such Purchaser, such Purchaser shall, at its election, be relieved of all further obligations under this Agreement, without thereby waiving any other rights such Purchaser may have by reason of such failure or such nonfulfillment. The closing of the purchase and sale of Shares by any party exercising his/her/its co-investment rights under the Existing Stockholders Agreement during the Stockholder Solicitation Period shall occur simultaneously with the Initial Closing. At the Initial Closing, each such party shall become a party to this Agreement and the Restated Stockholders Agreement by signing such agreements and such party shall not be deemed a party to such agreements until such Initial Closing. (b) Purchases and Sales Subsequent to the Initial Closing. If less than all of the Shares are sold at the Initial Closing, subject to the terms and conditions of this Agreement and, with the written consent of UBS, the Company may sell up to the balance of the authorized but unissued Shares (the "Remaining Shares") to such institutional investors, venture capital or private equity firms or funds or strategic investors as the Company may determine with the consent of UBS, at the same price per share as the Shares purchased and sold at the Initial Closing. Any such sale shall be upon the same terms and conditions as those contained herein, may occur in one or more closings ("Subsequent Closing(s)") and such persons or entities shall become parties to this Agreement, and the Restated Stockholders Agreement, and shall have the rights and obligations of a Purchaser hereunder and thereunder. Such persons or entities may become parties to such agreements by (i) executing copies of such agreements by appending additional signature pages to such agreements containing their signatures and (ii) appending additional pages to or revising Exhibit A hereto. Any Subsequent Closing shall take place at a location and on a date and time as the Company and such purchaser of Remaining Shares shall mutually agree which shall be a Business Day no later than thirty Exhibit 10.14 (30) days from the Initial Closing. The Initial Closing and any Subsequent Closing are individually referred to herein as a "Closing" and, collectively, as the "Closings." 3. Representations and Warranties of the Company. Subject to the exceptions set forth in the Schedule of Exceptions attached as Exhibit C hereto (the "Schedule of Exceptions"), the Sellers (jointly and severally, except that the Company shall have no liability for representations and warranties relating to IFX or Latin Guide) represent and warrant to each of the Purchasers that: (a) Organization and Good Standing. (i) Except as set forth in the Schedule of Exceptions, the Company and each of its Subsidiaries is an entity duly organized and validly existing under and by virtue of the laws of its state or country of incorporation and is in good standing under such laws (to the extent the concept of good standing is recognized under the laws of such jurisdictions). The Company and each of its Subsidiaries is qualified, licensed or domesticated as a foreign corporation in all jurisdictions where the failure to be so qualified, licensed or domesticated would have a Material Adverse Effect. The Company and each of its Subsidiaries has full power and authority (corporate and other) to own, lease and operate its properties and assets and to operate the Business as currently being operated. (ii) The minute books of the Company and each of its Subsidiaries, as previously made available to the Purchasers, contain accurate records of all meetings of and resolutions of, or written consents by, its shareholders and its board of directors (or committees thereof) since the date of its incorporation. (b) Authorization. Except as set forth in the Schedule of Exceptions: (i) Each Seller (x) has all requisite right, power and authority (corporate or otherwise) to execute and deliver this Agreement and each of the other agreements and instruments referred to herein to be entered into by such party at or prior to any Closing (including the Certificate) in connection with the consummation of the transactions contemplated by this Agreement (the "Other Agreements") and to perform its obligations and consummate all of the transactions contemplated hereunder and thereunder, including the sale and issuance of the shares of Series A Preferred Stock to be purchased by each Purchaser at the Initial Closing, and (y) all corporate proceedings and corporate authorizations which are necessary on the part of such Seller and each of its Subsidiaries have been taken or secured to authorize the execution, delivery and performance of this Agreement and each of the Other Agreements by such Seller, it being understood and agreed that any sale pursuant to Section 2(b) hereof shall require approval of the Board of Directors of the Company. (ii) This Agreement has been duly executed and delivered and constitutes, and each of the Other Agreements when executed and delivered by each Seller Exhibit 10.14 party thereto, will constitute the legal, valid and binding obligations of such Seller, enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency or other similar laws affecting the enforceability of creditors' rights generally and court decisions with respect thereto, and the discretion of courts in granting equitable remedies. (iii) The shares of the Series A Preferred Stock to be purchased by each Purchaser at the applicable Closing have been duly authorized and, when delivered, will be duly and validly issued and outstanding, fully paid and nonassessable, and will be free of Encumbrances, other than those contained in this Agreement, the Existing Stockholders Agreement, the Restated Stockholders Agreement and the Certificate, existing under applicable securities laws or created by the Purchasers. The New Common Stock of the Company issuable upon conversion of the Series A Preferred Stock (the "Conversion Shares"), as of the applicable Closing, will (x) be duly authorized, (y) be reserved for issuance upon conversion of the Series A Preferred Stock issued at the applicable Closing, and (z) when issued, be duly and validly issued and outstanding, fully paid and nonassessable and free of Encumbrances, other than those contained in this Agreement, the Existing Stockholders Agreement, the Restated Stockholders Agreement and the Certificate, existing under applicable securities laws or created by the Purchasers. (c) Capital Stock. (i) (A) On the date hereof, the authorized capital stock of the Company consists of (1) ten (10) million shares of Class A Common Stock, par value $.001 per share (the "Class A Common Stock"), of which ten (10) million shares of Class A Common Stock are issued and outstanding, (2) twenty-five (25) million shares of Class B Common Stock, par value $.001 per share (the "Class B Common Stock"), of which 1,833,333.34 shares of Class B Common Stock are issued and outstanding, and (3) ten (10) million shares of Preferred Stock, par value $.001 per share (the "Preferred Stock"), none of which shares of Preferred Stock are issued and outstanding; and (B) immediately after the Closings, assuming that all of the Shares of Series A Preferred Stock have been issued and sold hereunder, the authorized capital of the Company will consist of (1) 50,000,000 shares of common stock, par value $.001 per share (the "New Common Stock"), of which 11,833,333.34 shares of New Common Stock will be issued and outstanding, and (2) twenty (20) million shares of Preferred Stock, of which 11,890,606 shares of Preferred Stock will have been designated Series A Preferred Stock and of which 11,890,606 shares of Series A Preferred Stock will be issued and outstanding. (The Class A Common Stock, Class B Common Stock and New Common Stock are collectively referred to herein as the "Common Stock.") (ii) Except as set forth in the Schedule of Exceptions or as expressly contemplated hereby, the Company has not (A) issued or granted, (B) agreed to issue or grant, or (C) caused or permitted any of its Subsidiaries to issue or grant, any option, warrant, right or other Convertible Security which affords any Person the right to purchase or otherwise acquire any shares of the Common Stock or the Series A Preferred Exhibit 10.14 Stock, or any other security of the Company or any of its Subsidiaries. Except as set forth in the Schedule of Exceptions or as provided in the Certificate, neither the Company nor any of its Subsidiaries is subject to any obligation (contingent or otherwise) to purchase or otherwise acquire or retire any shares of its securities. (iii) All of the issued and outstanding securities of the Company and its Subsidiaries have been duly authorized and validly issued, are fully paid, nonassessable and free of preemptive rights (other than those preemptive rights set forth in the Schedule of Exceptions) and other Encumbrances other than those existing under the Existing Stockholders Agreement, the Restated Stockholders Agreement and organizational documents of the relevant entity or by virtue of Applicable Laws, and were issued in compliance with all Applicable Laws, including those regulating the offer, sale or issuance of securities. (iv) Except as set forth in the Schedule of Exceptions, no Person has any rights of first refusal or similar rights or any preemptive rights in connection with the issuance of the shares of Series A Preferred Stock or Conversion Shares, or with respect to any future offer, sale or issuance of securities by the Company, any of its Subsidiaries or any of its stockholders, other than as provided in this Agreement or after the Initial Closing, the Restated Stockholders Agreement or the Certificate. (v) The Schedule of Exceptions sets forth a true and correct list of (1) each of the Company's shareholders of record, indicating the number and class of shares owned by each shareholder of record and (2) each of the holders of record of Convertible Securities, the number and type of Convertible Securities owned by such holder of record. LGI is the record and beneficial owner of all shares of the Company indicated as being owned by it in the Schedule of Exceptions. (vi) True and correct copies of all documents relating to the issuance and terms of all outstanding shares of capital stock and other equity securities of the Company have been provided to UBS. The names of all Persons to whom options (the "Optionholders") to purchase Common Stock or other equity securities of the Company have been granted and the number of options granted to each Optionholder are set forth in the Schedule of Exceptions. All such options will be issued under the Stock Option Plan. Other than with respect to the number of options granted, the Company is not under any obligation or subject to any agreement or commitment with respect to the terms of such option, including exercise price and vesting schedule, except as set forth in the Stock Option Agreement. (vii) True and correct copies of all agreements in full force and effect on the date hereof among the Company and holders of equity securities of the Company relating to their ownership of such equity securities are attached hereto as Exhibit M (the "Existing Stockholders Agreement"). Exhibit 10.14 (d) Subsidiaries. (i) The name of each Subsidiary of the Company, the jurisdiction of its incorporation and the ownership of capital stock of its shareholders are listed in the Schedule of Exceptions. Except as set forth in the Schedule of Exceptions, all of the issued and outstanding shares of capital stock of each Subsidiary are 100% owned, beneficially and of record, by the Company (other than a single share (if any) of such Subsidiary held by a nominee of the Company in order to comply with Applicable Law), are validly issued, fully paid and nonassessable, and free from Encumbrances, other than those existing under organizational documents or by virtue of Applicable Laws. (ii) Except for the capital stock or other securities of the Subsidiaries listed on the Schedule of Exceptions, the Company does not own, directly or indirectly, beneficially or of record, or have any obligations to purchase or otherwise acquire, any capital stock or other securities of any Person. None of the Subsidiaries owns, directly or indirectly, beneficially or of record, or has any obligation to acquire any capital stock or other securities of any Person. Exhibit 10.14 (e) Compliance With Material Instruments. Except as set forth in the Schedule of Exceptions, the Company and each Subsidiary is not in violation of (i) any Applicable Law, (ii) any term of its Certificate of Incorporation or Bylaws (or equivalent documents in its jurisdiction of organization), or (iii) any Contract to which it is subject and which is material to the Business (collectively, the "Material Instruments"). The execution and delivery by the Company of this Agreement and the Other Agreements, the performance by the Company of its obligations hereunder and thereunder and the consummation by the Company of the transactions contemplated hereby and thereby, including the issuance and sale of the Series A Preferred Stock, the issuance of the Conversion Shares and the taking of any other action contemplated by this Agreement or the Other Agreements, will not (i) result in (A) any violation of any Applicable Law, or (B) any violation of any term of the Company's or any of its Subsidiaries' Certificate of Incorporation or Bylaws (in the case of the Company, as amended by the Restated Certificate of Incorporation and Restated By-Laws) (or equivalent documents), or (C) any violation of or any conflict with or a default (with or without notice, lapse of time or both) under any of the Material Instruments, which violation, conflict or default might reasonably be expected to materially adversely affect the ability of the Company or any of its Subsidiaries to satisfy its obligations under this Agreement, any of the Other Agreements or any of the Material Instruments, (ii) accelerate or constitute an event entitling the holder of any indebtedness of the Company or any of its Subsidiaries to accelerate the maturity of any such indebtedness or to increase the rate of interest presently in effect with respect to such indebtedness, or (iii) result in the creation of any Encumbrance upon any of the material properties or assets of the Company or any of its Subsidiaries. The performance by the Company or any of its Subsidiaries of its obligations and the enforcement of its rights under the Material Instruments will not have a Material Adverse Effect. (f) Good Title. The Company and each of its Subsidiaries has good title to, a valid license to, or a valid leasehold interest in, the properties and assets used by it, in each case free and clear of all Encumbrances, except liens for current property taxes not yet due and payable and any immaterial workmen's, repairmen's, warehouseman's and carriers' liens arising in the ordinary course of business. The buildings, equipment and other tangible assets of the Company and each of its Subsidiaries are in all material respects in good operating condition and repair, free from any known defects and are usable in the ordinary course of the Business; and the Company and each of its Subsidiaries owns, or has a valid leasehold interest in or license to use, all assets necessary for the conduct of the Business as presently conducted. (g) Litigation. (i) There are no actions, proceedings, investigations (civil, criminal, regulatory or otherwise), arbitrations, claims, demands or grievances ("Actions") pending against the Company or any Subsidiary (or, to the best knowledge of the Company, any basis therefor or threat thereof). Exhibit 10.14 (ii) There are no judgments unsatisfied against the Company or any Subsidiary or consent decrees or injunctions to which the Company, any Subsidiary or any assets of the Business are subject. (h) Tax Matters. The Company and each of its Subsidiaries (i) has timely filed (including extensions) all Tax returns that are required to have been filed by it with all appropriate Governmental Authorities (and all such Tax returns are true, complete and correct in all material respects), (ii) has timely paid all Taxes owed by it or withheld and remitted to the appropriate Governmental Authority all Taxes which it is obligated to withhold and remit from amounts owing to any employee (including social security taxes), creditor, customer or third party, and (iii) has not waived any statute of limitations with respect to Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. The assessment of any additional Taxes for periods for which returns have been filed is not expected to exceed the recorded liability therefor, and there are no material unresolved questions or claims concerning the Tax liability of the Company or any Subsidiary. There is no pending dispute with, or notice from, any taxing authority relating to any of the Tax returns which, if determined adversely to the Company or any Subsidiary, would result in the assertion by any taxing authority of any valid deficiency in a material amount for Taxes, and to the best knowledge of the Company, there is no proposed liability for a deficiency in any Tax to be imposed upon the properties or assets of the Company, the Business or any Subsidiary. There are no federal, state, local or foreign Tax Encumbrances on any asset of the Company, the Business or any Subsidiary (other than Encumbrances for Taxes not yet due and payable). (i) Registration Rights. Except as set forth in the Schedule of Excep tions and the Restated Stockholders Agreement, the Company is not a party to any agreement or commitment which obligates the Company to register under the Securities Act of 1933, as amended (the "Securities Act"), or any other securities law of any jurisdiction, any of its presently outstanding securities or any of its securities which may hereafter be issued. (j) Offering. Subject to the accuracy of the Purchasers' representations in Section 4 of this Agreement, the offer, issuance and sale of the Series A Preferred Stock and the Conversion Shares constitute, and will constitute, transactions exempt from the registration and prospectus delivery requirements of Section 5 of the Securities Act and analogous provisions of the Applicable Laws of all other jurisdictions, and the Company has obtained (or is exempt from the requirement to obtain) all qualifications, permits and other consents required by all Applicable Laws governing the offer, sale or issuance of securities. (k) Insurance. The Schedule of Exceptions contains a true, complete and correct list of all insurance policies covering the Business and the respective material assets of the Company and each Subsidiary. IFX and certain Subsidiaries of IFX maintain in full force and effect such insurance policies. Neither the Company nor any Subsidiary is in default with respect to any provision contained in any insurance policy. Neither the Exhibit 10.14 Company nor any Subsidiary has failed to give anynotice under any insurance policy in due time. (l) Certain Transactions. Except as set forth in the Schedule of Exceptions, neither the Company nor any of its Subsidiaries is indebted, either directly or indirectly, to any of the officers, directors, advisory board members or stockholders of the Company or any Subsidiary, or to any Affiliates of the foregoing, in any amount whatsoever, other than for payment of salary for services rendered and reasonable expenses; except as set forth on the Schedule of Exceptions, none of said officers, directors, advisory board members, stockholders and their respective Affiliates are indebted to the Company or any Subsidiary or, to the best knowledge of the Company, have any direct or indirect ownership interest in, or any contractual relationship with, any Affiliates of the Company or any Subsidiary or with any Person with which the Company or any Subsidiary has a business relationship, or any Person which, directly or indirectly, competes with the Company or any Subsidiary. Except as set forth in the Schedule of Exceptions, no such officer, director, advisory board member or stockholder, nor any of their respective Affiliates, is, directly or indirectly, a party to or otherwise an interested party with respect to any contract, agreement, arrangement or understanding with the Company or any Subsidiary other than agreements for the issuance of stock options to any such Person or Optionholder. (m) Contracts. (i) Except as expressly contemplated by this Agreement, or as set forth in the Schedule of Exceptions, the Company and each of its Subsidiaries is not a party to, or bound by, and none of their respective assets is or will be subject to, any written or oral agreement, contract, commitment, order, license, lease or other instrument and arrangement of the types described below (the "Contracts"): (A) any pension, profit sharing, stock option, employee stock purchase or other plan providing for deferred, incentive or other compensation to employees, any other employee benefit plan, or any contract with any labor union; (B) any contract for the employment or personal services of any officer, individual employee or other person or entity on a full-time, part-time, consulting, advisory or other basis or which, in any way, restricts or limits the right of the Company or any Subsidiary to terminate such contract at will; (C) any loan agreement, indenture, letter of credit, security agreement, mortgage, pledge agreement, deed of trust, bond, note, or other agreement relating to the borrowing of money in excess of $25,000 or to the mortgaging, pledging, transferring of a security interest, or otherwise placing an Encumbrance in excess of $25,000 on any material Exhibit 10.14 asset or material group of assets (whether tangible or intangible) of the Company or any Subsidiary; (D) any guarantee of the payment or performance of any Person in excess of $25,000; any agreement to indemnify any Person or act as a surety for an amount in excess of $25,000; any other agreement to be contingently or secondarily liable for the obligations of any Person; or any "keep well" or similar credit support arrangements; (E) any lease or agreement under which it is the lessee of or holds or operates any property, real or personal, owned by any other party requiring annual payments in excess of $25,000; (F) any contract or agreement or group of related agreements with the same party or any group of affiliated parties which requires or may in the future require an aggregate payment by or to the Company or any Subsidiary in excess of $25,000; (G) any contract or agreement prohibiting it from freely engaging in any business or competing anywhere in the world; (H) any material licenses, licensing arrangements and other similar contracts providing in whole or in part for the use by a third party of, or limiting the use by the Company or any Subsidiary of, any Intellectual Property; (I) any brokerage or finder's agreements relating to this Transaction; (J) any joint venture, partnership and similar contracts involving a sharing of profits or expenses (including joint development and joint marketing contracts); (K) any asset purchase agreements, stock purchase agreements and other acquisition or divestiture agreements, including any agreements relating to the sale, lease or disposal of any assets of the Company or any of its Subsidiaries for consideration in excess of $25,000 or involving continuing indemnity or other obligations; (L) any material sales agency, marketing or distributorship agreements; (M) any contracts which contain "take or pay" provisions; (N) [Intentionally omitted]; Exhibit 10.14 (O) any contracts, agreements or arrangements regarding pre- emptive rights, rights of first refusal, put or call rights or obligations, anti-dilution rights or other restrictions on or with respect to the issuance, sale or redemption of the capital stock of the Company or any of its Subsidiaries; (P) any contracts, agreements or arrangements regarding the rights, obligations, restrictions on or with respect to the voting of any of the capital stock of the Company or any of its Subsidiaries or the registration of such stock for offering to the public pursuant to the Securities Act; and/or (Q) any other contract, agreement or commitment not the subject matter of clauses (A) through (P) above which is or could be reasonably expected to be material to the Company, any Subsidiary or the Business. (ii) Except as set forth in the Schedule of Exceptions, the Company and each of its Subsidiaries has performed all obligations required to be performed by it to date and is not in material default under, or in material breach of, or in receipt of any claim of material default under or material breach of, any agreement to which it is a party or to which any of its assets is subject; the Company has no present expectation or intention of not fully performing, or of permitting any of its Subsidiaries not to perform fully, all such obligations; and the Company does not have any knowledge of any material breach or anticipated material breach by the other parties to any contract or commitment to which it or any of its Subsidiaries is a party or to which any of its or their assets is subject. (iii) To the knowledge of the Company, none of the officers of the Company or any Subsidiary is a party to any oral or written contract which prohibits, restricts or limits his or her performance of his or her duties or the fulfillment of his or her obligations as an employee and an officer of the Company or any Subsidiary. (iv) Each Contract is a legal, valid, binding and enforceable obligation of the Company or a Subsidiary, and to the knowledge of the Company, the other parties thereto, subject to applicable bankruptcy, insolvency, or other similar laws affecting the enforceability of creditors' rights generally and court decisions with respect thereto, and the discretion of courts in granting equitable remedies. Except as set forth in Schedule of Exceptions, no Consent of any Person is required under any Contract as a result of or in connection with the execution and delivery by the Company or any of its Subsidiaries or the performance by the Company or any of its Subsidiaries of its obligations hereunder or under any of the Other Agreements or the consummation by the Company or any of its Subsidiaries of the transactions contemplated hereby or thereby. Exhibit 10.14 (n) Governmental Consents. Except with respect to HSR Approval and the filing of the Certificate and the Restated Certificate of Incorporation with the Secretary of State of the State of Delaware, no Governmental Approvals or Consents are required to be obtained under Applicable Law or the Certificate of Incorporation and By-Laws of the Company in connection with (i) the execution, delivery or performance by the Company of this Agreement or any of the Other Agreements or the consummation of any transaction contemplated hereby or thereby, and (ii) the carrying on of the Business as it is presently carried on and is contemplated to be carried on, except as have been obtained or accomplished and except for immaterial Governmental Approvals or Consents, except as set forth on the Schedule of Exceptions. All such Governmental Approvals and Consents which are required to be obtained or made prior to the Initial Closing have been duly obtained or accomplished and are in full force and effect and the Company and its Subsidiaries are in compliance in all material respects with each such Governmental Approval and Consent. (o) Officers, Employees and Labor. (i) The Company and each of its Subsidiaries has complied in all material respects with all Applicable Laws relating to the employment of labor, including provisions thereof relating to wages, hours, social welfare, equal opportunity and collective bargaining. The Company does not have any material labor relations problems. All the employment agreements entered into between the Company or any Subsidiary, on the one hand, and their respective employees, on the other hand, are in full force and effect. (ii) The Schedule of Exceptions contains a list of all officers of the Company and each of its Subsidiaries and all other current employees and consultants whose current annual salary or rate of compensation (including bonuses, commissions and inventive compensation) is $25,000 or more, together with their current job titles or relationship to the Company or its Subsidiaries. None of the Persons referred to above, nor any other employee or consultant of the Company and its Subsidiaries, has notified the Company or such Subsidiary that such Person will cancel or otherwise terminate such Person's relationship with the Company or such Subsidiary, or is being terminated by the Company or such Subsidiary. (iii) To the Company's knowledge, none of the officers or employees of the Company or any of its Subsidiaries is in breach of any covenant or agreement with any previous employer or other Person with regard to (A) restrictions on competition with the business of such previous employer or other Person, (B) solicitation of the employees of such previous employer or other Persons, or (C) non-disclosure of the confidential or proprietary information of such previous employer or other Person. (iv) Except as set forth on the Schedule of Exceptions, the Company and its Subsidiaries do not have any Benefit Plans. None of the Benefit Plans set forth in the Schedule of Exceptions constitutes a pension or retirement plan or other Exhibit 10.14 plan which is required to be funded under Applicable Law. The Company has delivered to the Purchasers true, correct and complete copies of all documents, summary plan descriptions, insurance contracts, third party administration contracts and all other documentation created to embody all Benefit Plans, plus descriptions of any Benefit Plans that have not been reduced to writing. (v) Except for required contributions for the current plan year, no material liability has been or is expected to be incurred by the Company under or pursuant to any Applicable Law relating to Benefit Plans and, to the best knowledge of the Company, no event, transaction or condition has occurred or exists that could result in any such liability to the Company or any of its Subsidiaries or, following the Closing, the Company, its Subsidiaries, the Purchasers or any such Benefit Plan. (vi) Except as set forth on the Schedule of Exceptions, each of the Benefit Plans listed in the Schedule of Exceptions is and has at all times been in compliance in all material respects with all applicable provisions of Applicable Laws. (vii) Except as specifically set forth in the Schedule of Exceptions, the execution and performance of the transactions contemplated by this Agreement will not (either alone or upon the occurrence of any currently planned additional or subsequent event) constitute an event under any Benefit Plan or individual agreement that will or may result in any payment (whether of severance pay or otherwise), acceleration, vesting or increase in material benefits with respect to any employee, former employee, consultant, agent or director of the Company or any Subsidiary. (p) Compliance with Laws. The Company and each of its Subsidiaries is not, in any material respects, in violation of any Applicable Laws and has not received notice of any such violation. (q) Intellectual Property. Except as set forth in the Schedule of Exceptions, the Company owns free and clear of all Encumbrances, or possesses and is validly licensed under, all Intellectual Property material to the operation of the Business, as conducted in the past, as presently conducted and as contemplated to be conducted. Any such licenses are in full force and effect. No past, current, or planned activity, service or product of the Company or any Subsidiary infringes or conflicts with the Intellectual Property of any third party. The Company and its Subsidiaries have taken appropriate steps and measures to establish and preserve ownership of or right to use all Intellectual Property material to the operation of the Business. The Company owns all rights in and to any and all Intellectual Property used or planned to be used by the Company or any Subsidiary, or covering or embodied in any past, current or planned activity, service or product of the Company or any Subsidiary, which Intellectual Property was made, developed, conceived, created or written by any consultant retained, or any employee employed, by the Company or any Subsidiary. To the Company's knowledge, no former or current employee, and no former or current consultant, of the Company or any Subsidiary has any rights in any Intellectual Property made, developed, conceived, created or written by the aforesaid employee or consultant during the period of his retention by the Company or the Subsidiary which can be asserted against the Company or any Subsidiary. The Company owns, or has full and unrestricted rights to use, any and all domain names containing the word "Tutopia" (including the word "Tutopia" in combination with any non-military extension, including Tutopia.com, Tutopia.net and Tutopia.org.). The domain name Tutopia.com does not and will not receive an amount of Internet traffic intended for any website or webpage of the Company that would have a Material Adverse Effect. Except as set forth on the Schedule of Exceptions, neither the Company nor any Subsidiary has knowledge of any Intellectual Property owned by the Company or any Subsidiary and material to the operation of the Business which is the subject of any Encumbrance or other agreement granting rights therein to any third party. Except as set forth on the Schedule of Exceptions, neither the Company nor any Subsidiary is obligated or under any liability whatsoever to make any payments by way of royalties, fees or otherwise to any owner, licensor of, or other claimant to, any Intellectual Property, with respect to the use thereof or in connection with the conduct of the Business, or otherwise. The Company and each of its Subsidiaries has taken reasonable steps to protect, maintain and safeguard the Intellectual Property material to the Business, including any Intellectual Property for which improper or unauthorized disclosure would impair its value or validity, and has executed and has had executed appropriate nondisclosure and confidentiality agreements and made all appropriate filings and registrations in connection with the foregoing. Neither the Company nor any Subsidiary has knowledge of any infringement by any third party of any Intellectual Property of the Company or any Subsidiary. There has been no judgment, decree, injunction, rule, or order rendered by any Governmental Authority, and no claim made against the Company or any Subsidiary, asserting the invalidity, abuse, misuse or unenforceability of any Intellectual Property material to the operation of the Business, or that would limit, cancel, or question the validity of, or the rights of the Company or any Subsidiary in, any Intellectual Property material to the operation of the Business. (r) Environmental Matters. (i) The Company has complied in all material respects with all applicable Environmental Laws. There is no pending or, to the knowledge of the Company, threatened civil or criminal litigation, written notice of violation, formal administrative proceeding, or investigation, inquiry or information request by any Governmental Authority, relating to any Environmental Law involving the Company or any of its Subsidiaries. (ii) Neither the Company, nor to the knowledge of the Company, any third party has released any Materials of Environmental Concern into the environment at any parcel of real property or any facility formerly or currently owned, leased, operated or controlled by the Company. The Company is not aware of any releases of Materials of Environmental Concern at parcels of real property or facilities other than those owned, leased, operated or controlled by the Company that could reasonably be expected to have an impact on the real property or facilities owned, leased, operated or controlled by the Company. Exhibit 10.14 (iii) The Company is not aware of any environmental reports, investigations and audits (whether conducted by or on behalf of the Company or a third party, and whether done at the initiative of the Company or directed by a Governmental Authority or other third party) issued or conducted during the five years preceding the date hereof relating to premises currently or previously owned, leased or operated by the Company or any of its Subsidiaries. (s) Certain Practices. Neither the Company nor any Subsidiary (nor any constituent corporation of any merger of which the Company or any Subsidiary is a surviving corporation, or other Person of which the Company or any Subsidiary is the surviving corporation) nor any of their respective officers, employees, directors, representatives or agents has, since the inception of the Business by the Company or any of its Subsidiaries (or their predecessors): (i) taken any action in furtherance of any boycott not sanctioned by the United States; (ii) entered into any contract or agreement to conduct any transaction with any Governmental Authority, agent, representative or resident of, or any Person based or resident in, any of the following countries: Angola (UNITA); Burma (Myanmar); Cuba; Iran; Iraq; Libya; North Korea; Sudan; Syria; and the Federal Republic of Yugoslavia (Serbia and Montenegro); or (iii) knowingly offered, promised, authorized or made, directly or indirectly, (A) any unlawful payments under Applicable Laws, or (B) any payments or other inducements (whether or not unlawful), to any government official, including any official of an entity owned or controlled by a government, political party or official thereof or any candidate for political office, with the intent or purpose of: (1) influencing any act or decision of such official in his official capacity; (2) inducing such official to do or omit to do any act in violation of the lawful duty of such official; (3) receiving an improper advantage; or (4) inducing such official to use his influence with a Governmental Authority to affect or influence any act or decision of such Governmental Authority; in order to assist the Company or any Subsidiary in obtaining or retaining business for or with, or directing business to, any person. (t) Brokers. No finder, broker, agent, financial advisor or other intermediary has acted on behalf of the Company or any of its Affiliates in connection with the offering of the Series A Preferred Stock or the negotiation or consummation of this Agreement or the Other Agreements or any of the transactions contemplated hereby or thereby. All such negotiations or the consummation of this Agreement or the Other Agreements or any of the transactions contemplated hereby or thereby will not give rise to any valid claim against the Company, any Subsidiary or any of the Purchasers for any brokerage or finder's commission, fee or similar compensation. (u) No Undisclosed Liabilities. Except as set forth in the Schedule of Exceptions or in the Financial Statements, neither the Company nor any Subsidiary has any liabilities, obligations, claims, commitments or debts of any nature, whether known or unknown, whether due or becoming due, or asserted or unasserted (whether fixed, accrued, absolute, contingent, secured or otherwise). The Schedule of Exceptions sets forth a true and complete schedule of accrued liabilities and future payments due with respect to any Exhibit 10.14 acquisitions by the Company or any Subsidiary of any equity securities or assets of any Person. (v) Disclosure. This Agreement (including the Schedules and Exhibits hereto) does not contain any untrue statement of any material fact or omits to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. To the Company's knowledge, there are no facts that, individually or in the aggregate, would have a Material Adverse Effect that have not been set forth in this Agreement (including the Schedule of Exceptions). (w) Financial Statements. The Company has provided the Purchasers with (A) the consolidated unaudited balance sheet of the Company and its Subsidiaries at June 30, 2000, together with the related unaudited consolidated income and cash flow statements for the twelve (12) month period then ended and (B) the financial projections of the Company and its Subsidiaries for the period from July 1, 2000 through August 31, 2001, copies of which are attached hereto as Exhibit I hereto (together, the "Financial Statements"). The Financial Statements (excluding any projections) fairly present the true, complete and correct financial position, results of operation and statements of cash flow of the Company and its Subsidiaries on a consolidated basis as of the dates and for the periods indicated therein and have been prepared in accordance with GAAP (except as otherwise indicated therein), subject to customary year-end adjustments and without notes. The financial projections referred to in clause (B) above have been prepared in good faith based upon the Company's books and records and assumptions, which the Company believes are reasonable as of the date of this Agreement. (x) Availability and Transfer of Foreign Currency. All requisite foreign exchange control approvals and other authorizations, if any, by any Governmental Authority have been validly obtained and are in full force and effect to assure: (a) the ability of the Company and its Subsidiaries to make any and all payments necessary to (i) each Purchaser for dividend payments on the Common Stock and the Series A Preferred Stock, or (ii) any other party in order to conduct the Business; (b) the ability of the Company's Subsidiaries to make any and all payments of dividends and other distributions to the Company and any and all other intercompany payments to or from the Company; and (c) the availability of dollars to enable each Purchaser to convert its investment to dollars, if necessary, if such Purchaser liquidates its investment in the Series A Preferred Stock or the Common Stock. (y) Absence of Changes. Except as set forth in the Schedule of Exceptions, since the inception of the Company, neither the Company nor any of its Subsidiaries has: (i) suffered any Material Adverse Effect; Exhibit 10.14 (ii) incurred, assumed, guaranteed or discharged any debt, claim, commitment, obligation or liability, absolute, accrued, contingent or otherwise, whether due or to become due (including any indebtedness for borrowed money), in excess of $25,000, individually or in the aggregate; (iii) mortgaged, pledged or subjected to any other Encumbrance, any property, business or assets, tangible or intangible; (iv) sold, transferred, leased to others or otherwise disposed of any of the assets of the Business, in excess of $25,000, individually or in the aggregate, or canceled or compromised any debt, claim, commitment, liability or obligation, or waived or released any right of substantial value, involving an amount in excess of $25,000, individually or in the aggregate; (v) received any written notice of termination of any Contract with required payments thereunder in excess of $25,000; (vi) suffered any damage, destruction or loss (whether or not covered by insurance) to property, in excess of $25,000, individually or in the aggregate; (vii) transferred or granted any rights under, or entered into any settlement regarding the breach, misappropriation, infringement or violation of, any Intellectual Property, or modified any existing rights with respect thereto in a manner involving payments by or to the Business in excess of $25,000, individually or $25,000 in the aggregate; (viii) with respect to amounts in excess of $25,000 per year, made any change in the rate of compensation, commission, bonus or other direct or indirect remuneration payable, or paid or agreed or made any enforceable oral promise to pay, conditionally or otherwise, any bonus, incentive, retention or other compensation, retirement, welfare, fringe or severance benefit or vacation pay, to or in respect of any employee, distributor or agent; (ix) made any change in its accounting, auditing or tax methods, practices or principles, except after the date hereof as required by Applicable Law; (x) encountered any labor union organizing activity, had any actual or threatened employee strikes, work stoppages, slowdowns or lockouts, or had any material and adverse change in its relations with its employees, distributors, agents, customers or suppliers; (xi) entered into any Contract, involving an amount per year in excess of $25,000, individually or in the aggregate, or paid or agreed to pay any brokerage or finder's fee, or incurred any severance pay obligations by reason of, this Agreement or any of the transactions contemplated hereby; Exhibit 10.14 (xii) made any grant of credit to any customer or distributor on terms or in amounts materially more favorable than had been extended to that customer or distributor in the past; or (xiii) taken any action or omitted to take any action that has resulted or could reasonably be expected to result in the occurrence of any of the foregoing. (z) Real Property Holding Company. The Company is not a real property holding company within the meaning of Section 897(c)(2) of the United States Internal Revenue Code of 1986, as amended. (aa) Investment Company Act. The Company is not, nor is it directly or indirectly controlled by or acting on behalf of, any Person that is an "investment company" within the meaning of the United States Investment Company Act of 1940, as amended. (bb) Subchapter S. The Company has not elected to be treated as a Subchapter S corporation or a collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the United States Internal Revenue Code of 1986, as amended. (cc) State Takeover Statutes. The Board of Directors of the Company has approved this Agreement, the Other Agreements and the transactions contemplated hereby and thereby and the provisions of any "fair price," "moratorium," "control share," "interested stockholders," "affiliated transaction" or other antitakeover statute or regulation, and any antitakeover or other similar restrictive provisions of the Company's Certificate of Incorporation, as amended, are not applicable to the transactions contemplated by this Agreement or Other Agreements. (dd) Funded Indebtedness. Neither the Company nor any Subsidiary is obligated with respect to any Funded Indebtedness, except as set forth in the Schedule of Exceptions. (ee) Business Operations. Immediately following the Initial Closing, the Company and its Subsidiaries will own, have a leasehold interest in or have license to use all of the assets, properties and rights necessary to enable it to operate their business in the same manner as currently operated. 4. Representations and Warranties of the Purchasers. Each Purchaser severally (and not jointly) represents and warrants to the Company that: (a) Investment Intent. The shares of Series A Preferred Stock and the related Conversion Shares to be purchased by and issued to the Purchaser pursuant to this Agreement are being acquired by the Purchaser solely for its own account, for investment purposes only, and with no present intention of distributing, selling or otherwise disposing of them. Exhibit 10.14 (b) Sophistication. Such Purchaser is able to bear the economic risk of an investment in shares of the Series A Preferred Stock to be purchased by it pursuant to this Agreement and the related Conversion Shares and can afford to sustain a total loss of such investment, and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the proposed investment and therefore has the capacity to protect its own interests in connection with the purchase of its respective shares of Series A Preferred Stock and the related Conversion Shares. (c) Illiquidity. Such Purchaser understands that there is no public market for the shares of Series A Preferred Stock to be purchased by it and the related Conversion Shares and that there may never be a public market for such stock, and that even if a market develops for such stock such Purchaser may have to bear the risk of its investment in such stock for a substantial period of time. (d) Accredited Investor. Such Purchaser is an "accredited investor" within the meaning of Regulation D promulgated under the Securities Act. In addition (but without limiting the effect of the Company's representations and warranties contained herein), such Purchaser has received such information as it considers necessary or appropriate for deciding whether to purchase its respective shares of Series A Preferred Stock and the related Conversion Shares. (e) Brokers. No finder, broker, agent, financial advisor or other intermediary has acted on behalf of such Purchaser in connection with the transactions contemplated by this Agreement or the Other Agreements. (f) Organization and Good Standing. With respect to any Purchaser which is an entity, such Purchaser is duly organized and validly existing under and by virtue of the laws of its state or country of incorporation and is in good standing under such laws (to the extent the concept of good standing is recognized under the laws of such jurisdictions). (g) Requisite Power and Authority. Such Purchaser has all necessary power and authority to execute and deliver this Agreement and the Other Agreements to which it is a party and to carry out their provisions. This Agreement has been duly executed and delivered by such Purchaser, and this Agreement constitutes, and each of the Other Agreements to which such Purchaser is a party when executed and delivered by such Purchaser will constitute, the legal, valid and binding obligations of such Purchaser, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, or other similar laws affecting the enforceability of creditors' rights generally and court decisions with respect thereto, and the discretion of courts in granting equitable remedies. (h) No Conflict. The execution and delivery by each Purchaser of this Agreement and the consummation of the transactions contemplated hereby by each Purchaser will not result in any violation of or default under, Applicable Law or any provision of the organizational documents of such Purchaser, any contract to which such Exhibit 10.14 Purchaser is a party or any applicable law, rule or regulation, which violation or default (other than of or under organizational documents) could reasonably be expected to (i) affect the validity of this Agreement or any agreement entered into pursuant hereto, (ii) affect in any material respect any action taken or to be taken by such Purchaser pursuant to this Agreement or any agreement entered into pursuant hereto or (iii) have a material adverse effect on the properties, assets, business or operations of such Purchaser. 5. Covenants. --------- (a) Pre-Closing Actions. As promptly as practicable, each of the parties to this Agreement will: (i) use commercially reasonable efforts to take all actions required of such party to do all other things reasonably necessary, proper or advisable to consummate the transactions contemplated hereby by the date of the Closing, (ii) file or supply, or cause to be filed or supplied, all applications, notifications and information required to be filed or supplied by such party pursuant to Applicable Law in connection with this Agreement, the issuance of the shares of Series A Preferred Stock pursuant hereto and the consummation of the other transactions contemplated hereby and by the Other Agreements; (iii) use all reasonable efforts to obtain, or cause to be obtained, all Consents (including all Governmental Approvals and any Consents required under any contract) necessary to be obtained by such party in order to consummate the transactions contemplated pursuant to this Agreement and the Other Agreements; and (iv) coordinate and cooperate with the other parties in exchanging such information and supplying such assistance as may be reasonably requested by the other parties in connection with any filings and other actions to be made or taken in order to consummate the transactions contemplated pursuant to this Agreement and by the Other Agreements. (b) Conduct of Business. Except as otherwise permitted by this Agreement or with the written consent of UBS, from the date hereof to the Initial Closing, the Company shall and shall cause each of its Subsidiaries to: (i) carry on the Business in the ordinary course, consistent with past practice and in substantially the same manner as heretofore conducted and, use commercially reasonable steps to preserve its relationships with customers, suppliers and others having business dealings with the Company and its Subsidiaries; (ii) not create, issue or sell any securities, or grant or otherwise issue any options or purchase rights with respect thereto (other than options or purchase rights provided for in a Contract described on the Schedule of Contracts), or enter into any contract or commitment to do any of the foregoing; (iii) not repay or prepay any liability or obligation in excess of $25,000 in the aggregate prior to its stated maturity; Exhibit 10.14 (iv) not declare or make any dividend, payment or distribution to its shareholders or purchase, retire, acquire or redeem any shares of its capital stock or other securities; (v) not mortgage, pledge or subject to lien or any other Encumbrance (other than any immaterial workmen's, repairmen's, warehousemen's and carrier's liens arising in the ordinary course of business) any of its material assets, tangible or intangible; (vi) not sell, assign, license, transfer or otherwise dispose of any of its assets having a fair market value of at least $25,000, individually or in the aggregate, or incur any liabilities or obligations (including liabilities with respect to indebtedness, capital leases or guarantees thereof) in excess of $25,000, individually or in the aggregate; (vii) not grant (or commit to grant) any increase in compensation (including incentive or bonus compensation) to any officer or any general increase in compensation (including incentive or bonus compensation) to its employees other than, in each case, normal merit and cost-of-living increases, or enter into any new, or amend or alter (or commit to enter into, amend or alter) in any material respect any existing, employment or consulting agreements or any Benefit Plan or collective bargaining agreement or commitment (including any commitment to pay retirement or other benefits), trust agreement or similar arrangement adopted by it with respect to its own employees; (viii) not amend its certificate of incorporation and by-laws (or equivalent documents in its jurisdiction of organization) except as provided herein or as required by Applicable Law; (ix) not merge or consolidate with or into any other Person; or make any acquisition of all or substantially all of the stock, assets or business of any other Person; (x) maintain in full force and effect existing insurance to the extent available on commercially reasonable terms; (xi) not make any capital expenditure or capital expenditure commitment (other than in an emergency) in excess of $25,000 in the aggregate; (xii) other than as may be reasonably required to consummate the transactions contemplated hereby, not make any modifications of or changes in or terminate any existing Contract set forth on the Schedule of Contracts; (xiii) not incur any debt or liability in excess of $25,000 in the aggregate; or Exhibit 10.14 (xiv) except as expressly required by this Agreement, enter into or assume any material contract, agreement, obligation, lease, license or commitment which involves an aggregate monetary commitment or exposure for all such contracts in excess of $25,000. (c) Access and Cooperation. Between the date hereof and the Initial Closing, the Company shall afford UBS and its officers, employees, counsel, accountants and other authorized representatives access to all of the Company's sites, properties, books and records and will furnish UBS with such additional financial and operating data and other information as to the Business and properties of the Company as UBS may from time to time request. The Company will cooperate with UBS, its representatives, auditors and counsel in the preparation of any documents or other material which may be required in connection with any documents or materials required by this Agreement. Neither the Company nor UBS will use any information obtained pursuant to this Section 5(c) for any purpose unrelated to the consummation of the transactions contemplated by this Agreement or the Business and, if this Agreement is terminated, each party will hold all information and documents obtained pursuant to this paragraph in confidence unless and until such time as such information or documents become publicly available other than by reason of any action or failure to act by such party or as it is advised by counsel that any such information or document is required by Applicable Law to be disclosed, and in the event of the termination of this Agreement, such party will, upon request by the other, deliver to the other all documents so obtained by it or destroy such documents. (d) Compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The Company and UBS have filed notifications resulting in the early termination of the waiting period under and in accordance with the Hart-Scott- Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Approval"), in connection with the consummation of the sale of the Shares to UBS contemplated herein. The parties shall promptly respond to any further inquiries received from the Federal Trade Commission or the Antitrust Division of the Department of Justice in connection with such filings. The costs and expenses thereof (including filing fees) shall be borne by IFX. (e) No Solicitation. Except as otherwise expressly authorized in this Agreement, from the date hereof to the Initial Closing, the Company and its Subsidiaries shall (and shall cause their respective employees, directors, agents and Affiliates to) immediately suspend any existing negotiations or discussions relating to any sale or other transfer of actual or beneficial ownership of the Company, any shares of capital stock of the Company or any Subsidiary, the Business or any of the Company's or any Subsidiary's assets (other than in the ordinary course of business) (collectively, a "Transaction"), and the Company and its Subsidiaries shall not, and shall cause their respective employees, directors, agents and Affiliates to not, (i) solicit any proposals or offers relating to a Transaction or (ii) negotiate or discuss with any third party concerning any proposal or offer for a Transaction, except as required by Applicable Law. Exhibit 10.14 (f) Books and Records. The Company shall, and shall cause each Subsidiary to, maintain books and records accurately disclosing all payments made. (g) Post-Closing Covenants. Until the consummation of a Qualified Public Offering, the Company will deliver to each holder of at least 10% of the shares of Common Stock on a Fully Diluted Basis shares of Series A Preferred Stock and/or Conversion Shares (as adjusted for stock splits, dividends,combinations and the like): (i) as soon as available, but in any event within ninety (90) days after the end of each fiscal year of the Company, a copy of the audited consolidated balance sheet of the Company and its Subsidiaries as at the end of such fiscal year and the related audited statements of consolidated income, stockholders' equity and changes in financial position of the Company and its Subsidiaries for such fiscal year, setting forth in each case (after the first full fiscal year of the Company) in comparative form the figures for the previous year which shall be prepared in accordance with GAAP applied consistently throughout the periods reflected therein and reported on without any qualification as to the scope of the audit by independent certified public accountants of nationally recognized standing; (ii) as soon as available but in any event within thirty (30) days after the end of each calendar month of the Company such monthly reports as are presented to management of the Company or any of its Subsidiaries; (iii) No later than thirty (30) days prior to the start of each fiscal year, an annual business plan setting forth the anticipated strategic business activities and goals of the Company and its Subsidiaries, including an expected annual budget and operating plan (containing projections of operating results) for the Company and its Subsidiaries; (iv) as soon as available, but in any event within forty-five (45) days after the end of each semi-annual fiscal period of the Company, an update to the monthly projections contained in the annual budget, operating plan and business plan furnished by the Company to the Purchasers pursuant to subsection (iii) above; (v) promptly upon receipt thereof, copies of all final reports submitted to the Company or any of its Subsidiaries by independent certified public accountants in connection with each annual, interim or special audit of the books of the Company or of any of its Subsidiaries made by such accountants, including, without limitation, any final comment letter submitted by such accountants to management in connection with their annual audit; (vi) promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company to all of its securityholders in their capacity as such or by any Subsidiary of the Company to its securityholders, other than the Company and of all Exhibit 10.14 regular and periodic reports and all final registration statements and final prospectuses, if any, filed by the Company or any of its Subsidiaries with any securities exchange or with the SEC or any Governmental Authority succeeding to any of its functions; (vii) as soon as available, but in any event within thirty (30) days after the end of each month and within ten (10) days prior to each regularly scheduled meeting of the Board of Directors of the Company, a narrative report prepared by the Chief Operating Officer of the Company detailing the activities, business developments, operating results and marketing efforts of the Company and its Subsidiaries since the date of the previous such report delivered by the Company pursuant to this subsection (vii); and (viii) such other information reasonably requested by such Purchaser. (h) Inspection Rights. Until the consummation of a Qualified Public Offer, each holder of at least 10% of the shares of Common Stock on a Fully Diluted Basis shares of Series A Preferred Stock and/or Conversion Shares shall have the right, upon reasonable notice, to visit and inspect any of the properties of the Company or any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Company or any of its Subsidiaries with its directors, officers and employees, all at such reasonable times and as often as may be reasonably requested; provided, however, that the Company shall not be obligated to provide access to any information which it reasonably considers to be a trade secret or similar confidential information unless the recipient of such information executes a nondisclosure agreement in a form reasonably acceptable to the Company. (i) Covenant Not to Compete. In furtherance of the sale to Purchasers of the Shares, IFX shall not, and IFX shall cause each of its Affiliates (whether existing as of the date hereof or in the future) not to, directly or indirectly, through equity ownership or otherwise, for themselves or any other Person, engage in the business of providing free ISP services, provide consulting services to any entity whose primary business consists of providing free ISP services, or otherwise compete with the Company or any of its Subsidiaries in providing free ISP services in Latin America ("Covenant Not to Compete") for a period of time equal to the term of the Dial Access Agreement (including any extensions thereof, if any) plus one (1) year, but in no event shall the term of the foregoing Covenant Not to Compete be less than three (3) years from the date of the Closing. Anything herein to the contrary notwithstanding, IFX and its Affiliates shall not be prohibited from (i) offering network service/wholesale Internet connection service to other free ISP businesses on a commercial basis, (ii) maintaining its current ownership interest in YUPI Internet Inc., e-Pagos and Centronet.com, or (iii) maintaining its current ownership interest in IFX Facilito, Inc. ("Facilito"), provided that Facilito does not engage in the business of providing Internet access to subscribers without such subscribers paying a fee for such access. Nothing herein shall be construed to prevent IFX or its Affiliates from owning, as an investment, up to 5% of a class of equity or debt securities issued by any competitor (or an entity which controls a competitor) of the Company that is publicly traded and registered under Section 12 of the Securities Exchange Act of 1934, as amended, or publicly traded on any foreign securities exchange. The parties agree that the covenants included in this Section 5(i) are, taken as a whole, reasonable in their geographic scope and their duration, and no party shall raise any issue of the reasonableness of the scope or duration of the covenants in any proceeding to enforce any such covenants. If, in any judicial proceeding, a court shall refuse to enforce any of the separate covenants deemed included in this paragraph, then the unenforceable covenant shall be deemed eliminated from these provisions for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants to be enforced. (j) Stockholder Solicitation. On the date hereof, the Company shall provide proper notice pursuant to the Existing Stockholders Agreement to its stockholders party thereto regarding such stockholders' preemptive right to purchase Shares under, and as a result of the transactions contemplated by, this Agreement and soliciting each such stockholder's agreement to enter into the Restated Stockholders Agreement. The Company shall use its reasonable best efforts to obtain each such stockholder's execution and delivery of the Restated Stockholders Agreement during the Stockholder Solicitation Period. All documents delivered to such stockholders shall be subject to the prior review and approval (not to be unreasonably withheld) of UBS. (k) Stock Option Agreements. All options listed in the Schedule of Exceptions will be evidenced by Stock Option Agreements. (l) Funded Indebtedness. (i) Immediately prior to the Initial Closing, IFX shall contribute to LGI and LGI shall in turn contribute to the Company all of the receivables relating to any Funded Indebtedness owed to IFX or any Subsidiary of IFX by the Company or any Subsidiary of the Company, excluding Permitted Indebtedness contemplated by paragraph (ii) below. (ii) At the Initial Closing, IFX and LGI shall cause the Company and its Subsidiaries not to have any Funded Indebtedness (other than any inter-company indebtedness among the Company and its Subsidiaries) in excess of $2 million, in the aggregate, which indebtedness shall consist of only third party ordinary course accounts payable ("Permitted Indebtedness"). To the extent that ordinary course accounts payable as of the Initial Closing are in an amount less than $2 million, then, upon receipt of satisfactory documentation of the payment of accounts payable constituting all or a portion of such difference by LGI or IFX, the Company shall reimburse IFX and/or LGI, as the case may be, for the cost thereof, within five (5) business days of the presentation of such receipts to the Company. Any amount owed to IFX or any Subsidiary thereof (other than the Company or any Subsidiary of the Company) in excess of Permitted Indebtedness shall be deemed cancelled immediately upon contribution to the Company as contemplated by paragraph (i) above. Exhibit 10.14 (m) The Company shall use its reasonable best efforts to submit the Stock Option Plan, as amended to the date of submission, for approval by the Company's stockholders within thirty (30) days of the Initial Closing. In connection therewith, LGI and each of the Purchasers, in their capacity as stockholders of the Company, hereby covenants and agrees to vote in favor of the adoption of the Stock Option Plan, as so amended. The foregoing shall only apply to the extent that the Stock Option Plan can be approved by written consent of stockholders and the Company shall be under no obligation to call a meeting of stockholders. Further, the foregoing shall in no way limit the Company's ability to amend the Stock Option Plan in accordance with the terms and provisions thereof governing amendment. 6. Conditions to Obligations of the Purchasers. The obligation of each of the Purchasers to purchase and pay for the Series A Preferred Stock which it has agreed to purchase at Closing and the other obligations of each of the Purchasers under this Agreement are subject to the fulfillment at or prior to such Closing of the following conditions, any of which may be waived in writing in whole or in part by such Purchaser: (a) Representations and Warranties. At the Initial Closing each of the representations and warranties of the Company set forth in this Agreement that is qualified as to materiality shall be true and correct in all respects and each such representation and warranty that is not so qualified shall be true and correct in all material respects in each case on the date hereof and at and as of the date of the Initial Closing with the same effect as though such representations and warranties had been made at and as of the Initial Closing (except to the extent such representation and warranty relates to a specific date). (b) Performance . The Company and each of its Subsidiaries shall have performed and complied in all material respects with all agreements and conditions contained herein required to be performed or complied with by it prior to or at the Initial Closing. (c) Absence of Litigation . (i) The consummation of the transactions contemplated hereby shall not have been restrained, enjoined or otherwise prohibited by any Applicable Law, including any order, injunction, decree or judgment of any court or other Governmental Authority; (ii) no court or other Governmental Authority shall have determined that any Applicable Law makes illegal the consummation of the transactions contemplated hereby and no Action with respect to the application of any such Applicable Law to such effect shall be pending or threatened; and (iii) no Action shall be pending or shall have been threatened which seeks to impose liability upon any of the Purchasers or the Company by reason of the consummation of the transactions contemplated by this Agreement. (d) Opinion of Counsel to the Company and Subsidiaries . The Purchasers shall each have received the written opinion of counsel for the Company, in form and substance satisfactory to the Purchasers dated and delivered as of the date of the Initial Closing, substantially identical in form and substance to Exhibit D hereto. Exhibit 10.14 (e) Consents . The Company shall have obtained any and all material Consents and Governmental Approvals set forth in the Schedule of Exceptions, and shall have made any and all filings and declarations necessary or appropriate (A) for the consummation of the transactions contemplated by this Agreement and the Other Agreements, (B) pursuant to Applicable Law, and (C) pursuant to Contracts applicable to the Company in connection with the transactions contemplated by this Agreement and the Other Agreements. (f) Assignment of Intellectual Property . All the Intellectual Property set forth in Section 3(q) of the Schedule of Exceptions, except for items in Section 3(ee) and except for rights of Spinway, Inc. referred to herein, shall have been assigned or licensed, as applicable, to the Company pursuant to instruments in form and substance satisfactory to the Purchasers, and the written Consent of any third party necessary for any such assignment or license shall have been obtained. (g) Contemporaneous Transactions . Prior to or contemporaneously with the Closing: (i) The Stockholder Solicitation Period with respect to the issuance of Series A Preferred Stock hereunder shall have expired and the Restated Stockholders Agreement shall have been executed and delivered by the Company, Latin Guide, Inc., each Purchaser and each other stockholder of the Company, other than holders of up to 86,000 shares of Class B Common Stock. (ii) (A) The Company shall have sold to each Purchaser, and each of the Purchasers shall have purchased, the shares of Series A Preferred Stock to be purchased at such Closing by such Purchaser under this Agreement, and (B) the Company shall have delivered to each Purchaser certificates representing such shares of Series A Preferred Stock, each registered in the name of such Purchaser or the name of its nominee(s). (iii) The Restated Certificate of Incorporation shall have been duly filed with the Secretary of State of the State of Delaware. The Restated Certificate of Incorporation shall be in full force and effect as of the Initial Closing and shall not have been amended or modified, except by reason of the filing of the Certificate. (iv) The Restated By-Laws shall have been duly adopted by all necessary corporate action on the part of the Company. The Restated By-Laws shall be in full force and effect as of the Initial Closing and shall not have been amended or modified. (v) The Certificate shall have been duly filed with the Secretary of State of the State of Delaware. The Certificate shall be in full force and effect as of such Closing and shall not have been amended or modified. Exhibit 10.14 (vi) The Inter-Company Services Agreement and Dial Access Agreement between the Company and IFX shall have been executed and be in full force and effect as of the Initial Closing and shall not have been amended or modified. (vii) The Company shall have adopted the Stock Option Plan. The Option Plan shall be in full force and effect as of the Initial Closing and shall not have been amended or modified. (viii) The Company and Jak Burzstyn shall have entered into the Employment Agreement Amendment and Waiver. The Employment Agreement Amendment and Waiver shall be in full force and effect as of the Initial Closing and shall not have been amended or modified. (h) Closing Papers. The Company shall have delivered to each of the Purchasers all of the following: (i) a certificate signed by the President and Chief Executive Officer of the Company, dated as of the Initial Closing, stating that (A) the person signing such certificate has made or has caused to be made such investigations as are necessary to permit him to certify the accuracy of the information set forth therein, (B) such certificate does not misstate any material fact and does not omit to state any fact necessary to make the certificate not misleading, and (C) the other conditions specified in this Section 6 have been satisfied; (ii) copies (certified by the President, Secretary or Assistant Secretary of the Company or, if required under Applicable Law, the applicable Governmental Authority) of the resolutions duly adopted by the Board of Directors of the Company authorizing the adoption of the Certificate and authorizing the execution, delivery and performance of this Agreement, the Other Agreements and all other agreements referred to in this Agreement as being executed at or prior to the Initial Closing; (iii) copies (certified by the Secretary or Assistant Secretary of the Company) of the Certificate of Incorporation and Bylaws (or equivalent documents) of the Company and each of the Subsidiaries, in each case as amended through the date of the Initial Closing; and (iv) such other documents relating to the transactions contemplated by this Agreement as any Purchaser may reasonably request. (i) Absence of Material Adverse Effect. No event or series of events shall have occurred which has had or could reasonably be expected to have a Material Adverse Effect. (j) Proceeding. All corporate and other proceedings of the Company taken or to be taken in connection with the transactions contemplated hereby and by the Exhibit 10.14 Other Agreements to be consummated at the applicable Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to each Purchaser. (k) Legends. Each stock certificate issued by the Company to stockholders party to the Restated Stockholders Agreement on or prior to the date of the applicable Closing shall have been stamped or otherwise imprinted with a legend in substantially the form provided in Section 8.1 of the Restated Stockholders Agreement. (l) Private Equity Fee. At the applicable Closing, the Company shall have paid UBS Capital Americas III, L.P., a private equity fee of 3% of the purchase price of the Shares, if any, purchased by UBS at such Closing. 7. Conditions to the Obligations of the Company. The obligations of the Company under this Agreement are subject to the fulfillment on or prior to the date of the applicable Closing of the following conditions, any of which may be waived in writing, in whole or in part, by the Company: (a) Representations and Warranties. On the date of the applicable Closing, each of the representations and warranties of the Purchasers purchasing Shares at such Closing set forth in this Agreement shall be true and correct in all respects on the date hereof and at and as of the date of such Closing with the same effect as though such representations and warranties had been made at and as of the date of such Closing (except to the extent such representation and warranty relates to a specific date). (b) Performance. The Purchasers purchasing Shares at such Closing shall have performed and complied in all material respects with all agreements and conditions contained herein required to be performed by or complied with by them prior to such Closing. (c) Payment. With respect to any Closing, each Purchaser obligated to purchase Shares at such Closing shall have delivered the purchase price for such Shares. (d) Absence of Litigation. (i) The consummation of the transactions contemplated hereby shall not have been restrained, enjoined or otherwise prohibited by Applicable Law, including any order, injunction, decree or judgment of any court or Governmental Authority; and (ii) no court or other Governmental Authority shall have determined that any Applicable Law makes illegal the consummation of the transactions contemplated hereby and no Action with respect to the application of any such Applicable Law to such effect shall be pending or threatened. Notwithstanding any other provisions hereof, in the event that any of the conditions set forth in this Section 7 as they relate to any Purchaser are not satisfied at the applicable Closing, the Company shall not be relieved of its obligations hereunder with respect to each other Purchaser. Exhibit 10.14 8. Survival. The representations and warranties of the Company set forth in Sections 3(a), 3(b), 3(c), 3(d), 3(e), 3(h), 3(j), 3(o), 3(q), 3(t), 3(u) and 3(y) shall survive the Closing indefinitely. All other representations and warranties of the Company contained herein shall expire at the second anniversary of the Initial Closing. The representations and warranties of the Purchasers contained herein shall survive the applicable Closing indefinitely. All covenants and agreements contained herein shall survive the Closing indefinitely. 9. Termination. This Agreement may be terminated: (a) by mutual written consent of all of the parties hereto; or (b) by any of the Purchasers (with respect to its rights and obligations only and not those of any other Purchaser) by written notice to the Company if any of the conditions to the Initial Closing set forth in Section 6 shall not have been fulfilled by 5:00 p.m. New York time on September 15, 2000 unless such failure shall be due to the failure of such Purchaser to perform or comply with any of the covenants, agreements or conditions hereof to be performed or complied with by it prior to such Closing. 10. Effect of Termination. If this Agreement is terminated pursuant to the provisions of Section 9, then this Agreement shall become void and have no effect, without any liability to any person in respect hereof or of the transactions contemplated hereby on the part of any party hereto, or any of its directors, officers, employees, consultants, agents, representatives, advisers, stockholders or Affiliates except for any liability resulting from such party's breach or default under this Agreement. 11. Miscellaneous Provisions. (a) Acknowledgment. Each Purchaser acknowledges and agrees that it has, independently and without reliance upon any other Purchaser, made its own evaluation and decision to purchase the Series A Preferred Stock to be purchased by it pursuant to this Agreement. Each Purchaser further acknowledges that no other Purchaser has acted as an agent for such Purchaser or the Company in connection with the purchase of the shares of Series A Preferred Stock hereunder and will not be acting as an agent for such Purchaser in connection with monitoring its investment hereunder. (b) Notices. All notices, requests, demands, approvals, consents, waivers or other communications required or permitted to be given hereunder (each, a "Notice") shall be in writing and shall be (a) personally delivered, (b) transmitted by telecopy facsimile, provided that the original copy thereof also is sent by pre-paid, first class, registered or certified mail (return receipt requested) or by next-day or overnight mail (to any United States address), or by an internationally recognized express delivery service (to any foreign address), (c) sent by first class, registered or certified mail (return receipt requested) or by next-day or overnight mail (to any United States address), postage Exhibit 10.14 and charges prepaid, or (d) delivered by an internationally recognized express delivery service (to any foreign address), postage and charges prepaid: (i) if to any Purchaser, at the address and numbers set forth at the end of this Agreement, marked for attention as therein indicated; (ii) if to IFX, Latin Guide or the Company, to: IFX Corporation 707 Skokie Boulevard Suite 580 Northbrook, Illinois 60062 Attention: Chief Executive Officer Telephone Number: 847-412-9411 Telecopy Number: 305-574-7867 with a copy to: Neal, Gerber & Eisenberg Two North LaSalle Street Chicago, Illinois 60602 Attention: Scott J. Bakal, Esq. Telephone Number: 312-269-8000 Telecopy Number: 312-269-1747 or, in each case, at such other address and numbers as may have been furnished in a Notice by such Person to the other parties. Any Notice shall be deemed effective or given upon receipt (or refusal of receipt). (c) Severability. Should any Section or any part of a Section within this Agreement be rendered void, invalid or unenforceable by any court of law for any reason, such invalidity or unenforceability shall, to the extent permitted by Applicable Law, not void or render invalid or unenforceable any other Section or part of a Section in this Agreement. (d) Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York without regard to the principles of conflicts of law thereof. Each party hereto hereby irrevocably submits to the nonexclusive jurisdiction of the courts of the State of New York and of the United States of America sitting in the City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that the venue thereof may not be appropriate, that such suit, action or proceeding is improper or that this Agreement or any of the Exhibit 10.14 documents referred to in this Agreement may not be enforced in or by said courts, and each party hereto irrevocably agrees that all claims with respect to such suit, action or proceeding may be heard and determined in such a New York state or federal court. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party in the manner provided in Section 11(b) and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. (e) Publicity. Except as required by Applicable Law or the requirements of any securities exchange or market (in which case the nature of the announcement shall be described to the other parties (and the other parties shall be allowed reasonable time to comment) prior to dissemination to the public), no party shall make any public announcement in respect of this Agreement or the transactions contemplated hereby without the prior written consent of the other parties. (f) Captions and Section Headings. Captions or section headings contained in this Agreement are inserted as a matter of convenience and for reference purposes only, and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. (g) Amendments and Waivers. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated, orally or in writing, except that any term of this Agreement may be amended and the observance of any such term may be waived (either generally or in a particular instance and either retroactively or prospectively) with (but only with), (i) prior to the Initial Closing, the prior written consent of the Company and each Purchaser party hereto, and (ii) after the Initial Closing, the Purchasers holding a majority of the shares of Series A Preferred Stock and/or Conversion Shares then outstanding; provided, however, that any amendment or waiver which would adversely affect any party hereto in a manner which is different from the manner the other parties hereto are affected shall also require the prior written consent of such party; provided further, however, that no such amendment or waiver shall extend to or affect any obligation not expressly waived or impair any right consequent therein. (h) Successors and Assigns. All rights, covenants and agreements of the parties contained in this Agreement shall, except as otherwise provided herein, be binding upon and inure to the benefit of their respective successors and assigns. This Agreement may not be assigned (by operation of law, contract or otherwise) by any party hereto; provided, however, that after the applicable Closing, each Purchaser may assign or otherwise transfer its rights and obligations hereunder to: (i) any Person who acquires shares of Series A Preferred Stock from any Purchaser or any successor or assign of any Exhibit 10.14 Purchaser, to the extent permitted by the Restated Stockholders Agreement; or (ii) any successor-in-interest to substantially all of such Purchaser's or successor's or assign's business (whether by stock sale, asset sale or otherwise). (i) Expenses. The Company agrees to pay the reasonable fees and reimburse the reasonable out-of-pocket expenses, including legal and accounting fees and expenses, of UBS, upon receipt of the bill therefor, in connection with the transactions contemplated by this Agreement and the Other Agreements. The Company agrees to reimburse reasonable travel and lodging expenses of the Purchasers' representatives on the Board of Directors in connection with the attendance of such representatives at meetings of the Board of Directors of the Company and other visits to the Company associated with exercising or fulfilling any of its rights or obligations under this Agreement or the Other Agreements. (j) Entire Agreement. This Agreement (including the attached Exhibits and Schedules) contains the entire agreement and understanding of the parties and there are no further or other agreements or understandings, written or oral, in effect between the parties relating to the subject matter hereof. (k) Exhibits. The Exhibits and Schedules attached to this Agreement hereby are incorporated into and made a part of this Agreement. (l) Further Assurances. Each party shall cooperate and take such actions as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement and the Other Agreements and the transactions contemplated hereby and thereby. (m) Counterparts. This Agreement may be executed (including by facsimile transmission) with counterpart signature pages or 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. (n) Attorneys' Fees. If any party initiates any legal action arising out of or in connection with this Agreement or any of the Other Agreements, the prevailing party in such legal action shall be entitled to recover from the other party all reasonable attorneys' fees, expert witness fees and expenses incurred by the prevailing party in connection therewith. (o) Disclosure Generally. The Schedule of Exceptions shall be arranged in sections corresponding to the Sections contained in this Agreement, and the disclosures in any section of the Schedule of Exceptions shall qualify only (a) the corresponding section of this Agreement, and (b) other sections of Section 3 to the extent it is clear (notwithstanding the absence of a specific cross- reference) from a reading of the exception that such exception is applicable to such other sections. The inclusion of any information in the Schedules shall not be deemed to be an admission or acknowledgment, in and of itself, that such information is material or has or would have a Material Adverse Effect, or is outside the ordinary course of business. 12. Definitions. ----------- (a) Definitions. For the purposes of this Agreement, the following terms shall have the meanings specified below: "Action" has the meaning set forth in Section 3(g)(i). ------ "Affiliate" of a specified Person shall mean (a) any Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person, (b) in the case of a natural Person, such Person's spouse, parent or lineal descendant (whether by blood or adoption and including stepchildren), or (c) in the case of UBS, (i) any company under the direct or indirect control of UBS AG (a "UBS Group Company") and/or any partnership or unincorporated association under the direct or indirect control of any UBS Group Company which includes, without limiting the generality of the foregoing, any limited partnership the general partner of which is a UBS Group Company and any limited liability company the managing member of which is a UBS Group Company, and (ii) any alternative investment vehicle formed by either of the foregoing, or any other entity (x) in which UBS AG directly or indirectly owns at least 20% of the equity interests and (y) is advised or managed (whether pursuant to contract, as general partner, managing member or otherwise) by an entity in which UBS AG has a direct or indirect equity interest. "Control" (including the terms "controlled by" and "under common control with") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of voting securities, by contract or credit arrangement, as trustee or executor, or otherwise. "Agreement" shall mean this Agreement (including the Schedules and Exhibits hereto), as amended, supplemented or modified from time to time in accordance with the provisions hereof. "Applicable Law" shall mean, with respect to any Person, any and all provisions of any constitution, treaty, statute, law, regulation, ordinance, code, rule, judgment, rule of common law, order, decree, award, injunction, Governmental Approval, concession, grant, franchise, license, agreement, directive, guideline, policy, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority, whether in effect as of the date hereof or thereafter and in each case as amended, applicable to such Person or its subsidiaries or their respective assets. "Benefit Plan" shall mean any plan, agreement or arrangement, formal or informal, whether oral or written, whereby the Company or any Subsidiary provides any benefit to any present or former officer, director or employee, or dependent or beneficiary thereof, including any profit sharing, deferred compensation, stock option, performance stock, pension, death benefit or other fringe benefit, employee stock purchase, bonus, severance, retirement, health or insurance plan. "Board" shall mean the Board of Directors of the Company. "Business" shall mean the business of the Company and each of its Subsidiaries. "Certificate" has the meaning set forth in Section 1(a). "Closing" has the meaning set forth in Section 2(c). "Common Stock" has the meaning set forth in Section 3(c)(i). "Company" has the meaning set forth in the first paragraph hereof. "Consent" shall mean any consent, approval, authorization, waiver, permit, grant, franchise, concession, agreement, license, exemption or order of, registration, certificate, declaration or filing with, or report or notice to, any Person, including any Governmental Authority. "Contracts" has the meaning set forth in Section 3(m)(i). "Contracts Schedule" has the meaning set forth in Section 3(m)(i). "Conversion Shares" has the meaning set forth in Section 3(b)(ii). "Convertible Securities" shall mean (i) any rights, options or warrants issued by the Company or any of its Subsidiaries to acquire Common Stock or any capital stock of the Company or any Subsidiary, including the shares of Series A Preferred Stock to be issued hereunder, and (ii) any notes, debentures, shares of preferred stock or other securities, options, warrants or rights issued by the Company or any of its Subsidiaries, which are convertible or exercisable into, or exchangeable for, Common Stock or any capital stock of the Company or any Subsidiary. "Dial Access Agreement" shall mean the Dial Access Agreement to be entered into between the Company and IFX in substantially the same form as Exhibit F hereto. "$" or "dollars" shall mean lawful money of the United States of America. "Employment Agreement Amendment and Waiver" shall mean the Amendment and Waiver to Employment Agreement, of even date herewith, between the Company and Jak Burzstyn, in substantially the same form as Exhibit H hereto. Exhibit 10.14 "Encumbrance" shall mean any lien, encumbrance, hypothecation, right of others, proxy, voting trust or similar arrangement, pledge, security interest, collateral security agreement, limitations on voting rights, limitations on rights of ownership filed with any Governmental Authority, claim, charge, equities, mortgage, pledge, objection, title defect, title retention agreement, option, restrictive covenant, restriction on transfer, right of first refusal, right of first offer, statutory or contractual preemptive right or any comparable interest or right created by or arising under Applicable Law, of any nature whatsoever. "Environmental Law" shall mean any United States federal, state, local or foreign law, statute, rule or regulation or the common law relating to the protection of human health or the environment, including, without limitation, CERCLA (as defined below), the United States federal Resource Conservation and Recovery Act of 1976 as amended (the "Recovery Act"), any statute, regulation or order pertaining to (i) treatment, storage, disposal, generation and transportation of industrial, toxic or hazardous materials or substances or solid or hazardous waste; (ii) air, water and noise pollution; (iii) groundwater and soil contamination; (iv) the release or threatened release into the environment of industrial, toxic or hazardous materials or substances, or solid or hazardous waste, including, without limitation, emissions, discharges, injections, spills, escapes or dumping of pollutants, contaminants, or chemicals; (v) the protection of wild life, marine life and wetlands, including, without limitation, all endangered and threatened species; (vi) storage tanks, vessels, abandoned or discarded barrels, containers and other closed receptacles; (vii) health and safety of employees and other persons; and (viii) manufacture, processing, use, distribution, treatment, storage, disposal, transportation or handling of pollutants, contaminants, toxic or hazardous materials or substances or oil or petroleum products or solid or hazardous waste. As used herein, the terms "release" and "environment" has the meaning set forth in the United States federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"). "Existing Stockholders Agreement" has the meaning set forth in Section 3(c)(vii). "Financial Statements" has the meaning set forth in Section 3(w). -------------------- "Fully Diluted Basis" shall mean, when used with respect to outstanding shares of Common Stock, all shares of Common Stock which would be outstanding after giving effect to the transactions contemplated by this Agreement and assuming the exercise, conversion or exchange of all Convertible Securities. "Funded Indebtedness" shall mean, without duplication, the aggregate amount (including the current portions thereof) of all (i) indebtedness for money borrowed from others (including IFX or any subsidiary thereof), purchase money indebtedness (other than capital lease obligations), accounts payable and indebtedness evidenced by bonds, notes, debentures or other securities of the Company or any of its Subsidiaries; Exhibit 10.14 (ii) indebtedness of the type described in clause (i) above guaranteed, directly or indirectly, in any manner by the Company or any of its Subsidiaries, through an agreement, contingent or otherwise, to supply funds to, or in any other manner invest in, the relevant debtor, or to purchase indebtedness, or to purchase and pay for property if not delivered or pay for services if not performed, primarily for the purpose of enabling such debtor to make payment of the indebtedness or to assure the owners of the indebtedness against loss, but excluding endorsements of checks and other instruments in the ordinary course; (iii) indebtedness of the type described in clause (i) above secured by any Encumbrances upon property owned by the Company or any of its Subsidiaries, even through such Person has not in any manner become liable for the payment of such indebtedness; (iv) interest expense accrued but unpaid, and all prepayment premiums, on or relating to any of such indebtedness; and (v) all obligations under capital leases of the Company and its Subsidiaries which are required to be reflected as liabilities on the balance sheet of the Company by GAAP. "GAAP" shall mean United States generally accepted accounting principles consistently applied. "Governmental Approvals" shall mean any action, order, authorization, consent, approval, license, lease, waiver, franchise, concession, agreement, license, ruling, permit, tariff, rate, certification, exemption of, filing or registration by or with, or report or notice to, any Governmental Authority. "Governmental Authority" shall mean any nation or foreign or domestic government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government (including, without limitation, any government authority, agency, department, board, commission or instrumentality of the United States, any State of the United States or any political subdivision thereof), or any tribunal or arbitrator(s) of competent jurisdiction, or any self-regulatory organization. "HSR Approval" has the meaning set forth in Section 5(c). "include", "includes", "included" and "including" shall be construed as if followed by the phrase "without being limited to." "Initial Closing" has the meaning set forth in Section 2(c). "Intellectual Property" shall mean any and all worldwide, international, U.S. and/or foreign, patents, all applications therefor and all reissues, reexaminations, continuations, continuations-in-part, divisions, and patent term extensions thereof, inventions (whether patentable or not), discoveries, improvements, concepts, innovations, industrial models, registered and unregistered copyrights, copyright registrations and applications, author's rights, works of authorship (including any text or artwork of any kind, and software of all types in whatever medium, inclusive of computer programs, source code, object code and executable code, and related documentation), URLs, web sites, web pages and any part thereof, technical information, know-how, trade secrets, drawings, designs, design protocols, specifications for parts and devices, quality assurance and control procedures, design tools, manuals, research data concerning historic and current research and development efforts, including the results of successful and unsuccessful designs, databases and proprietary data, proprietary processes, technology, engineering, discoveries, formulae, algorithms, operational procedures, trade names, trade dress, trademarks, domain names, and service marks, and registrations and applications therefor, the goodwill of the business symbolized or represented by the foregoing, customer lists and other proprietary information and common-law rights. "Inter-Company Services Agreement" shall mean the Inter-Company Services Agreement to be entered into between the Company and IFX in substantially the same form as Exhibit G hereto. "Material Adverse Effect" shall mean any event, circumstance, occurrence, fact, condition, change or effect that is materially adverse to (i) the Business, operations, results of operations, financial condition, prospects, properties, assets or liabilities of the Company and its Subsidiaries, taken as a whole, or (ii) the ability of the Company to perform fully its obligations hereunder and under the Other Agreements and to consummate the transactions contemplated hereby and thereby. For the purposes of this Agreement, a currency devaluation or foreign exchange restriction or other actions by any Governmental Authority limiting repatriation of capital or any other material change in the governmental or political climate of the countries in which the Company or its Subsidiaries carry out the Business shall be deemed to have a Material Adverse Effect. "Material Instruments" has the meaning set forth in Section 3(e). -------------------- "Materials of Environmental Concern" shall mean any chemicals, pollutants or contaminants, hazardous substances (as such term is defined under CERCLA), solid wastes and hazardous wastes (as such terms are defined under the Recovery Act), toxic materials, oil or petroleum and petroleum products, or any other material subject to regulation under any Environmental Law. "New Common Stock" has the meaning set forth in Section 3(c)(i). ---------------- "Notice" has the meaning set forth in Section 11(b). ------ "Other Agreements" has the meaning set forth in Section 3(b). ---------------- "Permitted Indebtedness" has the meaning set forth in Section 5(l) hereof. "Person" or "person" shall mean any natural person, company, corporation, association, partnership, organization, business, firm, joint venture, trust, unincorporated organization or any other entity or organization, and shall include any Governmental Authority. Exhibit 10.14 "Preferred Stock" has the meaning set forth in Section 3(c)(i). "Qualified Public Offering" shall mean an underwritten public offering of shares of Common Stock of the Company in which the Company receives gross proceeds from the sale of Common Stock to the public of at least $50.00 million (before deduction of underwriter's discounts and commissions), and which values the equity of the Company at no less than $150 million pre-offering. "Restated By-Laws" shall mean the Amended and Restated By-Laws of the Company in substantially the same form as Exhibit N hereto. "Restated Certificate of Incorporation" shall mean the Amended and Restated Certificate of Incorporation of the Company in substantially the same form as Exhibit J hereto, to be filed with the Secretary of State of the State of Delaware. "Restated Stockholders Agreement" shall mean the Amended and Restated Stockholders Agreement to be entered into among the Company and the stockholders of the Company, in substantially the same form as Exhibit E hereto. "Schedule of Exceptions" has the meaning set forth in the first paragraph of Section 3. "Schedule of Purchasers" has the meaning set forth in the first paragraph hereof. "SEC" shall mean the U.S. Securities and Exchange Commission or any successor agency thereto. "Securities Act" has the meaning set forth in Section 3(i). "Series A Preferred Stock" has the meaning set forth in Section 1(a). "Shares" has the meaning set forth in the Recitals. "Stock Option Agreement" shall mean the Stock Option Agreement in substantially the same form as Exhibit L hereto. "Stock Option Plan" shall mean the Tutopia.com, Inc. 2000 Stock Plan in substantially the same form as Exhibit K hereto. "Stockholder Solicitation Period" shall mean the twenty (20) day period prior to a consummation of the issuance by the Company of any equity securities (which includes the issuance of Series A Preferred Stock contemplated hereby) as required under the Existing Stockholders Agreement to notify the parties thereto of such issuance and their preemptive right to participate in such issuance, as provided in the Existing Stockholders Agreement. Exhibit 10.14 "Subsequent Closing" has the meaning set forth in Section 2(c). "Subsidiary" shall mean any Person of which equity securities possessing a majority of (i) the ordinary voting power in electing the board of directors, or (ii) the outstanding capital stock or other equity interests, are, at the time as of which such determination is being made, owned by the Company either directly or indirectly through one or more Subsidiaries. "Taxes" shall mean any domestic or foreign taxes, charges, feed, levies or other assessments, including any income, alternative, minimum, accumulated earnings, personal holding company, franchise, capital stock, net worth, capital, profits, windfall profits, gross receipts, value added, sales, use, goods and services, excise, customs duties, transfer, conveyance, mortgage, registration, stamp, documentary, recording, premium, severance, environmental, real property, personal property, ad valorem, intangibles, rent, occupancy, license, occupational, employment, unemployment insurance, social security, disability, worker's compensation, payroll, health care, withholding, estimated or other taxes, charges, fees, levies or other assessments, and including any interest, penalties or additions relating thereto, imposed by any Governmental Authority or other taxing authority. "Transaction" has the meaning set forth in Section 5(d). "UBS" shall mean (i) UBS Capital Americas III, L.P., a Jersey, Channel Islands limited partnership, (ii) UBS Capital LLC, a Delaware limited liability company and (iii) any Affiliate of UBS, individually and collectively. (b) Other Definitional Provisions. The words "hereof", "herein", and "hereunder" and words of similar import shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Terms defined in the singular shall have a comparable meaning when used in the plural and vice versa. Whenever a representation or warranty made by a Person herein refers to the knowledge of such Person, such knowledge shall be deemed to consist of the actual knowledge of such Person or the knowledge which would have been present after reasonable due inquiry by such Person. A Person (other than an individual) will be deemed to have "knowledge" of a particular fact or other matter if any individual who is serving, or who has at any time served, as a director, executive officer, member, partner, executor or trustee of such Person (or a Person acting in any similar capacity) has, or any time had, actual knowledge of such fact or other matter, or should have had knowledge thereof given such individual's office or capacity and given industry standards or given reasonable due inquiry by such individual. Exhibit 10.14 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the date first above written. TUTOPIA.COM, INC. /s/ Jak Bursztyn ---------------- By: Jak Bursztyn Title: President IFX CORPORATION /s/ Joel Eidelstein ------------------- By: Joel Eidelstein Title: President LATIN GUIDE, INC. /s/ Michael Shalom ------------------ By: Michael Shalom Title: CEO N-1 Exhibit 10.14 Purchaser: The undersigned hereby executes and delivers this Agreement as of the date first above written as one of the Purchasers referred to therein for the purpose of purchasing from the Company 6,777,645 shares of Series A Preferred Stock at the Closing. UBS CAPITAL AMERICAS III, L.P. By: UBS Capital Americas (LA-Advisors) LLC By: /s/ Mark O. Lama ---------------- Name: Mark O. Lama Title: Principal By: /s/ George A. Duarte -------------------- Name: George A. Duarte Title: Partner Address: UBS Capital Americas III, L.P. c/o UBS Capital Americas (LA-Advisors) LLC 299 Park Avenue New York, NY 10171 Attention: Charles W. Moore Telephone No.: (212) 821-6330 Telecopy No.: (212) 821-6333 With a copy of Notices to: Kaye, Scholer, Fierman, Hays & Handler, LLP 425 Park Avenue New York, New York 10022 Attention: Nancy Fuchs, Esq. Telephone No.: (212) 836-8565 Telecopy No.: (212) 836-7246 Exhibit 10.14 Purchaser: The undersigned hereby executes and delivers this Agreement as of the date first above written as one of the Purchasers referred to therein for the purpose of purchasing from the Company 356,718 Shares of Series A Preferred Stock at the Closing. UBS CAPITAL LLC By: /s/ Mark O. Lama ---------------- Name: Mark O. Lama Title: Attorney in Fact By: /s/ George A. Duarte -------------------- Name: George A. Duarte Title: Attorney in Fact Address: UBS Capital LLC 299 Park Avenue New York, NY 10171 Attention: Charles W. Moore Telephone No.: (212) 821-6330 Telecopy No.: (212) 821-6333 With a copy of Notices to: Kaye, Scholer, Fierman, Hays & Handler, LLP 425 Park Avenue New York, New York 10022 Attention: Nancy Fuchs, Esq. Telephone No.: (212) 836-8565 Telecopy No.: (212) 836-7246 Exhibit 10.14 Purchaser: The undersigned hereby executes and delivers this Agreement as of the date first above written as one of the Purchasers referred to therein for the purpose of purchasing from the Company such number of shares of Series A Preferred Stock at the Closing derived from the formula set forth opposite its name on Exhibit A hereto. LSC, LLC /s/ Colleen Downes -------------- Name: Colleen Downes Title: Vice President Address: Telephone No.: Telecopy No.: With a copy of Notices to: Telephone No.: Telecopy No.: Exhibit 10.14 Purchaser: The undersigned hereby executes and delivers this Agreement as of the date first above written as one of the Purchasers referred to therein for the purpose of purchasing from the Company ___________ shares of Series A Preferred Stock at the Closing. ---------------------------------------- Name: Address: Telephone No.: Telecopy No.: With a copy of Notices to: Telephone No.: Telecopy No.: EX-10.15 5 0005.txt DIAL ACCESS AGREEMENT Exhibit 10.15 EXECUTION COPY - -------------- DIAL ACCESS AGREEMENT This Agreement ("Agreement") entered into as of the Effective Date by and between IFX Corporation and its subsidiaries ("Provider") and Tutopia.com, Inc. and its subsidiaries ("CUSTOMER"). WHEREAS, Provider is an Internet service provider offering a wide range of services for businesses in Latin America; and WHEREAS, CUSTOMER wishes to purchase Hourly Dial Access services ("Service") from Provider in Latin America for the purpose of reselling such Service to its customers (each of which shall be an "END-USER" as defined below and, collectively, the "END-USERS") under a private label. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and promises set forth herein, the parties, intending to be legally bound, hereby agree as follows: 1. Definitions. 1.1 Agreement "Agreement" means this agreement and all attachments, schedules and/or exhibits thereto. 1.2 Effective Date "Effective Date" means the date on which this Agreement is signed by both parties, or by the last party to sign if the parties sign on different dates. 1.3 END-USER "END-USER" means any user of Hourly Dial Access service directly from the CUSTOMER. END-USER shall not include any other entity that resells such Service. 1.4 Host "Host" means a computer with a network (or IP) address. 1.5 Hourly Dial Access "Hourly Dial Access" means Provider making available ports on access servers in its POPs, pursuant to its dial access service and under the terms and conditions of this Agreement, to receive incoming analog calls from an END-USER to establish a TCP/IP connection between a single Host and the Network and the Internet. 1.6 Network "Network" means the combination of Provider operated equipment, servers, circuits, and other data transmission facilities comprising its TCP/IP wide- area network and which, together with other publicly-accessible TCP/IP networks, comprises the global Internet. 1.7 POP "POP" means a Network "point-of-presence" where Provider data communications equipment and servers are located to provide END-USERS with access to the Network and the Internet by means of the Services. Exhibit 10.15 1.8 Service Agreement "Service Agreement" means a legally binding agreement between CUSTOMER and an END-USER for Service, subject to the applicable terms and conditions of this Agreement. . 2. Resale of Services. 2.1 General. On the terms and conditions set forth herein, CUSTOMER shall purchase from Provider, and Provider shall sell to CUSTOMER for resale to its END-USERS, Service, as described herein, at the prices described in Schedule A. Provider also agrees to provide such Services under the minimum service standards set forth in Schedule B. Provider shall invoice CUSTOMER in accordance with Section 4 for Service commencing on the first day END-USER accesses the Network. 2.2 Service. Provider shall provide to CUSTOMER, for resale to its END-USERS, Hourly Dial Access through dialup telephone service through the POPs in which Provider provides Service, for the fees set forth in Schedule A. Each END-USER will be solely and exclusively responsible for obtaining analog telephone service to place the data call to Provider's POP, and for all charges relating to such service (unless CUSTOMER assumes such obligations on behalf of its END-USERS). Provider assumes no liability or responsibility to CUSTOMER, END-USER or any third party for long distance toll charges, or any government applied charges, incurred by CUSTOMER, END-USER or any third party using the Service. Customer shall include a disclaimer to this effect in its Terms of Usage with each End User. 2.3 Limits on Orders. As of the Effective Date, CUSTOMER may order Service on behalf of its present or future END-USERS and there shall be no limit on the number of END-USERS who may use the Network. CUSTOMER acknowledges, however, that Network capacity cannot be guaranteed. Therefore, Provider may limit CUSTOMER'S requests to add additional hours if there is insufficient capacity on the Network or in the POP to provide such number of hours requested by reasonable prior written notice to CUSTOMER, subject to Provider's obligation to provide the Minimum Services pursuant to Section 3.4. Notwithstanding the foregoing, Provider shall use commercially reasonable efforts to accommodate any request from CUSTOMER to increase the hours above the amounts Provider agreed to provide pursuant to Section 3.4 below, provided that Provider cannot make any guarantee regarding its ability to meet such requests. To increase the likelihood that Provider can fulfill such request, Provider shall maintain excess network capacity at least sufficient to support capacity in a given month based on the average growth rate of the previous 3 months + / - 5% of such average. 2.5 Addition of Provider Services. The parties may agree to include additional Provider services, to include DSL, Web Hosting, and Co-location services when available, under this Agreement from time to time. If so, such additional Provider services shall be added only after mutual agreement on pricing and by a written modification to this Agreement. -2- Exhibit 10.15 2.6 License for Services. 2.6.1 Grant of License. Subject to the terms of this Agreement, Provider hereby grants to CUSTOMER, within the territories in which Provider operates from time to time, a non- exclusive, revocable license to, market, distribute and resell the Service directly to END-USERS under CUSTOMER'S private label, subject to the terms and conditions hereof. Customer may not resell the Service to anyone who is not an END-USER. 2.6.2 Limitations on License. The grant of the foregoing license shall not entitle or in any way be construed to entitle CUSTOMER to: (a) use Provider's trademarks, trade names, copyrighted material, service marks and/or logos in connection with CUSTOMER'S sales, advertisements and promotion of the Services, except in materials provided (or approved prior to CUSTOMER'S use thereof) by Provider; (b) sublicense or assign any of its rights under this Agreement, except as may be expressly permitted by this Agreement; or (c) make any agreement or incur any liability for or on behalf of Provider, except as may be expressly permitted by this Agreement. 2.7 Second-Level Technical Support. Provider, through its staff or through a third party reasonably acceptable to CUSTOMER, shall provide directly to CUSTOMER'S designated technical contacts only (as identified by CUSTOMER on a Provider-provided form), at no additional charge, reasonable second-level technical support for the Services provided herein and for Network problems. However, under no circumstances shall Provider be obligated to provide any type of technical support, customer service, or problem escalation support directly to END-USERS. CUSTOMER shall not disclose to its END-USERS any of the contact information for Provider's or the third party's staff provided to CUSTOMER for its exclusive use. 2.8 Provider POPs. Provider may change the location of an existing POP, and/or change the means for accessing such POP (i.e., access numbers) as it, in its sole discretion, deems appropriate; provided, however, that if the effect of such change is to materially diminish the geographical coverage or capacity (on the same Dial-In basis) as serviced by the POP prior to such change, CUSTOMER shall have the right, in its sole discretion, to provide access from another service provider for such POP, without any penalty, upon thirty (30) days written notice. In the event Provider deems it necessary to close an existing POP, Provider shall provide CUSTOMER with sixty (60) days prior written notice thereof. 3. CUSTOMER'S Obligations. 3.1 Technical Support, Customer Service, and Problem Escalation Support CUSTOMER shall be exclusively responsible for all technical support, customer service, and problem escalation support for its END-USERS. Under no circumstances shall CUSTOMER refer END-USER phone calls, e-mail, or other communications to any Provider or third party staff. All communications by CUSTOMER relating to END-USER problems or concerns shall be made directly and exclusively between Provider (or its designated third party) and CUSTOMER's designated technical contacts. 3.2 END-USER Billing. CUSTOMER shall be responsible for all pricing and service plans, taxes and other governmental charges, billing and collections with respect to END-USERS. CUSTOMER is responsible for payment of all Provider charges, pursuant to Section 4 hereof, regardless of whether Customer is paid by its END-USERs. To the extent that Provider has the ability to determine what the END USER pays for local telephone access costs, Provider and CUSTOMER shall mutually agree on the discounts or other benefits that -3- Exhibit 10.15 Provider will make available to the END USER. Such discounts or benefits shall be at least equal to the best discounts or benefits that other free ISP's in the same market offer to their end users. 3.3 Limitation on Warranties and Representations. Neither CUSTOMER nor its agents shall offer warranties or representations for the Service which would obligate or otherwise bind Provider beyond any warranty or representation expressly set forth in this Agreement. 3.4 Forecast and Request. Prior to the end of each month, CUSTOMER shall send to Provider, a three month rolling forecast (each, a "Forecast") of the number of END-USERS and hours expected to be utilized by Customer under this Agreement and the POPs to which they are expected to connect in the following three months. The Forecast shall determine the number of hours that Provider shall provide to Customer during the last month of the Forecast (the first two months of the Forecast to be used by Provider solely for planning purposes only). The Forecast may indicate an increase or decrease over prior periods. With respect to the final month of each Forecast, Provider may either fully agree with the Forecast (an "Agreed Forecast"), partially agree with the Forecast (a "Partially Agreed Forecast") or reject the Forecast (a "Rejected Forecast"). The parties agree that Provider will not disagree with any Forecast with respect to any month below 4.5 million hours ("Minimum Services"). The first forecast must be delivered within 15 days of the Effective Date. With respect to an Agreed Forecast, Provider shall provide the Hours forecasted for the third month of the Forecast. With respect to a Partially Agreed Forecast, Provider shall provide the Hours agreed for the third month of the Forecast to the extent that Provider agrees with the Forecast. To the extent that Provider does not agree with the Forecast, Customer may elect to choose another Provider for such non-agreed hours. With respect to a Rejected Forecast, CUSTOMER shall be free to pick a different Provider of Service for the third month of the Forecast. CUSTOMER may request additional hours in excess of the amount set forth in any Forecast for the first two months of any Forecast. However, if Provider is not willing to provide such level of Service, Customer may purchase such Service elsewhere. With respect to an Agreed or Partially Agreed Forecast or request, the Customer will pay for the hours used as described in Schedule A and in accordance with Section 4. With respect to a Partially Agreed Forecast or a Rejected Forecast, Customer may at its sole option choose to force Provider to satisfy the Forecast (an "Enforced Forecast"), up to the lower of: a) the Forecast or b) a projected compounded monthly growth of 25%. If Customer elects to make Provider accept an "Enforced Forecast" with respect to the third month of the Forecast, Customer will pay Provider for such month the higher of: (a) the total amount of hours committed to be provided by the Provider multiplied by the effective hourly rate set forth in Section 3 of Schedule A, divided by 1.25 for the first six months after the date of this Agreement, 1.175 for the next six months, and 1.10 for the second year and the third year, whether or not such hours are actually used, and (b) the pricing schedule set forth in Schedule A in accordance with Section 4. Noncompliance of this section by Provider shall not be considered a material breach of this Agreement if Provider maintains an accessibility level above 95% as required by the second paragraph of Schedule B of this Agreement. -4- Exhibit 10.15 With respect to a Partially Agreed Forecast or a Rejected Forecast, Provider shall have, in the following month, the priority to provide all rejected hours that Customer has not purchased from third parties. In addition, when any commitment with such third parties expires, Provider shall have priority to provide any such hours that CUSTOMER still requires. 3.5 Customer's Obligation to Provider. Provider will have priority as Customer's Hourly Dial Access service provider in those POPs in Latin America in which Provider has a presence at the time of the Effective Date (with the express exclusion of the US) (the "Regions"); provided that (i) the quality and availability of the Services in the applicable Region shall be at least equal to those available to Customer from any other telecommunications service provider and to the extent that sufficient telecommunications capacity is available to adequately service Customer's forecast and/or requests in the Regions, and (ii) Provider is in compliance with this Agreement. Provider's services will be provided through Provider's wholly- owned or controlled in-country subsidiaries. 4. Payment. 4.1 Payment Terms. Provider shall invoice CUSTOMER monthly, in arrears for Service provided hereunder, including any amounts in excess of the Minimum Revenue Commitment. In every case, CUSTOMER agrees to pay for all Service utilized by CUSTOMER, subject to the terms and conditions hereof. All invoices will be payable within thirty (30) days of date of invoice (the "Due Date"). 4.2 Late Payment Charges. Delinquent payments are subject to a late payment charge accruing from the Due Date at the rate of one percent (1%) per month, of the amount due (but not to exceed the maximum lawful rate). Late payment charges shall be automatically added to the next invoice. Late payments shall also be indexed for inflation based on the local consumer price index. 4.3 Consequences of Non-Payment. In the event CUSTOMER does not remit payment for "Undisputed Charges" (defined as all charges invoiced to CUSTOMER except for any specified amounts which CUSTOMER disputes in good faith, with reference to specific provisions of this Agreement, and with supporting factual documentation, if any) within fifteen (15) days after the Due Date, Provider shall give 15 days prior written notice, delivered via fax transmission and overnight courier, for CUSTOMER to cure such breach. After expiration of such period, Provider may, at its option and in addition to the late payment charges set forth in Section 4.2, suspend Service to CUSTOMER and/or END-USERS. Provider shall resume providing Service as soon as commercially reasonable upon receipt of such payment (including late payment charges), and in such event CUSTOMER shall pay Provider a reasonable reconnection fee (if applicable), which shall be invoiced and paid in accordance with this Section. Notwithstanding anything to the contrary contained in this Agreement, CUSTOMER shall be responsible for payment due to the extent that such amounts relate to CUSTOMER failure to reach the Minimum Revenue Commitment as set forth in Schedule A. CUSTOMER shall not offset or deduct any amount owed to Customer from END-USERS notwithstanding that Customer has not received payment from END-USERS. 5. Term and Termination. 5.1 Term. The initial term of this Agreement shall be three (3) years beginning on the Effective Date of this agreement. -5- Exhibit 10.15 5.2 Renewal. Following the initial three (3) year term, this Agreement will be renewed for a one-year term if either party hereto so elects in writing within 90 days prior to the end of the initial term, provided, that a Change of Control (as defined below) has not taken place. If a Change of Control of either party has occurred prior to the end of the initial three (3) year term such party shall have the right to terminate this Agreement upon expiration of the three (3) year term and the other party shall not have the right to extend for the one (1) year renewal term as provided above. If this Agreement is so renewed, Customer shall be obliged to purchase from Provider during each month of the renewal term the lower of: a) 20% of the total hours to be used by Customer for providing internet service to its End Users or b) four (4) million hours per month for sale to Customer's End Users. The price for such services shall be as provided in Schedule A . After the first 12 month renewal term, this Agreement shall automatically continue upon the same terms and conditions for subsequent one-year periods unless terminated by either party upon written notice given at least sixty (60) days prior to the end of the applicable one- year period. 5.3 Termination. 5.3.1 By Either Party. Either party may terminate this Agreement if the other party has materially breached this Agreement and has failed to cure such breach within thirty (30) days after the non-breaching party has given written notice by fax transmission and overnight courier clearly specifying such breach. Further, Customer may terminate this Agreement as set forth in Schedule B. 5.3.2 Other Termination. (a) Upon termination of this Agreement for any reason at the end of the initial or any subsequent term, Provider, upon request of CUSTOMER shall continue to provide Services under the terms herein for no more than three (3) commencing at the end of the term then in effect, provided that CUSTOMER shall continue to make payments for such Services rendered as set forth in Section 4, at the applicable rates described in Schedule A. (b) In case of termination as a result of failure of the parties to reach an acceptable "re-negotiated" price, as provided for in Schedule A, then CUSTOMER shall transfer all of its End-Users off of the Provider Network within a minimum period of three (3) months after the date of termination, and Provider shall continue to provide Services for this three (3) month period, as set forth herein. 6. Limitation of Warranties & Liability. 6.1 LIMITATION OF WARRANTIES. EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED HEREIN, PROVIDER DOES NOT WARRANT ANY CONNECTION TO, TRANSMISSION OVER, NOR RESULTS OF USE OF, ANY NETWORK CONNECTION, SERVICE, EQUIPMENT OR FACILITIES PROVIDED UNDER THIS AGREEMENT. EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED HEREIN, PROVIDER FURTHER DISCLAIMS ALL WARRANTIES, WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT OF THIRD PARTY RIGHTS. EXCEPT AS SPECIFICALLY PROVIDED HEREIN, AND SUBJECT TO THE LIMITATION SET FORTH IN SECTION 6.2, PROVIDER SPECIFICALLY DISCLAIMS ANY RESPONSIBILITY FOR ANY DAMAGES SUFFERED BY CUSTOMER OR ANY THIRD PARTY, EXCEPT FOR THOSE CAUSED BY PROVIDER'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. CUSTOMER ACKNOWLEDGES THAT ITS END-USERS MAY PERIODICALLY NOT BE ABLE TO ACCESS THE NETWORK. WITHOUT LIMITING PROVIDER'S OBLIGATIONS SET FORTH ON SCHEDULE B, PROVIDER WILL TAKE REASONABLE MEASURES TO MINIMIZE SUCH INABILITY TO ACCESS THE -6- Exhibit 10.15 NETWORK IF WITHIN PROVIDER'S REASONABLE CONTROL, HOWEVER, PROVIDER DOES NOT WARRANT OR REPRESENT THAT EACH AND EVERY END-USER WILL BE ABLE TO ACCESS THE NETWORK ON EVERY LOG-IN ATTEMPT. 6.2 LIMITATION OF LIABILITIES. EXCEPT FOR CUSTOMER'S PAYMENT OBLIGATIONS, OR THE PARTIES' RESPECTIVE INDEMNIFICATION OBLIGATIONS, NEITHER PARTY (TO INCLUDE ITS PARENT COMPANY IF ANY), SHALL BE LIABLE TO THE OTHER FOR ANY LOSS, DAMAGE, LIABILITY, CLAIM OR EXPENSE ("CLAIMS") ARISING OUT OF OR IN RELATION TO THIS AGREEMENT OR THE PROVISION OF ANY SOFTWARE, HARDWARE OR SERVICE, HOWEVER CAUSED, WHETHER GROUNDED IN CONTRACT, TORT (INCLUDING NEGLIGENCE) OR THEORY OF STRICT LIABILITY, GREATER THAN THE LESSER OF (A) $100,000, OR (B) THE SUM TOTAL OF CUSTOMER'S PAYMENTS TO PROVIDER DURING THE SIX (6) MONTHS IMMEDIATELY PRECEDING THE EVENT FOR WHICH DAMAGES ARE CLAIMED. EXCEPT FOR THE PARTIES' RESPECTIVE INDEMNIFICATION OBLIGATIONS, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE OR OTHER CONSEQUENTIAL DAMAGES WHETHER OR NOT FORESEEABLE (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR THE LOSS OF DATA, GOODWILL OR PROFITS) ARISING OUT OF OR IN RELATION TO THIS AGREEMENT EVEN IF ADVISED BEFOREHAND OF THE POSSIBILITY OF SUCH LIABILITY. NO ACTION OR PROCEEDING AGAINST PROVIDER MAY BE COMMENCED MORE THAN TWO YEARS AFTER THE SERVICES GIVING RISE TO THE CLAIM ARE RENDERED. 7. Proprietary Rights. 7.1 Ownership of Proprietary Data. Except for the license specifically granted to CUSTOMER as set forth in Section 2.6, Provider shall at all times retain full and exclusive right, title, and ownership interest in and to the Service, the Network, all its names, logos, trade names, trademarks, copyrights, service marks and any and all other intellectual property or trade secret rights related thereto, and CUSTOMER shall at all times retain full and exclusive right, title, and ownership interest in and to its service, all its names, logos, trade names, trademarks, copyrights, service marks and any and all other intellectual property or trade secret rights related thereto. Neither Party may use any patent, copyrightable materials, trademark, trade name, trade secret or other intellectual property right of the other Party except in accordance with the terms of the license provision contained herein. 7.2 Notice Requirement. CUSTOMER shall place a notice on all materials using Provider copyrighted materials, trademarks or service marks (including without limitation Service Agreements), as follows: "(C) 200_, Licensed to [CUSTOMER] along with applicable trademarks and intellectual property. All Rights Reserved." 7.3 Infringement of Proprietary Rights. CUSTOMER shall notify Provider of any action by any third party known or suspected by CUSTOMER to constitute an infringement of Provider's proprietary rights. CUSTOMER shall honor all reasonable requests by Provider, other than engaging as a party in litigation (unless Provider agrees to indemnify and hold Customer harmless from such litigation, including the payment of Customer's reasonable legal fees), to perfect and protect at Provider's expense any rights of Provider in the Services, the Network or such intellectual property or trade secret rights. Provider shall notify CUSTOMER of any action by any third party known or suspected by Provider to constitute an infringement of CUSTOMER's proprietary rights. Provider shall honor all reasonable requests by CUSTOMER, other than engaging as a party in litigation (unless CUSTOMER agrees to indemnify and hold Provider harmless from such litigation, including the payment of Provider's reasonable legal fees), to perfect and protect at CUSTOMER's expense any rights of CUSTOMER in the Services, the Network or such intellectual property or trade secret rights. -7- Exhibit 10.15 8. Indemnity Provisions. 8.1 By Provider. Provider will defend, indemnify and hold CUSTOMER harmless from and against any losses arising out of any claim by an END-USER which is based on any warranty, promise or representation made by Provider to Customer under this Agreement relating to Provider's obligations to provide the Service. Failure by the CUSTOMER to include in its Service Agreements with END-USERS the provisions required by this Agreement (Sections 2.2 and 7.2) shall relieve Provider from the responsibilities set forth in this Section 8.1 to the extent such failure is reasonably related to the alleged losses. 8.2 By CUSTOMER. CUSTOMER will defend, indemnify and hold Provider harmless from and against all claims, complaints, losses, costs and expenses asserted by third parties to the extent they arise out of or in connection with (a) CUSTOMER'S breach of or default of any covenant or provision of this Agreement, (b) any grossly negligent or willful act or omission or violation of Section 3.4 by CUSTOMER or any of its END-USERS, or their respective directors, officers, owners, employees or agents, or (c) any violation or alleged violation by CUSTOMER or END-USERS of any and all applicable rules, regulations, statutes, codes, ordinances and other requirements, whether federal, state, local, foreign, or international, in connection with the matters contemplated by this Agreement. Provider will defend, indemnify and hold CUSTOMER harmless from and against all claims, complaints, losses, costs and expenses asserted by third parties to the extent they arise out of or in connection with (a) Provider's breach of or default of any covenant or provision of this Agreement, (b) any grossly negligent or willful act or omission or violation of Section 3.4 by Provider or its directors, officers, owners, employees or agents, or (c) any violation or alleged violation by Provider of any and all applicable rules, regulations, statutes, codes, ordinances and other requirements, whether federal, state, local, foreign, or international, in connection with the matters contemplated by this Agreement. 8.3 Defense Obligations. The indemnifying party under Section 8.1 or 8.2, above, shall assume the defense of any claim qualifying for indemnification with counsel reasonably satisfactory to the other party, and the other party shall cooperate to the extent reasonably requested by the indemnifying party. The other party may employ its own counsel in any such case, and shall pay such counsel's fees and expenses. The indemnifying party shall have the right to settle any claim for which indemnification is available; provided, however, that to the extent that such settlement requires the other party to take or refrain from taking any action or purports to obligate the other party, then the indemnifying party shall not settle such claim without the prior written consent of the other party, which consent shall not be unreasonably withheld, conditioned or delayed. 9. Nondisclosure. 9.1 Confidential Information. Provider and CUSTOMER agree that all information (whether in writing, orally or in any other format) disclosed by either of them to the other during the negotiation of this Agreement or to be disclosed during the performance of this Agreement including all such exchanges which have taken place prior to the execution of this Agreement (without regard to whether information has been expressly marked or otherwise designated as confidential or proprietary) shall constitute "Confidential Information"; provided, however, that Confidential Information shall not include information that is or becomes publicly known through no wrongful act of either Party (or any of its employees), has been approved for release by written authorization of the originating Party, or has been disclosed pursuant to a requirement of a government agency or of law. During the term of this Agreement, and at all times thereafter, the Party to whom Confidential Information has been imparted shall maintain such information as confidential and shall not disclose or permit the same to be disclosed to any person or entity. Each Party shall take all reasonable steps to minimize the risks of disclosure of Confidential Information. Each of the Parties further agree that the unauthorized disclosure by it of Confidential Information received from the other shall cause irreparable harm and significant injury to the other which may be difficult to ascertain. Accordingly, each Party agrees that the other shall be entitled to equitable relief, including, without limitation, an immediate injunction enjoining any breach by it of this Section, in addition to all other remedies available to such Party at law or in equity. The Parties agree that the obligations in this Section shall survive the termination or expiration of this Agreement. -8- Exhibit 10.15 9.2 Limitation on Disclosures. Neither party shall publicly use the other party's name, trademark, service mark or any other identifying symbols, directly or indirectly, in any public advertising, news release, or any other public professional or trade publication, and, except as may be required by law, without such party's previous consent. Neither party shall make any press release, public announcement, or any other public disclosure concerning this Agreement, without the other party's prior written consent, which shall not be unreasonably withheld. Notwithstanding the foregoing, nothing set forth herein shall prohibit CUSTOMER from accurately using Provider's name for CUSTOMER'S own business promotional purposes, including identifying Provider as one of its providers to existing and potential business partners or disclosing Provider as one of its providers as necessary for financing purposes. Notwithstanding anything contained herein to the contrary, Provider shall be allowed to disclose the pricing schedule contained herein (without specifically identifying the identity of CUSTOMER) with respect to any "True Pricing" survey which includes Provider or with respect to any merger, acquisition or other material transaction regarding Provider or any of its affiliates (provided that the intended recipients of such information agree to keep the information confidential). Notwithstanding anything contained herein to the contrary, CUSTOMER shall be allowed to disclose the pricing schedule contained herein with respect to any merger, acquisition or other material transaction regarding Customer or any of its affiliates (provided that the intended recipients of such information agree to keep the information confidential). 10. Dispute Resolution. Any disagreement or dispute between the parties shall, if not promptly resolved by mutual agreement, be reduced to writing and submitted to the executive officers of each party designated to handle such disputes. Within 30 days of the submittal, the executive officers may, upon mutual agreement, meet to resolve the dispute and to hear any arguments that a party wishes to make in connection therewith. If the executive officers reach agreement on the disposition of the dispute, they shall promptly issue their joint written decision resolving the dispute. Any dispute so dealt with shall be considered conclusively and finally decided and shall not be the subject of any litigation. Any dispute, which such executive officers are unable to promptly decide, may be taken by the aggrieved party to binding arbitration under the rules of the American Arbitration Association in Miami. 11. General Terms. 11.1 Independent Contractors. The Parties hereto are acting as independent contractors and under no circumstances shall any of the employees of one party be deemed the employees of the other for any purpose. Except as otherwise expressly provided in this Agreement, this Agreement does not constitute either party as the agent or legal representative of the other party and does not create a partnership or joint venture between the parties. Except as otherwise expressly provided in this Agreement, neither party shall have any authority to act for the other party in any agency or other capacity, to make commitments of any kind for the account of, or on behalf of, the other party or to contract for or bind the other party in any manner whatsoever. This Agreement confers no rights of any kind upon any third party. 11.2 Force Majeure. Provider shall not be liable for failure to fulfill its obligations hereunder if such failure is due to causes beyond its reasonable control, including, without limitation, actions or failures to act of CUSTOMER or any END-USER, acts of God, fire, catastrophe, governmental prohibitions or regulations, telephone company equipment failure or delays, international bandwidth provider failure or delays, viruses which did not result from the acts or omissions of Provider, its employees or agents, national emergencies, power failures, insurrections, riots or wars, or strikes, lockouts, work stoppages or other labor difficulties. The time for any performance required hereunder shall be extended by the delay incurred as a result of such act of force majeure, and Provider shall act with diligence to correct such force majeure. In order to avoid telephone company equipment failure or delays, or international bandwidth provider failure or delays, Provider shall contract with carrier grade telephone companies and international bandwidth providers. -9- Exhibit 10.15 CUSTOMER shall have the right, in its sole discretion, to secure access from another service provider without any penalty for those POPs subject to force majeure for the time period of such force majeure. 11.3 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to a party under this Agreement shall impair any such right, power or remedy of such party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of either party of any breach or default under this Agreement, or any waiver on the part of either party of any provisions or conditions of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to a party, shall be cumulative and not alternative. 11.4 Binding Agreement. Unless otherwise provided herein, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns . No person or entity other than the parties hereto is or shall be entitled to bring any action to enforce any provision of this Agreement against either of the parties hereto, and unless otherwise provided herein, the covenants and agreements set forth in this Agreement shall be solely for the benefit of, and shall be enforceable only by, the parties hereto or their respective successors and assigns. Subject to Section 5.2, this Agreement is valid and binding and shall continue in full force and effect without penalty or other adverse consequence, including, without limitation, consequences resulting from any Change in Control of either party. "Change in Control" means the occurrence of any one of the following events: (a) any consolidation, merger or other similar transaction involving Provider or Customer, if Provider or Customer is not the continuing or surviving corporation, or which contemplates that all or substantially all of the business and/or assets of Provider or Customer 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 Provider or Customer; (c) approval by the stockholders of Provider or Customer of any plan or proposal for the liquidation or dissolution of Provider or Customer, 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 25% or more of the outstanding shares of voting stock of Provider or Customer; provided, however, that for purposes of the foregoing, "person" excludes any underwriter purchasing shares of Provider or Customer 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 Provider or Customer on the first day of each such period, or (ii) subsequently became directors of Provider or Customer 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 Provider or Customer, cease to constitute a majority of the board of directors of Provider or Customer 11.5 Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by certified or registered mail (return receipt requested), overnight express air courier, charges prepaid, or facsimile addressed as follows: To CUSTOMER: with a copy to: - -------------------------------------- -------------------------------------- - -------------------------------------- -------------------------------------- - -------------------------------------- -------------------------------------- -10- Exhibit 10.15 ______________________________________ ______________________________________ ______________________________________ ______________________________________ Phone: _____________Fax: _____________ Phone: _____________Fax: _____________ To PROVIDER: with a copy to: ______________________________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________ ______________________________________ Phone: _____________Fax: _____________ Phone: _____________Fax: _____________ If a notice is given by either party by certified or registered mail, it will be deemed received by the other party on the third business day following the date on which it is deposited for mailing. If a notice is given by either party by overnight air express courier, it will be deemed received by the other party on the next business day following the date on which it is provided to the air express courier. If a notice is given by facsimile, it will be deemed received by the other party after confirmation of receipt. 11.6 Compliance with Law. Both parties are responsible for complying with all applicable rules, regulations, statutes, codes, ordinances and other requirements, whether federal, state, local, foreign, or international, in connection with the matters contemplated by this Agreement. 11.7 Assignment. CUSTOMER's rights under this Agreement are non-transferable, and may not be assigned or sub-licensed without the prior written authorization of Provider unless the assignment is to an affiliate of CUSTOMER or in connection with the sale of substantially all the assets of CUSTOMER. Such authorization may be withheld for any reason. Any act in derogation of the foregoing shall be null and void; provided, however, that any such assignment shall not relieve CUSTOMER of its obligations hereunder. Provider's rights under this Agreement are non- transferable, and may not be assigned or sub-licensed without the prior written authorization of CUSTOMER unless the assignment is to an affiliate of Provider or in connection with the sale of substantially all the assets of Provider. Such authorization may be withheld for any reason. Any act in derogation of the foregoing shall be null and void; provided, however, that any such assignment shall not relieve Provider of its obligations hereunder. 11.8 No Third Party Beneficiaries. No provision to this Agreement is intended, nor shall any be interpreted, to provide or create any third party beneficiary rights or any other rights of any kind in any affiliate, shareholder, partner of any party hereto or any other third party; including any END-USER, unless specifically provided otherwise herein, and except as so provided, all provisions hereof, shall be personal solely between the parties to this Agreement. 11.9 Severability. -11- Exhibit 10.15 In case any provision of this Agreement shall be invalid, illegal or unenforceable, such provision shall be construed so as to render it enforceable and effective to the maximum extent possible in order to effectuate the intention of this Agreement; and the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. 11.10 Order of Precedence. In the event of any conflict or inconsistency between this Agreement and any attachments, schedules, or exhibits, the provisions of the Agreement shall control. 11.11 Governing Law. This Agreement and any issues arising out of or in relation thereto shall be governed by the law of Florida applicable to contracts to be performed wholly within that state. CUSTOMER and Provider agree to the exclusive jurisdiction of the courts of Florida for any action or proceeding arising out of or in relation to this Agreement. 11.12 Entire Agreement / Amendments. This Agreement and the attachments, schedules and exhibits incorporated herein by reference constitute the entire understanding and agreement between the parties with regard to the subjects hereof and supersede all prior oral and written agreements, commitments and understandings with respect to such matters. Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a written instrument signed by the parties hereto. The execution of this Agreement terminates the existing network services agreement currently in place between the parties. 11.13 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each counterpart shall be deemed to be an original, and all counterparts individually or together shall constitute one and the same instrument. Each party represents and warrants that the person whose signature appears below is duly authorized to enter into this Agreement on behalf of the party. In Witness Whereof, the parties have entered into this Agreement as of the date set forth: Tutopia.com, Inc. /s/ Jak Bursztyn - ---------------------------------------------------- Signature Jak Bursztyn - ---------------------------------------------------- Print Name President - ---------------------------------------------------- Title August 30, 2000 - ---------------------------------------------------- Date -12- Exhibit 10.15 IFX CORPORATION /s/ Michael Shalom - ----------------------------------------------------- Signature Michael Shalom - ----------------------------------------------------- Print Name CEO - ----------------------------------------------------- Title August 30, 2000 - ----------------------------------------------------- Date Attachments: Schedule A - Pricing Schedule - ---------- Schedule B - Service Standards - ---------- -13- EX-10.16 6 0006.txt REVENUE SHARING AGREEMENT EXHIBIT 10.16 Revenue Sharing Agreement This Revenue Sharing Agreement (this "Agreement") dated as of August 31, 2000 is entered into by IFX Corporation (together with its subsidiaries, "provider") and Tutopia.com, Inc. (together with its subsidiaries "customer"). Provider is an Internet service provider offering a wide range of services for business in Latin America. Provider and Customer have entered into that certain Dial Access Agreement effective as of the date hereof (the "Dial Access Agreement") under which Customer has agreed to purchase Hourly Dial Access services from Provider in Latin America and Provider has agreed to sell such Services to Provider. Capitalized terms used but not defined herein shall have the meanings given to them in the Dial Access Agreement. In connection with providing the Services to Customer, Provider may receive Telco Revenues (as defined below) from one or more local telephone carriers or other telecommunications infrastructure providers ("Telcos") which Provider has engaged to "terminate" (as such term is commonly used by telecommunications companies) calls made by Customer's End-Users in accessing Provider's Network. This Revenue Sharing Agreement is being entered into by the parties in order to set forth how such Telco Revenues will be shared by Provider and Customer. Accordingly, Provider and Customer hereby agree as follows: 1. "Telco Revenue" means any and all cash payments or credits paid or granted by a Telco to or for the benefit of Provider as an inducement to terminate telecommunication calls at such Telco. In connection with the negotiation of call termination arrangements with Telcos, Provider will use its reasonable best efforts to obtain the agreement of the Telco to provide any consideration or benefit granted as an inducement to terminate telecommunication calls at such Telco in the form of a direct cash payment or credit from the Telco to Provider. 2. All Telco Revenues received by Provider that are based on the number of hours and/or minutes "terminated" by Telcos as a result of Network traffic generated by Customer pursuant to the Dial Access Agreement ("Tutopia Generated Telco Revenues") shall be shared by Provider and Customer as follows: (a) with respect to Tutopia Generated Telco Revenues generated from the date of this Agreement through December 31, 2000, Provider shall be entitled to receive 100% of Tutopia Generated Telco Revenues; and (b) with respect to Tutopia Generated Telco Revenues generated from January 1, 2001 through the first (1st) anniversary of the date of this Agreement, Customer shall be entitled to receive 75% of Tutopia Generated Telco Revenues and Provider shall be entitled to receive 25% of Tutopia Generated Telco Revenues. 3. Provider shall deliver a monthly statement to Customer itemizing all Tutopia Generated Telco Revenues reported by Telcos to Provider since the previous statement. Such monthly statement shall be provided by Provider to Customer as soon as practicable but in any event no later than 30 days after the end of each calendar month. 4. Provider shall pay to Customer the amount of each Tutopia Generated Telco Revenue within thirty (30) days of Provider's receipt thereof from the applicable Telco. 5. From time to time Customer shall have the right to audit Provider's records relating to the determination of Tutopia Generated Telco Revenues (including without limitation all oral or written agreements with Telcos relating to the termination of calls), and discuss such records with Provider personnel, upon reasonable advance notice of no less than five (5) business days and during normal business hours, but not more often than once in any six (6) month period. In connection with any such audit, to the extent reasonably requested by Customer, Provider shall use its reasonable best efforts to provide access to the books and records of any Telco utilized by EXHIBIT 10.16 Provider to "terminate" calls (to the extent such books and records relate to the provision of services by such Telco to Provider) and to such Telco's personnel. Customer shall bear the cost of any such audit unless it is determined that the Tutopia Generated Telco Revenues were misstated in Provider's favor during the period audited by more than five percent (5%), in which case, Provider shall bear the cost of such audit. Customer shall keep all such records (as well as any other information disclosed by Provider to Customer pursuant to this Agreement) confidential, except as required by applicable law. 6. This Agreement and any issues arising out of or in relation thereto shall be governed by the law of Florida applicable to contracts to performed wholly within that state. Customer and Provider agree to the exclusive jurisdiction of the courts of Florida for any action or proceeding arising out of or in relation to this Agreement. This Agreement may be executed in counterparts, each counterpart shall be deemed to be an original and all counterparts individually or together shall constitute on and the same instrument. 7. No partnership, agency or joint venture is intended or created by this Agreement. IFX CORPORATION By: /s/ Joel Eidelstein ------------------- Name: Joel Eidelstein Title: President TUTOPIA.COM, INC. By: /s/ Jak Bursztyn ---------------- Name: Jak Bursztyn Title: President 2 EX-10.17 7 0007.txt INTER-COMPANY SERVICES AGREEMENT Exhibit 10.17 THIS AMENDED AND RESTATED INTER-COMPANY SERVICES AGREEMENT, dated as of August 31, 2000, is by and between IFX Corporation, a Delaware corporation ("IFX"), and Tutopia.com, Inc., a Delaware corporation ("Tutopia"). Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in Article I hereof. WHEREAS, IFX is an investor in Tutopia; and WHEREAS, IFX will provide various services to Tutopia and the parties desire to memorialize certain matters relating to the relationship between IFX and Tutopia. NOW, THEREFORE, for good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS. For the purpose of this Agreement the following terms shall have the following meanings: 1.01 "Action" means any demand, action, suit, counter-suit, arbitration, inquiry, proceeding or investigation by or before any federal, state, local, foreign or international Governmental Authority or any arbitration or mediation tribunal. 1.02 "Affiliate" of any Person means a Person that controls, is controlled by, or is under common control with such Person. As used herein, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities or other interests, by contract or otherwise. 1.03 "Agreement" means this Inter-Company Service Agreement, including all of the Exhibits and Schedules hereto. 1.04 "IFX Group" means IFX and each Person (other than any member of the Tutopia Group) that is an Affiliate of IFX on the date hereof 1.05 "IFX Indemnitees" has the meaning set forth in Section 5.01 1.06 "Indemnifying Party" has the meaning set forth in Section 5.03(a) 1.07 "Indemnitee" has the meaning set forth in Section 5.03 1.08 "Indemnity Payment" has the meaning set forth in Section 5.03(a) 1.09 "Confidential Information" means any information disclosed and/or to which any of the parties may have access, which is or should be reasonably understood to be confidential or proprietary to either Party, including, but not limited to, information concerning each party's business, products, services, content, finances, subscribers, source code, product designs and plans, customer lists and other marketing and technical information and other unpublished information 1.10 "Insurance Policies" means the insurance policies written by insurance carriers unaffiliated with IFX pursuant to which members of the Tutopia Group (or their respective officers or directors) will be insured parties after the date hereof 1.11 "Insurance Proceeds" means those monies: (a) received by an insured from an insurance carrier; or Page 1 of 1 IFX Confidential and Proprietary Exhibit 10.17 (b) paid by an insurance carrier on behalf of the insured; in any such case net of any applicable premium adjustments (including reserves and retrospectively rated premium adjustments) and net of any costs or expenses incurred in the collection thereof 1.12 "Liabilities" means any and all losses, claims, charges, debts, demands, actions, causes of action, suits, damages, obligations, payments, costs and expenses, sums of money, accounts, reckonings, bonds, specialties, indemnities and similar obligations, exonerations, covenants, contracts, controversies, agreements, promises, doings, omissions, variances, guarantees, make whole agreements and similar obligations, and other liabilities, including all contractual obligations, whether absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and including those arising under any law, rule, regulation, Action, threatened or contemplated Action (including the costs and expenses of demands, assessments, judgments, settlements and compromises relating thereto and attorneys' fees and any and all costs and expenses (including allocated costs of in-house counsel and other personnel), whatsoever reasonably incurred in investigating, preparing or defending against any such Actions or threatened or contemplated Actions), order or consent decree of any Governmental Authority or any award of any arbitrator or mediator of any kind, and those arising under any contract, commitment or undertaking, including those arising under this Agreement, whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person. 1.13 "Governmental Authority" shall mean a court, arbitral tribunal, administrative agency or commission or other governmental or other regulatory authority or agency. 1.14 "Tutopia Group" means Tutopia, each Subsidiary of Tutopia and each other Person that is either controlled directly or indirectly by Tutopia on the date hereof. 1.15 "Tutopia Indemnitees" has the meaning set forth in Section 6.03(a). 1.16 "Person" means an individual, a general or limited partnership, a corporation, a trust, a joint venture, an unincorporated organization, a limited liability entity, any other entity and any Governmental Authority. 1.17 "Subsidiary of any Person" means any corporation or other organization whether incorporated or unincorporated of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; provided, however, that no Person shall be deemed to be a Subsidiary of such other Person unless such other Person controls, or has the right, power or ability to control, that Person. 1.18 "Third Party Claim" has the meaning set forth in Section 5.04(a). ARTICLE II TERM AND TERMINATION 2.01 This Agreement shall commence on the date set forth above and unless earlier terminated pursuant to paragraph 2.02 or 2.03 of this Article, shall continue for one year. Upon termination, all rights and obligations of each party hereto shall cease as of the date of termination and any amounts owed by either party hereto shall be paid in full. 2.02 This Agreement shall also terminate effective immediately upon the earlier to occur of: (a) The dissolution, termination or liquidation of IFX or Tutopia; Page 2 of 2 IFX Confidential and Proprietary Exhibit 10.17 (b) The appointment of a trustee in bankruptcy for IFX or Tutopia, an assignment of assets for the benefit of IFX's or Tutopia's creditors or the adjudication of bankruptcy with respect to IFX or Tutopia; or (c) Either party providing sixty (60)-days written notice of its intent to terminate the Agreement. 2.03 In the event that either party hereto shall commit any material breach of or default under this Agreement and such breach or default is not cured within thirty (30) calendar days after notice of such breach or default (if remediable), the non-defaulting or non-breaching party shall have the right (but not the obligation), in addition to all other legal and equitable remedies that may be available to such party, to terminate this Agreement. ARTICLE III OFFICE SPACE, OFFICE FURNITURE AND OFFICE SERVICES ("Shared Premises") 3.01 IFX shall provide Tutopia and its employees use of office space, office furniture and related office services such as utilities, telecommunications equipment (including, but not limited to the costs of installment and maintenance of lines, office units and an estimated amount for actual calls), dedicated local area network internet access, general office supplies, mailroom services, cleaning services, receptionist services, maintenance services and general office equipment (e.g., photocopiers, printers and telefax machines). The above list is not meant to be all-inclusive. 3.02 With respect to Section 3.01, IFX shall provide Tutopia an itemized quarterly invoice, which Tutopia shall pay no later than thirty (30) calendar days after receipt of such invoice, less any disputed amounts. To the extent possible, IFX will specifically identify direct costs incurred by IFX on behalf of Tutopia. Indirect costs incurred by IFX and attributable to Tutopia will be allocated to Tutopia based on the number of employees dedicated to Tutopia matters verses the total number of employees of IFX. Charges for the shared premises shall be billed based on the rate schedule set forth in Exhibit A. The parties shall negotiate in good faith to resolve all disputed amounts. 3.03 Tutopia shall provide IFX at least fifteen (15) calendar days notice of its need for office space for new employee. ARTICLE IV SUPPORT SERVICES ("Services") 4.01 IFX shall provide Tutopia, at Tutopia's request: administration (including, but not limited to marketing, financial management, sales efforts, human resources, accounting, legal, etc.), Internet/telecom and certain technical support services. IFX shall also provide other similar administrative and operational services required to carry out Tutopia's business plan that IFX has the resources to provide without unreasonable cost or burden to its own operations. The above list is not meant to be all-inclusive. 4.02 Tutopia shall pay IFX for all out-of-pocket expenses to third parties incurred in connection with the Services. Those expenses shall include actual charges for telecommunications calls, special postage, courier service, and any other similar products or services provided by third parties which are individually billed to IFX and which are not included in its general charges specified above. If V.A.T., use or similar taxes are at any time to be required to be paid on the Services, they will be added to the amounts payable by Tutopia pursuant to this Agreement. 4.03 With respect to Sections 4.01 and 4.02, IFX shall provide Tutopia an itemized quarterly invoice, which Tutopia shall pay no later than thirty (30) calendar days after receipt of such invoice, less any disputed amounts. To the extent possible, IFX will specifically identify direct costs (including employee salaries, bonuses, taxes and benefits) incurred by IFX on behalf of Tutopia based on a Page 3 of 3 IFX Confidential and Proprietary Exhibit 10.17 reasonable estimate of the percentage of time dedicated by each employee to Tutopia matters versus the total time dedicated by such employee to Tutopia and IFX matters. Travel expenses, costs related to Tutopia marketing materials, and the cost of equipment acquired by IFX specifically on behalf of Tutopia will be separately itemized. The parties shall negotiate in good faith to resolve all disputed amounts. 4.04 The persons listed on Exhibit B hereto are employees of IFX but have been working full time on behalf of Tutopia. After the date hereof but on or prior to the Initial Closing, such persons will be transferred to Tutopia's payroll and become direct employees of Tutopia or its subsidiaries. All costs associated with such employees incurred on or prior to the Initial Closing, including salary, payroll taxes, benefits and similar costs paid or liabilities incurred by Tutopia or by IFX on behalf of Tutopia will become liabilities of Tutopia, provided, that such liabilities shall constitute "Funded Indebtedness" for purposes of Section 5(l) of the Tutopia.com, Inc. Stock Purchase Agreement and subject to the limitations set forth therein. ARTICLE V INDEMNIFICATION 5.01 INDEMNIFICATION BY TUTOPIA. Except as provided in Section 5.04, Tutopia shall indemnify, defend and hold harmless IFX, each member of the IFX Group and each of their respective directors, officers and employees (in each case, in their respective capacities as such), and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "IFX Indemnitees"), from and against any and all Liabilities of the IFX Indemnitees relating to, arising out of or resulting from any of the following items (without duplication): (a) The failure of Tutopia or any other member of the Tutopia Group or any other Person to pay, perform or otherwise promptly discharge any liabilities of Tutopia in accordance with their respective terms, whether prior to or after the date hereof; and (b) Any breach by Tutopia or any member of the Tutopia Group of this Agreement; provided, however, that Tutopia shall not be financially responsible hereunder for any special, incidental, consequential or other similar type of damage to the extent that such damages are specifically excluded in such agreement. 5.02 INDEMNIFICATION BY IFX. Except as otherwise provided in Section 5.04, IFX shall indemnify, defend and hold harmless Tutopia, each member of the Tutopia Group and each of their respective directors, officers and employees (in each case, in their respective capacities as such), and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "Tutopia Indemnitees"), from and against any and all Liabilities of the Tutopia Indemnitees relating to, arising out of or resulting from any of the following items (without duplication): (a) The failure of IFX or any other member of the IFX Group or any other Person to pay, perform or otherwise promptly discharge any Liabilities of the IFX Group, whether prior to or after the date hereof; and (b) Any breach by IFX or any member of the IFX Group of this Agreement; provided, however, that IFX shall not be financially responsible hereunder for any special, incidental, consequential or other similar type of damage to the extent that such damages are specifically excluded in such agreement. 5.03 INDEMNIFICATION OBLIGATIONS NET OF INSURANCE PROCEEDS AND OTHER AMOUNTS. (a) The parties intend that any Liability subject to indemnification or reimbursement pursuant to this Article V or Article VI will be net of Insurance Proceeds that Page 4 or 4 IFX Confidential and Proprietary Exhibit 10.17 actually reduce the amount of the Liability. Accordingly, the amount which any party (an "Indemnifying Party") is required to pay to any Person entitled to indemnification hereunder (an "Indemnitee") will be reduced by any Insurance Proceeds theretofore actually recovered by or on behalf of the Indemnitee in reduction of the related Liability. If an Indemnitee receives a payment (an "Indemnity Payment") required by this Agreement from an Indemnifying Party in respect of any Liability and subsequently receives Insurance Proceeds, then the Indemnitee will pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if the Insurance Proceeds had been received, realized or recovered before the Indemnity Payment was made. (b) An insurer who would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of the indemnification provisions hereof, have any subrogation rights with respect thereto, it being expressly understood and agreed that no insurer or any other third party shall be entitled to a "windfall" (i.e., a benefit they would not be entitled to receive in the absence of the indemnification provisions) by virtue of the indemnification provisions hereof. Nothing contained in this Agreement shall obligate any member of any Group to seek to collect or recover any Insurance Proceeds. 5.04 PROCEDURES FOR INDEMNIFICATION OF THIRD PARTY CLAIMS. (a) If an Indemnitee shall receive notice or otherwise learn of the assertion by a Person (including any Governmental Authority) who is not a member of the IFX Group or the Tutopia Group of any claim or of the commencement by any such Person of any Action (collectively, a "Third Party Claim") with respect to which an Indemnifying Party may be obligated to provide indemnification to such Indemnitee pursuant to Section 5.02 or 5.03, or any other Section of this Agreement such Indemnitee shall give such Indemnifying Party written notice thereof within twenty (20) days after becoming aware of such Third Party Claim. Any such notice shall describe the Third Party Claim in reasonable detail. Notwithstanding the foregoing, the failure of any Indemnitee or other Person to give notice as provided in this Section 5.05(a) shall not relieve the related Indemnifying Party of its obligations under this Article VI, except to the extent that such Indemnifying Party is actually prejudiced by such failure to give notice. (b) An Indemnifying Party may elect to defend (and, unless the Indemnifying Party has specified any reservations or exceptions, to seek to settle or compromise), at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel, any Third Party Claim. Within thirty (30) days after the receipt of notice from an Indemnitee in accordance with Section 3.05(a) (or sooner, if the nature of such Third Party Claim so requires), the Indemnifying Party shall notify the Indemnitee of its election whether the Indemnifying Party will assume responsibility for defending such Third Party Claim, which election shall specify any reservations or exceptions. After notice from an Indemnifying Party to an Indemnitee of its election to assume the defense of a Third Party Claim, such Indemnitee shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise, or settlement thereof, but the fees and expenses of such counsel shall be the expense of such Indemnitee except as set forth in the next sentence. In the event that the Indemnifying Party has elected to assume the defense of the Third Party Claim but has specified, and continues to assert, any reservations or exceptions in such notice, then, in any such case, the reasonable fees and expenses of one separate counsel for all Indemnitees shall be borne by the Indemnifying Party. Page 5 or 5 IFX Confidential and Proprietary Exhibit 10.17 (c) If an Indemnifying Party elects not to assume responsibility for defending a Third Party Claim, or fails to notify an Indemnitee of its election as provided in Section 5.05(b), such Indemnitee may defend such Third Party Claim at the cost and expense of the Indemnifying Party. (d) Unless the Indemnifying Party has failed to assume the defense of the Third Party Claim in accordance with the terms of this Agreement, no Indemnitee may settle or compromise any Third Party Claim without the consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. (e) No Indemnifying Party shall consent to entry of any judgment or enter into any settlement of the Third Party Claim without the consent of the Indemnitee if the effect thereof is to permit any injunction, declaratory judgment, other order or other nonmonetary relief to be entered, directly or indirectly, against any Indemnitee. (f) The provisions of Section 5.05 and Section 5.06 shall not apply to Taxes. 5.05 ADDITIONAL MATTERS. (a) Any claim on account of a Liability which does not result from a Third Party Claim shall be asserted by written notice given by the Indemnitee to the related Indemnifying Party. Such Indemnifying Party shall have a period of thirty (30) days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such thirty (30) day period, such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment. If such Indemnifying Party does not respond within such thirty (30) day period or rejects such claim in whole or in part, such Indemnitee shall be free to pursue such remedies as may be available to such party as contemplated by this Agreement. (b) In the event of payment by or on behalf of any Indemnifying Party to any Indemnitee in connection with any Third Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third Party Claim against any claimant or plaintiff asserting such Third Party Claim or against any other person. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense (including allocated costs of in-house counsel and other personnel) of such Indemnifying Party, in prosecuting any subrogated right, defense or claim. (c) In the event of an Action in which the Indemnifying Party is not a named defendant, if the Indemnifying Party shall so request, the parties shall endeavor to substitute the Indemnifying Party for the named defendant if at all practicable. If such substitution or addition cannot be achieved for any reason or is not requested, the named defendant shall allow the Indemnifying Party to manage the Action as set forth in this Section and the Indemnifying Party shall fully indemnify the named defendant against all costs of defending the Action (including court costs, sanctions imposed by a court, attorneys' fees, experts' fees and all other external expenses), the costs of any judgment or settlement, and the cost of any interest or penalties relating to any judgment or settlement. Page 6 or 6 IFX Confidential and Proprietary Exhibit 10.17 5.06 SURVIVAL OF INDEMNITIES. The rights and obligations of each of IFX and Tutopia and their respective Indemnitees under this Article V shall survive the sale or other transfer by any party of any Assets or businesses or the assignment by it of any Liabilities. 5.07 UNAVAILABILITY OF INDEMNITY. If the indemnification provided for in this Article V is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any Liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party hereunder, agrees to contribute to the amount paid or payable by such indemnified party as a result of such Liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on one hand and of the indemnified party on the other in connection with the event that resulted in such Liability, as well as any other relevant equitable considerations. ARTICLE VI INSURANCE MATTERS 6.01 Tutopia and IFX agree that Tutopia may remain on IFX's insurance policies relating to Directors and Officers, property, errors and omissions, professional liability, worker's compensation, office content and general liability until the earlier of such time as Tutopia no longer qualifies for coverage on the respective IFX Insurance Policy or, upon thirty (30) days' prior written notice to IFX, Tutopia elects to be removed from the IFX Insurance Policy or Policies. For so long as Tutopia is covered by IFX's Insurance Policies, Tutopia shall pay to IFX on a quarterly calendar basis (prorated on a daily basis for any partial month), no later than thirty (30) days after the end of each respective quarter, in respect of the period from the date hereof until the termination of Tutopia's coverage on all of IFX's Insurance Policies, in respect of Insurance Policies under which Tutopia shall continue to have coverage following the date hereof. IFX and Tutopia agree to cooperate in good faith to provide for the treatment of any Insurance Policies that shall remain in effect following the date hereof on a mutually agreeable basis. IFX shall provide Tutopia with prompt notice in the event that any Insurance Policy shall be terminated or otherwise cease to be in effect for any reason, provided that IFX shall provide Tutopia with reasonable notice prior to taking any action to terminate or reduce the scope of insurance. In no event shall IFX, any other member of the IFX Group or any IFX Indemnitee have liability or obligation whatsoever to any member of the Tutopia Group in the event (i) that any Insurance Policy or other contract or policy of insurance shall be terminated or otherwise cease to be in effect for any reason, shall be unavailable or inadequate to cover any Liability of any member of the Tutopia Group for any reason whatsoever or shall not be renewed or extended beyond the current expiration date; or (ii) notwithstanding the provisions of the immediately preceding sentence, that IFX fails to provide Tutopia with notice of any such event. 6.02 (a) The parties intend by this Agreement that Tutopia and each other member of the Tutopia Group be successors-in-interest to all rights that any member of the Tutopia Group may have as of the date hereof as a subsidiary, affiliate, division or department of IFX prior to the date hereof under any policy of insurance issued to IFX by any insurance carrier unaffiliated with IFX or under any agreements related to such policies executed and delivered prior to the date hereof, including any rights such member of the Tutopia Group may have, as an insured or additional named insured, subsidiary, affiliate, division or department, to avail itself of any such policy of insurance or any such agreements related to such policies as in effect prior to the date hereof. At the request of Tutopia, IFX shall take all reasonable steps, including the execution and delivery of any instruments, to effect the foregoing; provided, however that IFX shall not be required to pay any amounts, waive any rights or incur any Liabilities in connection therewith. (b) after the date hereof, none of IFX or Tutopia or any member of their respective Groups shall, without the consent of the other, provide any such insurance carrier with a release, or amend, modify or waive any rights under any such policy or agreement, if such release, amendment, modification or waiver would adversely affect any rights or potential rights of any member of the other Group thereunder; provided however that the foregoing shall not (A) preclude any member of any Group from presenting any claim or from exhausting any policy limit, (B) require any member of any Group to pay any premium or other amount or to incur any Page 7 or 7 IFX Confidential and Proprietary Exhibit 10.17 Liability, or (C) require any member of any Group to renew, extend or continue any policy in force. Each of Tutopia and IFX will share such information as is reasonably necessary in order to permit the other to manage and conduct its insurance matters in an orderly fashion 6.03 This Agreement shall not be considered as an attempted assignment of any policy of insurance or as a contract of insurance and shall not be construed to waive any right or remedy of any member of the IFX Group in respect of any Insurance Policy or any other contract or policy of insurance. 6.04 Tutopia does hereby, for itself and each other member of the Tutopia Group, agree that no member of the IFX Group or any IFX Indemnitee shall have any Liability whatsoever as a result of the insurance policies and practices of IFX and its Affiliates as in effect at any time prior to the date hereof, including as a result of the level or scope of any such insurance, the creditworthiness of any insurance carrier, the terms and conditions of any policy, the adequacy or timeliness of any notice to any insurance carrier with respect to any claim or potential claim or otherwise. 6.05 Nothing in this Agreement shall be deemed to restrict any member of the Tutopia Group from acquiring at its own expense any other insurance policy in respect of any Liabilities or covering any period. ARTICLE VII EXCHANGE OF INFORMATION; CONFIDENTIALITY 7.01 AGREEMENT FOR EXCHANGE OF INFORMATION; ARCHIVES. (a) IFX and Tutopia, on behalf of its respective Group, agree to provide, or cause to provide, to the other Group, as soon as reasonably practicable after written request, any information in the possession or under the control of such Group which the requesting party reasonably needs (i) to comply with reporting, disclosure, filing or other requirements imposed on the requesting party (including under applicable securities or tax laws) by a Governmental Authority having jurisdiction over the requesting party, (ii) for use in any other judicial, regulatory, administrative, tax or other proceeding or in order to satisfy audit, accounting, claims, regulatory, litigation, tax or other similar requirements, or (iii) to comply with its obligations under this Agreement; provided, however, that in the event that any party determines that any such provision of Information could be commercially detrimental, violate any law or agreement, or waive any attorney client privilege, the parties shall take all reasonable measures to permit the compliance with such obligations in a manner that avoids any such harm or consequence. (b) Tutopia shall have access during regular business hours (as in effect from time to time) to the documents and objects of historic significance that relate to the business of Tutopia that are located in the IFX records to the extent such documents or objects have been specifically identified and requested by Tutopia in advance or, if specific documents or objects have not been identified, to the extent Tutopia has provided IFX with proper advance notice to request such access and the Tutopia representative designated to receive such access is accompanied by an IFX representative. Tutopia may obtain copies (but not originals) of documents for bona fide business purposes and may obtain objects for exhibition purposes for commercially reasonable periods of time if required for bona fide business purposes, provided that Tutopia shall cause any such objects to be returned promptly in the same condition in which they were delivered to Tutopia and Tutopia shall comply with any rules, procedures or other requirements, and shall be subject to any restrictions (including prohibitions on removal of specified objects), that are then applicable to IFX. Nothing herein Page 8 or 8 IFX Confidential and Proprietary Exhibit 10.17 shall be deemed to restrict the access of any member of the IFX Group to any such documents or objects or to impose any liability on any member of the IFX Group if any such documents or objects are not maintained or preserved by IFX. 7.02 OWNERSHIP OF INFORMATION. Any Information owned by one Group that is provided to a requesting party pursuant to Section 7.01 shall be deemed to remain the property of the providing party. Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such Information. 7.03 COMPENSATION FOR PROVIDING INFORMATION. The party requesting such Information agrees to reimburse the other party for the reasonable costs, if any, of creating, gathering and copying such Information, to the extent that such costs are incurred for the benefit of the requesting party. Except as may be otherwise specifically provided elsewhere in this Agreement or in any other agreement between the parties, such costs shall be computed in accordance with the providing party's standard methodology and procedures. 7.04 RECORD RETENTION. To facilitate the possible exchange of Information pursuant to this Article VII and other provisions of this Agreement after the date hereof, the parties agree to use their reasonable best efforts to retain all Information in their respective possession or control on the date hereof in accordance with the policies of IFX as in effect on the date hereof. No party will destroy, or permit any of its Subsidiaries to destroy, any Information which the other party may have the right to obtain pursuant to this Agreement without first using its reasonable best efforts to notify the other party of the proposed destruction and giving the other party the opportunity to take possession of such information prior to such destruction. 7.05 LIMITATION OF LIABILITY. No party shall have any liability to any other party in the event that any Information exchanged or provided pursuant to this Agreement which is an estimate or forecast, or which is based on an estimate or forecast, is found to be inaccurate, in the absence of willful misconduct by the party providing such Information. No party shall have any liability to any other party if any Information is destroyed after reasonable best efforts by such party to comply with the provisions of Section 7.04. 7.06 CONFIDENTIALITY. (a) Subject to Section 7.07, each of IFX and Tutopia, on behalf of itself and each member of its respective Group, agrees to hold, and to cause its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives to hold, in strict confidence, with at least the same degree of care that applies to IFX's confidential and proprietary information pursuant to policies in effect as of the date hereof, all Confidential Information concerning each such other Group that is either in its possession (including Confidential Information in its possession prior to the date hereof) or furnished by any such other Group or its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives at any time pursuant to this Agreement and shall not use any such Confidential Information other than for such purposes as shall be expressly permitted hereunder or thereunder, except, in each case, to the extent that such Confidential Information has been (i) in the public domain through no fault of such party or any member of such Group or any of their respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives, (ii) later lawfully acquired from other sources by such party (or any member of such party's Group which sources are not themselves bound by a confidentiality obligation), or (iii) independently generated without reference to any proprietary or Confidential Information of the other party. Each party agrees not to release or disclose, or permit to be released or disclosed, any such Information to any other Person, except its directors, officers, employees, agents, accountants, counsel and other advisors and representatives who need to know such Information (who shall be advised of their obligations hereunder with respect to such Information), except in compliance with Section 7.07. Without limiting the foregoing, when any Information is no longer needed for the purposes contemplated by this Agreement each party will promptly after request of the other party either return to the other party all Information in a tangible form (including all copies thereof and all notes, extracts or summaries based Page 9 or 9 IFX Confidential and Proprietary Exhibit 10.17 thereon) or certify to the other party that it has destroyed such Information (and such copies thereof and such notes, extracts or summaries based therein). 7.07 PROTECTIVE ARRANGEMENTS. In the event that any party or any member of its Group either determines on the advice of its counsel that it is required to disclose any Information pursuant to applicable law or receives any demand under lawful process or from any Governmental Authority to disclose or provide Information of any other party (or any member of any other party's Group) that is subject to the confidentiality provisions hereof, such party shall notify the other party prior to disclosing or providing such Information and shall cooperate at the expense of the requesting party in seeking any reasonable protective arrangements requested by such other party. Subject to the foregoing, the Person that received such request may thereafter disclose or provide Information to the extent required by such law (as so advised by counsel) or by lawful process or such Governmental Authority. ARTICLE VIII MISCELLANEOUS 8.01 COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER. (a) This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. (b) This Agreement, and the Exhibits, Schedules and Appendices hereto, contain the entire agreement between the parties with respect to the subject matter hereof, supersede all previous agreements (including the Inter-Company Services Agreement dated January 7, 2000, between the parties), negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter and there are no agreements or understandings between the parties other than those set forth or referred to herein or therein. (c) IFX represents on behalf of itself and each other member of the IFX Group and Tutopia represents on behalf of itself and each other member of the Tutopia Group as follows: (i) Each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform each of this Agreement, to which it is a party and to consummate the transactions contemplated hereby and thereby; and (ii) This Agreement to which it is a party has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms thereof subject to (a) the laws of bankruptcy and laws effecting creditors' rights generally and (b) the availability of equitable remedies. 8.02 GOVERNING LAW. This Agreement is or, upon execution and delivery thereof, shall be governed by, and construed in accordance with, the laws of the State of Florida. The Parties agree to submit themselves to the exclusive jurisdiction of the courts of the State of Florida or of the United States District Court for the Southern District of Florida in respect of litigation arising out of this agreement, waiving all affirmative and legal defenses in respect of jurisdiction, forum and venue. 8.03 ASSIGNABILITY. Neither party hereto or thereto may assign its respective rights or delegate its respective obligations under this Agreement without the express prior written consent of the Page 10 of 10 IFX Confidential and Proprietary Exhibit 10.17 other parties hereto or thereto; provided, however, that either party hereto may assign its rights and delegate its responsibilities in connection with a sale or assignment of all or substantially all of its assets to a single acquiror. 8.04 THIRD PARTY BENEFICIARIES. Except for the indemnification rights under this Agreement of any IFX Indemnitee or Tutopia Indemnitee in their respective capacities as such, (a) the provisions of this Agreement are solely for the benefit of the parties and are not intended to confer upon any Person except the parties any rights or remedies hereunder, (b) there are no third party beneficiaries of this Agreement, and (c) nothing in this Agreement shall provide any third person with any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. 8.05 NOTICES. Except as otherwise permitted herein, any notices or consents required or permitted under this Agreement shall be made in writing and delivered in person or by registered or certified mail, postage prepaid, return receipt requested, or by a reputable courier delivery service, or by facsimile or e-mail during regular business hours (provided that a confirmation copy follows by first-class US Mail or another method of delivery permitted under this Section), as follows unless such address is changed by written notice hereunder. Such notice shall be deemed given for purposes of this Agreement on the day that such writing is sent to the intended recipient thereof in accordance with the provisions of this section: If to Tutopia: If to IFX: Jak Bursztyn Joel Eidelstein Tutopia.com, Inc. IFX Corporation 15050 NW 79 Court, Suite 200 15050 NW 79 Court, Suite 200 Miami Lakes, Florida 33016 Miami Lakes, Florida 33016 Fax: (305) 512-4220 Fax: (305) 512-4220 E-mail: Jack@tutopia.com E-mail: JEidelstein@ifxcorp.com 8.06 SEVERABILITY. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or thereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby or thereby, as the case may be, is not affected in any manner adverse to any party. Upon such determination, the parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the parties. 8.07 FORCE MAJEURE. Neither Party shall be liable for any failure or delay resulting from any acts of God, governmental action, fire, insurrection, earthquake, power failure, riot, explosion, embargo, strikes, whether legal or illegal, labor or material shortage, transportation interruption of any kind, work slowdown or any other condition beyond the control of the Party affecting production or delivery in any manner. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay. 8.08 HEADINGS. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 8.09 WAIVERS OF DEFAULT. Waiver by any party of any default by the other party of any provision of this Agreement shall not be deemed a waiver by the waiving party of any subsequent or other default, nor shall it prejudice the rights of the other party. 8.10 AMENDMENTS. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by any party, unless such waiver, amendment, supplement or modification is in Page 11 of 11 IFX Confidential and Proprietary Exhibit 10.17 writing and signed by the authorized representative of the party against whom it is sought to enforce such waiver, amendment, supplement or modification. 8.11 INTERPRETATION. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other genders as the context requires. The terms "hereof," "herein," and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules, Exhibits and Appendices hereto and thereto) and not to any particular provision of this Agreement. Article, Section, Exhibit, Schedule and Appendix references are to the Articles, Sections, Exhibits, Schedules and Appendices to this Agreement unless otherwise specified. The word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless the context otherwise requires or unless otherwise specified. IN WITNESS WHEREOF, the parties have caused this Inter-Company Agreement to be executed by their duly authorized representatives as of the date first above written. For Tutopia.com, Inc.: For IFX Corporation: /s/ Jak Bursztyn /s/ Michael Shalom - ----------------------------------- ------------------------------------- Signature Signature Jak Bursztyn Michael Shalom - ----------------------------------- ------------------------------------- Print Name Print Name President CEO - ----------------------------------- ------------------------------------- Title Title August 31, 2000 August 31, 2000 - ----------------------------------- ------------------------------------- Date Date Page 12 of 12 IFX Confidential and Proprietary EX-10.18 8 0008.txt SHARE SALE AGREEMENT Exhibit 10.18 Share Sale Agreement between IFX Corporation as Vendor and Duncan Lawrie Offshore Services Limited in its capacity as trustee for The IFX Group Trust as Purchaser relating to the sale and purchase of the redeemable preference share in IFX Limited SIMMONS & SIMMONS 21 Wilson Street London EC2M 2TX Tel: 020 7628 2020 / 7528 9292 Fax: 020 7628 2070 DX Box No 12 Exhibit 10.18 CONTENTS 1. Definitions and Construction................................ 1 2. Sale of Preference Share.................................... 2 3. Consideration............................................... 3 4. Conditions.................................................. 3 5. Completion.................................................. 3 6. Waiver by the Vendor........................................ 4 7. Warranties and representations.............................. 4 8. Confidentiality............................................. 5 9. Provisions relating to this Agreement....................... 6 10. Law and Jurisdiction........................................ 8 i Exhibit 10.18 THIS AGREEMENT is dated August 24, 2000 and made BETWEEN: - -------- (1) IFX CORPORATION, (the "Vendor"), a corporation incorporated under the laws of the State of Delaware and whose registered office is at 707 Skokie Boulevard, Northbrook, Illinois 60062; and (2) Duncan Lawrie Offshore Services Limited, being a company incorporated in the Isle of Man with company number 44074C and registered office at 14-15 Mount Havelock, Douglas, Isle of Man IM1 2QG in its capacity as trustee of THE IFX GROUP TRUST, being a trust constituted under the laws of Jersey (the "Purchaser"). Background: The Vendor wishes to sell and the Purchaser wishes to acquire the single issued redeemable preference share of US$1 in the Company on the terms of and subject to such conditions to this Agreement. THE PARTIES AGREE THAT: - ----------------------- 1. Definitions and Construction ---------------------------- 1.1 In this Agreement where the context admits: "Admission" means admission to the Official List of the UK Listing Authority and admission to trading on the London Stock Exchange plc of the consideration shares to be allotted to the Purchaser under the Zetters Share Sale Agreement becoming effective; "Affiliate" means, in relation to a body corporate, any subsidiary or holding company of such body corporate, and any subsidiary of any such holding company for the time being; "Agreed Form" means in relation to any document, a document in the terms signed or initialled by or on behalf of the parties for identification; "Articles" means the Articles of Association of the Company; "Business Day" means a day (other than Saturday or Sunday) on which banks are open for ordinary banking business in London; "Company" means IFX Limited, a company incorporated in England and Wales (registered number 2876284) and whose registered office is at America House, 2 America Square, London EC3N 2LU; "Completion" means completion of the sale and purchase of the Preference Share in accordance with clause 5; "Completion Date" means the date upon which Completion takes place; "Consideration" means the consideration payable by the Purchaser for the Preference Share as set out in clause 3; "Deed of Termination and Waiver" means the deed in Agreed Form marked "B" attached to this Agreement; 1 Exhibit 10.18 "Director" means any director or officer of the Vendor or a member of the Vendor's Group since 01 January 1994 and "Directors" means each and all of them; "Encumbrance" includes any interest or equity of any person (including any right to acquire, option or right of pre-emption); any mortgage, charge, pledge, lien, assignment, hypothecation, security interest (including any created by law), title retention or other security agreement or arrangement; and any rental, hire purchase, credit sale or other agreement for payment on deferred terms; "First Share Sale Agreement" means the share sale agreement between the Vendor and the Purchaser, dated 30 June 1999 relating to the sale and purchase of 2,448,465 ordinary `A' shares in the Company; "Preference Share" means the single issued redeemable preference share of US$1 in the Company to be bought and sold pursuant to clause 2 of this Agreement; "Purchaser's Solicitors" means Simmons & Simmons of 21 Wilson Street, London EC2M 2TX; "Vendor's Attorneys" means Neal, Gerber & Eisenberg, Suite 2200, 2 N. La Salle Street, Chicago, Illinois 60602; "Vendor's Group" means the Vendor and each of its Affiliates from time to time; "Warranties" means the warranties and representations set out in clause 7; "Zetters Share Sale Agreement" means an agreement to be entered into between the Purchaser, other parties and Zetters Group plc (a company incorporated in England and Wales under registered number 853270 with its registered office at 86-88 Clerkenwell Road, London EC1P 12S) relating to the proposed sale and purchase of 4,896,929 ordinary shares of US$1 and a single redeemable preference share of US$1 in the share capital of the Company, where the total consideration payable to the Purchaser comprises:- (a) 8,717,949 ordinary shares in Zetters; (b) (Pounds)3.9 million in cash; and (c) the sterling equivalent of $469,406; and "Zetters Solicitors" means Herbert Smith of Exchange House, Primrose Street, London EC2A 2HS. 1.2 The headings and sub-headings and any contents pages are inserted for convenience only and shall not affect the construction of this Agreement. 2. Sale of Preference Share Subject to the terms of this Agreement, the Vendor shall sell with full title guarantee and the Purchaser shall purchase, free from all Encumbrances and together with all rights now or hereafter attaching to the Preference Share including, for the avoidance of doubt, the dividend payable by the Company in respect of the Preference Share for the three months period ending on 30 September 2000. 2 Exhibit 10.18 3. Consideration The Consideration payable by the Purchaser to the Vendor for the Preference Share shall be the sum of US$2,400,000. 4. Conditions Completion of the sale and purchase of the Preference Share is subject to the full and complete satisfaction of each and all of the conditions to completion set out in the Zetters Share Sale Agreement, save for any condition relating to the due and complete satisfaction of the conditions to this Agreement and any condition relating to Admission becoming effective. 5. Completion 5.1 Date and place of Completion Completion shall take place at the offices of Simmons & Simmons, 21 Wilson Street, London EC2M 2TX on the date of completion of the Zetters Share Sale Agreement. 5.2 Vendor's obligations By no later than the day prior to the date of Completion the Vendor shall deliver or cause to be delivered to the Purchaser's Solicitors (all such documents to be held to the order of the Vendor's Attorney pending Completion): (A) a signed class resolution evidencing the Vendor's consent to any variation of the rights attaching to the Preference Share by reason of the proposed resolution in the Agreed Form marked `A', to amend the Articles to delete Article 3.1(B)(v) of the Articles and replace it with the following: "(v) Transfers The redeemable preference share shall be freely transferable"; (B) (1) a transfer of the Preference Share duly executed by the Vendor in favour of the Purchaser together with the relative share certificate; (2) such waivers or consents as the Purchaser may reasonably require to enable the Purchaser to be registered as holder of the Preference Share; (3) a duly executed Deed of Termination and Waiver effective on the Completion Date agreeing to the termination and waiver of any outstanding obligations and rights respectively, under the First Share Sale Agreement, including for the avoidance of doubt, the rights of the Vendor to additional consideration payments in the event of a Park Trust Adjustment Event (as defined therein) and rights of indemnification as provided for in section 1.4 of Article I and section 3.9 of Article III respectively thereof and any outstanding obligations and liabilities the Company may have to the Vendor, in Agreed Form marked `B'. 5.3 Purchaser's obligations By no later than the day prior to the date of Completion the Purchaser shall:- 3 Exhibit 10.18 (A) deliver or cause to be delivered to the Vendor's Attorneys to be held to the order of the Purchaser's Solicitors a signed written shareholder resolution of the Company, in the Agreed Form marked `C'; (B) deliver or cause to be delivered to the Vendor's Attorneys to be held to the order of the Purchaser's Solicitors a duly executed Deed of Termination and Waiver effective as at the Completion Date agreeing to the termination and waiver of any outstanding obligations and rights respectively, in Agreed Form marked "B"; and (C) pay or cause to be paid to the Vendor's Attorneys to be held to the order of Zetter's Solicitors the Consideration for the Preference Share as provided by clause 3 and in accordance with the payment provisions in clause 9.7. 5.4 Completion Completion shall take place upon Admission whereupon:- (A) all documents delivered to the Purchaser's Solicitors pursuant to clause 5.2 shall cease to be held to the order of the Vendor's Attorneys; and (B) the documents delivered to the Vendor's Attorney pursuant to sub- clause 5.3(B) and the payment made to the Vendor's Attorney pursuant to sub-clause 5.3(C) shall cease to be held to the order of the Purchaser's Solicitors and Zetters' Solicitors respectively. 5.5 Failure to complete If Completion does not take place on or before 31 October 2000, the provisions of this Agreement shall have no effect and no party shall have any rights or liabilities under them (without prejudice to the rights of any of the parties in respect of antecedent breaches). 6. Waiver by the Vendor The Vendor waives any rights to any additional consideration payments under the First Share Sale Agreement arising from the occurrence of a Park Trust Adjustment Event (as defined in the First Share Sale Agreement) by reason of the Purchaser entering into the Zetters Share Sale Agreement. 7. Warranties and representations 7.1 The Vendor hereby warrants and represents to and for the benefit of the Purchaser that: (A) The Vendor has full power and authority to enter into and perform this Agreement, and may execute and deliver this Agreement and perform its obligations under this Agreement and this Agreement constitutes valid and binding obligations of the Vendor in accordance with its terms. (B) The Vendor is the registered and sole beneficial owner of the Preference Share free from any Encumbrances. (C) There is not outstanding any indebtedness or other liability (actual or contingent) owing by the Company to the Vendor or any member of the Vendor's Group or to any Director or any person connected with any of them, nor is there any indebtedness owing to the Company by any such person. 7.2 The Purchaser hereby warrants and represents to and for the benefit of the Vendor that it has full power and authority to enter into and perform this Agreement, and may execute 4 Exhibit 10.18 and deliver this Agreement and perform its obligations under this Agreement and this Agreement constitutes valid and binding obligations of the Purchaser in accordance with its terms. 8. Confidentiality --------------- 8.1 Confidentiality Each party:- (A) shall treat as strictly confidential the provisions of this Agreement and the terms of the Zetters Share Sale Agreement as disclosed by the Purchaser to the Vendor and the process of their negotiation and all information about any other party obtained or received by it as a result of negotiating, entering into or performing its obligations under this Agreement ("Confidential Information"); and (B) shall not, except with the prior written consent of each other party (which shall not be unreasonably withheld or delayed), publish or otherwise disclose to any person any Confidential Information. 8.2 Permitted disclosures Clause 8.1 shall not apply if and to the extent that the party disclosing Confidential Information can demonstrate that: (A) such disclosure is required by law or by any securities exchange or regulatory or governmental body having jurisdiction over it (including but not limited to the London Stock Exchange plc, the Panel on Takeovers and Mergers and the Serious Fraud Office) and whether or not the requirement has the force of law; or (B) such disclosure is to its professional advisers in relation to the negotiation, entry into or performance of this Agreement or any matter arising out of the same or, where the disclosing party is the Purchaser, is of information necessarily or reasonably disclosed to any person concerned with any transaction for financing the purchase of the Preference Share or the granting of security over the same or over the benefit of this Agreement, any other transaction dependent upon or relating to such purchase or any transaction involving the sale or other disposal of the Preference Share or the whole or any part of the issued share capital of the Company; or (C) such disclosure is required to facilitate the satisfaction of any of the Conditions; or (D) such disclosure is required in order to facilitate any assignment or proposed assignment of the whole or any part of the rights or benefits under this Agreement which is permitted by clause 9.1; or (E) the Confidential Information concerned was lawfully in its possession (as evidenced by written records) prior to its being obtained or received as described in clause 8.1(A); or (F) the Confidential Information concerned has come into the public domain other than through its fault or the fault of any person to whom such Confidential Information has been disclosed in accordance with clause 8.1(B). 5 Exhibit 10.18 8.3 Continuance of restrictions The restrictions contained in this clause 8 shall survive Completion and shall continue without limit of time. 9. Provisions relating to this Agreement ------------------------------------- 9.1 Assignment (A) This Agreement shall be binding upon and enure for the benefit of the successors of the parties but shall not be assignable, save that the Purchaser may at any time assign all or any part of its rights and benefits under this Agreement and any agreement referred to herein, including, without limitation, any of the Warranties, to any transferee of the share capital of the Company or to any Affiliate of the Purchaser. (B) Any such assignee may enforce any right or benefit assigned to it as if it had been named in this Agreement as the Purchaser, and may recover thereunder as if it had acquired the Preference Share for the consideration and upon the other terms of this Agreement and had thereby sustained all diminutions of value, losses and expenses in consequence of such acquisition as have been sustained by the Purchaser and any subsequent holder of such share capital, including itself, as if they were all one entity which had retained the ownership of such issued share capital throughout. 9.2 Whole agreement and variations (A) This Agreement, together with any documents referred to in it (including for the avoidance of doubt the Deed of Termination and Waiver), constitutes the whole agreement between the parties relating to its subject matter and supersedes and extinguishes any prior drafts, agreements, and undertakings, whether in writing or oral, relating to such subject matter, except to the extent that the same are repeated in this Agreement. (B) Each party acknowledges that it has not been induced to enter into this Agreement by any representation, warranty, promise or assurance save for those contained in this Agreement. (C) No variation of this Agreement shall be effective unless made in writing and signed by each of the parties. 9.3 Agreement survives Completion The Warranties and all other provisions of this Agreement, in so far as the same shall not have been performed at Completion, shall remain in full force and effect notwithstanding Completion. 9.4 Rights etc cumulative and other matters (A) The rights, powers, privileges and remedies provided in this Agreement are cumulative and are not exclusive of any rights, powers, privileges or remedies provided by law or otherwise. (B) No failure to exercise nor any delay in exercising any right, power, privilege or remedy under this Agreement shall in any way impair or affect the exercise thereof or operate as a waiver thereof in whole or in part. 6 Exhibit 10.18 (C) No single or partial exercise of any right, power, privilege or remedy under this Agreement shall prevent any further or other exercise thereof or the exercise of any other right, power, privilege or remedy. 9.5 Further assurance At any time after Completion the Vendor shall, at the request and cost of the Purchaser, execute or procure the execution of such documents and do or procure the doing of such acts and things as the Purchaser may reasonably require for the purpose of vesting the Preference Share in the Purchaser or its nominees and giving to the Purchaser the full benefit of all the provisions of this Agreement. 9.6 Invalidity If any provision of this Agreement shall be held to be illegal, void, invalid or unenforceable under the laws of any jurisdiction, the legality, validity and enforceability of the remainder of this Agreement in that jurisdiction shall not be affected, and the legality, validity and enforceability of the whole of this Agreement in any other jurisdiction shall not be affected. 9.7 Payment to the Vendor Any payment falling to be made to the Vendor under any provision of this Agreement may be made by telegraphic transfer to the account of the Vendor's Attorneys, account no: 0980023788 account name: Neal Gerber & Eisenberg Client Funds, ABA no.: 271070801, reference: IFX Corporation. 9.8 Counterparts This Agreement may be executed in any number of counterparts, which shall together constitute one Agreement. Any party may enter into this Agreement by signing any such counterpart. 9.9 Costs Subject to clause 9.5, each party shall bear its own costs arising out of or in connection with the preparation, negotiation and implementation of this Agreement. 9.10 Notices (A) Any notice or other communication required to be given under this Agreement or in connection with the matters contemplated by it shall, except where otherwise specifically provided, be in writing in the English language and shall be addressed as provided in clause 9.10(B) and may be: (1) personally delivered, in which case it shall be deemed to have been given upon delivery at the relevant address; or (2) if within the United Kingdom, sent by first class pre-paid post, in which case it shall be deemed to have been given two Business Days after the date of posting; or (3) if from or to any place outside the United Kingdom, sent by pre- paid priority airmail, in which case it shall be deemed to have been given seven Business Days after the date of posting; or (4) sent by fax, in which case it shall be deemed to have been given when despatched, subject to confirmation of uninterrupted transmission by a 7 Exhibit 10.18 transmission report, provided that any notice despatched by fax after 17.00 hours (at the place where such fax is to be received) on any day shall be deemed to have been received at 08.00 on the next Business Day. (B) The addresses and other details of the parties referred to in clause 9.10(A) are, subject to clause 9.10 (e): Name: IFX Corporation Address: 707 Skokie Boulevard 5th Floor Northbrook Illinois 60062 Fax number: +1 305 574 7867 Name: The IFX Group Trust For the attention of: Mr Shaun Ridings Address: c/o Duncan Lawrie Offshore Services Limited 14/15 Mount Havelock Douglas Isle of Man Fax number: + 44 1624 662 878 Any party to this Agreement may notify the other parties of any change to its address or other details specified in clause 9.10(B), provided that such notification shall only be effective on the date specified in such notice or five Business Days after the notice is given, whichever is later. 10. Law and Jurisdiction -------------------- 10.1 English Law This Agreement shall be governed by, and construed in accordance with, English law. 10.2 Jurisdiction In relation to any legal action or proceedings to enforce this Agreement or arising out of or in connection with this Agreement ("Proceedings") each of the parties irrevocably submits to the exclusive jurisdiction of the English courts and waives any objection to Proceedings in such courts on the grounds of venue or on the grounds that the Proceedings have been brought in an inconvenient forum. AS WITNESS the hands of the duly authorised representatives of the parties on the date first before written. 8 Exhibit 10.18 SIGNED by ) duly authorised for and on behalf of ) IFX CORPORATION ) in the presence of:- Joel Eidelstein (Director) Jose Leiman Michael Shalom Jak Bursztyn SIGNED by ) for an on behalf of ) DUNCAN LAWRIE OFFSHORE ) SERVICES LIMITED ) in its capacity as trustee of ) THE IFX GROUP TRUST ) in the presence of:- Shaun Ridings (Director) Alan Molloy 9 EX-21.1 9 0009.txt LIST OF SUBSIDIARIES OF THE COMPANY Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT
Level Name of Subsidiary Jurisdiction Ownership ----- ------------------ ------------ --------- 1. IFX/Communications Ventures, Inc. State of Delaware 100% 2. FX Chicago, Inc. State of Delaware 100% (a) IMSI, Inc. State of Illinois 100% 3. IFX/Telecom, Inc. State of Delaware 100% (a) ePagos.com, Inc. State of Delaware 17% 4. IFXEN, Inc. State of Delaware 100% (a) Emerging Networks, Inc. British Virgin Islands 100% (i) IFX Online, Inc. State of Delaware 100% (ii) IFXENI-SPC I, Inc. British Virgin Islands 100% (A) Unete.com, S.R.L. Venezuela 100% (iii) IFXENI-SPC II, Inc. British Virgin Islands 100% (A) IFX/ENI Costa Rica, SRL Costa Rica 100% (iv) IFXENI-SPC III, Inc. British Virgin Islands 100% (A) Unete de Colombia Limitada Colombia 100% (1) Openway, Ltda Colombia 100% (v) IFXENI-SPC IV, Inc. British Virgin Islands 100% (A) Servicios de Internet ENI Chile, Limitada Chile 100% (1) Unete.com S.A. Chile 100% (2) Intermedia, S.A. Chile 100% (3) Interactiva, S.A. Chile 100% (vi) IFXENI-SPC V, Inc. British Virgin Islands 100% (A) Emerging Networks, SRL Argentina 100% (vii) IFXENI-SPC VI, Inc. British Virgin Islands 100% (viii) IFXENI-SPC VII, Inc. British Virgin Islands 100% (A) Parmil, S.A. Uruguay 100% (ix) IFXENI-SPC VIII, Inc. British Virgin Islands 100% (A) Unete.com de Bolivia Limitada Bolivia 100% (x) IFXENI-SPC IX, Inc. British Virgin Islands 100% (xi) IFXENI-SPC X, Inc. British Virgin Islands 100% (xii) ENI Mexican Holdings, Inc. State of Delaware 100% (A) Unete.com, S.A. de C.V. Mexico 100% (B) Sistema de Disenos y Manufacturas, S.A. de C.V. Mexico 100% (C) Netspace, S.A. de C.V. Mexico 100% (D) Networks Mexico, S.A. de C.V. Mexico 100% (xiii) IFXENI-SPC Ecuador, Inc. British Virgin Islands 100% (xiv) IFXENI-SPC El Salvador, Inc. British Virgin Islands 100% (xv) IFXENI-SPC Guatemala, Inc. British Virgin Islands 100% (xvi) IFXENI-SPC Nicaragua, Inc. British Virgin Islands 100% (A) Nicanet, S.A. Nicaragua 100% (xvii) IFXENI-SPC Honduras, Inc. British Virgin Islands 100% (A) ENI de Honduras SRL Honduras 100% (xviii)IFXENI-SPC Panama, Inc. British Virgin Islands 100% (A) Panaweb Panama 100% (xix) IFXENI-SPC Uruguay, Inc. British Virgin Islands 100% (xx) Minority Stock Holding Corp. British Virgin Islands 100% (xxi) ENI Brazilian Holdings, Inc. State of Delaware 100% (A) Unete.com do Brasil Brazil 100% (1) E-net Brazil 100% (2) Conex Brasil, S.A. Brazil 100% (3) W3, Ltda. Brazil 100% (4) K3, Ltda. Brazil 100% (5) Conex Canoas, Ltda. Brazil 100% (6) Zalhe Informatica Ltda Brazil 100% (7) Brasilnet Brazil 100% (xxii) CELCIFX, LLC State of Delaware 100% (A) Communications Equipment Leasing Corp. British Virgin Islands 100% 5. IFX Facilito, Inc. State of Delaware 100% (a) Facilito, Inc. State of Delaware 49.9% 6. IFX Latinguide, Inc. State of Delaware 100% (a) Tutopia.com, Inc State of Delaware 47%
EX-23.1 10 0010.txt CONSENT OF ERNST & YOUNG LLP Exhibit 23.1 Consent of Independent Certified Public Accountant We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 33-45176, Form S-3 No. 33-35878, Form S-3 No. 33-32658, Form S-3 No. 33-94964, 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 22, 2000, 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, 2000. Miami, Florida September 27, 2000 /s/ Ernst & Young LLP EX-23.2 11 0011.txt CONSENT OF ARTHUR ANDERSEN LLP Exhibit 23.2 Consent of Independent Certified Public Accountant We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 33-45176, Form S-3 No. 33-35878, Form S-3 No. 33-32658, Form S-3 No. 33- 94964, 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 24, 1999, with respect to the consolidated financial statements of IFX Corporation included in this Annual Report (Form 10-K) for the year ended June 30, 2000. Chicago, Illinois September 27, 2000 /s/Arthur Andersen LLP EX-27 12 0012.txt FINANCIAL DATA SCHEDULE
5 YEAR YEAR JUN-30-2000 JUN-30-1999 JUL-01-1999 JUL-01-1998 JUN-30-2000 JUN-30-1999 15,049,300 5,482,800 0 0 2,218,400 538,400 922,500 80,100 0 0 18,930,400 9,668,000 18,812,300 2,253,500 (3,306,900) (369,300) 62,530,900 18,861,500 15,822,200 2,447,200 0 0 0 0 14,900,000 0 265,900 136,600 13,288,800 15,960,800 62,530,900 18,861,500 9,685,900 725,300 9,685,900 725,300 8,217,200 445,500 61,001,900 3,656,300 330,200 107,700 0 0 595,300 0 (50,615,400) (2,526,400) (2,771,400) (811,000) (47,844,000) (1,715,400) 1,967,000 3,117,600 0 0 0 0 (45,877,000) 1,402,200 (4.52) 0.22 (4.52) 0.22
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