-----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, QwHAa01hflAH3h7sIIWi7UdLKfP9NvMq/zjCSWet5cy2yQtOcCHwbYxi9Gimg4Ni N9ZmBUmc2KGv7Ev6Yv5lcw== 0001021408-02-012555.txt : 20021015 0001021408-02-012555.hdr.sgml : 20021014 20021015172000 ACCESSION NUMBER: 0001021408-02-012555 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20021015 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IFX CORP CENTRAL INDEX KEY: 0000792861 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 363399452 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15187 FILM NUMBER: 02789723 BUSINESS ADDRESS: STREET 1: 707 SKOKIE BLVD 5TH FLOOR CITY: NORTHBROOK STATE: IL ZIP: 60062 BUSINESS PHONE: 8474129411 MAIL ADDRESS: STREET 1: 707 SKOKIE BLVD 5TH FLOOR CITY: NORTHBROOK STATE: IL ZIP: 60062 FORMER COMPANY: FORMER CONFORMED NAME: 312 FUTURES INC DATE OF NAME CHANGE: 19860916 FORMER COMPANY: FORMER CONFORMED NAME: CARL JACK 312 FUTURES INC DATE OF NAME CHANGE: 19920703 10-K 1 d10k.txt 06/30/2002 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended June 30, 2002 or [_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 0-15187 IFX CORPORATION (Exact name of Registrant as specified in its charter) Delaware 36-3399452 ----------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 15050 NW 79/th/ Court, Ste. 200 Miami Lakes, Florida 33016 (Address of principal executive offices) (Zip code) --------------------------------------------------------------- (305) 512-1100 --------------------------------------------------------------- (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.02 par value ---------------------------- Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. As of September 30, 2002, the aggregate market value stock held by non-affiliates of the registrant was approximately $1.6 million based on the $0.31 per share closing price on the NASDAQ National Market on such date. As of September 30, 2002, there were 11,963,399 outstanding shares of the Registrant's common stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of our Proxy Statement for the Annual Meeting of Stockholders to be filed within 120 days after June 30, 2002 are incorporated herein by reference in response to Part III, Items 10 through 14. TABLE OF CONTENTS -----------------
Page ---- PART I Item 1. Business ........................................................ 3 Item 2. Properties ...................................................... 11 Item 3. Legal Proceedings ............................................... 11 Item 4. Submission of Matters to a Vote of Security Holders ............. 11 PART II Item 5. Market for IFX Corporation's Common Equity and Related Stockholder Matters ............................................. 12 Item 6. Selected Financial Data ......................................... 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ................... 14 Item 7a. Quantitative and Qualitative Disclosures About Market Risk ...... 23 Item 8. Financial Statements and Supplementary Data ..................... 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures ......................... 50 PART III Item 10. Directors and Executive Officers of the Registrant ............................................... 50 Item 11. Executive Compensation .......................................... 50 Item 12. Security Ownership of Certain Beneficial Owners and Management ........................................... 50 Item 13. Certain Relationships and Related Transactions .................. 50 Item 14. Controls and Procedures ......................................... 50 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K ......................................... 50 Signatures ...................................................... 53 Certifications .................................................. 54
2 FORWARD LOOKING STATEMENTS Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. When used herein, the words, "intend," "anticipate," "believe," "estimate," "may," "should," "plans," "will," "continue," "expect," and similar expressions as they relate to the Company are intended to identify such forward-looking statements. The Company's actual results, performance or achievements could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Item 1, "Business" as well as Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." PART I ITEM 1. BUSINESS Introduction IFX Corporation (IFX Corporation and its subsidiaries are referred to herein as "IFX", "IFX Networks" or the "Company") was incorporated in Delaware in 1985. The Company's operations are headquartered in Miami Lakes, Florida. IFX operates a pan-regional Internet Protocol ("IP") network, which was established through a series of acquisitions and Company-initiated start-up operations. IFX operates networks in Argentina, Brazil, Chile, Colombia, Mexico, Panama, Uruguay, Venezuela and the United States. The Company also operates networks in El Salvador, Honduras, Guatemala and Nicaragua (collectively, the "Central American Operations"), which the Company plans to sell or otherwise dispose of during fiscal 2003. Excluding the Central American Operations, IFX has over 50 Company-owned Points of Presence ("POPs"), and 385 employees in the United States and Latin America. IFX's network infrastructure, which is marketed under the IFX Networks brand name, provides Internet network connectivity and offers a broad range of value-added services to multinationals, Internet Service Providers ("ISPs"), telecommunications carriers and small to medium-sized businesses in Latin America. IFX believes that it has one of the more extensive geographic networks in Latin America. Although the Company's primary focus is to pursue multinational businesses, telecommunications carriers and small to medium-sized businesses in Latin America, the Company continues to provide limited consumer Internet products and services. IFX offers network solutions that 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 POPs throughout the Latin American region, web design, web-hosting and co-location, dial-up local area network, or LAN services, and virtual private network, or VPN services, and full technical support. The IFX network is composed of the following (excluding the Central American Operations): . Over 50 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 or dedicated local connection. . Approximately 36,000 Remote Access Servers, or RAS ports. . Network Operating Centers in 8 Latin American countries and the United States. Network Operating Centers in Latin American Countries and the United States 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. (referred to herein as "Tutopia"), a leading provider of Internet access on a pan-regional level. Tutopia is controlled by UBS Capital Americas, III, L.P., which also has a controlling interest in IFX. Tutopia, which was a majority-owned subsidiary of IFX until August 31, 2000, pioneered free Internet access on a Latin American regional basis starting in January 2000 and currently operates in 9 countries - Argentina, Brazil, Chile, Colombia, El Salvador, Guatemala, Mexico, Panama and Venezuela. Presently, Tutopia offers both by-the-minute or on-demand Internet access and conventional pre-paid unlimited Internet access service. As of September 30, 2002, IFX had an interest of approximately 44% in the voting shares of Tutopia (on an "as converted" basis, assuming the outstanding preferred stock of Tutopia was converted to common stock). 3 The Company has a number of corporate wholesale access customers in Latin America, including T1msn, Corp. ("Tlmsn"). Services are provided to T1msn in Argentina, Chile, El Salvador, Guatemala, Panama and Venezuela. See "Wholesale Access Service - Agreement with T1msn". The IFX Network IFX operates a region-wide Latin American IP-based network that provides customers with a reliable data transmission path to the Internet. IFX has POPs in the major markets in Latin America, which are operated by local management teams. . Network Infrastructure. The IFX network infrastructure consists of three primary tiers: local POPs; a middle tier, which connects the POPs to national hubs; and a backbone tier, which connects the national hubs to the Internet. Excluding the Central American Operations, the IFX network currently includes approximately 50 POPs that are owned by the Company and 26 virtual POPs operated by third-party network providers. Each POP is connected to one of IFX's 8 national hubs in each respective country through a dedicated point-to-point line, typically provided by a local telecommunications carrier. The Company's POPs are connected to the Internet by multiple leased, high-speed fiber optic connections. Presently IFX utilizes high-speed, high-capacity trans-oceanic leased fiber connections (STM-1) that link IFX's U.S. operations with Argentina, Brazil, Chile, Colombia and Venezuela. IFX believes that its network capacity is adequate for the provision of current and planned access and value-added services, but intends to opportunistically expand network capacity as the need for additional network capacity arises. IFX's network includes owned POPs in the following cities as of June 30, 2002: ARGENTINA CHILE MEXICO --------- ----- ------ Buenos Aires Antofagasta Guadalajara Cordoba Chillan Mexico City Mendoza Concepcion Monterrey Rosario La Serena Toluca Los Angeles BRAZIL Rancagua NICARAGUA ------ Santiago --------- Belo Horizonte Talca Managua* Blumenau Temuco Campo Bom Valparaiso PANAMA Canoas ------ Curtiba COLOMBIA Panama City Florianopolis -------- Fortaleza Barranquilla UNITED STATES Joinville Bogota ------------- Novo Hamburgo Cali Miami, Florida Pelotas Medellin Porto Alegre URUGUAY Rio de Janeiro EL SALVADOR ------- Salvador ----------- Salto Santa Maria San Salvador* Montevideo Sao Leopoldo Pando Sao Paulo GUATEMALA Maldonado --------- Tacuarembo Guatemala City* VENEZUELA HONDURAS --------- -------- Barquisimeto San Pedro Sula* Caracas Tegucigalapa* Maracaibo Maturin Porlamar Puerto La Cruz Puerto Ordaz Punto Fijo Valencia Valera * Locations anticipated to be sold or disposed of during fiscal 2003. 4 . Network Management. IFX considers network management to be essential for monitoring its network in multiple countries, maintaining high customer satisfaction and improving network quality. In addition to certain region-wide network monitoring capabilities at its headquarters in Miami Lakes, Florida, IFX has established network operating systems in multiple Latin American countries that monitor the performance of IFX's network equipment. With these systems, IFX is able to efficiently identify and correct network problems either remotely or by local dispatch. . Sales and Customer Service. IFX offers its services through a sales approach that makes use of local technical talent who understand customer applications to help provide bundled Internet solutions consisting of Internet access and other value-added services. This localized approach allows the Company to provide end-to-end customer solutions and ongoing support. IFX's direct sales force of approximately 67 individuals offers a core base of technically competent, locally based and experienced Internet sales representatives. IFX provides business customers with technical support and customer service through its local customer service representatives. Business Strategy IFX's goal is to become a leading provider of IP based network solutions to multinational corporations, ISPs, telecommunications carriers, and small to medium-sized businesses in Latin America through the delivery of single source Internet solutions. IFX management believes that many businesses are seeking to increase their use of the Internet as a business tool and are integrating web-based services into their business processes. Many businesses desire economical Internet access for their corporate offices and employees who travel, thereby creating demand for region-wide dedicated and dial-up Internet access. IFX management believes that within the business marketplace there is opportunity to upgrade customers to increasingly higher margin value-added services. IFX anticipates that businesses will continue to seek to outsource certain information technology functions to full-service IP-based network providers in order to reduce costs and improve results. IFX's management has made the decision to concentrate on eight core country operations in Latin America and intends to either sell or otherwise dispose of its Central American Operations during fiscal 2003. Management believes that by focusing on these eight countries, the Company should be in a position to better utilize its resources in the future. Products and Services IFX offers services in four basic portfolios: IFX Dedicated Connectivity, IFX Dial-up, IFX Co-location, and IFX Web Hosting to small to medium-sized businesses, multinational corporations, ISPs and telecommunications carriers with operations and/or customers in Latin America. IFX Dedicated Connectivity . International Private Line ("IPL"): Point-to-Point Time Division Multiplex ("TDM") physical connection for a customer's exclusive use. The customer defines protocol and service. This service can be used for convergence of voice, video, and data for customers who require the highest level of security. . Private Asynchronous Transfer Mode ("ATM"): Permanent Virtual Circuit from customer premise to customer premise running ATM protocol. Use includes mission critical data or voice transmission for customers that want high speed fixed bandwidth at a lower price than an IPL. . Premium IP: Premium IP service for access to the global Internet with guaranteed bandwidth on IFX's backbone and providing network monitoring reports to guarantee quality of service. This product is ideal for ISPs, telecommunications carriers, multinational companies or small and medium-sized businesses that have mission critical data or for the use of voice over IP ("VOIP"). . Dedicated IP: Basic IP services for access to the global Internet for companies needing basic Internet connectivity. 5 IFX Dial-Up . Wholesale Dial-up: Allows customers to utilize the dial-up connectivity resources of the IFX Dial-up Network on a wholesale basis. This product is ideal for ISP's, telecommunications carriers, and multinational companies who require local country dial-up access, multi-country dial-up access, global roaming dial-up access or Virtual Internet Service Provider ("VISP") services. . Consumer Dial-Up: Service that enables end users to access the Internet utilizing various payment plans including unlimited monthly and yearly access as well as on-demand or by the minute Internet access. . Corporate Dial-up: Unlimited roaming that enables end users to access the Internet or their corporate extranet while traveling. IFX Co-location . Managed Co-location: Outsourcing the management and day-to-day operations at an IFX Data Center or POP. Provides reliable and scalable network management around the clock. Intended for use by telecommunications carriers, ISPs, and small to medium enterprises and multinational companies. . Basic Co-location: Servers are maintained at an IFX Data Center or POP for bandwidth management and reliable connectivity to the Internet. Intended for customers needing space in Data Centers without remote hands-on support. IFX Web Hosting IFX offers web hosting products and services allowing customers to use IFX's web servers to maintain independent web sites. With web hosting, businesses can create a presence on the Internet, furthering their business, marketing and customer service campaigns. IFX's web hosting products and services include web site maintenance and ongoing consulting services by IFX. Although the Company's primary focus is to pursue multinationals, ISPs, telecommunications carriers and small to medium-sized businesses in Latin America, the Company continues to provide limited consumer Internet products and services. Wholesale Access Service - Agreement with T1msn On March 15, 2002, IFX entered into a binding term sheet agreement to provide T1msn with Internet access services for its dial-up access service in Argentina and Chile, and potentially for other Latin American markets. T1msn is a joint venture between Microsoft Corp. and Telefonos de Mexico, S.A. de C.V. The access services include "free" Internet access in certain countries and fee-for-use Internet access in other jurisdictions, as well as technical support for those services. As of September 2002, IFX was providing service for T1msn end users in Argentina, Chile, El Salvador, Guatemala, Panama and Venezuela. Under the agreement, IFX and T1msn will share time-on-line revenues attributable to the access service provided to T1msn's end users. Also, under the terms of the agreement, IFX has provided a service level agreement committing to maintain its network to specified standards. If not otherwise extended, the term sheet will expire on October 31, 2002, if the parties have not entered into definitive transaction documents by that date. The Company currently anticipates that a definitive agreement will be reached by that date or that the expiration date of the term sheet will be extended. It is anticipated that the definitive agreement will have a term of one year from the effective date of such agreement, with elections for T1msn to renew for eight additional six-month periods. As part of its binding term sheet agreement with T1msn, IFX will grant to T1msn warrants potentially enabling T1msn to acquire up to 15% of the common stock of IFX (approximately 8.3 million warrants as of June 30, 2002, treating preferred shares on a "as converted" basis) if certain performance and contract renewal provisions are met by T1msn. Determination of the number of warrants would be made at the date of the definitive agreement. The definitive agreement may provide T1msn with additional cash bonus provisions instead of some or all of the warrants. 6 Competition The market for Internet access and value-added products and services has become increasingly more competitive, especially in Latin America as Internet usage has grown, and management expects that this trend will continue. While Internet usage is lower in Latin America than in more mature markets such as the United States, 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 a wide geographic presence. . Telecommunications companies. Many of the major international telecommunications companies offer Internet services in the same markets as IFX. Some telecommunications providers are subsidized or government owned. In several markets in which IFX Networks operates, former telecommunications monopolies have been deregulated and privatized, and have also become providers of Internet services. New telecommunication company entrants to these markets, which are beginning to use high-speed wireless technology to bypass overcrowded existing networks, are offering Internet and corporate data services as well. Generally, these network-based companies focus on consumer dial-up Internet access, large corporate accounts and customer bases that can generate high volume data traffic to carry on their networks. . Cable television companies. Cable operators in some of the Company's markets have either introduced or announced that they intend to introduce Internet access services, both by upgrading their networks and using new, cable modem technology. The existing customers of these cable operators are primarily residential and their physical networks are largely limited to residential areas. Management believes that with adequate capital and funding, IFX can compete effectively in the Latin American Internet market. Generating adequate capital and funding levels is not assured and the Company's ability to continue operations is challenged by its current shortage of financial resources. Any one of the following developments in Latin America, among others, 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; . New platforms for Internet access arise from technological developments; . An increased number of global and local companies enter in the markets in which the Company operates; . Loss of users; . Loss of market share; . Price reductions and lower profit margins; . Economic deterioration, including currency devaluation and/or currency controls; . Political unrest or change; . Lower advertising rates; . Reduced Internet advertising; and . Reduced page views. 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 the Company offers or that may achieve greater market acceptance. It is also possible that new competitors may emerge and acquire significant market share. Some 7 of IFX's established competitors and potential new competitors may also have better brand recognition and significantly greater financial, technical and marketing resources than IFX. Government Regulation To date, government regulations have not materially restricted the Company's ability to offer Internet products and services in the Company's core target countries. However, the legal and regulatory environment that pertains to the Internet is uncertain and may change. New laws and regulations may be adopted or existing laws may be applied to the Internet and e-commerce. New and existing laws may cover issues like: . Sales and other taxes; . User privacy; . Pricing controls; . Characteristics and quality of products and services; . Consumer protection; . Cross-border restrictions; . Foreign investment restrictions; . Currency controls; . Licensing requirements; . Libel and defamation; . Copyright, trademark and patent infringement; . Pornography; and . Nature and content of Internet materials. Legislation in these areas could slow the growth of Internet use and decrease the acceptance of the Internet as a communications and commercial medium. It may take years to determine how existing laws such as those governing intellectual property, privacy, libel and taxation apply to the Internet. Any new legislation or regulation regarding the Internet, or the application of existing laws and regulations to the Internet, could have an adverse effect on IFX's business. The growth of the Internet coupled with publicity regarding Internet fraud can also lead to the enactment of more stringent consumer protection laws. These laws may impose additional burdens on the Company's business. Employees As of June 30, 2002, IFX employed 385 employees, excluding 79 employees in the Central American Operations. IFX believes that its success is dependent in part upon the Company's ability to attract and retain qualified, experienced employees. IFX considers its relationship with its employees to be good. Labor laws in Latin America are generally more protective of employees than in the United States. Most countries in Latin America have laws protecting employees from being terminated without paying severance compensation in established statutory amounts. In some Latin American countries, the law establishes a minimum number of vacation days. Intellectual Property and Proprietary Rights IFX relies on trademark and copyright laws, laws restricting unfair competition, laws relating to trade secret protection and confidentiality and/or license agreements with the Company's employees, customers, partners and others to protect its intellectual property rights. Courts and legislatures in each country continue to address the issues of the applicability and enforceability of legal principles concerning intellectual property rights in an Internet context, which remain substantially uncertain. Many of the countries in which IFX operates have signed international treaties relating to the protection of intellectual property. However, the courts in many of these countries have not had the opportunity to address the legal issues within the Internet context to the same degree as courts in the United States. Therefore, IFX cannot determine whether the intellectual property of its non-U.S. operations will be subject to a lesser or different degree of protection than that generally afforded in the United States. The Company uses "IFX" as the primary business name for its operations. The Company uses "IFX Networks" as a brand name for end products and services in Latin America. In Latin America, the Company pursues the 8 registration of trademarks for marks that the Company believes are unique and will be used by IFX over an extended period of time. IFX has initiated its registration of the IFX Networks mark in most countries in Latin America. Where IFX has not registered its 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 prevent the unauthorized use of marks. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The directors and executive officers of the Company and their ages as of September 15, 2002 are as follows: Name Age Office ------------------------ --------- -------------------------------------- Joel M. Eidelstein 35 Chairman of the Board and President Michael Shalom 31 Chief Executive Officer and Director Jose Leiman 42 General Counsel Howard F. Zuckerman 58 Chief Financial Officer Richard C. Capone 59 Director Mark O. Lama 40 Director Burton J. Meyer 54 Director George Duarte 42 Director Patrick Delhougne 38 Director Joel M. Eidelstein has served as a director of the Company since November 1990 and since November 9, 1996 he has served as the President of the Company. Mr. Eidelstein graduated from Brandeis University in May 1988 and was an independent commodity futures trader and a floor manager with Index Futures Group, Inc. from June 1988 until June 1996. Michael Shalom was elected as IFX's Chief Executive Officer on September 8, 1999 and has served as a director of IFX since November 1998. Prior to July 1999, Mr. Shalom was a principal of, and was actively involved in the management of the INTCOMEX group of companies, which is a Latin American wholesale distributor of microcomputers, networking products, mass storage products, multimedia products, computer peripheral equipment and computer components. Mr. Shalom remains an affiliate of INTCOMEX. Mr. Shalom is also a principal of International Technology Investments ("ITI"). Jose Leiman served as Chief Financial Officer of the Company from July 1, 1999 until July 31, 2002. From December 2001 he has also served as IFX's general counsel. From March 1996 to June 1999, Mr. Leiman was 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 Certified Public Accountant ("CPA") with Price Waterhouse LLP. 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 and a CPA. Howard F. Zuckerman was appointed Chief Financial Officer of IFX on August 1, 2002. Prior to joining IFX, Mr. Zuckerman was a partner with the Washington, D.C. office of Tatum CFO Partners, LLP. From July 2000 to July 2001, Mr. Zuckerman served as Chief Financial Officer of ARBROS Communications, Inc., a private integrated provider of telecommunications services to small and medium-sized businesses. From 1984 to 2000, Mr. Zuckerman held executive financial management positions with various subsidiaries and divisions of Verizon (formerly Bell Atlantic), including domestic and international positions. He was the Chief Financial Officer and a Director of Grupo Iusacell (a public, wireless company based in Mexico City) from 1996 to 2000. From 1975 to 1984, he was employed by Squibb Corporation where he was named an Assistant Corporate Controller in July 1982. He began his career with the New York office of Arthur Andersen LLP, in 1970. Mr. Zuckerman has an MBA degree in finance and accounting from the University of Chicago and a B.S. degree from Cornell University. 9 Richard C. Capone was appointed to the board of directors of IFX in June 2002 to replace Charles W. Moore who resigned from the Board in June 2002. Mr. Capone retired from UBS AG in June 2000 and accepted a partnership position in UBS Capital Americas LLP, the private equity affiliate of UBS. Prior to his retirement, Mr. Capone had regional management responsibility for UBS AG's operations in the United States, Canada and Latin America, and was a member of the firm's Group Managing Board. He was also CEO of Warburg Dillon Read LLC, the investment banking subsidiary of UBS AG in the Americas. In addition, Mr. Capone was vice chairman of the Board of Directors of the Institute of International Bankers; a member of the Board of Directors of the Securities Industry Association; a partner of the New York City Partnership and Chamber of Commerce; a member of the Board of Directors of SACIA, The Business Council of Southwestern Connecticut; and a director of the American Swiss Foundation. UBS AG was formed on June 29, 1998, following the completion of the merger of Union Bank of Switzerland ("UBS") and Swiss Bank Corporation. Mr. Capone first joined UBS in 1978. Patrick Delhougne is an executive director at Russell Reynolds Associates, a retained executive search firm. Before starting his career in executive search, Mr. Delhougne was an equity sales associate and analyst for J.P. Morgan in London and New York. Previously, he was a case team leader with Bain & Co. in Munich, Germany, responsible for managing strategy consulting projects. Mr. Delhougne began his career with Siemens PLC in London, working as the assistant to the chief executive officer. He was subsequently promoted to corporate planner in the regional strategy group, working with the board of directors at Siemens AG in Munich. He also worked for the Siemens Transportation Group in Erlangen as a commercial manager. Mr. Delhougne earned a B.B.A degree from the U.S. International University - Europe (Summa Cum Laude), a postgraduate diploma from the London School of Economics, and an M.B.A. from the Harvard Graduate School of Business Administration, which he attended on the Werner von Siemens Scholarship. Mark O. Lama was elected to the IFX board of directors in June 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 Graduate School of Business Aministration, a B.S. from Columbia University and a B.A. from Colgate University. Burton J. Meyer has served as a director of the Company since May 1999. Mr. Meyer previously served as director of the Company from August 1986 until July 1, 1996 and as President of the Company from July 1987 until July 1, 1996. Mr. Meyer served as Executive Vice President of E.D. & F. Man International, an international futures and conglomerate brokerage, from July 1996 to June 30, 2000. George Duarte was elected to the board of directors of IFX in June 2002. He is a partner of UBS Capital Americas, which manages in excess of $1.5 billion in private equity commitments dedicated to investments primarily in the United States, including investments in telecommunications, software and general and industrial businesses. Prior to joining UBS Capital Americas in 1992, Mr. Duarte worked in Citibank, N.A. as Senior Banker in its World Corporate Group between 1990 and 1992, and prior to that at Manufacturers Hanover Trust Company as a Vice President in its Leveraged Finance Group (1981-1990). In addition, Mr. Duarte has been a director of Tutopia since August 2000, and Internet Group (Cayman) Limited since November 2001. Mr. Duarte holds a B.S. in Business Administration from Georgetown University. 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. Under the terms of the Certificates of Designation for the Company's Convertible Preferred Stock and the Fourth Amended and Restated Stockholders' Agreement dated as of June 28, 2002, among IFX, UBS Capital, International Technology Investments, LC, ("ITI"), Joel Eidelstein (IFX's Chairman of the Board and President), Michael Shalom (IFX's Chief Executive Officer), LSC, LLC, Jak Burzstyn and Lee S. Casty ("Casty") (the "Fourth Stockholders' Agreement"), UBS Capital is entitled to appoint four out of seven members of the Company's Board of Directors. UBS Capital also has the right to jointly designate a fifth director in conjunction with ITI and Casty. Casty and ITI each have the right to appoint one director. On June 20, 2002, Charles Delaney and Charles W. Moore, who served as two of the four members of IFX's Board of Directors selected by the holders of IFX's Convertible Preferred Stock pursuant to IFX's Restated Certificate of Incorporation, were replaced on IFX's Board of Directors by Richard Capone and George Duarte, both partners in UBS Capital Americas. 10 ITEM 2. PROPERTIES The Company's corporate headquarters are located at 15050 N.W. 79th Court, Miami Lakes, Florida, 33016. The corporate headquarters includes the Company's offices for coordinating and supporting IFX's Latin American operations and is located in approximately 12,500 square feet of office space under a lease that expires on January 31, 2004. In addition, IFX houses part of its network infrastructure in a state-of-the-art Network Access Point co-location facility located in Miami, Florida. IFX also utilizes a secondary third-party co-location facility in Miami, Florida. The Company also leases offices in 12 Latin America countries, including 5 offices in the Central American Operations, that are used for general operations, as sales offices and for equipment co-location. ITEM 3. LEGAL PROCEEDINGS On February 28, 2002, IFX do Brazil Ltda. ("IFX Brazil") filed a lawsuit against IBM Leasing Brazil ("ILB") in the 11th Civil Court, Sao Paulo, Brazil requesting the modification of IFX Brazil's equipment lease agreement with ILB. The basis for the complaint by IFX Brazil was that the leased equipment was delivered late by ILB. The complaint also stated that the denomination of the lease in U.S. dollars resulted in an excessive exchange rate variation in breach of the Brazilian consumption law. The object of this suit was to obtain reduction of the contract value from approximately $568,600 to approximately $189,500 for the return of unused equipment and compensation for installments already paid. On August 18, 2002, the court denied IFX Brazil's claim and ordered IFX Brazil to pay attorney's fees of approximately $21,700. IFX Brazil appealed the verdict on September 3, 2002 and ILB responded to such appeal on September 30, 2002. No verdict on the appeal has been reached. On September 24, 2002, IFX Brazil was granted an injunction to prevent ILB from registering a complaint in Brazil that IFX Brazil was in default on the lease until there is a final decision on the appeal. Such injunction is subject to ILB response, which is expected by October 31, 2002. On June 3, 2002, ILB demanded payment of $939,200 from IFX under the Continuing Contract of Parent Guaranty of Payment dated September 29, 2000 between IFX and ILB. IFX has not responded to this demand pending resolution of the lawsuit in Brazil. There can be no assurances as to the outcome of this litigation. Based on the advice of legal counsel, the Company has recorded certain accruals to provide for this contingency. In addition, 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended June 30, 2002. 11 PART II ITEM 5. MARKET FOR IFX CORPORATION'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS IFX's stock is traded on the NASDAQ SmallCap Market under the symbol "FUTR." On February 14, 2002, the NASDAQ Staff notified the Company that the bid price of its common stock had closed at less than $1.00 per share over the previous 30 consecutive trading days and, as a result, did not comply with Marketplace Rule 4310 (c) (4) (the "Price Rule"). In accordance with Marketplace Rule 4310 (c) (8) (D), the Company was provided 180 calendar days, or until August 13, 2002, to regain compliance with the Price Rule. On February 21, 2002, the NASDAQ Staff notified the Company that it did not comply with Marketplace Rule 4310 (c)(2)(B) (the "Capital Rule"), which requires a minimum of $2.0 million in net tangible assets, $2.5 million in stockholders' equity, $35.0 million of market capitalization or $500,000 net income for the most recently completed fiscal year or two of the three of a company's most recently completed fiscal years. On May 9, 2002, the Company received a waiver of certain terms of the Company's Certificates of Designation from the preferred stockholders that resulted in the Company's preferred stock, which had been stated as outside of Stockholders' Equity, to be reclassified as part of Stockholders' Equity. On May 17, 2002, NASDAQ advised the Company that it was in compliance with the Capital Rule. On August 14, 2002, the NASDAQ Staff advised the Company that while it had not regained compliance in accordance with Marketplace Rule 4310 (c) (8) (D), the staff noted that the Company did meet the initial listing requirements for $5.0 million of stockholders' equity (based on pro forma stockholders' equity as reported in the Company's Form 10-Q for the quarter ended March 31, 2002). Hence, the Company was provided with an additional 180 days, or until February 10, 2003, to regain compliance with the applicable requirements. If the shares of the Company's common stock were to be suspended or delisted from the NASDAQ system, it would be much more difficult to dispose of the common stock or obtain accurate quotations as to the price of the securities. This, in turn, could make it more difficult for the Company to issue securities pursuant to debt or equity offerings in the future. At June 30 and September 30, 2002, the Company's common stock was trading below the NASDAQ's $1.00 per share listing price and, at June 30 and September 30, 2002, the Company did not meet NASDAQ's initial minimum stockholders' equity Cequirement of $5.0 million. These conditions may result in the Company's common stock being delisted from the NASDAQ. Set forth below is the range of high and low trade prices per share of the Company's common stock in the NASDAQ SmallCap Market as reported by NASDAQ for the periods indicated. These trade prices do not include retail markups, markdowns, or commissions. Fiscal year ended June 30, -------------------------------------------------------- 2002 2001 2000 ---------------- ---------------- -------------------- High Low High Low High Low -------- ------- -------- ------- -------- --------- First quarter $1.92 $0.57 $13.13 $5.50 $ 24.38 $ 14.88 Second quarter $0.95 $0.52 $ 7.31 $1.78 $ 34.75 $ 16.13 Third quarter $0.95 $0.60 $ 5.25 $2.03 $ 37.94 $ 27.25 Fourth quarter $1.15 $0.78 $ 2.66 $1.49 $ 35.00 $ 11.25 As of September 30, 2002, there were approximately 440 holders of record and 1,468 beneficial owners of the Company's common stock. The Company has not paid a cash dividend on its common stock and does not expect to pay a cash dividend in the foreseeable future. 12 ITEM 6. SELECTED FINANCIAL DATA The selected financial data for the five fiscal years presented below is derived from the audited consolidated financial statements of the Company. The data should be read in conjunction with the other financial information included herein, including "Management's Discussion and Analysis of Financial Condition and Results of Operations," the consolidated financial statements and related notes thereto.
Fiscal year ended June 30, ---------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 ------------ ------------ ------------ ------------ ------------ (in thousands, except share and per share amounts) ---------------------------------------------------------------------------------- Statement of Operations Data: Total revenues $ 28,151 $ 32,122 $ 10,689 $ 725 - Operating loss from continuing operations (30,582) (54,416) (38,673) (2,931) (733) Basic and diluted loss per share from continuing operations $ (1.89) $ (4.44) $ (4.71) $ (0.26) $ (0.03) Weighted average common shares outstanding 13,736,495 13,784,897 10,153,565 6,498,204 6,246,545
At June 30, ---------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 ------------ ------------ ------------ ------------ ------------ (in thousands) ---------------------------------------------------------------------------------- Balance Sheet Data: Working capital (deficit) $ (10,100) $ (11,580) $ 3,480 $ 7,221 $ 10,564 Total assets 17,935 48,524 61,297 18,862 11,543 Capital-lease obligations 2,298 16,068 10,968 - - Long-term debt (excluding current portion and capital-lease obligations) 348 296 375 317 - Stockholders' equity $ 1,445 $ 10,421 $ 32,543 $ 16,097 $ 11,335
13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Basis of Presentation The following discussion should be read in conjunction with the Company's consolidated financial statements and notes thereto included elsewhere herein. This discussion and analysis reflects the adjustments made to segregate the Company's discontinued operations (see Note 3 of notes to the consolidated financial statements) and the restatement in fiscal 2001 of the Company's financial statements as a result of the deconsolidation of Tutopia.com, Inc. ("Tutopia") (as of September 30, 2002, IFX has an approximate 44% ownership interest in Tutopia - assuming the conversion of all outstanding Tutopia preferred stock into common stock. See Note 16 of notes to the consolidated financial statements). Critical Accounting Policies and Estimates The preparation of financial statements in accordance with generally accepted accounting principles in the United States requires IFX to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. To the extent there are material differences between the Company's estimates and the actual results, IFX's future results of operations may be affected. Management believes the following critical accounting policies require the Company to make significant judgments and estimates in the preparation of its consolidated financial statements: . Revenue recognition; . Impairment of long-lived assets; and . Investments. Revenue Recognition The Company recognizes revenue when each of the following criteria is met; . Persuasive evidence of an arrangement exists, . Delivery has occurred or services have been rendered, . The seller's price to the buyer is fixed or determinable, and . Collectibility is reasonably assured. Revenue is recognized on the majority of the services offered by the Company as its customers utilize such services. Generally, the Company's sales transactions are not multi-element and do not subject the Company to significant credit risk; thus management is reasonably assured of collection at the time the services are utilized by the customer. The Company's services are generally fixed price. In addition, when services require a contract, revenue is not recognized until such contract has been executed and is enforceable. Revenues related to sales to Tutopia are generally not recognized until collection is reasonably assured because of the insufficiency of Tutopia's cash flows. Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment in accordance with SFAS No. 144. If indicators are present, the Company computes the related impairment based on the difference between the carrying value of an asset and the estimated cash flows to be received over the remaining useful life of the respective asset or related group of assets. Cash flows are determined based upon management's projections of operating performance and are consistent with those utilized in obtaining funding. In determining the amount of impairment during fiscal 2002, the Company projected operating cash flows of approximately $1.6 million in fiscal 2003 and approximately $9.8 million in fiscal 2004. If management's revenue and cost reduction projections are not met, the Company may incur additional impairments of long-lived assets in the future. Impairment of Investments The Company periodically reviews its investments for indications of impairment such as, recent security sales, deterioration of financial condition, near-term prospects for financial improvement and other relevant factors. During fiscal 2002, the Company recorded an impairment of approximately $1.7 million of its investment in Tutopia. Tutopia is not a publicly traded company; therefore, the recoverability of Tutopia was based upon a recent transaction whereby UBS (the majority shareholder of both Tutopia and the Company) purchased preferred stock similar to that owned by the Company at a price significantly lower than the carrying value of the Company's investment in Tutopia. This lower price reflected with the declining financial performance of Tutopia, as well as the overall market trends in the value of companies with Internet-related operations in Latin America. The Company did not utilize an independent appraisal to value its investment in Tutopia. Going Concern The Company's working capital deficit decreased by $1.5 million to a $10.1 million deficit at June 30, 2002 from an $11.6 million deficit at June 30, 2001. The Company's available cash remains at a level that substantially limits the Company's operations. Although the Company raised $12.0 million through the sale of convertible preferred stock during fiscal 2002, the Company continues to incur losses and operating cash flow deficiencies. The Company has experienced operating losses amounting to $30.6 million, $54.4 million and $38.7 million and negative cash flows from operations of $12.7 million, $15.0 million and $15.8 million for the years ended June 30, 2002, 2001 and 2000, respectively. As a result, the Company must obtain substantial additional capital to sustain its operations. The Company is dependent upon capital from outside sources, including existing shareholders, to fund its operations and meet ongoing commitments and obligations. There can be no assurance that such capital will be available to the Company on acceptable terms, or at all. The Company is taking actions to improve cash flow, including: (1) reducing the scope of, selling or otherwise disposing of certain operations that require cash (e.g., Central American operations); (2) selling equipment and other assets that will generate cash in the short term and (3) decreasing its overhead and personnel costs in the United States and, selectively, in its Latin American operating units. Although the Company has made significant reductions in personnel and overhead costs to reduce the operating losses, additional reductions in personnel may have to be made in the near term. The Company also believes that additional cost savings can be generated by combining its operations with those of Tutopia in certain countries in which both entities operate. In general, cash needs will also be affected by whether Tutopia is able to fulfill its payment obligations under its network agreement with IFX. In September 2002, the Company received $1.1 million from ROF/IFX, LLC in exchange for a 10% promissory note due June 30, 2003, that is convertible into shares of either Series D or new preferred stock at the option of the note holder. The Company is in the process of seeking additional capital from UBS Capital Americas III, L.P. and UBS Capital LLC, which own approximately 63% of the Company's common stock on an "as converted" basis and have the right to appoint a majority of the members of the Board of Directors. Additional funding from UBS Capital, if any, may be in the form of debt instruments convertible into equity. The negotiations relating to the additional funding, the amount and terms of such funding, if any, have not been completed. No assurance can be given that the Company will be successful in obtaining additional capital from UBS or other sources, or that such capital will be available on terms acceptable to the Company. There is no guarantee that projected decreases in expenses will be sufficient to ensure the continued viability of the Company or that such decreases will not affect the Company's customer service levels or ability to generate revenues. Further, there can be no assurance that even if such capital is obtained and such cost reductions are made, that the Company will achieve profitability or positive cash flows. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. 14 Analytical Summary of Consolidated Statements of Operations The following table sets forth, for the fiscal years indicated, the percentage of total revenues represented by certain items in the Company's consolidated statements of operations:
Fiscal year ended June 30, -------------------------- 2002 2001 2000 ------------ ------------- ------------- Revenues: Dedicated line services 51.4 % 22.4 % 12.6 % Dial-up services 13.2 22.3 77.3 Web hosting and design services 4.1 4.0 3.5 Sales to related party 25.6 43.1 -- Other 5.7 8.2 6.6 ------------ ------------- ------------- Total Revenues 100.0 100.0 100.0 Cost of revenues 55.3 64.7 79.4 ------------ ------------- ------------- Gross profit 44.7 35.3 20.6 Operating Expenses: General and administrative 95.6 106.4 286.0 Sales and marketing 5.4 11.0 21.1 Depreciation and amortization 40.8 53.2 75.3 Impairment of long-lived assets 11.5 34.0 -- ------------ ------------- ------------- Total operating expenses 153.3 204.6 382.4 ------------ ------------- ------------- Operating loss from continuing operations (108.6) (169.3) (361.8) Total other income (expense), net 13.3 (25.8) (111.7) ------------ ------------- ------------- Loss from continuing operations before income tax benefit (95.3) (195.1) (473.5) Income tax benefit 2.8 4.8 25.9 ------------ ------------- ------------- Loss from continuing operations (92.5) (190.3) (447.6) Income from discontinued operations, net of income taxes 5.1 8.8 18.4 ------------ ------------- ------------- Net loss (87.4) % (181.5) % (429.2) % ============ ============= =============
CONTINUING OPERATIONS Subsequent to June 30, 2002, the Company decided to initiate plans to sell or otherwise dispose of substantially all of its operations in Central America. As of June 30, 2002, generally accepted accounting principles do not require that this segment be treated as a discontinued operation in the consolidated financial statements for the year ended June 30, 2002. Hence, the assets, liabilities and results of operations of this segment have not been segregated or otherwise separately identified in the consolidated financial statements of the Company. For the year ended June 30, 2002, the revenues and loss from continuing operations before income taxes of the three operations in Central America that the Company is planning to sell were $1.8 million and $0.7 million, respectively. At June 30, 2002, the total assets of these operations were $0.7 million. Revenues Management plans to grow IFX's customer base and revenues primarily by marketing Internet access and value-added services to ISPs, multinationals, telecommunications carriers and small to medium-sized businesses in the markets in which the Company operates and, to a lesser extent, to individual consumers. Accordingly, management expects that revenue from value-added services (such as dedicated line and web hosting and design services) will increase faster than revenue from Internet access services. IFX's current customer and revenue mix is not expected to be fully indicative of the Company's future customer and revenue mix. 15 The cash flows associated with the Company's acquired customer base represent revenues generated from IFX's paid dial-up Internet access line of business (included in "other revenues"). While that line of business continued to generate revenues of $3.7 million during the year ended June 30, 2002, those revenues are decreasing in absolute terms and as a percentage of the Company's total revenues. The Company's primary focus has changed from targeting paid consumer dial-up account customers to targeting small and medium-sized businesses seeking to gain access to the Internet using a dedicated Internet access line. IFX provides Internet access services to customers under contracts that typically range from one month for dial-up access services to one year or more for dedicated access services. IFX also derives revenues by providing wholesale Internet access to businesses that resell such access on a branded or private label basis. Fees for wholesale access are generally billed on a monthly basis after services are rendered. Wholesale access customers are billed on either a per port basis or a per hour basis. Wholesale Internet access service revenues are recognized in the period in which the services are provided. Revenues from value-added Internet services come from web hosting, domain name registration and co-location services. These revenues are recognized in the period in which the services are provided. Internet access charges and fees for value-added services vary among the countries in which IFX does business, depending on competition, economic and regulatory environments and other market factors. In some markets, the Company has reduced prices, such as for access services, as a result of competitive pressure. The Company expects that price reductions will continue in the markets in which IFX operates as the supply of Internet services continues to grow. The period-to-period comparisons of our results of operations reflect acquisitions that were 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. The Company has not consummated any significant acquisitions since fiscal 2000. For the fiscal year ended June 30, 2002, total revenues declined to $28.2 million from $32.1 million, a decrease of $3.9 million, or 12.1%, from fiscal year 2001. Revenues resulting from dedicated line services increased by $7.3 million to $14.5 million in fiscal year 2002 compared with fiscal year 2001 as a result of the Company's increased focus on corporate clients. Sales to related party (Tutopia) declined by $6.6 million in fiscal 2002 primarily because of a reduction in the charges by IFX for wholesale connectivity access of approximately $0.4 million per month. Revenues relating to dial-up services decreased 48.4% in fiscal 2002 to $3.7 million from $7.2 million in fiscal 2001, an expected decline as the Company continues to pursue its strategy of focusing on business clients and not individual dial-up consumers. Other revenues, which consist primarily of amounts earned from co-location services, equipment rental and earnings from revenue-sharing agreements with telecommunications carriers, decreased $1.0 million to $1.6 million in fiscal 2002 as compared with fiscal 2001. Revenues increased to $32.1 million for the year ended June 30, 2001 compared with $10.7 million for the year ended June 30, 2000. The increase in revenues was related to: (a) sales of $13.8 million of connectivity and other services to Tutopia, a related party and (b) expansion of the user base resulting from acquisitions in Latin America and the growth in value-added services such as dedicated access. Cost of Revenues IFX's cost of revenues primarily consists of costs incurred to carry customer traffic to and over the Internet. IFX leases lines that connect the Company's POPs to IFX's national hubs. The Company pays third party network providers for transit that allows IFX to transmit the Company's customers' information to or from the Internet. IFX also has other recurring telecommunications costs, including the cost of local telephone lines that customers use to reach IFX's network POPs and access the Company's services, and trans-oceanic fiber and satellite bandwidth costs to connect the national hubs to the Internet backbone through IFX's Miami facilities. Management expects total operating costs from providing Internet services to increase as capacity is increased to meet customer demand. The Company expects that costs of revenues should decline as a percentage of revenues as the Company expands its network facilities under long-term leases and as competition drives down the overall price of such services. Management also expects cost of revenues to decrease as wireless technology usage expands and the telecommunication markets in Latin America deregulate. Gross profit increased to 44.7% of total revenues for the fiscal year ended June 30, 2002 as compared with 35.3% of total revenues for the fiscal year ended June 30, 2001. Gross margin increased to 35.3% for the fiscal year ended June 30, 2001 as compared with 20.6% for the fiscal year ended June 30, 2000. The increase in gross margin in each year results from management's continued efforts to reduce cost of revenues by increasing efficiencies of the Company's use of its network equipment, as well as solidifying IFX's owned network throughout Latin America, resulting in the reduction of third party costs. 16 General and Administrative Expenses General and administrative expenses are comprised primarily of compensation costs, which include salaries and related benefits, commissions, bonuses and non-cash stock-based compensation. Other general and administrative expenses include costs of travel, rent, utilities, telecommunications services, insurance and professional fees. While management expects that general and administrative expenses will increase proportionately with IFX's growth, specific actions are being taken by management in efforts to reduce personnel and other overhead costs. General and administrative expenses decreased 21.3% to $26.9 million for the fiscal year ended June 30, 2002 as compared with $34.2 million for the fiscal year ended June 30, 2001. The decrease is primarily from cost reduction programs initiated during fiscal 2002, despite the growth needed to support the increase in "core" product revenues during fiscal 2002. As a percentage of total revenues, general and administrative expenses decreased 10.8 percentage points to 95.6% in fiscal 2002 from 106.4% in fiscal 2001. General and administrative expenses increased to $34.2 million for fiscal year 2001 as compared with $30.6 million for fiscal year 2000. The increase was primarily due to costs incurred to support the increase in sales during fiscal 2001. As a percentage of total revenues, general and administrative expenses decreased 179.6 percentage points to 106.4% in fiscal 2001 from 286.0% in fiscal 2000 as a result of management's cost reduction efforts. General and administrative expenses include $4.1 million, $7.2 million and $6.4 million, respectively, of non-cash stock based compensation in fiscal years 2002, 2001 and 2000, respectively. Sales and Marketing Sales and marketing expenses consist primarily of advertising costs, distribution costs and related production costs. Sales and marketing expenses decreased $2.0 million to $1.5 million for the fiscal year ended June 30, 2002 as compared with $3.5 million for the fiscal year ended June 30, 2001 as management focused on generating dedicated connectivity revenues requiring significantly lower marketing and selling costs. As a percentage of total revenues, sales and marketing expense decreased 5.6 percentage points to 5.4% in fiscal 2002 from 11.0% in fiscal 2001 as a result of the Company's marketing expenditures decreasing at a much faster pace than sales. Sales and marketing expenses increased $1.2 million to $3.5 million for fiscal year 2001 as compared with $2.3 million for fiscal year 2000. The increase was primarily due to costs incurred to support the increase in sales during fiscal 2001. As a percentage of total revenues, sales and marketing expenses decreased 10.1 percentage points to 11.0% in fiscal 2001 from 21.1% in fiscal 2000 as a result of sales growing at a much faster pace than the Company's marketing expenditures. Depreciation and Amortization A large component of the Company's depreciation and amortization expense in the three fiscal years ended June 30, 2002 is related to the amortization of the acquired customer base, which is amortized over three years using the straight-line method. The acquired customer base results from the allocation of the price paid to acquire entities in fiscal years 2000 and 1999 that was in excess of the fair value of their net tangible assets. The Company expects the remaining capitalized cost of the acquired customer base as of June 30, 2002 to be fully amortized by December 31, 2002. Depreciation expense is primarily related to telecommunications equipment, computers and network infrastructure. Assets are depreciated over their estimated useful lives, which generally range from three to five years. Depreciation and amortization expense decreased $5.6 million to $11.5 million for the year ended June 30, 2002 from $17.1 million for the year ended June 30, 2001. The reduction in depreciation and amortization expense is primarily due to the reduction in carrying value of assets under capitalized leases and to the impairment of $10.9 million of acquired customer base during fiscal 2001 as further discussed below. Depreciation and amortization expense increased $9.0 million to $17.1 million for the year ended June 30, 2001 from $8.1 million during the year ended June 30, 2000. The increase in depreciation and amortization was a direct result of increases in acquired computer equipment and assets under capital leases that primarily consisted of computer and network-related equipment. Such assets were purchased to support the increased levels of operations and anticipated future growth of the Company. 17 Impairment of Long-Lived Assets At June 30, 2002, the Company estimated that the undiscounted cash flows associated with certain of its long-lived assets, including acquired customer base and property and equipment, may not be sufficient to recover the net book value of such assets. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," during 2002, the Company recorded estimated charges of approximately $0.8 million and $2.4 million related to the impairment of the acquired customer base and property and equipment, respectively. A $10.9 million impairment charge was taken in fiscal 2001 as a result of an analysis of the Company's acquired customer base at June 30, 2001. The impairment charges were recorded to reduce long-lived assets to their estimated fair value. Fair value was determined based on the present value of the future cash flows expected to be derived from the underlying assets. The fair value estimates, as required by SFAS No. 144, did not consider the value of such assets in a forced sale or liquidation and were based primarily on an analysis of the related operations discounted net cash flows. Contract Cancellation Costs Contract cancellation costs are included in general and administrative expenses in the consolidated statements of operations. During fiscal 2000, IFX recorded a one-time charge to operations of $4.9 million relating to the cancellation of certain contracts. The charge included $1.7 million related to Tutopia. The acceleration and settlement of certain consulting agreements were paid in shares of IFX common stock. Other Income (Expense) IFX earns interest income primarily by investing available cash in short-term securities. The Company incurs interest expense primarily as a result of lease financing transactions. During fiscal 2002, the Company reported $3.8 million of other income, compared with other expense of $8.3 million during fiscal 2001. Other income includes gains from extinguishment of debt of $4.3 million (see below), realization of the deferred gain on the sale of the Yupi investment of $4.4 million and a gain on the sale of a subsidiary of $0.5 million, offset by interest expense of $2.1 million, the $1.7 million impairment of the Company's investment in Tutopia and the Company's share of losses resulting from its equity investment in Tutopia. Other expense in fiscal 2001 was primarily attributable to the Company's $3.2 million share of Tutopia's losses. The Company incurred interest expense of $1.9 million, realized a loss on investments of $2.5 million and incurred a fee of $0.7 million related to the sale of preferred stock during fiscal 2001. Gain from Early Extinguishment of Debt During fiscal 2002, the Company and one of its lessors agreed to the extinguishment of approximately $8.7 million in capital lease obligations in exchange for the Company's payment to the lessor of approximately $2 million and 500,000 warrants allowing the lessor to purchase shares of the Company's common stock at $1.00 per share, subject to certain anti-dilution adjustments. The warrants vested immediately, are exercisable at $1.00 per share and expire 10 years from the date of grant. As a result of this transaction, the Company recorded a $4.3 million gain resulting from the early extinguishment of debt, which is reported as other income in the consolidated statement of operations. The gain was computed as the net $8.7 million reduction of lease obligations, less the estimated fair value of the warrants granted to the lessor, the cash paid and an adjustment to the carrying value of the related assets. The fair value of the warrants was estimated using the Black-Scholes option valuation model. Commitments The Company also has numerous commitments, contingencies and related party transactions. Such items are discussed and disclosed in Notes 7, 8, 9, 15, 17, and 19 of notes to consolidated financial statements. Preferred Stock and Deemed Dividends to Preferred Shareholders On June 28, 2002, the Company sold 6,432,608 shares of Series D Convertible Preferred Stock ("Series D Preferred Stock"). The consideration received in exchange for the Series D Preferred Stock totaled approximately $6.9 million (or, $1.07 per share of Series D Preferred Stock), which consisted of cash ($5.0 million), 750,000 shares of IFX Series C Preferred stock (valued at approximately $1.3 million), which had an effective price per share of $1.68 based on the consideration allocated to such shares when they were issued in February 2002, and 684,000 shares of the Company's common stock, which were valued at approximately $0.6 million based on IFX's common stock ($.85 per share) on the date the transaction closed. The Series D Preferred shares are convertible at the option of the holders into 12,865,216 shares of IFX common stock. Thus, the effective conversion price is $.54 per share, which is less than the $.85 per share trading price of the Company's common stock on the date the Series D Preferred Stock transaction closed. The difference between the effective conversion price and the trading price of the Company's common stock on the closing date results in a beneficial conversion feature of approximately $4.0 million, which was 18 recognized as a deemed dividend to preferred shareholders in the fiscal 2002 statement of operations. In February 2002, the Company completed the sale of approximately 3.9 million shares of Series C convertible preferred stock ("Series C") in exchange for $7.0 million in cash and 1.5 million shares of common stock. As part of the Series C financing, the Company granted the holders of Tutopia stock the right to exchange such shares for IFX preferred stock (the "Tutopia Put Option") (see Note 10 of notes to the consolidated financial statements), which resulted in a discount of $1.6 million to the value of the Series C preferred shares. The discount on these shares did not result, however, in a beneficial conversion feature since the intrinsic conversion price of the Series C preferred shares remained greater than the market price of the Company's common stock on the date the Series C preferred shares were sold. In May 2001, the Company completed the sale of approximately 4.4 million shares of convertible preferred stock ("Series B") for $15.4 million. Each share was initially convertible into one share of IFX common stock. In June-July 2000, the Company issued approximately 2 million shares of convertible preferred stock (Series "A")for $25.0 million that were each convertible into one share of IFX common stock at a conversion price of $12.31 per share. As part of the May 2001 sale of preferred stock, the Company changed the conversion ratio of the 2 million shares of preferred stock to 3.52 shares of common stock for each preferred share. The change in the conversion ratio resulted in a $25.0 million non-cash beneficial conversion feature that was recognized as a deemed dividend to preferred shareholders in the fiscal 2001 statement of operations. As part of the Series C transaction, the conversion ratio of Series B was changed to 1.167 and the conversion ratio of Series A was changed to 4.1. Income tax benefit For the fiscal year ended June 30, 2002, the Company recorded a tax benefit of approximately $0.8 million from continuing operations compared with a benefit of $1.5 million and $2.8 million for fiscal years 2001 and 2000, respectively. The tax benefits realized by the Company are attributable to the utilization of net operating losses against income from discontinued operations. The effective income tax benefit rates for fiscal 2002, 2001 and 2000 were approximately 3%, 3% and 5%, respectively. Operating losses that could not be utilized to recover prior year tax liabilities have been fully reserved with a valuation allowance at June 30, 2002 and 2001. Income from discontinued operations For the year ended June 30, 2002, the Company had income from discontinued operations of approximately $1.4 million, net of taxes, as compared with $2.8 million for the year ended June 30, 2001. The decrease of $1.4 million results from the sale of a redeemable preference share (which related to future payments due from the discontinued operations) during fiscal 2001. The Company does not expect to realize any additional significant earnings from these discontinued operations. For the year ended June 30, 2001, the Company had income from discontinued operations of approximately $2.8 million, net of taxes, as compared with $2.0 million earned for the year ended June 30, 2000. The increase results from the $2.4 million sale of a redeemable preference share during fiscal 2001, thereby reducing future earn-out payments. FINANCIAL CONDITION Liquidity and Capital Resources Going Concern The Company's working capital deficit decreased by $1.5 million to a $10.1 million deficit at June 30, 2002 from an $11.6 million deficit at June 30, 2001. The Company's available cash remains at a level that substantially limits the Company's operations. Although the Company raised $12.0 million through the sale of convertible preferred stock during fiscal 2002, the Company continues to incur losses and operating cash flow deficiencies. The Company has experienced operating losses amounting to $30.6 million, $54.4 million and $38.7 million and negative cash flows from operations of $12.7 million, $15.0 million and $15.8 million for the years ended June 30, 2002, 2001 and 2000, respectively. As a result, the Company must obtain substantial additional capital to sustain its operations. The Company is dependent upon capital from outside sources, including existing shareholders, to fund its operations and meet ongoing commitments and obligations. There can be no assurance that such capital will be available to the Company on acceptable terms, or at all. The Company is taking actions in an effort to improve cash flow, including: (1) reducing the scope of, selling or otherwise disposing of certain operations that require cash (e.g, Central American operations); (2) selling equipment and other assets that will generate cash in the short term and (3) decreasing its overhead and personnel costs in the United States and, selectively, in its Latin American operating units. Although the Company has made significant reductions in personnel and overhead costs to reduce the operating losses, additional reductions in personnel may have to be made in the near term. The Company also believes that additional cost savings can be generated by combining its operations with those of Tutopia in certain countries in which both entities operate. In general, cash needs will also be affected by whether Tutopia is able to fulfill its payment obligations under its network agreement with IFX. In September 2002, the Company received $1.1 million from ROF/IFX in exchange for a 10% promissory note due June 30, 2003, that is convertible into shares of either Series D or new preferred stock at the option of the note holder. The Company is in the process of seeking additional capital from UBS Capital Americas III, L.P. and UBS Capital LLC, which own approximately 63% of the Company's common stock on an "as converted" basis and have the right to appoint a majority of the members of the Board of Directors. Additional funding from UBS Capital, if any, may be in the form of debt instruments convertible into equity. The negotiations relating to the additional funding, the amount and terms of such funding, if any, have not been completed. No assurance can be given that the Company will be successful in obtaining such capital, or that such capital will be available on terms acceptable to the Company. There is no guarantee that projected decreases in expenses will be sufficient to ensure the continued viability of the Company or that such decreases will not affect the Company's customer service levels or ability to generate revenues. Further, there can be no assurance that even if such capital is obtained and such cost reductions are made, that the Company will achieve profitability or positive cash flows. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. 19 Liquidity For the year ended June 30, 2002, cash used by operating activities was approximately $12.7 million compared with cash used of $15.0 million for the year ended June 30, 2001. The revenues from Internet services and products provided the majority of cash generated from operations in fiscal 2002. The cash used in operations is mainly related to the connectivity expenses of the Company's network, including payments under capacity lease agreements, operating leases, costs of personnel and related overhead and, to a lesser extent, sales, marketing and advertising costs. In addition, IFX invests cash not needed for operations at any of its subsidiaries in short-term investments such as U.S. Government obligations and overnight time deposits. As of June 30, 2002, the Company had approximately $1.8 million in cash and equivalents. For the year ended June 30, 2002, cash of $0.8 million was provided by investing activities as the Company's cash flow benefited from the release of $2.1 million of previously restricted cash, offset by a use of approximately $1.3 million to acquire property and equipment. In fiscal 2001, the Company used $13.0 million for investing activities. A majority of the cash used in investing activities in the prior year relates to the acquisition of approximately $7.1 million in property and equipment, a $3.1 million investment in Tutopia and $0.7 million of payments on liabilities related to acquisitions made in prior years. For the year ended June 30, 2002, cash provided by financing activities was approximately $6.0 million compared with $22.7 million for fiscal 2001. IFX received an aggregate of $12.0 million in investments from UBS Capital and certain other shareholders during fiscal 2002 through the sale of approximately 9.6 million shares of preferred stock. Cash of approximately $6.0 million was used for payments of capital lease obligations. This compares with an investment of $25.6 million from UBS Capital and certain other shareholders during fiscal 2001 through the sale of approximately 5.2 million shares of preferred stock. As reported on the Company's Report on Form 8-K dated February 19, 2002, and pursuant to the Stock Purchase Agreement ("Series C Purchase Agreement") dated as of October 11, 2001, UBS Capital Americas III, L.P. and UBS Capital LLC (collectively, "UBS"), invested $7.0 million of cash and surrendered 1.5 million shares of IFX's common stock held by UBS in exchange for 3,876,241 shares of the newly issued IFX Series C preferred stock. Prior to the closing of the Series C preferred round, UBS had advanced IFX $5.5 million through February 18, 2002 in exchange for 10% convertible notes. Upon the closing of the Series C investment, the 10% convertible notes were automatically converted to Series C preferred shares. Each share of Series C preferred stock is convertible into one share of common stock. The Series C preferred stock carries a liquidation preference such that, upon a bankruptcy, liquidation, dissolution or unwinding of IFX, each holder of Series C preferred stock will be entitled to receive $3.00 per share plus 10% of such amount per annum from the date of issuance (the "Stated Preference") and will also participate with the holders of common stock after holders of the Company's preferred stock receive their liquidation preference and accrued dividends (the "Participation Feature"), provided that the maximum amount which can be received with respect to the Series C preferred stock after taking into account the Participation Feature is limited to 3 1/2 times the Stated Preference. 20 The Series C investment caused the conversion ratio of the approximately 2 million shares of Series A preferred stock held by UBS to be adjusted so that each share of Series A preferred stock is convertible into approximately 4.1 shares of common stock, rather than 3.52 shares of common stock as previously provided. This investment also caused the conversion ratio of the approximately 4.4 million shares of Series B preferred stock held by UBS to be adjusted so that each share of Series B preferred stock would be convertible into approximately 1.167 shares of common stock, rather than one share of common stock as originally provided. The change in conversion ratio of the Series B preferred stock did not result in a beneficial conversion feature since the conversion price remains greater than the market price of the Company's common stock on the date the Series B preferred stock was originally sold. No beneficial conversion feature was recognized on the Series A preferred stock since previous adjustments to the conversion ratio of the Series A preferred stock resulted in recognition of a beneficial conversion in a prior period which equaled the proceeds received from the original sale of the Series A preferred stock. The terms of both the Series A and B preferred stock were amended to add the same limited Participation Feature as in the Series C preferred stock. As part of this transaction, IFX provided a put right to UBS and the other Tutopia preferred and common shareholders providing them the ability to exchange their equity investment in Tutopia for like shares of IFX's preferred ("New Preferred Stock") or common stock at an exchange ratio of approximately 0.70 shares of IFX for each share of Tutopia within one year of closing (the "Put Option"), which date is February 18, 2003. In general, the New Preferred Stock would have had the same terms as the Company's Series C preferred stock, except that the New Preferred Stock would not have had a Participation Feature. As a result of the Put Option, holders of Tutopia preferred shares could have converted their shares into approximately 7.3 million shares of IFX preferred stock. Such shares would have been convertible into a new class of IFX preferred stock that is essentially identical to the Company's existing classes of preferred stock, except with regard to participation features. Also, the Put Option provided that holders of Tutopia common stock could have converted their shares into approximately 1.3 million shares of IFX common stock. The Company computed the estimated value of the Put Option using the Black Scholes option valuation model and the following assumptions: risk-free interest rate 1.7%, dividend yield 0%, and an expected life of 1 year. The $1.6 million estimated fair value of the Put Option issued to Tutopia shareholders that are also IFX preferred shareholders was recorded as additional paid-in capital and resulted in a discount to the IFX Series C preferred stock. The Black Scholes valuation model requires the input of highly subjective assumptions, such as the expected stock price volatility, and the estimated fair value may not necessarily represent amounts that could be realized in a current transaction. The discount on the Series C preferred shares did not result in a beneficial conversion feature since the intrinsic conversion price of the Series C preferred shares remained greater than the market price of the Company's common stock on the date the Series C preferred shares were sold. The terms of the Put Option were later amended in connection with the Series D financing so that holders of Tutopia common shares could convert such shares into IFX preferred shares rather than IFX common shares as provided for in the original Put Option. After the issuance of the Series C Preferred Stock as reported in Forms 8-K filed on October 22, 2001 and February 27, 2002, UBS capital owned approximately 57% of the voting shares of IFX (assuming conversion of all the Company's convertible preferred stock into common stock). On June 28, 2002, pursuant to a Stock Purchase Agreement dated as of February 19, 2002, UBS Capital, International Technology Investments LC ("ITI"), LSC, LLC ("LSC"), and Jak Bursztyn ("Bursztyn") (collectively, the "Purchasers") agreed to invest a total of $5 million and surrender shares of IFX's Series C preferred stock and Common Stock in exchange for 6,432,608 shares of IFX's Series D Convertible Preferred Stock ("Series D Preferred Stock"). ITI is an affiliate of Michael Shalom and LSC is an affiliate of Lee Casty. Each share of Series D Preferred Stock is convertible into two shares of IFX's Common Stock. The Series D Preferred Stock carries a liquidation preference such that, upon a bankruptcy, liquidation, dissolution or winding up of IFX, each holder of Series D Preferred Stock will be entitled to receive a Stated Preference of $6.00 per share plus 10% of such amount per annum from the date of issuance and will also participate with the holders of Common Stock after the Purchasers receive their liquidation preference and accrued dividends, provided that the maximum amount which can be received with respect to the Series D Preferred Stock after taking into account the Participation Feature is limited to 3-1/2 times the Stated Preference. In this transaction, UBS invested approximately $3.33 million in cash and 21 surrendered 750,000 shares of Series C Preferred Stock in exchange for approximately 4.6 million shares of Series D Preferred Stock. Each of ITI and LSC invested approximately $812,500 in cash and surrendered approximately 333,000 shares of Common Stock in exchange for approximately 850,000 shares of Series D Preferred Stock. Bursztyn invested approximately $47,000 in cash and surrendered approximately 10,000 shares of Common Stock in exchange for approximately 43,000 shares of Series D Preferred Stock. IFX would have approximately 41.5 million shares of Common Stock outstanding assuming all of its convertible preferred stock were converted into Common Stock. On June 27, 2002, IFX amended its Restated Certificate of Incorporation to increase the number of shares of Common Stock authorized from 60 million to 110 million and increase the number of shares of preferred stock authorized from 20 million to 40 million. Subsequent to June 30, 2002, the Company received $1.1 million from ROF/IFX ("ROF") in exchange for a 10% promissory note due June 30, 2003 that is convertible into shares of either Series D preferred or a new series of preferred stock (yet to be issued) at the option of the note holder. As part of the transaction, ROF was also provided the right to exchange up to 400,000 shares of IFX common stock for shares of that class of Company preferred stock described in paragraph 3(a) of the Amended And Restated Put Agreement among the Company, UBS Capital Americas III, L.P. and UBS Capital LLC, with an exchange ratio of 6 shares of common stock for each share of newly issued preferred stock. In addition, management is working with its controlling shareholders, UBS Capital Americas and UBS Capital, in an attempt to obtain additional funding to enable the Company to have sufficient capital to meet its current and projected operating expenditures through June 30, 2003. There can be no assurances, however, that the Company will be able to continue raising funds through the issuance of securities or through other means on acceptable terms, or at all. The Company's inability to raise sufficient funds in the future could affect its ability to satisfy capital and operating lease obligations and could cause the Company to postpone or eliminate capital expenditures until financing is obtained and raises substantial doubt about the Company's ability to continue as a going concern. NASDAQ Listing IFX's stock is traded on the NASDAQ SmallCap Market under the symbol "FUTR." On February 14, 2002, the NASDAQ Staff notified the Company that the bid price of its common stock had closed at less than $1.00 per share over the previous 30 consecutive trading days and, as a result, did not comply with Marketplace Rule 4310 (c) (4) (the "Price Rule"). In accordance with Marketplace Rule 4310 (c) (8) (D), the Company was provided 180 calendar days, or until August 13, 2002, to regain compliance with the Price Rule. On February 21, 2002, NASDAQ Staff notified the Company that it did not comply with Marketplace Rule 4310 (c) (2) (B) (the "Capital Rule"), which requires a minimum of $2.0 million in net tangible assets, $2.5 million in stockholders' equity, $35.0 million of market capitalization or $500,000 net income for the most recently completed fiscal year or two of the three of a company's most recently completed fiscal years. On May 9, 2002, the Company received a waiver of certain terms of the Company's Certificates of Designation from the preferred stockholders that resulted in the Company's preferred stock, which had been stated as outside of Stockholders' Equity, to be reclassified as part of Stockholders' Equity. On May 17, 2002, NASDAQ advised the Company that it was in compliance with the Capital Rule. On August 14, 2002, the NASDAQ Staff advised the Company that while it had not regained compliance in accordance with Marketplace Rule 4310 (C) (8) (D), the staff noted that the Company did meet the initial listing requirements for $5.0 million of stockholders' equity (based on pro forma stockholders' equity as reported in the Company's Form 10-Q for the quarter ended March 31,2002). Hence, the Company was provided with an additional 180 days, or until February 10, 2003, to regain compliance with the applicable requirements. If the shares of the Company's common stock were to be suspended or delisted from the NASDAQ system, it would be much more difficult to dispose of the common stock or obtain accurate quotations as to the price of the securities. This, in turn, could make it more difficult for the Company to issue securities pursuant to debt or equity offerings in the future. At June 30 and September 30, 2002, the Company's stock was trading below the NASDAQ's $1.00 per share listing price and, at June 30 and September 30, 2002, the Company did not meet NASDAQ's initial minimum stockholders' equity requirement of $5.0 million. These conditions may result in the Company's common stock being delisted from the NASDAQ. Forward-Looking Statements The statements contained herein that are not historical facts are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the use of forward-looking terminology such as "believes," "intends," "plans," "continue," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. The Company wishes to caution you that these forward-looking statements addressing the timing, costs and scope of the Company's acquisition of, or investments in, existing or future ISPs, the revenue and profitability levels of the ISPs in which the Company invests, the anticipated reduction in operating costs, the liquidity accounts of the Company, and other matters contained herein regarding matters that are not historical facts, are only predictions. The Company can give no assurance that the future results indicated, whether expressed or implied, will be achieved. These projections and other forward-looking statements are based upon a variety of assumptions relating to the Company's business, which, although the Company considers reasonable, may not be realized. Because of the number and uncertainties of the assumptions underlying the Company's projections and forward-looking statements, some of the assumptions may not materialize and unanticipated events and circumstances may occur subsequent to the date of this report. These forward-looking statements are based on current expectations, and the Company assumes no obligation to update this information. The inclusion of projections and other forward-looking statements should not be regarded as a representation by the Company or any person. These estimates and projections may not be realized, and actual results may vary materially. Recent Accounting Pronouncements In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections". SFAS No. 145 rescinds SFAS No. 4, which required all gains and losses from the extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effects. As a result, the criteria in Accounting Principles Board Opinion ("APB No.") No. 30 22 will now be used to classify those gains and losses. APB No. 30 requires disclosures about material gains and losses associated with debt extinguishments that are unusual or infrequent in nature. Thus, applying the provisions of APB No. 30 would distinguish transactions that are part of an entity's recurring operations from those that are unusual or infrequent or that meet the criteria for classification as extraordinary items. The Company adopted SFAS No. 145 effective July 1, 2001. As a result, the Company reclassified $4.3 million of gain from the early extinguishment of capital lease agreements, which had been recorded as an extraordinary item in the Company's March 31, 2002 report on Form 10-Q, to "Other income (expense)". The Company does not expect that adoption of this statement will have a material impact on its financial position or results of operations other than as discussed herein. During August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of " and APB No. 30, "Reporting the Results of Operations - Reporting the Effects of the Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 establishes a single accounting model for assets to be disposed of by sale whether previously held and used or newly acquired. SFAS No. 144 retains the provisions of APB No. 30 for presentation of discontinued operations in the statement of operations, but broadens the presentation to include a component of an entity. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and the interim periods within. As permitted, the Company decided to early adopt SFAS No. 144, effective July 1, 2001, the beginning of the Company's fiscal year. SFAS No. 144 requires that if an entity decides to adopt the Statement prior to the effective date and during an interim period other than the first interim period of a fiscal year, all prior periods of that fiscal year shall be restated. Early adoption of SFAS No. 144 did not have a material impact on the Company's operations for the year ended June 30, 2002 and, as a result, did not require the restatement of any amounts previously reported. In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that the purchase method of accounting be used for all business combinations completed after June 30, 2001. SFAS No. 141 also specifies that intangible assets acquired in a purchase method business combination must meet certain criteria to be recognized and reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead are to be tested for impairment at least annually in accordance with the provisions of SFAS No.142. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121. The Company adopted SFAS No. 141 and No. 142 effective July 1, 2001. The adoption of these pronouncements did not have an impact on the Company's financial condition or results of operations. Sarbanes-Oxley Act of 2002 On July 30, 2002, the Sarbanes-Oxley Act of 2002 (the "Act") was signed into law by the President of the United States. The Act imposes, among other things, new obligations for disclosure and corporate governance on public companies and directs the Securities and Exchange Commission and other regulatory bodies to issue additional broad regulations to implement its provisions. Certain of such obligations are effective for this annual report and accordingly, the Company has included the required certifications herein. The Company intends to comply fully with all such current and future regulations as may be issued as a result of the Act. The Company is unable to quantify at this point in time the additional costs that it will incur in connection with complying with the Act. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Exchange Rate and Inflation Risk The Company's continuing operations are focused primarily in Latin America, subjecting IFX to certain political, economic and commercial risks and uncertainty not typically found in the United States. 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 results of operations, assets, liabilities and/or equity. The value of local currencies generally fluctuate in foreign countries. This fluctuation can cause the Company to gain or lose on the translation of foreign currency to U.S. Dollars. For example, recent economic and political conditions in Argentina, Brazil and Venezuela have contributed to significant fluctuations in the values of the currencies of those countries. Interest Rate Risk The Company's short-term investments are classified as cash and cash equivalents with original maturities of three months or less. Therefore, changes in market interest rates do not affect the value of Company's investments. 23 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA IFX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, -------------------------------- 2002 2001 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 1,827,900 $ 7,647,700 Restricted cash - 981,400 Receivables, net of allowance for doubtful accounts of $698,100 and $1,955,800 at June 30, 2002 and 2001, respectively 2,968,100 2,692,400 Due from related party 271,800 910,500 Prepaid expenses and other current assets 485,400 1,400,100 -------------- ------------- Total current assets 5,553,200 13,632,100 -------------- ------------- Property and equipment, net 9,396,000 24,284,500 Other assets: Restricted cash - non current - 1,131,700 Acquired customer base, net of accumulated amortization of $2,895,400 and $4,493,500 at June 30, 2002 and 2001, respectively 266,600 3,953,900 Investments 402,600 3,009,000 Foreign taxes recoverable 1,187,800 1,976,100 Prepaid service agreements and other 1,129,200 536,300 -------------- ------------- Total other assets 2,986,200 10,607,000 -------------- ------------- Total assets $ 17,935,400 $ 48,523,600 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 10,260,500 $ 10,926,300 Accrued expenses 2,905,600 5,257,200 Current portion of capital lease obligations 1,809,200 7,926,000 Deferred revenues - related party - 581,600 Deferred revenues 625,300 521,100 Foreign taxes payable 52,900 - -------------- ------------- Total current liabilities 15,653,500 25,212,200 Long-term liabilities: Notes payable and other long-term liabilities 347,800 296,400 Deferred gain on sale of investment - 4,451,900 Capital lease obligations, less current portion 489,000 8,142,100 -------------- ------------- Total long-term liabilities 836,800 12,890,400 -------------- ------------- Total liabilities 16,490,300 38,102,600 -------------- ------------- Commitments and Contingencies (Notes 1, 7 and 9) - - Stockholders' equity: Preferred Stock, convertible $1.00 par value; 40,000,000 shares authorized, 16,007,980 and 6,449,131 issued and outstanding at June 30, 2002 and 2001, respectively 52,775,900 40,463,900 Common stock, $.02 par value; 110,000,000 shares authorized, 12,099,095 and 14,276,495 shares issued and outstanding at June 30, 2002 and 2001, respectively 242,000 285,500 Additional paid-in capital 76,610,200 77,054,600 Treasury stock (150,000) - Accumulated deficit (124,012,100) (99,415,000) Accumulated other comprehensive loss (2,000,300) (1,118,500) Deferred compensation (2,020,600) (6,849,500) ------------ ------------- Total stockholders' equity 1,445,100 10,421,000 ------------ ------------- Total liabilities and stockholders' equity $ 17,935,400 $ 48,523,600 ============ =============
The accompanying footnotes are an integral part of these consolidated financial statements. 24 IFX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal year ended June 30, ----------------------------------------------- 2002 2001 2000 --------------- -------------- ---------------- REVENUES: Dedicated line services $ 14,483,000 $ 7,188,900 $ 1,351,100 Dial-up services 3,704,500 7,172,500 8,249,600 Web hosting and design services 1,167,100 1,283,600 379,000 Sales to related party 7,205,000 13,842,700 - Other 1,591,500 2,634,100 709,600 --------------- -------------- ---------------- Total revenues 28,151,100 32,121,800 10,689,300 Cost of revenues 15,558,100 20,796,900 8,487,000 --------------- -------------- ---------------- Gross profit 12,593,000 11,324,900 2,202,300 OPERATING EXPENSES: General and administrative 26,926,400 34,180,600 30,570,100 Sales and marketing 1,525,800 3,547,200 2,252,000 Depreciation and amortization 11,493,400 17,093,800 8,053,100 Impairment of long-lived assets 3,229,700 10,919,100 - --------------- -------------- ---------------- Total operating expenses 43,175,300 65,740,700 40,875,200 --------------- -------------- ---------------- Operating loss from continuing operations (30,582,300) (54,415,800) (38,672,900) OTHER INCOME (EXPENSE): Interest income 93,500 614,100 343,300 Interest expense (2,051,300) (1,918,400) (611,300) Gain (loss) on sale of investments 4,426,700 (2,505,700) - Equity in net loss of investees (858,400) (3,181,400) (11,775,700) Impairment of equity investment (1,672,100) - - Gain on sale of subsidiary 526,700 - - Gain on early extinguishment of debt 4,324,700 - - Other, net (1,029,900) (1,307,300) 101,200 --------------- -------------- ---------------- Total other income (expense), net 3,759,900 (8,298,700) (11,942,500) --------------- -------------- ---------------- Loss from continuing operations before income tax benefit (26,822,400) (62,714,500) (50,615,400) Income tax benefit 778,900 1,525,800 2,771,400 -------------- -------------- ---------------- Loss from continuing operations (26,043,500) (61,188,700) (47,844,000) Income from discontinued operations, net of income taxes 1,446,400 2,833,500 1,967,000 --------------- -------------- ---------------- Net loss (24,597,100) (58,355,200) (45,877,000) Deemed dividends to preferred shareholders (4,035,300) (25,000,000) - --------------- -------------- ---------------- Net loss available to common stockholders $ (28,632,400) $ (83,355,200) $ (45,877,000) =============== ============== ================ BASIC AND DILUTED INCOME (LOSS) PER SHARE: Loss from continuing operations $ (1.89) $ (4.44) $ (4.71) Discontinued operations .10 0.20 0.19 --------------- -------------- ---------------- Net loss per share (1.79) (4.24) (4.52) Deemed dividends to preferred shareholders (0.29) (1.81) - --------------- -------------- ---------------- Net loss per share available to common stockholders $ (2.08) $ (6.05) $ (4.52) =============== ============== ================ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 13,736,495 13,784,897 10,153,565 =============== ============== ================
The accompanying footnotes are an integral part of these consolidated financial statements. 25 IFX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock ------------------------- Additional Preferred Stock Shares Amount Paid-in Capital Treasury Stock ----------------- ----------- ------------- ----------------- -------------- Balance at June 30, 1999 $ - 6,830,240 $ 136,600 $ 11,299,100 $ - Stock issued for cash - 5,541,511 110,800 11,020,800 - Stock issued for acquisitions - 835,598 16,700 20,938,200 - Stock issued for contract termination - 119,314 2,400 4,154,300 - Issuance of preferred stock - 1,210,398 shares 14,900,000 - - - Compensation expense associated with variable stock options - - - 1,144,400 - Deferred compensation associated with grant of stock options - - - 17,217,700 - Common stock retired - (31,480) (600) (615,200) - Increase in investment in equity investee as a result of sale of stock by Tutopia - - - 4,079,800 - Compensation expense associated with warrants for contract termination - - - 1,659,000 - Net loss - - - - - Foreign currency translation - - - - - Comprehensive loss - - - - - --------------- ---------- ---------- -------------- ---------- Balance at June 30, 2000 14,900,000 13,295,183 265,900 70,898,100 - Stock issued for contract termination - 6,000 100 77,600 - Stock issued for liabilities related to acquisitions - 733,666 14,700 4,293,800 - Issuance of preferred stock - 5,238,733 shares 25,563,900 - - - - Compensation expense associated with grant of stock - 241,646 4,800 2,122,400 - Deferred compensation associated with grant of stock options - - - (337,300) - Beneficial conversion feature 25,000,000 - - (25,000,000) - Deemed dividend to preferred shareholders (25,000,000) - - 25,000,000 - Net loss - - - - - Foreign currency translation - - - - - Comprehensive loss - - - - - --------------- ---------- ---------- -------------- ---------- Balance at June 30, 2001 40,463,900 14,276,495 285,500 77,054,600 - Common stock cancelled and converted to preferred stock - (2,177,400) (43,500) (1,701,700) - Stock held in Treasury related to sale of subsidiary - - - - (150,000) Issuance of preferred stock - 9,558,849 shares 12,312,000 - - - - Series C preferred stock - value of Tutopia Put Option - - - 1,626,900 - Beneficial conversion feature 4,035,300 (4,035,300) Deemed dividend to preferred shareholders (4,035,300) 4,035,300 Compensation expense associated with grant of variable option agreements - - - (20,800) - Deferred compensation associated with grant of stock options - - - (688,800) - Compensation expense associated with warrants for contract termination - - - 340,000 - Net loss - - - - - Foreign currency translation - - - - - Comprehensive loss - - - - - --------------- ---------- ---------- -------------- ---------- Balance at June 30, 2002 $ 52,775,900 12,099,095 $ 242,000 $ 76,610,200 $ (150,000) =============== ========== ========== ============== ==========
Retained Earnings Accumulated Other Deferred (Accumulated Comprehensive Compensation Deficit) Income(loss) Total -------------------- ------------------- ---------------- ---------------- Balance at June 30, 1999 $ (129,500) $ 4,817,200 $ (26,000) $ 16,097,400 Stock issued for cash - - - 11,131,600 Stock issued for acquisitions - - - 20,954,900 Stock issued for contract termination - - - 4,156,700 Issuance of preferred stock - 1,210,398 shares - - - 14,900,000 Compensation expense associated with variable stock options - - - 1,144,400 Deferred compensation associated with grant of stock options (12,003,000) - - 5,214,700 Common stock retired - - - (615,800) Increase in investment in equity investee as a result of sale of stock by Tutopia - - - 4,079,800 Compensation expense associated with warrants for contract termination - - - 1,659,000 Net loss - (45,877,000) - (45,877,000) Foreign currency translation - - (303,000) (303,000) ------------- Comprehensive loss - - - (46,180,000) ------------- ------------- ---------- ------------- Balance at June 30, 2000 (12,132,500) (41,059,800) (329,000) 32,542,700 Stock issued for contract termination - - - 77,700 Stock issued for liabilities related to acquisitions - - - 4,308,500 Issuance of preferred stock - 5,238,733 shares - - - 25,563,900 Compensation expense associated with grant of stock - - - 2,127,200 Deferred compensation associated with grant of stock options 5,283,000 - - 4,945,700 Beneficial conversion feature - - - - Deemed dividend to preferred shareholders - - - - Net loss - (58,355,200) - (58,355,200) Foreign currency translation - - (789,500) (789,500) ------------- Comprehensive loss - - - (59,144,700) ------------- ------------- ---------- ------------- Balance at June 30 2001 (6,849,500) (99,415,000) (1,118,500) 10,421,000 Common stock cancelled and converted to preferred stock - - - (1,745,200) Stock held in Treasury related to sale of subsidiary - - - (150,000) Issuance of preferred stock - 9,558,849 shares - - - 12,312,000 Series C preferred stock - value of Tutopia Put Option - - - 1,626,900 Beneficial conversion feature - - - - Deemed dividend to preferred shareholders - - - - Compensation expenses associated with grant of variable option agreements - - - (20,800) Deferred compensation associated with grant of stock options 4,828,900 - - 4,140,100 Compensation expense associated with warrants for contract termination - - - 340,000 Net loss - (24,597,100) - (24,597,100) Foreign currency translation - - (881,800) (881,800) ------------- Comprehensive loss - - - (25,478,900) ------------- ------------- ---------- ------------- Balance at June 30, 2002 $ (2,020,600) $ (124,012,100) $ (2,000,300) $ 1,445,100 ============= ============= ========== =============
The accompanying footnotes are an integral part of these consolidated financial statements. 26 IFX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the fiscal year ended June 30, ------------------------------------------------- 2002 2001 2000 ------------- -------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (24,597,100) $ (58,355,200) $ (45,877,000) Adjustments to reconcile net loss to cash used in operating activities: Depreciation 9,508,200 7,239,600 2,696,800 Amortization 1,985,200 9,854,200 5,356,300 Stock related compensation 4,119,300 7,150,600 6,359,100 Bad debt expense 1,122,800 1,033,300 842,400 Non-cash interest expense paid in preferred shares 187,500 - - (Gain) loss on sale of investments (4,426,700) 2,505,700 - Compensation associated with consulting agreements - - 4,156,700 Impairment of long-lived assets 3,229,700 10,919,100 - Impairment of equity investment 1,672,100 - - Loss valuation allowance on investments - 350,400 - Equity in net loss of investees 858,400 3,181,400 330,200 Gain on sale of subsidiary (526,700) - - Gain from early extinguishment of debt (4,324,700) - - Effect of deconsolidation of Tutopia.com - (2,391,900) 4,674,300 Change in net assets of discontinued operations - 813,700 2,774,300 Changes in operating assets and liabilities: - - - Foreign taxes recoverable (392,700) (553,700) (1,422,400) Receivables (2,210,900) (2,426,300) (1,112,100) Due from related party 481,200 (910,500) - Prepaid expenses and other current assets 737,500 (515,200) (746,000) Income taxes receivable - 1,632,600 (1,632,600) Other assets (426,100) 306,900 (24,300) Accounts payable and accrued expenses 662,400 4,419,900 7,464,400 Deferred revenues (346,800) 740,800 361,900 ------------- -------------- -------------- Cash used in operating activities (12,687,400) (15,004,600) (15,798,000) ------------- -------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions, primarily customer base - (656,600) (2,443,900) Investments - (3,135,000) 4,171,500 Restricted cash 2,113,100 (2,113,100) - Increase in notes receivable - - (2,700) Purchases of property and equipment (1,334,200) (7,140,400) (4,236,200) ------------- -------------- -------------- Cash provided by (used in) investing activities 778,900 (13,045,100) (2,511,300) ------------- -------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable and other long-term liabilities - 27,300 933,400 Payment of capital lease obligations (5,951,200) (2,939,800) - Issuance of common stock - - 11,131,600 Issuance of preferred stock 12,000,000 25,563,900 14,900,000 ------------- -------------- -------------- Cash provided by financing activities 6,048,800 22,651,400 26,965,000 ------------- -------------- -------------- Effect of exchange rate changes on cash and cash equivalents 39,900 (789,500) (303,000) ------------- -------------- -------------- Net (decrease) increase in cash and cash equivalents (5,819,800) (6,187,800) 8,352,700 Cash and cash equivalents, beginning of period 7,647,700 13,835,500 5,482,800 ------------- -------------- -------------- Cash and cash equivalents, end of period $ 1,827,900 $ 7,647,700 $ 13,835,500 ============= ============== ============== Supplemental disclosure of cash flow information: Cash paid for interest $ 1,863,800 $ 1,918,400 $ 611,300 ============= ============== ============== Supplemental disclosure of non-cash investing and financing activities: Buydown of capital lease obligations $ 8,544,300 $ - $ - ============= ============== ============== Acquisition of equipment through capital lease obligations $ 1,254,600 $ 8,186,800 $ 1,000,000 ============= ============== ============== Acquisition of equipment through increase in accounts payable $ - $ 940,700 $ - ============= ============== ============== Conversion of common stock to preferred stock $ 1,745,200 $ - $ - ============= ============== ============== Value of common stock issued in conjunction with liabilities related to acquisitions $ - $ 4,308,500 $ 20,954,900 ============= ============== ==============
The accompanying footnotes are an integral part of these consolidated financial statements. 27 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2002 Note 1 Company IFX Corporation was incorporated in Delaware in 1985 and is headquartered in Miami Lakes, Florida. IFX provides Internet network connectivity services and offers a broad range of Internet-related services to Internet service providers, multinational corporations, telecommunications carriers, small to medium-sized businesses and, to a lesser extent, individual consumers, in Latin America. The Company has operations in Argentina, Brazil, Chile, Colombia, Mexico, Panama, Uruguay, Venezuela and the United States. IFX also operates networks in El Salvador, Honduras, Guatemala and Nicaragua (collectively, the "Central American Operations") which the Company intends to sell or otherwise dispose of during fiscal 2003. Going Concern The Company's working capital deficit decreased by $1.5 million to a $10.1 million deficit at June 30, 2002 from an $11.6 million deficit at June 30, 2001. The Company's available cash remains at a level that substantiallly limits the Company's operations. Although the Company raised $12.0 million through the sale of convertible preferred stock during fiscal 2002, the Company continues to incur losses and operating cash flow deficiencies. The Company has experienced operating losses amounting to $30.6 million, $54.4 million and $38.7 million and negative cash flows from operations of $12.7 million, $15.0 million and $15.8 million for the years ended June 30, 2002, 2001 and 2000, respectively. As a result, the Company must obtain substantial additional capital to sustain its operations. The Company is dependent upon capital from outside sources, including existing shareholders, to fund its operations and meet ongoing commitments and obligations. There can be no assurances that such capital will be available to the Company on acceptable terms, or at all. The Company is taking actions designed to improve cash flow, including (1) reducing the scope of, selling or otherwise disposing of certain operations that require cash (e.g., Central American operations); (2) selling certain equipment and other assets that will generate cash in the short term and (3) decreasing its overhead and personnel costs in the United States and, selectively, in the Latin American operating units. Although the Company has made significant reductions in personnel and overhead costs to reduce the operating losses, additional reductions in personnel may have to be made in the near term. The Company also believes that additional cost savings can be generated by combining its operations with those of Tutopia in certain countries in which both entities operate. In general, cash needs will also be affected by whether Tutopia is able to fulfill its payment obligations under its network agreement with IFX. In September 2002, the Company received $1.1 million from ROF/IFX in exchange for a 10% promissory note due June 30, 2003, that is convertible into shares of either Series D or new preferred stock at the option of the note holder. The Company is in the process of seeking additional capital from UBS Capital Americas III, L.P. and UBS Capital LLC, which own approximately 63% of the Company's common stock on an "as converted" basis and have the right to appoint a majority of the members of the Board of Directors. Additional funding from UBS Capital, if any, may be in the form of debt instruments convertible into equity. The negotiations relating to the additional funding, the amount and terms of such funding, if any, have not been completed. No assurance can be given that the Company will be successful in obtaining additional capital, or that such capital will be available on terms acceptable to the Company. There is no guarantee that projected decreases in expenses will be sufficient to ensure the continued viability of the Company or that such decreases will not affect the Company's customer service levels or ability to generate revenues. Further, there can be no assurance that even if such capital is obtained and such cost reductions are made, that the Company will achieve profitability or positive cash flows. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Note 2 Summary of Significant Accounting Policies Basis of Presentation: The consolidated financial statements include the accounts of IFX Corporation and its wholly owned subsidiaries (collectively referred to herein as "IFX", "IFX Networks" or the "Company") for which it has a controlling financial interest. All intercompany accounts and transactions are eliminated in consolidation. As more fully discussed in Note 16, during September 2000, the Company's voting interest in its majority-owned subsidiary, Tutopia.com, Inc. ("Tutopia") fell below 50%. As a result of this reduction, the Company deconsolidated Tutopia and accounts for the investment in Tutopia under the equity method. Accordingly, in fiscal 2001 the Company restated its fiscal 2000 consolidated financial statements as if Tutopia had been accounted for under the equity method since its inception in January 2000. In April 2000, Tutopia sold common stock representing approximately a 15% interest in Tutopia to shareholders other than the Company, resulting in proceeds of approximately $5.5 million at a price per common share exceeding the Company's carrying value at that time for the Company's investment in Tutopia's common stock. The restated financial statements reflect an increase in the Company's investment in Tutopia and in paid-in-capital of approximately $4 million as of June 30, 2000, to record the amount in excess of the Company's carrying value as a capital transaction. 28 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Fiscal Year: The Company's fiscal year end is June 30. References herein to fiscal 2002, 2001 and 2000 refer to the fiscal years ended June 30, 2002, 2001 and 2000, respectively. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition: Revenue from customer contracts related to dial-up access, dedicated phone line and web hosting fees are recognized ratably over the term of the underlying contract, which is generally from one month to three years. Cash received in advance of revenues earned is recorded as deferred revenues. Revenues derived from other services are recognized as earned. Revenues related to amounts received under revenue sharing agreements with telecommunications companies are generally recognized when such services are utilized by the Company's end users. Revenues related to sales to Tutopia are generally not recognized until collection is reasonably assured because of the insufficiency of Tutopia's cash flows. During the year ended June 30, 2002, the Company entered into certain non- monetary transactions with unrelated third parties for which revenues of approximately $439,000 were recorded in the consolidated statement of operations. In connection with these transactions, the Company received certain non-monetary considerations amounting to approximately $439,000, which were included as expenses in the Company's consolidated statement of operations for the year ended June 30, 2002. Credit Risk: Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of trade accounts receivable. The Company's receivables 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 help to limit the risks of these losses. In addition, the large number of customers comprising the Company's customer base mitigate, to an extent, the concentration of credit risk. Vendor Services: The Company relies on third-party networks, local telephone companies and other companies to provide data communications capacity. Although management is of the opinion that alternative telecommunications facilities could be found in a timely manner, any disruption of these services could have an adverse effect on the Company's operating results. Cash and Cash Equivalents: The Company considers as cash equivalents all financial instruments with maturity of three months or less when purchased. Restricted Cash: During fiscal 2001, the Company entered into capital lease agreements relating to computer equipment for expansion of the Company's network. As part of certain of these capital lease agreements, the Company was required to maintain a minimum amount of cash in restricted specified interest-bearing accounts. No such requirement existed at June 30, 2002. Fair Value of Financial Instruments: The carrying amounts of the Company's cash and cash equivalents, restricted cash, receivables, accounts payable and notes payable approximate fair value due to the short-term nature of these accounts. Impairment of Long-Lived Assets: Effective July 31, 2001, the Company accounts for the possible impairment of long-lived assets in accordance with the Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 requires that long-lived assets to be held and used by the Company be reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If changes in circumstances indicate that the carrying amount of an asset that an entity expects to hold and use may not be recoverable, future cash flows expected to result from the use of the asset and its disposition must be estimated. If the undiscounted value of future cash flows is less than the carrying amount of the asset, an impairment charge should be recorded. At June 30, 2002, the Company concluded that the estimated undiscounted cash flows associated with certain of its long-lived assets, including acquired customer base and property and equipment, may not be sufficient to recover the net book value of such assets. In accordance with SFAS No. 144, during 2002, the Company recorded charges of approximately $0.8 million and $2.4 million related to the impairment of acquired customer base and property and equipment, respectively. A $10.9 million impairment charge was taken in fiscal 2001 as a result of an analysis of the Company's acquired customer base at June 30, 2001. The impairment charges were recorded to reduce long-lived assets to estimated fair value. Fair value was estimated based on the present value of the future cash flows expected to be derived from the underlying assets. The fair value estimates, as required by SFAS No. 144, did not consider the value of such assets in a forced sale or liquidation and were based primarily on an analysis of the related operations discounted net cash flows. Property and Equipment: Property and equipment are stated at cost. Depreciation and amortization is provided using the straight-line method over the estimated useful lives of the assets, commencing when assets are installed or placed in service. The estimated useful lives generally range between 3 and 10 years. Acquired Customer Base: Acquired customer base consists of the excess of the purchase price paid over the tangible net assets of acquired companies. The Company capitalizes specific costs incurred for the purchase of customer bases from other Internet Service Providers ("ISPs"). 29 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Amortization is recorded using the straight-line method over three years commencing when the customer base is acquired. Amortization expense was approximately $2.0 million and $9.9 million for the years ended June 30, 2002 and June 30, 2001, respectively. Advertising and Marketing Expenses: The Company expenses all advertising and marketing costs as incurred. Risks and Uncertainties: The Company's operations are subject to certain risks and uncertainties, including those associated with: a brief history operating in the Internet network business; losses from continuing operations; negative cash flows and fluctuations in operating results and in foreign currency exchange rates; political and economic risks associated with international operations; dependence on key personnel; dependence on suppliers for operation of the network; the need to enhance management information systems; increasing competition from competitors with lower cost structures, greater resources, or greater brand recognition; regulatory risks in the countries in which the Company operates; decreased growth in Internet usage; financing arrangement terms that may restrict operations; and pending litigation related to the continuing and discontinued operations. Reclassification: Certain amounts reported in prior years have been reclassified to conform to the current method of presentation. Stock-Based Compensation: The Company grants stock options generally for a fixed number of shares with an exercise price equal to or below the fair value of the shares at the date of grant. The Company accounts for stock option grants to employees in accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and, accordingly, recognizes compensation expense only if the market value on the date of the grant is above the exercise price of the options. Computation of Earnings or Loss per Common Share: The Company calculates earnings or loss per common share in accordance with SFAS No. 128, "Computation of Earnings Per Share." Accordingly, basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated based upon the sum of the weighted average number of shares outstanding and the weighted average number of potentially dilutive securities consisting of stock options and common shares issuable upon the conversion of preferred stock. Potentially dilutive securities have been excluded from the calculation of diluted loss per common share since their effect would have been anti-dilutive. Such securities include options, warrants, covertible preferred stock and shares issuable in the event the Tutopia put option is exercised. Approximately 43.6 million of such potentially dilutive securities were excluded from the fiscal 2002 earnings per share calculation. New Pronouncements: In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections". SFAS No. 145 rescinds SFAS No. 4, which required all gains and losses from the extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in APB Opinion No. 30 will now be used to classify those gains and losses. APB Opinion No. 30 requires disclosures about material gains and losses associated with debt extinguishments that are unusual or infrequent in nature. Thus, applying the provisions of APB Opinion No. 30 would distinguish transactions that are part of an entity's recurring operations from those that are unusual or infrequent or that meet the criteria for classification as extraordinary items. The Company adopted SFAS No. 145 effective July 1, 2001. As a result, the Company reclassified $4.3 million of gains from the early extinguishment of debt associated with capital lease agreements, which had been recorded as an extraordinary item in the Company's March 31, 2002 report on Form 10-Q, to "Other income (expense)". The Company does not expect that adoption of SFAS No. 145 will have a material impact on its financial position or results of operations other than as discussed herein. 30 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" and APB No. 30, "Reporting the Results of Operations - Reporting the Effects of the Disposal of a Segment Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144 establishes a single accounting model for assets to be disposed of by sale whether previously held and used or newly acquired. SFAS No. 144 retains the provisions of APB No. 30 for presentation of discontinued operations in the statement of operations, but broadens the presentation to include a component of an entity. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and interim periods within. As permitted, the Company decided to early adopt SFAS No. 144, effective July 1, 2001, the beginning of the Company's fiscal year. SFAS No. 144 requires that if an entity decides to adopt the Statement prior to the effective date and during an interim period other than the first interim period of a fiscal year, all prior periods of that fiscal year shall be restated. Early adoption of SFAS No. 144 did not have a material impact on the Company's operations for the year ended June 30, 2002 and, as a result, did not require the restatement of any amounts previously reported. In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations completed after June 30, 2001. SFAS No. 141 also specifies that intangible assets acquired in a purchase method business combination must meet certain criteria to be recognized and reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121. The Company adopted the provisions of SFAS No. 141 and SFAS No. 142 effective July 1, 2001. The adoption of these pronouncements did not have an impact on the Company's financial condition or results of operations. At the July 2001 Emerging Issues Task Force meeting, the Securities and Exchange Commission staff announced that, among other things, preferred securities that are redeemable upon the occurrence of an event outside the control of the issuer, such as a change in control, are required to be classified outside of equity (EITF D-98 Classification and Measurement of Redeemable Securities). Cost of Computer Software: Effective July 1, 1999, the Company adopted Statement of Position ("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 be capitalized, including the costs of coding, software configuration, upgrades and enhancements. For the years ended June 30, 2001 and 2000, the Company capitalized $1.5 million and $2.1 million, respectively, of internal use software. No such costs were capitalized during fiscal 2002. Investments: The Company uses the equity method to account for its less than 50% interest in Tutopia. Under the equity method, the Company's proportionate share of Tutopia's net losses is included in the Company's consolidated statements of operations. The Company periodically evaluates its investment in Tutopia for indications of impairment such as, recent security sales, deterioration of financial condition, near-term prospects for financial improvement, and other relevant factors. As a result of such analysis, the Company reduced the carrying value of its investment in Tutopia by approximately $1.7 million during the fourth quarter of fiscal 2002. Management estimated the amount of the impairment by comparing a recent sale of Tutopia preferred stock with that of the carrying value of its investment in Tutopia. Tutopia is controlled by UBS, which also has a controlling interest in IFX. 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 reported 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. 31 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note 3 Discontinued Operations Income from discontinued operations primarily consists of amounts received under earn-out agreements that were based on the financial performance of entities divested prior to July 1, 2000. The final payment due under such agreements was received in December 2001 and, accordingly, the Company does not expect to receive any additional significant earnings from its discontinued operations. The following table summarizes financial information related to the Company's discontinued operations:
Fiscal year ended June 30, ---------------------------------------- 2002 2001 2000 ----------- ----------- ----------- Income from discontinued operations before income taxes $ 2,225,300 $ 4,359,300 $ 3,026,100 Income tax provision (778,900) (1,525,800) (1,059,100) ----------- ----------- ----------- Income from discontinued operations, net of income taxes $ 1,446,400 $ 2,833,500 $ 1,967,000 =========== =========== ===========
The information set forth in the remaining notes to consolidated financial statements relates to continuing operations unless otherwise specified. Note 4 Acquisitions The Company completed no material acquisitions during fiscal 2002 or fiscal 2001. A majority of the Company's acquisitions were structured such that the Company paid an agreed-upon percentage of the purchase price at closing with the remainder of the purchase price paid 60 to 360 days after closing. During fiscal 2001, the Company settled various liabilities related to acquisition earn-out payments that were completed prior thereto. The liabilities were satisfied through the issuance of 733,666 shares of common stock with a fair market value of $4.3 million and cash of $0.7 million, all of which was allocated to acquired customer base. Note 5 Property and Equipment Property and equipment consists of the following:
June 30, ----------------------------- 2002 2001 -------------- ------------- Network and other equipment under capital lease agreements $ 6,410,400 $ 19,062,500 Computer and network equipment 8,245,200 7,647,800 Software 2,288,400 3,638,900 Furniture and fixtures 1,059,400 1,445,900 Leasehold improvements 1,048,200 1,172,500 Other 909,400 1,701,900 ------------- ------------- 19,961,000 34,669,500 Less: accumulated depreciation and amortization (10,565,000) (10,385,000) ------------- ------------- Property and equipment, net $ 9,396,000 $ 24,284,500 ============= =============
The decrease in property and equipment, net, from June 30, 2001 to June 30, 2002 is primarily attributable to the elimination of the carrying value of assets subject to capitalized leases (arising from early payoff of the associated obligations) and the sale of one of the Company's subsidiaries. Accumulated amortization of assets under capital lease agreements was approximately $3.6 million at June 30, 2002. Amortization expense related to capital leases is included as part of depreciation and amortization in the consolidated statement of operations. An impairment charge of $2.4 million against property and equipment was recorded as of June 30, 2002 in accordance with the Company's policy regarding the impairment of long-lived assets described in Note 2 to the consolidated financial statements. 32 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note 6 Accrued Expenses Accrued expenses consist of the following: June 30, --------------------------- 2002 2001 ------------ ------------ Salaries and employee benefits $ 987,300 $ 1,078,800 Legal and professional fees 509,300 1,271,800 Telecommunications services 415,800 2,192,500 Foreign and local taxes 9,500 146,400 All other 983,700 567,700 ------------ ------------ Total $ 2,905,600 $ 5,257,200 ============ ============ Note 7 Commitments Operating and Capital Leases The Company maintains facilities and offices at various locations throughout the United States and Latin America for general corporate purposes, including technology centers, customer call centers, office space and headquarters. Rent expense amounted to $2.1 million, $1.5 million and $2.0 million in fiscal 2002, 2001 and 2000, respectively. At June 30, 2002, the Company had capital lease obligations of approximately $2.3 million. The capital leases were entered into primarily to finance equipment and software for the Company's network. Future minimum payments under capital and operating leases with initial terms of one year or more consisted of the following at June 30, 2002:
Operating Lease Capital Lease Total Fiscal Year Obligations Obligations Obligations - --------------------------------------------- ---------------- -------------- ------------- 2003 $ 5,027,600 $ 2,023,400 $ 7,051,000 2004 4,206,200 512,800 4,719,000 2005 1,960,700 131,100 2,091,800 2006 224,800 - 224,800 - --------------------------------------------- ----------------- -------------- ------------- Total lease obligations $ 11,419,300 $ 2,667,300 $ 14,086,600 ================= ============= Amount representing interest (369,100) -------------- Present value of net minimum lease payments $ 2,298,200 ==============
During fiscal 2002, the Company entered into various agreements to lease network capacity infrastructure between Miami, Florida and several cities in South America through separate indefeasible rights of use ("IRU") for each STM-1 circuit, with payments due over 36 months. The agreements state that the lessor will provide the Company with portability of the STM-1s to the extent that there is capacity on the lessor's network. At its option, the Company has the right to terminate such agreements prior to expiration, subject to certain predefined penalties. Future minimum payments under these agreements as of June 30, 2002 (net of amounts related to certain waived periods) are treated as operating lease obligations, which total approximately $5.5 million. The 36-month leases will convert into 15-year IRUs on the payment of the purchase option amount at the end of the lease. The STM-1s are being amortized on a straight-line basis over an estimated useful life of 10 years. Subsequent to June 30, 2002, the Company entered into a lease agreement for additional network capacity for a total of approximately $4.1 million, with payments also due over 36 months. 33 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Employment agreements The Company has employment agreements with several of its officers. The agreements generally require continuation of salary and provide other benefits subsequent to termination under certain conditions or change of control of the Company. Note 8 Lease Obligations and Early Extinguishment of Debt During fiscal 2002, the Company and one of its lessors agreed to the extinguishment of approximately $8.7 million in capital lease obligations in exchange for the Company's payment to the lessor of approximately $2 million and 500,000 warrants to purchase shares of the Company's common stock at $1.00 per share, subject to an anti-dilution adjustment. These warrants are immediately exercisable and expire 10 years from date of grant. As a result of this transaction, the Company recorded a $4.3 million gain resulting from the early extinguishment of debt, which is included in other income in the accompanying consolidated statement of operations. The gain was computed as the net $8.7 million reduction of lease obligations, less the estimated fair value of the warrants granted to the lessor, the cash paid and an adjustment to the carrying value of the related assets. The fair value of the warrants was estimated using the Black-Scholes option valuation model. Note 9 Litigation Contingencies The Company may be threatened with legal proceedings arising from its regular business activities. On February 28, 2002, IFX do Brazil Ltda, ("IFX Brazil") filed a lawsuit against IBM Leasing Brazil ("ILB") in the 11th Civil Court, Sao Paulo, Brazil requesting the modification of IFX Brazil's equipment lease agreement with ILB. The basis for the complaint by IFX Brazil was that the leased equipment was delivered late by ILB. The complaint also stated that the denomination of the lease in U.S. dollars resulted in an excessive exchange rate variation in breach of the Brazilian consumption law. The object of this suit was to obtain reduction of the contract value from approximately $568,600 to approximately $189,500 for the return of unused equipment and compensation for installments already paid. On August 18, 2002, the court denied IFX Brazil's claim and ordered IFX Brazil to pay attorney's fees of approximately $21,700. IFX Brazil appealed the verdict on September 3, 2002 and ILB responded to such appeal on September 30, 2002. No verdict on the appeal has been reached. On September 24, 2002, IFX Brazil was granted an injunction to prevent ILB from registering a complaint in Brazil that IFX Brazil was in default on the lease until there is a final decision on the appeal. Such injunction is subject to ILB response, which is expected by October 31, 2002. On June 3, 2002, ILB demanded payment of $939,200 from IFX under the Continuing Contract of Parent Guaranty of Payment dated September 29, 2000 between IFX and ILB. IFX has not responded to this demand pending resolution of the lawsuit in Brazil. There can be no assurances as to the outcome of this litigation. Based on the advice of legal counsel, the Company has recorded certain accruals to provide for this contingency. In addition, 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. Note 10 Stockholders' Equity Common Stock At June 30, 2002, approximately 4,631,790 shares of the Company's common stock were reserved for issuance upon exercise of stock options. In addition, 500,000 warrants were granted in fiscal 2002 and 210,000 warrants were granted in fiscal 1999, all of which remain outstanding at June 30, 2002. During fiscal 2001, IFX issued 6,000, 733,666 and 241,646 shares of common stock to settle contract termination costs, acquisition-related liabilities and stock grants associated with compensation arrangements, respectively. Preferred Stock The Company is authorized to issue shares of preferred stock in series with such preferences and designations as the Company's Board of Directors may determine. The Board can, without shareholder approval, issue preferred stock with voting, dividend, liquidation, and conversion rights. The issuance of preferred stock may 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. Pursuant to the provisions of FASB's Emerging Issues Task Force No. D-98, "Classification and Measurement of Redeemable Securities," the Company had determined that as of December 31, 2001, its preferred stock could be considered redeemable under certain circumstances that were beyond its control. This resulted in the reporting of the Company's preferred stock outside of stockholders' equity as of December 31, 2001 and March 31, 2002. However, subsequent to March 31, 2002, the Company received a waiver of certain terms of the Company's Certificates of Designation from the preferred shareholders that resulted in the preferred stock being classified within stockholders' equity as of June 30, 2002. 34 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) As of June 30, 2002, the Company had the following equity instruments that were convertible into shares of IFX common stock. Such instruments and the common shares into which they are convertible are as follows:
Number of common shares the Shares/units outstanding shares/units are convertible into -------------------------- ----------------------------------- Series A Convertible Preferred 2,030,869 8,326,563 Series B Convertible Preferred 4,418,262 5,156,112 Series C Convertible Preferred 3,126,241 3,126,241 Series D Convertible Preferred 6,432,608 12,865,216 Warrants 710,000 710,000 Options 3,269,585 3,269,585 Tutopia Put Option 10,185,683 10,185,683 ----------------------------------- Total 43,639,400 ===================================
At June 30, 2002, the Company's Series A, Series B, Series C and Series D preferred stock had a liquidation preference of approximately $95 million (including 10% per annum liquidation preference return). Fiscal 2002 Transactions As reported on the Company's Report on Form 8-K dated February 19, 2002, and pursuant to the Stock Purchase Agreement ("Series C Purchase Agreement") dated as of October 11, 2001, UBS Capital Americas III, L.P. and UBS Capital LLC (collectively, "UBS"), invested $7.0 million of cash and surrendered 1.5 million shares of IFX's common stock in exchange for 3,876,241 shares of the IFX Series C preferred stock. Prior to the closing of the Series C preferred round, UBS had advanced IFX $5.5 million through February 18, 2002 in exchange for 10% convertible notes. Upon the closing of the Series C investment, the 10% convertible notes were automatically converted to Series C preferred shares. Each share of Series C preferred stock is convertible into one share of common stock. The Series C preferred stock carries a liquidation preference such that, upon a bankruptcy, liquidation, dissolution or unwinding of IFX, each holder of Series C preferred stock will be entitled to receive $3.00 per share plus 10% of such amount per annum from the date of issuance (the "Stated Preference") and will also participate with the holders of common stock after holders' of the Company's preferred stock receive their liquidation preference and accrued dividends, provided that the maximum amount that can be received with respect to the Series C preferred after taking into account the Participation Feature is limited to 3 1/2 times the Stated Preference. The Series C investment caused the conversion ratio of the approximately 2 million shares of Series A preferred stock held by UBS to be adjusted so that each share of Series A preferred stock is convertible into approximately 4.1 shares of common stock, rather than 3.52 shares of common stock as previously provided. This investment also caused the conversion ratio of the approximately 4.4 million shares of Series B preferred stock held by UBS to be adjusted so that each share of Series B preferred stock would be convertible into approximately 1.167 shares of common stock, rather than one share of common stock as originally provided. The change in conversion ratio of the Series B preferred stock does not result in a beneficial conversion feature since the conversion price remains greater than the market price of the Company's common stock on the date the Series B preferred stock was originally sold. No beneficial conversion feature was recognized on the Series A preferred stock since previous adjustments to the conversion ratio of the Series A preferred stock resulted in recognition of a beneficial conversion in a prior period which equaled the proceeds received from the original sale of the Series A preferred stock. The terms of both the Series A and B preferred stock were amended to add the same limited Participation Feature as in the Series C preferred stock. As part of this transaction, IFX provided a put right to UBS and the other Tutopia preferred and common shareholders providing them the ability to exchange their equity investment in Tutopia for like shares of IFX's preferred ("New Preferred Stock") or common stock at an exchange ratio of approximately 0.70 shares of IFX for each share of Tutopia within one year of closing (the "Put Option"), which date is February 18, 2003. In general, the New Preferred Stock will have the same terms as the Company's Series C preferred stock, except that the New Preferred Stock will not have a Participation Feature. As a result of the Put Option, holders of Tutopia's shares can exchange their shares for approximately 0.8 million shares of IFX Series D Preferred Stock and 8.5 million shares of a to-be issued class of IFX preferred stock. Such to-be issued IFX preferred shares will have substantially the same terms as the Company's Series C preferred stock, except that the to-be issued shares will not have the "participation" features contained in the Series C preferred stock. The Company computed the estimated value of the Put Option using the Black Scholes option valuation model and the following assumptions: risk-free interest rate 1.7%, dividend yield 0%, and an expected life of 1 year. The $1.6 million estimated fair value of the Put Option issued to Tutopia shareholders that are also IFX preferred shareholders was recorded as additional paid-in capital and resulted in a discount to the IFX Series C preferred stock. The Black Scholes valuation model requires the input of highly subjective assumptions, such as the expected stock price volatility, and the estimated fair value may not necessarily represent amounts that could be realized in a current transaction. The discount on the Series C preferred shares did not result in a beneficial conversion feature since the intrinsic conversion price of the Series C preferred shares remained greater than the market price of the 35 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Company's common stock on the date the Series C preferred shares were sold. The terms of the Put Option were later amended in connection with the Series D financing so that holders of Tutopia common shares could convert such shares into IFX preferred shares rather than IFX common shares as provided for in the original Put Option. Under the terms of the Certificates of Designation for the Company's Convertible Preferred Stock and the Third Amended and Restated Stockholders Agreement dated as of February 19, 2002, among IFX, UBS Capital, International Technology Investments, LC, ("ITI"), Joel Eidelstein (IFX's President), Michael Shalom (IFX's CEO) and Lee S. Casty ("Casty") (the "Third Stockholders Agreement"), IFX's Board of Directors was reduced to seven members from eight (George Myers resigned as a member of the Board of Directors) and UBS Capital is entitled to appoint four out of seven members of the Board of Directors. UBS also has the right to jointly designate a fifth director in conjunction with ITI and Casty. Casty and ITI each have the right to appoint one director. Prior to the issuance of the Series C Preferred Stock and the execution of the Third Stockholders Agreement, UBS had the right to appoint three members of an eight member Board of Directors and to jointly designate a fourth director in conjunction with ITI and Casty. After the issuance of the Series C Preferred Stock as reported in Form 8-K filed on October 22, 2001 and February 27, 2002, UBS capital owned approximately 57% of the voting shares of IFX (assuming conversion of all Company convertible preferred stock into common stock). Pursuant to the Stock Purchase Agreement dated as of February 19, 2002, UBS Capital, ITI, LSC, LLC ("LSC"), and Jak Bursztyn ("Bursztyn") (collectively with UBS Capital, the "Purchasers") agreed to invest a total of $5 million and surrender 750,000 shares of IFX Series C preferred stock and 684,000 shares of IFX Common Stock in exchange for 6,432,608 shares of IFX's Series D Convertible Preferred Stock ("Series D Preferred Stock"). LSC is an affiliate of Casty and ITI is an affiliate of Michael Shalom. Prior to the closing of the Series D preferred round, the Purchasers had advanced IFX $3.4 million in exchange for 10% convertible notes. Upon the closing of the Series D investment, the 10% notes were automatically converted to Series D preferred shares. Each share of Series D Preferred Stock is convertible into two shares of the Company's common stock. The Series D Preferred Stock carries a liquidation preference such that, upon a bankruptcy, liquidation, dissolution or winding up of the Company, each holder of Series D Preferred Stock will be entitled to receive a Stated Preference of $6.00 per share plus 10% of such amount per annum from the date of issuance and will also participate with the holders of common stock after the holder of the Company's preferred stock receive their liquidation preference and accrued dividends, provided that the maximum amount which can be received with respect to the Series D Preferred Stock after taking into account the Participation Feature is limited to 3-1/2 times the Stated Preference. This round closed on June 28, 2002, as reported on the Form 8-K filed on July 3, 2002. In this transaction, UBS Capital invested approximately $3.33 million in cash and surrendered 750,000 shares of Series C Preferred Stock in exchange for 4,652,778 shares of Series D Preferred Stock. Each of ITI and LSC invested approximately $0.8 million in cash and surrendered approximately 333,000 shares of Common Stock in exchange for 843,808 shares of Series D Preferred Stock. Bursztyn invested approximately $47,000 in cash and surrendered approximately 10,000 shares of Common Stock in exchange for 43,273 shares of Series D Preferred Stock. As part of the Series D transaction, the Company amended the Put Option so that for one year from February 18, 2002, the Purchasers are entitled to exchange their shares of Tutopia Series B Preferred Stock for up to approximately 830,000 shares of IFX Series D Preferred Stock. As a result thereof, UBS Capital is entitled to exchange the shares of Tutopia, which it currently owns for up to 5,610,000 shares of new preferred stock to be issued by the Company. Holders of Tutopia Series A Preferred Stock and certain other common stockholders of Tutopia are able to exchange their Tutopia shares for up to approximately 1,300,000 shares of new preferred stock. After the purchase of the Series D Preferred Stock, UBS owns approximately 63% of the voting shares of IFX (assuming conversion of all Company convertible preferred stock into common stock). Assuming conversion of all outstanding preferred shares and issued but unexercised warrants and options, IFX would have approximately 43.6 million shares of Common Stock outstanding at June 30, 2002. On June 27, 2002, IFX amended its Restated Certificate of Incorporation to increase the number of shares of common stock authorized from 60 million to 110 million and increase the number of shares of preferred stock authorized from 20 million to 40 million. 36 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Fiscal 2001 Transactions As reported on the Company's Reports on Forms 8-K dated March 16, 2001 and May 10, 2001, the Company received approximately $15.4 million in funding from UBS Capital Americas III, L.P. and UBS Capital LLC (collectively, the "Purchasers"), to be used for working capital purposes. Pursuant to the Stock Purchase Agreement dated as of March 16, 2001, by and among the Company and the Purchasers, as amended by Amendment No.1 to the Stock Purchase Agreement dated as of March 16, 2001, the Purchasers purchased 3,994,127 shares of IFX's Class I Series B Convertible Preferred Stock and 424,135 shares of IFX's Class II Series B Convertible Preferred Stock on May 7, 2001. All of the shares were sold at $3.50 per share. The Class I Series B Convertible Preferred Stock has full voting rights and each preferred share was initially convertible into one share of IFX's common stock. The Class II Series B Convertible Preferred Stock has the same rights as the Class I Series B Convertible Preferred Stock except that it may not vote for the Board of Directors. At the election of Purchasers, each share of the Class II Series B Convertible Preferred Stock is convertible after one year into one share of Class I Convertible Preferred Stock. Under the terms of the Series A Preferred Stock previously issued by IFX, the Series B investment caused the conversion ratio of the approximately 2 million shares of Series A Preferred Stock held by the Purchasers to be adjusted so that each share of Series A Preferred Stock would be convertible into approximately 3.52 shares of the Company's common stock, rather than one share of the Company's common stock as originally provided. The Series A conversion ratio adjustment resulted in a beneficial conversion feature of approximately $25 million. Such amount was recognized as a deemed dividend to the preferred shareholders in May 2001. IFX issued 2,030,869 shares of IFX Class I Series A Preferred Stock and IFX Class II Series A Preferred Stock to UBS Capital Americas III, L.P. and UBS Capital LLC in exchange for $25 million. Each share was initially exchangeable for one share of common stock, subject to adjustment if IFX issues shares of common stock (or certain common stock equivalents as discussed above) at less than $3.50 per share. Each share of preferred stock has a liquidation preference equal to the sum of: a) $12.31 per share and b) $1.231 for each year that the preferred share is outstanding. The liquidation preference is payable 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 if and when declared by the Company's Board of Directors. 37 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Investment in Tutopia.com, Inc. At June 30, 2002, the Company reduced the carrying value of its investment in the Series A preferred shares of Tutopia by approximately $1.7 million to $0.4 million to reflect its estimated fair value. At that date, the Company owned approximately 48% of Tutopia. Upon closing of the sale of the IFX Series B Preferred Stock to the Purchasers in May 2001, the Purchasers and IFX invested approximately $1.8 million and $3.2 million, respectively, in Series A Convertible Preferred Stock of Tutopia. After the investment, the Company's voting interest in Tutopia remained at less than 50% of Tutopia's outstanding shares. In fiscal 2001, UBS Capital Americas and certain other shareholders of the Company invested a total of $20 million in Tutopia in exchange for Series A Preferred Stock of Tutopia. Immediately following these investments, assuming the exchange of all of the Series A Preferred Stock for Tutopia common stock, IFX indirectly owned approximately 48% of the outstanding stock of Tutopia. Also, the majority of the owners of the Series A Convertible Preferred Stock received the right to appoint a majority of the directors of Tutopia. Note 11 Stock-Based Compensation Plans Directors Stock Option Plan In November 1999, the Company's shareholders approved the IFX Corporation Directors Stock Option Plan (the "Directors Plan"). In general, the Directors Plan provides that each non-employee eligible director automatically will receive an option to purchase (i) 450 shares of Common Stock upon such director's initial election to the Board of Directors of the Company, provided such director is elected after the effective date of the Directors Plan, and (ii) for each year thereafter and on the date of each annual meeting of the stockholders of the Company, 450 shares of Common Stock for service as a director and 75 shares of Common Stock for each Committee of the Board of Directors upon which such director serves. Employee Stock Option Plan In November 1999, the Company approved an amendment to the IFX Corporation 1998 Stock Option and Incentive Plan (the "Option Plan") to increase the number of shares of common stock available for issuance under the Option Plan from 900,000 to 1,800,000. In June 2000, the Company's shareholders voted to increase the size of the Option Plan by an additional 600,000 shares and an additional 600,000 shares were reserved for issuance pursuant to the 1998 Stock Option Plan. Generally, options vest over three years, with one-third vesting after the first year, and the balance vesting ratably on a quarterly basis over the remaining two years. In connection with the granting of stock options to employees in fiscal 2000, the Company recorded deferred compensation of approximately $17.2 million. Deferred compensation is being amortized for financial reporting purposes over the vesting period of the options. The amount recognized as expense during fiscal 2002, 2001 and 2000 amounted to approximately $4.1 million, $4.9 million and $5.2 million, respectively. No options were granted in 2001 for which compensation expense was recorded. No options were granted in fiscal 2002. In connection with the sale of the Series B Preferred Stock in May 2001, the Company: (i) amended the Option Plan to, among other things, increase the number of shares of common stock available for issuance under the Option Plan to 4,631,790 shares of common stock and (ii) adopted the IFX Corporation 2001 Stock Option Plan (the "2001 Plan"). Options under the 2001 Plan are exercisable for 10 years after the date of grant and rest on June 30, 2006, subject to acceleration under certain circumstances. The following table summarizes the Company's stock option activity: 38 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Weighted Average Shares Exercise Price ---------- ---------------- Outstanding at June 30, 1999 442,500 $ 5.97 Granted 1,896,167 12.54 Cancelled (34,750) 18.21 Exercised (9,033) 9.71 ---------- Outstanding at June 30, 2000 2,294,884 10.05 Granted 826,450 4.68 Cancelled (165,518) 17.98 ---------- Outstanding at June 30, 2001 2,955,816 9.28 Cancelled (396,231) 11.61 ---------- Outstanding at June 30, 2002 2,559,585 8.92 ========== The following table summarizes information concerning outstanding options at June 30, 2002:
Weighted Average Weighted Remaining Exercise Price Number of Average Contractual Life Shares Weighted Average Range Shares Exercise Price (in years) Exercisable Exercise Price - ------------------------------------------------------------------------------------------------------ $ 3.00 to 5.00 841,950 $ 3.32 8.0 225,333 $ 3.00 5.01 to 10.00 1,078,134 8.75 7.8 94,141 7.85 10.01 to 15.00 346,166 14.00 7.1 98,000 13.16 15.01 to 20.00 273,335 19.13 7.4 52,500 18.58 20.01 to 30.00 20,000 26.25 7.2 20,000 26.25 ---------- --------- 2,559,585 $ 8.92 7.7 489,974 $ 8.58 ========== =========
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 estimated 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: Fiscal year ended June 30, ------------------------------------- 2002 2001 2000 ------------------------------------- Risk-Free Interest Rate __ 5.65% 6.00% Expected Dividend Yield __ 0.00% 0.00% Expected Lives __ 5.0 years 5.0 years Expected Volatility __ 1.01 0.96 The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The per share weighted average fair value of options granted during fiscal 2001 and 2000 was $9.28 and $10.05, respectively. No options were granted during fiscal 2002. 39 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company's pro forma information is as follows:
Fiscal year ended June 30, ------------------------------------------------------ 2002 2001 2000 ------------------------------------------------------ Net loss As reported $ (24,597,100) $ (58,355,200) $ (45,877,000) Pro forma $ (28,929,700) $ (68,950,700) $ (55,119,000) Basic and diluted loss As reported $ (1.79) $ (4.24) $ (4.52) per share Pro forma $ (2.11) $ (5.00) $ (5.43)
Note 12 Segment Reporting The Company is structured primarily around the geographic markets it serves and operates reportable segments in Argentina, Brazil, Chile, Colombia, Mexico, Venezuela, Central America and United States and all other. All of the segments provide Internet related services. Selected financial information for the years ended June 30, 2002, 2001 and 2000 by segment is presented below (in thousands):
Central United States Argentina Brazil Chile Colombia Mexico Venezuela America and all other Total --------- -------- --------- -------- -------- --------- --------- ------------- ----------- 2002 Total revenues $ 4,356 $ 6,546 $ 3,936 $ 3,207 $ 2,515 $ 2,358 $ 2,912 $ 2,321 $ 28,151 ========= ======== ========= ======== ======== ======== ======== ======== ======== Income (loss) from continuing operations before income taxes $ 160 $ (5,131) $ 362 $ 15 $ (1,838) $ (1,649) $ (1,516) $(17,225) $(26,822) ========= ======== ========= ======== ======== ======== ======== ======== ======== Total assets $ 846 $ 6,477 $ 1,328 $ 1,711 $ 1,230 $ 979 $ 1,070 $ 4,294 $ 17,935 ========= ======== ========= ======== ======== ======== ======== ======== ======== 2001 Total revenues $ 3,767 $ 5,725 $ 3,843 $ 1,945 $ 3,999 $ 2,730 $ 2,170 $ 7,943 $ 32,122 ========= ======== ========= ======== ======== ======== ======== ======== ======== Loss from continuing operations before income taxes $ (1,910) $(11,365) $ (2,806) $ (1,301) $ (4,692) $ (1,703) $ (3,236) $(35,702) $(62,715) ========= ======== ========= ======== ======== ======== ======== ======== ======== Total assets* $ 2,615 $ 7,145 $ 1,823 $ 1,554 $ 3,892 $ 2,111 $ 1,498 $ 27,886 $ 48,524 ========= ======== ========= ======== ======== ======== ======== ======== ======== 2000 Total revenues $ 70 $ 3,767 $ 1,974 $ 120 $ 1,462 $ 1,633 $ 551 $ 1,112 $ 10,689 ========= ======== ========= ======== ======== ======== ======== ======== ======== Loss from continuing operations before income taxes $ (3,227) $ (4,814) $ (1,965) $ (1,128) $ (2,805) $ (574) $ (1,290) $(34,812) $(50,615) ========= ======== ========= ======== ======== ======== ======== ======== ======== Total assets* $ 988 $ 10,178 $ 5,695 $ 884 $ 6,830 $ 2,711 $ 2,961 $ 31,050 $ 61,297 ========= ======== ========= ======== ======== ======== ======== ======== ========
* Allocation of total assets between the reportable segments as of June 30, 2001 and 2000 has been reclassified to conform to the presentation as of June 30, 2002. Total revenues include sales to Tutopia of approximately $7.2 million and $13.8 million for fiscal 2002 and 2001, respectively. Sales to Tutopia represented approximately 25.6% and 43.1% of IFX's total revenues for the fiscal years ended June 30, 2002 and 2001, respectively. A portion of the increase in revenues generated by the segments in Argentina, Chile and Colombia from fiscal 2001 to fiscal 2002 is attributable to the Company's revenue sharing arrangements. Subsequent to June 30, 2002, the Company decided to sell or otherwise dispose of the operations that comprise its Central American reportable segment. The Company is in the process of selling its operations in three of the four countries - i.e., El Salvador, Honduras and Nicaragua. While no assurances can be made regarding consummation of the proposed transaction, the Company does expect to complete the sale during the quarter ended December 31, 40 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 2002. For the year ended June 30, 2002, the revenues and loss from continuing operations before income taxes of the three operations to be sold were $1.8 million and $0.7 million, respectively. At June 30, 2002, the total assets of these operations were $0.7 million. Note 13 Foreign Taxes Recoverable In general, IFX's foreign subsidiaries pay a Foreign Value Added Tax ("VAT") on their purchases. At June 30, 2002, the Company had approximately $1.2 million of foreign taxes recoverable that it expects to realize in the future as revenues increase. Note 14 Income Taxes The Company accounts for income taxes under SFAS No. 109, "Accounting for Income Taxes". 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 income tax benefit relating to each of the years ended June 30, 2002, 2001 and 2000 is as follows:
Fiscal year ended June 30, ---------------------------------------------- 2002 2001 2000 -------------- -------------- -------------- Current $ 778,900 $ 1,525,800 $ 2,771,400 Deferred - - - -------------- -------------- -------------- Total Income Tax Benefit $ 778,900 $ 1,525,800 $ 2,771,400 ============== ============== ==============
The income tax benefit reflected is primarily due to the utilization of net operating losses income tax ("NOL's") against income from discontinued operations. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's net deferred income taxes are as follows:
At June 30, ----------------------------------- 2002 2001 ----------------- ---------------- DEFERRED TAX ASSETS: Bad debt provision $ - $ 684,600 Depreciation 2,349,400 73,700 Accruals 7,800 98,400 Amortization expense 3,837,500 4,357,300 Gain on investment - 2,639,900 Impairment of acquired customer base 4,408,300 3,614,400 Deferred compensation 4,946,600 - Tax credits 761,400 761,400 NOL carry-forward 25,583,000 19,298,200 Property and equipment impairment 915,900 - Tutopia investment 629,200 - -------------- ---------------- Deferred tax assets 43,439,100 31,527,900 Less: valuation allowance (43,422,700) (31,325,900) -------------- ---------------- Total deferred tax assets 16,400 202,000 -------------- ---------------- Deferred tax liabilities: Other liabilities (15,000) (202,000) Bad debt provision (1,400) - -------------- ---------------- Total deferred tax liabilities (16,400) (202,000) -------------- ---------------- Total net deferred taxes $ - $ - ============== ================
41 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) SFAS No. 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, management has determined that a $43.4 million valuation allowance as of June 30, 2002 is necessary to reduce the net deferred tax asset to an amount that will more likely than not be realized. The increase in the valuation allowance for the current year is $12.1 million. At June 30, 2002, the Company has available net operating loss carryforwards as follows: Losses expiring in fiscal 2003-2005 ----------------------------------- El Salvador $ (548,400) Guatemala (1,142,600) Costa Rica (484,600) Honduras (991,800) Uruguay (651,900) Venezuela (3,534,900) Losses expiring in fiscal 2004-2007 ----------------------------------- Nicaragua $ (462,800) Argentina (691,600) Colombia (2,260,900) Panama (997,200) Losses expiring after 2011 -------------------------- Mexico $ (6,298,100) United States (67,985,700) Losses with indefinite life: ---------------------------- Bolivia $ (1,852,400) Brazil (11,779,900) Chile (2,320,000) The United States and foreign components of loss from continuing operations before income taxes are as follows:
Fiscal year ended June 30, ----------------------------------------------------------- 2002 2001 2000 ------------------ ------------------ ------------------ United States $ (18,381,000) $ (43,970,000) $ (24,775,900) Foreign (8,441,400) (18,744,500) (25,839,500) ------------------ ------------------ ------------------- Total $ (26,822,400) $ (62,714,500) $ (50,615,400) ================== ================== ===================
Reconciliation of the total provision for income taxes to the Federal statutory rate is as follows:
Fiscal year ended June 30, -------------------------------------------------- 2002 2001 2000 ---------------- --------------- ------------- Tax at U.S. statutory rate (34.0) % (34.0) % (34.0) % State taxes, net of federal benefit (4.0) (3.0) (2.0) Stock option expense (14.0) 3.0 3.0 Warrant expense - - 1.0 Other (1.0) 1.0 -- Change in valuation allowance 50.0 30.0 27.0 ---------------- --------------- ------------- (3.0) % (3.0) % (5.0) % ================ =============== =============
42 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note 15 Related Party Transactions The Company believes that all transactions disclosed below and in other notes have been, and the Company's Board of Directors intends that any future transactions with its officers, directors, affiliates or principal stockholders will be, on terms that are no less favorable to the Company than those that are obtainable in arm's length transactions with unaffiliated third parties. UBS Capital Americas: On an as converted basis at June 30, 2002, UBS Capital owned approximately 63% of the Company and approximately 37% of the Company's investee, Tutopia. During fiscal 2002, 2001 and 2000 UBS Capital made significant investments in both the Company and Tutopia as more fully discussed in Note 10. Sales to Tutopia accounted for 25.6% and 43.1% of the Company's total sales for fiscal 2002 and 2001, respectively. Tutopia was a consolidated subsidiary of the Company during fiscal 2000 (see Note 16) and was deconsolidated from the operations of the Company in September 2000. Tutopia had revenues of approximately $8.5 million in fiscal 2002, $2.1 million in fiscal 2001 and nominal revenues in fiscal 2000. To date, Tutopia has been dependent in part upon funding from UBS and the Company to pay for the services provided by IFX. Should UBS or the Company be unwilling or unable to make additional investments, or should Tutopia be unable to pay the Company through its operations, the financial condition and operating results of the Company would be seriously impacted. Mr. Capone and Mr. Duarte are partners and Mr. Lama is a principal of UBS Capital Americas, LLC, an affiliate of UBS Capital Americas III, L.P. and UBS Capital LLC, which together have made significant investments in both IFX and Tutopia in the period June 2000 to June 2002. Mr. Capone, Mr. Duarte 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. UBS Capital Investment in IFX: As reported on the Company's Reports on Forms 8-K dated March 16, 2001 and May 10, 2001, the Company received approximately $15.4 million in funding from UBS Capital Americas III, L.P. and UBS Capital LLC (collectively, the "Purchasers"), to be used for working capital purposes. Pursuant to the Stock Purchase Agreement dated as of March 13, 2001, by and among the Company and the Purchasers, as amended by Amendment No. 1 to the Stock Purchase Agreement dated as of May 7, 2001, the Purchasers purchased 3,994,127 shares of IFX's Class I Series B Convertible Preferred Stock and 424,135 shares of IFX's Class II Series B Convertible Preferred Stock on May 7, 2001. All of the shares were purchased at $3.50 per share. The Class I Series B Convertible Preferred Stock has full voting rights and each preferred share is convertible into one share of the IFX's common stock. The Class II Series B Convertible Preferred Stock has the same rights as the Class I Series B Convertible Preferred Stock except that it may not vote for the Board of Directors. At the election of Purchasers, each share of the Class II Series B Convertible Preferred Stock is convertible after one year into one share of Class I Convertible Preferred Stock. Under the terms of the Series A Preferred Stock previously issued by IFX, this investment caused the conversion ratio of the approximately 2 million shares of Series A Preferred Stock held by the Purchasers to be adjusted so that each share of Series A Preferred Stock will be convertible into approximately 3.52 shares of the IFX's common stock, rather than one share of the IFX's common stock as originally provided. The Series B conversion ratio adjustment resulted in a beneficial conversion feature of approximately $25 million. Such amount was recognized as a dividend to preferred shareholders in May 2001. As discussed in Forms 8-K filed on October 22, 2001 and February 27, 2002, pursuant to a Stock Purchase Agreement dated as of October 11, 2001, UBS Capital Americas III, L.P. and UBS Capital LLC (referred to herein collectively as "UBS") agreed to invest an additional $7 million of cash and surrender 1.5 million shares of IFX's common stock currently held by UBS in exchange for approximately 3.8 million shares of IFX Series C preferred stock. Each share of Series C preferred stock will initially be convertible into one share of common stock. The Series C preferred stock carries a liquidation preference such that, upon a bankruptcy, liquidation, dissolution or unwinding of IFX, each holder of Series C preferred stock will be entitled to receive $3.00 per share plus 10% of such amount per annum from the date of issuance (the "Stated Preference") and will also participate with the holders of common stock after UBS receives their liquidation preference and accrued dividends, provided that the maximum amount which can be received with respect to the Series C preferred stock after taking into account the Participation Feature is limited to 3-1/2 times the Stated Preference. Prior to the closing of the Series C preferred round, UBS advanced funds to the Company in exchange for 10 percent convertible notes which were automatically converted to Series C preferred shares on closing. This 43 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) investment caused the conversion ratio of the approximately 2 million shares of Series A preferred stock held by UBS to be adjusted so that each share of Series A preferred stock is convertible into approximately 4.1 shares of common stock, rather than 3.52 shares of common stock as currently provided. This investment also caused the conversion ratio of the approximately 4.4 million shares of Series B preferred stock held by UBS to be adjusted so that each share of Series B preferred stock is convertible into approximately 1.167 shares of common stock, rather than one share of common stock as originally provided. The change in conversion ratio did not result in a beneficial conversion feature since the conversion price remained greater than the market price of the Company's common stock on the date the Series B preferred stock was originally sold. No beneficial conversion feature will be recognized on the Series A preferred stock since previous adjustments to the conversion ratio of the Series A preferred stock resulted in recognition of a beneficial conversion in a prior period which equaled the proceeds received from the original sale of the Series A preferred stock. The terms of both the Series A and B preferred stock were amended to add the same limited participation feature as in the Series C preferred stock. As part of this transaction, IFX also provided to UBS and the other Tutopia preferred and common shareholders the ability to exchange their equity investment in Tutopia (in which IFX holds a minority investment) for additional shares of IFX's preferred and common stock at a price of $3.00 per share within one year of closing. After the purchase of the Series C preferred stock, UBS owned approximately 57% of the common shares of IFX (assuming conversion of all the Company's convertible preferred stock into common stock) and therefore UBS is entitled to appoint a majority of the Company's Board of Directors. After the close of this investment, IFX would have had approximately 30 million shares of Common Stock outstanding if all of the Company's outstanding convertible preferred stock were converted into common stock. On June 28, 2002, pursuant to a Stock Purchase Agreement dated as of February 19, 2002, UBS, International Technology Investments LC ("ITI"), LSC, LLC ("LSC"), and Jak Bursztyn ("Bursztyn") (collectively, the "Purchasers") agreed to invest a total of $5 million and surrender shares of IFX's preferred stock and common stock in exchange for 6,432,608 shares of IFX's Series D Convertible Preferred Stock ("Series D Preferred Stock"). ITI is an affiliate of Michael Shalom and LSC is an affiliate of Lee Casty. Each share of Series D Preferred Stock is convertible into two shares of IFX's common stock. The Series D Preferred Stock carries a liquidation preference such that, upon a bankruptcy, liquidation, dissolution or winding up of IFX, each holder of Series D Preferred Stock will be entitled to receive a Stated Preference of $6.00 per share plus 10% of such amount per annum from the date of issuance and will also participate with the holders of common stock after the Purchasers receive their liquidation preference and accrued dividends, provided that the maximum amount which can be received with respect to the Series D Preferred Stock after taking into account the Participation Feature is limited to 3-1/2 times the Stated Preference. In this transaction, UBS invested approximately $3.33 million in cash and surrendered 750,000 shares of Series C Preferred Stock in exchange for 4,652,778 shares of Series D Preferred Stock. Each of ITI and LSC invested approximately $812,500 in cash and surrendered approximately 333,000 shares of common stock in exchange for 843,808 shares of Series D Preferred Stock. Bursztyn invested approximately $47,000 in cash and surrendered approximately 10,000 shares of common stock in exchange for approximately 43,273 shares of Series D Preferred Stock. IFX would now have approximately 41.5 million shares of common stock outstanding assuming all of IFX's convertible preferred stock were converted into common stock. On June 27, 2002, IFX amended its Restated Certificate of Incorporation to increase the number of shares of common stock authorized from 60 million to 110 million and increase the number of shares of preferred stock authorized from 20 million to 40 million. Investment in Yupi Internet, Inc.("Yupi"): Pursuant to an Amended and Restated Stock Purchase Agreement, dated June 2000 between IFX Online, a subsidiary of the Company, and Lee Casty, a significant stockholder of IFX, IFX Online sold a part of its shares of Yupi Preferred Stock to Mr. Casty for a total purchase price of approximately $5.0 million. The proceeds were used for the Company's working capital. The aforementioned sale resulted in a gain of approximately $4.4 million, which was deferred for financial reporting purposes since the terms of the sale included certain provisions that potentially guaranteed Mr. Casty a minimum return on the Yupi shares under certain circumstances and thus prevented immediate recognition of the gain. In August 2001, Yupi entered into a merger agreement with T1msn Corp. that resulted in net proceeds to the Company of approximately $20,000 and negated the minimum return provisions of the original terms of the sale to Mr. Casty. Accordingly, during the first quarter of fiscal 2002, the Company recognized the deferred gain on the sale of the shares to Mr. Casty. 44 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Other: Index Futures Group, Inc. ("IFG"), a wholly-owned subsidiary of the Company, and LC Management, Inc., a corporation controlled by Lee S. Casty, a significant stockholder of IFX, have entered into an Amended and Restated Consulting Agreement dated as of July 1, 2002. Under the terms of the Consulting Agreement, Mr. Casty is available to provide consulting services regarding operational matters of IFX and its affiliates for a fee of $5,000 per month. Such consulting services include attendance once each quarter at a two-day meeting with IFX management in Miami, Florida. Mr. Casty is responsible for his own travel expenses. The Consulting Agreement may be terminated by either party on at least 30 days notice after June 1, 2003. The INTCOMEX Group ("INTCOMEX") is a group of companies which is a Latin American wholesale distributor of microcomputers, networking products, mass storage products, multimedia products, computer peripheral equipment and computer components. INTCOMEX is owned by family members of Michael Shalom, the Company's Chief Executive Officer and a director. Mr. Shalom was a principal of INTCOMEX until July 1999. During fiscal year 2002, IFX sold connectivity services for approximately $55,200 to INTCOMEX and purchased equipment from INTCOMEX at a cost of approximately $225,400. Joel Eidelstein, the President and a director of the Company, has received loans for personal expenses from the Company and Tutopia, pursuant to two promissory notes to the Company and two promissory notes to Tutopia. The promissory notes to the Company in the amount of $20,000 and $10,000 were made on August 4, 1999 and November 4, 1999, respectively. Interest in the amount of 5% per annum, compounds monthly, from the date of each note. Principal and interest on both notes was due on August 4, 2000. Any principal or interest not paid when due bears interest at the rate of 8% per annum. The promissory notes to Tutopia, each in the amount of $15,000, were made on January 22, 2001 and September 11, 2001. The January 22, 2001 note to Tutopia accrues interest at a rate of 5% per annum from the date of the note and any amount not paid when due bears interest at a rate of 10% per annum. Interest on the January 22, 2001 note was payable semi-annually beginning on July 22, 2001. All principal and interest was due on January 22, 2002. The September 11, 2001 note to Tutopia accrues interest at a rate of 5% per annum from the date of the note and any amount not paid when due bears interest at a rate of 15% per annum. All outstanding principal and interest was due on September 11, 2002. As of September 30, 2002, Mr. Eidelstein owed $37,100 in principal and interest to the Company and $32,800 in principal and interest to Tutopia, the largest amount outstanding on such loans since they were made. Note 16 Tutopia.Com, Inc. In September 2000, the Company's voting interest in its majority-owned subsidiary, Tutopia was reduced to less than 50%. As a result of this reduction, the Company deconsolidated Tutopia and began accounting for Tutopia under the equity method. For the fiscal year ended June 30, 2002, IFX derived approximately 25.6% of its revenue from Tutopia. At June 30, 2002, IFX has accounts receivable from Tutopia in the amount of approximately $0.3 million, net of $1.0 million of revenues which have been deferred. As of June 30, 2002, IFX had billed Tutopia $1.6 million for connectivity in Brazil. Prior to June 30, 2002, IFX fully reserved the amount billed to Tutopia, which was reflected as a reduction of the related deferred revenues. Tutopia ceased Brazilian operations during fiscal 2001. The operating results of Tutopia were as follows: Fiscal year ended June 30, ------------------------------------------- 2002 2001 2000 ------------------------------------------- (Unaudited) (Unaudited) (Unaudited) ------------- ------------- ------------- Revenues $ 8,450,900 $ 2,052,400 $ 58,300 Operating expenses 15,366,900 25,268,400 13,937,600 ------------- ------------- ------------- Operating loss $ (6,916,000) $(23,216,000) $(13,879,300) ============= ============= ============= Net loss $ (6,893,500) $(22,919,200) $(13,457,300) ============= ============= ============= During the first quarter of fiscal 2001, the Company's investment in Tutopia was reduced to $0 under the equity method of accounting. In May 2001, IFX invested an additional $3.1 million in Tutopia as a result of UBS investment in IFX. As a result of this investment, the Company expensed $0.9 million and $0.2 million of losses related to its proportionate share of Tutopia's losses during fiscal 2002 and 2001, respectively. The Company reduced the carrying value of its investment in the preferred stock of Tutopia by $1.7 million during 2002 as a result of Tutopia's continued losses. Selected financial information from Tutopia's balance sheet: June 30, ----------------------- 2002 2001 (Unaudited) (Unaudited) ----------- ----------- Current assets $ 965,600 $4,878,700 Non-current assets 1,097,400 1,460,100 Total assets $ 2,063,000 $6,338,800 =========== =========== Current liabilities $ 4,119,300 $1,329,100 Long-term liabilities 27,500 - Total liabilities 4,146,800 1,329,100 Stockholder's equity $(2,083,800) $5,009,700 =========== =========== 45 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note 17 Agreement with T1msn On March 15, 2002, IFX entered into a binding term sheet agreement to provide T1msn, Corp. ("T1msn") with Internet access services for its dial-up access service in Argentina and Chile, and potentially for other Latin American markets. T1msn is a joint venture between Microsoft Corp. and Telefonos de Mexico, S.A. de C.V. The access services include "free" Internet access in certain countries and fee-for use Internet access in other jurisdictions, as well as technical support for those services. As of September 2002, IFX was providing service for T1msn end users in Argentina, Chile, El Salvador, Guatemala, Panama and Venezuela. Under the agreement, IFX and T1msn will share time-on-line revenues attributable to the access service provided to T1msn's end users. Also, under the terms of the agreement, IFX has provided a service level agreement committing to maintain its network to specified standards. If not otherwise extended, the term sheet will expire on October 31, 2002, if the parties have not entered into definitive transaction documents by that date. It is anticipated that the definitive agreement will have a term of one year from the effective date of such agreement with elections for T1msn to renew for eight additional six-month periods. As part of its binding term sheet agreement with T1msn, IFX will grant to T1msn warrants potentially enabling T1msn to acquire up to 15% of the common stock of IFX (approximately 8.3 million warrants as of June 30, 2002, treating preferred shares on a "as converted" basis) if certain performance and contract renewal provisions are met by T1msn. Determination of the number of warrants would be made at the date of the definitive agreement. The definitive agreement may provide T1msn with additional cash bonus provisions instead of some or all of the warrants. Note 18 Quarterly Financial Data (Unaudited)
Quarter ended ---------------------------------------------------------------------------- Fiscal 2002 9/30/2001 12/31/2001 3/31/2002 6/30/2002 Total - ------------ ------------- ------------ ----------- ----------- ----------- Total revenues $ 7,029,800 $ 7,418,100 $ 7,031,400 $ 6,671,800 $ 28,151,100 Gross profit 3,106,200 3,429,900 3,336,000 2,720,900 12,593,000 Income from discontinued operations, net 199,600 1,207,700 10,000 29,100 1,446,400 Net loss (3,970,600) (7,403,600) (1,801,900) (11,421,000) (24,597,100) Deemed dividends to preferred shareholders - - - (4,035,300) (4,035,300) ------------- ------------ ----------- ------------ ------------ Net loss available to common stockholders $ (3,970,600) $ (7,403,600) $(1,801,900) $(15,456,300) $(28,632,400) ============= ============ =========== ============ ============ Per share - basic and diluted: Loss from continuing operations $ (0.29) $ (0.60) $ (0.14) $ (0.86) $ (1.89) Income from discontinued operations, net 0.02 0.08 - - 0.10 ------------- ------------ ----------- ------------ ------------ Net loss (0.27) (0.52) (0.14) (0.86) (1.79) Deemed dividends to preferred shareholders - - - (0.29) (0.29) ------------- ------------ ----------- ------------ ------------ Net loss available to common stockholders $ (0.27) $ (0.52) $ (0.14) $ (1.15) $ (2.08) ============= ============ =========== ============ ============
46 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Quarter ended --------------------------------------------------------------------------- Fiscal 2001 9/30/00 12/31/00 3/31/01 6/30/01 Total - ----------- ------------- ------------- ------------ ------------- ------------- Total revenues 7,490,500 $ 8,328,100 $ 8,787,800 7,515,400 $ 32,121,800 Gross profit 2,563,200 2,941,700 3,573,900 2,246,100 11,324,900 Income from discontinued operations, net 1,911,700 395,800 406,300 119,700 2,833,500 Net loss (11,308,700) (10,385,700) (9,388,300) (27,272,500) (58,355,200) Deemed dividends to preferred shareholders - - - (25,000,000) (25,000,000) ------------- ------------- ------------ ------------- ------------- Net loss available to common stockholders $ (11,308,700) $ (10,385,700) $ (9,388,300) $ (52,272,500) $ (83,355,200) ============= ============= ============ ============= ============= Per share - basic and diluted: Loss from continuing operations $ (0.99) $ (0.79) $ (0.70) $ (1.96) $ (4.44) Income from discontinued operations, net 0.14 0.03 0.03 - 0.20 ------------- ------------- ------------ ------------- ------------- Net loss (0.85) (0.76) (0.67) (1.96) (4.24) Deemed dividends to preferred shareholders - - - (1.81) (1.81) ------------- ------------- ------------ ------------- ------------ Net loss available to common stockholders $ (0.85) (0.76) $ (0.67) $ (3.77) $ (6.05) ============= ============= ============ ============= =============
As described in Note 2, the Company estimated that the undiscounted cash flows associated with property and equipment and acquired customer base may not have been sufficient to recover the net book value of such assets, resulting in the Company recording impairment charges of approximately $3.2 million and $10.9 million during the fourth quarter of fiscal 2002 and 2001, respectively. Note 10 includes a discussion of the deemed dividends on preferred stock of $4.0 million and $25.0 million reported in the fourth quarter of fiscal 2002 and 2001, respectively. In June 2001, IFX recognized a loss on its Yupi investment in the amount of approximately $2.5 million based on management's determination that the value of such investment had been impaired. During September 2000, the Company's voting interest in its majority-owned subsidiary Tutopia fell below 50%. As a result, the Company deconsolidated Tutopia and began accounting for its investment under the equity method. Accordingly, in fiscal 2001 the Company restated its fiscal 2000 consolidated financial statements as if Tutopia had been accounted for under the equity method since its inception in January 2000. Note 19 Subsequent Events Funding In September 2002, the Company received $1.1 million from ROF/IFX, LLC ("ROF") in exchange for a 10% promissory note due June 30, 2003, that is convertible into shares of either Series D or new preferred stock at the option of the note holder. As part of the transaction, ROF also was provided the right to exchange up to 400,000 shares of IFX common stock for shares of that class of Company preferred stock described in paragraph 3(a) of the Amended And Restated Put Agreement among the Company, UBS Capital Americas III, L.P. and UBS Capital LLC, with an exchange ratio of 6 shares of common stock for each share of newly issued preferred stock. NASDAQ Listing IFX's stock is traded on the NASDAQ SmallCap Market under the symbol "FUTR." On February 14, 2002, the NASDAQ Staff notified the Company that the bid price of its common stock had closed at less than $1.00 per share over the previous 30 consecutive trading days and, as a result, did not comply with Marketplace Rule 4310 (c)(4) (the "Price Rule"). In accordance with Marketplace Rule 4310 (c)(8)(D), the Company was provided 180 calendar days, or until August 13, 2002, to regain compliance with the Price Rule. On February 21, 2002, NASDAQ Staff notified the Company that it did not comply with Marketplace Rule 4310 (c)(2)(B) (the "Capital Rule"), which requires a minimum of $2.0 million in net tangible assets, $2.5 million in stockholders' equity, $35.0 million of market capitalization or $500,000 net income for the most recently completed fiscal year or two of the three of a company's most recently completed fiscal years. On May 9, 2002, the Company received a waiver of certain terms of the Company's Certificates of Designation from the preferred stockholders that resulted in the Company's preferred stock, which had been stated as outside of stockholders' equity, to be reclassified as part of stockholders' equity. On May 17, 2002, NASDAQ advised the Company that it was now in compliance with the Capital Rule. 47 IFX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) On August 14, 2002, the NASDAQ Staff advised the Company that while it had not regained compliance in accordance with Marketplace Rule 4310 (c) (8) (D), the staff noted that the Company did meet the initial listing requirements of $5.0 million of stockholders' equity (based on pro forma stockholders' equity as reported in the Company's Form 10-Q for the quarter ended March 31, 2002). Hence, the Company was provided with an additional 180 days, or until February 10, 2003, to regain compliance with the applicable requirements. If the shares of the Company's common stock were to be suspended or delisted from the NASDAQ system, it would be much more difficult to dispose of the common stock or obtain accurate quotations as to the price of the securities. This, in turn, could make it more difficult for the Company to issue securities pursuant to debt or equity offerings in the future. At June 30 and September 30, 2002, the Company's common stock was trading below the NASDAQ's $1.00 per share listing price and, at June 30 and September 30, 2002, the Company did not meet the NASDAQ's initial minimum stockholders' equity requirement of $5.0 million. These conditions may result in the Company's stock being delisted from the NASDAQ. 48 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, 2002 and June 30, 2001, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended June 30, 2002. Our audits also included the financial statement schedule 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 and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of IFX Corporation and subsidiaries at June 30, 2002 and 2001 and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2002, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. The accompanying financial statements and schedule have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has a working capital deficit at June 30, 2002 and has experienced operating losses and negative cash flows from operations during the years ended June 30, 2002, 2001 and 2000. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are described in Note 1. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. As discussed in Note 2 to the financial statements, the Company adopted Statement of Financial Accounting Standards No. 145, effective July 1, 2001, which required the Company to change its method of accounting for extraordinary items. /s/ ERNST & YOUNG LLP Miami, Florida, October 4, 2002 49 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Certain information with respect to directors and executive officers is set forth in Part I of this Report. Additional information required by this Item is incorporated herein by reference to the section entitled "Compliance with Section 16(a) of the Securities and Exchange Act of 1934" of the Proxy Statement related to the Company's 2002 Annual Meeting of Stockholders to be filed by the Company with the Securities and Exchange Commission (the "Definitive Proxy Statement"). ITEM 11. EXECUTIVE COMPENSATION The information required by this Item is incorporated herein by reference to the sections entitled "Executive Compensation" and "Certain Transactions" of the Definitive Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is incorporated herein by reference to the section entitled "Security Ownership of Certain Beneficial Owners and Management" of the Definitive Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated herein by reference to the sections entitled "Certain Transactions" and "Compensation Committee Interlocks and Insider Participation" of the Definitive Proxy Statement. ITEM 14. CONTROLS AND PROCEDURES Not applicable. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a). 1. Financial Statements The following financial statements are attached to this Form 10-K.
Form 10-K Page Number ----------- Report of Independent Certified Public Accountants 49 Consolidated Balance Sheets as of June 30, 2002 and 2001 24 Consolidated Statements of Operations for the years ended June 30, 2002, 2001 and 2000 25 Consolidated Statements of Changes in Stockholders' Equity for the years ended June 30, 2002, 2001 and 2000 26 Consolidated Statements of Cash Flows for the years ended June 30, 2002, 2001 and 2000 27 Notes to Consolidated Financial Statements 28
50 2. Financial Statement Schedules SCHEDULE II IFX CORPORATION AND SUBSIDIARIES Valuation and Qualifying Accounts (For Continuing Operations)
Additions ---------------------------- Balance at Charged to Charged Deductions Balance Beginning (Benefits Against) to Other (Describe) at End of of Period Costs and Expenses Accounts Period (Describe) Description - ------------------------------------------------------------------------------------------------------------ Year ended June 30, 2002 Allowance for Doubtful Accounts $ 1,955,800 $ 1,122,800 $ -- $(2,380,500)/2/$ 698,100 Valuation Allowance on Deferred Tax Assets 31,300,000 -- 10,500,000/1/ -- 41,800,000 --------------------------------------------------------------------------- 33,255,800 1,122,800 10,500,000 (2,380,500) 42,498,100 Year ended June 30, 2001 Allowance for Doubtful Accounts $ 922,500 $ 1,033,300 $ -- $ -- $ 1,955,800 Valuation Allowance on Deferred Tax Assets 13,700,000 -- 17,600,000/1/ -- 31,300,000 --------------------------------------------------------------------------- 14,622,500 1,033,300 17,600,000 33,255,800 Year ended June 30, 2000 Allowance for Doubtful Accounts $ 80,100 $ 842,400 $ -- $ -- $ 922,500 Valuation Allowance on Deferred Tax Assets -- -- 13,700,000/1/ -- 13,700,000 --------------------------------------------------------------------------- 80,100 842,400 13,700,000 -- 14,622,500
- -------------------------------------------------------------------------------- /1/ To record a valuation allowance for deferred tax assets. /2/ To write-off receivables. 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. 51 3. Exhibits (1) The exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index which is attached hereto and incorporated by reference herein. (b) The Company filed reports on Forms 8-K on October 22, 2001 (to report the agreement to purchase the Company's Series C Convertible Preferred Stock), February 27, 2002 (to report the closing of the Series C Convertible Preferred Stock sale and the possible deemed change in control of the Company, NASDAQ rule compliance matters and the agreement to purchase the Series D Convertible Preferred Stock) and July 3, 2002 (to report the resignation and replacement of two members of the Board of Directors and to report the closing of the Series D Convertible Preferred Stock sale). 52 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant duly caused this report statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miami, State of Florida, on October 11, 2002. IFX CORPORATION By:__________________________________ Michael Shalom, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Joel M. Eidelstein Chairman of the Board and President October 11, 2002 - ---------------------------- -------------------- Joel M. Eidelstein /s/ Michael Shalom Chief Executive Officer and Director October 11, 2002 - ---------------------------- -------------------- Michael Shalom (Principal Executive Officer) /s/ Howard F. Zuckerman Chief Financial Officer October 11, 2002 - ---------------------------- -------------------- Howard F. Zuckerman (Principal Financial and Accounting Officer) /s/ Richard Capone Director October 11, 2002 - ---------------------------- -------------------- Richard Capone /s/ Mark O. Lama Director October 11, 2002 - ---------------------------- -------------------- Mark O. Lama /s/ Burton J. Meyer Director October 11, 2002 - ---------------------------- -------------------- Burton J. Meyer /s/ George Duarte Director October 11, 2002 - ---------------------------- -------------------- George Duarte /s/ Patrick Delhougne Director October 11, 2002 - ---------------------------- -------------------- Patrick Delhougne - ----------------------------
53 CERTIFICATIONS I, Michael Shalom, do hereby certify that: (1) I have reviewed the June 30, 2002 annual report on Form 10-K filed by IFX Corporation (the "Company"); (2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; (3) Based on my knowledge, the financial statements and other financial information included in this annual report fairly present, in all material respects, the financial condition, results of operations and cash flows of the Company as of and for the periods presented in this annual report. Date: October 11, 2002 Chief Executive Officer I, Howard F. Zuckerman, do hereby certify that: (1) I have reviewed the June 30, 2002 annual report on Form 10-K filed by IFX Corporation (the "Company"); (2) Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; (3) Based on my knowledge, the financial statements and other financial information included in this annual report fairly present, in all material respects, the financial condition, results of operations and cash flows of the Company as of and for the periods presented in this annual report. Date: October 11, 2002 Chief Financial Officer 54 Exhibit Index Exhibit Number Description of Exhibit 3.1/1/ Restated Certificate of Incorporation of the Registrant 3.2/2/ Certificate of Amendment of Restated Certificate of Incorporation of the Registrant 3.3/6/ By-laws, effective June 15, 2000 4.1/3/ Second Amended Certificate of Designation, Powers, Preferences and Rights of Series A Convertible Preferred Stock of the Registrant 4.2/3/ Amended Certificate of Designation, Powers, Preferences and Rights of Series B Convertible Preferred Stock of the Registrant 4.3/3/ Certificate of Designation, Powers, Preferences and Rights of Series C Convertible Preferred Stock of the Registrant 4.4/2/ Certificate of Designation, Powers, Preferences and Rights of Series D Convertible Preferred Stock of the Registrant 10.1/2/ Third Amended and Restated Registration Rights Agreement dated as of June 28, 2002, among Registrant, UBS Capital Americas III, L.P., UBS Capital LLC, International Technology Investments, LC, LSC, LLC, Jak Bursztyn and Lee S. Casty 10.2/2/ Fourth Amended and Restated Stockholders Agreement dated as of June 28, 2002, among Registrant, UBS Capital Americas III, L.P., UBS Capital LLC, International Technology Investments, LC, Joel Eidelstein, Michael Shalom, LSC, LLC, Jak Bursztyn and Lee S. Casty 10.3/3/ Put Agreement dated as of February 19, 2002, among Registrant, UBS Capital Americas III, L.P. and UBS Capital LLC 10.4 Amended and Restated Put Agreement dated as of August 15, 2002, among Registrant, UBS Capital Americas III, L.P. and UBS Capital LLC 10.5/4/ Series C Convertible Preferred Stock Purchase Agreement dated as of October 11, 2001, among the Registrant, UBS Capital Americas III, L.P. and UBS Capital LLC 10.6/3/ Series D Convertible Preferred Stock Purchase Agreement dated as of February 19, 2002, among Registrant, UBS Capital Americas III, L.P., UBS Capital LLC, International Technology Investment LC, LSC, LLC, and Jak Bursztyn 10.7 Amendment No. 1 to Series C Convertible Preferred Stock Purchase Agreement dated as of December 10, 2001 among the Registrant, UBS Capital Americas III, L.P. and UBS Capital LLC 10.8 Amendment No. 2 to Series C Convertible Preferred Stock Purchase Agreement dated as of January 10, 2002 among the Registrant, UBS Capital Americas III, L.P. and UBS Capital LLC 10.9 Amendment No. 1 to Series D Convertible Preferred Stock Purchase Agreement dated as of April 19, 2002 among the Registrant, UBS Capital Americas III, L.P. and UBS Capital LLC 10.10 Amendment No. 2 to Series D Convertible Preferred Stock Purchase Agreement dated as of May 30, 2002 among the Registrant, UBS Capital Americas III, L.P. and UBS Capital LLC 10.11/5/* Form of Non-Qualified Stock Option Agreement (1998 Stock Option Plan) between the Registrant and employee 10.12/5/* Form of Stock Option Agreement (2001 Option Plan) between the Registrant and employee 10.13/5/* Employment Agreement dated as of May 7, 2001 between Joel Eidelstein and the Registrant 10.14/5/* Employment Agreement dated as of May 7, 2001 between Michael Shalom and the Registrant 10.15/5/* Employment Agreement dated as of May 7, 2001 between Jose Leiman and the Registrant 10.16* Employment Agreement dated as of August 1, 2002 between Howard Zuckerman and the Registrant 10.17/5/ Agreement between Registrant and Lee S. Casty dated August 28, 2001 10.18/5/* Form of Directors Stock Option Agreement 10.19/5/ Dial Access Agreement dated as of August 30, 2000 between Tutopia.com, Inc. and the Registrant 10.20/5/ Revenue Sharing Agreement dated as of August 31, 2000 between Tutopia.com, Inc. and the Registrant 10.21/5/ Inter-Company Services Agreement dated as of August 31, 2000 between Tutopia.com, Inc. and the Registrant 10.22 Amendment to Inter-Company Services Agreement dated as of October 4, 2002 10.23/6/ Share Sale Agreement, dated August 24, 2000, between Duncan Lawrie Offshore Services Limited in its capacity as trustee for The IFX Group Trust and the Registrant 10.24 Convertible Promissory Note to ROF/IFX dated September 9, 2002. 21.1 List of subsidiaries of the Company 23.1 Consent of Ernst & Young LLP 1 Incorporated by reference to Registrant's Report on Form 8-K filed on July 5, 2000. 2 Incorporated by reference to Registrant's Report on Form 8-K filed on July 3, 2002. 3 Incorporated by reference to Registrant's Report on Form 8-K filed on February 27, 2002. 4 Incorporated by reference to Registrant's Report on Form 8-K filed October 22, 2001. 5 Incorporated by reference to Registrant's Report on Form 10-K filed on October 15, 2001. 6 Incorporated by reference to Registrant's Report on Form 10-K filed September 28, 2000. * Management contract or compensatory plan or arrangement required to be filed as an exhibit to the Company's Annual Report on Form 10-K. EX-10.4 3 dex104.txt AMENDED PUT AGREEMENT Exhibit 10.4 AMENDED AND RESTATED PUT AGREEMENT AMENDED AND RESTATED PUT AGREEMENT, dated as of August 15, 2002 among IFX CORPORATION, a Delaware corporation (the "Company"), UBS CAPITAL AMERICAS III, L.P., a Delaware limited partnership ("UBS LP"), and UBS CAPITAL LLC, a Delaware limited liability company (collectively with UBS LP and their respective successors and assigns, "UBS"). Certain capitalized terms used but not otherwise defined herein are defined in Section 1. WHEREAS, the Company and UBS entered into that certain Put Agreement on February 19, 2002 (the "Original Put Agreement"); and WHEREAS, the Company and UBS have entered into that certain IFX Corporation Series D Convertible Preferred Stock Purchase Agreement, dated as of February 19, 2002 (the "Preferred Stock Purchase Agreement"); and WHEREAS, one of the conditions to consummation of the transactions contemplated by the Preferred Stock Purchase Agreement is the amendment and restatement of the Original Put Agreement. NOW, THEREFORE, the parties hereto agree to amend and restate the Original Put Agreement as follows: 1. Definitions. For the purposes of this Agreement, the following terms shall have the meanings specified below: (a) "Exchange Ratio" shall mean (i) with respect to each share of Tutopia Series A Preferred Stock which is put to the Company hereunder, 0.700833 shares of IFX Series E Preferred Stock, (ii) with respect to each share of Tutopia Series B Preferred Stock which is put to the Company hereunder, 0.350415 shares of IFX Series D Preferred Stock, and (iii) with respect to each share of Tutopia Common Stock which is put to the Company hereunder, 0.700833 shares of IFX Series E Preferred Stock. (b) "IFX Common Stock" shall mean the common stock, par value $.02 per share, of the Company. (c) "IFX Preferred Stock" shall mean, collectively, the IFX Series D Stock and the IFX Series E Preferred Stock. (d) "IFX Series D Preferred Stock" shall mean the Company's Series D Convertible Preferred Stock set forth in the Certificate of Designation, Number, Powers, Preferences and Relative, Participating, Optional and Other Rights of Series D Convertible Preferred Stock filed with the Secretary of State of Delaware on June 27, 2002, as amended from time to time. (e) "IFX Series E Preferred Stock" shall have the meaning set forth in Section 3(a). (f) "Pro Rata Portion" shall mean a percentage of the total number of Tutopia Shares owned by a given holder thereof equal to the percentage of the total number of Tutopia Shares owned by UBS on an as-converted basis which UBS elects to sell to the Company pursuant to a Put Option. (g) "Tutopia" shall mean Tutopia.com, Inc., a Delaware corporation. (h) "Tutopia Common Stock" shall mean the common stock, par value $.001 per share, of Tutopia. (i) "Tutopia Series A Preferred Stock" shall mean the Series A Convertible Preferred Stock, $.001 par value per share, of Tutopia. (j) "Tutopia Series B Preferred Stock" shall mean the Series B Convertible Preferred Stock, $.001 par value per share, of Tutopia. (k) "Tutopia Shares" shall mean, collectively, shares of Tutopia Common Stock, Tutopia Series A Preferred Stock and Tutopia Series B Preferred Stock. (l) "Tutopia Stockholders Agreement" shall mean the Amended and Restated Stockholders Agreement dated as of August 31, 2000 by and among Tutopia, Latin Guide, Inc., UBS, LSC, LLC and the other parties named therein, as amended. 2. Put Option. (a) From and after the date hereof until the first (1st) anniversary of the date of the Original Put Agreement (the "Expiration Date"), UBS shall have the right from time to time, upon written notice thereof, specifying the Tutopia Shares to be put (the "UBS Put Notice"), to put to the Company all or any portion of its Tutopia Shares (the "Put Option") at a price per share equal to the Exchange Ratio. (b) Within ten (10) days after each receipt of a UBS Put Notice, the Company shall promptly make an offer to all other holders of Tutopia Shares (other than Latin Guide, Inc.) who are parties to the Tutopia Stockholders Agreement, by written notice thereof, to purchase a Pro Rata Portion of the Tutopia Shares held by each such holder thereof at a price per share equal to the Exchange Ratio and on the other terms and conditions set forth herein. UBS and all such other holders of Tutopia Shares who deliver a put notice (collectively with the UBS Put Notice, the "Put Notices") to the Company within fifteen (15) days after receipt of a notice from the Company pursuant to this Section 2(b), shall be considered to have exercised the Put Option simultaneously as of the date the Company received the UBS Put Notice for purposes of this Agreement. (c) Within thirty (30) days following the date of a UBS Put Notice, the Company shall purchase or cause one or more of its subsidiaries to purchase and each Seller (as defined below) shall sell to the Company the Tutopia Shares put pursuant to the Put Notices (subject to the Sellers' complying with any rights of first refusal or other restrictions on transfer of such Tutopia Shares). (d) At the closing of a purchase of Tutopia Shares pursuant this Agreement (a "Closing"), UBS and each of the other holders of Tutopia Shares which accepted the offer to 2 purchase made pursuant to Section 2(b) (collectively with UBS, the "Sellers") shall deliver the certificate or certificates representing the Tutopia Shares owned by such Seller to be sold to the Company, free and clear of all liens and encumbrances (other than pursuant to the Tutopia Stockholders Agreement), and the Company, as payment therefor, will issue and deliver to such Seller the appropriate number of shares of IFX Preferred Stock in the form of a single certificate (or such greater number of certificates representing such shares as such Seller may request), each dated the date of Closing and registered in such Seller's name (or in the name of such Seller's nominee(s)). (e) At each Closing, each Seller which is not then a party to the Stockholders Agreement or the Registration Rights Agreement (as such terms are defined in the Preferred Stock Purchase Agreement) shall become a party to each such agreement by executing and delivering to the Company a counterpart signature page thereof. In addition, at each Closing, each Seller shall represent and warrant to the Company that it is acquiring the shares of IFX Preferred Stock for its own account, for investment purposes only, and with no present intention of distributing, selling or otherwise disposing of them, and each other holder of Tutopia Shares shall waive any further rights under the Tutopia Stockholders Agreement (with respect to the Tutopia Shares put) as a condition to participating in the Put Option. In the event that any Seller refuses or fails to become a party to such agreements or make such representation and warranty or otherwise fails to comply with all of the obligations of a Seller hereunder, then such Seller shall be deemed to have revoked the exercise of its Put Option and shall not be entitled to have its Pro Rata Portion of Tutopia Shares purchased by the Company at the Closing. Each Tutopia stockholder who is not an accredited investor (as such term is defined in Rule 501 under the Securities Act) will, at the request of the Company, appoint a purchaser representative (as such term is defined under the Securities Act) reasonably satisfactory to the Company and such stockholder. 3. Covenants of the Company. The Company hereby covenants to UBS as follows: (a) As soon as practicable following receipt of the UBS Put Notice, but in any event no later than twenty (20) days thereafter, the Company shall file with the Secretary of State of the State of Delaware a Certificate of Designation, Number, Powers, Preferences and Relative, Participating and Other Rights (the "IFX Series E Preferred Certificate") authorizing a new series of preferred stock of the Company (the "IFX Series E Preferred Stock") substantially in the form of the Series C Certificate (as defined below). The IFX Series E Preferred Stock shall have all of the rights, preferences, privileges and restrictions of the Company's Series C Convertible Preferred Stock (the "Series C Preferred Stock") set forth in the Certificate of Designation, Number, Powers, Preferences and Relative, Participating, Optional and Other Rights of Series C Convertible Preferred Stock of the Company filed with the Secretary of State of the State of Delaware on February 19, 2002, as amended from time to time (the "Series C Certificate"); provided, however, that upon a bankruptcy, liquidation, dissolution or winding up of the Company, the holders of IFX Series E Preferred Stock shall not be entitled to receive out of the assets or funds of the Company by reason of their ownership of such IFX Series E Preferred Stock amounts in excess of the Stated Preference as is provided with respect to the Series C Preferred Stock in the Series C Certificate. 3 (b) At each Closing, (i) the shares of IFX Preferred Stock to be issued and sold to each Seller at such Closing shall 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 (as defined in the Preferred Stock Purchase Agreement), (ii) the IFX Common Stock issuable upon conversion of the IFX Preferred Stock will have been duly authorized, will have been reserved for issuance upon conversion of the IFX Preferred Stock, and, when issued, will be duly and validly issued and outstanding, fully paid and nonassessable and will be free of Encumbrances, and (iii) the shares of Common Stock issuable upon conversion of the IFX Preferred Stock to be issued and sold to such Seller at the Closing shall have been duly listed or admitted for trading on the Nasdaq National Market or such other stock exchange or listing service as the IFX Common Stock is then listed or admitted for trading. 4. Conditions to Obligations of the Sellers. The obligation of each of the Sellers to sell its Tutopia Shares which it has agreed to sell at the Closing pursuant to its Put Option, and the other obligations of each of the Sellers under this Agreement, are subject to the fulfillment at or prior to the Closing of the following conditions, any of which may be waived in writing in whole or in part by such Seller: (a) Performance. The Company and each of its subsidiaries shall have performed and complied in all material respects with all agreements, conditions and covenants contained herein required to be performed or complied with by it prior to or at the Closing, including without limitation the covenants set forth in Section 3. (b) 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 proceeding with respect to the application of any such applicable law to such effect shall be pending or threatened; and (iii) no proceeding shall be pending or shall have been threatened which seeks to impose liability upon any of the Sellers by reason of the consummation of the transactions contemplated by this Agreement. (c) Consents. Such Seller and the Company shall have obtained any and all necessary consents and governmental approvals, and shall have made any and all filings and declarations necessary or appropriate for the consummation of the transactions contemplated by this Agreement. In furtherance and not in limitation of the foregoing, the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any foreign anti-competition, antitrust or pre-merger notification rules and regulations, if applicable, shall have been complied with. (d) Filing of Certificate. Prior to or contemporaneously with the Closing the IFX Series E Preferred Certificate shall have been duly filed with the Secretary of State of the State of Delaware and shall be in full force and effect as of the Closing and shall not have been amended or modified without the consent of UBS. 4 (e) Other Documents. The Company shall have delivered to each of the Sellers such other documents and completed such other proceedings relating to the transactions contemplated by this Agreement as any Seller may reasonably request. 5. Conditions to Obligations of the Company. The obligation of the Company to purchase each Seller's Tutopia Shares which such Seller has agreed to sell at the Closing pursuant to the Put Option, and the other obligations of the Company under this Agreement with respect to such Seller, are subject to the fulfillment at or prior to the Closing of the following conditions, any of which may be waived in writing in whole or in part by the Company: (a) Performance. Such Seller shall have performed and complied in all material respects with all agreements, conditions and covenants contained herein required to be performed or complied with by it prior to or at the Closing. (b) 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 proceeding with respect to the application of any such applicable law to such effect shall be pending or threatened; and (iii) no proceeding shall be pending or shall have been threatened which seeks to impose liability upon the Company or any of its subsidiaries by reason of the consummation of the transactions contemplated by this Agreement. (c) Consents. The Company shall have obtained any and all material necessary consents and governmental approvals, and shall have made any and all material filings and declarations necessary or appropriate for the consummation of the transactions contemplated by this Agreement. In furtherance and not in limitation of the foregoing, the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any foreign anti-competition, antitrust or pre-merger notification rules and regulations, if applicable, shall have been complied with. 6. General. (a) Transfer; Assignment. UBS may transfer or assign its rights under this Agreement, in whole or in part. (b) Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in the manner provided in the Preferred Stock Purchase Agreement. (c) Amendments. This Agreement may not be modified, changed, amended, terminated or abandoned except in a writing signed by UBS and the Company. (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 5 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 documents referred to in this Agreement may not be enforced in or by said courts, and each patty 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 6(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 text of the announcement shall be provided 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) Entire Agreement. This Agreement 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. (g) Further Assurances. Each party shall cooperate and take such actions as maybe reasonably requested by another party in order to carry out the provisions and purposes of this Agreement and the transactions contemplated hereby and thereby. (h) 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. (i) Termination. This Agreement shall terminate upon the later to occur of (i) the Expiration Date or (ii) the date of the last Closing of any Put Options that were exercised pursuant to Put Notices that were sent prior to the Expiration Date. (j) No Third Party Rights. This Agreement is not intended and shall not be construed to create any rights in any persons other than the parties listed on the signature page hereto, and no person shall be entitled to assert any rights as third party beneficiary hereunder. 6 IN WITNESS WHEREOF, the parties have executed this AMENDED AND RESTATED PUT 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 III, LLC By: /s/ Mark Lama ----------------------------------- Name: Mark Lama Title: Principal By: /s/ Marc Unger ----------------------------------- Name: Marc Unger Title: Chief Financial Officer 7 UBS CAPITAL LLC By: /s/ Mark Lama ----------------------------------- Name: Mark Lama Title: Attorney-in-fact By: /s/ Marc Unger ----------------------------------- Name: Marc Unger Title: Attorney-in-fact 8 EX-10.7 4 dex107.txt AMEND NO. 1 TO C Exhibit 10.7 AMENDMENT NO. 1 TO SERIES C CONVERTIBLE STOCK PURCHASE AGREEMENT THIS AMENDMENT NO. 1 TO SERIES C CONVERTIBLE STOCK PURCHASE AGREEMENT dated as of December 10, 2001 (this "Amendment"), is made and entered into by and among UBS CAPITAL AMERICAS III, L.P., a Jersey, Channel Islands limited partnership ("Americas"), UBS CAPITAL LLC, a Delaware limited liability company ("UBS Capital" and together with Americas, the "Purchasers") and IFX CORPORATION, a Delaware corporation (the "Company"). RECITALS WHEREAS, Purchasers and the Company are parties to that certain Series C Convertible Stock Purchase Agreement dated as of October 11, 2001 (the "Purchase Agreement"); and WHEREAS, the Company and Purchasers desire to amend the Purchase Agreement as set forth below, which amendment has been approved by the Board of Directors of the Company. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Termination Date. Section 10(b) of the Purchase Agreement is amended by deleting the number "60" and substituting the number "90" therefor. 2. Counterparts. This Amendment may be executed in one or more counterparts and all such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. 3. Choice of Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflicts of law provisions thereof. 4. Defined Terms. Capitalized terms used and not defined herein shall have the meanings ascribed to such terms in the Purchase Agreement. 5. Continuance of Purchase Agreement. Except as provided herein, the terms of the Purchase Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the first date written above. IFX CORPORATION By: /s/ Joel Eidelstein -------------------------------------- Name: Joel Eidelstein Title: President UBS CAPITAL AMERICAS III, L.P. By: UBS CAPITAL AMERICAS III, LLC By: /s/ Mark O. Lama ---------------------------------- Name: Mark O. Lama Title: Principal By: /s/ Marc Unger ---------------------------------- Name: Marc Unger Title: Chief Financial Officer UBS CAPITAL LLC By: /s/ Mark Lama -------------------------------------- Name: Mark Lama Title: Attorney-in-fact By: /s/ Marc Unger -------------------------------------- Name: Marc Unger Title: Attorney-in-fact -2- EX-10.8 5 dex108.txt AMEND NO. 2 TO C Exhibit 10.8 AMENDMENT NO. 2 TO SERIES C CONVERTIBLE STOCK PURCHASE AGREEMENT THIS AMENDMENT NO. 2 TO SERIES C CONVERTIBLE STOCK PURCHASE AGREEMENT dated as of January 10, 2002 (this "Amendment"), is made and entered into by and among UBS CAPITAL AMERICAS III, L.P., a Jersey, Channel Islands limited partnership ("Americas"), UBS CAPITAL LLC, a Delaware limited liability company ("UBS Capital" and together with Americas, the "Purchasers") and IFX CORPORATION, a Delaware corporation (the "Company"). RECITALS WHEREAS, Purchasers and the Company are parties to that certain Series C Convertible Stock Purchase Agreement dated as of October 11, 2001, as amended by Amendment No. 1 to Series C Convertible Stock Purchase Agreement dated as of December 10, 2001 (as so amended, the "Purchase Agreement"); and WHEREAS, the Company and Purchasers desire to further amend the Purchase Agreement as set forth below, which amendment has been approved by the Board of Directors of the Company. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Termination Date. Section 10(b) of the Purchase Agreement is amended by deleting the number "90" and substituting the number "120" therefor. 2. Counterparts. This Amendment may be executed in one or more counterparts and all such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. 3. Choice of Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflicts of law provisions thereof. 4. Defined Terms. Capitalized terms used and not defined herein shall have the meanings ascribed to such terms in the Purchase Agreement. 5. Continuance of Purchase Agreement. Except as provided herein, the terms of the Purchase Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the first date written above. IFX CORPORATION By: /s/ Joel Eidelstein ------------------------------------ Name: Joel Eidelstein Title: President UBS CAPITAL AMERICAS III, L.P. By: UBS CAPITAL AMERICAS III, LLC By: /s/ Mark O. Lama -------------------------------- Name: Mark O. Lama Title: Principal By: /s/ Marc Unger -------------------------------- Name: Marc Unger Title: Chief Financial Officer UBS CAPITAL LLC By: /s/ Mark Lama ------------------------------------ Name: Mark Lama Title: Attorney-in-fact By: /s/ Marc Unger ------------------------------------ Name: Marc Unger Title: Attorney-in-fact -2- EX-10.9 6 dex109.txt AMEND NO. 1 TO D Exhibit 10.9 AMENDMENT NO. 1 TO SERIES D CONVERTIBLE STOCK PURCHASE AGREEMENT THIS AMENDMENT NO. 1 TO SERIES D CONVERTIBLE STOCK PURCHASE AGREEMENT dated as of April 19, 2002 (this "Amendment"), is made and entered into by and among UBS CAPITAL AMERICAS III, L.P., a Jersey, Channel Islands limited partnership ("Americas"), UBS CAPITAL LLC, a Delaware limited liability company ("UBS Capital"), International Technology Investment LC ("ITI"), LSC, LLC ("LSC") and Jak Bursztyn ("Bursztyn") (collectively, Americas, UBS Capital, ITI, LSC and Bursztyn are referred to as the "Purchasers") and IFX CORPORATION, a Delaware corporation (the "Company"). RECITALS WHEREAS, Purchasers and the Company are parties to that certain Series D Convertible Stock Purchase Agreement dated as of February 19, 2002 (the "Purchase Agreement"); and WHEREAS, the Company and Purchasers desire to amend the Purchase Agreement as set forth below, which amendment has been approved by the Board of Directors of the Company. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Termination Date. Section 10(b) of the Purchase Agreement is amended by deleting the phrase "the date which is 60 days from the date hereof" and substituting the phrase "May 31, 2002" therefor. 2. Counterparts. This Amendment may be executed in one or more counterparts and all such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. 3. Choice of Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflicts of law provisions thereof. 4. Defined Terms. Capitalized terms used and not defined herein shall have the meanings ascribed to such terms in the Purchase Agreement. 5. Continuance of Purchase Agreement. Except as provided herein, the terms of the Purchase Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the first date written above. IFX CORPORATION By: /s/ Joel Eidelstein --------------------------------------- Name: Joel Eidelstein Title: President UBS CAPITAL AMERICAS III, L.P. By: UBS CAPITAL AMERICAS III, LLC By: /s/ Mark Lama ---------------------------------- Name: Mark Lama Title: Principal By: /s/ Marc Unger ---------------------------------- Name: Marc Unger Title: Chief Financial Officer UBS CAPITAL LLC By: /s/ Mark Lama --------------------------------------- Name: Mark Lama Title: Attorney-in-fact By: /s/ Marc Unger --------------------------------------- Name: Marc Unger Title: Attorney-in-fact INTERNATIONAL TECHNOLOGY INVESTMENTS, LC By: /s/ Michael Shalom --------------------------------------- Michael Shalom, Manager -2- /s/ Jak Bursztyn ---------------------------------------- Jak Bursztyn LSC, LLC By: /s/ Lee S. Casty --------------------------------------- Lee S. Casty Title: Manager -3- EX-10.10 7 dex1010.txt AMEND NO.2 TO D Exhibit 10.10 AMENDMENT NO. 2 TO SERIES D CONVERTIBLE STOCK PURCHASE AGREEMENT THIS AMENDMENT NO. 2 TO SERIES D CONVERTIBLE STOCK PURCHASE AGREEMENT dated as of May 30, 2002 (this "Amendment"), is made and entered into by and among UBS CAPITAL AMERICAS III, L.P., a Jersey, Channel Islands limited partnership ("Americas"), UBS CAPITAL LLC, a Delaware limited liability company ("UBS Capital"), International Technology Investment LC ("ITI"), LSC, LLC ("LSC") and Jak Bursztyn ("Bursztyn") (collectively, Americas, UBS Capital, ITI, LSC and Bursztyn are referred to as the "Purchasers") and IFX CORPORATION, a Delaware corporation (the "Company"). RECITALS WHEREAS, Purchasers and the Company are parties to that certain Series D Convertible Stock Purchase Agreement dated as of February 19, 2002, as amended by Amendment No. 1 to Series D Stock Purchase Agreement dated as of April 19, 2002 (as so amended, the "Purchase Agreement"); and WHEREAS, the Company and Purchasers desire to amend the Purchase Agreement as set forth below, which amendment has been approved by the Board of Directors of the Company. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Termination Date. Section 10(b) of the Purchase Agreement is amended by deleting the phrase "May 31, 2002" and substituting the phrase "June 30, 2002" therefor. 2. Counterparts. This Amendment may be executed in one or more counterparts and all such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. 3. Choice of Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflicts of law provisions thereof. 4. Defined Terms. Capitalized terms used and not defined herein shall have the meanings ascribed to such terms in the Purchase Agreement. 5. Continuance of Purchase Agreement. Except as provided herein, the terms of the Purchase Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the first date written above. IFX CORPORATION By: /s/ Joel Eidelstein --------------------------------------- Name: Joel Eidelstein Title: President UBS CAPITAL AMERICAS III, L.P. By: UBS CAPITAL AMERICAS III, LLC By: /s/ Mark Lama ---------------------------------- Name: Mark Lama Title: Principal By: /s/ Marc Unger ---------------------------------- Name: Marc Unger Title: Chief Financial Officer UBS CAPITAL LLC By: /s/ Mark Lama --------------------------------------- Name: Mark Lama Title: Attorney-in-fact By: /s/ Marc Unger --------------------------------------- Name: Marc Unger Title: Attorney-in-fact INTERNATIONAL TECHNOLOGY INVESTMENTS, LC By: /s/ Michael Shalom --------------------------------------- Michael Shalom, Manager -2- /s/ Jak Bursztyn ------------------------------------------- Jak Bursztyn LSC, LLC By: /s/ Lee S. Casty -------------------------------------- Lee S. Casty Title: Manager -3- EX-10.16 8 dex1016.txt EMPLOYMENT AGREEMENT Exhibit 10.16 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of August 1, 2002 by and between IFX CORPORATION, a Delaware corporation ("IFX" and, collectively with its subsidiaries, "Employer"), and HOWARD F. ZUCKERMAN, a Maryland resident ("Employee"). W I T N E S S E T H: WHEREAS, Employer is in the business of developing and maintaining a facilities-based Internet access network and related services in Latin America and other non-U.S. jurisdictions (the "Business"); WHEREAS, Employer desires to employ Employee as Chief Financial Officer of Employer, and Employee desires to accept such employment, on the terms and subject to the conditions set forth herein; WHEREAS, Employer believes it would be in the best interest of Employer to have Employee's terms of employment set forth in a written agreement; and WHEREAS, Employee has had an opportunity to review the terms and conditions of this Agreement, to negotiate the terms hereof and to engage legal counsel on his behalf if he so desires. NOW, THEREFORE, in consideration of Employer's continued employment of Employee, the terms, conditions and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employee and Employer, intending to be legally bound, hereby agree as follows: ARTICLE I DEFINITIONS 1.1 Terms Defined Herein. Except as otherwise herein expressly provided, the following terms and phrases shall have the meanings set forth below: "Affiliate" means (a) in the case of an entity, any Person who or which, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, any specified Person or (b) in the case of an individual, such individual's spouse, children, grandchildren or parents or a trust primarily for the benefit of any of the foregoing; provided, however, in respect of the Employer, "Affiliate" shall exclude UBS AG and its affiliates (including, without limitation, UBS Capital Americas III, L.P. and UBS Capital LLC) ("UBS") other than IFX and its subsidiaries. "Cause" means (a) the willful and continued failure by Employee to substantially perform his duties under this Agreement (other than any failure resulting from Employee's death or incapacity due to physical or mental illness) for five (5) days after written demand for substantial performance is delivered by Employer to Employee which specifically identifies the manner in which Employer believes Employee has not substantially performed his duties and which demand is specifically identified as being issued pursuant to this paragraph (a), (b) the commission by Employee of theft, embezzlement, fraud or misappropriation of funds or the willful engaging by Employee in other misconduct which is materially injurious to Employer, (c) the willful violation by Employee of Section 3.1, 3.2, 3.3 or 3.4 of this Agreement, (d) the conviction of Employee of a felony involving fraud, dishonesty or moral turpitude; in each case, from and after the date of this Agreement or (e) the engaging by Employee in gross negligence or recklessness in connection with the performance of his duties. None of the following conduct, acts or omissions of Employee or events shall, standing alone, be treated as "cause." (i) bad judgment, (ii) negligence, (iii) any act or omission that Employee reasonably believed in good faith to have been in or not opposed to the interests of the Employer, (iv) any act or omission for which Employee received authorization and/or direction from the board of directors of IFX (the "Board") or the Audit Committee thereof, as evidenced by a writing from the Chairman of the Board or Chairman of the Audit Committee, as the case may be, describing such authorization and/or direction, or by the minutes of the relevant meeting of the Board or the Audit Committee, and (vi) any act or omission of which any member of the Board who is not a party to such act or omission has had actual knowledge for at least 12 months. "Change in Control" means the occurrence of any one of the following events: (i) any consolidation, merger or other similar transaction involving IFX, if IFX is not the continuing or surviving corporation (unless the transferee corporation owns no substantial assets after the transaction other than those owned by IFX immediately before such transaction or unless the stockholders of IFX immediately prior to such transaction continue to own a majority of the voting stock of the continuing or surviving corporation immediately after such transaction), or which contemplates that all or substantially all of the business and/or assets of IFX will be controlled by another corporation (unless the transferee corporation owns no substantial assets after the transaction other than those owned by IFX immediately before such transaction or unless the stockholders of IFX immediately prior to such transaction continue to own a majority of the voting stock of the continuing or surviving corporation immediately after such transaction); (ii) any sale, lease, exchange or transfer (in one transaction or series of related transactions) of all or substantially all of the assets of the Employer; -2- (iii) approval by the shareholders 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; (iv) the acquisition by any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act), or two or more persons acting in concert, directly or indirectly, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the outstanding shares of voting stock of IFX; provided, however, that for purposes of the foregoing, "person" excludes Lee S. Casty, International Technology Investments, LC, UBS, or any of their respective Affiliates; or (v) if, those individuals (the "Continuing Directors") who either (A) were directors of IFX on the date hereof or (B) 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 , cease to constitute a majority of the Board ; provided, however, that for purposes of the foregoing, replacement UBS directors appointed in substitution of one or more current UBS-appointed directors shall be considered Continuing Directors. "Common Stock" means shares of common stock, par value $.02 per share, of IFX. "Disability" means disability as defined in Employer's disability insurance plan then in effect, or permanent disability as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended. "Involuntary Termination" means if Employer terminates Employee for any reason other than Cause or if Employee terminates his employment with Employer (a) within 30 days after Employer materially reduces Employee's duties and responsibilities or changes Employee's permanent work location hereunder; (b) within five (5) days after Employer's receipt of written notice from Employee that Employer is in material breach of its obligations under this Agreement, which material breach has not been cured during such five-day period (provided, however, that in the event such breach is curable but Employer is unable to cure such breach within such five-day period, then any such breach shall not be deemed to justify Employee's "Involuntary Termination" hereunder so long as Employer is diligently and in good faith pursuing a cure and such breach is cured no later than 30 days following receipt of the foregoing written notice from Employee), (c) because he is assigned duties materially inconsistent with his position and duties described in this Agreement without his consent; (d) because he no longer reports to the Chief Executive Officer of IFX, or (e) because of the failure of IFX to assign this Agreement to a successor to IFX or the failure of a successor to IFX to explicitly assume and agree to be bound by this Agreement. "Option" means non-qualified options to acquire shares of Common Stock granted in accordance with the Plan. -3- "Person" means any individual, partnership, corporation, limited liability company, joint venture, trust, firm, association, unincorporated organization or other entity. "Plan" means the IFX Corporation Stock Option and Incentive Plan, as amended, in the form of Exhibit B attached hereto and made a part hereof, as same may be modified from time to time. ARTICLE II TERMS OF EMPLOYMENT 2.1 Employment; Scope of Duties. (a) Employer agrees to employ Employee as Chief Financial Officer, and Employee hereby accepts such employment with Employer. Employee will be based at Employer's corporate headquarters in Florida. Employee shall report to the Chief Executive Officer and shall also be subject to the supervision of the Audit Committee of the Board, the Board, and any other person or entity designated by the Board. (b) Employee shall devote his best efforts and full business time and attention to the performance of services for Employer in accordance with the terms hereof. During the Term (as defined in Section 2.4), Employee shall not engage in any other business or professional activities, either on a full-time or part-time basis, as an employee, consultant or in any other capacity, whether or not he receives any compensation therefor, without the prior written consent of Employer's Board; provided, however, that nothing herein shall prevent Employee from (i) making and managing personal investments consistent with Section 3.3 of this Agreement, (ii) acting in a fiduciary capacity as trustee, executor or administrator of a trust or estate, or (iii) engaging in community and/or charitable activities or serving in professional organizations, so long as such activities, either singly or in the aggregate, do not interfere with the proper performance of Employee's responsibilities to Employer. 2.2 Compensation. (a) As compensation for Employee's services hereunder during the Term, Employer shall pay to Employee an annual base salary of $220,000 (the "Salary"), less applicable income tax withholdings, which Salary shall be reviewed for an increase, if any, on an annual basis by the Compensation Committee of the Board in its discretion. The Salary shall be payable in equal semi-monthly installments in accordance with Employer's customary compensation policies. If, during the term of this Agreement, the Employee should be prevented from performing his duties by reason of Disability, amounts payable by Employer hereunder shall be reduced by the gross amounts actually paid to Employee under the Employer's disability insurance policy. Employee shall be eligible to receive a bonus of up to 35 % of the Salary, with the actual amount, if any, of any such bonus to be determined at the sole discretion of the Compensation Committee of the Board and/or the Board. (b) In addition to the Salary, during the first year of the term of this Agreement, Employee shall be eligible to receive reimbursements for actual, out-of-pocket travel expenses between Germantown, Maryland and Miami Lakes, Florida and out-of-pocket lodging expenses -4- in Florida in the aggregate amount of up to $35,000, payable in arrears. Employee shall use his reasonable efforts to minimize the cost of such transportation and lodging expenses and shall utilize Employer's travel agent (as may be requested by Employer), and adhere to Employer travel policies. Employee shall submit written documentation of all expenses in a timely manner, and Employer shall process such expenses in a timely manner. If, after such first year of the term, Employee shall not have incurred $35,000 in reimbursable expenses under this Section 2.2(b), then the difference between $35,000 and the aggregate amount reimbursed to Employee under this Section 2.2(b) shall remain with Employer. (c) In addition to the Salary, Employee shall be granted Options as shown on Exhibit A attached hereto and made a part hereof. The Options shall be evidenced by an option agreement between Employer and Employee in the form of Exhibit C attached hereto and made a part hereof (the "Option Agreement"). The parties acknowledge and agree that the Options represent one percent (1%) of the outstanding shares of common stock of IFX on a fully diluted basis, as set forth on Exhibit D attached hereto and made a part hereof. 2.3 Employee Benefits. (a) Employee shall be entitled to such paid holidays and vacation time as is consistent with Employer's standard holiday and vacation policy for executive employees of Employer. (b) Subject to Employer's rules, policies and regulations as in effect from time to time (and subject to applicable eligibility requirements, including a minimum employment period), Employee shall be entitled to (i) group life insurance, disability or accident, death or dismemberment insurance, (ii) medical and/or dental insurance program, (iii) 401(k) benefit plan, (iv) other employee benefits that Employer may, in its sole discretion, make generally available to employees of Employer of the same level and responsibility as Employee. 2.4 Term. Employee's employment pursuant to this Agreement shall commence on August 1, 2002, and shall continue in effect until July 31, 2004, unless otherwise terminated in accordance with Section 2.5. The period of time during which Employee remains employed by Employer pursuant to this Section 2.4 is referred to herein as the "Term." This Agreement shall automatically renew for successive periods of one (1) year beginning on the two-year anniversary date of the commencement of the Term, unless either party hereto provides the other party hereto with written notice, within no less than 30 days before the expiration of the Term, of his or its intention not to extend the Term. 2.5 Termination of Employment. (a) Disability. (i) If during the term of this Agreement, the Employee should be prevented from performing his duties by reason of Disability for a continuous period greater than 180 days, Employer may terminate the Employee's employment hereunder by giving written notice thereof to the Employee, effective on the date set forth in the notice (which date shall be not less than 15 business days after the notice is given). For purposes hereof, a continuous period of incapacity -5- shall not be deemed interrupted until the Employee returns to substantially full time work for a period of at least 30 days. (ii) If termination of employment results or occurs due to Disability under this Section 2.5(a), Employee shall receive no other compensation hereunder; provided, however, that until Employee receives disability insurance payments under Employer's disability insurance coverage, Employee shall receive his Salary. All Options held by Employee under the Plan (or any successor thereto) shall vest immediately upon the date of termination for Disability. (b) Death. (i) In the event of the Employee's death during the term of this Agreement, the Employee's employment hereunder shall be deemed terminated as of the date of the Employee's death. Employee's family shall be entitled to receive a lump-sum amount equal to sum of Employee's accrued but unpaid Salary through the date of death and the appropriate payment in lieu of accrued but unused vacation time through the date of death, as well as fully paid health and dental insurance coverage for nine (9) months after Employee's death. In addition, all Options held by Employee under the Plan or any successor thereto shall vest immediately upon the date of death. (c) Cause. (i) This Agreement and the Employee's employment hereunder may be terminated at any time by IFX for Cause. (ii) If the Employee's employment is terminated by IFX for Cause or Employee terminates his employment other than by reason of death, Disability or an Involuntary Termination, Employee shall be entitled to no additional payments hereunder and Employee's Options shall be treated as required under the Plan; provided, however, that in the event Employee terminates his employment other than by reason of death, Disability or an Involuntary Termination, Employee shall be entitled to receive a lump-sum amount equal to the sum of Employee's accrued but unpaid Salary through the date of such termination and the appropriate payment in lieu of accrued but unused vacation time through the date of termination. (d) Involuntary Termination; Change of Control. (1) In the event of (X) an Involuntary Termination on or after April 1, 2003; or (Y) an Involuntary Termination which occurs within one year after a Change in Control; or (Z) Employer's failure to renew this Agreement upon expiration of the then applicable Term, within one year after a Change in Control, Employee shall receive the following from the Employer in complete satisfaction of Employer's obligation to Employee under this Agreement: (i) a lump-sum amount equal to Employee's accrued but unpaid Salary through the date of termination; -6- (ii) continuation of Employee's Salary on a semi-monthly basis for nine (9) months after the date of Employee's termination (but without any regard to payments due under Section 2.2(b) hereof immediately after the date of termination); (iii) continuation of the benefits specified in Section 2.3(b) to which Employee is entitled as of the date of termination for nine (9) months, it being understood that the Employer shall be responsible for the payment of premiums and contributions to the extent it made such payments and contributions on or before the date of termination; (iv) immediate vesting of all options held by Employee under the Plan or any successor thereto; and (v) payment in lieu of accrued but unused vacation time through the date of termination. (2) In the event of an Involuntary Termination on or before March 31, 2003, Employee shall receive the following from the Employer in complete satisfaction of Employer's obligation to Employee under this Agreement: (i) a lump-sum amount equal to Employee's accrued but unpaid Salary through the date of Involuntary Termination; and (ii) payment in lieu of accrued but unused vacation time through the date of Involuntary Termination. ARTICLE III COVENANTS AND AGREEMENTS 3.1 Records and Confidential Data. (a) Employee acknowledges that, in connection with the performance of his duties hereunder, Employer and its Affiliates will make available to Employee, and/or Employee will have access to, certain Confidential Information (as defined below) of Employer and its Affiliates. Employee acknowledges and agrees that any and all Confidential Information learned or obtained by Employee during the course of his employment by Employer or otherwise, whether developed by Employee alone or in conjunction with others or otherwise, shall be and is the property of Employer and its Affiliates. Employee shall keep all Confidential Information confidential and shall not use any Confidential Information in any manner other than in connection with Employee's discharge of his duties hereunder. (b) Following the first to occur of the termination of Employee's employment hereunder, or as soon as reasonably possible after Employer's written request, Employee shall return to Employer all written Confidential Information which has been provided to Employee and, only to the extent not prohibited by law, Employee shall destroy all copies of any analyses, compilations, studies or other documents prepared by Employee or for Employee's use containing or reflecting any Confidential Information. Within five (5) business days after receipt of such request by Employee, Employee shall, upon written request of Employer, deliver to -7- Employer a notarized document certifying that such written Confidential Information has been returned or destroyed in accordance with this Section 3.1(b). (c) For purposes of this Agreement, "Confidential Information" shall mean all confidential and proprietary information of Employer and/or its Affiliates, including, without limitation, confidential and proprietary information that is derived from or regarding reports, investigations, experiments, research, trade secrets, work in progress, web site drawing, designs, plans, proposals, requests for proposals, bids, codes, marketing and sales programs, acquisition targets or strategies, information regarding subscribers or web site viewers, client lists, client mailing lists, supplier lists, financial projections, cost summaries, payor information, pricing formulae, marketing studies relating to prospective business opportunities and all other confidential and proprietary materials or information prepared for or by Employer and/or any of its Affiliates. For purposes of this Agreement, Confidential Information shall not include and Employee's obligations under this Section 3.1 shall not extend to information which is generally available to the public or (ii) information which is required to be disclosed by law or legal process (after giving Employer prior written notice thereof and an opportunity to contest such disclosure to the extent reasonably practicable). (d) The provisions of this Section 3.1 shall survive termination of this Agreement for any reason. 3.2 Inventions and Other Matters. (a) Employee agrees that all inventions, discoveries or improvements made during the period of Employee's employment with Employer, including, without limitation, computer software (including source code, operating systems and specifications, data, data bases, files documentation and other materials related thereto), HTML or other scripts, web site designs, art work, visual images, programming code and programs, processes, uses, apparatuses, specialized information relating in any way to or that is useful in the business or products of Employer or Employer's actual or demonstrably anticipated research or development, designs or compositions of any kind that Employee, individually or with others, may originate or develop while employed by Employer (collectively, "Inventions"), belong to and shall be the sole property of Employer and constitute and shall constitute works specially ordered or commissioned as "works made for hire" under the United States Copyright Act and other applicable law. Without limiting the foregoing, Employee hereby assigns and transfers to Employer all rights of whatever nature that Employee may have, including, without limitation, any patent, trade secret, trademark or service mark rights (and any goodwill appurtenant thereto), any rights of publicity and any right, title and interest in any copyright and any right that may affix under any copyright law now or hereinafter in force and effect in the United States of America or in any other country or countries, in and to any Invention. Employee acknowledges and agrees that Employer shall have the royalty-free right to use in its businesses, and to make and sell products, processes, programs, systems designs, methods, formulas, apparatus, techniques, and services derived from any Inventions (whether or not patentable or copyrightable), as well as all improvements thereof or know-how related thereto. The provisions of this Section 3.2 shall survive termination of this Agreement for any reason. -8- (b) For purposes of this Agreement, an Invention shall be deemed to have been "made during the period of Employee's employment" if, during such period, the Invention was conceived, in part or in whole, or first actually reduced to practice. Employee agrees that any patent, copyright or trade mark application (i) covering intellectual property that relates to services performed by Employee hereunder or that is applicable to those products or services of Employer that were within the scope of Employee's responsibilities hereunder, and (ii) that is filed by or for the benefit of Employee or any of his Affiliates within nine (9) months after termination of Employee's employment shall be presumed to relate to an Invention made during the term of his employment and Employee shall have the burden of proof to prove otherwise. (c) This Section 3.2 shall not apply to an Invention for which no equipment, supplies, facilities or Confidential Information (as defined below) of Employer was used and that was developed entirely on Employee's own time, unless (i) the invention relates or is applicable to the services performed by Employee hereunder or that is applicable to those services or products of Employer that were within the scope of Employee's responsibilities hereunder, or (ii) results from any work relating to the Business that was performed, caused to be performed, or supervised by Employee for or on behalf of Employer. (d) Employee agrees, without further consideration, to (i) promptly disclose each such Invention to Employer, to Employee's immediate supervisor and to such other individuals as Employer may direct, (ii) execute and to join others in executing such applications, assignments and other documents as may be necessary or convenient to vest in Employer, or its designee, full title to each such Invention and as may be necessary or convenient to obtain United States and foreign patents and copyrights thereon, to the extent Employer may so choose in its sole discretion, (iii) testify in any legal proceeding relative to such Invention whenever requested to do so by Employer, upon reasonable notice and provided Employer shall reimburse Employee for any reasonable related travel and lodging expense, and (iv) furnish all facts relating to such Inventions or the history thereof. (e) Employee agrees that he will not at any time, except as authorized or directed by Employer, publish or disclose any information or knowledge concerning any Inventions. 3.3 Non-Competition. (a) Employer and Employee recognize that Employee has been retained to occupy a position of trust that constitutes part of the professional, management and executive staff of Employer. Employee, for and in consideration of the payments, rights and benefits provided herein, agrees that so long as he is employed by Employer and, except in the event of an Involuntary Termination on or before March 31, 2003, for a period of nine (9) months thereafter, Employee shall not (i) work or act as an officer or director of or compensated consultant to, (ii) assist, (iii) own, directly or through any Affiliate or joint venture, a 10% or greater interest in, or (iv) make a financial investment (other than a passive, economic investment), whether in the form of equity or debt, in any business that is directly competitive with the Business in Latin America or in any other non-United States market in which Employer is conducting the Business at the time Employee's employment with Employer is terminated. -9- (b) Notwithstanding the foregoing, nothing herein shall prohibit Employee, during the period in which he is employed by the Employer, from holding two percent (2%) or less of any class of voting securities of any entity whose equity securities are listed on a national securities exchange or regularly traded in the over-the-counter market and for which quotations are readily available on the National Association of Securities Dealers Automated Quotation system. (c) If Employer terminates Employee's employment for Cause or if Employee terminates his employment with Employer for any reason other than pursuant to an Involuntary Termination, for a period of nine (9) months from and after the date of termination, Employee shall promptly notify Employer of each employment or agency relationship entered into by Employee, and each corporation, proprietorship or other entity formed or used by Employee, the business of which is directly competitive with the Business. The provisions of this Section 3.3 shall survive termination of this Agreement for any reason. 3.4 Non-Solicitation and Non-Interference. (a) Employee acknowledges that Employer has invested substantial time and effort in assembling its present staff of personnel. Employee agrees that so long as he is employed by Employer and for a period of one year thereafter, Employee shall not, directly or indirectly, employ, solicit for employment, or advise or recommend to any other Person that such other Person employ or solicit for employment, any of Employer's employees or recommend to any employee of Employer that he/she cease to be employed by Employer; provided that the restrictions set forth in the immediately preceding sentence shall not apply to any solicitation directed at the public in general e.g., advertisements in publications of general circulation, etc. or to inquiries for employment that were unsolicited, directly or indirectly, by Employee. (b) Employee acknowledges that all customers of Employer, which Employee has serviced or hereafter services during Employee's employment by Employer and all prospective customers from whom Employee has solicited or may solicit business while in the employ of Employer, shall be solely the customers of Employer. Employee agrees that so long as he is employed by Employer and for a period of one year thereafter, Employee shall not either directly or indirectly solicit business, as to products or services competitive with the Business, from any of Employer's customers with whom Employee had direct contact during his employment with Employer. (c) Employee agrees that so long as he is employed by Employer and for a period of one year thereafter, Employee shall not, directly or indirectly, (i) intentionally disrupt or attempt to disrupt or terminate any relationship between Employer and any of its Business suppliers, clients or employees, or (ii) disparage, malign or discredit the name or reputation of Employer to any customers, clients or suppliers of the Business. Employee agrees that during such one year period, he will not influence or attempt to influence any of the customers or clients of Employer to cease doing business with Employer. 3.5 Restrictions Reasonable. Employee agrees that the restrictions contained in Sections 3.3 and 3.4 are reasonable as to time and geographic scope because of the nature of the -10- Business and Employee agrees, in particular, that the geographic scope of this restriction is reasonable because companies in the same industry as the Business compete on an international basis. Employee acknowledges that Employer is in direct competition with all other companies that provide services and products similar to the Business products and services throughout Latin America and, because of the nature of the Business, Employee expressly agrees that the covenants contained in Sections 3.3 and 3.4 cannot reasonably be limited to any smaller geographic area. The provisions of Sections 3.3 and 3.4 shall survive termination of this Agreement for any reason. 3.6 Prior Obligations. Employee represents and warrants that (a) Employee has no obligation of confidence or other commitments to any previous employer or any others that conflict with this Agreement or restrict Employee's field of activities, and (b) no other agreement to which Employee is subject will conflict with, prevent, be breached by, interfere with or in any manner affect the terms and conditions of this Agreement. 3.7 Injunctive Relief. Employee acknowledge that damages would be an inadequate remedy for Employee's breach of any of the provisions of Sections 3.1, 3.2, 3.3 and/or 3.4 of this Agreement, and that breach of any of such provisions will result in immeasurable and irreparable harm to Employer. Therefore, in addition to any other remedy to which Employer may be entitled by reason of Employee's breach or threatened breach of any such provision, Employer shall be entitled to seek and obtain a temporary restraining order, a preliminary and/or permanent injunction, or any other form of equitable relief from any court of competent jurisdiction restraining Employee from committing or continuing any breach of such Section, without the necessity of posting a bond. It is further agreed that the existence of any claim or cause of action on the part of Employee against Employer, whether arising from this Agreement or otherwise, shall in no way constitute a defense to the enforcement of the provisions of Sections 3.1, 3.2, 3.3 and/or 3.4 of this Agreement. ARTICLE IV MISCELLANEOUS 4.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given (a) when made, if delivered personally, (b) three business days after being mailed by certified or registered mail, postage prepaid, return receipt requested, or (c) two business days after delivery to a reputable overnight courier service, to the parties, their successors in interest or their assignees at the following addresses, or at such other addresses as the parties may designate by written notice in the manner aforesaid: To Employer: IFX Corporation IFX Communications Ventures, Inc. 15050 NW 79/th/ Court Suite 200 Miami Lakes, FL 33016 -11- To Employee, to his home address as recorded in the payroll records of Employer from time to time. 4.2 Governing Law. This Agreement shall be governed as to its validity and effect by the internal laws of the State of Florida, without regard to its rules regarding conflicts of law. 4.3 Agreement To Arbitrate. (a) Employer and Employee agree that any disputes that arise between Employee and Employer (or any of Employer's officers, directors, stockholders, supervisors, employees, agents, Affiliates or successors), excluding disputes arising out of Section 3.1, 3.2, 3.3 or 3.4, that cannot be resolved informally shall be decided by submission of the dispute to binding arbitration before a sole neutral arbitrator who is a retired federal judge pursuant to the American Arbitration Association Commercial Arbitration Rules governing such proceedings, and not by a lawsuit or by resort to court process, except as specifically set forth below. Both parties acknowledge and agree that they are giving up their respective constitutional rights to have any such dispute decided in a court of law before a jury, and instead are accepting the use of the arbitration process. This Section 4.3(a) applies to any and all disputes, including, by way of example only and not limited to, disputes regarding termination of Employee's employment; discrimination and unlawful harassment of any kind (including, without limitation, claims arising under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. (S)2000(e) et seq. and the Civil Rights Act of 1991; the Age Discrimination in Employment Act, as amended, 29 U.S.C. (S)621, et seq.; the Americans with Disabilities Act of 1990, 42 U.S.C. (S)12101 et seq.; the Family and Medical Leave Act of 1993, 29 U.S.C. (S)2612 et seq.; and all applicable state and local anti-discrimination laws and constitutional provisions); disputes arising under any other applicable federal, state or local labor statutes, regulations or orders; disputes regarding assault and battery; negligent supervision; defamation; invasion of privacy; wages and overtime; and disputes regarding the formation and enforceability of this Section 4.3(a). The following types of disputes are excluded from the scope of coverage of this Section 4.3(a): (i) workers' compensation claims by Employee for on-the-job injuries; and (ii) any and all claims by Employer against Employee, including claims for injunctive relief, arising out of Employee's breach or threatened breach of Section 3.1, 3.2, 3.3 or 3.4 of this Agreement. (b) General Rules of Arbitration. Either party shall have the right to have counsel represent him/it at the arbitration hearing and in pre-arbitration proceedings. Pre-arbitration discovery shall be permitted in accordance with the Federal Rules of Civil Procedure, except that (i) there shall be no limit on the number of depositions that may be noticed by either party, and (ii) in connection with any pre-arbitration disclosure of expert testimony in accordance with Rule 26(a)(2), the timing of the expert disclosure shall be set by the arbitrator. (c) Authority of Arbitrator. The arbitrator shall have the authority to (i) resolve any discovery disputes that arise between the parties; (ii) resolve any dispute relating to the interpretation, applicability or enforceability of this Section 4.3; and (iii) entertain a motion to dismiss and a motion for summary judgment, applying the standards governing such motions under Federal Rule Of Civil Procedure 12(b)(6) and Rule 56. The arbitrator is required to render -12- his decision in writing, with an opinion stating the bases of his decision. Either party has the right to file a post-arbitration brief, which shall be considered by the arbitrator. (d) Payment of Costs and Fees. Each party shall bear its own costs and attorneys' fees incurred in connection with the arbitration. The arbitrator shall have the discretion to award costs to the prevailing party. The arbitrator's fees shall be borne equally by the parties. Each party shall post his or its portion of the arbitrator's anticipated fee prior to the commencement of the arbitration. (e) Appeals. Either side shall have the right to appeal the arbitrator's decision by applying to a Court (as defined in Section 4.4) for an order vacating the award for any of the reasons set forth in 9 U.S.C. ss.10, or on the basis that the arbitrator has made a mistake of law or fact. The arbitration decision shall stand if it is supported by substantial evidence. 4.4 Jurisdiction; Service of Process. Each of the parties hereto agrees that any action or proceeding initiated or otherwise brought to judicial proceedings by either Employee or Employer concerning the subject matter of this Agreement that is not subject to Section 4.3, shall be litigated in the federal or state courts of the State of Florida covering Miami, Dade County, Florida (the "Courts"). Each of the parties hereto expressly submits to the jurisdiction and venue of the Courts. Each party hereto waives any claim that the Courts are an inconvenient forum or an improper forum based on lack of venue or jurisdiction. Each party shall bear its own costs and attorneys' fees incurred in connection with any such actions or proceedings. 4.5 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of (a) the heirs, executors and legal representatives of Employee, upon Employee's death or incapacity, and (b) any successor of Employer, and any such successor shall be deemed substituted for Employee or Employer, as the case may be, under the terms hereof for all purposes; provided, however, that any such assignment shall not relieve Employer from its obligations hereunder. As used in this Agreement, "successor" shall include any Person that at any time, whether by purchase, merger, consolidation or otherwise, directly or indirectly acquires a majority of the assets, business or stock of Employer. 4.6 Integration. This Agreement, the Plan and any option agreement Employee will be required to execute, constitute the entire agreement between the parties with respect to all matters covered herein, including but not limited to the parties' employment relationship and Employee's entitlement to compensation, commissions and benefits from Employer or any of its Affiliated companies and/or the termination of Employee's employment. This Agreement supersedes all prior oral or written understandings and agreements relating to its subject matter and all other business relationships between Employer and/or its Affiliated companies. 4.7 No Representations. No Person has made or has the authority to make any representations or promises on behalf of any of the parties which are inconsistent with the representations or promises contained in this Agreement, and this Agreement has not been executed in reliance on any representations or promises not set forth herein. -13- 4.8 Amendments. This Agreement may be modified only by a written instrument executed by the parties that is designated as an amendment to this Agreement. 4.9 Counterparts. This Agreement is being executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 4.10 Severability and Non-Waiver. Any provision of this Agreement (or portion thereof) which is deemed invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction and subject to this Section, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions thereof in such jurisdiction or rendering that or any other provisions of this Agreement invalid, illegal, or unenforceable in any other jurisdiction. If any covenant should be deemed invalid, illegal or unenforceable because its scope is considered excessive, such covenant shall be modified so that the scope of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal and enforceable. 4.11 Voluntary and Knowledgeable Act. Employee represents and warrants that he has been represented by independent legal counsel of his own choosing and that he has read and understands each and every provision of this Agreement and has freely and voluntarily entered into this Agreement. 4.12 Late Payments. If the Employer fails to pay any amount provided under this Agreement or any other plan or program sponsored by Employer when due, the Employer shall pay interest on such amount at a rate equal to (i) the highest rate of interest charged by the Employer's principal lender plus 200 basis points, or (ii) in the absence of such a lender, 300 basis points over the prime commercial lending rate announced by Harris Trust and Savings Bank on the date such amount is due or, if no such rate shall be announced on such date, the immediately prior date on which Harris Trust and Savings Bank announced such a rate; provided, however, that if the interest rate determined in accordance with this Section exceeds the highest legally-permissible interest rate, then the interest rate shall be the highest legally-permissible interest rate. 4.13 Required Approvals. This Agreement shall not be enforceable by Employee against Employer until this Agreement is approved by both: (a) the Board of Directors of Employer; and (b) the requisite shareholders of Employer. The Employer shall notify Employee in writing (including, without limitation, by way of e-mail) promptly after such approval has been obtained. -14- IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first above written. EMPLOYER: IFX CORPORATION By: /s/ Joel Eidelstein ----------------------- Name: Joel Eidelstein Title: President Date: 8/1/02 EMPLOYEE: /s/ Howard F. Zuckerman -------------------------------- Howard F. Zuckerman Date: 8/1/02 -15- EXHIBIT A TO EMPLOYMENT AGREEMENT Option Grants A. Each Option granted to Employee pursuant to this Employment Agreement shall be subject to, and exercisable in accordance with, the terms and conditions set forth in the Plan and the Option Agreement. B. The following Options granted pursuant to this Employment Agreement shall be granted as of August 1, 2002 (the "First Option Date") and shall be evidenced by the Option Agreement, and containing the following terms: Number of Options Exercise Price Vesting Period ---------- -------------- -------------- 300,000 Closing Ask Price 100,000 on August 1, 2003; on the First Option Date 25,000 vesting on November 1, 2003, and 25,000 every three months thereafter, until such time as all 300,000 Options shall have vested. The following Options granted pursuant to this Employment Agreement shall be granted as of January 1, 2003 (the "Second Option Date") and shall be evidenced by an option agreement between IFX and Employee in the form of the Option Agreement, and containing the following terms: Number of Options Exercise Price Vesting Period ---------- -------------- -------------- 115,719 Closing Ask Price 38,573 on August 1, 2003; on the Last Trading Day 19,287 vesting on November prior to the Second 1, 2003; 19,287 Option Date vesting on February 1, 2004; 19,286 vesting on May 1, 2004; and 19,286 vesting on August 1, 2004. EX-10.22 9 dex1022.txt AMEND TO INTER EXHIBIT 10.22 AMENDMENT NO. 1 TO AMENDED AND RESTATED INTER-COMPANY SERVICES AGREEMENT This Amendment No. 1 to Amended and Restated Inter-Company Services Agreement dated as of October 4, 2002 (this "Amendment") is made and entered into by and between IFX Corporation, a Delaware corporation ("IFX"), and Tutopia.com, Inc., a Delaware corporation ("Tutopia"). RECITALS WHEREAS, IFX and Tutopia are parties to that certain Amended and Restated Inter-Company Services Agreement dated as of August 30, 2000 (the "Agreement"), pursuant to which IFX has agreed, upon the terms and conditions set forth therein, to provide Tutopia with the services described in the Agreement; and WHEREAS, the parties hereto desire to amend the Agreement so that the term of the Agreement will continue until thirty (30) days after either party thereto gives the other party written notice of its intention to terminate the Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Amendment and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Amendment. The Agreement is hereby amended by deleting Section 2.01 of the Agreement and substituting new Section 2.01 therefor: "2.01. This Agreement shall commence on the date set forth above and unless earlier terminated pursuant to Section 2.02 or 2.03 of this Article shall continue until the thirtieth (30th) day after either party hereto gives the other party hereto written notice of such party's desire to terminate this Agreement." 2. Counterparts. This Amendment may be executed in one or more counterparts and all such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument. 3. Choice of Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Florida without regard to the conflicts of law provisions thereof. 4. Defined Terms. Capitalized terms used and not defined herein shall have the meanings ascribed to such terms in the Agreement. 5. Continuance of Agreement. Except as provided herein, the terms of the Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the first date written above. IFX CORPORATION By: /s/ Joel Eidelstein --------------------------- Name: Joel Eidelstein Title: President TUTOPIA.COM, INC. By: /s/ Jak Bursztyn --------------------------- Name: Jak Bursztyn Title: President EX-10.24 10 dex1024.txt CONV PROMISSORY NOTE Exhibit 10.24 EXECUTION VERSION THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE. IFX CORPORATION CONVERTIBLE PROMISSORY NOTE $1,100,000.00 Dated: September 9, 2002 FOR VALUE RECEIVED IFX CORPORATION, a Delaware corporation (the "Company"), hereby promises to pay to ROF/IFX, LLC, a Delaware limited liability company (the "Payee"), or its registered assigns, the principal amount of One Million One Hundred Thousand and 00/100 Dollars ($1,100,000.00) together with interest thereon calculated from the date hereof in accordance with the provisions of this Convertible Note. Certain capitalized terms are defined in Section 8 hereof. 1. Payment of Interest. Interest shall accrue at a rate equal to ten percent (10%) per annum (the "Interest Rate") on the unpaid principal amount of this Convertible Note outstanding from time to time; provided that so long as any Event of Default has occurred and is continuing, interest shall accrue to the extent permitted by law at the rate of the Interest Rate plus two percent (2%) per annum on the unpaid principal amount of this Convertible Note outstanding from time to time for the period beginning on the date on which such Event of Default occurs and ending on the date on which such Event of Default ceases to exist. Interest shall be computed on the basis of the actual number of days elapsed and a 360-day year. 2. Maturity Date. Unless previously converted in accordance with Section 3 below, all of the principal amount of this Convertible Note plus accrued and unpaid interest thereon shall automatically be converted into shares of the Series D Preferred Stock at a conversion price equal to $1.20 per share of Series D Preferred Stock (the "Series D Conversion Price") on June 30, 2003 (the "Maturity Date"). The Series D Preferred Stock to be issued upon any such conversion shall have the same rights, preferences and privileges as the shares of the Series D Preferred Stock issued in the Series D Financing. The Payee, upon making such conversion, and as a condition thereof, shall enter into a registration rights agreement and shareholders agreement substantially in the form of the Third Amended and Restated Registration Rights Agreement and the Fourth Amended and Restated Stockholders Agreement among the Company and the holders of the Series D Preferred Stock. No fractional shares shall be issued upon a conversion into Series D Preferred Stock. In lieu of any fractional shares to which Payee would otherwise be entitled, the Company shall pay cash equal to such fraction multiplied by the Series D Conversion Price. 3. Conversion. (i) In the event that the Company enters into a Qualified Financing Purchase Agreement prior to the Maturity Date (the date thereof being the "Qualified Financing Date"), then at the election of the Payee (the "Payee Election"), this Convertible Note plus accrued and unpaid interest thereon may be converted, in whole and not in part, into Qualified Financing Securities at a conversion price equal to the purchase price per Qualified Financing Security set forth in the Qualified Financing Purchase Agreement (the "Qualified Financing Conversion Price"). The Company shall provide Payee timely notice of the Qualified Financing Date, and Payee shall make the Payee Election within ten (10) business days of receiving such notice. The Payee, upon making such conversion, and as a condition thereof, shall enter into any registration rights agreement, shareholders agreement or other material agreements entered into by other investors in the Qualified Financing. In the absence of a timely election by Payee, or if Payee elects to convert to Series D Preferred Stock, the Convertible Note shall be converted, in whole and not in part, into the Series D Preferred Stock in accordance with the provisions of Section 2, but within thirty (30) days of the Qualified Financing Date. (ii) At such time as such conversion or a conversion under Section 2 has been effected, the rights of the holder of this Convertible Note as the holder of such note shall cease, and the Person or Persons in whose name or names any certificate or certificates for shares of the Series D Preferred Stock or Qualified Financing Securities, as the case may be, are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of such Series D Preferred Stock or Qualified Financing Securities represented thereby. (iii) The Company shall deliver to the converting holder a certificate or certificates representing the number of shares of Series D Preferred Stock or Qualified Financing Securities, as the case may be, issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified. (iv) The issuance of certificates for shares of Series D Preferred Stock or Qualified Financing Securities, as the case may be, upon conversion of this Convertible Note shall be made without charge to the holder hereof for any issuance tax in respect thereof or other cost incurred by the Company in connection with such conversion and the related issuance of shares of Series D Preferred Stock or Qualified Financing Securities, provided that such holder shall pay any transfer taxes associated therewith. (v) The Company shall at all times reserve and keep available out of its authorized but unissued shares of Series D Preferred Stock or Qualified Financing Securities, as the case may be, solely for the purpose of issuance upon conversion hereunder, such number of shares of Series D Preferred Stock or Qualified Financing Securities issuable upon conversion. All such securities which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges (other than the applicable shareholders agreement and securities laws). The Company shall take all such actions as may be necessary to assure that all such securities may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which such shares of capital stock may be listed; provided, that in no event will the Company be obligated to register Series D Preferred Stock or Qualified Financing Securities under the Securities Act of 1933. -2- (vi) In addition to the conversion provisions under paragraphs 5(i) through 5(v) above, the Company shall provide Payee the opportunity to convert 1 (one) share of IFX common stock in exchange for 0.16667 shares of such class of Company preferred stock as described in paragraph 3(a) of the Amended And Restated Put Agreement among the Company, UBS Capital Americas III, L.P. and UBS Capital LLC, up to a maximum of 400,000 (Four Hundred Thousand) shares of IFX common stock. Within 10 days of the funding of this Convertible Note by Payee, Payee must provide the Company notice of its intension to convert and the number of IFX common shares that will be tendered for conversion. 4. Method of Payments. (a) Payment. Except with respect to an Event of Default, notwithstanding anything contained elsewhere in this Convertible Note to the contrary, the Company will pay all sums for principal, interest, premiums, dividends or otherwise becoming due on this Convertible Note not later than 5:00 p.m. New York time, on the Maturity Date, in Series D Preferred Stock or Qualified Financing Securities, as the case may be, in accordance with the payment instructions that the Payee may designate in writing. Any payment made after 5:00 p.m. New York time, on a Business Day will be deemed made on the next following Business Day. If the Maturity Date falls on a day that is not a Business Day, such due date shall be extended to the next succeeding Business Day, and interest shall be payable on any principal so extended for the period of such extension. All amounts payable under this Convertible Note shall be paid free and clear of, and without reduction by reason of, any deduction, set-off or counterclaim. The Company will afford the benefits of this Section to the Payee and to each other Person holding this Convertible Note. (b) Transfer and Exchange. Upon surrender of any Convertible Note for registration of transfer or for exchange to the Company at its principal office, the Company at its sole expense will execute and deliver in exchange therefor a new Convertible Note or Convertible Notes, as the case may be, as requested by the holder or transferee, which aggregate the unpaid principal amount of such Convertible Note, registered as such holder or transferee may request, dated so that there will be no loss of interest on the Convertible Note and otherwise of like tenor. The issuance of new Convertible Notes shall be made without charge to the holder(s) of the surrendered Convertible Note for any issuance tax in respect thereof or other cost incurred by the Company in connection with such issuance, provided that each Convertible Noteholder shall pay any transfer taxes associated therewith. The Company shall be entitled to regard the registered holder of this Convertible Note as the holder of the Convertible Note so registered for all purposes until the Company or its agent, as applicable, is required to record a transfer of this Convertible Note on its register. (c) Replacement. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Convertible Note and, in the case of any such loss, theft or destruction of any Convertible Note, upon receipt of an indemnity reasonably satisfactory to the Company or, in the case of any such mutilation, upon the surrender and cancellation of such Convertible Note, the Company, at its expense, will execute and deliver, in lieu thereof, a new Convertible Note of like tenor and dated the date of such lost, stolen, destroyed or mutilated Convertible Note. -3- 5. Representations and Warranties of Payee. Payee represents and warrants to Company that: (a) Investment Purpose. Payee is acquiring this Convertible Note and any and all securities into which this Convertible Note is convertible solely for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof, and has no present intention or plan to effect any distribution thereof. The securities issuable upon conversion hereof will bear a legend to the following effect: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), or the laws of any state and may not be sold or transferred except in compliance with the Act and such laws." (b) Information. Payee has had the opportunity to conduct and complete customary business, financial, and operational due diligence investigations and Payee is satisfied with the results of the due diligence investigations conducted by Payee. Payee has been furnished with all materials relating to the business, finances and operations of the Company that has been requested by Payee, including but not limited to those documents specified in Attachment A hereto. In addition, Payee has reviewed the public filings made by the Company with the SEC. Payee understands and acknowledges that its investment in this Convertible Note involves a high degree of risk. (c) Sophistication. Payee is able to bear the economic risk of an investment in the Convertible Note 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 such Convertible Note. (d) Illiquidity. Payee understands that there is no public market for the Convertible Note to be acquired by it and that there may never be a public market for such Convertible Note or the preferred stock or other security to be issued at conversion on the Maturity Date, and that such Purchaser may have to bear the risk of its investment in such securities for a substantial period of time. (e) Accredited Investor. Payee is an "accredited investor" within the meaning of Regulation D promulgated under the Securities Act. In addition, Payee has received such information as it considers necessary or appropriate for deciding whether to acquire the Convertible Note. (f) Requisite Power and Authority. Payee has all necessary power and authority to execute this Convertible Note. This Convertible Note has been duly executed and -4- delivered by Payee, and when executed by Payee will constitute the legal, valid and binding obligations of Payee, 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. (g) No Conflict. The execution by Payee of this Convertible Note and the consummation of the transactions contemplated hereby by Payee will not result in any violation of or default under, any provision of the organizational documents of Payee, any contract to which Payee is a party or any applicable law, rule or regulation, which violation or default could reasonably be expected to (i) affect the validity of this Convertible Note, (ii) affect in any material respect any action taken or to be taken by Payee pursuant to this Convertible Note, or (iii) have a material adverse effect on the properties, assets, business or operations of such Payee. (h) Confidentiality. The terms and conditions of the Mutual Non-Disclosure Agreement ("NDA") previously entered into by Payee and the Company, shall govern the exchange of all confidential information between the parties. The NDA shall survive execution of this Convertible Note. 6. Representations and Warranties of the Company. The Company represents and warrants to Payee that: (a) Organization and Qualification. The Company and each of its subsidiaries is an entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, with power and authority to conduct its business as it is now being conducted, to own or use its properties and assets that it purports to own or use and, in the case of the Company, to perform its obligations under this Convertible Note. The Company and each of its subsidiaries is duly qualified to do business as a foreign company and is in good standing under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification. (b) Absence of Conflicts. Neither the execution, delivery and performance of this Convertible Note by the Company, nor the consummation of the transactions contemplated hereby, nor compliance by the Company with any of the provisions hereof, will (a) violate, conflict with, or result in a breach of any provision of, constitute a default under, or permit or result in the termination of, acceleration of any obligation under, or creation of a lien under any of the terms, conditions or provisions of, (i) the certificate of incorporation, bylaws or stockholders agreements of the Company, or (ii) any note, mortgage, indenture, contract, agreement or license by which the Company or any of the properties or assets thereof may be bound, or to which the Company or any subsidiary thereof or any of the properties or assets thereof may be subject, or (b) violate or conflict with any law, rule, regulation, judgment, ruling, order, writ, injunction or decree applicable to the Company or any subsidiary thereof or any of the properties or assets thereof. -5- (c) Authorization of Agreements, Etc. Each of (i) the execution and delivery by the Company of this Convertible Note, (ii) the performance by the Company of its obligations hereunder, and (iii) the issuance, sale and delivery by the Company of this Convertible Note and the shares of Series D Preferred Stock or other security issuable upon conversion thereof has been duly authorized by all necessary corporate action of the Company. (d) Validity. This Convertible Note has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 7. Events of Default. If any of the following events takes place before the Maturity Date (each, an "Event of Default"), Payee at its option may declare all principal and accrued and unpaid interest thereon and all other amounts payable under this Convertible Note immediately due and payable in immediately available cash funds; provided, however, that this Convertible Note shall automatically become due and payable without any declaration in the case of an Event of Default specified in clause 3 or 5, below: (1) The Company fails to make payment of the full amount due under this Convertible Note by the issuance of Series D Preferred Stock or Qualified Financing Securities, as the case may be; or (2) A receiver, liquidator or trustee is appointed by a court order (i) of the Company or (ii) for any substantial part of the Company's assets or properties; or (3) The Company is adjudicated bankrupt or insolvent; or (4) A substantial part of the Company's property is sequestered by or in consequence of a court order and such order remains in effect for more than 30 days; or (5) The Company files a petition in voluntary bankruptcy or requests reorganization under any provision of any bankruptcy, reorganization or insolvency law or consents to the filing of any petition against it under such law, or (6) Any petition against the Company is filed under bankruptcy, receivership or insolvency law; or (7) The Company makes a formal or informal general assignment for the benefit of its creditors, or admits in writing its inability to pay debts generally when they become due, or consents to the appointment of a receiver, liquidator or trustee of the Company or for all or any part of its property; or (8) An attachment or execution is levied against any substantial part of the Company's assets that is not released within 30 days; or (9) The Company dissolves, liquidates or ceases business activity, or transfers the majority of its assets other than in the ordinary course of business; or (10) The Company breaches any material covenant or agreement on its part contained in this Convertible Note; (11) There exists any material inaccuracy or untruthfulness of any representation or warranty of the Company set forth in this Convertible Note; or -6- (12) The Company shall default under any promissory note, credit agreement, loan agreement, conditional sales contract, guarantee, lease, indenture, bond, debenture or other material obligation to which it is a party whatsoever having an aggregate outstanding amount greater than $1,000,000 and a party thereto or a holder thereof is entitled to accelerate the obligations of the Company. 8. Definitions. "Business Day" means a day (other than a Saturday or Sunday) on which banks generally are open in New York, New York for the conduct of substantially all of their activities. "Convertible Note" shall mean this Convertible Promissory Note, together with any other convertible notes in the form hereof issued upon transfer or exchange hereof, in whole or in part. "Convertible Noteholder" with respect to any Convertible Note, means at any time each Person then the record owner of such Convertible Note and "Convertible Noteholders" means all of such Convertible Noteholders collectively. "Person" means any person or entity of any nature whatsoever, specifically including an individual, a firm, a company, a corporation, a partnership, a limited liability company, a trust or other entity. "Series D Preferred Stock" means the series of convertible preferred stock of the Company issued in the Series D Financing. "Series D Financing" means the issuance of convertible preferred stock of the Company to one or more investors for cash pursuant to the Series D Stock Purchase Agreement. "Series D Stock Purchase Agreement" means the IFX Corporation Series D Convertible Preferred Stock Purchase Agreement dated as of February 19, 2002, among the Company and the other parties named therein. "Qualified Financing" means the future issuance of Qualified Financing Securities to one or more investors following the date of issuance of this Convertible Note pursuant to a Qualified Financing Purchase Agreement, if any. "Qualified Financing Securities" means a new series of convertible preferred stock or debt, any common stock or any convertible debentures of the Company to be issued pursuant to a Qualified Financing Purchase Agreement, if any. "Qualified Financing Purchase Agreement" means an agreement executed by the Company after the date hereof which provides the Company with debt or equity financing in the minimum amount of $2.5 million in connection with the issuance of securities by the Company that are convertible, exercisable, or exchangeable into shares of IFX common stock. -7- 9. Expenses of Enforcement, etc. The Company agrees to pay all reasonable fees and expenses incurred by the Payee in connection with the negotiation, execution and delivery of this Convertible Note. The Company agrees to pay all reasonable fees and expenses incurred by the Payee in connection with any amendments, modifications, waivers, extensions, renewals, renegotiations or "workouts" of the provisions hereof or incurred by the Payee in connection with the enforcement or protection of the Payee's rights in connection with this Convertible Note, or in connection with any pending or threatened action, proceeding, or investigation relating to the foregoing, including but not limited to the reasonable fees and expenses of counsel for the Payee. The Company indemnifies the Payee and its directors, managers, affiliates, partners, members, officers, employees and agents against, and agrees to hold the Payee and each such person and/or entity harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees and expenses, incurred by or asserted against the Payee or any such person or entity arising out of, in any way connected with, or as a result of (i) the consummation of the loan evidenced by this Convertible Note and the use of the proceeds thereof or (ii) any claim, litigation, investigation or proceedings relating to any of the foregoing, whether or not the Payee or any such person or entity is a party thereto. 10. Amendment and Waiver. The provisions of this Convertible Note may not be modified, amended or waived, and the Company may not take any action herein prohibited, or omit to perform any act herein required to be performed by it without the written consent of the Payee. 11. Remedies Cumulative. No remedy herein conferred upon the Payee is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. 12. Remedies Not Waived. No course of dealing between the Company and the Payee or any delay on the part of the Payee in exercising any rights hereunder shall operate as a waiver of any right of the Payee. 13. Assignments. The Payee may assign, participate, transfer or otherwise convey this Convertible Note and any of its rights or obligations hereunder or interest herein to any Person, and this Convertible Note shall inure to the benefit of the Payee's successors and assigns. The Company shall not assign or delegate this Convertible Note or any of its liabilities or obligations hereunder. 14. Headings. The headings of the sections and paragraphs of this Convertible Note are inserted for convenience only and do not constitute a part of this Convertible Note. 15. Severability. If any provision of this Convertible Note is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Convertible Note will remain in full force and effect. Any provision of this Convertible Note held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. -8- 16. Cancellation. After all principal, premiums (if any) and accrued interest at any time owed on this Convertible Note have been paid in full, or this Convertible Note has been converted in accordance with its terms, this Convertible Note will be surrendered to the Company for cancellation and will not be reissued. 17. Maximum Legal Rate. If at any time an interest rate applicable hereunder exceeds the maximum rate permitted by law, such rate shall be reduced to the maximum rate so permitted by law. 18. Place of Payment and Notices. Subject to Section 4(a) above, payments of principal and interest and notices deliverable to the Payee hereunder are to be delivered to the Payee at the address as the Payee has specified by prior written notice to the Company. No notice shall be deemed to have been delivered until the first Business Day following actual receipt thereof at the foregoing address. 19. Waiver of Jury Trial. The Payee and the Company each hereby waives any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this Convertible Note or the transactions contemplated hereunder. 20. Submission to Jurisdiction. (a) Any legal action or proceeding with respect to this Convertible Note may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Convertible Note, the Company hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. (b) The Company hereby irrevocably waives, in connection with any such action or proceeding, any objection, including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens, which they may now or hereafter have to the bringing of any such action or proceeding in such respective jurisdictions. (c) Nothing herein shall affect the right of the Payee to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company in any other jurisdiction. 21. GOVERNING LAW. ALL ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS CONVERTIBLE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF FLORIDA. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -9- IN WITNESS WHEREOF, the Company has executed and delivered this Convertible Promissory Note on the date first written above. IFX CORPORATION By: /s/ Joel Eidelstein ------------------------- Name: Joel Eidelstein Title: President Agreed to and accepted: PAYEE: ROF/IFX, LLC By: /s/ Mark Rice ----------------------- Name: Mark Rice Title: Manager -10- EX-21.1 11 dex211.txt SUSIDIARIES Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANT
Level Name of Subsidiary Jurisdiction Relationship to Parent ----- ------------------ ------------ ---------------------- IFX CORP. State of Delaware N/A 1 IFX/Communications Ventures, Inc. State of Delaware 100% owned subsidiary 2 FX Chicago, Inc. State of Delaware 100% owned subsidiary 3 IFX/Telecom, Inc. State of Delaware 100% owned subsidiary 4 IFX/EN, Inc. State of Delaware 100% owned subsidiary 4a (a) IFX Networks, Ltd. British Virgin Islands 100% owned subsidiary 4a-1 (i) IFX Online, Inc. State of Delaware 100% owned subsidiary 4a-2 (ii) IFX/ENI-SPC I, Inc. British Virgin Islands 100% owned subsidiary 4a-2-1 (A) Unete.com, SRL/1/ Venezuela 100% owned subsidiary 4a-3 (iii) IFX/ENI-SPC II, Inc. British Virgin Islands 100% owned subsidiary 4a-3-1 (A) IFX Networks Costa Rica, SRL Costa Rica 100% owned subsidiary 4a-4 (iv) IFX/ENI-SPC III, Inc. British Virgin Islands 100% owned subsidiary 4a-4-1 (A) IFX Networks Colombia, Ltda. Colombia 100% owned subsidiary 4a-5 (v) IFX/ENI-SPC IV, Inc. British Virgin Islands 100% owned subsidiary 4a-5-1 (A) Servicios de Internet ENI Chile, Ltda. Chile 100% owned subsidiary 4a-5-1-1 (1) IFX Networks Chile, S.A. Chile 100% owned subsidiary 4(a)-5-1-2 (2) IFX Chile Larga Distancia, S.A. Chile 100% owned subsidiary 4a-6 (vi) IFX/ENI-SPC V, Inc. British Virgin Islands 100% owned subsidiary 4a-6-1 (A) IFX Networks Argentina, SRL Argentina 100% owned subsidiary 4(a)-7 (vii) IFX/ENI-SPC VI, Inc. British Virgin Islands 100% owned subsidiary 4a-8 (viii) IFXENI-SPC VII, Inc. British Virgin Islands 100% owned subsidiary 4a-8-1 (A) Unete.com Uruguay, S.A./2/ Uruguay 100% owned subsidiary 4a-9 (ix) IFX/ENI-SPC VIII, Inc. British Virgin Islands 100% owned subsidiary 4a-9-1 (A) IFX Networks Bolivia, Ltda. Bolivia 100% owned subsidiary 4a-10 (x) IFX/ENI-SPC IX, Inc. British Virgin Islands 100% owned subsidiary 4a-11 (xi) IFX/ENI-SPC X, Inc. British Virgin Islands 100% owned subsidiary 4a-12 (xii) ENI/SPC Mexican Holdings, Inc. State of Delaware 100% owned subsidiary 4a-12-1 (A) IFX Networks Mexico, S. de R.L. de C.V. Mexico 100% owned subsidiary 4(a)-13 (xiii) IFX/ENI-SPC Ecuador, Inc. British Virgin Islands 100% owned subsidiary 4a-13-1 (A) Unete.com C. Ltda. Ecuador 100% owned subsidiary 4a-14 (xiv) IFX/ENI-SPC El Salvador, Inc. British Virgin Islands 100% owned subsidiary 4a-14-1 (A) IFX Networks El Salvador, Ltda. de CV El Salvador 100% owned subsidiary 4a-15 (xv) IFX/ENI-SPC Guatemala, Inc. British Virgin Islands 100% owned subsidiary 4a-15-1 (A) IFX Networks Guatemala Ltda. Guatemala 100% owned subsidiary 4a-15-2 (B) IFX Administracion, Ltda. Guatemala 100% owned subsidiary 4a-16 (xvi) IFX Networks Nicaragua, Inc. British Virgin Islands 100% owned subsidiary 4a-16-1 IFX Networks Nicaragua, Inc., and Compania Ltda Nicaragua 100% owned subsidiary 4a-17 (xvii) IFX/ENI-SPC Honduras, Inc. British Virgin Islands 100% owned subsidiary 4a-17-1 (A) IFX Networks Honduras, S. de R.L Honduras 100% owned subsidiary 4(a)-18 (xviii) IFX/ENI-SPC Panama, Inc. British Virgin Islands 100% owned subsidiary 4a-18-1 (A) IFX Networks Panama, SA Panama 100% owned subsidiary 4a-19 (xix) IFX/ENI-SPC Uruguay, Inc. British Virgin Islands 100% owned subsidiary 4a-20 (xx) Minority Stock Holding Corp. British Virgin Islands 100% owned subsidiary 4a-21 (xxi) ENI Brazilian Holdings, LLC. State of Delaware 100% owned subsidiary 4a-21-1 (A) IFX do Brasil, Ltda. Brazil 100% owned subsidiary 4a-21-2 (B) IFX Telecomunicacoes do Brasil Ltda Brazil 100% owned subsidiary 4a-22 (xxii) CELC/IFX, LLC State of Delaware 100% owned subsidiary 4a-22-1 (A) Communications Equipment Leasing Corp. British Virgin Islands 100% owned subsidiary 4a-23 (xxiii) IFX/CELC II, Inc. State of Delaware 100% owned subsidiary 5 IFX Facilito, Inc. State of Delaware 100% owned subsidiary 6 Latin Guide, Inc. State of Delaware 100% owned subsidiary
- ---------------------- /1/ In the process of changing its legal name to IFX Networks Venezuela, S.R.L. /2/ In the process of changing its legal name to IFX Networks Uruguay, Ltda. EX-23.1 12 dex231.txt CONSENT Exhibit 23.1 Consent of Independent Certified Public Accountants 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. 33-94964, 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, Inc. and in the related Prospectus of our report dated October 4, 2002, which contained an explanatory paragraph relating to the Company's ability to continue as a going concern, with respect to the consolidated financial statements and schedule of IFX Corporation, Inc. included in this Annual Report (Form 10-K) for the year ended June 30, 2002. /s/ Ernst & Young LLP Miami, FL October 12, 2002 -----END PRIVACY-ENHANCED MESSAGE-----