-----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, HCkej9Km+YHciZjSswM2ue/QIdQIiOKOtlKHM/vL2rHMF9J0moIEVq9haOMX7bWq ialBVY8b4ZEyfuuysrJKow== 0000950144-01-002606.txt : 20010223 0000950144-01-002606.hdr.sgml : 20010223 ACCESSION NUMBER: 0000950144-01-002606 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TERREMARK WORLDWIDE INC CENTRAL INDEX KEY: 0000912890 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 521989122 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12475 FILM NUMBER: 1542036 BUSINESS ADDRESS: STREET 1: 2601 SOUTH BAYSHORE DRIVE CITY: MIAMI STATE: FL ZIP: 33133 BUSINESS PHONE: 2123199160 MAIL ADDRESS: STREET 1: 2601 SOUTH BAYSHORE DRIVE CITY: MIAMI STATE: FL ZIP: 33133 FORMER COMPANY: FORMER CONFORMED NAME: AMTEC INC DATE OF NAME CHANGE: 19970715 FORMER COMPANY: FORMER CONFORMED NAME: AVIC GROUP INTERNATIONAL INC/ DATE OF NAME CHANGE: 19950323 FORMER COMPANY: FORMER CONFORMED NAME: YAAK RIVER MINES LTD DATE OF NAME CHANGE: 19931001 10-Q 1 g66866e10-q.txt TERREMARK WORLDWIDE, INC. 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 31, 2000. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Exchange Act For the transition period from ____________ to ____________. Commission file number: 0-22520 TERREMARK WORLDWIDE, INC. ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) Delaware 52-1981922 - --------------------------------- -------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 2601 S. Bayshore Drive Miami, Florida 33133 ------------------------------------------------------ (Address of Principal Executive Offices and Zip Code) (305) 856-3200 ------------------------------------------------------ (Registrant's Telephone Number, Including Area Code) AmTec, Inc. ------------------------------------------------------ (Former Name of Registrant) 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 [ ] The registrant had 200,372,179 shares of common stock, $0.001 par value, outstanding as of February 10, 2001. 2 TERREMARK WORLDWIDE, INC. INDEX
PAGE NO. -------- PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements............................................... 2 Condensed Consolidated Balance Sheets as of December 31, 2000 (unaudited) and 2 March 31, 2000 ............................................................... Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2000 and 1999 (unaudited).................................. 3 Condensed Consolidated Statement of Changes in Stockholders' Equity for the Nine Months Ended December 31, 2000 (unaudited)............................... 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2000 and 1999 (unaudited)........................................ 5 Notes to Condensed Consolidated Financial Statements (unaudited).............. 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................................. 18 PART II. OTHER INFORMATION ITEM 2. Changes in Securities and Use of Proceeds.......................... 30 ITEM 6. Exhibits and Reports on Form 8-K................................... 30 SIGNATURES.................................................................... 31
1 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, MARCH 31, 2000 2000 -------------- -------------- (UNAUDITED) ASSETS Cash and cash equivalents $ 5,095,960 $ 3,391,977 Restricted cash 170,000 506,776 Accounts receivable 4,027,653 777,307 Contracts receivable 4,572,643 -- Real estate inventories -- 11,797,306 Investment in affiliates 1,368,354 -- Investments in unconsolidated entities 6,122,576 -- Notes receivable 626,433 2,755,413 Property, plant and equipment, net of accumulated depreciation of $770,285 and $133,943, respectively 12,293,210 1,010,735 Other assets 4,128,783 1,977,373 Identifiable intangible assets and goodwill, net of accumulated amortization of $9,364,337 and $-0-, respectively 75,270,612 -- Real estate held for sale 12,996,677 55,781,259 -------------- -------------- TOTAL ASSETS $ 126,672,901 $ 77,998,146 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable $ 16,755,163 $ 72,784,079 Trade payables 9,370,071 4,083,039 Convertible debt 6,246,159 -- Capital lease obligations and other liabilities 9,795,746 581,683 Deferred revenue 403,736 Interest payable 484,328 72,914 -------------- -------------- TOTAL LIABILITIES 43,055,203 77,521,715 -------------- -------------- Minority interest 40,214 Convertible preferred stock: $1 par value, -0- and 4,176,693 shares authorized, issued and outstanding respectively -- 4,176,693 Series G convertible preferred stock: $.001 par value, 20 and -0- shares authorized, issued and outstanding, respectively 1 -- Common stock: $.001 par value, 300,000,000 shares authorized; 200,372,179 and 70,685,845 shares issued and outstanding, respectively 200,372 70,686 Paid in capital 125,292,429 7,954,010 Retained deficit (43,974,955) (11,724,958) Common stock warrants 2,059,398 -- Accumulated other comprehensive income 239 -- Commitments and contingencies (Note 9) -------------- -------------- TOTAL STOCKHOLDERS' EQUITY 83,577,484 476,431 -------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 126,672,901 $ 77,998,146 ============== ==============
The accompanying notes are an integral part of these interim consolidated financial statements. 2 4 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------------------- ------------------------------- 2000 1999 2000 1999 -------------- -------------- -------------- -------------- (UNAUDITED) (UNAUDITED) Revenues Telecom services $ 647,935 $ -- $ 1,148,634 $ -- Real estate sales 1,037,206 2,279,364 2,752,748 10,396,157 Commission income 2,795,183 440,095 3,664,741 570,176 Development and construction fees 1,237,730 341,666 2,104,918 1,025,000 Management fees 707,747 365,837 1,634,315 1,006,079 Construction contracts 8,691,092 358,852 14,133,231 392,185 -------------- -------------- -------------- -------------- Operating revenues 15,116,893 3,785,814 25,438,587 13,389,597 -------------- -------------- -------------- -------------- Expenses Cost of telecom services 1,370,171 -- 2,029,102 -- Start up costs-telecom services 1,616,945 -- 1,616,945 -- Cost of real estate sold 700,076 1,695,550 2,134,572 8,778,438 Construction contract expenses 7,644,200 321,832 12,727,524 321,832 General and administrative expenses 8,989,423 2,549,979 21,080,565 5,188,859 Sales and marketing expenses 774,388 761,897 3,067,684 1,751,897 Depreciation and amortization 4,542,887 22,630 10,142,970 63,130 -------------- -------------- -------------- -------------- Operating expenses 25,638,090 5,351,888 52,799,362 16,104,156 -------------- -------------- -------------- -------------- Loss from operations (10,521,197) (1,566,074) (27,360,775) (2,714,559) -------------- -------------- -------------- -------------- Other income (expense) Equity in losses of affiliate (220,958) -- (424,707) -- Interest income 125,718 86,118 453,220 185,814 Interest expense (174,529) (194,662) (511,715) (613,478) Other (expense) income (304,931) (94,382) (651,132) (4,979) Dividend on preferred stock -- (104,417) (34,806) (313,252) Minority interest 234,535 -- 435,096 -- Impairment of identifiable intangible assets (Note 12) (4,155,178) -- (4,155,178) -- -------------- -------------- -------------- -------------- Total other income (expense) (4,495,343) (307,343) (4,889,222) (745,895) -------------- -------------- -------------- -------------- Loss before income taxes (15,016,540) (1,873,417) (32,249,997) (3,460,454) Income taxes Current tax expense -- -- -- -- Deferred tax expense -- -- -- -- -------------- -------------- -------------- -------------- Total income tax expense -- -- -- -- -------------- -------------- -------------- -------------- Net loss $ (15,016,540) $ (1,873,417) $ (32,249,997) $ (3,460,454) ============== ============== ============== ============== Basic and diluted loss per common share $ (0.07) $ (0.03) $ (0.17) $ (0.05) ============== ============== ============== ============== Weighted average common shares outstanding 200,372,179 70,685,845 184,655,075 70,685,845 ============== ============== ============== ==============
The accompanying notes are an integral part of these interim consolidated financial statements. 3 5 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY ----------------------------------------------------------------------------------------- COMMON STOCK PAR VALUE $.001 ACCUMULATED --------------------- ADDITIONAL COMMON OTHER PREFERRED ISSUED PAID-IN STOCK COMPREHENSIVE RETAINED STOCK SHARES AMOUNT CAPITAL WARRANTS INCOME DEFICIT ----------- ----------- -------- ------------ ------------ ------------- ------------ Balance at March 31, 2000 $ 4,176,693 70,685,845 $ 70,686 $ 7,954,010 $ -- $ -- $(11,724,958) Effect of AmTec merger: Conversion of preferred stock (4,176,693) 7,853,985 7,854 4,168,839 -- -- -- Assumption of AmTec equity 1 38,289,500 38,289 46,923,782 1,687,038 -- -- Sale of common stock -- 68,722,349 68,722 28,054,203 -- -- -- Common stock issued in acquisitions -- 14,412,500 14,413 37,531,045 -- -- -- Exercise of warrants -- 54,000 54 190,161 (21,640) -- -- Exercise of stock options -- 354,000 354 470,389 -- -- -- Foreign currency translation -- -- -- -- -- 239 -- Warrants issued 394,000 Net loss -- -- -- -- -- -- (32,249,997) ----------- ----------- -------- ------------ ------------ ------ ------------ Balance at December 31, 2000 (unaudited) $ 1 200,372,179 $200,372 $125,292,429 $ 2,059,398 $ 239 $(43,974,955) =========== =========== ======== ============ ============ ====== ============
The accompanying notes are an integral part of these interim consolidated financial statements. 4 6 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS DECEMBER 31, 2000 (UNAUDITED)
FOR THE NINE MONTHS ENDED DECEMBER 31, --------------------------- 2000 1999 ------------ ------------ (UNAUDITED) Cash flows from operating activities: Net loss $(32,249,997) $ (3,460,454) Adjustments to reconcile net loss to net cash (used in) provided by operating activities Depreciation 624,399 $ 63,130 Amortization of loan costs to interest expense 119,086 95,594 Amortization of capital lease 44,052 -- Amortization of intangible assets and goodwill 9,514,113 -- Amortization of prepaid compensation 98,500 -- Impairment of identifiable intangible asset 4,155,178 -- Write-down of Terremark Centre -- 150,000 Minority interest in loss of subsidiary 40,214 -- Equity in losses of affiliate 424,707 -- Foreign currency translation 239 -- (Increase) decrease in: Real estate inventories (1,199,371) 7,571,317 Restricted cash 366,776 13,134 Accounts receivable 29,610 (133,377) Contracts receivable (4,572,643) -- Notes receivable 1,126,240 (255,082) Other assets (977,113) (475,564) Increase (decrease) in: Trade payable and other liabilities 6,846,583 (331,427) Interest payable 411,414 327,956 Deferred revenue 281,015 (100,000) ------------ ------------ Net cash (used in) provided by operating activities (14,916,998) 3,465,227 ------------ ------------ Cash flows from investing activities: Purchase of fixed assets (6,230,494) (241,520) Investment in affiliate (442,837) -- Investment in unconsolidated entities (4,121,397) -- Proceeds from sale of Terremark Centre 55,781,259 -- Cash acquired in acquisitions 2,368,273 10,250 Receivable from Amtec -- (1,125,000) ------------ ------------ Net cash provided by (used in) investing activities 47,354,804 (1,356,270) ------------ ------------
5 7 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS DECEMBER 31, 2000
FOR THE NINE MONTHS ENDED DECEMBER 31, ---------------------------- 2000 1999 ------------ ------------ (UNAUDITED) Cash flows from financing activities: New borrowings 13,762,403 2,230,000 Payments on loans (76,254,628) (5,757,253) Convertible debt 2,996,159 Exercise of stock options 470,743 -- Sale of common stock 28,122,925 -- Warrants 168,575 -- ------------ ------------ Net cash used in financing activities (30,733,823) (3,527,253) ------------ ------------ Net increase in cash 1,703,983 (1,418,296) Cash and cash equivalents at beginning of period 3,391,977 2,808,033 ------------ ------------ Cash and cash equivalents at end of period $ 5,095,960 $ 1,389,737 ============ ============ SUPPLEMENTAL DISCLOSURE: Interest paid (net of amount capitalized) $ 678,382 $ 329,698 ============ ============ Taxes paid $ -- $ 2,083 ============ ============ Assets acquired under capital lease $ 435,338 $ 194,934 ============ ============
Non-Cash transaction: During the quarter ended December 31, 2000, the Company reclassified approximately $12,997,000 in real estate inventories to real estate held for sale. During the quarter ended December 31, 2000, the Company reclassified approximately $3,250,000 from notes payable to convertible debt. During the quarter ended December 31, 2000, the Company issued $394,000 in warrants to a third party in lieu of cash compensation for a one year consulting agreement. The accompanying notes are an integral part of these interim consolidated financial statements. 6 8 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A summary of the significant accounting principles and practices used by the Company in preparing its consolidated financial statements follows. BASIS OF FINANCIAL STATEMENT PRESENTATION These condensed consolidated financial statements as of December 31, 2000 and March 31, 2000, and for the three and nine-month periods ended December 31, 2000 and 1999 are unaudited and have been prepared on a basis substantially consistent with the audited consolidated financial statements of Terremark Worldwide, Inc. and its subsidiaries (collectively, "Terremark" or the "Company"). These statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. All adjustments are of a normal recurring nature. The results of operations for the nine months ended December 31, 2000 are not necessarily indicative of the results for the entire year ending March 31, 2001. These statements have been prepared in accordance with the regulations of the Securities and Exchange Commission ("SEC"), but omit certain information and footnote disclosure necessary to present the statements in accordance with generally accepted accounting principles. For further information, refer to the Consolidated Financial Statements included in Terremark's Amendment No. 1 to Form S-3 (File No. 333-37060) as of June 30, 2000 and March 31, 2000 and for the three-month periods ended June 30, 2000 and 1999 as filed with the SEC on September 1, 2000. The Company's consolidated financial statements include the accounts of the Company's wholly and majority-owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. RECLASSIFICATIONS Certain reclassifications have been made to the prior periods' financial statements to conform to current presentation. REVENUE AND PROFIT RECOGNITION Revenues from telecommunication services are recognized as services are provided. Revenues from telecom facilities management are recognized as earned. Revenues from construction contracts are recognized on the percentage-of-completion method, measured by the percentage of costs incurred to date to total estimated costs for each contract. This method is used because management considers cost incurred to be the best measure of progress on these contracts. The duration of a construction contract generally exceeds one year. 7 9 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 Contract costs include all direct material and labor costs and indirect costs related to contract performance such as indirect labor, supplies, tools, repairs and depreciation. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which losses are determined. Changes in job performance, job conditions and estimated profitability, including those arising from contract penalty provisions and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions can be reasonably estimated. Accordingly, it is possible that the Company's current estimates relating to completion cost and profitability of its uncompleted contracts will vary from actual results. Billings in excess of costs and estimated earnings on uncompleted contracts are classified as other liabilities and represent billings in excess of revenues recognized. OTHER COMPREHENSIVE INCOME The Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," effective January 1, 1998. Accordingly, gains and losses on translation of accounts of the Company's non-U.S. operations are accumulated and reported as a component of accumulated other comprehensive income in stockholders' equity. At December 31, 2000 and 1999, the Company had other comprehensive income of $239 and $0, respectively. 2. ACQUISITIONS: AMTEC, INC. On April 28, 2000, the predecessor to the Company, Terremark Holdings, Inc. (THI) merged with and into AmTec, Inc., a publicly traded international telecommunications and services company, pursuant to an agreement dated November 24, 1999 and approved by the stockholders of AmTec on April 28, 2000 ("AmTec merger"). As a result of the merger, each share of THI common stock was converted into approximately 63 shares of the Company's common stock. The stockholders' equity in the historical financial statements reflects this conversion as if it had occurred at the beginning of each period. The AmTec merger was accounted for using the purchase method of accounting, with THI treated as the acquirer for accounting purposes. As a result, the assets and liabilities of THI are recorded at historical values and the assets and liabilities of AmTec are recorded at their estimated fair values at the date of the merger. The purchase price was based on market capitalization of AmTec using $0.99 per AmTec common share, the average closing price of AmTec shares, for a period immediately before and after announcement on November 9, 1999 of the proposed merger, plus certain merger related costs. 8 10 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 The following unaudited condensed results of operations for the nine months ended December 31, 2000 and 1999 were prepared assuming the merger occurred on April 1, 2000 and 1999, respectively.
FOR THE NINE MONTHS ENDED DECEMBER 31, ------------------------------ 2000 1999 ------------- ------------- Revenue $ 23,311,000 $ 13,390,000 Net loss $ (34,181,000) $ (11,079,000) Basic and diluted net loss per share $ (0.16) $ (0.06)
The amounts for the nine months ended December 31, 2000 include AmTec's actual results for the period April 1, 2000 to April 28, 2000. The amounts for the nine months ended December 31, 1999 include AmTec's actual results for the nine months ended December 31, 1999. In preparing the pro forma information, various assumptions were made. This information is not necessarily indicative of what would have occurred had these transactions occurred on April 1, 2000 and 1999, nor is it indicative of the results of future combined operations. 9 11 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 3. CONTRACTS RECEIVABLE: Contracts receivable consist of the following:
DECEMBER 31, MARCH 31, 2000 2000 ------------ --------- (UNAUDITED) Completed contracts $ 793,241 $ -- Contracts in progress 2,733,359 -- Retainage 1,046,043 -- ------------ ---- 4,572,643 -- Less: allowance for doubtful collection -- -- ------------ ---- $ 4,572,643 -- ============ ====
4. REAL ESTATE INVENTORIES: Real estate inventories consist of the following:
DECEMBER 31, MARCH 31, 2000 2000 ------------ ------------ (UNAUDITED) Work in progress $ -- $ 8,566,697 Completed inventories -- 3,230,609 ------------ ------------ $ -- $ 11,797,306 ============ ============
10 12 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 5. OTHER ASSETS: Other assets consist of the following:
December 31, March 31, 2000 2000 ------------ ------------ (unaudited) Prepaid expenses and other $ 2,791,639 $ 1,057,340 Loan costs, net of accumulated amortization of $106,215 and $1,095,595 173,072 368,946 Prepaid investment costs 410,591 Option agreement 428,000 Reimbursable construction costs and other expenses 736,072 140,496 ------------ ------------ $ 4,128,783 $ 1,977,373 ============ ============
11 13 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 6. NOTES RECEIVABLE: Notes receivable consist of the following:
DECEMBER 31, MARCH 31, 2000 2000 ------------ ------------ (UNAUDITED) Note receivable from a corporation, $200,000 principal, interest accrues annually at 8%. Interest and principal due upon demand. $ 232,702 $ 220,647 Note receivable from a corporation, $360,000 principal, collateralized by second lien on condominium units, interest accrues annually at 9%. Interest and principal due August 27, 2002. 393,731 369,321 $3,000,000 million line of credit to Spectrum Telecommunications Corp., $0 and $1,000,000 principal outstanding respectively, interest accrues annually at 10%. -- 1,002,740 Notes receivable from AmTec, Inc., $0 and $1,125,000 principal, outstanding, respectively interest accrues annually at 10%. Interest and principal due July 1, 2000. -- 1,162,705 ---------- ------------ $ 626,433 $ 2,755,413 ========== ============
12 14 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 7. NOTES PAYABLE: Notes payable consist of the following:
DECEMBER 31, MARCH 31, 2000 2000 ------------ ------------ (UNAUDITED) Note payable to a commercial lender, collateralized by a first mortgage on real estate. Principal payable in installments as condominium units are sold. Interest accrues at prime, payable through an interest reserve. Principal and unpaid interest due May 2001, with an option for a six month extension. Guaranteed by a shareholder. $ 395,118 $ 2,681,998 Note payable to a corporation in seventy-five monthly installments of principal and interest beginning January 1, 1999. Interest accrues at 9.5%. 257,233 272,397 Note payable to an individual, collateralized by a first mortgage on land, interest accrues at 12% and is payable monthly. Principal due March 1, 2001. 7,500,000 -- Note payable to a vendor, collateralized by subscriber communication units and equipment interest accrues at LIBOR + 1%, principal and interest are payable in varying semiannual installments through October 2001. 269,334 -- Note payable to a vendor, collateralized by telecommunications equipment and infrastructure, Interest accrues at 7.5%, principal and interest are payable in varying installments through July 2004. 443,644 -- Note payable to a vendor, collateralized by certain telecommunications equipment. Interest accrues at 11%, principal and interest are due November 2001. 590,570 Note payable to a vendor, collateralized by certain telecommunication equipment, interest accrues at 10.5%, interest and principal are payable monthly from April 1, 2001 through December 2003. 275,329 --
13 15 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 7. NOTES PAYABLE (CONTINUED):
2000 2000 ------------ ------------ (UNAUDITED) Note payable to a vendor, collateralized by certain telecommunications equipment, interest accrues at 11%, principal and interest are due June 2002. 1,104,811 Notes payable to an individual, interest accrues at 8%, with principal and interest due monthly through March 2001. 169,124 -- $2.25 million line of credit facility with a financial institution, collateralized by (1) certain assets and personal guarantees of a stockholder of the Company and certain executives of the Company. Interest accrues at 1% over prime, payable monthly, with principal balance due June 2001. 2,250,000 -- $5 million line of credit facility with a financial institution, collateralized by (1) certain assets of the Company and (2) a corporate guaranty. Interest accrues at 1% over prime, payable monthly, with principal balance due upon demand. 3,500,000 $15 million line of credit facility with a financial institution, collateralized by a first mortgage on real estate. Interest accrues at 1% over prime, payable monthly. Line of credit reduced to $7.5 million in 2000 and cancelled in July 2000. -- 14,631,700 Notes payable to a financial institution, collateralized by a first mortgage on Terremark Centre and all future rents of the property. Principal and interest payable monthly based on a 20-year amortization at 7.74% until May 15, 2001 and at an adjustable rate thereafter. -- 28,100,084 Notes payable to a corporation, collateralized by the partnership interests of Terremark Centre, Ltd. Principal, together with the greater of (a) all accrued and unpaid interest at a rate of 7%, beginning December 22, 1999 or (b) a minimum interest payment of $1,000,000, due upon sale of Terremark Centre. -- 27,097,900 ------------ ------------ $ 16,755,163 $ 72,784,079 ============ ============
14 16 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 Interest expense of $174,529 and $194,662 net of amounts capitalized to real estate inventories totaling $145,747 and $0, was recognized during the three months ended December 31, 2000 and 1999, respectively. 8. CONVERTIBLE DEBT On December 29, 2000 the Company closed on $6,246,159 of subordinated convertible debt. Interest accrues at 13% and is payable quarterly beginning March 31, 2001. Principal and unpaid interest are due on December 31, 2005. Each debenture is convertible into the Company's stock at 120% of the 20-day average trading price prior to the closing. Prepayment by the Company is permitted, but will entitle holders to warrants or a premium over their outstanding principal and interest based upon the following schedule:
YEAR REDEMPTION PRICE 2001 105% 2002 104% 2003 103% 2004 102% 2005 100%
Subsequent to December 31, 2000 the Company sold an additional $1,767,700 of convertible debt. Approximately 82.0% of the amount closed is payable to management and directors. 9. COMMITMENTS AND CONTINGENCIES: The Company has unconditionally guaranteed payment of a first mortgage on inventory sold in December 1999. As of December 31,2000, $340,000 is outstanding under the mortgage. On October 2, 2000, the Company, entered into a short-term lease in Miami, Florida, for a temporary facility to house and operate an interim Network Access Point until the TerreNAP(SM) Data Center is completed. On October 16, 2000, the Company, signed a 20 year lease in the Technology Center of the Americas ("TECOTA"), in Miami, Florida, to house and operate the TerreNAP(SM) Data Center, a tier one Network Access Point. This facility is currently under construction and will provide a carrier neutral facility to facilitate Internet backbone interconnectivity (peering). Upon completion, the TerreNAP(SM) Data Center will contain approximately 120,000 square feet of raised floor space and is expected to be operational by the third calendar quarter of 2001. In November 2000, Technology Center of the Americas LLC, an entity that the Company has a 1% member interest in entered in to a $60.6 million construction note payable with a financial institution, which is secured by a first lien on TECOTA. Interest is payable monthly at the Citibank N.A. prime rate +1.5%, initially from the interest reserve and then from operations. The Company has unconditionally guaranteed the completion of TECOTA and the repayment of the loan. 10. RELATED PARTY TRANSACTIONS: MANAGEMENT FEES Certain officers and executives of the Company owned partnership interests in one and two office buildings during the periods ending December 31, 2000 and 1999, respectively. The Company provides management and construction services to both partnerships for a fee. Management and 15 17 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 construction fees earned totaled $100,735 and $216,295 for the nine-month periods ended December 31, 2000 and 1999, respectively. During the nine-month periods ended December 31, 2000 and 1999, the Company provided management services to the Fortune House Condominium Association. The Company recorded as income $37,500 for each period relating to the services performed. Certain employees of the Company own an office building in which the Company rents space. Rent paid to these employees totaled $33,837 and $0 for the nine-month periods ending December 31, 2000 and 1999, respectively. 11. INFORMATION ABOUT THE COMPANY'S OPERATING SEGMENTS: As of December 31, 2000, the Company had three reportable business segments telecom services, telecom facilities management and real estate services. The telecom services segment provides Internet and telecommunications infrastructure and managed services. The telecom facilities management segment develops, manages and leases facilities catering primarily to the telecommunications industry. The real estate services segment constructs, develops, financing and manages real estate projects. The Company's reportable segments are strategic business operations that offer different products and services. They are managed separately because each business requires different expertise and marketing strategies. The accounting policies of the segments are the same as those described in significant accounting policies. Revenues generated among segments are recorded at rates similar to those recorded in third-party transactions. Transfers of assets and liabilities between segments are recorded at cost. The Company evaluates performance based on the segment's net operating results. The following presents information about reportable segments.
TELECOM FOR THE NINE MONTHS ENDED TELECOM FACILITIES REAL ESTATE DECEMBER 31, SERVICES MANAGEMENT SERVICES TOTAL - ------------------------- -------------- -------------- -------------- ------------- 2000 Revenue $ 1,148,634 $ 2,863,443 $ 21,426,510 $ 25,438,587 Loss from operations (18,273,354) (2,809,727) (6,277,694) (27,360,775) Net loss (18,410,857) (6,902,237) (6,936,903) (32,249,997) 1999 Revenue -- -- $ 13,389,597 $ 13,389,597 Loss from operations -- -- (2,714,599) (2,714,599) Net loss -- -- (3,460,454) (3,460,454) ASSETS, AS OF December 31, 2000 $ 62,675,481 $ 21,778,715 $ 42,218,705 $ 126,672,901 March 31, 2000 -- -- 77,998,146 77,998,146
16 18 TERREMARK WORLDWIDE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 12. SUBSEQUENT EVENTS: On January 12, 2001, the Company entered into an agreement to sell on February 23, 2001, certain of its telecom facilities management operations to MP Telecom, LLC ("MP"), an entity owned by certain officers and a director of the Company. Assets to be sold include all of the Company's equity ownership interests (including any rights to "promote" interests) in the T-Rex branded "Telecom Hotel" projects located in Cleveland, Ohio; Boca Raton, Florida; Hartford, Connecticut; Sterling, Virginia; and Chicago, Illinois, together with assets owned by Telecom Routing Exchange Developers, Inc., a wholly-owned subsidiary of the Company. As part of the transaction, the Company will retain its management rights relating to TECOTA, in which the NAP of the Americas will be located. The purchaser will convey to the Company its rights to promote and equity interests in TECOTA. The Company has conditionally transferred to the purchaser its rights under the TECOTA leasing agreement predicated on the purchaser meeting certain leasing goals, and will transfer the right to leasing commissions for TECOTA. As a result of these transactions, the Company will own 100% of the promote and 1.0% of the equity interests in TECOTA. As part of the transaction, MP will convey to the Company 1,400,000 shares of the Company's common stock, representing a portion of 8,000,000 shares issued by the Company to MP and its affiliates in conjunction with the Company's June 2000 T-Rex acquisition. MP will also convey its minority interest to the Company's co-location business. The Company will pay $900,000 to the purchaser in connection with the transaction. The principals of MP and various executive officers of the Company have mutually agreed that, until December 25, 2001, each group will limit, in the aggregate, the number of shares of the Company sold by them during any trading day. As a result of the pending transaction, the Company recognized an impairment of intangible assets of approximately $4,155,178 relating to management contracts to be sold for the period ended December 31, 2000. The Company has entered into a contract to sell Fortune House II, a proposed condominium/hotel project in Ft. Lauderdale Beach, Florida for $18.5 million. The purchaser has the right to cancel the contract without liability until March 7, 2001. In the event the purchaser does not cancel the contract, the Company anticipates closing on March 31, 2001. * * * * * 17 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion should be read in conjunction with the information contained in our Condensed Consolidated Financial Statements and elsewhere in this filing. The information is intended to facilitate an understanding and assessment of significant changes and trends related to our financial condition and results of operations. This report and other written reports and oral statements made from time to time by us may contain so-called "forward looking statements," all of which are subject to risks and uncertainties. You can identify these forward-looking statements by the use of words such as "expects", "plans", "will", "estimates", "forecasts", "projects" and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address our growth strategy, financial results and development programs. You must carefully consider any such statement and should understand that many factors could cause actual results to differ from our forward-looking statements. Factors that might cause such a difference include, without limitation, relationships with our partners, political instability in countries in which we do business, our ability to obtain proper funding for our business plan, decline in demand for our services or products, the effect of general economic conditions, factors affecting the growth of the Internet, telecommunications and real estate development and other risks and uncertainties detailed from time to time in our Securities and Exchange Commission filings. These factors could include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed and actual future results may vary materially. Actual events or results may differ materially from those discussed in the forward looking statements as a result of various factors, including, without limitation, the forward-looking statements and associated considerations and the risk factors section set forth in our Amendment No. 1 to Registration Statement on Form S-3 filed with the SEC on September 1, 2000. OVERVIEW We are a multinational company that provides Internet Infrastructure and Managed Services. We were founded in 1982 and on April 28, 2000, Terremark Holdings, Inc. completed a reverse merger with AmTec, Inc., a public company. Contemporaneous with the reverse merger we changed our corporate name to Terremark Worldwide, Inc. and adopted "TWW" as our trading symbol. Historical information of the surviving company is that of Terremark Holdings, Inc . We are the owner and, when it is completed, will be the operator of the NAP of the Americas, the fifth Tier-1 Network Access Point ("NAP") in the world, and as a result, we have become an internationally recognized Internet infrastructure and managed services provider. Our strategy is to leverage our experience as the owner and operator of the NAP of the Americas by developing and operating TerreNAP(SM) Data Centers in Latin America and Asia. TERRENAP(SM) Data Centers provide peering, colocation and managed services to carriers, Internet service providers, other Internet companies and enterprises. The NAP of the Americas will be the premier TerreNAP(SM) Data Center and is located in Miami, Florida. During the quarter ended December 31, 2000, we continued to focus on this strategy, particularly on the operation of the interim NAP of the Americas and the development of the permanent NAP of the Americas, while evaluating all of our operations to ensure that they directly support that strategy. Our other operations traditionally have provided a full range of real estate services for traditional commercial and high-rise residential real estate. Our plan in connection with this review is to only retain non-core operations that generate positive cash flow or provide support services to our strategy. 18 20 TELECOM SERVICES To capitalize on the growth of the Internet and the demand for connectivity, we own, are developing, and when completed will operate, the fifth Tier 1 Network Access Point in the U.S., which will be known as the "NAP of the Americas" a TerreNAP(SM) Data Center. The NAP of the Americas will occupy 120,000 gross usable square feet of the Technology Center of the Americas (known as TECOTA), a 750,000 square foot facility currently under construction in downtown Miami and which will be managed by one of our subsidiaries. Our lease for the NAP expires in 2020. Other Internet and telecommunications companies will have operations at the Technology Center of the Americas. We expect that the Technology Center of the Americas will be completed, and the NAP of the Americas will be operational by the third calendar quarter of 2001. To be successful in today's environment, a Tier-1 NAP must have the backing of key industry players. Terremark was selected to own and operate the NAP of the Americas by a consortium of over 90 entities, which include some of the top telecommunications industry members, such as AT&T, Global Crossing, Level 3 Communications, Cable & Wireless, 360 Networks, Sprint, FPL FiberNet, NetRail, PanAmSat, Williams Communications and EPIK Communications. The NAP of the Americas will provide a neutral connection point where carriers can establish public and private connections between and among their networks, which is known as peering. The NAP of the Americas also provides premium-class space where Internet businesses, telecommunications providers and enterprises place their equipment and their network facilities in order to be close to the peering connections that take place at the NAP. This is known as colocation. In addition, the NAP of the Americas will provide a full menu of related managed services, such as a network monitoring, caching, data back-up and off-site storage services, performance reporting services, load balancing services, network security services, and web hosting. We expect that the NAP of the Americas will be the primary channel of Internet traffic from Central and South America and the Caribbean to North America, Asia and Europe. We have contracted Telcordia Technologies, Inc., which was instrumental in the design and operation of two of the other four Tier-1 NAPs in the world, and which is a wholly owned subsidiary of SAIC, to work together with us to enable the design and operations of the NAP of the Americas. Key support that we have and will continue to receive from Telcordia include: recommendations on the peering technology to be deployed in the NAP, design and implementation of key business processes, market and product strategy, and resources used to set-up and operate the interim NAP facility. Our long-term strategy is to continue to work with Telcordia and leverage their expertise and resources to enable our in-house personnel to obtain the knowledge required to operate the NAP and deploy TERRENAP(SM) Data Centers. On December 30, 2000, we launched operations of the interim NAP of the Americas on the basis of a short-term lease. The interim facility, which has has been live and operational since that date, and is staffed 24-hours a day, seven days a week, is providing connectivity to global carriers, ISPs, new technology entrants and members of the NAP of the Americas consortium. The interim NAP of the Americas uses the same peering architecture that will be used at the permanent NAP. We intend to use this technology, the knowledge gained through our long-term relationship with Telcordia, our 20 years of experience dealing with Latin America and Asia, and the expertise of our employees, many of whom were formerly executives with GTE, Nortel, AT&T and Global Crossing, for example, to roll out additional TerreNAP(SM) Data Centers across Latin America and Asia. As part of our expansion of TerreNAP(SM) Data Centers into emerging markets, on December 8, 2000, we opened our first Asia-based TerreNAP(SM) Data Center in Beijing, China. This facility, called TerreNAP(SM) Beijing, is a partnership with BroadOnline, a wholly Chinese owned networking services provider. It is located where the fiber networks in Northern China connect with 19 21 domestic and international Internet gateways and is one of the fastest, and most reliable connections to the Internet available in China. TerreNAP(SM) Beijing is one of the only China-based data centers with Tier-1, direct access to the Internet backbone. We plan to open similar facilities in other Chinese cities in the future. In August 2000, we formed Terremark Latin America and acquired 80% of Spectrum Communications Telecommunications Corp., a privately held, Miami-based provider of telecommunications services with operations in Brazil, Chile and Peru. We have an option, until February 2002, to acquire the remaining 20% of Spectrum. We currently provide international long distance telephony through Voice over Internet Protocol in Brazil and Peru. In Chile, we offer basic telephony services via wireless technologies. Local management of these operations is currently reviewing the potential for TerreNAP Data Centers in these markets. On December 20, 2000, we entered into a Research and Development Agreement with Florida International University ("FIU") to work together, through FIU's Telecommunications and Information Technology Institute, on research and development projects. FIU and we will use FIU's AMPATH network to study current and emerging Internet and telecommunications technologies, including Internet Protocol Version 6, Quality of Service, multicasting and optical switching. These projects will enable us to study advanced network technologies before they are introduced into production networks. As part of the Research and Development Agreement, the NAP of the Americas will serve as the home of the AMPATH Network and South Florida's Internet2 GigaPoP. The aim of AMPATH, a project developed by FIU, is to interconnect the research and education networks in South America, Central America, the Caribbean, Mexico and other countries to U.S. and non-U.S. research and education networks via the Internet2 Abilene network. Revenues from telecommunication services are recognized as services are provided. TELECOM FACILITIES MANAGEMENT In North America, our telecom facilities management segment initially focused on infrastructure solutions, such as telecom hoteling and colocation services. This segment of our operations developed and managed facilities used by Internet companies and telecommunications service providers to house equipment and operate their business. On November 8, 2000, we purchased a 0.5% member interest in a third party joint venture to construct the TECOTA. As a result of our efforts, that venture obtained $48 million of equity and $61 million of construction financing to complete this project. We have guaranteed the bank loans in the amount of $61 million. In connection with our stated plan of reviewing non-core operations, we determined that the development of telecom hotels, while an attractive opportunity, was not consistent with the development and operation of the NAP of the Americas and of TerreNAP(SM) Data Centers in emerging markets. On January 12, 2001, we signed an agreement to sell certain of our telecom facilities management operations on February 23, 2001, to MP Telecom, LLC ("MP"), an entity owned by certain officers and a director of the Company. As part of the transaction, the officers resigned from our management team and Clifford Preminger resigned from our Board. We will retain our rights relating to the management of TECOTA, home of the NAP of the Americas and have conditionally transferred to MP rights under the related leasing agreement, predicated on MP meeting certain leasing goals. MP will convey to us its rights to certain promote and equity interests in TECOTA. Because of these transactions, we will own 100% of the promote and 1.0% of the equity interests in TECOTA. Assets to be sold include the "T-Rex" name, as well as all of our equity ownership interests (including any rights to "promote" interests) in the T-Rex branded "Telecom Hotel" projects located in Cleveland, Ohio; Boca Raton, Florida; Hartford, Connecticut; Sterling, Virginia; and Chicago, Illinois, together with all of the assets owned by Telecom Routing Exchange Developers, Inc., and our wholly owned subsidiaries. As part of the transaction, MP will also convey to us a total of 1,400,000 shares of our common stock, representing a portion of the 8,000,000 shares we issued to MP and its affiliates in conjunction with our June 2000 acquisition of Telecom Routing Exchange Developers, Inc. MP will also convey to us its rights to our colocation business. We also will pay $900,000 to MP in connection with the transaction. The principals of MP and various of our executive officers have mutually agreed that, until December 25, 2001, each group will limit, in the aggregate, the number of our shares sold by them during any trading day. 20 22 In September 2000, ColoConnection, our majority-owned subsidiary signed a 20-year lease for a 45,000 square foot facility in Santa Clara, California which we have guaranteed. This colocation facility is currently being renovated and will provide finished space for multiple parties' telecommunications equipment. In connection with our stated plan of reviewing non-core operations, we are actively marketing the sale of this entity. Revenues from telecommunication facilities management are recognized as earned. REAL ESTATE SERVICES Our management has over 20 years experience in concept development, acquisition of land, project design, equity and debt financing arrangement, construction, management, contract construction, property management, sales and leasing. We believe our experience provides us with a competitive advantage in developing and operating the NAP of the Americas and TerreNAP(SM) Data Centers. As part of our new strategy, we intend to refocus this segment of our operations to support the development and operation of TerreNAP(SM) Data Centers. During October 2000, we merged Post-Shell Technology Contractors, Inc. into Terremark Construction Services, Inc. and changed the name of the combined entity to Terremark Technology Contractors, Inc. Terremark Technology Contractors will direct its activities to build outs for the telecommunications industry. Revenues from construction contract activities are recognized on the percentage-of-completion method, measured by the percentage of costs incurred to date to total estimated costs for each contract. This method is used because management considers costs incurred to be the best measure of progress on these contracts. Contract costs include all direct material and labor costs and indirect costs related to contract performance such as indirect labor, supplies, tools, repairs and depreciation. General and administrative costs are charged to expense as incurred. Generally the duration of a construction contract exceeds one year. CERTAIN RISK FACTORS The nature of our operations changed as a result of the April 28, 2000 merger between AmTec, Inc. and Terremark Holdings, Inc. Our operations continue to evolve as we develop our Internet infrastructure and managed services business. We began offering Internet Infrastructure and managed services in 2000. Due to our short operating history, our business model is still evolving. Consequently, we believe that period-to-period comparisons of our results of operation may not be necessarily meaningful and should not be relied upon as indicators of future performance. We have experienced revenue growth in the recent period, but this growth may not be indicative of our future operating results. Many of the factors that could cause our quarterly operating results to fluctuate significantly in the future are beyond our control. We believe that we will continue to experience net losses on a quarterly and annual basis for the foreseeable future. We may also use significant amounts of cash and/or equity to acquire complementary businesses, products, services or technologies. The market for Internet infrastructure services has only recently begun to develop, is evolving rapidly and likely will be characterized by an increasing number of market entrants. There is significant uncertainty regarding whether this market ultimately will prove to be viable or, if it becomes viable, that it will grow. Our future growth, if any, will be dependent on the willingness of carriers to peer and collocate within our facilities, enterprises to outsource the system and network management of their mission-critical Internet operations and our ability to market our services in a cost-effective manner to a sufficiently large number of those potential customers. There can be no assurance that the market for our services will develop, that our services 21 23 will be adopted or that businesses, organizations or consumers will use the Internet for commerce and communication. If this market fails to develop, or develops more slowly than expected, or if our services do not achieve market acceptance, our business, results of operations and financial condition would be materially and adversely affected. We intend to allocate our financial resources to activities that are consistent with our strategy of developing and operating TerreNAP(SM) Data Centers, including the NAP of the Americas. We have therefore implemented a policy of reducing expenditures in areas that are not consistent with that objective. However, the development of the NAP of the Americas and other TerreNAP(SM) Data Centers will require substantial capital resources. We are exploring various alternatives, including the raising of debt and equity both in private and public markets and obtaining financing from our vendors. In the event that we are unsuccessful in obtaining sufficient financial resourses to permit us to fully implement our proposed plans, we will consider various alternatives, including possible joint ventures and reducing the scale or deferring implementation of proposed projects. However, there is no assurance that we will have the funds necessary to complete any TerreNAP(SM) Data Center. The expansion of our operations through the opening of additional TerreNAP(SM) Data Centers in emerging markets is our core strategy. To expand successfully, we must be able to assess markets, locate and secure new TerreNAP(SM) Data Center sites, install hardware, software and other equipment in and develop TerreNAP(SM) Data Center facilities, and attract carriers, Internet service providers and other customers to the new locations. To manage this expansion effectively, we must continue to improve our operational and financial systems and expand, train and manage our employee base and build a menu of managed services. We anticipate continuing to make significant investments in the NAP of the Americas and new TerreNAP(SM) Data Centers and network infrastructure, product development, sales and marketing programs and personnel. Our inability to establish additional TerreNAP(SM) Data Centers or effectively manage our expansion would have a material adverse effect upon our business. Furthermore, if we were to become unable to leverage third-party products in our services offerings, our product development costs could increase significantly. Finally, several of our customers are emerging growth companies that may have negative cash flows, and there is the possibility that we will not be able to collect receivables on a timely basis. The deployment of our TerreNAP(SM) Data Center strategy will require us to expend substantial resources for leases and/or purchase of real estate, significant improvements of facilities, purchase of complementary businesses, assets and equipment, implementation of multiple telecommunications connections and hiring of network, administrative, customer support and sales and marketing personnel. In general, we expect that it may take us a significant period of time to select the appropriate location for a new TerreNAP(SM) Data Center, construct the necessary facilities, install equipment and telecommunications infrastructure and hire operations and sales personnel. The failure to generate sufficient cash flows or to raise sufficient funds may require us to delay or abandon some or all of our development and expansion plans or otherwise forego market opportunities, making it difficult for us to generate additional revenue and to respond to competitive pressures. Expenditures commence well before a TerreNAP(SM) Data Center opens, and it may take an extended period for us to approach break-even capacity utilization. As a result, we expect that individual TerreNAP(SM) Data Centers may experience losses for a period of time from the commencement of their operations. If we do not attract customers to new TerreNAP(SM) Data Centers in a timely manner, or at all, our business would be materially adversely affected. Growth in the number of our TerreNAP(SM) Data Centers is likely to increase the amount and duration of losses. We expect to make additional significant investments in sales and marketing and the development of new services as part of our expansion strategy. We will incur further expenses from sales personnel hired to test market our services in markets where there is no TerreNAP(SM) Data Center. In addition, we typically experience a lengthy sales cycle for our services, particularly given the importance to customers of securing Internet connectivity for mission- critical operations and the need to educate certain customers regarding TerreNAP(SM) Data Centers, and benefits of colocation and Internet connectivity services. The rate of growth in our customer base and the length of the sales cycle for our services may cause significant adverse results to our business, and our financial condition would be materially and adversely affected. Due to the typically lengthy sales cycle for our services, our expenses may occur prior to customer commitments for our services. There can be no assurance that the increase in our sales and marketing efforts will result in increased sales of our services. 22 24 Our success is substantially dependent on the continued growth of our customer base and the retention of our customers. Our ability to attract new customers will depend on a variety of factors, including the willingness of carriers to peer at our facilities, the willingness of businesses to outsource their mission-critical Internet operations, the reliability and cost-effectiveness of our services and our ability to effectively market such services. We intend to develop alternative distribution and lead generation relationships with potential channel partners. Any failure by us to develop these relationships could materially and adversely impact our ability to generate increased revenues, which would have a material adverse effect on our business, results of operations and financial condition. We depend on a limited number of third party suppliers for key components of our infrastructure, and the loss of one or more suppliers may slow our growth or cause us to lose customers. For example, the flywheel electrical generators that we use for power backup at the NAP of the Americas and the routers used as part of our peering infrastructure, that, are available only from sole or limited sources in the quantities and quality demanded by us. We purchase these components and technology assistance pursuant to short term agreements with our infrastructure contractors. We do not carry inventories of components and we have no guaranteed supply or service arrangements with any of these vendors. Any failure to obtain required products or services on a timely basis, at an acceptable cost would impede the growth of our business, causing our financial condition to be materially and adversely affected. In addition, any failure of our suppliers to provide products or components that comply with evolving Internet standards, would materially and adversely affect our business, results of operations and financial condition. We will need to accomplish a number of objectives in order to successfully complete the development of the permanent NAP of the Americas facility, on a timely basis or at all, including obtaining necessary permits and approvals, passing required inspections, and hiring necessary contractors, builders, electricians, architects and designers. The successful development of the facility will require careful management of various risks associated with significant construction projects, including construction delay, cost estimation errors or overruns, equipment and material delays or shortages, inability to obtain necessary permits on a timely basis and other factors, many of which are beyond our control. Our inability to establish the planned NAP of the Americas facility or to effectively manage its expansion would have a material adverse effect upon our business, results of operations and financial condition. Furthermore, the interim NAP of the Americas facility and, if completed, the permanent NAP of the Americas facility will result in substantial expenses. If revenue levels do not increase sufficiently to offset these new expenses, our operating results will be materially adversely impacted in future periods. We conduct business internationally. Accordingly, our future operating results could be materially adversely affected by a variety of factors, some of which are beyond our control, including currency exchange fluctuation, longer accounts receivable payment cycles and difficulty in collections, and in managing operations, taxes, restrictions on repatriation of earnings, regulatory, political or economic conditions in a specific country or region, trade protection measures and other regulatory requirements. We need to obtain additional licenses and approvals in order to expand our services and enter new markets. Proposed or actual regulations with respect to the Internet could also adversely impact our business. In addition, in order to be successful in emerging markets, we must be able to differentiate ourselves from our competition through our service offerings. There is no assurance that we will successfully differentiate ourselves or that the market will accept our services, or that we will not experience difficulties that could delay or prevent the successful development, introduction or marketing of these services. If we incur increased costs or are unable, for technical or other reasons, to develop and introduce new services or enhance existing services in a timely manner, or our products or services do not achieve market acceptance in a timely manner or at all, our business, results of operations and financial condition could be materially adversely affected. Economic, interest rates and other conditions greatly impact our business. It is possible that our operations will not generate income sufficient to meet our operating expenses or will generate income and capital appreciation, if any, at a rate less than that anticipated or available through comparable real estate or other investments. 23 25 RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1999 REVENUE. Total revenue grew $11.3 million, or 298%, from $3.8 million for the three months ended December 31, 1999 to $15.1 million for the three months ended December 31, 2000. Telecom service revenue was $0.6 million during the 2000 period. No telecom service revenue was recorded in the three months ended December 31, 1999. The increase in telecommunications revenue is attributable to the growth of our telecommunications business as a result of our acquisition of Spectrum Communications and IXS.NET. Revenue from real estate sales decreased $1.3 million, or 57%, from $2.3 million for the three months ended December 31, 1999 to $1 million for the three months ended December 31, 2000. Revenue for the three months ended December 31, 1999 is attributable to the sale of eight condominium units. As a result of fewer units being available for sale, only four units were sold during the comparable period in 2000. Commission income earned from lease signings increased to $2.8 million from $.4 million for the three months ended December 31, 1999, due primarily to commissions earned from our telecom facilities management operations. Since we anticipate selling the related operations in February 2001, leasing commissions are expected to decrease in future periods. Management fees charged with respect to the management of commercial and residential property increased $0.3 million, from $0.4 million for the three months December 31, 1999 to $0.7 million for the three months ended December 31, 2000 as a result of the acquisition of various telecom and office building management contracts. Construction contract revenue increased $8.3 million from $0.4 million for the three months ended December 31, 1999 to $8.7 million for the three months ended December 31, 2000. The increase is attributable to the increase in the number of third party construction projects obtained as a result of our acquisition of Post Shell Technology Contractors. During 2000, we obtained 19 third party construction projects as a result of our acquisition of Post Shell Technology Contractors. We do not currently anticipate any losses on any of the individual contracts. COST OF TELECOM SERVICES. Cost of telecom services was $1.4 million for the three months ended December 31, 2000. No costs were recorded for the comparable period during 1999. START-UP COSTS TELECOM SERVICES. Start-up costs of telecom services were $1.6 million for the three months ended December 31, 2000. No cost was recorded for the comparable period during 1999. The increase was attributable to costs associated with the design of the interim NAP. COST OF REAL ESTATE SOLD. Cost of real estate sold decreased by $1 million, or 58.8%, from $1.7 million for the three months ended December 31, 1999 to $0.7 million for the three months ended December 31, 2000. The decrease is attributable to the decrease in condominium units sold as a result of fewer units being available for sale. CONSTRUCTION CONTRACT EXPENSES. Construction contract expenses were $7.6 million for the three months ended December 31,2000 compared to $0.3 million for the three months ended December 31, 1999. The increase in the 2000 period was attributable to the increase in the number of construction contracts in progress and the percentage of completion of those projects. GENERAL AND ADMINISTRATIVE EXPENSES. During fiscal 2000, our focus has been on the integration of our acquisitions and establishing internal operations to support Internet and telecom infrastructure services. General and administrative expenses increased by $6.4 million, from $2.6 for the three months ended December 31, 1999 to $9.0 million for the three months ended December 31, 2000. This increase is attributable to the additional operating expenses resulting from the acquisitions of Telecom Routing Exchange Developers, Post Shell Technology Contractors, Spectrum Communications, Asia Connect and IXS.NET. Although we are currently attempting to reduce expenses in activities not directly related to our core strategy, we expect general and administrative expenses relating to the development of the TerreNAP(SM) Data Centers to increase over time as we continue to expand our operations. 24 26 DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense increased from $23,000 for the three months ended December 31, 1999 to $4.5 million for the three months ended December 31, 2000. The increase resulted primarily from amortization of intangible assets associated with the April 28, 2000 merger of AmTec and Terremark, and the acquisitions of Telecom Routing Exchange Developers, Post Shell Technology Contractors, Spectrum Communications, Asia Connect and IXS.NET. INTEREST INCOME. Interest income increased from $86,000 for the three months ended December 31, 1999 to $0.1 million for the three months ended December 31, 2000, due to an increase in cash balances. DIVIDENDS. Dividends on redeemable preferred stock were $0.1 million for the three months ended December 31, 1999. No dividends were paid in the 2000 period. The preferred stock was converted to shares of our common stock on April 28, 2000. IMPAIRMENT OF INTANGIBLE ASSETS. As a result of our agreement to sell certain telecom facilities management operations, we recognized a $4,155,178 impairment of intangible assets relating to management contracts to be sold. NET LOSS. Overall net loss increased from $(1.9) million for the three months ended December 31, 1999 to $(15.0) million for the three months ended December 31, 2000. The increase was primarily due to the decrease in net revenues from the sale of condominiums, start-up costs for the interim NAP, amortization of identifiable intangibles and goodwill and the additional operating expenses related to AmTec, Telecom Routing Exchange Developers, Terremark Technology Contractors, Asia Connect, Spectrum Communications and IXS.NET, subsequent to their acquisition. NINE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1999 REVENUE. Total revenue grew $12.0 million, or 90%, to $25.4 million for the nine months ended December 31, 2000 from $13.4 million for the nine months ended December 31, 1999. Telecom service revenue was $1.1 million for the nine months ended December 31, 2000. No telecom service revenue was recorded for the comparable period during 1999. The increase was attributable to our telecom and managed services offered in Latin America and Asia due to our acquisions of 80% of Spectrum Communications and 100% of IXS.NET. Revenue from real estate sales decreased $7.6 million, or 74%, from $10.4 million for the nine months ended December 31, 1999 to $2.8 million for the nine months ended December 31, 2000. Revenue for the nine months ended December 31, 1999 is attributable to the sale of 45 condominium units. As a result of fewer units being available for sale, only twelve units were sold during the comparable period in 2000. Commission income earned from lease signings at telecom facilities, commercial and residential property increased $3.1 million, from $0.6 million for the nine months ended December 31, 1999 to $3.7 million for the nine months ended December 31, 2000, due primarily to commissions earned from our telecom facilities management operations. Since we anticipate selling the related operations in February 2001, leasing commissions are expected to decrease in future periods. Management fees charged with respect to the management of telecom facilities, commercial and residential property increased $0.6 million, or 62%, from $1.0 million for the nine months ended December 31, 1999 to $1.6 million for the nine months ended December 31, 2000. The increase is a result of the acquisition of various telecom and commercial building management contracts. Contract construction revenue increased $13.7 million; from $0.4 million for the nine months ended December 31, 1999 to $14.1 million for the nine months ended December 31, 2000. During 2000, we obtained 19 third party contract construction projects as a result of our acquisition of Post Shell Technology Contractors, Inc., now known as Terremark Technology Contractors Inc. COST OF TELECOM SERVICES. Cost of telecom services was $2.0 million for the nine months ended December 31, 2000. No cost was recorded for the comparable period during 1999. The increase was attributable to our telecom and managed services offered in Latin America and Asia as a result of our acquisitions of Spectrum Communications and IXS. NET. 25 27 START- UP COSTS - TELECOM SERVICES. Start-up costs of telecom services were $1.6 million for the nine months ended December 31, 2000. No cost was recorded for the comparable period during 1999. The increase was attributable to costs associated with the design of the interim NAP Facility. COST OF REAL ESTATE SOLD. Cost of real estate sold decreased by $6.6 million, or 75.7%, from $8.8 million for the nine months ended December 31, 1999 to $2.1 million for the nine months ended December 31, 2000. The decrease is attributable to the decrease in the number of condominium units sold as a result of fewer units being available for sale. CONTRACT CONSTRUCTION EXPENSES. Contract construction expenses increased $12.4 million from $0.3 million for the nine months ended December 31, 1999 to $12.7 million for the nine months ended December 31, 2000. This increase is attributable to an increase in the number of construction contracts in progress as a result of our acquisition of Post Shell Technology Contractors during the period and the percentage of completion of those projects. We do not currently anticipate any losses on any of the individual contracts. GENERAL AND ADMINISTRATIVE EXPENSES. During fiscal 2001, our focus has been on the integration of our acquisitions and establishing internal operations to support our Internet and telecom infrastructure services strategy. General and administrative expenses increased by $15.8 million from approximately $5.2 million for the nine months ended December 31, 1999 to $21.0 million for the nine months ended December 31, 2000. This increase is directly attributable to our investment in personnel and corporate infrastructure and the related additional operating expenses resulting from the April 28, 2000 merger of AmTec and Terremark and the subsequent acquisitions of Telecom Routing Exchange Developers, Post Shell Technology Contractors, Spectrum Communications, Asia Connect and IXS.NET. Although we are currently attempting to reduce expenses in activities not directly related to our core strategy, we expect general and administrative expenses relating to the development of the TerreNAP(SM) Data Centers to increase over time as we continue to expand our operations. SALES AND MARKETING EXPENSES. Sales and marketing expenses increased $1.3 million or 75.1% for the nine months ended December 31, 2000. The increase is principally due to the expenses that were incurred in connection with the promotion of the sale of Fortune House condominium units during the six months ending September 30, 2000. In November 2000, this project was placed for sale and all retail sales and marketing efforts were terminated. For the first six months of 2000, we were marketing two projects, while in 1999; we were marketing only one condominium project. DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense increased from $63,000 for the nine months ended December 31, 1999 to $10.1 million for the nine months ended December 31, 2000. The increase resulted primarily from amortization of intangible assets associated with the April 28, 2000 merger of AmTec and Terremark and the acquisitions of Telecom Routing Exchange Developers, Post Shell Technology Contractors, Spectrum Communications, Asia Connect and IXS.NET. EQUITY IN LOSSES OF AFFILIATE. Equity in losses of affiliate was $0.4 million for the nine months ended December 31, 2000. No losses were recorded for the comparable period in 1999. Equity in losses of affiliate is derived from our equity investment in IP.com. INTEREST EXPENSE. Interest expense decreased from $0.6 for the nine months ended December 31, 1999 to $0.5 million for the nine months ended December 31, 2000 due to a decrease in the average debt balance outstanding. INTEREST INCOME. Interest income increased from $0.2 million for the nine months ended December 31, 1999 to $.5 million for the nine months ended December 31, 2000, due to an increase in our average cash balances invested. DIVIDENDS ON PREFERRED STOCK. Dividends on our redeemable preferred stock were $0.3 million for the nine months ended December 31, 1999 compared to $35,000 for the nine months ended December 31, 2000. On April 28, 2000, the preferred stock was converted to shares of our common stock. 26 28 IMPAIRMENT OF INTANGIBLE ASSETS. As a result of our agreement to sell certain telecom facilities management operations, we recognized a $4,155,178 impairment of intangible assets relating to management contracts to be sold. NET LOSS. Overall net loss increased from $3.5 million for the nine months ended December 31, 1999 to $32.2 million for the nine months ended December 31, 2000 as a result of the factors discussed above. During fiscal 2000, our focus has been on the integration of our acquisitions and establishing internal operations to support our focus on Internet and telecom infrastructure services. LIQUIDITY AND CAPITAL RESOURCES Cash used by operations for the nine months ended December 31, 2000 was $14.9 million compared to cash provided by operations of $3.5 million for the nine months ended December 31, 1999, a decrease of $18.4 million. The decrease in cash flows resulted primarily from the net loss. Cash provided by investing for the nine months ended December 31, 2000 was $47.4 million compared to cash used in investing activities of $1.4 million for the nine months ended December 31, 2000, an increase in cash of $48.8 million. Cash from investing activities increased primarily due to the sale of Terremark Centre accounted for as real estate held for sale. Cash was used in investing activities as follows: o In April 2000, we invested $3.5 million for a 27.3% ownership interest in Boca Technology Center, LLC. o In March 2000, we purchased, for $447,930, a 19.8% membership interest in Cleveland Technology Center, LLC. o In November 2000, we purchased, for $202,000, a 0.5% membership interest in Technology Center of the Americas, LLC. Cash used in financing activities for the nine months ended December 31, 1999 was $3.5 million compared to cash used in financing activities of $30.7 million for the nine months ended December 31, 2000, an increase of $27.2 million. The increase in cash used in financing activities resulted primarily from payments on loans of approximately $76.2 million, which is offset by $28.1 million provided from the sale of our common stock and $13.8 of new borrowings. Historically, we have met our capital requirements primarily through debt financing and operating cash flow. Debt financing primarily includes the following: (1) various vendor financing arrangements, with various terms, secured by equipment totaling approximately $2.7 million at December 31, 2000; (2) a line of credit secured by certain assets and personal guarantees of certain Terremark executives with a balance of $2.3 million at December 31, 2000; (3) a $5.0 million line of credit secured by certain assets, with $3.5 million drawn on the line at December 31, 2000. Interest accrues at a floating rate of Prime + 1% on drawn balances, payable monthly; (4) loan from a commercial lender, secured by a first mortgage on real estate that has been reduced from $2.7 million at March 31, 2000 to $0.4 million at December 31, 2000; and (5) a $7.5 million first mortgage from an individual secured by certain real estate held for sale which matures on March 1, 2001 and accrues interest at 12.0% per annum payable monthly. On December 29, 2000, we issued $6,246,159 in principal amount of subordinated convertible debt. Interest accrues at 13%, is payable quarterly beginning March 31, 2001, and matures on December 31, 2005. Each debenture is convertible into shares of our common stock at 120% of the 20-day average trading price prior to its issuance. We are permitted to prepay the debentures, which will entitle holders to warrants or a premium over their outstanding principal based upon the following schedule: 27 29 YEAR REDEMPTION PRICE ---- ---------------- 2001 105% 2002 104% 2003 103% 2004 102% 2005 100% Subsequent to December 31, 2000, we sold an additional $1,767,700 of convertible debt. Approximately 82.0% of the total amount sold is payable to our management and directors. On November 8, 2000, as a result of our efforts, the Technology Center of the Americas, LLC obtained $48 million of equity and $61 million of construction financing to complete TECOTA. We have guaranteed the bank loans in the amount of $61 million and the timely completion of TECOTA's construction. Set forth below is certain financial information of Technology Center of the Americas, LLC as of December 31, 2000: Construction in Progress $32,709,000 Accounts Payable and Accrued Expenses $12,589,000 Debt -- Members' Equity $48,404,000 We have entered into a contract to sell Fortune House II, a proposed condominium/hotel project in Ft. Lauderdale Beach, Florida for $18.5 million. The purchaser has the right to cancel the contract without liability until March 7, 2001. In the event the purchaser does not cancel the contract, we anticipate closing on March 31, 2001. We believe that our cash and cash equivalents, borrowing capacity and access to other financing sources will be adequate to meet our anticipated short-term liquidity requirements, including scheduled debt repayments and capital expenditures. In conjunction with our recent acquisitions, we have assumed operating lease commitments, vendor financing agreements and other debt obligations. As part of our business strategy, we intend to continue to evaluate potential acquisitions, joint ventures and strategic alliances in companies that own existing networks or companies that provide services that complement our existing businesses. Such acquisitions may also require financing, which may not be available to us on acceptable terms. We intend to allocate our financial resources to activities which are consistent with our strategy of developing and operating TerreNAP(SM) Data Centers, including the NAP of the Americas. We have therefore implemented a policy of reducing expenditures in areas which are not consistent with that objective. However, the development of the NAP of the Americas and other TerreNAP(SM) Data Centers will require substantial capital resources. We are exploring various alternatives including the raising of debt and equity both in private and public markets and obtaining financing from our vendors. In the event that we are unsuccessful in obtaining sufficient financial resources to permit us to fully implement our proposed plans, we will consider various alternatives, including possible joint ventures and reducing the scale or deferring the implementation of proposed projects. 28 30 INFLATION AND EXCHANGE RATES The general rate of inflation in the United States has been insignificant over the past several years and has not had a material impact on our results of operations. As we expand international operations, inflation and exchange rate variations may have substantial effects on our results of operations and financial condition. Generally, the effects of inflation in many Latin American countries, including Brazil, Peru and Chile and in Asia have been offset in part by a devaluation of the local countries' currencies relative to the U.S. dollar. Nevertheless, the devaluation of each country's currency may have an adverse effect on us. A substantial portion of our purchases of capital equipment and interest on the related notes is payable in U.S. dollars. To date, we have not had significant foreign currency exposure with third parties and generally intend to pay them their services in U.S. dollars or in local currencies with a pricing adjustment that is structured to protect us against the risk of fluctuations in exchange rates. As a result, we have not entered into foreign currency hedging transactions. In the future, if third party foreign currency exposure increases, we may enter into hedging transactions in order to mitigate any related financial exposure. However, a portion of sales to our customers will be denominated in local currencies, and substantial or continued devaluation in such currencies relative to the U.S. dollar could have a negative effect on the ability of our customers to absorb the costs of devaluation. This could result in our customers seeking to renegotiate their contracts with us or, failing satisfactory renegotiation or defaulting on such contracts. The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses is a reasonable approximation of their fair value. We cannot predict whether interest rates will be at levels attractive to prospective tenants, buyers or customers and any increase in interest rates could affect our business adversely. NEW ACCOUNTING PRONOUNCEMENTS In September 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (FASB 133), "Accounting for Derivative Instruments and Hedging Activities," which becomes effective and is required to be adopted in years beginning after September 15, 2000. FASB 133 requires all derivatives to be recorded in the balance sheet at fair value. FASB 133 establishes the accounting procedures for hedges that will affect the timing of recognition and the manner in which hedging gains and losses are recognized in Terremark's financial statements. Derivatives that are not hedges must be adjusted to fair value through income. If derivatives are hedges, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or will be recognized in other comprehensive income until the hedged item is recognized in earnings. We do not believe the adoption of FASB 133 will have a material impact on our financial position and results of operations. In December 1999, the SEC issued Staff Accounting Bulletin 101, or SAB 101, Revenue Recognition, which outlines the basic criteria that must be met to recognize revenue and provides guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the SEC. The adoption of SAB 101 did not have a material impact on our financial position and results of operations. In March 2000, the FASB issued Interpretation No. 44, or FIN 44, Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of APB 25. This Interpretation clarifies, the definition of employee for purposes of applying Opinion 25, the criteria for determining whether a plan qualifies as a non-compensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and the accounting for an exchange of stock compensation awards in a business combination. This Interpretation is effective July 1, 2000, but certain conclusions in this Interpretation cover specific events that occur after either December 15, 1998, or January 12, 2000. The adoption of certain of the conclusions of FIN 44 covering events occurring during the period after December 15, 1998 or January 12, 2000 did not have a material effect on our financial position and results of operations. We do not expect that the adoption of the remaining conclusions will have a material effect on our financial position and results of operations. 29 31 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. On November 8, 2000, the Company issued warrants to purchase 250,000 shares of the Company's common stock at an exercise price per share of $2.76. The warrants expire November 7, 2008. The issuance of the warrants was exempt form the registration requirements of the Securities Act of 1933,as amended (the "Act") as the warrants were issued to accredited individuals pursuant to Regulation D as promulgated under the act. On December 29, 2000, the Company sold $6,246,159 in principal amount of 13% Subordinated Convertible Debentures due December 31, 2005. Each debenture is convertible (in multiples of $50,000) at a price per share equal to 120% of the average market price of the Company's common stock for the twenty (20) trading days preceding the date the debenture is purchased. The conversion price for the debentures sold on December 29, 2000 was $1.5468. The debentures are convertible at any time, but shares issued upon conversion may not be sold or transferred prior to December 31, 2001. The Company may prepay the debentures at any time on 15 days' notice. Upon prepayment, the Holder may request repayment either: (i) at a premium (5% in 2001 decreasing to 0% in 2005); or (ii) at par with warrants to purchase shares of the Company's common stock in an amount equal to 10% of the principal repaid exercisable at the conversion price. The holder may call the debentures, with no premium or warrants, during the month of January 2003. Conversion rights cease on notice of election to call. The offer and sale of the debentures were exempt from the registration requirements of the Securities Act of 1933, as amended (the "Act") as the debentures were sold to accredited investors pursuant to Regulation D and to non-United States persons in offshore transactions pursuant to Regulation S each as promulgated under the Act. As of February 13, 2001, an additional $ 1,767,700 in principal amount of the debentures had been sold. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: 4.1 Form of 13% Subordinated Convertible Debenture, due December 31, 2005. 4.2 Form of Warrant for the Purchase of Shares of Common Stock. (b) Reports on Form 8-K: The Company filed a Form 8-K with respect to its private placement of 13% subordinated convertible debentures on December 1, 2000. 30 32 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Terremark Worldwide, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TERREMARK WORLDWIDE, INC. DATE: February 14, 2001 By: /s/ Manuel D. Medina ---------------------------------------- Manuel D. Medina, Chairman of the Board, Chief Executive Officer (Principal Executive Officer) DATE: February 14, 2001 By:/s/ Irving A. Padron ---------------------------------------- Irving A. Padron, Chief Financial Officer (Principal Financial Officer) 31 EX-4.1 2 g66866ex4-1.txt 13% SUBORDINATED CONVERTIBLE DEBENTURE 1 EXHIBIT 4.1 NEITHER THIS DEBENTURE NOR THE COMMON STOCK INTO WHICH IT IS CONVERTIBLE HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAWS. TERREMARK WORLDWIDE, INC. 13% SUBORDINATED CONVERTIBLE DEBENTURE DUE DECEMBER 31, 2005 This 13% SUBORDINATED CONVERTIBLE DEBENTURE (the "Debenture"), is made and entered into as of the later of the dates set forth on the execution page below, by and between Terremark Worldwide, Inc., a Delaware corporation (the "Company") and the investor or investors as set forth on the execution page below, or their registered assigns as recorded in the Company's books (the "Investor"). R E C I T A L S: A. The Company desires to obtain financing for its capital needs through the issue and sale of debentures convertible into shares of the Company's common stock, par value $.001 (the "Common Stock"). B. The Company desires to sell and the Investor desires to buy this Debenture. NOW, THEREFORE, in consideration of the above recitals and the mutual covenants, representations, warranties and agreements set forth herein, and for the purpose of defining the terms and provisions of this Debenture, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto intending to be legally bound do hereby agree as follows: 1. OFFERING; EQUAL RANK. This Debenture is one of a duly authorized issue of debentures of the Company being offered as a part of an offering consisting of the sale of debentures in an aggregate principal amount of not less than $5 million and not greater than $100 million (with the right of the Company to increase to $150 million), and individually in uneven denominations, all of which are of like date and maturity, except as to those variations as are necessary to express the number, principal amount and payee of each debenture (the "Offering"). All debentures of this issue rank equally and ratably without priority over one another. 2 2. PRINCIPAL AND INTEREST. The Company will pay the principal amount set forth on the execution page below (the "Principal") on December 31, 2005 (the "Principal Payment Date") to the Investor registered on the books of the Company as of the close of business on (i) the date immediately preceding the Principal Payment Date or, in the alternative, (ii) the date immediately preceding the Principal Payment Date which in the State of Florida is not a holiday and a day on which banks are authorized to close (the "Principal Record Date"). The Debentures will bear interest at the rate of 13% per annum (the "Interest"), which will be paid quarterly, beginning March 31, 2001, and thereafter on each June 30, September 30, December 31, and March 31 until the outstanding principal amount of this Debenture has been paid in full (individually, an "Interest Payment Date," collectively, the "Interest Payment Dates," and the Interest Payment Dates together with the Principal Payment Date, the "Payment Dates") to the Investor registered on the books of the Company (the "Holder") as of the close of business on (i) the date immediately preceding the Interest Payment Date, or, in the alternative, (ii) the date immediately preceding the Interest Payment Date which in the State of Florida is a Business Day (as hereafter defined) if the date specified in (i) is not a Business Day (collectively, the "Interest Record Dates"). Interest shall be computed on the basis of a 360-day year of twelve 30-day months. For the purposes hereof, the term "Business Day" shall mean any day which is not a Saturday, Sunday or day on which banks in the State of Florida are authorized or obligated by law, executive order or governmental decree to be closed. 3. METHOD OF PAYMENT. The Company will pay Principal and Interest (i) in money of the United States that at the time of payment is legal tender for payment of public and private debts or (ii) by its check payable in such money mailed to the Investor's registered address as reflected in the Company's books. If the Payment Dates are other than Business Days, payment may be made on the next succeeding day that is a Business Day and no interest shall accrue for the intervening period. 4. CONVERSION. (a) The Holder shall have the right, from time to time at any time prior to the payment of the outstanding principal of this Debenture, or redemption of this Debenture, to convert the entire unpaid principal amount of this Debenture together with accrued but unpaid interest (or any portion of such amounts which is $50,000 or an integral multiple thereof), into that number of fully paid and non-assessable shares of Common Stock equal to the aggregate principal amount of (and accrued but unpaid interest on) this Debenture being converted, as of the Date of Conversion (as defined below), divided by the Conversion Price set forth below. Upon any such conversion, the Company shall pay to the Holder all accrued and unpaid interest on the principal amount of this Debenture so converted to the extent such interest is not converted. (b) In order to convert this Debenture, the accrued but unpaid interest hereon or a portion thereof, into shares of Common Stock, the Holder must telecopy or otherwise deliver prior to 5:00 p.m., Eastern Time, on any Business Day, a copy of the fully executed notice of conversion in the form attached hereto as Exhibit A (the "Notice of Conversion") to the 2 3 Company at its principal office, which notice shall specify the amount to be converted on the date the Notice of Conversion is delivered to the Company (the "Date of Conversion") together with a copy of the Schedule of Conversion in the form attached hereto as Exhibit B, duly completed as appropriate. No fractional shares of Common Stock shall be issued upon conversion. In lieu of any fractional share to which the Holder would otherwise be entitled, the Company shall pay cash to such Holder based on the closing price of the Common Stock on the last trading day prior to the Date of Conversion. (c) The Company shall issue and deliver, within 15 Business Days after delivery to the Company of the Notice of Conversion, to the Holder or to the nominee of such Holder, at the address of the Holder on the books of the Company or as otherwise directed by such Holder, a certificate or certificates for the number of shares of Common Stock to which the Holder shall be entitled as aforesaid. The person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Date of Conversion. (d) The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of the principal amount of this Debenture and all interest which would accrue thereon through the Principal Payment Date; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect such conversion, the Company will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (e) Following any conversion, the principal amount of this Debenture shall be reduced in an amount equal to the portion so converted. Appropriate adjustments shall be made on the records of the Company. (f) The conversion price (the "Conversion Price") per share of Common Stock shall be equal to 120% of the average Market Price of the Common Stock for the twenty trading days preceding the date of the closing with respect to this Debenture and is agreed to be the amount set forth on the signature page of this Debenture, subject to adjustment from time to time, pursuant to the provisions set forth below. For the purposes of this Section 4(f), "Market Price" shall mean (i) if the shares of Common Stock are listed or admitted for trading on a national securities exchange, the last reported sales price regular way, or, in the case no such reported sale takes place on such day or days, the average of the reported closing bid and asked prices regular way, in either case on the principal national securities exchange on which the shares of the Common Stock are listed or admitted for trading, or (ii) if the shares of Common Stock are not listed or admitted for trading on a national securities exchange (A) the last transaction price for the Common Stock on The Nasdaq Stock Market ("Nasdaq") or, in the case no such reported transaction takes place on such day or days, the average of the reported closing bid and asked prices thereof quoted on Nasdaq, or (B) if the shares of Common Stock are not quoted on Nasdaq, the average of the closing bid and asked prices of the Common Stock as quoted on the Over-The-Counter Bulletin Board maintained by the National Association of 3 4 Securities Dealers, Inc. (the "Bulletin Board"), or (C) if the shares of Common Stock are not quoted on Nasdaq or on the Bulletin Board, the average of the closing bid and asked prices of the Common Stock in the over-the-counter market, as reported by The National Quotation Bureau, Inc., or an equivalent generally accepted reporting service, or (iii) if on any such trading day or days the shares of Common Stock are not quoted by any such organization, the fair market value of the shares of Common Stock on such day or days, as determined in good faith by the Board of Directors of the Company. In case (i) the outstanding shares of the Common Stock shall be subdivided into a greater number of shares, (ii) a dividend or other distribution in Common Stock shall be paid in respect of Common Stock, (iii) the outstanding shares of Common Stock shall be combined into a smaller number of shares thereof, or (iv) any shares of the Company's capital stock are issued by reclassification of the Common Stock (including any reclassification upon a consolidation or merger in which the Company is the continuing corporation), the Conversion Price in effect immediately prior to such subdivision, combination or reclassification or at the record date of such dividend or distribution shall, simultaneously with the effectiveness of such subdivision, combination or reclassification or immediately after the record date of such dividend or distribution, be proportionately adjusted to equal the product obtained by multiplying the Conversion Price by a fraction, the numerator of which is the number of outstanding shares of Common Stock (on a fully diluted basis) prior to such combination, subdivision, reclassification or dividend, and the denominator of which is that number of outstanding shares of Common Stock (on a fully diluted basis) after giving effect to such combination, subdivision, reclassification or dividend. For purposes of this Debenture, "on a fully diluted basis" means that all outstanding options or rights to subscribe for shares of Common Stock and all securities convertible into or exchangeable for shares of Common Stock (such options, rights and securities are collectively referred to herein as "Convertible Securities") and all options or rights to acquire Convertible Securities have been exercised, converted or exchanged. (g) If, prior to the conversion of the entire principal amount of this Debenture, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, sale of all or substantially all of the Company's assets, or other similar event, as a result of which shares of Common Stock of the Company shall be changed into the same or a different number of shares of the same or another class or classes of stock or securities of the Company or another entity, or other property, then the Holder shall thereafter have the right to purchase and receive upon conversion of this Debenture (or the conversion of the accrued and unpaid interest hereon), upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such shares of stock, securities and/or other property as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore purchasable and receivable upon the conversion of this Debenture held by such Holder had such merger, consolidation, exchange of shares, recapitalization, sale of all or substantially all of the assets or reorganization not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder to the end that the provisions hereof (including, without limitation, 4 5 provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion) shall thereafter be applicable, as nearly as may be practicable in relation to any shares of stock or securities thereafter deliverable upon the exercise hereof. (h) No adjustment of the Conversion Price shall be made in an amount less than $.05 per share. Upon any adjustment of the Conversion Price, then and in each case the Company shall give written notice thereof, by first class mail, addressed to the Holder at the address of such Holder as shown on the books of the Company, which notice shall state the Conversion Price resulting from such adjustment, setting forth in reasonable detail the methods of calculation and the facts upon which such calculation is based. (i) The Company will use its commercially reasonable efforts to register and list the shares of Common Stock issued upon conversion as more fully set forth in the Subscription Agreement pursuant to which this Debenture was issued. Notwithstanding the foregoing, no transfer of the Common Stock issuable upon conversion pursuant to this Section 4 shall be permitted prior to December 31, 2001. For the purposes of this Debenture, the term "Transfer" shall include any direct or indirect sale, assignment, pledge, encumbrance or other granting of an interest in the shares of Common Stock. 5. PAYING AGENT AND REGISTRAR. The Company, or a subsidiary or affiliate thereof, shall act as authenticating agent, paying agent, and registrar. The Company may engage a third party to act as authenticating agent, paying agent, or registrar without notice. 6. SUBSCRIPTION AGREEMENT. The Company issued the Debenture in connection with that certain Subscription Agreement dated as of the later of the dates set forth on the execution page below between the Company and the Investor (the "Subscription Agreement"). The Debenture is subject to all the terms of the Subscription Agreement. To the extent permitted by applicable law, in the event of any inconsistency between the terms of Subscription Agreement and the Debenture, the terms of the Subscription Agreement shall control. 7. SUBORDINATION. (a) The indebtedness evidenced hereby and any and all modifications, restatements, refinancings and renewals thereof, together with any and all interest accrued or to accrue hereon is hereby subordinated to the payment of the Senior Indebtedness (as hereafter defined). Upon any distribution of any assets of the Company, whether by reason of sale, reorganization, liquidation, dissolution, arrangement, bankruptcy, receivership, assignment for the benefit of creditors, foreclosure or otherwise, the Senior Indebtedness shall be entitled to receive a payment in full prior to the payment of all or any part of the indebtedness evidenced hereby. To enable the holders of the Senior Indebtedness to assert and enforce their rights in any such proceeding or upon the happening of any such event, the holders of the Senior Indebtedness or any persons whom the holders of the Senior Indebtedness may designate are hereby irrevocably appointed attorney in fact for the undersigned with full power to act in the place and stead of the undersigned, including the right to make, present, file and vote such proofs of claim against the Company on account of all or any part of the indebtedness evidenced hereby as the holders of the Senior Indebtedness may deem advisable and to receive and collect any and all 5 6 dividends or other payments made thereon and to apply the same on account of the Senior Indebtedness. (b) Notwithstanding the foregoing, so long as the Company is not in default under any of its obligations of payment or performance under the Senior Indebtedness, the Holder of this Debenture shall not be prohibited from receiving payments of interest and payment of principal as provided herein. (c) In the event any payments are made by the Company to the Holder of this Debenture or any amounts are received by the Holders of this Debenture contrary to the provisions of this Debenture, the Holders of this Debenture will promptly remit said payments or amounts to the holders of the Senior Debt. (d) For the purposes of this Section, the term "Senior Indebtedness" shall mean trade credit, project and equipment financing and any financing provided by a commercial bank. 8. DEMAND FOR EARLY PAYMENT. By notice given no earlier than January 1, 2003 and no later than January 31, 2003, the Holder shall have the right to demand repayment of this Debenture, together with all accrued but unpaid interest, on March 31, 2003. All rights to convert this Debenture pursuant to Section 4 shall cease upon the giving of such notice. In the event that the Company elects to redeem this Debenture after the date of notice by the Holder pursuant to this Section 8, the provisions of Section 9 shall not be applicable to this Debenture. 9. REDEMPTION. (a) This Debenture will be redeemable, at the Company's option, in whole but not in part, at any time or from time to time (the "Redemption Date") by giving not less than 15 nor more than 60 days' prior notice mailed by first-class mail to the Holder's last address as it appears the books of the Company, and by delivering accrued and unpaid Interest, if any, calculated on a pro rata basis up to the Redemption Date on the Redemption Date, plus the amount of Principal the Company wishes to redeem, in the manner described in Paragraph 3 -- Method of Payment. On and after the Redemption Date, interest shall cease to accrue on the Principal, unless the Company defaults in the payment of the Redemption Price. (b) In the event that the Company exercises its right to redeem this Debenture, the Holder shall have the option to either receive (i) the redemption price (expressed as percentages of principal amount) if redeemed during the indicated calendar years or (ii) the unpaid principal balance of this Debenture at par and a Warrant, on the terms and subject to the conditions described below. The Holder must advise the Company of its election not later than 10 days prior to the Redemption Date. 6 7 (c) If the Holder elects a cash payment, it shall receive the following redemption prices: Year Redemption Price ---- ---------------- 2001 105% 2002 104% 2003 103% 2004 102% 2005 100% (d) If the Holder elects to receive a Warrant, the Company shall cause to be issued a Warrant, substantially in the form attached to the Warrant Agreement attached hereto as Exhibit C (which the Company will execute at the time of issuance of the Warrants), to the Holder. The Warrant will entitle the holder of the Warrant to purchase such number of shares of Common Stock as shall be equal to ten percent (10%) of the principal amount of the Debenture redeemed. The Warrant shall be exercisable at any time prior to 5:00 p.m. Miami, Florida time on December 31, 2005 and shall be exercisable at a price per share of Common Stock equal to the Conversion Price (subject to adjustment in the same manner as the Conversion Price). (e) In order to receive a Warrant, the Holder shall be required to represent and warrant to the Company that the Holder's receipt of a Warrant does not require registration of such transaction under any applicable securities laws and to further agree that it will take no action which would require such registration with respect to the Warrants or the shares of common stock issuable upon its exercise. (f) The Company shall use commercially reasonable efforts to cause to be effective, as soon as reasonably possible, a registration statement under the Securities Act, to permit the resale of the shares of Common Stock issuable upon exercise of the Warrant, as more fully set forth in the Warrant Agreement. (g) Notwithstanding the provisions of (f) above, no Transfer of the Common Stock issuable upon exercise of the Warrants shall be permitted prior to December 31, 2001. 10. DENOMINATIONS; TRANSFER; EXCHANGE. The Investor may register the transfer or exchange of the Debenture by submitting to the registrar of the Company (the "Registrar") the following completed documents: (i) the Assignment Form attached as EXHIBIT D and (ii) the Letter Regarding Transfer to Accredited Investor attached as EXHIBIT E. The Registrar may require the Investor, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Subscription Agreement. The Registrar need not register the transfer, or exchange the Debenture, if the Debenture is selected for redemption. 11. PERSONS DEEMED OWNERS. The Investor shall be treated as the owner of the Debenture for all purposes. 7 8 12. AMENDMENT; SUPPLEMENT; WAIVER. The Debenture may be amended or supplemented with the consent of the investors of at least a majority in aggregate principal amount of the Offering, such aggregate principal amount to be equal to the sum of the value at maturity of all the debentures of the Offering then outstanding, and any existing default or compliance with any provision may be waived with the consent of the Investors of at least a majority in principal amount at maturity of the debentures then outstanding (the "Quorum Investors"). Without notice to or the consent of any Investor, the Company may amend or supplement the Subscription Agreement or the Debenture to, among other things, cure any ambiguity, defect or inconsistency and make any change that does not materially and adversely affect the rights of any Investor. 13. SUCCESSOR PERSONS. Generally, when a successor person or other entity assumes all the obligations of its predecessor under the Subscription Agreement and the Debenture the predecessor person will be released from those obligations. 14. DEFAULTS AND REMEDIES. The following events constitute "Events of Default": (a) the Company's default, which continues for a period of at least ten (10) days, in the payment of Principal under, or Interest on, this Debenture when the same becomes due and payable upon redemption or otherwise, whether or not such payment is prohibited by the subordination provisions herein; (b) the Company's default in the performance of any covenant set forth in Section 7 of the Subscription Agreement and which default continues for a period of 15 consecutive days after written notice by the Quorum Investors; (c) the Company's default in the performance of, or other breach of any covenant or agreement of the Company in, the Subscription Agreement or the Debenture, and such default or breach continues for a period of 30 consecutive days after written notice by the Quorum Investors; (d) any final judgment or order against the Company (not covered by insurance) for the payment of money in excess of $1,000,000 in the aggregate for all such final judgments or orders (treating any deductibles, self-insurance or retention as not so covered) and which is not paid or discharged, or if there shall be any period of 60 consecutive days following the entry of a final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against the Company to exceed $1,000,000, and which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (e) a court having jurisdiction in the premises enters a decree or order for (i) relief in respect of the Company in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company for all or substantially all of the property and assets of the Company or (iii) the winding up or liquidation of the affairs of the Company and, in each case, such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (f) the Company (i) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order of relief in an involuntary case under any such law, (ii) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or for all or substantially all of the property and assets of the Company or (iii) effects any general assignment for the benefit of creditors. 8 9 If an Event of Default occurs and is continuing, the Quorum Investors, by written notice to the Company may declare the accreted Interest, if any, on the debentures, including the Debenture, to be immediately due and payable. If a bankruptcy or insolvency default with respect to the Company occurs and is continuing, the accreted Interest automatically becomes due and payable. The Quorum Investors may not enforce the Subscription Agreement or the Debenture, except as provided in said documents. 9 10 IN WITNESS WHEREOF, the undersigned has executed this Debenture in the principal amount and on the date set forth below: ISSUER: TERREMARK WORLDWIDE, INC. By: ---------------------------------- Print Name: -------------------------- Title: ------------------------------- NAME AND ADDRESS OF INVESTOR: Debenture No.__ - --------------------------------------- - --------------------------------------- - --------------------------------------- - --------------------------------------- Debenture Principal Amount $ ----------- Date of Issuance: , 2001 ---------------- Conversion Price: $ -------------------- 10 11 EXHIBIT A NOTICE OF CONVERSION The undersigned irrevocably elects to convert $[___________] of the principal amount of, and accrued but unpaid interest on, the 13% Subordinated Convertible Debenture due December 31, 2005 (the "Debenture") into [_________] shares of Common Stock (the "Common Stock") of Terremark Worldwide, Inc. (the "Company") according to the conditions set forth in the Debenture as of the date written below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any. The undersigned represents and warrants that all offers and sales by the undersigned of the shares of Common Stock issuable upon conversion shall be made pursuant to the registration of such shares of Common Stock under the Securities Act of 1933, as amended, or pursuant to an exemption from registration under such Act. Date of conversion: Signature: Name: Address: Exhibit A-1 12 EXHIBIT B SCHEDULE OF CONVERSION The following exchanges of a part of this Debenture for shares of Common Stock have been made: Amount of Decrease Principal Amount in Principal of this Debenture Accrued but Date of Amount Following Unpaid Interest Signature of Conversion of this Debenture such Conversion Converted Holder - ---------- ----------------- --------------- --------------- -------------- Exhibit B-1 13 TERREMARK WORLDWIDE, INC. WARRANT AGREEMENT THIS WARRANT AGREEMENT (the "Warrant Agreement") is made and entered into as of the date set forth on the execution page below, by and between Terremark Worldwide, Inc., a Delaware corporation (the "Company"), the investor or investors as set forth on the execution page(s) below, or their registered assigns as recorded in the Company's books (the "Investor"), and the Warrant Agent, in the event the Company designates a warrant agent pursuant to Section 13 hereof (the "Warrant Agent"). R E C I T A L S : A. The Company has issued its 13% Subordinated Convertible Debentures due December 31, 2005 (the "Debentures"). B. The Company has redeemed the Debentures prior to their stated maturity and has agreed to issue warrants for the purchase of shares of the Company's common stock, par value $.001 (the "Common Stock") in connection with such redemption in an amount as is equal to 10% of the principal amount of the Debentures redeemed, each as set forth in the Warrant Certificate, attached hereto as EXHIBIT I (the "Warrants") pursuant to this Warrant Agreement. C. The Company will act, or in the event it designates a Warrant Agent, the Warrant Agent will act on behalf of the Company, in connection with the issuance, registration, transfer, exchange and redemption of the Warrants, the issuance of certificates representing the Warrants, the exercise of the Warrants, and the rights of the holders thereof. NOW, THEREFORE, in consideration of the above recitals and the mutual covenants, representations, warranties and agreements set forth herein, and for the purpose of defining the terms and provisions of the Warrants and the certificates representing the Warrants and the respective rights and obligations thereunder of the Company, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto intending to be legally bound do hereby agree as follows: SECTION 1. DEFINITIONS. As used herein, the following terms shall have the following meanings, unless the context shall otherwise require: (a) "Corporate Office" shall mean the office at which at any particular time the Company's principal business shall be administered, or in the case a Warrant Agent is designated, the office of the Warrant Agent (or its successor) at which at any particular time its principal business shall be administered. (b) "Exercise Date" shall mean, as to any Warrant, the date on which the Company, or the Warrant Agent, as the case may be, shall have received both (i) the Warrant Certificate representing such Warrant, with the exercise form thereon duly executed Exhibit C-1 14 by the Investor or his attorney duly authorized in writing, and (ii) payment in cash, or by official bank or certified check made payable to the Company, of an amount in lawful money of the United States of America equal to the applicable Purchase Price. (c) "Initial Warrant Exercise Date" shall mean the date of redemption of the Debenture to which the Warrant relates. (d) "Market Price" shall mean (i) if the shares of Common Stock are listed or admitted for trading on a national securities exchange, the last reported sales price regular way, or, in the case no such reported sale takes place on such day or days, the average of the reported closing bid and asked prices regular way, in either case on the principal national securities exchange on which the shares of the Common Stock are listed or admitted for trading, or (ii) if the shares of Common Stock are not listed or admitted for trading on a national securities exchange (A) the last transaction price for the Common Stock on The Nasdaq Stock Market ("Nasdaq") or, in the case no such reported transaction takes place on such day or days, the average of the reported closing bid and asked prices thereof quoted on Nasdaq, or (B) if the shares of Common Stock are not quoted on Nasdaq, the average of the closing bid and asked prices of the Common Stock as quoted on the Over-The-Counter Bulletin Board maintained by the National Association of Securities Dealers, Inc. (the "Bulletin Board"), or (C) if the shares of Common Stock are not quoted on Nasdaq or on the Bulletin Board, the average of the closing bid and asked prices of the Common Stock in the over-the-counter market, as reported by The National Quotation Bureau, Inc., or an equivalent generally accepted reporting service, or (iii) if on any such trading day or days the shares of Common Stock are not quoted by any such organization, the fair market value of the shares of Common Stock on such day or days, as determined in good faith by the Board of Directors of the Company. (e) "Purchase Price" shall mean the Conversion Price of the Debenture to which the Warrant relates, which is agreed to be the amount set forth on the signature page of the Warrant Certificate, subject to adjustment from time to time pursuant to the provisions of Section 8 hereof. (f) "Investor" shall mean the person or entity listed on EXHIBIT I hereto or in whose name any certificate representing Warrants shall be registered on the books maintained by the Company or the Warrant Agent pursuant to Section 6. (g) "Offering" shall mean the purchase and sale of the Debentures in an aggregate principal amount not less than $10 million and not greater than $100 million with the right to increase the Offering to $150 million. (h) "Underlying Share(s)" means the Common Stock which may be purchased upon exercise of the Warrants. (i) "Warrant Expiration Date" shall mean 5:00 P.M. (Miami time) on December 31, 2005. Upon notice to all warrantholders, the Company shall have the right to extend the Warrant Expiration Date. Exhibit C-2 15 SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES. (a) The Company hereby confirms that the Warrants entitle the Investor to purchase a number of shares of the Common Stock of the Company equal to ten percent (10%) of the principal dollar amount of the Debenture redeemed, and any right to fractional shares shall be governed by Section 9 herein. A Warrant shall initially entitle the Investor to purchase one share of Common Stock upon the exercise thereof, in accordance with the terms hereof, subject to modification and adjustment as provided in Section 8. (b) From time to time, up to the Warrant Expiration Date, the Company or the Warrant Agent, as the case may be, shall execute and deliver Warrant Certificates in required whole number denominations to the persons entitled thereto in connection with any transfer or exchange permitted under this Warrant Agreement; provided that no Warrant Certificates shall be issued except (i) those initially issued hereunder; (ii) those issued on or after the Initial Warrant Exercise Date, upon the exercise of fewer than all Warrants represented by any Warrant Certificate, to evidence any unexercised Warrants held by the exercising Investor; (iii) those issued upon any transfer or exchange pursuant to Section 6; (iv) those issued in replacement of lost, stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7; and (v) at the option of the Company, in such form as may be approved by its Board of Directors, to reflect (A) any adjustment or change in the Purchase Price or the number of shares of Common Stock purchasable upon exercise of the Warrants, made pursuant to Section 8 hereof and (B) other modifications approved by the Investor in accordance with Section 14 hereof. SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES. (a) The Warrant Certificates shall be substantially in the form annexed hereto as EXHIBIT I (the provisions of which are hereby incorporated herein) and may have such letters, numbers or other marks of identification or designation and such legends, summaries or endorsements printed, lithographed, engraved or typed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Warrant Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Warrants may be listed, or to conform to usage. (b) Warrant Certificates shall be executed on behalf of the Company by its Chairman of the Board, President or any Vice President, by manual signatures or by facsimile signatures printed thereon, and shall have imprinted thereon a facsimile of the Company's seal. (c) The Warrant Certificates will carry the following legend: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `SECURITIES ACT'), AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE SECURITIES Exhibit C-3 16 ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE `BLUE SKY' OR SIMILAR SECURITIES LAWS." SECTION 4. EXERCISE. (a) Upon the terms and subject to the conditions set forth herein and in the Warrant Certificate, the Warrants may be exercised by the Investor at the time provided, however, that any shares of Common Stock issued may not be transferred prior to December 31, 2001. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the Exercise Date and the person entitled to receive the securities deliverable upon such exercise shall be treated for all purposes as the holder upon exercise thereof as of the close of business on the Exercise Date. (b) In order to exercise this Warrant, in whole or in part, the Investor shall deliver to the Company the Warrants for the number of Underlying Shares being purchased and: (i) cash or a check in an amount equal to the then aggregate Purchase Price at the Corporate Office; or (ii) at the election of the Investor, Warrants may be exercised through a cashless exercise, by the Investor delivering notice of such election to the Company together with the Warrants being exercised and an additional number of Warrants or shares of outstanding Common Stock constituting payment for such exercise (as the case may be, "Payment Warrants" or "Payment Stock"). The cash equivalent of the Payment Warrants and/or Payment Stock being delivered shall be computed by subtracting the Purchase Price of an Underlying Share from the Market Price of Common Stock. (c) As soon as practicable on or after the Exercise Date, the Company, or the Warrant Agent, as the case may be, shall deposit the proceeds received from the exercise of a Warrant, and promptly after clearance of checks received in payment of the Purchase Price pursuant to such Warrants, cause to be issued and delivered to the person or persons entitled to receive the same, a certificate or certificates for the securities deliverable upon such exercise, (plus a certificate for any remaining unexercised Warrants of the Investor). Exhibit C-4 17 SECTION 5. RESERVATION OF SHARES; PAYMENT OF TAXES; ETC. (a) The Company covenants that it will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issue upon exercise of Warrants, such number of shares of Common Stock as shall then be issuable upon the exercise of all outstanding Warrants. The Company covenants that all shares of Common Stock which shall be issuable upon exercise of the Warrants and payment of the Purchase Price shall, at the time of delivery, be duly and validly issued, fully paid, nonassessable and free from all taxes, liens and charges with respect to the issue hereof (other than those which the Company shall promptly pay or discharge). (b) The Company will use commercially reasonable efforts to obtain appropriate approvals or registrations under state "blue sky" securities laws with respect to the exercise of the Warrants; PROVIDED, HOWEVER, that the Company shall not be obligated to file any general consent to service of process or qualify as a foreign corporation in any jurisdiction. With respect to any such securities laws, however, Warrants may not be exercised by, or shares of Common Stock issued to, any Investor in any state in which such exercise would be unlawful. (c) The Company shall pay all documentary, stamp or similar taxes and other governmental charges that may be imposed with respect to the issuance of Warrants, or the issuance, or delivery of any shares upon exercise of the Warrants; PROVIDED, HOWEVER, that if the shares of Common Stock are to be delivered in a name other than the name of the Investor representing any Warrant being exercised, then no such delivery shall be made unless the person requesting the same has paid to the Company or the Warrant Agent the amount of transfer taxes or charges incident thereof, if any. SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER. (a) Subject to the restrictions on transfer contained in the Warrant Certificates, Warrant Certificates may be exchanged for other Warrant Certificates representing an equal aggregate number of Warrants of the same class or may be transferred in whole or in part. Warrant Certificates to be exchanged shall be surrendered to the Company, or the Warrant Agent, as the case may be, at its Corporate Office, and upon satisfaction of the terms and provisions hereof, the Company shall execute, and the Warrant Agent shall countersign, issue and deliver in exchange therefor the Warrant Certificate or Certificates which the Investor making the exchange shall be entitled to receive. (b) The Company, or the Warrant Agent, as the case may be, shall keep at its office books in which it shall register Warrant Certificates and the transfer thereof in accordance with its regular practice. (c) The Company may require payment by such Investor of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. (d) Prior to due presentment for registration of transfer thereof, the Company and the Warrant Agent, if one shall be serving, may deem and treat the Investor as the absolute Exhibit C-5 18 owner thereof and of each Warrant represented thereby (notwithstanding any notations of ownership or writing thereon made by anyone other than a duly authorized officer of the Company or the Warrant Agent) for all purposes and shall not be affected by any notice to the contrary. SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company and the Warrant Agent, if one shall be serving, of evidence satisfactory to them of the ownership of and loss, theft, destruction or mutilation of any Warrant Certificate and (in case of loss, theft or destruction) of indemnity satisfactory to them, and (in the case of mutilation) upon surrender and cancellation thereof, the Company shall execute and the Warrant Agent, if one shall be serving, shall (in the absence of notice to the Company and/or Warrant Agent that the Warrant Certificate has been acquired by a bona fide purchaser) countersign and deliver to the Investor in lieu thereof a new Warrant Certificate of like tenor representing an equal aggregate number of Warrants. Applicants for a substitute Warrant Certificate shall comply with such other reasonable regulations and pay such other reasonable charges as the Company or the Warrant Agent may prescribe. SECTION 8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON STOCK OR WARRANTS. The type and number of securities of the Company issuable upon exercise of this Warrant and the Purchase Price are subject to adjustment as set forth below: (a) The Purchase Price and the number and type of securities and/or other property issuable upon exercise of this Warrant shall be appropriately and proportionately adjusted to reflect any stock dividend, stock split, combination of shares, reclassification, recapitalization or other similar event affecting the number or character of outstanding shares of the Common Stock. (b) In case of any consolidation or merger of the Company with or into any other corporation, entity or person, or any other corporate reorganization, in which the Company shall not be the continuing or surviving entity of such consolidation, merger or reorganization (any such transaction being hereinafter referred to as a "Reorganization"), then, in each case, the holder of this Warrant, on exercise hereof at any time after the consummation or effective date of such Reorganization shall receive, in lieu of the Common Stock issuable upon exercise of the Warrants, prior to the date of such Reorganization, the stock and other securities and property (including cash) to which such holder would have been entitled upon the date of such Reorganization if such holder had exercised this Warrant immediately prior thereto. (c) In case of any adjustment in the Purchase Price or number and type of securities issuable on the exercise of this Warrant, the Company will promptly give written notice thereof to the holder of this Warrant in the form of a certificate, certified and confirmed by an officer of the Company, setting forth such adjustment and showing in reasonable detail the facts upon which such adjustment is based. SECTION 9. FRACTIONAL WARRANTS AND FRACTIONAL SHARES. If the number of shares of Common Stock purchasable upon the exercise of each Warrant is adjusted pursuant to Section 8 hereof, the Company shall nevertheless not be required to issue fractions of shares, upon exercise Exhibit C-6 19 of the Warrants or otherwise, or to distribute certificates that evidence fractional shares. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Investor an amount in cash equal to such fraction multiplied by the current Market Price of such fractional share. SECTION 10. REGISTRATION RIGHTS AND LISTING. (a) The Company shall use its commercially reasonable efforts to cause to be effective prior to December 31, 2001, a registration statement under the Securities Act, to permit the resale of the Underlying Shares by a holder thereof. The Company shall use its commercially reasonable efforts to cause such registration statement to remain effective until the earlier to occur of (i) the expiration of the time period referred to in Rule 144(k) under the Securities Act with respect to all beneficial holders of the Underlying Shares other than affiliates of the Company and (ii) such time as all the restricted Underlying Shares covered by any registration statement have been sold or are otherwise freely tradable without registration under the Securities Act. (b) In connection with the foregoing, the Company will: (i) Prepare and file with the Securities and Exchange Commission (the "Commission") a registration statement with respect to such securities and use its commercially reasonable efforts to cause such registration statement to become and remain effective. (ii) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the holder of such securities shall desire to sell the same. (iii) Furnish to holder such number of copies of a summary prospectus or other prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as holder may reasonably request in order to facilitate the sale of the Underlying Shares owned by holder. (iv) Use its commercially reasonable efforts to register or qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions within the United States and Puerto Rico as the holder shall reasonably request, and do such reasonable acts and things as may be required in such jurisdiction; PROVIDED, HOWEVER, that the Company shall not be obligated to file any general consent to service of process or qualify as a foreign corporation in any jurisdiction. (v) Furnish at the request of holder, on the date that such Underlying Shares are delivered to the underwriters for sale pursuant to an underwritten registration Exhibit C-7 20 or, if such Underlying Shares are not being sold through underwriters, on the date that the registration statement with respect to such Underlying Shares becomes effective, an opinion, dated such date, of the independent counsel representing the Company for the purposes of such registration, addressed to the underwriters, if any, and if the Underlying Shares are not being sold through underwriters, then to the holder, stating that such registration statement has become effective under the Securities Act and that (a) to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act, (b) the registration statement, the related prospectus and each amendment or supplement thereto, comply as to form in all material respects with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder (except that such counsel need express no opinion as to financial statements contained therein), (c) such counsel has no reason to believe that either the registration statement or the prospectus, or any amendment or supplement thereof, contains any untrue statement of a material fact required to be stated therein or necessary to make the statements therein not misleading, (d) the descriptions in the registration statement or the prospectus, or any amendment or supplement thereto, of all legal matters and contracts and other legal documents or instruments are accurate and fairly present the information required to be shown, and (e) such counsel does not know of any legal or governmental proceedings, pending or contemplated, required to be described in the registration statement or prospectus, or any amendment or supplement thereto, which are not described as required, nor of any contracts or documents or instruments or a character required to be described in the registration statement or prospectus, or any amendment or supplement thereto, or to be filed as exhibits to the registration statement which are not described and filed or incorporated by reference as required. Such opinion of counsel shall additionally cover such other legal matters with respect to the registration in respect of which such opinion is being given as holder may reasonably request. (c) All of the expenses incurred in complying with the foregoing, including, without limitation, all registration and filing fees (including all expenses incident to filing with the NASD), printing expenses, fees and disbursements of counsel for the Company, expenses of any special audits incident to or required by any such registration and expenses of complying with the securities or blue sky laws or any jurisdictions shall be paid by the Company. (d) The Company shall also use its commercially reasonable efforts to cause such Underlying Shares to be listed on the American Stock Exchange or such other principal national securities exchange on which the shares of Common Stock are then listed or if the shares are not so listed, on The Nasdaq Stock Market, if the shares are then listed on such market prior to December 31, 2001. SECTION 11. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of Warrants, shall, as such, be entitled to vote or to receive dividends or be deemed the holder of Common Stock that may at any time be issuable upon exercise of such Warrants for any purpose whatsoever, nor shall anything contained herein be construed to confer upon the holder of Exhibit C-8 21 Warrants, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issue or reclassification of stock, change of par value or change of stock to no par value, consolidation, merger or conveyance or otherwise), or to receive notice of meetings, or to receive dividends or subscription rights, until such holder shall have exercised such Warrants and been issued shares of Common Stock in accordance with the provisions hereof. SECTION 12. RIGHTS OF ACTION. All rights of action with respect to this Warrant Agreement are vested in the respective Investor in the Warrants, and the Investor, without consent of the Warrant Agent or the holder of any other Warrant, may, on his or her own behalf and for his or her own benefit, enforce against the Company his right to exercise his or her Warrants for the purchase of shares of Common Stock in the manner provided in the Warrant Certificate and the Warrant Agreement. SECTION 13. CONCERNING THE WARRANT AGENT. The Company reserves the right to designate a Warrant Agent. The Warrant Agent acts hereunder as agent and in a ministerial capacity for the Company, and its duties shall be determined solely by the provisions hereof. The Warrant Agent shall not, by issuing and delivering Warrant Certificates or by any other act hereunder be deemed to make any representations as to the validity, value or authorization of the Warrant Certificates or the Warrants represented thereby or of any securities or other property delivered upon exercise of any Warrant or whether any stock issued upon exercise of any Warrant is fully paid and nonassessable. The Warrant Agent shall account promptly to the Company with respect to Warrants exercised and concurrently pay the Company, as provided in Section 4, all moneys received by the Warrant Agent upon the exercise of such Warrants. The Warrant Agent shall, upon request of the Company from time to time, deliver to the Company such complete reports of registered ownership of the Warrants and such complete records of transactions with respect to the Warrants and the shares of Common Stock as the Company may request. The Warrant Agent shall also make available to the Company for inspection by their agents or employees, from time to time as either of them may request, such original books of accounts and records (including original Warrant Certificates surrendered to the Warrant Agent upon exercise of Warrants) as may be maintained by the Warrant Agent in connection with the issuance and exercise of Warrants hereunder, such inspections to occur at the Warrant Agent's office during normal business hours. The Warrant Agent shall not at any time be under any duty or responsibility to any holder of Warrant Certificates to make or cause to be made any adjustment of the Purchase Price provided in this Warrant Agreement, or to determine whether any fact exists which may require any such adjustments, or with respect to the nature or extent of any such adjustment, when made, or with respect to the method employed in making the same. It shall not (i) be liable for any recital or statement of facts contained herein or for any action taken, suffered or omitted by it in Exhibit C-9 22 reliance on any Warrant Certificate or other document or instrument believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties, (ii) be responsible for any failure on the part of the Company to comply with any of its covenants and obligations contained in this Warrant Agreement or in any Warrant Certificate, or (iii) be liable for any act or omission in connection with this Warrant Agreement except for its own negligence or willful misconduct. The Warrant Agent may at any time consult with counsel satisfactory to it (who may be counsel for the Company) and shall incur no liability or responsibility for any action taken, suffered or omitted by it in good faith in accordance with the opinion or advice of such counsel. Any notice, statement, instruction, request, direction, order or demand of the Company shall be sufficiently evidenced by an instrument signed by the Chairman of the Board, President, any Vice President, its Secretary, or Assistant Secretary, (unless other evidence in respect thereof is herein specifically prescribed). The Warrant Agent shall not be liable for any action taken, suffered or omitted by it in accordance with such notice, statement instruction, request, direction, order or demand believed by it to be genuine. The Warrant Agent may resign its duties and be discharged from all further duties and liabilities hereunder (except liabilities arising as a result of the Warrant Agent's own negligence or willful misconduct), after giving 30 days prior written notice to the Company. At least 15 days prior to the date such resignation is to become effective, the Warrant Agent shall cause a copy of such notice of resignation to be mailed to the Investor at the Company's expense. Upon such resignation, or any inability of the Warrant Agent to act as such hereunder, the Company may choose to perform the duties of the Warrant Agent itself or can appoint a new warrant agent. After acceptance in writing of such appointment by the new warrant agent is received by the Company, such new warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as the Warrant Agent, without any further assurance, conveyance, act or deed; but if for any reason it shall be necessary or expedient to execute and deliver any further assurance, conveyance, act or deed, the same shall be done at the expense of the Company and shall be legally and validly executed and delivered by the resigning Warrant Agent. Not later than the effective date of any such appointment the Company shall file notice thereof with the resigning Warrant Agent and shall forthwith cause a copy of such notice to be mailed to the Investor. Any corporation into which the Warrant Agent or any new warrant agent may be converted or merged or any corporation resulting from any consolidation to which the Warrant Agent or any new warrant agent shall be a party or any corporation succeeding to the trust business of the Warrant Agent shall be a successor warrant agent under this Warrant Agreement without any further act, provided that such corporation is eligible for appointment as successor to the Warrant Agent under the provisions of the preceding paragraph. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed to the Company and to the Investor. Exhibit C-10 23 The Warrant Agent, its subsidiaries and affiliates, and any of its or their officers or directors, may buy and hold or sell Warrants or other securities of the Company and otherwise deal with the Company in the same manner and to the same extent and with like effects as though it were not Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. SECTION 14. MODIFICATION OF AGREEMENT. The parties hereto may by supplemental agreement make any changes or corrections in this Warrant Agreement (i) that they shall deem appropriate to cure any ambiguity or to correct any defective or inconsistent provision or manifest mistake or error herein contained; (ii) to reflect an increase in the number of Warrants which are to be governed by this Warrant Agreement resulting from an increase in the size of the Offering; and (iii) that it may deem necessary or desirable and which shall not adversely affect the interests of the holders of Warrant Certificates; and provided, further, that no change in the number or nature of the securities purchasable upon the exercise of any Warrant, or the Purchase Price therefor, or the acceleration of the Warrant Expiration Date, shall be made without the consent in writing of the Investor, other than such changes as are specifically prescribed by this Warrant Agreement as originally executed. SECTION 15. NOTICES. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been made when delivered or mailed first class registered or certified mail, postage prepaid as follows: if to the Investor, at the address of such holder as shown on the registry books maintained by the Warrant Agent; if to the Company, at 2601 S. Bayshore Drive, Miami, Florida, 33133, Attention: Brian Goodkind, Executive Vice President and Chief Operating Officer; and if to the Warrant Agent, at its corporate office. SECTION 16. GOVERNING LAW. This Warrant Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without reference to principles of conflict of laws. SECTION 17. BINDING EFFECT. This Warrant Agreement shall be binding upon and inure to the benefit of the Company, the Investor and the Warrant Agent (and their respective successors and assigns) and the holders from time to time of Warrant Certificates. Nothing in this Warrant Agreement is intended or shall be construed to confer upon any other person any right, remedy or claim, in equity or at law, or to impose upon any other person any duty, liability or obligation. SECTION 18. TERMINATION. This Warrant Agreement shall terminate on the earlier to occur of (i) the close of business on the Expiration Date of the Warrants; or (ii) the date upon which all Warrants have been exercised. SECTION 19. COUNTERPARTS. This Warrant Agreement may be executed in several counterparts, which taken together shall constitute a single document. Exhibit C-11 24 IN WITNESS WHEREOF, the undersigned have executed this Warrant Agreement on the dates set forth below: THE COMPANY: INVESTOR: TERREMARK WORLDWIDE, INC. IF THE INVESTOR IS MORE THAN ONE INDIVIDUAL, THEN ALL INDIVIDUALS MUST SIGN: ------------------------------------------ (Type or print name of beneficial owner) By: ---------------------------- ----------------------------------------- Print Name: ___________________ Signature of prospective purchaser Title:_________________________ ----------------------------------------- Social Security Number Date: , 200_ ----------------------------------------- ------------------- (Type or print name of additional purchaser) ---------------------------------------- Signature of spouse, joint tenant, tenant in common or other signature, if required ----------------------------------------- Social Security Number IF THE PURCHASER IS A CORPORATION, PARTNERSHIP OR OTHER ENTITY: ----------------------------------------- (Name of Entity - Please Print) ----------------------------------------- Taxpayer Identification Number ----------------------------------------- By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- Exhibit C-12 25 EXHIBIT I TO WARRANT AGREEMENT WARRANT CERTIFICATE WARRANT NO. _____ THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAWS. TERREMARK WORLDWIDE, INC. WARRANT CERTIFICATE This certifies that FOR VALUE RECEIVED the investor or investors as set forth below, or their registered assigns as recorded in the Company's books (the "Investor") is the owner of the number of Warrants ("Warrants") specified below. Each Warrant initially entitles the Investor to purchase, subject to the terms and conditions set forth in this Certificate and the Warrant Agreement (as hereinafter defined), one fully paid and nonassessable share of Common Stock, $.001 par value per share ("Common Stock"), of Terremark Worldwide, Inc., a Delaware corporation (the "Company") at any time commencing as of the dates set forth in the Warrant Agreement and ending at 5:00 p.m., Miami time, on the Warrant Expiration Date as defined in the Warrant Agreement (the "Expiration Date"), upon the presentation and surrender of this Warrant Certificate with the Subscription Form, attached hereto as SCHEDULE A, duly executed, at the corporate office of the Company or warrant agent appointed by the Company or any successor to such warrant agent (the "Warrant Agent"), accompanied by payment as required pursuant to the Warrant Agreement (the "Warrant Agreement") between the Company and the Investor. This Warrant Certificate and each Warrant represented hereby are issued pursuant to and are subject in all respects to the terms and conditions set forth in the Warrant Agreement, which Warrant Agreement is hereby incorporated herein by reference and made a part hereof and to which Warrant Agreement reference is hereby made for a full description of the rights, limitations of rights, duties and immunities hereunder of the Company and the holders of the warrant Certificates. Copies of the Warrant Agreement are on file at the principal office of the Company. In the event that the Company designates a Warrant Agent, the Investor hereof consents to any amendment to the Warrant Agreement made in connection with such appointment. I-1 26 In the event of certain contingencies provided for in the Warrant Agreement, the Purchase Price or the number of shares of Common Stock subject to purchase upon the exercise of each Warrant represented hereby are subject to modification or adjustment. Each Warrant represented hereby is exercisable at the option of the Investor, but no fractional shares of Common Stock will be issued. In the case of the exercise of less than all the Warrants represented hereby, the Company shall cancel this Warrant Certificate upon the surrender hereof and shall execute and deliver a new Warrant Certificate or Warrant Certificates of like tenor, which the Company or the Warrant Agent shall countersign, for the balance of such Warrants. If the Expiration Date shall, in the State of Florida, be a holiday or a day on which the banks are authorized to close, then the Expiration Date shall mean 5:00 P.M. (Miami time) the next following day which in the State of Florida is not a holiday or a day on which banks are authorized to close. The Company may at its election, extend the Expiration Date. This Warrant Certificate is exchangeable upon the surrender hereof by the Investor at the corporate office of the Company or the Warrant Agent, for a new Warrant Certificate or Warrant Certificates of like tenor representing an equal aggregate number of Warrants, each of such new Warrant Certificates to represent such number of Warrants as shall be designated by such Investor at the time of such surrender. This Warrant Certificate is transferable upon the Investor's due presentment of (i) completed SCHEDULE B and (ii) payment for any tax or other governmental charge imposed for registration or transfer of this Warrant Certificate, at which time the Company shall issue a new Warrant Certificate or Warrant Certificates representing an aggregate number of Warrants equal to the number previously registered in the name of the Investor, subject to the limitations provided in the Warrant Agreement. Prior to the exercise of any Warrant represented hereby, the Investor shall not be entitled to the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided in the Warrant Agreement. Prior to due presentment for registration of transfer hereof, the Company may deem and treat the Investor as the absolute owner hereof and of each Warrant represented hereby (notwithstanding any notations of ownership or writing hereon made by anyone other than a duly authorized officer of the Company) for all purposes and shall not be affected by any notice to the contrary. I-2 27 This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of Florida. _________ Warrants INVESTOR: Purchase Price $ IF THE INVESTOR IS MORE THAN ONE ------------ INDIVIDUAL, THEN ALL INDIVIDUALS MUST SIGN: Date: ---------------------- ---------------------------------------- (Type or print name of beneficial owner) ---------------------------------------- Signature of prospective purchaser ---------------------------------------- ISSUER: Social Security Number ---------------------------------------- TERREMARK WORLDWIDE, INC. (Type or print name of additional purchaser) ---------------------------------------- By:________________________________ Signature of spouse, joint tenant, tenant in common or other signature, if Print Name: _______________________ required Title:_____________________________ ________________________________________ Social Security Number IF THE PURCHASER IS A CORPORATION, PARTNERSHIP OR OTHER ENTITY: ---------------------------------------- (Name of Entity - Please Print) ---------------------------------------- Taxpayer Identification Number ---------------------------------------- By: ___________________________________ Name: __________________________________ Title: _________________________________ I-3 28 SCHEDULE A TO WARRANT CERTIFICATE SUBSCRIPTION FORM TO BE EXECUTED BY THE INVESTOR IN ORDER TO EXERCISE WARRANTS The undersigned Investor hereby irrevocably elects to exercise ______ Warrants represented by this Warrant Certificate, and to purchase the securities issuable upon the exercise of such Warrants, and requests that certificates for such securities shall be issued in the name of PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER ------------------------------ ------------------------------ ------------------------------ ------------------------------ [Please print or type name and address.] and delivered to ------------------------------ ------------------------------ ------------------------------ ------------------------------ [Please print or type name and address.] and if such number of Warrants shall not be all the Warrants evidenced by this Warrant Certificate, that a new Warrant Certificate for the balance of such Warrants be registered in the name of, and delivered to, the Investor at the address stated below. The undersigned either tenders payment in full or, pursuant to the terms of the attached Warrant, exercises its right to convert the right to acquire shares into _______, duly and validly authorized and issued, fully-paid and non-assessable shares of the Company without further payment. The fair market value used for purposes of this calculation was $_______ (determined in accordance with the procedures specified in Section 4(b)(ii) of the Warrant Agreement). Taxpayer Identification Number - -------------------------------------------- Signature Guaranteed Schedule A-1 29 SCHEDULE B TO WARRANT CERTIFICATE ASSIGNMENT TO BE EXECUTED BY THE INVESTOR IN ORDER TO ASSIGN WARRANTS FOR VALUE RECEIVED __________________________ hereby sells, assigns and transfers unto: ---------------------------------- ---------------------------------- ---------------------------------- ---------------------------------- [Please print or type name and address and social security or other identifying number.] ________________________________ of the Warrants represented by this Warrant Certificate, and hereby irrevocably constitutes and appoints _________________________________ ____________________________________ Attorney to transfer this Warrant Certificate on the books of the Company, with full power of substitution in the premises. Dated:___________________ X_______________________ Signature Guaranteed - ------------------------- THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR MIDWEST STOCK EXCHANGE. Schedule B-1 30 EXHIBIT D Assignment Form To assign the Debenture, fill in the form below: (I) or (We) assign and transfer the Debenture to: - -------------------------------------------------------------------------------- (Insert Assignee's Soc. Sec. Or Tax I.D. No.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint -------------------------------------------------------- to transfer the Debenture on the books of the Company. The agent may substitute another to act for him. Date: Your Signature: ----------------------------- ---------------------------- (Sign exactly as your name appears on the other side of the Debenture) Signature Guarantee: ----------------------------------------------------------- Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor program reasonably acceptable to the Registrar). Exhibit D-1 31 EXHIBIT E Letter Regarding Transfers to Accredited Investors ---------------, ----- Terremark Worldwide, Inc. 2601 S. Bayshore Drive Miami Beach, FL 33133 Attention: ___________ Re: TERREMARK WORLDWIDE, INC. 13% SUBORDINATED CONVERTIBLE DEBENTURE DUE DECEMBER 31, 2005 Ladies and Gentlemen: In connection with our proposed purchase of the 13% Subordinated Convertible Debenture due December 31, 2005 dated as of the later of the dates set forth on the execution page between Terremark Worldwide, Inc. (the "Company") and the investor named on the execution page of the Debenture (the "Investor") (the "Debenture"), we confirm that: 1. We understand that any subsequent transfer of the Debenture is subject to certain restrictions and conditions set forth in the Subscription Agreement dated as of the later of the dates set forth on the execution page of the Debenture between the Company and the Investor (the "Subscription Agreement") and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Debenture except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Debenture has not been registered under the Securities Act, and that the Debenture may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that we will not, within the time period referred to in Rule 144(k) under the Securities Act as in effect on the date of transfer of the Debenture, resell or otherwise transfer the Debenture except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and we further agree to provide to any person to whom the Debenture is transferred a notice advising such transferee that resales of the Debenture are restricted as stated herein. 3. We understand that, on any proposed resale of the Debenture, we will be required to furnish to the Company, such certifications, legal opinions and other information as the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We acknowledge that the Company will rely upon the truth and accuracy of such Exhibit E-1 32 information. We further understand that the Debenture purchased by us will bear a legend to the foregoing effect. 4. We are an "accredited investor" as defined in Rule 501 of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Securities, and we and any accounts for which we are acting are each able to bear the economic risk of our or their investment, as the case may be. 5. We are acquiring the Debenture purchased by us for our account or for one or more accounts (each of which is an "accredited investor") as to each of which we exercise sole investment discretion. We are not acquiring the Debenture with a view toward distribution thereof in a transaction that would violate the Securities Act or the securities laws of any State of the United States or any other applicable jurisdiction. The Company is entitled to rely upon this letter and is irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, By: ------------------------------------ Name: ----------------------------------- Title: ---------------------------------- Exhibit E-2 EX-4.2 3 g66866ex4-2.txt WARRANT FOR THE PURCHASE SHARES OF COMMON STOCK 1 Exhibit 4.2 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `SECURITIES ACT'), AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE `BLUE SKY' OR SIMILAR SECURITIES LAWS. DATED AS OF NOVEMBER 8, 2000 TERREMARK WORLDWIDE, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK NO. W-_____ FOR VALUE RECEIVED, Terremark Worldwide, Inc., a Delaware corporation (the "Company"), hereby certifies that __________________, or its registered assigns (the "Holder") is entitled, subject to the provisions of this Warrant, to purchase from the Company, ________ fully paid and non-assessable shares of Common Stock for an aggregate price of $ ________ or $2.76 per share (the "Exercise Price"). The term "Common Stock" means the Common Stock, par value $.001 per share, of the Company. The number of shares of Common Stock to be received upon the exercise of this Warrant and the Exercise Price may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter referred to as "Warrant Stock." The term "Other Securities" means any other equity or debt securities that may be issued by the Company in addition thereto or in substitution for the Warrant Stock. The term "Company" means and includes the corporation named above as well as (i) any immediate or more remote successor corporation resulting from the merger or consolidation of such corporation (or any immediate or more remote successor corporation of such corporation) with another corporation, or (ii) any corporation to which such corporation (or any immediate or more remote successor corporation of such corporation) has transferred its property or assets as an entirety or substantially as an entirety. The Holder agrees with the Company that this Warrant is issued, and all the rights hereunder shall be held subject to, all of the conditions, limitations and provisions set forth herein. The Company will act, or in the event it designates a Warrant Agent, the Warrant Agent will act on behalf of the Company, in connection with the issuance, registration, transfer, exchange and redemption of the Warrants, the exercise of the Warrants, and the rights of the holders thereof. 2 1. EXERCISE OF WARRANT. This Warrant may be exercised in whole or in part at any time, or from time to time during the period commencing on the date hereof and expiring 5:00 p.m. Eastern Time on November 8, 2008 (the "Expiration Date"), by presentation and surrender of this Warrant to the Company at its principal office, or at the office of its Warrant Agent, if any, with the Warrant Exercise Form attached hereto duly executed and accompanied by payment (either in cash or by certified or official bank check or wire transfer, each payable to the order of the Company) of the Exercise Price for the number of shares specified in such form and instruments of transfer, if appropriate, duly executed by the Holder or his or her duly authorized attorney. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the shares purchasable hereunder. Upon receipt by the Company of this Warrant, together with the Exercise Price, at its office, or by the Warrant Agent of the Company at its office, in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares of Common Stock shall not then be actually delivered to the Holder. 2. FRACTIONAL SHARES. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but the Company shall pay the Holder an amount equal to the fair market value of such fractional share of Common Stock in lieu of each fraction of a share otherwise called for upon any exercise of this Warrant. For purposes of this Warrant, the fair market value of a share of Common Stock shall mean: (i) if the shares of Common Stock are listed or admitted for trading on a national securities exchange, the last reported sales price regular way, or, in the case no such reported sale takes place on such day or days, the average of the reported closing bid and asked prices regular way, in either case on the principal national securities exchange on which the shares of the Common Stock are listed or admitted for trading, or (ii) if the shares of Common Stock are not listed or admitted for trading on a national securities exchange (A) the last transaction price for the Common Stock on The Nasdaq Stock Market ("Nasdaq") or, in the case no such reported transaction takes place on such day or days, the average of the reported closing bid and asked prices thereof quoted on Nasdaq, or (B) if the shares of Common Stock are not quoted on Nasdaq, the average of the closing bid and asked prices of the Common Stock as quoted on the Over-The-Counter Bulletin Board maintained by the National Association of Securities Dealers, Inc. (the "Bulletin Board"), or (C) if the shares of Common Stock are not quoted on Nasdaq or on the Bulletin Board, the average of the closing bid and asked prices of the Common Stock in the over-the-counter market, as reported by The National Quotation Bureau, Inc., or an equivalent generally accepted reporting service, or (iii) if on any such trading day or days the shares of Common Stock are not quoted by any such organization, the fair market value of the shares of Common Stock on such day or days, as determined in good faith by the Board of Directors of the Company. 2 3 3. RESERVATION OF SHARES; PAYMENT OF TAXES; ETC. (a) The Company covenants that it will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issue upon exercise of Warrants, such number of shares of Common Stock as shall then be issuable upon the exercise of all outstanding Warrants. The Company covenants that all shares of Common Stock which shall be issuable upon exercise of the Warrants and payment of the Exercise Price shall, at the time of delivery, be duly and validly issued, fully paid, nonassessable and free from all taxes, liens and charges with respect to the issue hereof (other than those which the Company shall promptly pay or discharge). (b) The Company will use commercially reasonable efforts to obtain appropriate approvals or registrations under state "blue sky" securities laws with respect to the exercise of the Warrants; PROVIDED, HOWEVER, that the Company shall not be obligated to file any general consent to service of process or qualify as a foreign corporation in any jurisdiction. With respect to any such securities laws, however, Warrants may not be exercised by, or shares of Common Stock issued to, any Holder in any state in which such exercise would be unlawful. (c) The Company shall pay all documentary, stamp or similar taxes and other governmental charges that may be imposed with respect to the issuance of Warrants, or the issuance, or delivery of any shares upon exercise of the Warrants; PROVIDED, HOWEVER, that if the shares of Common Stock are to be delivered in a name other than the name of the Holder representing any Warrant being exercised, then no such delivery shall be made unless the person requesting the same has paid to the Company or the Warrant Agent the amount of transfer taxes or charges incident thereof, if any. 4. EXCHANGE AND REGISTRATION OF TRANSFER. (a) This Warrant may be exchanged for other Warrants representing an equal aggregate number of Warrants of the same class or may be transferred in whole or in part. Warrants to be exchanged shall be surrendered to the Company, or the Warrant Agent, as the case may be, at its corporate office, and upon satisfaction of the terms and provisions hereof, the Company shall execute, and the Warrant Agent shall countersign, issue and deliver in exchange therefor the Warrants which the Holder making the exchange shall be entitled to receive. (b) The Company, or the Warrant Agent, as the case may be, shall keep at its office books in which it shall register Warrants and the transfer thereof in accordance with its regular practice. (c) The Company may require payment by such Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. (d) Prior to due presentment for registration of transfer thereof, the Company and the Warrant Agent, if one shall be serving, may deem and treat the Holder as the absolute owner thereof and of each Warrant represented thereby (notwithstanding any notations of ownership or 3 4 writing thereon made by anyone other than a duly authorized officer of the Company or the Warrant Agent) for all purposes and shall not be affected by any notice to the contrary. 5. LOSS OR MUTILATION. Upon receipt by the Company and the Warrant Agent, if one shall be serving, of evidence satisfactory to them of the ownership of and loss, theft, destruction or mutilation of any Warrant and (in case of loss, theft or destruction) of indemnity satisfactory to them, and (in the case of mutilation) upon surrender and cancellation thereof, the Company shall execute and the Warrant Agent, if one shall be serving, shall (in the absence of notice to the Company and/or Warrant Agent that the Warrant has been acquired by a bona fide purchaser) countersign and deliver to the Holder in lieu thereof a new Warrant of like tenor representing an equal aggregate number of Warrants. Applicants for a substitute Warrant shall comply with such other reasonable regulations and pay such other reasonable charges as the Company or the Warrant Agent may prescribe. 6. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF COMMON STOCK OR WARRANTS. The type and number of securities of the Company issuable upon exercise of this Warrant and the Exercise Price are subject to adjustment as set forth below: (a) The Exercise Price and the number and type of securities and/or other property issuable upon exercise of this Warrant shall be appropriately and proportionately adjusted to reflect any stock dividend, stock split, combination of shares, reclassification, recapitalization or other similar event affecting the number or character of outstanding shares of the Common Stock. (b) In case of any consolidation or merger of the Company with or into any other corporation, entity or person, or any other corporate reorganization, in which the Company shall not be the continuing or surviving entity of such consolidation, merger or reorganization (any such transaction being hereinafter referred to as a "Reorganization"), then, in each case, the holder of this Warrant, on exercise hereof at any time after the consummation or effective date of such Reorganization shall receive, in lieu of the Common Stock issuable upon exercise of the Warrants prior to the date of such Reorganization, the stock and other securities and property (including cash) to which such holder would have been entitled upon the date of such Reorganization if such holder had exercised this Warrant immediately prior thereto. (c) In case of any adjustment in the Exercise Price or number and type of securities issuable on the exercise of this Warrant, the Company will promptly give written notice thereof to the holder of this Warrant in the form of a certificate, certified and confirmed by an officer of the Company, setting forth such adjustment and showing in reasonable detail the facts upon which such adjustment is based. 7. REGISTRATION RIGHTS AND LISTING. (a) The Company shall use its commercially reasonable efforts to cause to be effective a registration statement on or prior to December 31, 2001 under the Securities Act, to permit the resale of the Warrant Stock by a holder thereof. The Company shall use its commercially reasonable efforts to cause such registration statement to remain effective until the 4 5 earlier to occur of (i) the expiration of the time period referred to in Rule 144(k) under the Securities Act with respect to all beneficial holders of the Warrant Stock other than affiliates of the Company and (ii) such time as all the restricted Warrant Stock covered by any registration statement have been sold or are otherwise freely tradable without registration under the Securities Act. (b) In connection with the foregoing, the Company will: (i) Prepare and file with the Securities and Exchange Commission (the "Commission") a registration statement with respect to such securities and use its commercially reasonable efforts to cause such registration statement to become and remain effective. (ii) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the holder of such securities shall desire to sell the same. (iii) Furnish to holder such number of copies of a summary prospectus or other prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as holder may reasonably request in order to facilitate the sale of the Warrant Stock owned by holder. (iv) Use its commercially reasonable efforts to register or qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions within the United States and Puerto Rico as the holder shall reasonably request, and do such reasonable acts and things as may be required in such jurisdiction; PROVIDED, HOWEVER, that the Company shall not be obligated to file any general consent to service of process or qualify as a foreign corporation in any jurisdiction. (v) Furnish at the request of holder, on the date that such Warrant Stock is delivered to the underwriters for sale pursuant to an underwritten registration or, if such Warrant Stock is not being sold through underwriters, on the date that the registration statement with respect to such Warrant Stock becomes effective, an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, addressed to the underwriters, if any, and if the Warrant Stock is not being sold through underwriters, then to the holder, stating that such registration statement has become effective under the Securities Act and that (a) to the knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act, (b) the registration statement, the related prospectus and each amendment or supplement thereto, comply as to form in all material respects with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder (except that such counsel need express no opinion as to financial statements contained therein), (c) such counsel has no reason to believe that either the registration statement or the prospectus, or any amendment or supplement thereof, contains any untrue statement of a material fact required to be stated therein or necessary to make the statements therein not misleading, (d) the descriptions in 5 6 the registration statement or the prospectus, or any amendment or supplement thereto, of all legal matters and contracts and other legal documents or instruments are accurate and fairly present the information required to be shown, and (e) such counsel does not know of any legal or governmental proceedings, pending or contemplated, required to be described in the registration statement or prospectus, or any amendment or supplement thereto, which are not described as required, nor of any contracts or documents or instruments or a character required to be described in the registration statement or prospectus, or any amendment or supplement thereto, or to be filed as exhibits to the registration statement which are not described and filed or incorporated by reference as required. Such opinion of counsel shall additionally cover such other legal matters with respect to the registration in respect of which such opinion is being given as holder may reasonably request. (c) All of the expenses incurred in complying with the foregoing, including, without limitation, all registration and filing fees (including all expenses incident to filing with the NASD), printing expenses, fees and disbursements of counsel for the Company, expenses of any special audits incident to or required by any such registration and expenses of complying with the securities or blue sky laws or any jurisdictions shall be paid by the Company. (d) The Company shall also use its commercially reasonable efforts to cause such Warrant Stock to be listed on the American Stock Exchange or such other principal national securities exchange on which the shares of Common Stock are then listed or if the shares are not so listed, on The Nasdaq Stock Market, if the shares are then listed on such market. 8. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of Warrants, shall, as such, be entitled to vote or to receive dividends or be deemed the holder of Common Stock that may at any time be issuable upon exercise of such Warrants for any purpose whatsoever, nor shall anything contained herein be construed to confer upon the holder of Warrants, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issue or reclassification of stock, change of par value or change of stock to no par value, consolidation, merger or conveyance or otherwise), or to receive notice of meetings, or to receive dividends or subscription rights, until such holder shall have exercised such Warrants and been issued shares of Common Stock in accordance with the provisions hereof. 9. RIGHTS OF ACTION. All rights of action with respect to this Warrant are vested in the respective Holder of the Warrants, and the Holder, without consent of the Warrant Agent or the holder of any other Warrant, may, on his or her own behalf and for his or her own benefit, enforce against the Company his right to exercise his or her Warrants for the purchase of shares of Common Stock in the manner provided in this Warrant. 10. CONCERNING THE WARRANT AGENT. The Company reserves the right to designate a Warrant Agent. If so designated, the Warrant Agent will act hereunder as agent and in a ministerial capacity for the Company, and its duties shall be determined solely by the provisions hereof. The Warrant Agent shall not, by issuing and delivering Warrants or by any other act 6 7 hereunder be deemed to make any representations as to the validity, value or authorization of the Warrants or the Warrants represented thereby or of any securities or other property delivered upon exercise of any Warrant or whether any stock issued upon exercise of any Warrant is fully paid and nonassessable. The Warrant Agent shall account promptly to the Company with respect to Warrants exercised and concurrently pay the Company all moneys received by the Warrant Agent upon the exercise of such Warrants. The Warrant Agent shall, upon request of the Company from time to time, deliver to the Company such complete reports of registered ownership of the Warrants and such complete records of transactions with respect to the Warrants and the shares of Common Stock as the Company may request. The Warrant Agent shall also make available to the Company and the Holder for inspection by their agents or employees, from time to time as either of them may request, such original books of accounts and records (including original Warrants surrendered to the Warrant Agent upon exercise of Warrants) as may be maintained by the Warrant Agent in connection with the issuance and exercise of Warrants hereunder, such inspections to occur at the Warrant Agent's office during normal business hours. The Warrant Agent shall not at any time be under any duty or responsibility to any holder of Warrants to make or cause to be made any adjustment of the Exercise Price provided in this Warrant, or to determine whether any fact exists which may require any such adjustments, or with respect to the nature or extent of any such adjustment, when made, or with respect to the method employed in making the same. It shall not (i) be liable for any recital or statement of facts contained herein or for any action taken, suffered or omitted by it in reliance on any Warrant or other document or instrument believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties, (ii) be responsible for any failure on the part of the Company to comply with any of its covenants and obligations contained in this Warrant, or (iii) be liable for any act or omission in connection with this Warrant except for its own negligence or willful misconduct. The Warrant Agent may at any time consult with counsel satisfactory to it (who may be counsel for the Company) and shall incur no liability or responsibility for any action taken, suffered or omitted by it in good faith in accordance with the opinion or advice of such counsel. Any notice, statement, instruction, request, direction, order or demand of the Company shall be sufficiently evidenced by an instrument signed by the Chairman of the Board, President, any Vice President, Secretary, or Assistant Secretary of the Company, (unless other evidence in respect thereof is herein specifically prescribed). The Warrant Agent shall not be liable for any action taken, suffered or omitted by it in accordance with such notice, statement instruction, request, direction, order or demand believed by it to be genuine. The Warrant Agent may resign its duties and be discharged from all further duties and liabilities hereunder (except liabilities arising as a result of the Warrant Agent's own negligence or willful misconduct), after giving 30 days prior written notice to the Company. At least 15 days prior to the date such resignation is to become effective, the Warrant Agent shall cause a copy of such notice of resignation to be mailed to the Holder at the Company's expense. Upon 7 8 such resignation, or any inability of the Warrant Agent to act as such hereunder, the Company may choose to perform the duties of the Warrant Agent itself or can appoint a new warrant agent. After acceptance in writing of such appointment by the new warrant agent is received by the Company, such new warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as the Warrant Agent, without any further assurance, conveyance, act or deed; but if for any reason it shall be necessary or expedient to execute and deliver any further assurance, conveyance, act or deed, the same shall be done at the expense of the Company and shall be legally and validly executed and delivered by the resigning Warrant Agent. Not later than the effective date of any such appointment, the Company shall file notice thereof with the resigning Warrant Agent and shall forthwith cause a copy of such notice to be mailed to the Holder. Any corporation into which the Warrant Agent or any new warrant agent may be converted or merged or any corporation resulting from any consolidation to which the Warrant Agent or any new warrant agent shall be a party or any corporation succeeding to the trust business of the Warrant Agent shall be a successor warrant agent under this Warrant without any further act, provided that such corporation is eligible for appointment as successor to the Warrant Agent under the provisions of the preceding paragraph. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed to the Company and to the Holder. The Warrant Agent, its subsidiaries and affiliates, and any of its or their officers or directors, may buy and hold or sell Warrants or other securities of the Company and otherwise deal with the Company in the same manner and to the same extent and with like effects as though it were not Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. 11. MODIFICATION OF AGREEMENT. The Company may from time to time supplement or amend this Warrant in order to cure any ambiguity or to correct any provision herein which may be erroneous, defective or inconsistent; provided, however, that no change in the number or nature of the securities purchasable upon the exercise of any Warrant, or the Exercise Price therefor, or the acceleration of the Warrant Expiration Date, shall be made without the consent in writing of the Holder, other than such changes as are specifically prescribed by this Warrant as originally executed. 12. NOTICES. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been made when delivered or mailed first class registered or certified mail, postage prepaid as follows: if to the Holder, at the address of such holder as shown on the registry books maintained by the Company or the Warrant Agent, if one shall be serving; if to the Company, at 2601 S. Bayshore Drive, Miami, Florida, 33133, Attention: Brian Goodkind, Executive Vice President and Chief Operating Officer; and if to the Warrant Agent, if one shall be serving, at its corporate office. 13. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Florida, without reference to principles of conflict of laws. 8 9 14. BINDING EFFECT. This Warrant shall be binding upon and inure to the benefit of the Company, the Holder and the Warrant Agent (and their respective successors and assigns) and the holders from time to time of Warrants. Nothing in this Warrant is intended or shall be construed to confer upon any other person any right, remedy or claim, in equity or at law, or to impose upon any other person any duty, liability or obligation. 15. TERMINATION. This Warrant shall terminate on the earlier to occur of (i) the close of business on the Expiration Date; or (ii) the date upon which the Warrant has been exercised in full. 16. TRANSFER TO COMPLY WITH THE SECURITIES ACT. Notwithstanding any other provision contained herein, this Warrant and any Warrant Stock or Other Securities may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (a) to a person who, in the opinion of counsel to the Company, is a person to whom this Warrant or the Warrant Stock or Other Securities may legally be transferred without registration and without the delivery of a current prospectus under the Securities Act with respect thereto and then only against receipt of an agreement of such person to comply with the provisions of this Section 6 with respect to any resale or other disposition of such securities; or (b) to any person upon delivery of a prospectus then meeting the requirements of the Securities Act relating to such securities and the offering thereof for such sale or disposition, and thereafter to all successive assignees. 17. LEGEND. Unless the shares of Warrant Stock or Other Securities have been registered under the Securities Act, upon exercise of any of the Warrants and the issuance of any of the shares of Warrant Stock or Other Securities, all certificates representing such securities shall bear on the face thereof substantially the following legend: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE `SECURITIES ACT'), AND MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE CORPORATION, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE `BLUE SKY' OR SIMILAR SECURITIES LAWS." IN WITNESS HEREOF, the Company has caused this Warrant to be signed on its behalf, in its corporate name, by its duly authorized officer, all as of the day and year first above written. TERREMARK WORLDWIDE, INC. By: ------------------------------------ Name: Title: 9 10 WARRANT EXERCISE FORM The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing ____ shares of Common Stock of TERREMARK WORLDWIDE, INC., a Delaware corporation, and hereby makes payment of $____________ in payment therefor. ------------------------------------- Signature ------------------------------------- Signature, if jointly held ------------------------------------- Date INSTRUCTIONS FOR ISSUANCE OF STOCK (if other than to the registered holder of the within Warrant) Name --------------------------------------------------------------------------- (Please typewrite or print in block letters) Address ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- Social Security or Taxpayer Identification Number ------------------------------------------------- 10 11 ASSIGNMENT FORM FOR VALUE RECEIVED, ------------------------------------------------------------ hereby sells, assigns and transfers unto Name --------------------------------------------------------------------------- (Please typewrite or print in block letters) the right to purchase Common Stock of TERREMARK WORLDWIDE, INC., a Delaware corporation, represented by this Warrant to the extent of shares as to which such right is exercisable and does hereby irrevocably constitute and appoint __________________________ Attorney, to transfer the same on the books of the Company with full power of substitution in the premises. DATED: ____________, _____. ------------------------------------- Signature ------------------------------------- Signature, if jointly held 11 -----END PRIVACY-ENHANCED MESSAGE-----