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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ___________________ to ____________________
Commission file number 0-15187
IFX Corporation
(Exact name of registrant as specified in its charter)
Delaware 36-3399452
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
707 Skokie Blvd Ste 580, Northbrook, Illinois 60062
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 412-9411
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Securities registered pursuant to Section 12(g) of the Act:
$.02 Par Value Common Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
As of August 31, 1999, the aggregate market value of the voting stock
held by non-affiliates of the registrant was approximately $56,606,700.
As of August 31, 1999, there were outstanding 7,695,377 shares of the
Registrant's common stock.
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PART I
Item 1 - Business
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HISTORICAL BACKGROUND
IFX Corporation (IFX Corporation and its subsidiaries are referred to
herein as "IFX" or the "Company") was incorporated under the laws of the State
of Illinois in July 1985 and changed its state of incorporation to Delaware in
May 1994. Prior to July 1996, IFX's primary business was providing commodity
brokerage services through its principal operating subsidiary, Index Futures
Group, Inc. ("Index"). On July 1, 1996, IFX sold substantially all of its
brokerage assets (other than the assets of its U.K. subsidiary) to E.D. & F. Man
International, Inc., a unit of E.D. & F. Man Group, plc, a London-based
international trading and finance conglomerate. The purchase price for such sale
consisted of cash earn-out payments based upon the sold business' profitability
during the sixty-six months following the sale. Since July 1996, IFX's revenues
have consisted primarily of earn-out payments from such asset sale, interest
income and income from operations of the Company's U.K. subsidiary, IFX Ltd.,
which conducts foreign exchange business as a registrant of the British
Securities and Futures Authority. From July 1996 through June 30, 1999, IFX has
received approximately $10.4 million of earn-out payments from the sale of its
brokerage assets. Prior to January 1, 1999, the earn-out payments were based on
40% of the sold business' profitability. In calendar year 1999, the earn-out
payments were based on 30% of the sold business' profitability and, in calendar
years 2000 and 2001, will be based on 20% of the sold business' profitability.
In June 1999, IFX divested itself of its 50.1% interest in IFX Ltd. in
exchange for approximately $2.45 million in cash and a note receivable, and a
redeemable preference share entitling IFX to quarterly payments equal to
approximately 30% of the net profits of IFX Ltd. through June 30, 2002.
Following the sale of its U.K. subsidiary, IFX decided not to invest the sales
proceeds in the trading business but decided, rather, to continue to develop its
businesses in the Internet industry.
IFX believes that the Internet industry presents significant
opportunities for IFX's future investment and growth. In particular, IFX
believes that the market for Internet services in Latin America may present
substantial growth potential due to the increasing demand for Internet services,
relatively low market penetration and the absence of any dominant regional or
pan-regional (i.e., intercountry) service providers. Accordingly, IFX has begun
to pursue, and intends to continue to pursue, the acquisition and development of
Internet access and related services businesses, initially in South America and
Mexico. Ultimately, IFX seeks to form a Latin American pan-regional network of
ISPs, under the brand name Unete. Unete is the Spanish word for `Join Us,' which
IFX is using as a marketing term for people to join us and become members of our
Unete service and Internet community. The Unete service would enable a
subscriber traveling in major Latin American and North American cities to access
the Internet by making a local telephone call, regardless of whether or not such
subscriber was in his or her home country.
EMPLOYEES
IFX's success is dependent in part upon its ability to attract and
retain qualified, experienced employees. As of September 15, 1999, IFX employed
approximately 245 employees. IFX believes that its relationship with its
employees is good.
COMPETITION
The market for Internet connectivity and related services is extremely
competitive, characterized by rapidly changing technology and evolving standards
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which can be significantly influenced by the marketing and pricing decisions of
the largest industry participants. IFX anticipates that competition will
continue to intensify as the use of the Internet grows. Companies in this
industry compete primarily on the basis of quality and consistency of service,
price (including the free ISP business model), accessibility and geographic
coverage. IFX competes with U.S.-based and foreign-based Internet service
providers and also with government-owned or subsidized telecommunications
providers.
RECENT DEVELOPMENTS AND ACQUISITIONS
Agreement with International Technology Investments, LC. In November
1998, IFX entered into an agreement with International Technology Investments,
LC ("International Technology") with respect to the provision of Internet
services and the acquisition of existing Internet service providers (ISPs) and
related businesses, primarily in Latin America and other international markets.
IFX pursued this agreement because it believes that International Technology has
extensive experience and existing business relationships with participants in
the computer distribution industry in Latin America, which relationships should
be useful in developing IFX's Internet access and related services business in
these markets.
As part of the November 1998 agreement, International Technology
contributed an initial $1,000,000 to IFX and International Technology received
500,000 shares of common stock and the right to purchase an additional 5.5
million shares from IFX, at a price of $2.00 per share, for its contribution.
International Technology is not required to make any additional capital
contributions; however, as of the date of this report, International Technology
has contributed $1,500,000 in additional capital to IFX and International
Technology has received 750,000 shares of Common Stock from IFX, at a purchase
price of $2.00 per share, for its additional contribution. In addition, in
September 1999 International Technology contributed to IFX $1.5 million for
which 750,000 shares have not yet been issued.
The November 1998 agreement grants International Technology the right
to acquire up to 5,500,000 shares of Common Stock for $2.00 per share in
addition to the initial 500,000 shares acquired by International Technology.
International Technology's purchase option, which now covers 4,000,000 shares of
Common Stock, expires in January 2004. Joseph M. Matalon, a director of the
Company, and Michael Shalom, the Company's Chief Executive Officer, are
affiliates of International Technology.
Investment in Telcom.Net, L.P. In December 1998, IFX acquired a 25%
limited partnership interest in Telcom.Net, L.P. ("Telcom.Net"), a
telecommunications and Internet software development company based in Aventura,
Florida. Through its investment in Telcom.Net, IFX plans to offer its
subscribers various value added services, including the option to receive
voice-over Internet services, electronic-commerce merchant services and web
hosting services, provided by Telcom.Net. The general partner and co-founder of
Telcom.Net is Joel M. Eidelstein, IFX's President. IFX's limited partnership
interest entitles it to receive priority distributions of up to $200,000, which
is the amount of capital IFX invested in Telcom.Net. In addition, after all of
Telecom.Net's other partners have received priority distributions equal to their
aggregate invested capital, IFX is entitled to receive between 20 to 25% of the
profits of Telcom.Net, depending on cash flow and possible dilution of its
interest. IFX had made certain loans to Telcom.Net and guaranteed certain
liabilities owed by Telcom.Net to Qwest/LCI, International.
Argentinean License. On March 23, 1999, an affiliate of IFX was granted
a license from the government of Argentina to offer full value added
telecommunications services and data transmission throughout the country of
Argentina.
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Colombian License Lease. IFX is presently leasing, and is awaiting
approval of, a license from the government of Colombia which would permit it to
offer full value added telecommunications services and data transmission
throughout the country of Colombia.
Agreement to contract Direct U.S. Internet Connection. On March 25,
1999, IFX entered into an agreement with InterPacket Group, Inc.
("InterPacket"), a provider of high speed Internet access and telephony services
to the international wholesale market. Under the agreement, InterPacket will
provide IFX up to 50 Mbps of Internet connectivity to be allocated among IFX's
planned sites throughout Latin America.
Interweb Mexico, S.A. de C.V. On April 8, 1999, IFX purchased all of the
capital stock of Interweb Mexico, S.A. de C.V., a leading ISP in Mexico City,
Mexico. Interweb currently serves customers throughout Mexico City, providing
standard dial-up connections, dedicated Internet products and web hosting.
International Connection Service 1500, C.A. On April 15, 1999, IFX
acquired all of the capital stock of International Connection Service 1500, C.A.
("Intercon"), an ISP based in Caracas, Venezuela. Intercon currently serves
customers throughout Venezuela's nine largest cities, providing standard dial-up
connections, dedicated Internet products and web hosting.
Eldish Marketing, C.A. On April 16, 1999, through Intercon, the Company
acquired certain Internet service-related assets, including customer lists, from
Eldish Marketing, C.A., an ISP located in Caracas, Venezuela. The Company
intends to consolidate the customers acquired from Eldish into Intercon.
Yupi Internet, Inc. On April 23, 1999, IFX entered into an agreement
with Yupi Internet, Inc. ("Yupi"), a Miami, Florida based Internet company. Yupi
has developed a Spanish-language web navigation and portal site where consumers
and businesses from Latin America, Spain and the U.S. may gather, interact and
transact business with one another. Pursuant to such agreement, IFX invested
approximately $3.1 million in Yupi in exchange for convertible preferred stock,
common stock and the right to acquire up to 25,901 shares of the common stock of
Yupi at a predetermined price.
Interaccess, S.A. On May 13, 1999, IFX purchased all of the capital
stock of Interaccess, S.A., a leading ISP located in Santiago, Chile.
Interaccess currently serves customers throughout Chile, providing standard
dial-up connections, dedicated Internet products and web hosting.
Zupernet Ltda. On May 27, 1999, IFX purchased substantially all of the
capital stock of Zupernet, Ltda., an ISP located in La Paz, Bolivia. Zupernet
currently serves customers throughout Bolivia, providing standard dial-up
connections, dedicated Internet products and web hosting.
Interactiva, LTDA. On July 2, 1999, the Company acquired substantially
all of the capital stock of Interactiva, LTDA ("Interactiva"), an ISP based in
Santiago, Chile. Interactiva currently serves customers throughout Santiago,
providing standard dial-up connections. The Company intends to consolidate the
Interactiva into ENI de Chile, S.R.L.
Sistemas de Diseno y Manufactura, S.A. de C.V. On July 21, 1999, the
Company acquired substantially all of the assets of Sistemas de Diseno y
Manufactura, S.A. de C.V. ("SDM Net"), an ISP based in Monterrey, Mexico. SDM
Net currently serves customers throughout Monterrey, providing standard dial-up
connections, dedicated Internet products and web hosting.
Intermedia. On August 13, 1999, the Company acquired all of the user
base from Servicios de Informacion Electronica Limitada ("Intermedia"), an ISP
located in Santiago, Chile. The Company intends to consolidate the customers
acquired from Intermedia into ENI de Chile, S.R.L.
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E-Net Teleinformatica, Limitada. On August 20, 1999, IFX purchased all
of the capital stock of E-Net Teleinformatica, Limitada ("E-Net"), an ISP
located in Salvador, Brazil. E-Net currently serves customers in Brazil,
providing standard dial-up connections, dedicated Internet products and web
hosting.
Vianet, S.A. de C.V. On August 23, 1999, IFX purchased all of the
capital stock of Vianet, S.A. de C.V. ("Vianet"), an ISP located in San
Salvador, El Salvador. Vianet currently serves customers in El Salvador,
providing standard dial-up connections, dedicated Internet products and web
hosting.
ITS Networks, S.A. On August 24, 1999, IFX purchased all of the capital
stock of ITS Networks, S.A., an ISP located in Tegucigalpa, Honduras. ITS
currently serves customers in Honduras, providing standard dial-up connections,
dedicated Internet products and web hosting.
INTERNET BUSINESS
IFX is a pan-regional Internet Service Provider, or ISP, in Latin
America. The Company focuses on serving individuals and small businesses. Our
primary service is dial-up Internet access, which the Company offers through our
Unete service, in various price and usage plans designed to meet the needs of
our subscribers. Our business services include dedicated phone lines, web
hosting, web page design, and domain name registration.
IFX offers subscribers Internet access in English, Spanish, and
Portuguese, with user-friendly and easy to install software. The software
contains a complete set of the most popular Internet applications including
electronic mail, World Wide Web access, File Transfer Protocol and Internet
Relay Chat. Through our infrastructure of IFX owned subsidiaries and third-party
providers, our subscribers are able to access the Internet in 9 countries in
Latin America, and in most major cities in the United States and Canada via a
local telephone call and with no roaming fees. By June 30, 1999, the Company had
approximately 25,000 subscribers.
Over the past year, IFX has rapidly established a regional presence and
customer base by acquiring the stock or assets of established independent ISPs
throughout Latin America. Since January 1, 1999, the Company has established
operations in 9 countries in Latin America. The Company intends to continue its
strategy of acquiring ISPs in order to deepen and broaden its market presence in
Latin America. The Company seeks to acquire an "anchor" ISP in each of its
target countries, which can provide both local management talent and serve as
the ISP consolidator for its respective country. In addition to its team of
corporate development professionals, IFX relies upon its local management teams
to identify strategic acquisitions.
CUSTOMERS
As of June 30, 1999, the Company had approximately 25,000 customers. The
majority of the customers are dial-up residential users, with a small percentage
constituting small business users.
SERVICES
Dial-Up Internet Access. IFX's primary service offering is dial-up
Internet access through it's Unete service. The basic equipment requirements for
an individual dial-up subscriber are a Windows 3.1 or later operating system or
Macintosh computer with at least 8MB of RAM and a modem of 14.4 Kbps speed or
faster. The subscriber's connection is a direct, point-to-point protocol, or
"PPP," connection to the Internet. A direct PPP connection enables a subscriber
to use any standard Internet capable software that will run on the subscriber's
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computer.
IFX currently offers different price plans for dial-up subscription.
Each plan is adapted to the consumers of each county and the usage. The Company
tries to maintain the most competitive rates at each of the markets the Company
serves. While the plans that IFX offers are subject to change due to changes in
the market, some of the most common plans offered include:
Platinum. Individual subscribers receive unlimited access to the
entire Unete Network at all of its points of presence through a
local dial-up connection.
Local Unlimited Access. Individual subscribers get unlimited
usage at their local point of presence in their home country.
Limited. Individual subscribers get a pre-determined number of
hours for usage at their local point of presence in their home
country.
Most of our subscribers are on month-to-month subscriptions. IFX currently
offers new users 150 free hours that must be used in the first month. Billing is
monthly, with payments made by credit card, check or cash. Payments are mostly
made at the beginning of each billing cycle. Subscribers, as well as IFX, may
cancel an account at any time, with the cancellation taking effect as of the
first day of the following billing month.
A subscriber who is within local dialing range of one of the IFX points
of presence ("POPs") or a designated third-party provider POP can access the
Internet with a local telephone call. All dial-up subscribers can connect to our
network (including the third-party provider POPs) via modem at speeds up to
56.6-Kbps (kilobytes-per-second.) All dial-up subscribers also have the option
of using IFX servers to publish information on the Internet through the World
Wide Web or File Transfer Protocol (FTP).
Business Services. IFX's Latin American subsidiaries provide the
following services for small businesses:
Dedicated phone lines. Businesses can have a direct connection to
the Internet, 24 hours a day, 7 days a week, without the need to
dial an access number.
Web hosting. IFX offers web hosting accounts for customers that
wish to create their own World Wide Web sites without maintaining
their own Web servers and high-speed Internet connections.
Web page design. IFX can design Internet Web sites for its
subscribers.
Domain name registration. IFX will process all documentation
necessary to register a domain name in any of the countries in
which we operate.
Support Services. IFX's services and operations are supported (i) by its
national Network Operating Centers (NOCs), which ensure efficient network
operations, (ii) by its national Customer Service Centers, which provide
comprehensive customer support, and (iii) by its fully integrated information
systems.
Network Operating Center. The Company's NOCs monitor IFX's network,
including the Company's backbone, POPs, servers, and client co-located servers,
as well as all individual client circuits. The Company tracks network
utilization patterns, proactively adding capacity as needed to maintain
performance standards and minimize network congestion. In addition, the
Company's NOC technicians run systems and network diagnostics in order to
quickly respond to customer inquiries.
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Fully Integrated Operating and Financial Support Systems. The Company is
installing and customizing Portal software, which integrates the Company's
various back office activities including order processing, billing and customer
service, network operations and telecommunications facilities provisioning. Once
implemented, Portal software will allow IFX to readily access a current,
comprehensive database of operating and customer information.
Customer Care Center. The Customer Care Center representatives respond
to inquires from our subscribers. Representatives are available to assist
customers with such matters as dial-up software installations, e-mail box set-up
and a variety of other service-related issues. Once implemented, Portal software
will allow IFX customer service representatives to have instant access to
current, detailed customer profiles, which chronicle customer service and
account histories. Such information will allow Customer Care Center
representatives to offer timely and informed responses to customer inquires.
NETWORK AND RELATED INFRASTRUCTURE
The network infrastructure utilized by IFX consists of three primary
tiers: local POPs; a middle tier, which connects the POPs to national hubs; and
a backbone tier, which connects the national hubs to the Internet. The IFX
network currently covers 10 countries and includes approximately 25 IFX-owned
POPs and 540 POPs owned by third party network providers. Each POP is connected
to the Company's network operating center in its respective country through a
dedicated point-to-point line, typically provided by a local telecommunications
carrier. The principal backbone capacity utilized by IFX is provided by
InterPacket Inc., a U.S. based provider of high speed Internet access via
satellite, and GlobalOne. The company currently has committed capacity
agreements with InterPacket for up to 10 Mbps and the right to additional
capacity of up to 50 Mbps in total.
Geographic Coverage. Through our network of IFX-owned and third-party
provider-owned POPs, our subscribers are able to access the Internet in 10
countries via a local telephone call. The countries with IFX-operated POPs are:
Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, El Salvador, Honduras,
Venezuela and the U.S.
Network Operations Center. IFX maintains a Network Operations Center at
our Aventura, Florida, office through which our technical staff monitors network
traffic, service quality, and security, as well as equipment at individual POPs,
to ensure reliable Internet access. In addition, the Company continues to invest
in improved network monitoring software and hardware systems.
IFX SOFTWARE AND LICENSES
A key component of our service offering for dial-up subscribers is the
Unete starter software. The software includes these applications:
- IFX installation program. It enables the user to input all
required information regarding user name, billing information
and passwords.
- World Wide Web Navigation Software. It allows its user to
navigate through the different multimedia presentations across
the different Web sites. Users can choose between Netscape
Navigator (R) and Microsoft Internet Explorer (R).
- Electronic Mail. It allows subscribers to exchange messages
electronically with anyone else who has an e-mail address. The
messages can include text and attachments such as images,
computer programs, or word processing documents. Users can
choose between Outlook Express (R) and Eudora Light (R).
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- Internet Relay Chat. It allows users to participate in more
than 10,000 Internet Communities using Tribal Voice's PowWow
(R) software. The software allows the user to communicate over
the Internet using instant-voice, instant messaging, chatting,
and buddy lists.
- Winzip 7.0 (R). With this trial version, users can compress
large files into smaller zip files and decompress zipped files
to their original version.
- WS FTP LE(R). It allows users to send and retrieve files in
order to create their web sites.
The main objective of the software package is to automatically configure
the individual's Internet access programs after the initial one-time entries by
the user. Once the initial set-up is completed, the user will be able to log on
to our network with the click of a button and be able to use the different
applications that are included.
Subscribers IFX acquired from its recent ISP acquisitions connect to the
Internet using software provided to such subscribers by the acquired ISPs. Those
subscribers may switch to IFX's software at their option at any time, a
migration that IFX encourages by mailing an Unete starter software kit to these
subscribers. In addition, their e-mail address from the previous account can be
forwarded to their new Unete e-mail address.
IFX has obtained permission and, in certain cases, licenses from each
manufacturer of the software that the Company bundles in its software starter
kit.
RISK FACTORS
Lack of Operating History and Experience in the Internet Service
Business. Because IFX has recently begun to pursue the development of Internet
services and the acquisition of Internet service providers in Latin America, its
acquisition and development strategy is in the early development stages. IFX has
limited experience in providing Internet services and, accordingly, a limited
operating history upon which an evaluation of its prospects can be made. Such
prospects must be considered in light of the substantial risks, expenses and
difficulties encountered by new entrants, such as IFX, in the Internet services
industry. These risks include identification of entry opportunities, intense
competition, changing technology and evolving industry standards, changing user
demand for Internet access and other Internet services, dependence upon the
Internet and general economic conditions in the region. If IFX fails to add
significantly to its user base in Latin America, the Company may not be able to
grow revenues, implement its business plan or achieve economies of scale.
IFX's success in the ISP business will also depend upon its ability to
hire and retain qualified executive and management employees with significant
experience in managing and expanding an Internet services business in the
markets in which it seeks to operate. IFX can give no assurance that it will be
able to successfully hire, retain or motivate qualified employees. Further, IFX
can give no assurance that it will be successful in acquiring or building the
necessary Internet service network or that the services it offers over any such
network will be profitable.
Dependence upon the Creation of a Network Infrastructure. IFX's success
depends in part upon its ability to create an Internet network infrastructure
that covers significant regions or areas of Latin American countries. IFX's
success also depends upon the ability of its customers to access this network
with ease of use and to have a high quality Internet experience with consistency
of service throughout the network.
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IFX's primary strategy for creating the necessary infrastructure is to acquire
ISPs that have an existing network infrastructure, qualified personnel and an
existing subscriber base and, in certain countries, to develop new ISPs. IFX
also anticipates that expansions and adaptations of its network infrastructure
will be necessary to supplement its acquisition strategy. This will require
substantial financial, operational and managerial resources. IFX can give no
assurance that it will be able to acquire and develop the network infrastructure
in Latin America necessary to compete successfully with the industry's evolving
standards on a timely or cost-effective basis, or at all. Also, it may not be
able to deploy successfully any expanded and adapted network infrastructure.
Failure to create a successful infrastructure may materially adversely affect
its business and operating results.
The process of consolidating IFX's ISPs and integrating its regional
operations may take a significant period of time, may place a significant strain
on its resources, and could prove to be more expensive than predicted. IFX may
be required to increase current expenditures in order to accelerate the
integration and consolidation of its ISPs with the goal of achieving longer-term
cost savings and improved profitability. These expenses may include the
following, among others: the elimination of redundant staffing positions;
personnel relocation; the cancellation of overlapping Internet access contracts;
the closure of redundant points of presence; system upgrades; and the
integration of these ISPs' operations onto IFX's network, customer care,
billing, financial and other international support systems. However, IFX has
limited practical experience related to the process of consolidating ISPs and
can give no assurance that these projected long-term cost savings and
improvements in profitability can or will be realized. Further, IFX can give no
assurance that customer support or network infrastructure resources will be
sufficient to manage the growth in its business or that it will be successful in
implementing its expansion program in whole or in part.
Challenges of Growth By Acquisitions. IFX depends on its ability to
identify and acquire ISPs that meet its acquisition criteria. IFX seeks to
create a market presence internationally, to gain strength in Internet
connectivity and web hosting core service platforms, and to add additional
enhanced service capabilities. IFX faces and may continue to face significant
competition for appropriate acquisition candidates. IFX may compete with other
communications or Internet companies with similar acquisition strategies, many
of which may be larger, have greater financial and other resources and be owned
or partially-owned by foreign governments. Competition for independent ISPs is
based on a number of factors, including price, terms and conditions, size and
access to capital, ability to offer cash, stock or other forms of consideration
and other matters. IFX can give no assurance that it will be able to identify
suitable ISPs or be able to complete any acquisitions of or investments in those
targeted ISPs on acceptable terms and conditions.
Once consummated, these acquisitions will continue to present certain
risks, including:
- the difficulty of integrating the acquired operations,
technology and personnel;
- the possible inability of IFX's management to maximize its
financial and strategic position by the successful
incorporation of acquired technology and products into its
service offerings and to maintain uniform standards, controls,
procedures and policies;
- the possible acquisition of substantial contingent or
undisclosed liabilities;
- the risks of entering markets in which it has little or no
direct prior experience; and
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- the potential impairment of relationships with employees and
customers as a result of changes in management or other
business operations.
IFX may not be successful in overcoming these risks or any other
problems encountered in connection with future acquisitions. In addition, future
acquisitions could materially adversely affect its operating results as a result
of dilutive issuances of equity securities, the incurrence of additional debt or
the amortization of expenses related to acquired customer bases, goodwill or
other intangible assets. Further, IFX's ability to complete transactions with
ISPs may require significant additional financial resources.
Risks Associated With an Internet Business. IFX is new to the Internet
service provider business and, therefore, lacks operating history and experience
in the industry. In addition, IFX's business is vulnerable to risks associated
with the ISP business in general, many of which are significant. For example,
the laws relating to the regulation and liability of Internet access providers
in relation to information carried or disseminated is undergoing a process of
development in many countries. Legal decisions, laws, regulations and other
activities regarding regulation and content liability may significantly affect
the development and profitability of companies offering on-line and Internet
access services. Although IFX will implement certain network security measures,
such as limiting physical and network access to its routers, the network's
infrastructure is potentially vulnerable to computer viruses, break-ins and
similar disruptive problems caused by its customers or other Internet users,
which could lead to interruptions of, delays in or cessation of service to its
customers. Furthermore, inappropriate use of the Internet by third parties could
also potentially jeopardize the security of confidential information stored in
the computer systems of IFX's customers and, in turn, could deter potential
customers and adversely affect existing customer relationships. IFX relies on
local telephone companies and other companies to provide data communications
capacity via local telecommunications lines. IFX may experience disruptions or
capacity constraints in these telecommunications services and may have no means
of replacing these services on a timely basis, or at all.
Changes in the regulatory environment relating to the Internet
connectivity market, including regulatory changes which directly or indirectly
affect telecommunications costs or increase the likelihood or scope of
competition from telecommunications companies, could affect IFX's pricing.
Additional laws could cover issues such as content, user pricing, privacy,
libel, intellectual property protection and infringement, and technology export
and other controls. IFX can give no assurance that violations of local laws will
not be alleged or charged by foreign governments, that it might not
unintentionally violate such laws or that such laws will not be modified, or new
laws enacted in the future. Any of the foregoing developments could have a
material adverse effect on IFX's business, results of operations and financial
condition. In addition, its subscribers may discontinue their service at the end
of any month for any reason. IFX's revenue will depend on its ability to attract
and retain such subscribers.
IFX may be dependent on third parties to stimulate demand for its
products and services where it does not have a direct sales force. These channel
distributors may include computer and telecommunications resellers, value added
resellers, original equipment manufacturers, systems integrators, web designers
and advertising agencies. If IFX fails to gain commercial acceptance in certain
markets, these channel distributors may discontinue their relationships with
IFX. The loss of channel distributors, the failure of such parties to perform
under agreements with IFX, or the inability to attract other channel partners
with the expertise and industry experience required to market its products and
services could have a material adverse effect on IFX's operating results.
Risks Associated With International Operations and Expansion. IFX
focuses its Internet business on Latin American markets. It can give no
assurance that acceptance of the Internet or demand for Internet connectivity,
web hosting and other enhanced Internet services will increase significantly in
these markets.
-10-
<PAGE>
However, IFX believes that it will need to move quickly into international
markets in order to establish critical market presence and credibility, though
it can give no assurance that it will be able to do so.
IFX may need to enter into joint ventures or other strategic
relationships with one or more third parties in order to conduct its foreign
operations successfully. However, it can give no assurance that it will be able
to identify desirable joint venture or strategic partners in these markets or
that it will be able to obtain the permits and operating licenses required to
conduct business and offer Internet services in these markets. In addition to
the uncertainty of IFX's ability to create an international presence, IFX faces
certain additional risks inherent in doing business on an international level.
Such risks include:
- competition from government-owned or subsidized businesses,
including telecommunication companies and ISPs;
- unexpected changes in or delays resulting from regulatory,
licensing and foreign investment requirements, tariffs,
customs, duties and other trade barriers;
- difficulties in staffing and managing foreign operations;
- longer payment cycles and problems in collecting accounts
receivable;
- political instability, expropriation, nationalization, war,
insurrection and other political risks;
- high levels of inflation, fluctuations in currency exchange
rates or foreign exchange controls which restrict or prohibit
repatriation of funds;
- poor quality of telecommunications and lack of technological
advances;
- technology export and import restrictions or prohibitions; and
- potentially adverse tax consequences.
IFX can give no assurance that such factors will not have an adverse
effect on its future international operations. In addition, it can give no
assurance that laws or administrative practice relating to telecommunications,
taxation, foreign exchange or other matters of countries within which it may
operate will not change in a manner adverse to its business. Any such change
could have a material adverse effect on IFX's business, financial condition and
results of operations.
Competition; Pricing Fluctuation. The market for Internet connectivity
and related services is extremely competitive and characterized by rapidly
changing technology and evolving standards which can be significantly influenced
by the marketing and pricing decisions of the largest industry participants. IFX
anticipates that competition will continue to intensify as the use of the
Internet grows. The tremendous growth and potential market size of the Internet
access market has attracted and likely will continue to attract many new
start-ups as well as existing businesses from different industries. In addition,
new business models, such as the free internet service provider model in which
users do not pay for connectivity service, may pose a significant risk to the
Company.
In some cases, IFX will be forced to compete with and/or buy services
from government-owned or subsidized telecommunications providers. Some of these
providers may enjoy a monopoly on telecommunications services essential to IFX's
business or other competitive advantages. IFX can give no assurance that it will
-11-
<PAGE>
be able to purchase such services at a reasonable price or at all. In addition
to the risks associated with its previously described competitors, foreign
competitors may pose an even greater risk, as they may possess a better
understanding of their local markets and customs, and enjoy better relationships
with customers and suppliers. IFX can give no assurance that it can obtain
similar levels of local knowledge, access or expertise. Failure to obtain that
knowledge could place IFX at a significant competitive disadvantage.
Our Competitors. The Company currently competes or expects to compete
with the following types of companies:
- established national Internet service providers in Latin
America, such as Universal On Line in Brazil or Prodigy in
Mexico;
- computer hardware and software and other technology companies
that will start bundling Internet access in their products,
such as IBM Corp. and Microsoft Corporation;
- numerous regional and local commercial ISPs which vary widely
in quality, service offerings, and pricing;
- national and regional Web hosting companies that focus
primarily on providing Web hosting services;
- cable operators and on-line cable services;
- local telephone companies providing ISP services; and
- free internet service providers that may enter the market.
IFX believes that new competitors, including established ISP and
telecommunications companies, will continue to enter the Internet access,
resulting in even greater competition. In addition, telecommunications companies
may be able to offer customers reduced communications costs in connection with
ISP services, reducing the overall cost of their Internet access and
significantly increasing pricing pressures on us. The ability of our competitors
to acquire other ISPs, to enter into strategic alliances or joint ventures or to
bundle other services and products with Internet access or Web hosting could
also put us at a significant competitive disadvantage.
Equipment. IFX cannot guarantee that it will be able to obtain the
necessary equipment, or the financing to acquire such equipment, to enable it to
expand its Latin American network. In addition, IFX cannot guarantee that the
equipment it maintains will be the most current and up to date equipment for its
subscribers' connectivity to the Internet, which could have an impact in the
number of subscribers it has.
Dependence on Key Personnel. Competition for qualified employees and
personnel in the Internet services industry is intense and there are a limited
number of people with knowledge of and experience in the Internet service
industry. The process of locating personnel with the combination of skills and
attributes required to carry out our strategies may often be lengthy. IFX's
success depends to a significant degree on its ability to attract and retain
qualified management, technical, marketing and sales personnel and on the
continued contributions of such people. IFX's employees may voluntarily
terminate their employment at any time. IFX can give no assurance that it will
be successful in attracting and retaining qualified executives and personnel.
The loss of the services of key personnel, or the inability to attract
additional qualified personnel, could have a material adverse effect on IFX's
business, financial condition or results of operations.
Need for Additional Financing. The Company must continue to enhance and
develop our network in order to maintain our competitive position and continue
to meet the increasing demands for service, quality, availability, and
competitive pricing.
-12-
<PAGE>
The Company intends to expand or open POPs or make other capital
investments as dictated by subscriber demand or strategic considerations. The
Company must spend significant amounts of money for acquisitions, new equipment,
leased telecommunications facilities , compensation expenses and advertising. In
addition, to further expand our subscriber base, the company will probably have
to spend significant amounts of money on additional equipment to maintain the
high speed and reliability of our Internet access services. The Company may also
need to spend significant amounts of cash to fund growth, operating losses and
respond to unanticipated developments or competitive pressures.
Presently, the Company derives most of its funds from the earn-out
payments from the sale of assets of discontinued operations. For the E.D.& F Man
sale, the amount of the earn-outs payments will depend on the profitability (as
specifically defined) of that business and the percentage earn-out decreases,
successively, over the remainder of the payment period which ends on December
31, 2001. For the IFX Ltd. sale, the amount of the earn-out payments depends
upon the profitability (as specifically defined) of the business that was sold
over the remainder of the payment period which ends on June 30, 2002. There can
be no assurance that such payments will continue at their current levels, or
that those earn-out will be sufficient to continue to fund the majority of the
operations.
If the Company does not have enough cash on hand, cash generated from
earn-out payments from our discontinued operations, or cash available under
vendor financing agreements, the Company will need to seek alternative sources
of financing, such as borrowings or placements of debt or equity securities, to
carry out our growth and operating plans. The Company may not be able to raise
needed cash on terms acceptable to us or at all. If alternative sources of
financing are required, but are insufficient or unavailable, the Company will be
required to modify our growth and operating plans to the extent of available
funding, if any. No assurance can be given that actual cash requirements will be
met, that such requirements will not exceed IFX's budget or that anticipated
revenues will be realized.
Risk of Internet Technology Trends and Evolving Industry Standards.
IFX's products and services target users of the Internet. The number of Internet
users has experienced rapid growth. The market for Internet access and related
services is relatively new and characterized by rapidly changing technology,
evolving industry standards, changes in customer needs and frequent new product
and service introductions. IFX's future success will depend, in part, on its
ability to effectively use leading technologies, to continue to develop and
improve its technical expertise, to enhance its current services, to develop new
products and services that meet changing customer needs, and to influence and
respond to emerging industry standards and other technological changes on a
timely and cost-effective basis. IFX can give no assurance that it will be
successful in accomplishing any of these tasks or that such new technologies or
enhancements will achieve market acceptance. IFX believes that its ability to
compete successfully also depends upon the continued compatibility and
interoperability of its services with products and architectures offered by
various third party vendors. IFX can give no assurance that it will be able to
effectively address the compatibility and interoperability issues raised by
technological changes or new industry standards. In addition, IFX can give no
assurance that services or technologies developed by others will not render its
services or technology uncompetitive or obsolete. If the market for Internet
access services fails to develop, develops more slowly than expected, or becomes
saturated with competitors, or if the Internet access and services offered by
IFX through its ISPs is not broadly accepted, IFX's business, operating results
and financial condition will be materially adversely affected.
In addition, critical issues concerning the commercial use of the
Internet remain unresolved and may impact the growth of Internet use, especially
in IFX's target business market. Despite growing interest in the many commercial
uses of the Internet, many businesses have been deterred from purchasing
Internet access services for a number of reasons, including:
-13-
<PAGE>
- inconsistent quality of service;
- lack of availability of cost-effective, high-speed
options;
- a limited number of local access points for corporate
users;
- inability to integrate business applications on the
Internet;
- the need to deal with multiple and frequently incompatible
vendors;
- inadequate protection of the confidentiality of stored
data and information moving across the Internet; and
- a lack of tools to simplify Internet access and use.
In particular, numerous published reports have indicated that a
perceived lack of security of commercial data, such as credit card numbers, has
significantly impeded commercial use of the Internet to date. There can be no
assurance that encryption or other technologies will be developed that
satisfactorily address these security concerns. Published reports have also
indicated that capacity constraints caused by growth in the use of the Internet
may, unless resolved, impede further development of the Internet to the extent
that users experience delays, transmission errors and other difficulties. The
adoption of the Internet for commerce and communications, particularly by those
individuals and enterprises which have historically relied upon alternative
means of commerce and communication, generally requires the understanding and
acceptance of a new way of conducting business and exchanging information. In
particular, enterprises that have already invested substantial resources in
other means of conducting commerce and exchanging information may be
particularly reluctant or slow to adopt a new strategy that may make their
existing personnel and infrastructure obsolete. The failure of the market for
business-related Internet solutions to continue to develop would adversely
impact IFX's business, financial condition and result of operations.
Volatility of Stock Price. IFX's Common Stock may be subject to
significant price fluctuations in response to a variety of factors, including
quarterly variations in operating results, public announcements of acquisitions,
strategic alliances and joint ventures, general conditions in the Internet
industry, and general economic and market conditions in the markets in which the
Company operates. In addition, the stock market has experienced significant
price and volume fluctuations that have adversely affected the market prices of
equity securities of some companies, including companies in the Internet service
business, and that often have been unrelated to the operating performance of
such companies.
Year 2000 Compliance. IFX is aware of the "Year 2000" problem, which
relates to whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information will generate wrong data and could fail. The Year
2000 problem is pervasive and complex, as virtually every company's computer
operations will potentially be affected in some way.
IFX is currently engaged in a process to evaluate its internal status
with respect to the Year 2000 issue, utilizing certain employees in its
evaluation of possible Year 2000 problems. The costs and expenses of such an
evaluation have not been material. To date, it has not discovered Year 2000
issues in the course of its assessment that would have a material adverse effect
on its business, results of operations or financial condition; however, IFX can
give no assurance that all Year 2000 issues were discovered during the
assessment or that it will not discover additional Year 2000 issues that could
have a material adverse effect. In addition, IFX faces Year 2000 risks with
respect to the acquisitions it makes, especially in Latin America, where Year
2000 preparedness may not be adequate.
-14-
<PAGE>
Concurrently with the analysis of its internal systems, IFX has begun to
survey third-party entities with which it transacts significant business,
including critical vendors and financial institutions, for Year 2000 compliance.
With respect to its most critical vendors, IFX is in the process of evaluating
the Year 2000 preparedness of its telecommunications providers, on which it is
reliant for the network services crucial to web hosting and Internet
connectivity services. It is actively working to mitigate any potential impact
by maintaining diverse providers for such network services. However, failure of
any one provider may have a material adverse impact on Company operations. IFX
does rely heavily on various third party equipment and service providers, and
the Company expects to complete the survey to adequately address Year 2000
issues by October 1999. At this time, IFX cannot estimate the effect, if any,
that non-compliant systems at these entities could have on it, and IFX can give
no assurance that the impact, if any, will not be material.
-15-
<PAGE>
Item 2 - Properties
- -------------------
The Registrant leases office space at 707 Skokie Boulevard, Northbrook,
Illinois. This location serves as the Registrant's corporate headquarters.
The company leases office space in 200 West Adams Street, Suite 1500,
Chicago, IL 60606. This space served as the Company's previous corporate
headquarters. However, this office space has been sub-leased in its entirety
until the end of the lease, and for an amount equal to the lease payments.
During fiscal year 1999, the Company entered into lease agreements for
the following locations:
- Aventura, Florida. The lease for this facility expires on
December 31, 1999. It serves as the main office for
coordinating and supporting the Company's Latin American
Operations.
- Bogota, Colombia. The lease for this facility expires on June
30, 2000. The Company has the option to extend it for
additional periods.
- Buenos Aires, Argentina. The lease for this facility expires
on July 31, 2003. The Company has the option to extend it for
additional periods.
In addition, the Company has assumed the operating leases of the
companies it acquired at the following locations:
- La Paz, Bolivia. The lease for this facility expires on June
30, 2001. The Company has the option to extend it for
additional periods.
- Santiago, Chile. The lease for this facility expires on
January 31, 2001. The Company has the option to extend it for
additional periods.
- Monterrey, Mexico. The lease for this facility expires on
December 31, 2000. The Company has the option to extend it for
additional periods.
- Mexico City, Mexico. The lease for this facility expires on
December 31, 2001. The Company has the option to extend it for
additional periods.
- Caracas, Venezuela. The lease for this facility expires on
June 30, 2002. The Company has the option to extend it for
additional periods.
-16-
<PAGE>
Item 3 - Legal Proceedings
- --------------------------
The Company is a defendant in, and may be threatened with, various legal
proceedings arising from its regular business activities. Management, after
consultation with legal counsel, is of the opinion that the ultimate liability,
if any, resulting from any pending action or proceedings will not have a
material effect on the financial position or results of operations of the
Company.
Legal Proceedings With Respect To Discontinued Operations. On May 16,
1996, Index filed suit in the Circuit Court of Cook County--Law Division against
Doug Niemann, a former customer, for breach of contract, seeking to recover a
debit balance of $88,200 (Index Futures Group, Inc. v. Doug Niemann, case no.
96L-5506). On January 14, 1997, Niemann filed a counterclaim for $688,200. The
Company believes that the counterclaim is without merit and will defend it
vigorously.
In April 1994, Index, without admitting or denying the allegations, paid
$100,000 to the CFTC, settling an administrative action filed on September 29,
1992. In a related action, the equity receiver of a commodity pool operator
brought an action to recover losses of approximately $600,000, alleging various
theories such as constructive trust, negligence, breach of fiduciary duty and
conversion. On May 29, 1996, the district judge dismissed the complaint in its
entirety. On December 4, 1997, the Court of Appeals affirmed the district
judge's dismissal of all claims against Index. On January 13, 1998, the Court of
Appeals denied the Supplemental Plaintiffs' request for a rehearing of its
appeal. On October 2, 1998, the attorney for the equity receiver of the
commodity pool filed a class-action suit on behalf of a putative class composed
of persons who had given money to the commodity pool operator to invest, some of
which was deposited in brokerage accounts at Index by the commodity pool
operator. (Wesselhoff v. FX Chicago, Inc. et al., Circuit Court of Cook County,
Chancery Division, case number 98-CH-13396). The plaintiff seeks damages of
$600,000 plus prejudgment interest, punitive damages, and lost investment
opportunity. The Company believes that the allegations in the complaint against
FX Chicago, Inc. and the Company are without merit and will defend vigorously.
A German citizen, seeking damages of 6,403,519.19 Deutschmark
(approximately $3,420,000 given the exchange rate as of September 25, 1999),
filed a lawsuit in September 1998, in Germany, against an affiliate of MINC. The
complaint arouse out of transactions that occurred in an account introduced by
Index Futures Group, AG ("Index AG"), an introducing broker of Index, prior to
the Sale of Assets. The Plaintiff alleges that under German law, MINC's
affiliate is successor to Index AG, and thus assumed any liabilities of Index
AG. Pursuant to the Sale of Assets agreement, Index is responsible for any
liability "arising out of any state of facts with respect to such Assigned
Contract existing on or prior to the Closing Date". MINC has retained counsel in
Germany to represent its interests in this matter. As Index AG was an
introducing broker of Index and not a former subsidiary of the Company or Index,
the Company does not believe that it will ultimately be liable for damages. In
April 1999, MINC's German counsel reported that the Dusseldorf District Court
dismissed all claims against MINC. However, the plaintiff has filed an appeal
with the Dusseldorf Court of Appeals.
On December 28, 1998, John and Christina Blazina, filed an NFA
arbitration against Index and others, alleging breach of fiduciary duty, fraud,
breach of contract and negligence in the solicitation and trading of a series of
managed accounts opened at Index in 1995. Claimant seeks an award of $500,000,
composed of alleged actual damages of $262,500, punitive damages of $170,000 and
various other costs and fees. IFX believes that the allegations are without
merit and will defend vigorously.
On August 23, 1999, a lawsuit was filed in the Circuit Court of Cook
County naming Index and two individuals as defendants (Craig Bordon v. Sean S.
Mayo, et al., 99L-09368). The complaint alleges breach of contract and damages
"in excess of" $50,000. The Company has not yet been served with the complaint.
Based upon the allegations as set forth in the complaint, the Company believes
that the claim is without merit.
-17-
<PAGE>
Settlement Of Claim Related To L. Luria & Son. On October 27, 1998, a
complaint was filed by James Feltman as liquidating agent of L. Luria & Son,
Inc. (Case No. 97-16731-BKC-RAM) seeking recovery from the Company of
$368,188.84. Starting in the winter of 1996, IFX entered into an arrangement
with the suppliers of L. Luria & Son, Inc. pursuant to which IFX advanced funds
on behalf of L. Luria & Son, Inc. in order to allow it to purchase inventory. L.
Luria & Son, Inc. reimbursed IFX for amounts that it had advanced. The complaint
alleges that IFX was an insider of L. Luria & Son, Inc. because of Joel
Eidelstein's relationship to L. Luria & Son, Inc. and that the amounts that L.
Luria & Son, Inc. paid IFX constituted preferences under the Bankruptcy laws. On
March 1, 1999, the Company reached an agreement to settle this complaint for
$92,222.
-18-
<PAGE>
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of IFX's stockholders during the
fourth quarter of its fiscal year ended June 30, 1999.
-19-
<PAGE>
PART II
Item 5 - Market for Registrant's Common Equity and Related Stockholder Matters
- ------------------------------------------------------------------------------
The Registrant's stock is traded on the NASDAQ SmallCap Market under the
symbol "FUTR."
Set forth below is the range of high and low trade prices per share of
the common stock in the over-the-counter market as reported by NASDAQ for the
periods indicated. The quotations do not include retail markups, markdowns, or
commissions. All previously disclosed data has been restated for the
one-for-five reverse split of common stock effected on January 12, 1998.
On August 31, 1999, the closing price per share of common stock, as
reported through NASDAQ, in the over-the-counter market was $19.00.
Quarter
Type of Security Ended High Trade Low Trade
- ---------------- ------- ---------- ---------
Common Stock 9/30/97 $ 1.09 $ 0.94
12/31/97 2.50 0.94
3/31/98 2.63 1.41
6/30/98 2.94 1.81
9/30/98 2.44 1.81
12/31/98 12.50 1.25
3/31/99 12.63 5.88
6/30/99 21.50 9.38
8/31/99 (1) 24.00 14.81
(1) Includes the period July 1, 1999 through August 31, 1999.
Approximate Number of Holders of Securities
As of August 31, 1998, there were 875 holders of record of the
Registrant's common stock. The Registrant believes it has a greater number of
stockholders because the Registrant believes that a substantial amount of its
common stock is held of record in street name by broker-dealers for their
customers.
Dividends
The Registrant has never paid a cash dividend on its common stock and
does not expect to pay a cash dividend in the foreseeable future, but intends to
devote all funds to the operation of its business.
-20-
<PAGE>
Item 6 - Selected Financial Data
- --------------------------------
The following table summarizes selected historical financial information
of the Registrant and its subsidiaries for each of the last five years. All
amounts presented have been restated on a continuing operations basis.
Accordingly, the operating results of discontinued operations have been
segregated from continuing operations and reported as a separate line item on
the statement of operations. The selected financial information shown below has
been derived from the Registrant's consolidated financial statements. This table
should be read in conjunction with the other financial information of the
Registrant, including "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial results
included elsewhere herein.
HISTORICAL FINANCIAL INFORMATION FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues from continuing operations...... $ 725,300 $ - $ - $ - $ -
Cost and expenses from continuing
operations:
Cost of revenues...................... 445,500 - - - -
General and administrative............ 2,978,400 733,100 1,306,000 1,566,700 1,471,900
Depreciation and amortization......... 232,400 - - 62,300 69,600
---------- ---------- ---------- ----------- ----------
Total operating expenses.............. 3,656,300 733,100 1,306,000 1,629,000 1,541,500
---------- ---------- ---------- ----------- ----------
Operating loss
continuing operations................. (2,931,000) (733,100) (1,306,000) (1,629,000) (1,541,500)
Other Income (Expense):
Interest income....................... 376,100 290,100 410,600 5,028,700 5,008,600
Loss on operations of equity investee. (107,700)
Other................................. 136,200 126,500 247,100 - -
---------- ---------- ---------- ----------- ----------
Total other income.................... 404,600 416,600 657,700 5,028,700 5,008,600
---------- ---------- ---------- ----------- ----------
Income (loss) from continuing
operations before income taxes........ (2,526,400) (316,500) (648,300) 3,399,700 3,467,100
Income tax provision (benefit)........ (811,000) (108,000) (220,000) 452,800 1,349,200
---------- ---------- ---------- ----------- ----------
Income (loss) from
continuing operations................. (1,715,400) (208,500) (428,300) 2,946,900 2,117,900
Discontinued operations,
net of taxes.......................... 3,117,600 3,575,200 3,612,100 (4,080,000)(a) 293,700
---------- ---------- ---------- ----------- ----------
Net income (loss)........................ 1,402,200 3,366,700 3,183,800 (1,133,100) 2,411,600
Assumed cumulative dividend on
class A preferred stock............... - - (23,300) (40,000) (40,000)
---------- ---------- ---------- ----------- ----------
Net income (loss) available to
common shareholders................... $1,402,200 $3,366,700 $3,160,500 $(1,173,100) $2,371,600
========== ========== ========== =========== ==========
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
Income (loss)from continuing operations...... $ (0.26) $ (0.03) $ (0.07) $ 0.44 $ 0.35
Income (loss) from discontinued operations... $ 0.48 $ 0.57 $ 0.55 $ (0.61) $ 0.04
---------- ---------- ---------- ----------- ----------
Net income............................... $ 0.22 $ 0.54 $ 0.48 $ (0.17) $ 0.39
========== ========== ========== =========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and Diluted........................ 6,498,204 6,246,545 6,616,893 6,744,236 6,136,105
BALANCE SHEET DATA:
Total assets............................. $18,861,500 $11,543,400 $10,030,900 $6,331,000 $7,479,100
Total debt............................... $ 316,900 $ - $ 1,586,600 $ - $ -
Total stockholders' equity............... $16,097,400 $11,335,100 $ 8,203,700 $6,216,500 $7,364,100
</TABLE>
(a) Includes a restructuring charge in the amount of $1,556,500.
-21-
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations for the Year Ended June 30, 1999
- --------------------------------------------------------------------------------
The following discussion should be read in conjunction with our
Consolidated Financial Statements and notes that follow it. This discussion and
analysis reflects the adjustments made to segregate the discontinued operations
("discontinued operations") that resulted from the sale of the Company's
brokerage assets in July 1996 to E.D. & F. Man International, Inc., a unit of
E.D. & F. Man Group, plc, a London-based international trading and finance
conglomerate; and from divesture in June 1999 of its 50.1% interest in IFX Ltd.
Discontinued operations are shown under a separate line item on the Income
Statement for Fiscal Years 1999, 1998 and 1997; and for the balance sheet for
Fiscal Years 1999 and 1998.
Due to the discontinued operations, IFX's primary source of revenues
changed from trading revenues and from foreign exchange operations to subscriber
fees from Internet operations. IFX's revenues from 1999, 1998 and 1997 related
to discontinued operations are shown as "Income from Discontinued Operations,
net of income taxes." The revenues from the ISP acquisitions are accounted from
the date of purchase.
Due to the discontinued operations, IFX's expenses changed from
consisting mostly of interest, commissions and other related brokerage costs to
local dial-up lines, local internet connections, and depreciation and
amortization expenses. The expenses from the ISP acquisitions are accounted from
the date of purchase.
GENERAL
IFX is a pan-regional Internet Service Provider, or ISP, in Latin
America. We focus on serving individuals and small businesses. Our primary
service is dial-up Internet access, which IFX offers through our Unete service,
in various price and usage plans designed to meet the needs of our subscribers.
Our business services include dedicated phone lines, web hosting, web page
design, and domain name registration.
IFX offers subscribers complete Internet access in English, Spanish, and
Portuguese, with a user-friendly and easy to install software. The software
contains a complete set of the most popular Internet applications including
electronic mail, World Wide Web access, File Transfer Protocol and Internet
Relay Chat. Through our infrastructure of IFX owned subsidiaries and third-party
providers, our subscribers are able to access the Internet in 9 countries in
Latin America, and in most major cities in the United States via a local
telephone call and with no roaming fees. As of June 30, 1999, the Company had
approximately 25,000 subscribers.
Over the past year, IFX has established a regional presence by acquiring
the stock or assets of established independent ISPs throughout Latin America.
The Company intends to continue its strategy of acquiring ISPs in order to
deepen and broaden its market presence in Latin America. The Company seeks to
acquire an "anchor" ISP in each of its target countries, which can provide both
local management talent and serve as the ISP consolidator for its respective
country. The Company hopes that it will attain economies of scale (as the number
of subscribers increases, the costs and expenses per subscriber decrease) in
selling, general and administrative costs, particularly in the areas of numbers
of employees and salaries, operating leases, and marketing expenses. However,
there can be no assurance that the Company will achieve these anticipated cost
reductions
Prior to July 1996, the primary business of IFX was providing commodity
brokerage services. On July 1, 1996, IFX sold substantially all of its brokerage
assets (other than certain assets of its majority-owned U.K. subsidiary) to E.D.
& F. Man International, Inc., a unit of E.D. & F. Man Group, plc, a London-based
international trading and finance conglomerate, for a purchase price consisting
-22-
<PAGE>
of cash earn-out payments based upon the sold business's profitability during
the sixty-six months following the sale. Since July 1996, IFX's revenues have
consisted primarily of earn-out payments from such asset sale, interest income
and income from operations of the Company's former majority-owned British
subsidiary, IFX Ltd., which conducts foreign exchange business as a registrant
of the British Securities and Futures Authority. In June 1999, IFX divested its
50.1% interest in IFX Ltd. in exchange for approximately $2.45 million in cash
and a note receivable, and a redeemable preference share entitling IFX to
quarterly payments equal to approximately 30% of the net profits of IFX Ltd.
through June 30, 2002.
As discussed above, in November 1998 the Company entered into an
agreement with International Technology and made the strategic decision to focus
on the Internet industry. The Company is presently in the process of developing
and acquiring ISP related businesses.
In December 1998 the Company acquired a limited partnership interest in
Telcom.Net, L.P., a domestic telecommunications and Internet software
development company that was co-founded in 1997 by Joel M. Eidelstein, the
Company's President.
During 1999 the Company has completed acquisitions and investments, and
intends to complete future acquisitions, to develop a Latin American
pan-regional network of ISPs. The following is a summary of the Company's
acquisition activities to date:
<TABLE>
<CAPTION>
Date Acquisition Or Investment Business Country
- ---- ------------------------- -------- -------
<S> <C> <C>
December 1998 Telcom.net Telcom/Internet Software Regional
- --------------------------------------------------------------------------------------------------
April 1999 Interweb Mexico ISP Mexico
International Connection Service ISP Venezuela
Eldish Marketing ISP Venezuela
Yupi Internet, Inc. Spanish Language Portal Regional
- --------------------------------------------------------------------------------------------------
May 1999 Interaccess ISP Chile
Zupernet ISP Bolivia
- --------------------------------------------------------------------------------------------------
July 1999 SDM Net ISP Mexico
Interactiva ISP Chile
- --------------------------------------------------------------------------------------------------
August 1999 Intermedia ISP Chile
E-Net ISP Brazil
Via Net ISP El Salvador
ITS Network ISP Honduras
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
For the year ended June 30, 1999, cash provided by on going and
discontinued operations was approximately $4.0 million compared to cash provided
by on going and discontinued operations of $1.2 million for the same period in
fiscal 1998, an increase of approximately 233%. The majority of cash in 1999 was
provided by the earn-out payments related to the sale of all of the brokerage
assets (other than certain assets of its majority owned U.K. subsidiary) to E.D.
& F. Man International, Inc. The cash used in operations is related to the
start-up and general operating expenses of the ISP business. In addition, the
Company invests cash not needed for operations at any of its subsidiaries in
short-term investments such as U.S. Government obligations and overnight time
deposits. As of June 30, 1999, the Company held approximately $5.5 million in
cash and short-term investments.
For the year ended June 30, 1999, cash used in investment activities was
approximately $4.8 million compared to cash used in investment activities of
$1.2 million for the same period in fiscal 1998. The majority of cash used in
1999 was related to a $3.1 million investment in Yupi Internet Inc. and $1.4
million incurred in the ISP acquisitions in Latin America.
-23-
<PAGE>
For the year ended June 30, 1999, cash provided by financing activities
was approximately $1.0 million compared to cash used in financing activities of
$1.8 million for the same period in fiscal 1998. The majority of cash provided
in 1999 was related to a $1.0 million investment received from International
Technology Investments in exchange for 500,000 shares and stock purchase rights.
Stockholders' equity at June 30, 1999 was approximately $16.1 million.
The Company effected a one-for-five reverse split of its common stock, par value
$0.004, effective on January 12, 1998 (the "Effective Date"). Each five shares
of such common stock were reclassified and reflected as one share of common
stock having a par value of $.02, as of January 12, 1998. Outstanding shares of
the Company's common stock were reduced to 6,279,130 shares from 31,395,649
shares outstanding before the split.
Management believes existing cash and short-term investments together
with operating cash flows from the earn-out payments from the sale of assets and
access to equity capital provide adequate resources to fund ongoing operating
requirements and future capital expenditures related to the expansion of
existing businesses and development of new projects.
Subsequent Credit Agreements
On August 1999, the Company entered into an agreement with Lucent
Technologies Inc., providing the Company with the option to purchase up to $10
million of Lucent equipment. Under the agreement, Lucent will provide the
Company with up to $10 million in networking equipment to upgrade and expand the
Company's Internet operations, but the Company is under no obligation to
purchase equipment from Lucent.
On July 1999, the Company entered into an $500,000 lease agreement with
SoftBank to provide the financing for the implementation of the Portal
software(R). Under the terms of the agreement, Portal will develop a
consolidated billing and accounts receivable system that should allow the
Company to provide invoicing services to its customers across Latin America.
On August 1999, the Company signed a five-year lease for new space in
Hallandale, Florida, to commence October 1, 1999. This lease provides for
aggregate payments totaling approximately $535,873 over the next 5 years.
YEAR 2000 COMPLIANCE
IFX is aware of the "Year 2000" problem, which relates to whether
computer systems will properly recognize date sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
will generate wrong data and could fail. The Year 2000 problem is pervasive and
complex, as virtually every company's computer operations will potentially be
affected in some way.
IFX is currently engaged in a process to evaluate its internal status
with respect to the Year 2000 issue, utilizing certain employees in its
evaluation of possible Year 2000 problems. The costs and expenses of such an
evaluation have not been material. To date, it has not discovered Year 2000
issues in the course of its assessment that would have a material adverse effect
on its business, results of operations or financial condition; however, IFX can
give no assurance that all Year 2000 issues were discovered during the
assessment or that it will not discover additional Year 2000 issues that could
have a material adverse effect. In addition, IFX faces Year 2000 risks with
respect to the acquisitions it makes, especially in Latin America, where Year
2000 preparedness may not be adequate.
-24-
<PAGE>
Concurrently with the analysis of its internal systems, IFX has begun to
survey third-party entities with which it transacts significant business,
including critical vendors and financial institutions, for Year 2000 compliance.
With respect to its most critical vendors, IFX is in the process of evaluating
the Year 2000 preparedness of its telecommunications providers, on which it is
reliant for the network services crucial to web hosting and Internet
connectivity services. It is actively working to mitigate any potential impact
by maintaining diverse providers for such network services. However, failure of
any one provider may have a material adverse impact on Company operations. IFX
does rely heavily on various third party equipment and service providers, and
the Company expects to complete the survey to adequately address Year 2000
issues by October 1999. At this time, IFX cannot estimate the effect, if any,
that non-compliant systems at these entities could have on it, and IFX can give
no assurance that the impact, if any, will not be material.
RESULTS OF OPERATIONS - FISCAL 1999 COMPARED TO FISCAL 1998
- -----------------------------------------------------------
Revenues. In fiscal 1999, IFX derived $616,300, or 84% of continuing
revenues from subscriptions from individuals for dial-up access to the Internet.
Monthly subscription fees vary by billing plan. With the current pricing plans,
customers have several choices including unlimited local, unlimited pan-regional
and limited local plans.
In addition, in fiscal 1999, IFX derived $109,100, or 12% of continuing
revenues from certain small business services which include web-hosting, web
design, full-time dedicated access connections to the Internet, and other
value-added services such as domain name registration. IFX's web-hosting
services allow a business or individual to post information on the World Wide
Web through IFX's servers. IFX's Web design services offers Internet site
development services for small businesses. Full-time dedicated lines offer small
businesses direct and uninterrupted connections to the Internet without the need
to dial any number.
Revenues for fiscal 1998 from continuing operations are $0, since the
Company had not yet been involved in the Internet business. They are shown as a
segregated item in the income statement as discontinued operations.
Costs of Revenues. IFX's cost of revenues include all the costs that are
primarily related to the number of subscribers. The primary costs are the local
Internet connection fees paid to the telecommunication companies in each country
and the subscriber start-up expenses. The telecommunication expenses include the
costs of providing our subscribers with local telephone dialing numbers to our
POPs, the costs related to third-party POPs, and the costs of the connections of
IFX's hubs to the Internet backbone. Start-up expenses include the cost of
distributing the CD-Rom with our starter kit software. Cost of revenues were
$445,400 and $0 for the year ended June 30, 1999 and June 30, 1998,
respectively.
General and Administrative Expenses. General and administrative costs
are primarily for salaries, legal, accounting and consulting fees incurred
mostly in the Company's acquisitions in Latin America, and advertising and trade
show expenses which are related to the promotions of our ISP service. General
and administrative expenses were $2,978,400 and $733,100 for the years ended
June 30, 1999 and June 30, 1998, respectively. The increase of approximately
302% was due to the expenses of growth the Company experienced as it entered the
Internet service business in fiscal 1999.
IFX believes that it is necessary to purchase or install POPs in each
major country in Latin America. As IFX continues with that expansion into new
markets, both costs of sales and selling, general and administrative expenses
will increase. IFX expects that these costs will have a short-term negative
impact on our net income. However, the Company believes that over the long-term
these POPs should have a positive impact on net income. In countries where the
Company does not want to establish a presence, but wants its subscribers to have
access to the Internet, it will use third-party POPs.
-25-
<PAGE>
Depreciation and amortization. Depreciation and amortization are related
to the depreciation of fixed assets and the amortization of the acquired
customer base from other ISPs. IFX depreciates its assets on schedules that
range from three to five years. IFX amortizes purchased customer bases using the
straight-line method over a period of three years, commencing when the purchase
is completed. This amortization has a negative effect on net income.
Depreciation and amortization expense was $232,400 and $0 for the years ended
June 30, 1999 and June 30, 1998, respectively.
The Company will continue to invest heavily in purchases of computer
equipment and acquisitions in Latin America, which will increase its
depreciation and amortization costs. These costs should have a short-term
negative impact on net income and cash flow, but the Company believes that these
increased costs will be more than offset by anticipated increases in revenue
attributable to overall subscriber growth. However, there can be no assurance
that the Company will be able to build, increase or maintain its subscriber base
in a given market to the extent necessary to generate sufficient revenues to
offset these expenses.
Interest Income. The interest income is mostly derived from the $5.0
million invested in short-term government notes. Interest income was $376,000
and $290,200 for the years ended June 30, 1999 and June 30, 1998, respectively.
Other Income and Gains from Discontinued Operations. In 1999, the
Company earned approximately $2.4 million of net earn-out payments from the 1996
sale of its brokerage asset to E.D. & F. Man International, Inc., a unit of E.D.
& F. Man Group, plc, a London-based international trading and finance
conglomerate. In addition, the Company recorded approximately $0.9 million
representing the net results from the operations of its disposed UK subsidiary.
All the proceeds of the gains were invested in the Internet operations in Latin
America.
Income tax provision. For the year ended June 30, 1999, the Company
recorded a tax benefit of approximately $811,000 from its continuing operations.
The effective tax rate for 1999 and 1998 was 32% and 34%, respectively.
Including the Company's discontinued operations, the net tax provision was $0.9
million. For the year ended June 30, 1998, the Company recorded a tax provision
of $2.2 million.
Net income (loss) and income (loss) per share. As a result of the
factors discussed above, IFX's loss from continuing operations for the year
ended June 30, 1999 was approximately $1.7 million, or $(0.26) per share,
compared to a net loss of $0.2 million, or $(0.03) per share, for the year ended
June 30, 1998. Including discontinued operations, the Company earned $1.4
million, or $0.22 per share, compared to a net income of $3.4 million, or $0.54
per share, for the year ended June 30, 1998.
RESULTS OF OPERATIONS - FISCAL 1998 COMPARED TO FISCAL 1997
- -----------------------------------------------------------
As a result of the sale in 1999 of IFX Ltd. and the prior sale in 1996
of E.D.& F. Man, all revenues and costs related to these businesses are included
in "Discontinued Operations". The Company, on a continuing operations basis, had
no revenues or cost of revenues in 1998 or 1997.
-26-
<PAGE>
General and Administrative Expenses. General and administrative costs
are primarily for salaries, legal, accounting and consulting fees incurred
mostly in the Company's general operations. General and administrative expenses
were $733,100 and $1,306,000 for the years ended June 30, 1998 and June 30,
1997, respectively. Corporate governance costs were reduced in 1998 reflecting
the Company's decreased level of operations.
Depreciation and Amortization. Depreciation refers to the Company's
fixed assets which were all furniture related. IFX depreciates its assets on
schedules that range from three to five years. Depreciation expense was
insignificant during 1998 and 1997. There was no amortization expense during
1998 or 1997.
Income from Discontinued Operations. In 1998, the Company earned
approximately $2.3 million of net earn-out payments from the 1996 sale of its
brokerage asset to E.D. & F. Man International, Inc., a unit of E.D. & F. Man
Group, plc, a London-based international trading and finance conglomerate. In
addition, the Company recorded approximately $1.2 million representing the net
results from the operations of its disposed UK subsidiary.
Income tax provision. For the year ended June 30, 1998, the Company
reflected a tax benefit of $108,000 from its continuing operations. The
effective tax rate for 1998 and 1997 was 34% in each year.
Net income (loss) and income (loss) per share. As a result of the
factors discussed above, IFX's loss from continuing operations for the year
ended June 30, 1998 was approximately $208,500, or $(0.03) per share, compared
to a net loss of $428,300, or $(0.07) per share, for the year ended June 30,
1997. Including discontinued operations, the Company earned $3.4 million, or
$0.54 per share, compared to a net gain of $3.2 million, or $0.48 per share, for
the year ended June 30, 1998 and June 30, 1997, respectively.
Forward-Looking Statements
The statements contained herein that are not historical facts are
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995). The safe harbor provisions provided in Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), apply to forward-looking statements the Company makes. These statements
can be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. The Company wishes to caution you
that these forward-looking statements addressing the timing, costs and scope of
the Company's acquisition of, or investments in, existing or future ISPs, the
revenue and profitability levels of the ISPs in which the Company invests, the
anticipated reduction in operating costs resulting from the integration and
optimization of those ISPs, and other matters contained herein regarding matters
that are not historical facts, are only predictions. The Company can give no
assurance that the future results indicated, whether expressed or implied, will
be achieved. These projections and other forward-looking statements are based
upon a variety of assumptions relating to the Company's business, which,
although the Company considered reasonable, may not be realized. Because of the
number and uncertainties of the assumptions underlying the Company's projections
and forward-looking statements, some of the assumptions may not materialize and
unanticipated events and circumstances may occur subsequent to the date of this
Prospectus. These forward-looking statements are based on current expectations,
and the Company assumes no obligation to update this information. The inclusion
of projections and other forward-looking statements should not be regarded as a
representation by the Company or any person that these estimates and projections
will be realized, and actual results may vary materially.
-27-
<PAGE>
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
The Company's continuing operations are focused primarily in Latin
America, subjecting the Company to certain political, economic and commercial
risks and uncertainty not typically found in the U.S. The Company's exposure to
market risk is directly related to its role, through IFX/EN Inc., as a Latin
American ISP. The Company's primary market risk exposure relates to foreign
exchange rate risk. Foreign exchange rate risk arises from the possibility that
changes in foreign currency exchange rates will adversely impact the value of
the Company's assets, liabilities and/or equity. When the Company operates in a
foreign country, the value of the local currency will probably fluctuate. This
fluctuation can cause the Company to gain or lose on the translation to US
Dollars.
-28-
<PAGE>
Item 8 - Financial Statements and Supplementary Data
- ----------------------------------------------------
For financial information, see the financial statements and notes
thereto set forth at Item 14 hereof.
-29-
<PAGE>
Item 9 - Changes In and Disagreements With Accountants On Accounting and
Financial Disclosures
- ------------------------------------------------------------------------
On July 1, 1999, IFX filed a Current Report on Form 8-K with the
Securities and Exchange Commission to disclose that on June 28, 1999 it had
dismissed Arthur Andersen LLP and appointed Ernst & Young LLP as its independent
auditors for the fiscal year ending June 30, 1999. The decision to dismiss
Arthur Andersen LLP was not based upon any disagreement between IFX and Arthur
Andersen LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure. The reports of Arthur
Andersen LLP as of and for the fiscal years ended June 30, 1998 and 1997 did not
contain an adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope or application of accounting principles.
During the registrant's fiscal years ended June 30, 1998 and 1997, and during
the subsequent interim periods prior to June 28, 1999, there were no (i)
disagreements between the registrant and Arthur Andersen LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which disagreements, if not resolved to the satisfaction of
Arthur Andersen LLP, would have caused it to make reference to the subject
matter of the disagreement in connection with its reports on the registrant's
financial statements, or (ii) "reportable events" within the meaning of Item
304(a)(1)(v) of Regulation S-K promulgated under the Securities Act of 1933, as
amended.
-30-
<PAGE>
PART III
--------
Item 10 - Directors and Executive Officers
- ------------------------------------------
The Directors and Executive Officers of IFX as of September 15, 1999
were as follows:
Name Age Office
- ------------------- --- ---------------------------------------------
Joel M. Eidelstein 32 Chairman of the Board, President and Director
Michael Shalom 28 Chief Executive Officer
Jose Leiman 39 Chief Financial Officer
Zalman Lekach 32 Vice President of Mergers and Acquisitions
and Director
Colleen M. Downes 36 Secretary, Treasurer and Director
George A. Myers 48 Director
Joseph M. Matalon 40 Director
Burton J. Meyer 52 Director
Joel M. Eidelstein has served as a director of the Company since
November 1990 and, since November 9, 1996, he has served as the President of the
Company. Mr. Eidelstein graduated from Brandeis University in May 1988. From
June 1988 until June 1996, he was an independent commodity futures trader and a
floor manager with Index Futures Group, Inc. Mr. Eidelstein also is the owner
and sole officer of Alerica, Inc., a general partner of Telcom.Net, L.P., an
Internet communications software development company in which IFX owns an
interest.
Michael Shalom was elected as IFX's Chief Executive Officer on September
8, 1999 and has served as a director of Emerging Networks, Inc., a subsidiary of
IFX, since November 1998. Prior to July 1998, Mr. Shalom was a principal of, and
was actively involved in the management of the INTCOMEX group of companies,
which group is a Latin American wholesale distributor of microcomputers,
networking products, mass storage products, multimedia products, computer
peripheral equipment and computer components. In July 1998, the INTCOMEX group
of companies was sold to CHS Electronics, a Fortune 500 company. Mr. Shalom is
also a principal at International Technology Investments.
Jose Leiman has served as Chief Financial Officer of the Company since
August 1, 1999. From March 1996 to June 1999, Mr. Leiman was a CPA and tax
attorney with Ernst & Young LLP, an international accounting firm. Prior to
joining Ernst & Young LLP, Mr. Leiman was an attorney with Dewey Ballantine LLP,
an international law firm. Mr. Leiman has also worked as a CPA with Price
Waterhouse.
Zalman Lekach has served as a director of the Company since February
1997 and, since May 24, 1999, has served as the Company's Vice President of
Mergers and Acquisitions. Mr. Lekach served as President and Chief Operating
Officer of Parlux Fragrances, Inc., an international designer, manufacturer and
marketer of fragrances ("Parlux") from 1995 until December 1998. He became a
director and an executive officer of Parlux, S.A., Parlux's French subsidiary,
in May 1990. Mr. Lekach received a B.A. from Cornell University.
Colleen M. Downes became Secretary of the Company in November 1998. Ms.
Downes has served as a director and as the Treasurer of the Company since
February 1997, as a Vice President of the Company since June 1998 and has been
employed by the Company or its subsidiaries since January 1985. Ms. Downes
served as acting Chief Financial Officer of the Company from November 1998
through July 1999.
George A. Myers has served as a director of the Company since November
1990. Mr. Myers has been managing general partner of MC Capital, a diversified
real estate company with offices in Chicago, Illinois, Phoenix, Arizona, and San
Diego, California since 1981.
-31-
<PAGE>
Joseph M. Matalon has served as a director of the Company since February
1999. Since January 1998, Mr. Matalon has served as the Director of Investments
and Chairman of the Finance Committee of Mechala Group Jamaica Limited, a
diversified business enterprise primarily engaged in development and
construction, manufacturing and trading and financial services. From January
1996 to December 1997, Mr. Matalon served as Executive Vice President and Chief
Operating Officer of Mechala Group Jamaica Limited and, prior thereto, he served
for 10 years as Senior Vice President of the ICD Group. Mr. Matalon is a
graduate of the London School of Economics and also serves as a director of The
Bank of Nova Scotia Jamaica Limited; Scotiabank Jamaica Trust and Merchant Bank
Limited; the Gleaner Company Limited; and the Institute of Management and
Production. Mr. Matalon also is Chairman of Prime Life Assurance Company Limited
and British Caribbean Insurance Company Limited. Additionally, Mr. Matalon has
also served as Deputy Chairman of Cable & Wireless Jamaica. Mr. Shalom is a
principal at International Technology Investments.
Burton J. Meyer has served as a director of the Company since May 1999.
Mr. Meyer previously served as director of the Company from August 1986 until
July 1, 1996 and as President of the Company from July 1987 until July 1, 1996.
Mr. Meyer has served as an Executive Vice President of E.D. & F. Man
International, an international futures and conglomerate brokerage, since July
1996.
Directors are elected and serve until the next annual meeting or until
their successors are elected and qualified. Officers are elected annually by the
Board of Directors.
Pursuant to the agreement dated as of November 23, 1998, by which
International Technology acquired its equity interest in the Company, each of
IFX, Lee S. Casty and International Technology have agreed to use its or his
reasonable best efforts to vote all of its or his shares of Common Stock, at any
annual or special meeting of IFX stockholders, to elect to the Board of
Directors one individual nominated by International Technology and one
individual nominated by Mr. Casty. Joseph M. Matalon is International
Technology's nominee for election to IFX's Board of Directors and Joel
Eidelstein is Mr. Casty's nominee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of the Company's Common Stock, to
file with the Securities and Exchange Commission reports of ownership and
changes in ownership and to provide copies of such reports to the Company and to
the Nasdaq Stock Market. Based solely on a review of the copies of such reports
furnished to the Company, or written representations that no reports on Form 5
were required, the Company believes that all officers, directors and 10%
beneficial owners complied with all Section 16(a) filing requirements during
fiscal year 1999, except for the following: Burton J. Meyer filed his Form 3 one
week late; Joseph M. Matalon filed his Form 3 several months late; and Joel M.
Eidelstein filed a Form 4 one week late; and Zalman Lekach filed his Form 5
several weeks late.
-32-
<PAGE>
Item 11 - Executive Compensation
- --------------------------------
The following table sets forth all cash compensation paid by the Company
to its President, Joel Eidelstein, who in fiscal year 1999 acted in a capacity
similar to the Company's chief executive officer. There were no other executive
officers of the Company whose compensation for fiscal year 1999 exceeded
$100,000.
Annual Long Term
Compensation Compensation
------------- ------------------
Name and Principal Position Year Ended Securities
- --------------------------- June 30 Salary Bonus Underlying Options
---------- ------ ----- ------------------
Joel M. Eidelstein, President 1999 $50,000 - 300,000
1998 $24,000 - -
1997 $16,000 - -
Fiscal Year 1999 Option Grants and Exercises
The following table sets forth information with respect to options to
purchase shares of Common Stock of the Company that were granted in fiscal year
1999 to the named executive officers.
Option Grants in Fiscal Year 1999
<TABLE>
<CAPTION>
Option Grants in Fiscal Year 1999
---------------------------------
Number of
Securities Percent of total Potential Realizable Value at
Name and Underlying Options Granted Exercise Expiration Assumed Annual Rates of Stock
Principal Options to Employees in Price Date(2) Price Appreciation for Option
Position Granted(1) Fiscal Year ($/Sh) Term(3)
--------- ---------- ---------------- -------- ----------- -----------------------------
5% 10%
-- ---
<S> <C> <C> <C> <C> <C> <C>
Joel M.
Eidelstein, 300,000 86.5% $3.00 11/10/08 ($44,830) $461,715
President...
</TABLE>
- -----------------
(1) A total of 150,000 shares of Common Stock subject to the option are
currently exercisable. The remainder of the option vests on January 1, 2000 and
January 1, 2001.
(2) The option expires 10 years after the date of the grant.
(3) The potential realized value is calculated assuming that the fair market
value on the date of the grant appreciates at the indicated annual rate (set by
the Securities and Exchange Commission), compounded annually, for the 5-year or
10-year term of the option. The $3.00 exercise price of Mr. Eidelstein's option
is greater than the $1.75 closing price of the Common Stock on the date of the
grant. The Potential Realizable Value is not intended to predict the possible
future appreciation of the price of the Common Stock.
Compensation Committee Interlocks and Insider Participation
In February 1999 the Company established a standing compensation
committee of the Board of Directors. Prior to that time, all functions normally
delegated to a compensation committee were performed by the full Board of
Directors. From February 1999 until May 1999, the members of the Compensation
Committee of the Board of Directors were George Myers and Zalman Lekach. On May
17, 1999, and following his election to IFX's Board of Directors, Burton J.
Meyer was appointed to the Compensation Committee and Zalman Lekach resigned
therefrom, so that the current members of the Compensation Committee are George
Myers and Burton J. Meyer. Mr. Meyer previously served as an officer of IFX from
1987 to June 1996. On May 24, 1999, Mr. Lekach was appointed as IFX's Vice
President of Mergers and Acquisitions.
-33-
<PAGE>
In July 1, 1996, the Company sold certain assets to E.D.& F. Man
International, Inc. As a result of the sale, E.D.& F. Man International, Inc.
made payments to the Company in the aggregate amount of approximately $4 million
for fiscal year 1999. Burton J. Meyer, a director of the Company and a member
of the Company's Compensation Committee, serves as Executive Vice President of
E.D.& F. Man International, Inc.
COMPENSATION COMMITTEE REPORT
In February 1999, the Board of Directors established a Compensation
Committee of the Board of Directors (the "Compensation Committee") to, among
other things, develop and oversee the Company's compensation policy and approve
salaries and annual bonuses for senior management of the Company. Prior to such
time, the Board of Directors performed the functions typically delegated to a
compensation committee. George Myers and Zalman Lekach served as the initial
members of the Compensation Committee until May 17, 1999, when Burton J. Meyer
was appointed to replace Mr. Lekach. The Compensation Committee currently
consists of George Myers and Burton J. Meyer.
Compensation Policy. The Company's compensation policy for senior
management historically has consisted almost exclusively of cash salaries and,
from time to time, discretionary performance bonuses. In fiscal year 1999, the
Board of Directors implemented a change in the Company's compensation policy to
add a significant long-term equity component to the compensation paid to its
senior management. The Board expects that this change will strengthen the
Company's ability to recruit, motivate and retain highly-qualified individuals.
The Compensation Committee believes that stock options and restricted stock,
which vest over time and will be subject to forfeiture, better align the
interests of the Company's senior management with the interests of the Company's
stockholders. The Committee also believes that substantial equity ownership by
individuals in leadership positions within the Company will help to ensure that
such individuals remain focused on building stockholder value. To effectuate
this change in policy, the Company's 1998 Stock Option and Incentive Plan (the
"Plan") was adopted by the Board of Directors in November 1998 and was approved
by the IFX stockholders at the 1998 annual meeting.
Joel M. Eidelstein, the President of the Company, has authority to hire
all members of senior management of the Company and, subject to the Compensation
Committee's approval, to determine the compensation to be paid to such
executives. In determining annual salary and salary increases for senior
management, Mr. Eidelstein and the Compensation Committee consider various
factors, such as the executive's contribution to the Company's operating
effectiveness and profitability; the executive's achievement of pre-established
goals and performance targets; the level of responsibility, scope and complexity
of such executive's position relative to other executive management; and the
salary levels of other companies in the same industry. Zalman Lekach, IFX's Vice
President of Mergers and Acquisitions, was issued 3,771 shares of restricted
Common Stock under the Plan and also is eligible to receive options to purchase
Common Stock if and to the extent he achieves certain performance targets and
acquisition goals, as specified in his employment agreement. Mr. Lekach has been
granted options to purchase an aggregate of 23,308 shares of Common Stock under
the Plan, which options vest on an annual basis over the four years following
the date of grant. Jose Leiman, who has served as IFX's Chief Financial Officer
since August 1999, was granted several options to purchase an aggregate of
115,000 shares of Common Stock under the Plan, which options vest primarily on
an annual basis over the four years following the date of grant.
Compensation of the President. The compensation paid to Joel
-34-
<PAGE>
M. Eidelstein, the President of the Company, during the last three fiscal years
is listed in the Executive Compensation table located elsewhere in this report.
During fiscal years 1997 and 1998, Mr. Eidelstein accepted a significantly
reduced salary because the operations of the Company had decreased materially
following the Company's July 1996 sale of its commodities brokerage business. In
recognition of Mr. Eidelstein's pivotal role in evaluating the Company's future
business prospects and managing the Company's transition into the Internet
business, the Board of Directors authorized an increase in Mr. Eidelstein's
salary to $50,000 for fiscal year 1999 and granted him an option to purchase a
significant number of shares of Common Stock. The revision to Mr. Eidelstein's
compensation package is consistent with IFX's emphasis on equity based
compensation.
On November 10, 1998 Mr. Eidelstein was granted an option to purchase
300,000 shares of Common Stock, which is an incentive stock option to the extent
it qualifies for treatment as such. Mr. Eidelstein's option vested 25% on each
of November 10, 1998 and January 1, 1999, and will vest an additional 25% on
each of January 1, 2000 and January 1, 2001. The exercise price of the option is
$3.00 per share and the sale price of the Common Stock as reported by the Nasdaq
Stock Market as of the date of grant was $1.75 per share. The Board of Directors
approved the option grant to Mr. Eidelstein in recognition of his dedication to
the Company during the transition following the Company's July 1996 sale of its
commodities brokerage business and Mr. Eidelstein's acceptance of a below-market
salary during fiscal years 1997 and 1998.
September 25, 1999
SUBMITTED BY THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORES
George A. Myers
Burton J. Meyer
-35-
<PAGE>
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG IFX CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ FINANCIAL INDEX
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------------------
6/94 6/95 6/96 6/97 6/98 6/99
<S> <C> <C> <C> <C> <C> <C>
IFX CORPORATION 100 63 63 75 153 1,480
NASDAQ STOCK MARKET (U.S) 100 133 171 208 274 393
NASDAQ FINANCIAL 100 114 149 218 283 285
</TABLE>
* $100 INVESTED ON 6/30/94 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING JUNE 30.
-36
<PAGE>
Item 12 - Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The following table sets forth, as of September 15, 1999, certain
information regarding the Common Stock beneficially owned by (i) each director
of the Company, (ii) the Company's President, who is the only executive officer
of the Company whose compensation is required to be disclosed in the "Executive
Compensation" table contained elsewhere herein, (iii) each person known by the
Company to own more than five percent of the Common Stock of the Company, and
(iv) the executive officers and directors of the Company, as a group.
<TABLE>
<CAPTION>
Amount and Nature of Approximate
Name/Address (1) Beneficial Ownership Percent of Class
- ---------------- -------------------- ----------------
<S> <C> <C>
Joel M. Eidelstein..................... 184,945 (2) 2.4%
Zalman Lekach.......................... 4,871 *
Colleen M. Downes...................... 500 (3) *
Joseph M. Matalon...................... 6,000,000 (4) 48.2%
Michael Shalom......................... 6,006,425 (4) 48.3%
Burton J. Meyer........................ 371,812 (5) 4.8%
George A. Myers........................ 733 (6) *
Lee S. Casty........................... 3,393,282(7)(8) 44.1%
International Technology Investments, 6,000,000 (9) 48.2%
LC.....................................
All officers and directors as a group 6,579,286 51.8%
(8 persons)............................
- -----------------
</TABLE>
(1) The address of each director and executive officer of the Company is in
care of the Company, 707 Skokie Blvd., 5th Floor, Northbrook, IL 60062.
(2) Includes 150,000 shares of Common Stock subject to an option granted to
Mr. Eidelstein pursuant to the IFX 1998 Stock Option and Incentive Plan,
which option currently is exercisable.
(3) Consists of 500 shares of Common Stock owned by Ms. Downes' spouse.
(4) Includes 1,250,000 shares of Common Stock held by International
Technology and 4,750,000 shares of Common Stock subject to an option
that is currently exercisable. See note 9 below. Each of Mr. Matalon and
Mr. Shalom may be deemed to be an affiliate of International Technology
and, accordingly, each of Mr. Matalon and Mr. Shalom may be deemed to
beneficially own the shares of Common Stock held by such entity.
(5) Includes 100,000 shares of Common Stock that Mr. Meyer may acquire upon
exercise of an option granted to him by Lee S. Casty, which option
currently is exercisable.
(6) Consists of 333 shares of Common Stock held by Mr. Myers' spouse as
custodian for Mr. Myers' minor children and 400 shares of Common Stock
held by Mr. Myers under the Uniform Gifts to Minors Act as custodian for
two of his minor children.
(7) Mr. Casty's address is in care of French-American Securities, Inc., 707
Skokie Blvd., 5th Floor, Northbrook, IL 60062.
-37-
<PAGE>
(8) Includes 100,000 shares subject to an option granted to Burton J. Meyer.
Also includes 50,390 shares of Common Stock owned by Mr. Casty's minor
children and 250,000 shares held by a third party custodian under the
Uniform Gifts to Minors Act for the benefit of Mr. Casty's minor
children.
(9) Includes 4,750,000 shares of Common Stock subject to an option granted
by IFX that currently is exercisable. International Technology's address
is in care of Adorno & Zeder, 2801 S. Bayshore Drive, Suite 1600, Miami,
Florida 33133.
-38-
<PAGE>
Item 13 - Certain Relationships and Related Transactions
- --------------------------------------------------------
Prior to fiscal year 1996, FX Chicago, Inc. made loans of $611,400 to C.
Adam Ltd. (successor in interest to SRC, Inc.), an entity affiliated with Mr.
Casty. The loans were evidenced by a demand note bearing interest at 8%, which
rate subsequently was amended to equal the prime rate. In October 1998, this
note was amended again to provide that (i) the interest rate will be adjusted
each month to equal the interest rate actually earned by the Company on its
short-term savings or money market account during the immediately preceding
month plus one-half percent, and (ii) amounts outstanding under the note may be
repaid by transfer to FX Chicago, Inc. of shares of Common Stock with an
aggregate fair market value equal to the amount outstanding. The fair market
value of shares tendered to repay the note will be valued at the average of the
closing bid and ask price of Common Stock as reported by the Nasdaq SmallCap
Market (or such other stock exchange on which the Common Stock may then be
listed) on each of the three trading days ending on the trading date immediately
prior to the delivery of the Common Stock to FX Chicago, Inc. The Company earned
interest income of $39,400, $52,400 and $51,700 on this note, on a consolidated
basis, during the fiscal years ended June 30, 1999, 1998, and 1997,
respectively.
In December 1998, IFX/Telcom, Inc., a wholly-owned subsidiary of the
Company, purchased a limited partnership interest in Telcom.Net, L.P., an
Internet communications software development company that was co-founded in 1997
by Joel M. Eidelstein, the Company's President. The limited partnership interest
was purchased from Alerica, Inc., a corporation that is wholly-owned by Mr.
Eidelstein and which is a general partner of Telcom.Net, L.P. The purchase price
of such limited partnership interest was $200,000. The limited partnership
interest entitles IFX/Telcom, Inc. to receive priority distributions up to
$200,000, the amount of the Company's invested capital, plus approximately 20%
to 25% of the profits of Telcom.Net, L.P., after all of its other partners have
received priority distributions equal to their aggregate invested capital. In
addition, the Company purchased from Alerica, Inc. an outstanding promissory
note of Telcom.Net in the principal amount of $50,000. The Board of Directors
(excluding Mr. Eidelstein, who abstained from discussion or voting) determined
that the purchase price for this note was fair and that the purchase was in the
best interests of the Company.
The Company has guaranteed certain liabilities owed by Telcom.Net, L.P.,
a limited partnership, to Qwest/LCI, International. One of the general partners
of Telcom.Net, L.P. is Alerica, Inc., a company that is wholly-owned by Joel
Eidelstein, the Company's President. There is no maximum amount payable under
this guarantee; however, the Company reasonably believes, based on the business
of the limited partnership, that its potential liability under this guarantee
will not exceed $100,000.
During fiscal year 1999, the Company made a short-term loan to
Telcom.Net, L.P. in the amount of $50,000 and paid expenses of approximately
$65,000 on behalf of Telcom.Net, L.P. As of June 30, 1999, $7,000 remained
outstanding under the loan and the Company had approximately $38,000 in accounts
receivable from Telcom.Net, L.P., which it expects to receive in the ordinary
course.
Each of Joseph M. Matalon, a director of the Company, and Michael
Shalom, the Company's Chief Executive Officer, is an affiliate of International
Technology Investments, LC ("International Technology"). In November 1998, IFX
entered into an agreement with International Technology in which it contributed
$1,000,000 to IFX and International Technology received 500,000 shares of Common
Stock from IFX, at a price of $2.00 per share, for its contribution and the
option to acquire 5.5 million IFX shares. As of the date of this report,
International Technology has contributed $3,000,000 in additional capital to IFX
and International Technology has received 750,000 shares of Common Stock from
IFX, at a purchase price of $2.00 per share, for its additional contribution and
is entitled to receive an additional 750,000 shares. International Technology's
purchase option expires in January 2004.
-39-
<PAGE>
Certain information regarding Burton J. Meyer is set forth under the
caption "Compensation Committee Interlocks and Inside Participation." The
Company believes that all transactions disclosed above have been, and the
Company's board of directors intends that any future transactions with its
officers, directors, affiliates or principal stockholders will be, on terms that
are no less favorable to the Company than those that are obtainable in arm's
length transactions with unaffiliated third parties.
-40-
<PAGE>
PART IV
-------
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) The following documents are filed as a part of this report:
(1) Financial Statements:
The following financial statements are attached to this Form 10-K
commencing on page 45.
Page
----
Report of Independent Certified Public Accountants 43
Report of Independent Certified Public Accountants 44
Consolidated Balance Sheets as of June 30, 1999 and 1998 45
Consolidated Statements of Operations for the Years
Ended June 30, 1999, 1998 and 1997 46
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended June 30, 1999, 1998 and
1997 47
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1999, 1998 and 1997 48
Notes to Consolidated Financial Statements 50
(2) Schedules
Schedule II - Valuation and qualifying accounts
All other schedules called for under Regulation S-X are not submitted
because they are not applicable or not required or because the required
information is not material or is included in the financial statements or notes
thereto.
(3) Exhibits
The list of exhibits is attached to this Form 10-K on page 42.
(b) Reports on Form 8-K
1. Current Report on Form 8-K filed on July 1, 1999 pursuant to Item 4,
regarding change in the Company's certifying accountant
2. Current Report on Form 8-K filed on July 13, 1999 pursuant to Item 2,
regarding sale of the Company's shares of IFX Limited
-41-
<PAGE>
Exhibit
No. Description
------- -----------
3.1 * Amended By-laws of IFX
3.2 * Restated Certificate of Incorporation
10.1 * Employment Agreement dated May 1999 with Zalman Lekach
10.2 IFX 1998 Stock Option and Incentive Plan, which is
incorporated by reference to Exhibit 4.1 to IFX's
Registration Statement on Form S-8 filed on April 14, 1999
10.3 Asset Sale and Purchase Agreement regarding IFX's sale of
assets of Index Futures Group to E. D. & F. Man
International, Inc., which is incorporated by reference to
Exhibit A to the Company's Definitive Information Statement
on Schedule 14C filed on June 12, 1996
10.4 Share Sale Agreement dated June 30, 1999 regarding IFX's
disposition of its shares of IFX Limited, which is
incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K filed on July 13, 1999
10.5 Subscription and Joint Venture Agreement dated November 23,
1998 with International Technology Investments, LC, which is
incorporated by reference to Exhibit 99.2 to the Company's
Current Report on Form 8-K filed on November 25, 1998
10.6 Letter from Arthur Andersen LLP regarding the change in the
registrant's certifying accountant, which is incorporated by
reference to Exhibit 16.1 to IFX's Current Report on Form 8-K
filed on July 1, 1999
21.1 List of subsidiaries of the Company
23.1a Consent of Ernst & Young LLP
23.1b Consent of Arthur Andersen LLP
27 Financial Data Schedule
--------------------------------
* Filed herewith
-42-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Stockholders of
IFX Corporation
and Subsidiaries:
We have audited the accompanying consolidated balance sheet of IFX
Corporation (a Delaware corporation) and subsidiaries ("the Company") as of June
30, 1999, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the year ended June 30, 1999. Our audit
also included the financial statement schedule for the year ended June 30, 1999
listed at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of IFX
Corporation and Subsidiaries as of June 30, 1999, and the consolidated results
of their operations and their cash flows for the year ended June 30, 1999, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule for the year end June 30, 1999, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Miami, Florida,
September 24, 1999
-43-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Stockholders of
IFX Corporation
and Subsidiaries:
We have audited the accompanying consolidated balance sheet of IFX
Corporation (a Delaware corporation) and subsidiaries ("the Company") as of June
30, 1998, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the years ended June 30, 1998 and 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of IFX Corporation and
Subsidiaries as of June 30, 1998 and 1997, and the results of their operations
and their cash flows for the years ended June 30, 1998 and 1997, in conformity
with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Chicago, Illinois,
September 24, 1999
-44-
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
------
June 30,
----------------------------
1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................ $ 482,800 $ 321,900
Short-term investments.......................................... 5,000,000 5,311,300
Receivables, net of allowance for doubtful accounts of
$80,100 for 1999 and $0 for 1998.............................. 458,300 104,900
Net assets of discontinued operations........................... 3,726,900 5,034,500
----------- -----------
Total current assets....................................... 9,668,000 10,772,600
LONG-TERM ASSETS:
Investment in Yupi Internet Inc................................. 3,113,500 -
Investments in and advances to affiliated partnerships.......... 241,500 120,200
Notes receivable................................................ 612,500 611,400
Furniture, equipment, and leasehold improvements................ 2,253,500 14,400
Less: accumulated depreciation and amortization................. (369,300) (1,700)
----------- -----------
Furniture, equipment, and leasehold improvements, net........... 1,884,200 12,700
Acquired customer base, net..................................... 2,686,600 -
Other assets.................................................... 655,200 26,500
----------- -----------
Total long-term assets..................................... 9,193,500 770,800
----------- -----------
TOTAL ASSETS $18,861,500 $11,543,400
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses.......................... $2,447,200 $ 208,200
LONG-TERM LIABILITIES:
Notes payable................................................... 316,900 -
STOCKHOLDERS' EQUITY:
Common stock, (restated for reverse-split)$.02 par value;
150,000,000 shares authorized, 6,830,240 and 6,155,550 shares
issued and outstanding in 1999 and 1998, respectively......... 136,600 123,100
Paid-in capital............................................... 11,299,100 7,842,700
Retained earnings............................................... 4,817,200 3,415,100
Accumulated other comprehensive income............................. (26,000) (45,700)
Deferred compensation.............................................. (129,500) -
----------- -----------
TOTAL STOCKHOLDERS' EQUITY............................................ 16,097,400 11,335,200
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................ $18,861,500 $11,543,400
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-45-
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
ISP Revenues:
Dial Up................................ $ 616,300 $ - $ -
Hosting................................ 28,200 - -
Dedicated and Design Web Services...... 80,800 - -
---------- ---------- ----------
Total revenues......................... 725,300 - -
Cost and expenses:
Cost of revenues....................... 445,500 - -
General and administrative............. 2,978,400 733,100 1,306,000
Depreciation and amortization.......... 232,400 - -
---------- ---------- ----------
Total operating expenses............... 3,656,300 733,100 1,306,000
---------- ---------- ----------
Operating loss from
continuing operations.................. (2,931,000) (733,100) (1,306,000)
Other Income (Expense):
Interest income........................ 376,100 290,100 410,600
Loss on operations of equity investee.. (107,700) - -
Other.................................. 136,200 126,500 247,100
---------- ---------- ----------
Total other income..................... 404,600 416,600 657,700
---------- ---------- ----------
Loss from continuing
operations before income taxes......... (2,526,400) (316,500) (648,300)
Benefit from income tax................ (811,000) (108,000) (220,000)
---------- ---------- ----------
Loss from continuing operations........... (1,715,400) (208,500) (428,300)
Income from discontinued
operations, net of taxes............... 3,117,600 3,575,200 3,612,100
---------- ---------- ----------
Net income................................ 1,402,200 3,366,700 3,183,800
Assumed cumulative dividend on
Class A preferred stock................ - - (23,300)
---------- ---------- ----------
Net income available to shareholders...... $1,402,200 $3,366,700 $3,160,500
========== ========== ==========
BASIC AND DILUTED INCOME (LOSS) PER SHARE:
Loss from continuing operations............... $ (0.26) $ (0.03) $ (0.07)
Income from discontinued operations........... $ 0.48 $ 0.57 $ 0.55
---------- ---------- ----------
Net Income.................................... $ 0.22 $ 0.54 $ 0.48
========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and diluted......................... 6,498,204 6,246,545 6,616,893
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-46-
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Class A Retained Accumulated
Preferred Paid in Deferred Earnings Other
Stock Shares Amount Capital Compensation (Deficit) Comprehensive Total
Costs Income
--------- --------- -------- ---------- ------------ ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance June 30,
1996.......... $400,000 6,724,906 $134,500 $8,395,300 -- $(2,698,800) (14,500) $6,216,500
Repurchase of
common stock... -- (445,776) (8,900) (319,900) -- -- -- (328,800)
Retirement of
class A
preferred stock (400,000) -- -- -- -- -- -- (400,000)
Repayment of
Preferred
stock -- -- -- -- -- (436,600) -- (436,600)
dividends......
Comprehensive
Income:
Net income..... -- -- -- -- -- 3,183,800 -- 3,183,800
Foreign
currency -- -- -- -- -- (31,200) (31,200)
translation....
-----------
Comprehensive
Income........ 3,152,600
-------------------------------------------------------------------------------------------
Balance June 30,
1997........... -- 6,279,130 125,600 8,075,400 48,400 (45,700) 8,203,700
Repurchase of
fractional
shares
pursuant -- (10) -- -- -- -- --
to one-for
five reverse
split..
Repurchase of
common stock
and odd-lots... -- (123,580) (2,500) (232,700) -- -- (235,200)
Net and
comprehensive
income......... -- -- -- -- 3,366,700 -- 3,366,700
-------------------------------------------------------------------------------------------
Balance June 30,
1998........... -- 6,155,540 123,100 7,842,700 3,415,100 (45,700) 11,335,200
Stock issued for -- 500,000 10,000 990,000 -- -- 1,000,000
cash
Stock and options
issued for
Acquisitions... -- 174,700 3,500 2,297,900 -- -- 2,301,400
Compensation
associated with
grant of stock
options and
warrants...... -- 39,000 -- -- 39,000
Deferred
compensation
associated
with
grant of stock -- -- -- 129,500 (129,500) -- -- --
options........
Comprehensive
Income:...........
Net Income........ -- -- -- -- 1,402,100 1,402,100
Foreign
currency -- -- -- -- -- 19,700 19,700
translation....
-----------
Comprehensive
income......... 1,421,800
-------------------------------------------------------------------------------------------
Balance June 30,
1999........... $ -- 6,830,240 $136,600 $11,299,100 $(129,500) $4,817,200 $(26,000) $16,097,400
===========================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-47-
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPEARTING ACTIVITIES:
Net income..................................... $1,402,200 $3,366,700 $3,183,800
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation................................. 76,900 1,700 -
Amortization................................. 155,500 - -
Deferred taxes............................... - - -
Bad debt expense............................. 80,100 - -
Compensation associated with stock options... 39,000 - -
Equity in net (gain) loss of affiliated
partnerships................................ 107,700 (70,200) -
Change in net assets from discontinued operations 1,307,600 1,853,500 (1,184,200)
Changes in operating asset and liabilities:
Short term investments....................... 311,300 (3,784,200) (1,527,100)
Receivables.................................. (218,700) (89,500) -
Other assets................................. (129,500) 1,900 (28,400)
Accounts payable and accrued expenses........ 800,700 (32,400) 126,200
---------- ---------- ----------
Cash provided by operating activities........... 3,932,800 1,247,500 570,300
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Yupi Internet Inc.............. (3,113,500) - -
Acquisitions, primarily customer base........ (443,800) - -
(Increase) decrease in investments in and
advances to affiliated partnerships........ (229,000) 219,200 (284,600)
Increase (decrease) in notes receivable...... (1,100) 7,500 8,300
Purchase of PP&E............................. (991,200) (14,400) -
---------- ---------- ----------
Cash used in investing activities.............. (4,778,600) 212,300 (276,300)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) of notes payable......... (13,000) (1,586,600) 1,586,600
Issuance (repurchase) of common stock........ 1,000,000 (235,300) (328,800)
Redemption of preferred stock................ - - (400,000)
Payment of preferred dividends............... - - (436,600)
---------- ---------- ----------
Cash provided by (used in) financing activities 987,000 (1,821,900) 421,200
---------- ---------- ----------
Effect of exchange rate changes on cash........ 19,700 - (31,200)
---------- ---------- ----------
Increase (decrease) in cash.................... 160,900 (362,100) 684,000
Cash, beginning of period...................... 321,900 684,000 -
---------- ---------- ----------
Cash, end of period............................ $ 482,800 $ 321,900 $ 684,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-48-
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended June 30, 1999, 1998 and 1997
Supplemental Information of Non Cash Investing
and Financing Activities and Other Cash Flow Data
1999
During the year, the Company acquired several entities (see note 7). In
connection with those acquisitions, the Company assumed liabilities in the
amount of $1,813,500 and issued stock valued at approximately $2,301,300. The
non cash effects of the acquisitions is excluded from the accompanying
consolidated statements of cash flows.
Interest paid during the years ended June 30, 1999, 1998 and 1997 was
$1,000, $53,900 and $690,300 respectively, substantially all of which was paid
to related parties. Income taxes paid during the year ended June 30, 1999, 1998
and 1997 was $1,025,000, $750,000 and $200,000, respectively. Interest payments
to customers related to discontinued operations during the year ended June 30,
1999, 1998 and 1997 was $758,600, $1,867,100 and $2,323,300, respectively.
1998
None.
1997
In January, 1997, notes payable aggregating $5,450,000 due January 31,
1997 were extended to January 31, 1998. $4,700,000 of these notes payable were
repaid prior to June 30, 1997.
In January, 1997, a note payable for $836,600 was issued to Lee S. Casty
as payment for the redemption of preferred stock and dividends accrued thereon.
-49-
<PAGE>
IFX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION OF IFX CORPORATION
IFX Corporation ("IFX" or the "Company") has begun to pursue, and
intends to continue to pursue, the acquisition and development of Internet
access and related services businesses, initially in Venezuela, Chile, Colombia,
Argentina, Bolivia and Mexico, with the proceeds from the sale of its brokerage
assets and private equity offerings. Ultimately, IFX seeks to form a Latin
American pan-regional network of ISPs under the brand name Unete
(http://www.unete.com), such that a subscriber traveling in Latin America would
be able to access the Internet by making a local telephone call, regardless of
whether or not such subscriber was in his or her home country.
Prior to July 1996, the primary business of IFX was providing commodity
brokerage services. On July 1, 1996, IFX sold substantially all of its brokerage
assets (other than certain assets of its majority owned U.K. subsidiary) to E.D.
& F. Man International, Inc., a unit of E.D. & F. Man Group, plc, a London-based
international trading and finance conglomerate, for a purchase price consisting
of cash earn-out payments based upon the sold business's net profit (as defined
in the sales agreement) during the sixty-six months following the sale. Since
July 1996, IFX's revenues have consisted primarily of earn-out payments from
such asset sale, interest income and income from operations of the Company's
former majority-owned British subsidiary, IFX Ltd., which conducts foreign
exchange business as a registrant of the British Securities and Futures
Authority. In June 1999, IFX divested its remaining 50.1% interest in IFX Ltd.
in exchange for approximately $2.45 million, of which approximately $1.9 million
was received subsequent to June 30, 1999 (with the remainder due under a note
receivable at prime plus three-percent on or before June 30, 2000)and a
redeemable preference share entitling IFX to quarterly payments equal to
approximately 30% of the net profits (as specifically defined)of IFX Ltd.
through June 30, 2002. Through June 30, 1999, IFX received approximately $10.4
million of earn-out payments from the July 1996 sale of its brokerage assets.
Prior to January 1, 1999, the earn-out payments were based on 40% of the sold
business' profitability. In calendar 1999, the earn-out payments were based on
30% of the sold business' profitability and, in calendar years 2000 and 2001,
will be based on 20% of the sold business' profitability. The Company has not
received any earn-out payments from the sale of IFX Ltd. As a result of the
sales, the results of operations and net assets of these disposed entities have
been segregated and reclassified as discontinued operations in the accompanying
financial statements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of IFX
Corporation and its majority-owned subsidiaries for which it has a controlling
financial interest. All material intercompany accounts and transactions,
including those related to the Company's former subsidiaries, are eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
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<PAGE>
The Company recognizes revenue when services are provided. Internet
access services are generally billed at the beginning of the month services are
to be provided.
Revenues from the earn-out payments related to the discontinued
operations are recorded as they are earned.
Credit Risk
The Company's accounts receivable potentially subject the Company to
credit risk, as collateral is generally not required. The Company's risk of loss
is limited due to billings to customers for services, the use of pre-approved
charges to customer credit cards, and the ability to terminate Internet access
on delinquent accounts. In addition, the concentration of credit risk is
mitigated by the large number of customers comprising the customer base. The
carrying amount of the Company's receivables approximates their fair value.
Sources of Supplies
The Company relies on third-party networks, local telephone companies,
and other companies to provide data communications capacity. Although management
feels alternative telecommunications facilities could be found in a timely
manner, any disruption of these services could have an adverse effect on
operating results.
Short-Term Investments
Short-term investment represents the Company's investments of certain
cash balances in overnight or short-term (less than 12 months) investments,
which generally consist of U.S. Government obligations. Income related to these
investments is recorded as earned. Fair value of the investments approximates
book value.
Financial Instruments
The carrying amounts for the Company's cash, short term investments,
receivables, other assets, accounts payable, accrued and expenses and notes
payable approximate fair value.
Long-Lived Assets
The Company periodically evaluates the recovery of the carrying amount
of long lived assets by determining if a permanent impairment has occurred.
Indicators of a permanent impairment include duplication of resources resulting
from acquisitions, the estimated undiscounted cash flows of the entity over the
remaining amortization period and other factors. The amount of impairment, if
any, would be measured based on comparison of the fair value and carrying vale
of the assets. The Company does not believe that any impairment has occurred at
June 30, 1999.
Investments
The Company has investments in partnerships with ownership interest of
approximately 25% and which are accounted for on the equity method. The Company
also has an interest in Yupi Internet Inc., which amounts to less than a 20%
ownership interest, and does not have the ability to exercise significant
influence over the Investee. Accordingly, the Company accounts for this
investment on the cost method.
Furniture, Equipment and Leasehold Improvements
Furniture and equipment are stated at cost. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the assets, commencing when assets are installed or placed in
service. Leasehold improvements are amortized using the straight-line method
over the lesser of their useful lives or the remaining terms of the leases. The
estimated useful lives generally range between 3 and 5 years.
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Acquired Customer Base
The Company capitalizes specific costs incurred for the purchase of
customer bases from other Internet Service Providers ("ISPs"). The customer
acquisition costs include the actual fee paid to the selling ISP. Subscriber
acquisition costs capitalized at June 30, 1999 were approximately $2,4 million.
Amortization is provided using the straight-line method over three years
commencing when the customer base is acquired. Amortization expense for the year
ended June 30, 1999 and accumulated amortization at June 30, 1999 was
approximately $155,500 and $155,500, respectively.
Advertising and Marketing Expenses
The Company expenses all advertising and marketing expenses as they are
incurred. Advertising expenses were $247,600, $3,700 and $2,600 during 1999,
1998 and 1997, respectively.
Income Taxes
Deferred income taxes are provided to reflect the tax effects of
temporary differences between financial and tax reporting.
Risks and Uncertainties
The Company's operations are subject to certain risks and uncertainties,
including those associated with: lack of operating history and experience in the
Internet business; loss from continuing operations; negative cash flow and
fluctuations in operating results; funding expansion and acquisitions;
international expansion; dependence on key personnel; dependence on suppliers;
financing arrangement terms that may restrict operations; and pending
litigation.
Reclassification
Certain amounts previously reported have been reclassified to conform to
the current method of presentation.
Earnings per Common Share
Basic earnings per common share is based upon the weighted average
number of common shares outstanding during each year. Diluted earnings per
common share is calculated based upon the sum of the weighted average number of
shares outstanding and the weighted average number of potential common shares
outstanding. Potential common shares consist of the outstanding options.
On January 8, 1998, the Company authorized a one-for-five reverse split
of its common stock, par value $.004, effective on January 12, 1998. All
references in the financial statements and notes thereto related to number of
shares and per share amounts reflect this decrease in number of shares
outstanding.
Recent Accounting Pronouncements
Effective July 1, 1998, the Company adopted Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities", which requires that
requires costs of start-up activities and organization costs to be expensed as
incurred. The adoption of this pronouncement did not have a material effect on
the Company's financial position or results of operations.
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In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" which would have been effective for fiscal quarters of
fiscal years beginning after June 15, 1999. In June 1999, the FASB issues SFAS
No. 137 "Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133" which amended SFAS 133 to
change the effective date to fiscal quarters of fiscal years beginning after
June 15, 2000. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company plans to adopt
SFAS No. 133 in fiscal 2001 and is currently assessing the impact this statement
will have on its consolidated financial statements.
Effective July 1, 1998, the Company adopted Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", which requires that certain costs for the development of internal
use software should be capitalized, including the costs of coding, software
configuration, upgrades and enhancements. The adoption of this pronouncement did
not have a material effect on the Company's financial position or results of
operations.
Foreign Currency Translation.
Foreign currency transactions and financial statements (except for those
relating to countries with highly inflationary economies) are translated into
U.S. dollars at the rate in effect on the date of the transaction or the date of
the financial statements, except that revenues, costs and expenses are
translated at average exchange rates during each reporting period. Resulting
translation adjustments and transactions gains or losses attributable to certain
intercompany transactions that are of a long-term investment nature are excluded
from results of operations and accumulated in accumulated other comprehensive
income, a separate component of consolidated stockholders' equity. Gains and
losses attributable to other intercompany transactions are included in results
of operations.
The financial statements of subsidiaries located in countries with
highly inflationary economies are remeasured as if the functional currency were
the U.S. Dollar. The remeasurement creates translation adjustments that are
reflected in net income.
Comprehensive Income
As of July 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". The adoption of this Statement had no impact on the
Company's net income or stockholders' equity. SFAS No. 130 establishes new rules
for the reporting and display of comprehensive income and its components. SFAS
No. 130 requires foreign currency translation adjustments to be included in
other comprehensive income. Prior to the adoption of SFAS No. 130, the Company
reported such adjustments in a separate component of stockholders' equity. For
the twelve months ended June 30, 1999 and June 30, 1998, comprehensive income
was $1,421,800 and $3,366,700, respectively.
Disclosure of reclassification amounts:
Foreign currency translation arising during
prior periods included in net income due to
the discontinued operations discussed in note 3 $45,700
Foreign currency translation arising during the period (26,000)
---------
Net foreign currency translations $19,700
=======
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NOTE 3 - DISCONTINUED OPERATIONS
In June 1999, IFX divested itself of its 50.1% interest in IFX Ltd. in
exchange for approximately $2.45 million and a redeemable preference share
entitling IFX to quarterly payments equal to approximately 30% of the net
profits, as specifically defined, of IFX Ltd. through June 30, 2002. Following
the sale of its U.K. subsidiary, IFX decided not to invest the sales proceeds in
the trading business and, instead, decided to continue to develop businesses in
the Internet industry. Accordingly, the Company has accounted for this disposal,
and the disposal of operations related to the same business segment made in
prior years, as noted below, as discontinued operations.
On May 31, 1996, an agreement was reached to sell, transfer and assign
to MINC substantially all of the brokerage accounts maintained by Index,
together with all positions, securities and other assets held in or for such
accounts and other agreed-upon assets used in the conduct of the brokerage
activities. MINC is a unit of E.D.& F. Man Group, plc, a London-based
international trading and finance conglomerate. This sale was completed as of
July 1, 1996. During 1997, Index ceased being a clearing member at all
exchanges, and ceased being a registered futures commission merchant.
The purchase price payable by MINC in connection with this transaction
is based on a percentage of the net income (as defined in the sales agreement)
of the transferred activities during the sixty-six month period following the
sale. As the purchase price is contingent upon the future earnings of the
customer accounts sold, none of which is guaranteed, income is recognized as
earned beginning in fiscal year 1997, over the five and one-half years after the
date of the sale. The sales contract required Lee S. Casty to sign a
non-competition agreement. As compensation for providing such an agreement, a
portion of the purchase price was to be paid to Lee S. Casty. Mr. Casty
irrevocably transferred his right to receive payments under such agreement to
the Company. Accordingly, a portion of the purchase price which would otherwise
have been received by Lee S. Casty is being included in revenue by the Company.
In addition, in conjunction with the sale, the Company issued a limited
indemnification agreement to MINC. The agreement covers potential customer
claims arising from activity prior to the sale.
Given the Sale of Assets, the Company no longer has a need to own
exchange memberships or clearing corporation stock. All memberships and stock
owned were sold during fiscal 1997 at a net gain of $737,700. During the years
ended June 30, 1998 and 1997, the Company earned $4,159,600 and $2,157,900,
respectively, from the Sale of Assets. Earnings from these transactions are
included in discontinued operations.
The following table summarizes financial information related to the
discontinued trading business:
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Total revenues.................................. $11,409,200 $12,244,600 $12,422,000
=========== =========== ===========
Income from discontinued
operations before income taxes.............. 4,785,500 5,852,400 6,067,600
Income tax provision on discontinued operation.. 1,667,900 2,277,200 2,455,500
----------- ----------- -----------
Income from discontinued operations, net of taxes. 3,117,600 3,575,200 3,612,100
=========== =========== ===========
</TABLE>
The information set forth in the remaining Notes to the Financial
Statements relates to continuing operations unless otherwise specified.
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<PAGE>
NOTE 4 - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements are summarized below:
<TABLE>
<CAPTION>
June 30,
------------------------------------
1999 1998
----------------- ---------------
<S> <C> <C>
Furniture.......................... $176,600 $14,400
Equipment.......................... 1,833,100 -
Leasehold improvements............. 243,800 -
----------------- ---------------
$2,253,500 $14,400
Less: Accumulated depreciation and
amortization................. (369,300) (1,700)
----------------- ---------------
Net ............................... $1,884,200 $12,700
================= ===============
</TABLE>
NOTE 5 - NOTES PAYABLE
In connection with certain acquisitions, the Company assumed notes
payable aggregating to a principal amount of approximately $300,000.
NOTE 6 - STOCKHOLDERS' EQUITY
Class A Preferred Stock
As of June 30, 1999, there were no Class A preferred shares outstanding.
On January 31, 1997, the Company redeemed and retired the 400,000 issued and
outstanding shares of its Class A preferred stock, all of which were owned by
Lee S. Casty. The preferred stock was redeemed at a price equal to the aggregate
par value thereof plus the cumulative but previously undeclared and unpaid
dividends thereon, totaling $836,600. As payment, the Company issued Lee S.
Casty a promissory note bearing interest at the prime rate and maturing on
January 31, 1998. This note was repaid in February, 1998.
Common Stock
On January 8, 1998, the Company authorized a one-for-five reverse split
of its common stock, par value $.004, effective on January 12, 1998 (the
"Effective Date"). Each five shares of such common stock was reclassified and
reflected as one share of common stock having a par value of $.02, as of January
12, 1998. Outstanding shares of the Company's common stock were reduced to
6,279,130 shares from 31,395,649 shares outstanding before the split.
Any holder of fractional shares resulting from this reverse split was
paid an amount equal to the mean between the bid and the offer prices for the
Company's Common Stock on the NASDAQ SmallCap market on the Effective Date
multiplied by the amount of the fractional share. The one-for-five reverse split
also resulted in certain shareholders owning "odd lots," that is, less than one
hundred shares of Common Stock. In order to reduce the disproportionately high
costs to the Company of servicing numbers of such shareholder accounts, and to
enable those shareholders to dispose of their securities without incurring the
brokerage fees that normally attend odd-lot transactions, the Company offered to
purchase from its shareholders all odd lots (i.e., holdings of less one hundred
shares). The purchase amount was based upon the number of odd-lot shares
multiplied by the mean between the bid and offer prices on the date of purchase,
without commissions. The Company maintained its offer to repurchase such odd
lots until February 26, 1998, forty-five days immediately following the
Effective Date. As a result of the odd-lot offer, the Company repurchased
approximately 3,500 shares.
The Company has issued approximately 674,700 shares in fiscal 1999. As
of June 30, 1999, there were 6,830,240 outstanding shares of common stock and
6,500,000 shares of the Company's common stock reserved for stock options and
warrants.
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<PAGE>
Sale of Stock and Right to Purchase Common Stock
The Company entered into an agreement (the "Agreement") with
International Technology Investments, LC ("ITI"), a then unrelated third party,
and another major shareholder pursuant to which the Company formed Emerging
Networks Inc., a 100% owned subsidiary, and other related companies to pursue
opportunities in providing Internet services in Latin America and other
international locales. In connection with the Agreement, the Company issued to
ITI 500,000 shares of Common Stock and the right to purchase up to 5,500,000
additional shares of Common Stock for $2.00 per share (the "Purchase Right"),
for a total price of $1,000,000, effective November 23, 1998.
STOCK BASED COMPENSATION PLANS
Employee Stock Option Plan
Under the Company's 1998 Stock Option Plan, as amended (the "Stock
Option Plan"), 900,000 shares of common stock are reserved and authorized for
issuance upon the exercise of options. The compensation committee (the
"Committee") of the Board of Directors administers the Stock Option Plan and
determines who is eligible. Options generally become exercisable as follows: (i)
25% of the options become exercisable one year after the date of grant or, in
certain cases, the commencement date of the holder's employment; (ii) an
additional 25% of the options become exercisable 2 years after the date of grant
or, in certain cases, the commencement date of the holder's employment; (iii) an
additional 25% of the options become exercisable 3 years after the date of grant
or, in certain cases, the commencement date of the holder's employment; (iv) the
remaining 25% of the options become exercisable 4 years after the date of grant
or, in certain cases, the commencement date of the holder's employment. The
Option Price may be greater than, less than, or equal to Fair Market Value on
the Option Date, as determined in the sole discretion of the Committee. In
fiscal year 1999, the Company granted approximately 372,000 options (including
Directors Stock Option Grant) to employees during fiscal 1999.
Directors Stock Option Grant
In November 1998, the Board of Directors granted to the Company's
President an option to purchase 300,000 shares of Common Stock, exercisable at
$3.00 per share (the price of the stock as reported by the NASDAQ Stock Market
as of the date of the grant was $1.75 per share), which is included in number of
options granted under the Stock Option Plan. This option vested 25% on each of
November 10, 1998 and January 1, 1999 and will vest an additional 25% on each of
January 1, 2000 and January 1, 2001.
Statement of Financial Accounting Standards No. 123
The Company has elected to account for its stock based compensation
plans under Accounting Principle Board Opinion number 25, Accounting for Stock
Issued to Employees (APB No.25); however, the Company has computed for pro forma
disclosure purposes the value of all options granted during 1999 using the
Black-Scholes option-pricing model as prescribed by SFAS No. 123 using the
following weighted average assumptions used for grants in 1999:
1999
---------
Risk-Free Interest Rate 5.50%
Expected Dividend Yield 0.00%
Expected Lives 5.0 years
Expected Volatility 1.25
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The total value of options granted during 1999 was computed as
approximately $1,929,000.
1999
----------
Net Income As reported $1,402,200
Pro forma $1,288,600
Basic and diluted As reported $ 0.22
Earnings per share Pro forma $ 0.20
A summary of the status of the Company's option plan at June 30, 1999
and the changes during the year then ended are presented in the following table:
Weighted Average
Shares Exercise
(In Thousands) Price Per Share
-------------- ----------------
June 30, 1998
- -------------
Grants 372,000 $5.19
Exercised 0 0.00
Cancelled 0 0.00
Forfeitures 0 0.00
--------
June 30, 1999 372,000 $5.19
========
The weighted average fair value of options granted during 1999 was
$3.59.
The following table summarizes the number of options outstanding by year
of grant:
<TABLE>
<CAPTION>
Weighted Weighted Average
Exercise Average Remaining Contractual
Year of Grant Number of Shares Price Range Exercise Price Life
- ------------- ---------------- -------------- -------------- ---------------------
<S> <C> <C> <C> <C>
June 30, 1999 72,000 $4.63 - $22.50 $14.30 9.9 years
June 30, 1999 300,000 $3.00 $ 3.00 9.4 years
</TABLE>
The following table summarizes the options exercisable as of June 30,
1999:
Weighted Weighted Average
Average Remaining Contractual
Year of Grant Number of Shares Exercise Price Life
- -------------- ---------------- -------------- ----------------------
June 30, 1999 150,000 3.00 9.4 years
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NOTE 7 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
Numerator for basic earnings per share
Loss from continuing operations.......................... $(1,715,400) $ (208,500) $ (428,300)
Assumed cumulative dividend on Class A Preferred Stock... - - (23,300)
----------- ----------- -----------
Loss from continuing operations available to common
shareholders.......................................... (1,715,400) (208,500) (451,600)
=========== =========== ===========
Income from discontinued operations...................... 3,117,600 3,575,200 3,612,100
=========== =========== ===========
Net income 1,402,200 3,366,700 3,183,800
Assumed cumulative dividend on Class A Preferred Stock... - - (23,300)
----------- ----------- -----------
Net income available to common shareholders.............. 1,402,200 3,366,700 3,160,500
=========== =========== ===========
Denominator
Denominator for basic and diluted per share
Weighted average shares................................ 6,498,204 6,246,545 6,616,893
=========== =========== ===========
</TABLE>
Outstanding options and warrants to purchase shares of the Company's
Common Stock at June 30, 1999, 1998 and 1997 were excluded from the computation
of diluted earnings per share because their effect on loss per share from
continuing operations was antidilutive.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company has a note receivable in the amount of $612,500 at June 30,
1999, in connection with advances made by the Company to an affiliated entity.
This demand receivable was converted into a demand note bearing interest at 8%
and was subsequently changed to the prime rate of interest. The Company earned
$39,400, $52,400 and $51,700 of interest income on this note during the years
ended June 30, 1999, 1998 and 1997, respectively.
NOTE 9 - ACQUISITIONS
During fiscal 1999, the Company acquired Interaccess, S.A., a Chilean
corporation, International Connection Service 1500, C.A., a Venezuelan
corporation, Zupernet Ltda., a Bolivian limited liability company and Interweb
Mexico S.A. de C.V., a Mexican corporation, for total purchase prices of
approximately $2,907,700, of which approximately $488,500, which includes cash
acquired of $44,700, was paid in cash, approximately $117,800 was paid
subsequent to year end, approximately $2,061,600 was paid by issuing
approximately 174,000 shares of the Company's common stock and approximately
$239,800 was paid by issuing options to purchase 25,000 shares of the Company's
common stock for $10.00 per share for a period of 5 years.
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In addition, the Company is obligated to pay the sellers additional purchase
price based on the number of users, as defined by the respective agreements,
existing at the end of a period ranging from 6 to 18 months times a per user
amount ranging from $175 to $285. The additional amounts are to be paid in cash,
issuing shares of the Company's common stock or a combination of cash and common
stock. The Company did not record any of the additional purchase price due to an
estimate of the number of users that exists at the end of the contingency period
not being known beyond a reasonable doubt. Each of the acquisitions was
accounted for under the purchase method of accounting. The purchase price in
excess of the net tangible assets aggregated approximately $2,125,000 and was
allocated to Acquired Customer Base. This allocation is preliminary and is
subject to finalization of the Company's valuation analysis. The Acquired
Customer Base is being amortized using the straight-line method over an
estimated life of 3 years. The consolidated financial statements include the
accounts of these acquisitions since the date of purchase.
The following unaudited pro forma data summarize the results of
operations for the periods indicated as if these acquisitions had been completed
on July 1, 1997, the beginning of the 1998 fiscal year. The pro forma data gives
effect to actual operating results prior to the acquisitions and adjustments to
goodwill amortization and income taxes. These pro forma amounts do not purport
to be indicative of the results that would have actually been obtained if the
acquisitions had occurred on July 1, 1997 or that may be obtained in the future.
The pro forma data does not give effect to acquisitions completed subsequent to
June 30, 1999.
Year ended June 30
-------------------------
1999 1998
---------- ----------
(Unaudited)
Total revenues.............................. $2,557,800 $1,853,100
Net income.................................. 394,900 2,189,200
Basic and diluted net income per common
share................................... $0.06 $0.35
NOTE 10 - GEOGRAPHIC INFORMATION
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosure About Segments of an Enterprise and Related
Information". The new standard changes the information the Company reports about
its operating segments. Operating segment information for prior years has been
restated to conform to the 1999 presentation.
The Company is structured primarily around the geographic markets it
serves and operates three reportable segments in Mexico, Venezuela and Chile.
All of the segments provide internet connectivity services. The accounting
policies of the segments are the same as those described in the Significant
Accounting Policies footnote. The Company evaluates performance based on profit
or loss from operations before income taxes excluding interest income and
expense, equity income, and gains or losses from securities and other
investments.
The Company does not derive more than 10% of its revenue from any
individual customer.
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Selected financial information for the year ended June 30, 1999 by
segment is presented below:
<TABLE>
<CAPTION>
United States Mexico Venezuela Chile Other Total
<S> <C> <C> <C> <C> <C> <C>
Revenues....... $ - $ 137,600 $ 335,000 $ 200,200 $ 52,500 $ 725,300
Income (loss)
from
continuing
operations
before taxes.. $(1,394,700) $(104,400) $ (16,000) $ (77,800) $ (933,500) $(2,526,400)
Assets......... $ 6,580,900 $ 990,600 $1,785,400 $1,623,300 $7,881,300 $18,861,500
</TABLE>
Information by product lines is presented on the Consolidated Statement
of Operations. The Company does not allocate long lived assets to those product
lines.
NOTE 11 - INCOME TAXES
The benefit for Federal income taxes for each of the years
ended June 30, is as follows:
1999 1998 1997
--------- --------- ---------
Current $ 811,000 $ 108,000 $ 220,000
Deferred 0 0 0
--------- --------- ---------
Total provision $ 811,000 $ 108,000 $ 220,000
========= ========= =========
State income tax expense is immaterial for the years ended June 30,
1999, 1998 and 1997.
Reconciliation of the total provision for income taxes to the Federal
statutory rate for the years ended June 30, is as follows:
1999 1998 1997
------ ------ ------
Income tax provision (benefit)
at statutory rate (34)% (34)% (34)%
State Income Tax and other 2 % 0 0
----- ----- -----
Total income tax provision (benefit) (32)% (34)% (34)%
===== ===== =====
The Company has no material deferred tax assets or liabilities related
to continuing operations for the years ended June 30, 1999, 1998 or 1997
NOTE 12 - COMMITMENTS AND CONTINGENCIES
The Company maintains facilities and offices at various locations
throughout the United States and Latin America for general corporate purposes,
including technology centers, customer call centers, office space and
headquarters. At June 30, 1999, the operating lease commitments for these
facilities represented approximately $2,182,000 through the year 2004.
The majority of this commitment is related to office space leased in
Chicago. While the Company remains legally committed under terms of that lease,
subsequent to August 28, 1998, the Company subleased all of that space, through
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the end of the lease term.
Lease expenses related to continuing operations, amounted to $60,400,
$28,800 and $28,800 in 1999, 1998 and 1997 , respectively.
In 1999, the Company entered into lease agreements in the United States
for offices in Aventura, Florida and Northbrook, Illinois; and internationally,
for offices in Argentina, Bolivia, Chile, Colombia, Mexico and Venezuela.
A list of the operating lease commitments as of June 30, 1999 is as
follows:
Operating Leases
----------------
2000 $ 776,700
2001 657,100
2002 546,900
2003 134,600
2004 67,100
-----------
Total Lease Obligations 2,182,400
Sublease Income (Chicago Office) (1,223,900)
-----------
Net Lease Obligations $ 958,500
===========
Consulting Agreements
At June 30, 1999, the Company had entered into several consulting agreements.
The terms of the consulting agreements are from one to three years and the
Company is obligated to pay approximately $198,000 in cash and issue a minimum
of 44,000 and a maximum of 69,000 options to purchase shares of the Company's
common stock the number of which is based on certain performance criteria. The
exercise prices of the options ranges from approximately $2 per share to $13 per
share, the options are exercisable over periods ranging from 3 to 10 years,
vesting over periods ranging from 1 to 4 years. For the grants for which the
quantity and terms are unknown at the date of grant and there is not significant
disincentive for nonperformance, the Company records expense associated with the
grants, based fair value of options issuable as of June 30, 1999, using Black
Scholes pricing model. Compensation expense associated with these grants was
approximately $17,000 for the year ended June 30, 1999. These grants will be
revalued at the end of each quarter based on the fair value of the options at
that date. For the grants for which the quantity and terms are known at the date
of grant and there is significant disincentive for nonperformance compensation
expense is recorded based on the value of the options, using the Black Scholes
model, at the date of grant. The amount of related expense amounted to
approximately $19,000.
Acquisition Agreements
The Company may be obligated to pay cash or issue shares of its common
stock for additional purchase price as discussed in Note 7, however, the
additional purchase price to be paid, if any, and the amount of such additional
purchase price are not known.
Other
A limited indemnification agreement was issued to MINC related to the
Sale of Assets. This agreement covers potential customer claims arising from
activity prior to the sale.
The Company has guaranteed certain liabilities of a limited partnership
to Qwest/LCI, International. The general partner of this limited partnership is
-61-
<PAGE>
owned by an officer of the Company. There is no maximum amount payable under
this guarantee. However, the Company does not expect that the potential
liability will exceed $100,000 based on the business of the limited partnership.
NOTE 13 - LITIGATION
The Company is a defendant in, and may be threatened with, various legal
proceedings arising from its regular business activities. Management, after
consultation with legal counsel, is of the opinion that the ultimate liability,
if any, resulting from any pending action or proceedings will not have a
material effect on the financial position or results of operations of the
Company.
Legal Proceedings With Respect to Discontinued Operations. On May 16,
1996, Index filed suit in the Circuit Court of Cook County--Law Division against
Doug Niemann, a former customer, for breach of contract, seeking to recover a
debit balance of $88,200 (Index Futures Group, Inc. v. Doug Niemann, case no.
96L-5506). On January 14, 1997, Niemann filed a counterclaim for $688,200. The
Company believes that the counterclaim is without merit and will defend
vigorously.
In April 1994, Index, without admitting or denying the allegations, paid
$100,000 to the CFTC, settling an administrative action filed on September 29,
1992. In a related action, the equity receiver of a commodity pool operator
brought an action to recover losses of approximately $600,000, alleging various
theories such as constructive trust, negligence, breach of fiduciary duty and
conversion. On May 29, 1996, the district judge dismissed the complaint in its
entirety. On December 4, 1997, the Court of Appeals affirmed the district
judge's dismissal of all claims against Index. On January 13, 1998, the Court of
Appeals denied the Supplemental Plaintiffs' request for a rehearing of its
appeal. On October 2, 1998, the attorney for the equity receiver of the
commodity pool filed a class-action suit on behalf of a putative class composed
of persons who had given money to the commodity pool operator to invest, some of
which was deposited in brokerage accounts at Index by the commodity pool
operator. (Wesselhoff v. FX Chicago, Inc. et al., Circuit Court of Cook County,
Chancery Division, case number 98-CH-13396). The plaintiff seeks damages of
$600,000 plus prejudgment interest, punitive damages, and lost investment
opportunity. The Company believes that the allegations in the complaint against
FX Chicago, Inc. and the Company are without merit and will defend vigorously.
A German citizen, seeking damages of 6,403,519.19 Deutschmark
(approximately $3,420,000 given the exchange rate as of September 25, 1990),
filed a lawsuit in September 1998, in Germany, against an affiliate of MINC. The
complaint arouse out of transactions that occurred in an account introduced by
Index Futures Group, AG ("Index AG"), an introducing broker of Index, prior to
the Sale of Assets. The Plaintiff alleges that under German law, MINC's
affiliate is successor to Index AG, and thus assumed any liabilities of Index
AG. Pursuant to the Sale of Assets agreement, Index is responsible for any
liability "arising out of any state of facts with respect to such Assigned
Contract existing on or prior to the Closing Date". MINC has retained counsel in
Germany to represent its interests in this matter. As Index AG was an
introducing broker of Index and not a former subsidiary of the Company or Index,
the Company does not believe that it will ultimately be liable for damages. In
April 1999, MINC's German counsel reported that the Dusseldorf District Court
dismissed all claims against MINC. However, the plaintiff has filed an appeal
with the Dusseldorf Court of Appeals.
On October 27, 1998, a complaint was filed by James Feltman as
liquidating agent of L. Luria & Son, Inc. (Case No. 97-16731-BKC-RAM) seeking
recovery from the Company of $368,188.84. Starting in the winter of 1996, the
Company entered into an arrangement with the suppliers of L. Luria & Son, Inc.
pursuant to which the Company advanced funds on behalf of L. Luria & Son, Inc.
in order to allow it to purchase inventory. L. Luria & Son, Inc. reimbursed the
Company for amounts that it had advanced. The complaint alleges that the Company
was an insider of L. Luria & Son, Inc. because of Joel Eidelstein's relationship
to L. Luria & Son, Inc. and that the amounts that L. Luria & Son, Inc. paid the
Company constituted preferences under the Bankruptcy laws. On March 1, 1999, the
Company reached an agreement to settle this complaint for $92,222.
-62-
<PAGE>
On December 28, 1998, John and Christina Blazina, filed an NFA
arbitration against Index and others, alleging breach of fiduciary duty, fraud,
breach of contract and negligence in the solicitation and trading of a series of
managed accounts opened at Index in 1995. Claimant seeks an award of $500,000,
composed of alleged actual damages of $262,500, punitive damages of $170,000 and
various other costs and fees. The Company believes that the allegations are
without merit and will defend vigorously.
On August 23, 1999, a lawsuit was filed in the Circuit Court of Cook
County naming Index and two individuals as defendants (Craig Bordon v. Sean S.
Mayo, et al., 99L-09368). The complaint alleges breach of contract and damages
"in excess of" $50,000. The Company has not yet been served with the complaint.
Based upon the allegations as set forth in the complaint, the Company believes
that the claim is without merit.
NOTE 14 -SUBSEQUENT EVENTS
Acquisitions and Recent Developments
On July 2, 1999, the Company, through a wholly owned subsidiary,
purchased all of the capital stock of Interactiva, SA. ("Interactiva"), an ISP
based in Santiago, Chile. The aggregate purchase price was approximately
$420,000 to be paid in cash.
On July 21, 1999, the Company, through a wholly owned subsidiary,
purchased all of the capital stock of Sistema de Diseno y Manufactura S.A. de
C.V. ("SDM Net"), an ISP based in Monterrey, Mexico. The Company intends to
consolidate the operations acquired from SDM Net into Interweb de Mexico in
Mexico City. The aggregate purchase price was approximately $646,000, 50% of
which was paid or payable in cash and 50% to be paid by issuing shares of the
Company's common stock.
On August 20, 1999, the Company, through a wholly owned subsidiary,
purchased all of the capital stock of e-Net Teleinformatica Ltda ("e-Net"), an
ISP operating in Salvador, Brazil. The aggregate purchase price was
approximately $3.1 million, 20% of which is to be paid in cash and 80% to be
paid by issuing shares of the Company's common stock.
On August 23, 1999, the Company, through a wholly owned subsidiary,
purchased all of the capital stock of Vianet S.A. de C.V. ("Vianet"), an ISP
located in San Salvador, El Salvador. The aggregate purchase price was
approximately $1 million, to be paid by issuing shares of the Company's common
stock.
On August 24, 1999, the Company, through a wholly owned subsidiary,
purchased all of the capital stock of ITS Networks S.A. ("ITS Networks"), an ISP
located in Tegucigalpa, Honduras. The aggregate purchase price was approximately
$200,000, to be paid by issuing shares of the Company's common stock.
During August and September 1999, International Technology exercised its
right to purchase 1,500,000 share of the Company's common stock for $3.0
million, 750,000 shares have been issued, the Company is committed to release
the remaining 750,000 shares.
Credit Facility
On August 1999, the Company entered into an agreement with Lucent
Technologies Inc., providing the Company with the option to purchase up to $10
million of Lucent equipment. Under the agreement, Lucent will provide the
Company with up to $10 million in networking equipment to upgrade and expand the
Company's Internet operations, but the Company is under no obligation to
purchase equipment from Lucent.
-63-
<PAGE>
On July 1999, the Company entered into an $500,000 lease agreement with
SoftBank to provide the financing of the implementation of the Portal
software(R). Under the terms of the agreement, Portal will develop a
consolidated billing and accounts receivable system that will allow the Company
to provide invoicing services to it's customers across all Latin America.
On August 1999 the Company signed a five-year lease for new space in
Hallandale, Florida, to commence October 1, 1999. This lease provides for
aggregate payments totaling approximately $535,873 over the next 5 years.
NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Quarters ended
----------------------------------------------------------------
9/30/98 12/31/98 3/31/99 6/30/99 Total
------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue - - - $ 725,300 $ 725,300
========== ==========
Loss from continuing operations $(123,500) (135,700) (542,000) (914,200) (1,715,400)
Income from discontinued operations
946,700 784,800 1,036,000 350,100 3,117,600
Net income (loss) 823,200 649,100 494,000 (564,100) 1,402,200
Per share - basic and diluted:
Continuing operations $(0.02) $(0.02) $(0.08) $(0.13) $(0.26)
Discontinued operations $ 0.15 $ 0.12 $ 0.16 $ 0.05 0.48
Net income $ 0.13 $ 0.10 $ 0.07 $(0.08) 0.22
Weighted average numbers of shares 6,155,539 6,367,496 6,655,539 6,778,108 6,498,204
</TABLE>
<TABLE>
<CAPTION>
Quarters ended
----------------------------------------------------------------
9/30/97 12/31/97 3/31/98 6/30/98 Total
------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue - - - - -
Income (loss) from continuing
operations $ (87,300) $ (126,400) $ (32,100) $ 37,300 $ (208,500)
Income from discontinued
operations 974,900 899,800 796,800 903,700 3,575,200
Net income (loss) 887,600 773,400 764,700 941,000 3,366,700
Per share - basic and diluted:
Continuing operations $(0.01) $(0.02) $(0.01) $0.01 $(0.03)
Discontinued operations $ 0.16 $ 0.14 $ 0.13 $0.14 0.57
Net income $ 0.15 $ 0.12 $ 0.12 $0.15 0.54
Weighted average numbers of shares 6,279,130 6,279,130 6,278,584 6,215,579 6,246,545
</TABLE>
The Quarterly information presented above, except for net income and
basic net income per share, differs from amounts previously reported due to the
reclassification of certain revenues and operating expenses to discontinued
operations, reflecting the disposition of the Company's trading business.
-64-
<PAGE>
SCHEDULE II
IFX CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
(For Continuing Operations)
<TABLE>
<CAPTION>
Additions
---------------------
Charged to
(Benefits Charged
Balance at Against) to Other Balance
Beginning Costs and Accounts Deductions at End of
Description of Period Expenses (Describe) (Describe) Period
- ----------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
For the year ended June 30, 1999(a) $ -0- $ 80,100 -0- $ -0- $ 80,100
For the year ended June 30, 1998(a) $ -0- -0- -0- -0- $ -0-
For the year ended June 30, 1997(a) $ -0- -0- -0- -0- $ -0-
</TABLE>
- -------------------------------
(a) Activity for 1997 and 1998 reclassified to net assets of discontinued
operations.
-65-
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IFX CORPORATION
- -----------------------------------------------------------------------------
By: /S/JOSE LEIMAN
--------------------------------------------------------------------------
Jose Leiman, Chief Financial Officer
Date: September 28, 1999
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Jose Leiman his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution for him or her in his or her name,
place and stead, in any and all capacities, to sign this Form 10-K and all
amendments thereto and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
under the Securities Exchange Act of 1934.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Form 10-K has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/S/JOSE LEIMAN Chief Financial Officer September 28, 1999
- --------------------- (Principal Financial and
Jose Leiman Accounting Officer)
/S/MICHAEL SHALOM Chief Executive Officer September 28, 1999
- --------------------- (Principal Executive Officer)
Michael Shalom
/S/JOEL M. EIDELSTEIN President and Director September 28, 1999
- ---------------------
Joel M. Eidelstein
/S/GEORGE A. MYERS Director September 28, 1999
- ---------------------
George A. Myers
/S/COLLEEN M. DOWNES Vice President and Director September 28, 1999
- ---------------------
Colleen M. Downes
/S/ZALMAN LEKACH Vice President and Director September 28, 1999
- ---------------------
Zalman Lekach
/S/JOSEPH M. MATALON Director September 28, 1999
- ---------------------
Joseph M. Matalon
/S/BURTON J. MEYER Director September 28, 1999
- ---------------------
Burton J. Meyer
<PAGE>
Exhibit 3.1
As of 11/10/98
AMENDED BY-LAWS
OF
IFX CORPORATION
ARTICLE I
---------
OFFICES
-------
SECTION 1. REGISTERED OFFICE. The registered office shall be established
and maintained at 1013 Centre Road, City of Wilmington, in the County of New
Castle in the State of Delaware.
SECTION 2. OTHER OFFICES. The corporation may have other offices, either
within or without the State of Delaware, at such place or places as the Board of
Directors may from time to time appoint or the business of the corporation may
require.
ARTICLE II
----------
MEETING OF STOCKHOLDERS
-----------------------
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting. In the event the
Board of Directors fails to so determine the time, date and place of meeting,
the annual meeting of stockholders shall be held at the main business office of
the corporation in Delaware on the last Friday of October of each year.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
may transact such other corporate business as shall be stated in the notice of
the meeting.
SECTION 2. OTHER MEETINGS. Meetings of stockholders for any purpose other
than the election of directors may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting.
SECTION 3. VOTING. Each stockholder shall be entitled to vote in
accordance with the terms and provisions of the Certificate of Incorporation and
these By-Laws, in person or by proxy, but no proxy shall be voted after three
years from its date unless such proxy provides for a longer period. All
elections for directors shall be decided by plurality vote; an other questions
shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of the State of Delaware.
SECTION 4. PROXIES. A stockholder may execute a writing authorizing
another person or persons to act for him as proxy. Execution may be
accomplished by the stockholder or his authorized officer, director, employee or
agent signing such writing or causing his or her signature to be affixed to such
writing by any reasonable means including, but not limited to, by facsimile
signature.
<PAGE>
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally.
SECTION 5. FIXING OF RECORD DATE. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or to receive payment of any dividend, or other distribution
or allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of shares or for the purpose of any other lawful action,
the board of directors of the corporation may fix in advance a record date which
shall not be more than sixty days and not less than ten days, or in the case of
a merger or consolidation, not less than twenty days, before the date of such
meeting. If no record date is fixed, the record date for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of the business day on the day next preceding the day on which
notice is given and the record date for the determination of shareholders for
any other purpose shall be the date on which the board of directors adopts the
resolution relating thereto. A determination of shareholders of record entitled
to notice of or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting.
SECTION 6. QUORUM. In all matters, except as otherwise required by law,
by the Certificate of Incorporation or by these By-Laws, the presence, in person
or by proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until the requisite amount of stock entitled to vote shall be present.
At any such adjourned meeting at which the requisite amount of stock entitled to
vote shall be represented, any business may be transacted which might have been
transacted at the meeting as originally noticed; but only those stockholders
entitled to vote at the meeting as originally noticed shall be entitled to vote
at any adjournment or adjournments thereof
SECTION 7. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by Board of Directors.
SECTION 8. NOTICE OF MEETINGS. Written notice, stating the place, date
and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than sixty days before the date of the meeting, either personally or by
mail, by or at the direction of the president, or the secretary, or the officer
or persons calling the meeting, to each shareholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the shareholder at his address
as it appears on the records of the corporation, with the postage thereon
prepaid.
-2-
<PAGE>
Whenever any notice whatever is required to be given under the provisions
of any law, or under the provisions of the Certificate of Incorporation of the
corporation or these By-Laws, a waiver thereof in writing signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed proper notice.
SECTION 9. ACTION WITHOUT MEETING. Any action that is ordinarily taken at
any annual or special meeting of stockholders may be taken without a meeting,
without prior notice, and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted, and shall be delivered to the Corporation
by delivery to its registered office, its principal place of business or an
officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or regular
mail, return receipt requested.
ARTICLE III
-----------
DIRECTORS
---------
SECTION 1. NUMBER. The minimum number of directors which shall constitute
the entire Board of Directors shall be one. The number of directors to
constitute the Board of Directors shall be fixed from time to time by resolution
of the Board of Directors. The directors shall be elected at the annual or
special meeting of the stockholders (except as otherwise provided in Section 8
of this Article III), and each director elected shall hold office until his or
her successor is elected and qualified, or until his or her earlier death,
resignation or removal. Directors need not be stockholders.
SECTION 2. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such place or places, on such date or dates, and at such time
or times as shall have been established by the board of directors and publicized
among all directors. A notice of such regular meeting shall not be required.
SECTION 3. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the President or any two directors and shall be held at such
place, on such date and at such time as they or he shall fix Notice of the
place, date and time of each such special meeting shall be given each director
by whom it is not waived, by mailing written notice not less than two days
before the meeting or, by telegraphing the same not less than 18 hours before
the meeting, to each director at his business address. If mailed, such notice
shall be deemed to be delivered, when deposited in the United States mail so
addressed, with postage thereon prepaid. The attendance of a director at any
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the Board of Directors need be specified in any
written waiver of notice.
SECTION 4. QUORUM. At any meeting of the Board of Directors, one-half of
the numbers of directors then in office, but not less than two, shall constitute
a quorum for all
-3-
<PAGE>
purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date or time without further
notice or waiver thereof.
SECTION 5. PARTICIPATION AND MEETINGS BY CONFERENCE TELEPHONE. Members of
the Board of Directors, or of any committee thereof, may participate in a
meeting of such board or committee by means of conference telephone or similar
communications equipment that enables all persons participating in a meeting to
hear each other. Such participation shall constitute presence in person at such
meeting for all purposes.
SECTION 6. CONDUCT OF BUSINESS. The act of a majority of the directors
present at a meeting of which a quorum is present shall be the act of the Board
of Directors, except as otherwise provided herein or provided by law.
SECTION 7. RESIGNATIONS. Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, and if no time be specified, at
the time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 8. VACANCIES. If the office of any director, member of a
committee or other officer becomes vacant, the remaining directors in office
though less than a quorum by a majority vote, may appoint any qualified person
to fill such vacancy, who shall hold office for the unexpired term and until his
successor shall be duly chosen.
SECTION 9. REMOVAL. Any director or directors may be removed either for
or without cause at any time by the affirmative vote of the holders of a
majority of all the shares of stock outstanding and entitled to vote, at a
special meeting of the stockholders called for this purpose, or by written
consent as provided by law. Any director or directors may be removed for cause
by the majority vote of the other directors.
SECTION 10. INCREASE OF NUMBER. The number of directors may be increased
or decreased by amendment of these By-Laws by the affirmative vote of a majority
of the directors, though less than a quorum, or, by the affirmative vote of a
majority in interest of the stockholders, at the annual meeting or at a special
meeting called for that purpose, and by like vote the additional directors may
be chosen at such meeting to hold office until the next annual election and
until their successors are elected and qualified.
SECTION 11. COMPENSATION. Directors shall not receive any stated salary
for their services as directors or as member of committees, but by resolution of
the Board of Directors, fixed fees and expenses of attendance may be allowed for
attendance at each meeting. By resolution of the Board of Directors, directors
may also be granted coverage under the Corporation's health insurance, life
insurance or other benefit plans. Nothing herein contained shall be construed
to preclude any director from serving the corporation in any other capacity as
an officer, agent or otherwise, and receiving compensation therefor.
SECTION 12. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting, if prior to such action a written consent
thereto is signed by all members of
-4-
<PAGE>
the board, or of such committee as the case may be, and such written consent is
filed with the minutes of proceedings of the board or committee.
SECTION 13. PRESUMPTION OF ASSENT. A director of the corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
a director who voted in favor of such action.
SECTION 14. RELIANCE ON CORPORATE RECORDS. A member of the board of
directors, or a member of any committee designated by the board of directors,
shall, in the performance of his duties, be fully protected in relying in good
faith upon the records of the corporation and upon such information, opinions,
reports or statements presented to the corporation by any of the corporation's
officers or employees, or committees of the board of directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the corporation.
ARTICLE IV
----------
OFFICERS
--------
SECTION 1. OFFICERS. The officers of the corporation shall consist of the
President, Secretary and such other officers as determined by the Board of
Directors. None of the officers of the corporation need be directors. The
officers shall be elected at the first meeting of the Board of Directors after
each annual meeting. More than one office may be held by the same person.
SECTION 2. SALARIES. The salaries of the officers shall be fixed from
time to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE V
---------
STOCK
-----
SECTION 1. CERTIFICATES OF STOCK. Every holder of stock in the
corporation shall be entitled to have a certificate, signed by, or in the name
of the corporation by, the chairman or vice-chairman of the board of directors,
or the president or a vice-president and the treasurer or an assistant
treasurer, or the secretary of the corporation, certifying the number of shares
owned by him in the corporation. The designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations, or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the corporation shall issue to represent such class or
series of stock provided that, except as otherwise provided in Section 202 of
the General Corporation Law of Delaware, in lieu of the foregoing requirements,
there may be
-5-
<PAGE>
set forth on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Where a
certificate is countersigned (1) by a transfer agent other than the corporation
or its employee, or (2) by a registrar other than the corporation or its
employee, the signatures of such officers may be facsimiles.
SECTION 2. LOST CERTIFICATES. New certificates of stock may be issued in
the place of any certificate issued by the corporation, alleged to have been
lost or destroyed, and the directors may, in their discretion, require the owner
of the lost or destroyed certificate or his legal representatives, to give the
corporation a bond, in such sum as they may direct, not exceeding double the
value of the stock, to indemnify the corporation against it on account of the
alleged loss of any such new certificate.
SECTION 3. TRANSFER OF SHARES. The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives, and upon such transfer
the old certificates shall be surrendered to the corporation by the delivery
thereof to the person in charge of the stock and transfer books and ledgers, or
to such other persons as the directors may designate, by who they shall be
canceled, and new certificates shall thereupon be issued. A record shall be
made of each transfer and whenever a transfer shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer.
SECTION 4. RETIREMENT OF STOCK. The corporation, by resolution of its
board of directors, may retire any shares of its capital stock that are issued
but are not outstanding.
Whenever any shares of the capital stock of this corporation are retired,
they shall resume the status of authorized and unissued shares of the class or
series to which they belong unless the certificate of incorporation otherwise
provides.
SECTION 5. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare and pay dividends upon the
shares of its capital stock.
ARTICLE VI
----------
FISCAL YEAR
-----------
SECTION 1. FISCAL YEAR. The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
ARTICLE VII
-----------
NOTICES
-------
SECTION 1. NOTICES. Whenever notice is required to be given to any
stockholder, director, officer or agent, such requirement shall not be construed
to mean personal notice. Such notice may in any instance be effectively given
by depositing a writing in a post office or letter box in a pre-paid, sealed
wrapper, or by dispatching a pre-paid telegram, addressed to such
-6-
<PAGE>
stockholder, director, officer or agent at his or her address as the same
appears on the books of the corporation. The time when such notice is dispatched
shall be the time of the giving of the notice.
SECTION 2. WAIVERS. A written waiver of any notice, signed by a
stockholder, director, officer or agent, whether before or after the time of the
event for which notice is to be given, shall be deemed equivalent to the notice
required to be given to such stockholder, director, officer or agent. Neither
the business nor the purpose of any meeting need to be specified in such a
waiver.
ARTICLE VIII
------------
AMENDMENTS
----------
SECTION 1. These By-Laws may be amended and/or repealed and new or
additional By-Laws may be made at any annual meeting of the stockholders or at
any special meeting thereof if notice thereof is contained in the notice of such
special meeting by the affirmative vote of a majority of the stock issued and
outstanding or entitled to vote thereat, or by the regular meeting of the Board
of Directors, or at any special meeting of the Board of Directors, if notice
thereof is contained in the notice of such special meeting.
SECTION 2. A resolution authorizing a proposed amendment to the
certificate of incorporation may provide that at any time prior to the filing of
the amendment with the Secretary of State, notwithstanding authorization of the
proposed amendment by the stockholders of the corporation or by the members of a
nonstock corporation, the board of directors or governing body may abandon such
proposed amendment without further action by the stockholders or members.
ARTICLE IX
----------
INDEMNIFICATION OF OFFICERS
DIRECTORS, EMPLOYEES AND AGENTS
-------------------------------
SECTION 1. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director or officer of the corporation or
is or was serving at the request of the corporation as a director or officer of
another corporation, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
-7-
<PAGE>
SECTION 2. The corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation, unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
SECTION 3. No director of the corporation shall be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability for (a) any breach of the director's
duty of loyalty to the corporation or its stockholders; (b) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (c) acts under Section 174 of the Delaware General Corporation Law; or
(d) any transaction from which the director derived an improper personal
benefit.
SECTION 4. Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding as authorized by the board of directors in
the specific case upon receipt of an undertaking by or on behalf of the director
or officer, to repay such amount unless it shall ultimately be determined that
he is not entitled to be indemnified by the corporation as authorized in this
Article Ninth. Such expenses (including attorneys' fees) incurred by other
employees or agents may be so paid upon such terms and conditions, if any, as
the board of directors deems appropriate.
SECTION 5. Any indemnification under Section (1) and (2) above (unless
ordered by a Court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director or
officer is proper in the circumstances because he has met the applicable
standard of conduct set forth in Sections (1) and (2). Such determination shall
be made (a) by the board of directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding, or (b) if
such a quorum is not obtainable, or, even if obtainable and a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (c) by the stockholders.
SECTION 6. The indemnification provided by this Article IX shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-laws, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director or officer and shall inure to the benefit of the
heirs, executors and administrators of such a person.
-8-
<PAGE>
SECTION 7. The corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
corporation or is or was serving at the request of the corporation as a director
or officer of another corporation, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article IX.
SECTION 8. For the purposes of this Article IX, reference to "the
corporation" shall include all constituent corporations absorbed in a
consolidation or merger as well as the resulting or surviving corporation so
that any person who is or was a director or officer of such a constituent
corporation or is or was serving at the request of such constituent corporation
or other enterprise shall stand in the same position under the provisions of
this section with respect to the resulting or surviving corporation in the same
capacity.
<PAGE>
EXHIBIT 3.2
RESTATED
CERTIFICATE OF INCORPORATION
OF
IFX CORPORATION
It is hereby certified that:
1. (a) The present name of the corporation (hereinafter called the
"Corporation") is IFX Corporation.
(b) The name under which the Corporation was originally incorporated
is 312 Merger Corporation, and the date of filing the original Certificate of
Incorporation of the Corporation with the Secretary of State of the State of
Delaware is April 5, 1994.
2. The provisions of the Certificate of Incorporation of the Corporation
as heretofore amended and/or supplemented, are hereby restated and integrated
into the single instrument which is hereinafter set forth, and which is entitled
Restated Certificate of Incorporation of IFX Corporation, without further
amendment and without any discrepancy between the provisions of the Certificate
of Incorporation as heretofore amended and supplemented and the provisions of
the said single instrument hereinafter set forth.
3. The Board of Directors of the Corporation has duly adopted this
Restated Certificate of Incorporation pursuant to the provisions of Section 245
of the General Corporation Law of the State of Delaware in the form set forth as
follows:
"Restated Certificate of Incorporation
of
IFX Corporation"
FIRST: The name of the Corporation is IFX Corporation.
SECOND: The Registered Office of the Corporation is located at 1013
Centre Road, Wilmington, New Castle County, Delaware, 19805-1297. The name of
its Registered Agent at that address is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
<PAGE>
FOURTH: (1) The authorized capital stock of the Corporation is
<TABLE>
<CAPTION>
Class Par Value Number of Shares Authorized
- ----- --------- ---------------------------
<S> <C> <C>
Common $0.02 150,000,000
</TABLE>
(2) The preferences, qualifications, limitations, restrictions
and the special or relative rights in respect of the shares shall be designated
by the Board of Directors by resolution.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
Subsection 291 of Title 8 of the Delaware Code or on the application of trustees
in dissolution or of any receiver or receivers appointed for this Corporation
under Subsection 279 of Title 8 of the Delaware Code order a meeting of the
creditors or a class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such a
manner as the said court directs. If a majority in number representing three
fourths in value of the creditors or class of creditors, and or stockholders or
class of stockholders of this Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of this Corporation as
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all creditors or class
of creditors, and/or on all the stockholders or class of stockholders of this
Corporation, as the case may be, and also on this Corporation.
SEVENTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation, and
regulation of the powers of the Corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
(1) The management of the business and the conduct of the
affairs of the Corporation shall be vested in its Board of Directors. The number
of directors which shall constitute the whole Board of Directors shall be fixed
by, or in the manner provided in, the Bylaws. The phrase "whole Board" and the
phrase "total number of directors" shall be deemed to have the same meaning to
wit, the total number of directors which the Corporation would have if there
were no vacancies. No election of directors need be by written ballot.
(2) In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware, the board of directors is expressly
authorized and empowered to
-2-
<PAGE>
make, alter, amend and repeal by-laws, subject to the power of the stockholders
to alter or repeal by-laws made by the board of directors.
EIGHTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of Subsection
(b) of Subsection 102 of the General Corporation Law of the State of Delaware,
as the same may be amended and supplemented.
NINTH: The Corporation shall, to the fullest extent permitted by
Subsection 145 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented, have the power to indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities, or other matters referred to
in or covered by said section, and the power provided for herein shall not be
deemed exclusive of any other right to which those indemnified may be entitled
under any Bylaw, agreement, vote of stockholders, or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
TENTH: The Corporation hereby expressly elects not to be governed by
Section 203 of the General Corporation Law of the State of Delaware, in its
entirety, as the same may be amended and supplemented.
ELEVENTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of this Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on the 27th day of September, 1999.
By: /s/ Scott J. Bakal
---------------------------------------
Its: Assistant Secretary
---------------------------------------
-3-
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of May
24, 1999, by and between IFX CORPORATION, a Delaware corporation ("IFX" and,
collectively with its subsidiaries, "Employer"), and ZALMAN LEKACH ("Employee").
W I T N E S S E T H:
-------------------
WHEREAS, Employer desires to employ Employee on the terms and subject
to the conditions set forth herein; and
WHEREAS, Employee has had an opportunity to review the terms and
conditions of this Agreement, to negotiate the terms hereof and to engage legal
counsel on his behalf if he so desires.
NOW THEREFORE, in consideration of Employer's employment of Employee,
the terms, conditions and covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Employee and Employer, intending to be legally bound, hereby agree as follows:
1. Employment. Employer hereby agrees to employ Employee and
----------
Employee agrees to accept such employment upon the terms and conditions herein
set forth.
2. Employment Period.
-----------------
(a) The initial term of employment hereunder shall commence on the
date hereof and shall expire on May 23, 2001, and shall automatically be
extended for an additional two (2) year period, unless either party to this
Agreement gives the other party written notice of such party's intention to
terminate this Agreement and the employment of Employee at least sixty (60) days
prior to May 23, 2001 (such period, including any extensions thereof, the
"Term"). In the event that Employee continues to be employed by Employer at any
time
<PAGE>
following the initial or any extended term hereof, such employment shall be
governed by this Agreement, except that it will be "at-will," without a fixed
term, and may be terminated by Employer or Employee at any time, with or without
notice, for any reason or no reason (and no reason need be given), and without
obligation of severance or additional compensation beyond that owed for periods
that Employee was actually employed by Employer.
3. Position and Duties.
-------------------
(a) Position. Employee hereby agrees to serve as Vice President
--------
of Mergers and Acquisitions of IFX, the Vice President-Acquisitions of Emerging
Networks, Inc., an indirect wholly-owned subsidiary of IFX, and the Vice
President-Business Development of IFX/Communications Ventures, Inc., an indirect
wholly-owned subsidiary of IFX. Employee shall devote his best efforts and full
business time and attention to the performance of services to Employer in
accordance with the terms hereof and as may reasonably be requested by the Board
of Directors of Employer (the "Board") or a person or persons designated by the
Board. Employer shall retain full direction and control of the means and methods
by which Employee performs the above services.
(b) Other Activities. During the Employment Period, Employee shall
----------------
not engage in any other business or professional activities, either on a full-
time or part-time basis, as an employee, consultant or in any other capacity,
whether or not he receives any compensation therefor, without the prior written
consent of the Board; provided, however, that nothing herein shall prevent
Employee from making and managing personal investments consistent with Sections
10 and 11 of this Agreement, engaging in community and/or charitable activities
or sitting on the board of any of the Parlux Fragrances, Perfumania, or
Telcom.Net, L.P., so long as such activities, either singly or in the aggregate,
do not interfere with the proper performance of his duties and responsibilities
to Employer.
<PAGE>
4. Compensation.
------------
(a) Base Salary. Employer shall pay to Employee salary at the
-----------
rate of US$140,000 per year for the period from June 1, 1999 through May 23,
2000 ("Year 1"), and salary at the rate of $150,000 per year for period from May
24, 2000 through May 23, 2001 ("Year 2") (in each case, the "Base Salary").
Payments of Base Salary shall be made in accordance with Employer's generally
applicable compensation policies and shall be net of applicable tax
withholdings. In the event that the Term of this Agreement is extended pursuant
to Section 2 hereof, Base Salary shall be $200,000 for the period from May 24,
2001 through May 23, 2002, and $208,000 for the period from May 24, 2002 through
May 23, 2003.
(b) Bonus Compensation. In addition to Base Salary, Employee
------------------
shall be entitled to receive bonus compensation based on: (i) Employer's
purchase or start-up of Internet service providers; and (ii) customer growth, in
each case pursuant to the terms and conditions set forth on Exhibit A attached
---------
hereto (the "Bonus Compensation").
(c) Holidays and Vacation Time. Employee shall be entitled to
--------------------------
such paid holidays as are consistent with Employer's policy for executive
employees with respect to such matters as of the date hereof. Employee is
entitled to three (3) weeks of paid vacation per year, but shall not be
compensated for, or entitled to carry-over, any unused vacation time.
(d) Other Benefits. Subject to Employer's rules, policies and
--------------
regulations as in effect from time to time (and subject to applicable
eligibility requirements, including a minimum employment period), Employee shall
be entitled to (i) group life insurance, disability or accident, death or
dismemberment insurance, (ii) medical and/or dental insurance program (90-day
minimum employment period, for which Employer will reimburse the COBRA expenses
of Employee), (iii) 401(k) benefit plan when the Company has the plan
established, or (iv) other employee benefits that Employer may, in its sole
discretion, make generally available to employees of Employer of the same level
and responsibility as Employee. In addition to the
3
<PAGE>
foregoing, Employer agrees that it shall pay for fifty percent (50%) of any
premiums for Employee's health insurance policy (PPO or equivalent) and Employee
agrees that he shall pay fifty percent (50%) of any premiums for such policy.
(e) Life and Other Insurance. Subject to Employee meeting
------------------------
applicable underwriting criteria, Employer will provide term life and such other
types of insurance for Employee as shall be agreed upon between Employee and
Employer from time to time.
5. Participation in Stock Plan.
---------------------------
(a) Stock Plan Benefits. Subject to Employer's rules, policies
-------------------
and regulations as in effect from time to time (and subject to applicable
eligibility requirements, including minimum employment period), Employee will be
eligible to receive certain benefits under the IFX Corporation 1998 Stock Option
and Incentive Plan or any other stock option plan adopted by IFX (the "Stock
Plan"). Benefits under the Stock Plan will be granted in the sole and absolute
discretion of the committee administering the Stock Plan and shall be subject to
the terms of the Stock Plan, as the same may from time-to-time be amended and/or
modified.
(b) Restrictions on Stock Plan Benefits. No options or other
-----------------------------------
benefits shall be granted to Employee under the Stock Plan unless, in Employer's
judgment based on the advice of its legal counsel, such issuance complies with
applicable state and federal securities laws, and other laws and regulations
related thereto. All such Stock Plan benefits shall be subject to Employee
signing such option agreements or other instruments that Employer deems to be
necessary or appropriate and to such other restrictions as are required by the
Stock Plan and/or applicable law.
(c) Employer's Sole Discretion Regarding Stock, Etc. Subject to
-----------------------------------------------
the provisions of this Agreement, Employee acknowledges and agrees that Employer
has the right, in its sole discretion, to make all decisions regarding its
stock, stock rights, Stock Plan benefits,
4
<PAGE>
profits, debt and equity configuration, including but not limited to what types,
when and to whom to issue stock, stock rights, Stock Plan benefits, profits,
debt and equity interests.
(d) Sign-on Bonus. Upon the execution of this Agreement, Employer
-------------
shall grant to Employee, as a sign-on bonus, an aggregate of 3,371 shares of
Restricted Stock, as defined in and subject to the terms of the Stock Plan.
Upon issuance to Employee, such 3,371 shares of Restricted Stock shall be deemed
fully vested and shall not be subject to forfeiture.
6. Termination of Employment.
-------------------------
(a) Permanent Disability. In the event of the Permanent
--------------------
Disability (as defined below) of Employee, the Company, in its sole discretion,
may elect either (i) to the extent feasible consistent with Employee's mental
and physical condition and consistent with applicable law, to reassign Employee
to other duties within the Company that Employee is able to perform despite his
Permanent Disability at the compensation and benefit levels commensurate with
Employee's reassigned duties, or (ii) to terminate this Agreement and Employee's
employment hereunder. In the event that the Company elects to terminate Employee
as provided in clause (ii) above, the Company shall, subject to following
sentence, pay to Employee (A) within sixty (60) days after the date of such
termination, all amounts of Base Salary and Bonus Compensation accrued pursuant
to Section 4 above prior to the date of such termination, and (B) compensation
on the basis of 60% of the then current Base Salary for the first ninety (90)
days of such Permanent Disability and, thereafter, compensation on the basis of
60% of the then current Base Salary through the end of the Permanent Disability
period. This benefit may be provided by the Company to Employee through the
purchase of a disability insurance policy that is contingent upon the
insurability of Employee; provided, however, that the maximum premium that the
Company shall be required to pay towards this benefit will not exceed US$100,000
per year. Notwithstanding the foregoing, all payments hereunder shall end upon
the earlier to occur of Executive's attaining the age of sixty-five (65) and the
cessation of such Permanent Disability (whether as a result of recovery,
rehabilitation, death or otherwise), and, thereafter, the Company shall have no
further obligations to Employee under this Agreement. Additionally, if prior to
the termination of the Company's obligation to make payments to Employee
pursuant
5
<PAGE>
to this Section 6(a) Employee receives compensation for services rendered,
whether as an employee or otherwise, such compensation shall reduce the payments
due under this Section 6(a), dollar for dollar. Employee shall promptly inform
the Company of all such compensation received by him on a monthly basis during
such period.
(b) Death. In the event of Employee's death, the Company shall pay to
-----
Employee's personal representative (on behalf of Employee's estate), within
sixty (60) days after the Company receives written notice of such
representative's appointment, all amounts of Base Salary and Bonus Compensation
accrued pursuant to Section 4 above as of the date of Employee's death which
payment shall constitute full and complete satisfaction of the Company's
obligations hereunder. Employee's dependents shall also be entitled to any
continuation of health insurance coverage rights, if any, under applicable law.
(c) Termination for Cause or Voluntary Termination Without Good
-----------------------------------------------------------
Reason. The Company may in its sole discretion terminate this Agreement and
- ------
Employee's employment with the Company for Cause (as defined in Section 7(a)
below) at any time and with or without advance notice to Employee. If
Employee's employment is terminated for Cause, or if Employee Voluntarily
Terminates (as defined in Section 7(b) below) his employment with the Company
without Good Reason (as defined in Section 7(c) below), the Company shall
promptly pay to Employee all amounts of Base Salary accrued pursuant to Section
4 above through the date of termination (but not Bonus Compensation), whereupon
the Company shall have no further obligations to Employee under this Agreement.
Employee and his dependents shall also be entitled to any continuation health
insurance coverage rights, if any, under applicable law. Without waiving any
rights the Company or any of its affiliates may have hereunder or otherwise, the
Company hereby expressly reserves its right to proceed against Employee for
damages in connection with any claim or cause of action that the Company may
have arising out of or related to Employee's employment hereunder. In the event
the Company terminates Employee's employment for Cause or Employee voluntarily
terminates his employment without Good Reason, all unexercised options and other
awards granted to Employee under the Stock Plan, as Bonus Compensation or
otherwise shall be cancelled and forfeited by Employee.
6
<PAGE>
(d) Termination Without Cause; Voluntary Termination With Good Reason.
-----------------------------------------------------------------
Subject to the penultimate sentence of this paragraph, the Company may terminate
this Agreement and Employee's employment with the Company without Cause at any
time, with or without notice, for any reason or no reason (and no reason need be
given). Employee may terminate this Agreement and Voluntarily Terminate his
employment with the Company with Good Reason upon thirty (30) days' prior
written notice to the Company, provided that the Company does not correct the
circumstances giving Employee Good Reason during such thirty (30) day period.
In the event Employee's employment with the Company is terminated pursuant to
this Section 6(d), (i) the Company shall pay to Employee all amounts of Base
Salary for the entire length of the Term (including any renewal period) and if
such termination occurs within the initial term of this Agreement, the Bonus
Compensation payable to Employee pursuant to Section 4(b) shall be calculated
based on the assumption that Employer made 10 Initial ISP Purchases in Year 1
and 10 ISP Purchases in Year 2, (ii) Employee shall be relieved of his
obligations under Sections 1 and 3 hereof, and (iii) Employee shall be free to
seek other employment subject to the terms of Sections 8, 9, 10 and 11 hereof.
Employee and his dependents shall also be entitled to any continuation health
insurance coverage rights, if any, under applicable law.
(e) Termination Obligations.
-----------------------
(i) Employee hereby acknowledges and agrees that all personal property and
equipment furnished to or prepared by Employee in the course of or incident to
his employment by the Company, belongs to the Company and shall be promptly
returned to the Company upon termination of the Employee's employment. The term
"personal property" includes, without limitation, all books, manuals, records,
reports, notes, contracts, requests for proposals, bids, lists, blueprints, and
other documents, or materials, or copies thereof (including computer files), and
all other proprietary information relating to the business of the Company or any
of its affiliates. Following termination, Employee will not retain any written
or other tangible material containing any proprietary information of the Company
or any of its affiliates.
7
<PAGE>
(ii) Upon termination of the Employment Period, Employee shall be
deemed to have resigned from all offices and directorships then held with the
Company and each of its affiliates.
(iii) The representations and warranties contained herein and
Employee's obligations under Sections 6(e), 8, 9, 10, 11 and 17 shall survive
termination of the Employment Period and the expiration of this Agreement.
(iv) If the average of the closing bid and ask price of the common
stock of Employer (or any successor to Employer) equals or exceeds 100% of the
exercise price of any options granted pursuant to Section 4(b) hereof for 5
consecutive trading days after the termination of Employee's employment, any
options held by Employee must be exercised within 90 days after the end of such
5 day period. Any options which are not exercised at the end of such 90 day
period will be forfeited by Employee.
(f) Change of Control. In the event of a Change of Control (as
-----------------
defined below), the remaining Base Salary payable under the Term of this
Agreement shall be doubled and shall be payable in one lump-sum within 30 days
after the effective date of the Change of Control. Also, in the event of a
Change of Control, the Bonus compensation will be computed and paid out in the
same manner as if Employee were terminated without Cause. Further, in the year
of a Change of Control, the number of options granted under Exhibit A shall be
the greater of: a) the number of options which Employee is entitled to be
granted for such year under Exhibit A and b) 150,000. In addition, if so
requested by Employee in writing within 15 days prior to the effective date of
the Change of Control, Employer will repurchase Employee's options within a
period beginning five (5) business days before and ending five (5) business days
after the effective date of the Change of Control based on the average of the
closing bid and ask prices of IFX's common stock for the twenty trading days
ending with the day that Employee provides the above notice.
8
<PAGE>
7. Definitions. For the purposes of this Agreement the following
-----------
terms and phrases shall have the following meanings:
(a) "Cause" The Company shall have "Cause" to terminate the
-----
Employee's employment under this Agreement upon (a) the willful and
continued failure by the Employee to substantially perform his duties
under this Agreement (other than any failure resulting from the
Employee's incapacity due to physical or mental illness) for thirty
(30) days after written demand for substantial performance is
delivered by the Company specifically identifying the manner in which
the Company believes the Employee has not substantially performed his
duties or (B) the willful engaging by the Employee in misconduct
(including embezzlement and criminal fraud) which is materially
injurious to the Company, or (C) the willful violation by the Employee
of Sections 8, 9, 10 or 11 of this Agreement, provided that the
violation results in material injury to the Company, or (D) the
conviction of the Employee of a felony. for purposes of this
paragraph, no act, or failure to act, by the Employee shall be
considered "willful" unless done or permitted to be done, by him not
in good faith and without reasonable belief that his action or
omission was in the interest of the Company. The Employee shall not be
deemed to have been terminated for Cause unless and until there shall
have been delivered to the Employee a copy of a resolution, duly
adopted by the affirmative vote of a majority of the Board of the
Company at a meeting of the Board called and held for such purposes
(after a reasonable notice to the Employee and an opportunity for him,
together with his counsel, to be heard before the Board), finding that
in the good faith opinion of the Board the Employee was guilty of
conduct set forth above in clause (a), (B), (C), or (D) and specifying
the particulars of the conduct in detail.
(b) "Change in Control" means (i) a merger or consolidation of the
-----------------
Company with or into any other entity unless after such event at least
a majority of the voting power of the surviving or resulting entity is
beneficially owned by persons who beneficially own a majority of the
voting power of the Company immediately prior to such event, (ii) the
sale of all or substantially all the assets of the Company, (iii) the
9
<PAGE>
dissolution of the Company, or (iv) a change in the identity of a
majority of the members of the Company's Board of Directors within any
twelve-month period, which change or changes are not recommended by
the incumbent directors determined immediately prior to any such
change or changes; provided, however, that no "Change of a Control"
will arise as a result of the issuance of shares of the stock of the
Company in connection with the exercise of an option granted to
International Technology Investments, LC on November 23, 1998.
(c) "Good Reason" shall mean, with respect to a Voluntary
-----------
Termination, if (i) such Voluntary Termination promptly follows a
permanent material reduction of Employee's duties and responsibilities
or a permanent change in Employee's duties and responsibilities such
that Employee's duties and responsibilities are materially
inconsistent with the type of duties and responsibilities of Employee
in effect immediately prior to such reduction or change, (ii) such
Voluntary Termination promptly follows a material reduction in
Employee's benefits if such reduction results in Employee's receiving
benefits which are, in the aggregate, less than the benefits received
by other comparable employees of the Company generally, (iii) the
Company is in material breach of its payment obligations under this
Agreement, which breach has not been cured within fifteen (15) days
following the Company's receipt of written notice thereof, or (iv) the
Board of Directors of the Company otherwise determines that a
Voluntary Termination by Employee is for "Good Reason" under the
circumstances then prevailing.
(d) "Voluntary Termination" (including "Voluntarily Terminates")
--------------------- ----------------------
shall mean the termination by Employee of his employment by the
Company by voluntary resignation or any other means other than death,
retirement or Permanent Disability and other than simultaneous with or
following termination for Cause or an event which, whether or not
known to the Company at the time of such Voluntary Termination by such
Executive, would constitute Cause.
10
<PAGE>
8. Records and Confidential Data.
-----------------------------
(a) Employee acknowledges that, in connection with the performance
of his duties during the term of this Agreement, the Company and its affiliates
will make available to Employee, and/or Employee will have access to, certain
Confidential Information (as defined below) of the Company and its affiliates.
Employee acknowledges and agrees that any and all Confidential Information
learned or obtained by Employee during the course of his employment by the
Company or otherwise (including, without limitation, information that Employee
obtained through or in connection with his ownership of equity interests in, or
services as a director of, the Company), whether developed by Employee alone or
in conjunction with others or otherwise, shall be and is the property of the
Company and its affiliates.
(b) The Confidential Information shall be kept confidential by
Employee, shall not be used in any manner which is detrimental to the Company or
any of its affiliates, shall not be used other than in connection with
Employee's discharge of his duties hereunder, and shall be safeguarded by
Employee from unauthorized disclosure.
(c) Following the first to occur of the termination of this
Agreement or Employee's termination hereunder, as soon as possible after the
Company's written request, Employee shall return to the Company all written
Confidential Information which has been provided to Employee and Employee shall
destroy all copies of any analyses, compilations, studies or other documents
prepared by Employee or for Employee's use containing or reflecting any
Confidential Information. Within five (5) business days of the receipt of such
request by Employee, Employee shall, upon written request of the Company,
deliver to the Company a notarized document certifying that such written
Confidential Information has been returned or destroyed in accordance with this
Section 8(c).
(d) For the purposes of this Agreement, "Confidential Information"
shall mean all confidential and proprietary information of the Company and/or
its affiliates, including, without limitation, information derived from reports,
investigations, experiments, research, trade
11
<PAGE>
secrets, work in progress, drawing, designs, plans, proposals, requests for
proposals, bids, codes, marketing and sales programs, client lists, client
mailing lists, medical, psychological, academic and other records and reports,
supplier lists, financial projections, cost summaries, payor information,
pricing formulae, marketing studies relating to prospective business
opportunities and all other concepts, ideas, materials, or information prepared
for performed for or by the Company and/or any of its affiliates. For purposes
of this Agreement, the Confidential Information shall not include and Employee's
obligations under this Section 8 shall not extend to (i) information which is
generally available to the public without undue expense or effort, (ii)
information obtained by Employee from third persons not under agreement to
maintain the confidentiality of the same and (iii) information which is required
to be disclosed by law or legal process (after giving the Company prior written
notice thereof and an opportunity to contest such disclosure). Without in any
way limiting the foregoing, "Confidential Information" also includes all
information relating to any options or other awards granted to Employee,
pursuant to the Stock Plan or otherwise, including the amount of any such award,
the exercise price and the rate of vesting thereof.
(e) Employee hereby acknowledges that each subsidiary and
affiliate of Employer is expressly made a third party beneficiary hereto for
purposes of protecting its rights and interests hereunder.
9. Inventions and Other Matters.
----------------------------
(a) Employee agrees that all ideas, inventions, discoveries or
improvements made during the period of Employee's employment with Employer,
including, without limitation, new machines, devices, computer software
(including source code, operating systems and specifications, data, data bases,
files documentation and other materials related thereto), programs, processes,
uses, apparatuses, specialized information relating in any way to or that is
useful in the business or products of Employer or Employer's actual or
demonstrably anticipated research or development, designs or compositions of any
kind that Employee, individually or with others, may originate or develop while
employed by Employer (collectively,
12
<PAGE>
"Inventions"), shall belong to and be the sole property of Employer and shall
constitute works specially ordered or commissioned as "works made for hire"
under the United States Copyright Act and other applicable law. Without limiting
the foregoing, Employee hereby assigns and transfers to Employer all rights of
whatever nature that Employee may have, including, without limitation, any
patent, trade secret, trademark or service mark rights (and any goodwill
appurtenant thereto), any rights of publicity and any right, title and interest
in any copyright and any right that may affix under any copyright law now or
hereinafter in force and effect in the United States of America or in any other
country or countries, in and to any Invention. Employee acknowledges and agrees
that Employer shall have the royalty-free right to use in its businesses, and to
make and sell products, processes, programs, systems designs, methods, formulas,
apparatus, techniques, and services derived from any Inventions (whether or not
patentable or copyrightable), as well as all improvements thereof or know-how
related thereto.
(b) For purposes of this Agreement, an Invention shall be deemed
to have been "made during the period of Employee's employment" if, during such
period, the Invention was conceived, in part or in whole, or first actually
reduced to practice. Employee agrees that any patent, copyright or trade mark
application filed by or for the benefit of Employee or any of his affiliates
within a year after termination of Employee's employment shall be presumed to
relate to an Invention made during the term of his employment and Employee shall
have the burden of proof to prove otherwise.
(c) This Section 9 shall not apply to an Invention for which no
equipment, supplies, facilities or Confidential Information (as defined below)
of Employer was used and that was developed entirely on Employee's own time,
unless (i) the invention relates in any way to or is useful in the business or
products of Employer, or Employer's actual or demonstrably anticipated research
or development, or (ii) results from any work performed by Employee for or on
behalf of Employer.
(d) Employee agrees, without further consideration, to (i)
promptly disclose each such Invention to Employer, to Employee's immediate
supervisor and to such other
13
<PAGE>
individuals as Employer may direct, (ii) execute and to join others in executing
such applications, assignments and other documents as may be necessary or
convenient to vest in Employer, or its designee, full title to each such
Invention and as may be necessary or convenient to obtain United States and
foreign patents and copyrights thereon, to the extent Employer may so choose in
its sole discretion, (iii) testify in any legal proceeding relative to such
Invention whenever requested to do so by Employer, and (iv) furnish all facts
relating to such Inventions or the history thereof.
(e) Employee agrees that he will not at any time, except as
authorized or directed by Employer, publish or disclose any information or
knowledge concerning any Inventions.
10. Non-Competition.
---------------
(a) Employer and Employee recognize that Employee has been
retained to occupy a position that constitutes part of the professional,
management and executive staff of Employer, whose duties will include the
formulation and execution of management policy. Employee, for and in
consideration of the payments, rights and benefits provided herein, agrees that
so long as he is employed by Employer and, if Employer terminates his employment
for Cause or if Employee voluntarily terminates his employment with Employer,
for a period of one (1) year thereafter, Employee shall not (i) work, (ii)
assist, (iii) own any interest, directly or indirectly and whether individually
or as a joint venturer, partner, member, officer, director, shareholder,
consultant, employee or otherwise, in or (iv) make a financial investment,
whether in the form of equity or debt, in any business that is directly or
substantially competitive with the Business in the United States, Latin America
or in any other market in which Employer is conducting the Business at the time
Employee's employment with Employer is terminated, with respect to Employer's
clients or customers.
(b) Notwithstanding the foregoing, nothing herein shall prohibit
Employee from holding five percent (5%) or less of any class of voting
securities of any entity whose
14
<PAGE>
equity securities are listed on a national securities exchange or regularly
traded in the over-the-counter market and for which quotations are readily
available on the National Association of Securities Dealers Automated Quotation
system.
(c) Upon the termination of Employee's employment with Employer,
and for one (1) year thereafter, Employee shall immediately notify Employer of
each employment or agency relationship entered into by Employee, and each
corporation, proprietorship or other entity formed or used by Employee, the
business of which is directly or indirectly, similar to or in competition with
the Business. The provisions of this Section 10 shall survive termination of
this Agreement for any reason.
(d) Employee agrees that the restrictions contained in this
Section 10 are reasonable as to time and geographic scope because of the nature
of the Business and Employee agrees, in particular, that the geographic scope of
this restriction is reasonable because companies in the same industry as the
Business, compete on a nationwide basis. Employee acknowledges that Employer is
in direct competition with all other companies that provide services and
products similar to Employer's products and services throughout the United
States, Latin America and other markets in which Employer may be conducting the
Business at the time Employee's employment with Employer is terminated, and
because of the nature of the Business, Employee agrees that the covenants
contained in this Section 10 cannot reasonably be limited to any smaller
geographic area.
11. Non-Solicitation and Non-Interference.
-------------------------------------
(a) Employee acknowledges that Employer has invested substantial
time and effort in assembling its present staff of personnel. Employee agrees
that so long as he is employed by Employer and, if Employer terminates his
employment for Cause or if Employee voluntarily terminates his employment with
Employer, for a period of one (1) year thereafter, Employee shall not either
directly or indirectly employ, solicit for employment, or advise or
15
<PAGE>
recommend to any other person that such other person employ or solicit for
employment, any of Employer's employees.
(b) Employee acknowledges that all customers of Employer, which
Employee has serviced or hereafter services during Employee's employment by
Employer and all prospective customers from whom Employee has solicited or may
solicit business while in the employ of Employer, shall be solely the customers
of Employer. Employee agrees that so long as he is employed by Employer and, if
Employer terminates his employment for Cause or if Employee voluntarily
terminates his employment with Employer, for a period of one (1) year
thereafter, Employee shall not either directly or indirectly solicit business,
as to products or services competitive with the Business of Employer, from any
of Employer's customers with whom Employee had contact during his employment
with Employer.
(c) Employee agrees that so long as he is employed by Employer
and, if Employer terminates his employment for Cause or if Employee voluntarily
terminates his employment with Employer, for a period of one (1) year
thereafter, Employee shall not either directly or indirectly interfere with any
relationship between Employer and any of its suppliers, clients or employees.
Employee agrees that during such one (1) year period, he will not influence or
attempt to influence any of the customers or clients of Employer not to do
business with Employer.
(d) Employee agrees that the restrictions contained in this
Section 11 are reasonable as to time and geographic scope because of the nature
of the Business and Employee agrees, in particular, that the geographic scope of
this restriction is reasonable because companies in the same industry as the
Business compete on a nationwide basis. Employee acknowledges that Employer is
in direct competition with all other companies that provide services and
products similar to Employer's products and services on an outsourced basis
throughout the United States, Latin America and other markets in which Employer
may be conducting the Business at the time Employee's employment with Employer
is terminated and,
16
<PAGE>
because of the nature of the Business, Employee expressly agrees that the
covenants contained in this Section 11 cannot reasonably be limited to any
smaller geographic area.
12. Employment Relationship. The relationship between Employer and
-----------------------
Employee is and shall be specifically limited to an employer/employee
relationship. As a result, nothing contained in this Agreement or relating to
any past, present or future relationship between Employee and Employer
(employment or otherwise) shall be construed as creating any partnership, joint
venture, trustee/beneficiary or other type of fiduciary or business relationship
between the parties.
13. Prior Obligations. Employee represents and warrants that (a)
-----------------
Employee has no obligation of confidence or other commitments to any previous
employer or any others that conflict with this Agreement or restrict Employee's
field of activities, and (b) no other agreement to which Employee is subject
will conflict with, prevent, be breached by, interfere with or in any manner
affect the terms and conditions of this Agreement.
14. Dedication Of Services. Subject to the provisions of Section
----------------------
3(b) hereof, Employee agrees that while employed with Employer, Employee shall
devote his entire productive time, ability and attention to the business of
Employer during Employer's normal business hours. Employee further agrees that
during his employment by Employer, Employee will not, without Employer's prior
written consent, directly or indirectly engage in any employment, consulting, or
other activity which would conflict with Employee's duties and obligations to
Employer.
15. Jurisdiction; Service of Process. Each of the parties hereto
--------------------------------
agrees that all any action or proceeding initiated or otherwise brought to
judicial proceedings by either Employee or Employer concerning the subject
matter of this Agreement shall be litigated in the United States District Court
for the Northern District of Illinois or, in the event such court cannot or will
not exercise jurisdiction, in the state courts of the State of Illinois (the
"Courts"). Each of the parties hereto expressly submits to the jurisdiction and
venue of the Courts and consents to
17
<PAGE>
process being served in any suit, action or proceeding of the nature referred to
above either (a) by the mailing of a copy thereof by registered or certified
mail, postage prepaid, return receipt requested, to his or its address as set
forth herein or (b) by serving a copy thereof upon such party's authorized agent
for service of process (to the extent permitted by applicable law, regardless
whether the appointment of such agent for service of process for any reason
shall prove to be ineffective or such agent for service of process shall accept
or acknowledge such service); provided that, to the extent lawful and
practicable, written notice of said service upon said agent shall be mailed by
registered or certified mail, postage prepaid, return receipt requested, to the
party at his or its address as set forth herein. Each party hereto agrees that
such service, to the fullest extent permitted by law, (i) shall be deemed in
every respect effective service of process upon him or it in any such suit,
action or proceeding and (ii) shall be taken and held to be valid personal
service upon and personal delivery to him or it. Each party hereto waives any
claim that the Courts are an inconvenient forum or an improper forum based on
lack of venue or jurisdiction. Each party shall bear its own costs and
attorneys' fees incurred in connection with any such actions or proceedings.
16. Injunctive Relief. Employee acknowledge that damages would be an
-----------------
inadequate remedy for Employee's breach of any of the provisions of Sections 8,
9, 10 and/or 11 of this Agreement, and that breach of any of such provisions
will result in immeasurable and irreparable harm to Employer. Therefore, in
addition to any other remedy to which Employer may be entitled by reason of
Employee's breach or threatened breach of any such provision, Employer shall be
entitled to seek and obtain a temporary restraining order, a preliminary and/or
permanent injunction, or any other form of equitable relief from any court of
competent jurisdiction restraining Employee from committing or continuing any
breach of such Sections, without the necessity of posting a bond. It is further
agreed that the existence of any claim or cause of action on the part of
Employee against Employer, whether arising from this Agreement or otherwise,
shall in no way constitute a defense to the enforcement of the provisions of
Sections 8, 9, 10 and/or 11 of this Agreement.
18
<PAGE>
17. Miscellaneous.
-------------
(a) Notices. All notices and other communications hereunder shall
-------
be in writing and shall be deemed given (i) when made, if delivered personally,
(ii) three (3) days after being mailed by certified or registered mail, postage
prepaid, return receipt requested, or (iii) two (2) days after delivery to a
reputable overnight courier service, to the parties, their successors in
interest or their assignees at the following addresses, or at such other
addresses as the parties may designate by written notice in the manner
aforesaid:
To Employer:
IFX Corporation
200 West Adams Street
Chicago, Illinois 60606
Attention: President
To Employee, to his home address as recorded in the payroll
records of Employer from time to time.
(b) Governing Law. This Agreement shall be governed as to its
-------------
validity and effect by the internal laws of the State of Illinois, without
regard to its rules regarding conflicts of law.
(c) Successors and Assigns. This Agreement shall be binding upon
----------------------
and shall inure to the benefit of (i) the heirs, executors and legal
representatives of Employee, upon Employee's death, and (ii) any successor of
IFX, and any such successor shall be deemed substituted for Employee or
Employer, as the case may be, under the terms hereof for all purposes. As used
in this Agreement, "successor" shall include any person, firm, corporation or
other business entity that at any time, whether by purchase, merger,
consolidation or otherwise, directly or indirectly acquires a majority of the
assets, business or stock of Employer. Employee acknowledges and agrees that the
rights and obligations of IFX hereunder may be
19
<PAGE>
assigned to and assumed by any of its wholly or majority-owned subsidiaries,
without Employee's consent, which assignment and assumption shall constitute a
release of IFX, its subsidiaries or any of their respective affiliates that is
then bound by the terms of this Agreement, of all of its obligations and
liabilities hereunder.
(d) Integration. This Agreement (together with any option
-----------
agreement Employer may require Employee to execute in order to avail
himself/herself of any Stock Plan benefits specifically contemplated herein and
any agreement to release and hold harmless Employer executed concurrently
herewith) constitutes the entire agreement between the parties with respect to
all matters covered herein, including but not limited to the parties' employment
relationship and Employee's entitlement to compensation, commissions and
benefits from Employer or any of its affiliated companies and/or the termination
of Employee's employment. This Agreement supersedes all prior oral or written
understandings and agreements relating to its subject matter and all other
business relationships between Employer and/or its affiliated companies.
(e) No Representations. No person or entity has made or has the
------------------
authority to make any representations or promises on behalf of any of the
parties which are inconsistent with the representations or promises contained in
this Agreement, and this Agreement has not been executed in reliance on any
representations or promises not set forth herein. Specifically, no promises,
warranties or representations have been made by anyone on any topic or subject
matter related to Employee's relationship with Employer or any of its executives
or employees, including but not limited to any promises, warranties or
representations regarding future employment, compensation, commissions and
benefits, any entitlement to stock, stock rights, Stock Plan benefits, profits,
debt and equity interests in Employer or any of its affiliated companies or
regarding the termination of Employee's employment. In this regard, Employee
agrees that no promises, warranties or representations shall be deemed to be
made in the future unless they are set forth in writing and assigned by an
authorized representative of Employer.
20
<PAGE>
(f) Amendments. This Agreement may be modified only by a written
----------
instrument executed by the parties that is designated as an amendment to this
Agreement.
(g) Counterparts. This Agreement is being executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(h) Severability and Non-Waiver. Any provision of this Agreement
---------------------------
(or portion thereof) which is deemed invalid, illegal or unenforceable in any
jurisdiction shall, as to that jurisdiction and subject to this Section, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions thereof in such
jurisdiction or rendering that or any other provisions of this Agreement
invalid, illegal, or unenforceable in any other jurisdiction. If any covenant
should be deemed invalid, illegal or unenforceable because its scope is
considered excessive, such covenant shall be modified so that the scope of the
covenant is reduced only to the minimum extent necessary to render the modified
covenant valid, legal and enforceable. No waiver of any provision or violation
of this Agreement by Employer shall be implied by Employer's forbearance or
failure to take action.
(i) Attorneys Fees. In the event that any action or proceeding is
--------------
commenced by any party hereto for the purpose of enforcing any provision of this
Agreement, the parties to such action, proceeding or arbitration may receive as
part of any award, settlement, judgment, decision or other resolution of such
action or proceeding, whether or not reduced to a court judgment, their costs
and reasonable attorneys fees as determined by the person or body making such
award, settlement, judgment, decision or resolution.
(j) Voluntary and Knowledgeable Act. Employee represents and
-------------------------------
warrants that Employee has read and understands each and every provision of this
Agreement and has freely and voluntarily entered into this Agreement.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
EMPLOYER:
IFX CORPORATION
By: /s/ Joel Eidelstein
-------------------------------
Name: Joel Eidelstein
Title: President
EMPLOYEE:
/s/ Zalman Lekach
-----------------------------------
Zalman Lekach
22
<PAGE>
EXHIBIT A
TO
EMPLOYEE AGREEMENT
(Zalman Lekach)
Bonus Compensation
------------------
The Bonus Compensation payable by Employer to Employer shall be payable in
shares, or Options to purchase shares, of the common stock, par value US$.02 per
share, of IFX (the "Common Stock"), which terms are defined in, and which awards
shall be granted under the Stock Plan, and calculated and paid as follows:
1. with respect to Year 1:
(a) for every ISP purchased or created by Employer or an affiliate of
Employer from and after June 1, 1999, and prior to the last day of
Year 1, whether by means of a share or asset purchase, merger,
consolidation, start-up, purchase of users or otherwise, in a country
in which Employer does not, on the date hereof, currently own an ISP
(each, an "Initial ISP Purchase"), Employee shall receive that number
of shares of Restricted Stock with an aggregate value of US$10,000
(based on the average closing price of the Common Stock as reported by
the Nasdaq Small Cap Market for the five (5) trading days immediately
prior to (x) the closing date of such Initial ISP Purchase or (y) the
first date on which the ISP provides services to third party
customers, as the case may be, without applying any restricted stock
discount), which shares of Restricted Stock shall be issued to
Employee within fifteen (15) days following the closing date of such
Initial ISP Purchase; provided, however, that even though Employer
currently owns an ISP in Argentina, if the Employer purchases an
additional ISP prior to the last day of Year 1, such additional ISP
purchase in Argentina shall be treated as an Initial ISP Purchase;
(b) upon the closing of the fourth (4th) Initial ISP Purchase for which
Employee receives Bonus Compensation pursuant to Section 1(a) above
during Year 1, Employee shall receive an additional one-time bonus of
that number of shares of Restricted Stock with an aggregate value of
US$50,000 (based on the average closing price of the Common Stock as
reported by the Nasdaq Small Cap Market on the five (5) trading days
immediately prior to the closing date of such fourth (4th) Initial ISP
Purchase, without applying any restricted stock discount), and which
shares of Restricted Stock shall be issued to Employee within fifteen
(15) days following the closing date of such fourth (4th) Initial ISP
Purchase;
A-1
<PAGE>
(c) (i) for each internally generated net New User (a "New Users") of an
ISP described in Section 1(a) above (including, for this
purpose, any ISPs acquired by Employer which were acquired prior
to the effective date of this Agreement but which would have
been described in Section 1(a) if they had been acquired after
the effective date of the Agreement), other than a Retained User
(as defined below) or an Acquired User (as defined below), who
or which becomes a client of Employer, Employee shall receive an
Option to acquire two (2) shares of Common Stock, which Option
shall have an exercise price of US$8.75 per share,
(ii) for each net New User of an ISP described in Section 1(a) above
(including, for this purpose, any ISPs acquired by Employer
prior to the effective date of this Agreement but which would
have been described in Section 1(a) if they had been acquired
after the effective date of the Agreement), other than a
Retained User or a New User, who or which becomes a client of
Employer as the result of an acquisition of another Internet
service provider by Employer or any wholly-owned subsidiary of
Employer (each, an "Acquired User"), Employee shall receive an
Option to acquire one (1) share of Common Stock, which Option
shall have an initial exercise price of US$8.75 per share; and
(iii) for each Retained User of an ISP described in Section 1(a)
above, (including, for this purpose, any ISPs acquired by
Employer prior to the effective date of this Agreement but which
would have been described in Section 1(a) if they had been
acquired after the effective date of the Agreement), Employee
shall not be entitled to receive any Options to purchase shares
of Common Stock or other compensation pursuant to this
Agreement.
2. with respect to Year 2:
(a) for every ISP purchased or created by Employer or an affiliate of
Employer during Year 2, whether by means of a share or asset purchase,
merger, consolidation, start-up, purchase of users or otherwise,
including ISPs purchased in countries where Employer already owns an
ISP (each, an "ISP Purchase"), Employee shall receive that number of
shares of Restricted Stock with an aggregate value of US$7,500 (based
on the average closing price of the Common Stock for the five (5)
trading days immediately prior to the closing date of such ISP
Purchase), which shares of Restricted Stock shall be issued to
Employee within fifteen (15) days following the closing date of such
ISP Purchase;
(b) upon the closing of the tenth (10th) ISP Purchase for which Employee
receives Bonus Compensation pursuant to Section 2(a) above during Year
2, Employee shall receive an additional one-time bonus of that number
of shares of Restricted
A-2
<PAGE>
Stock with an aggregate value of US$50,000 (based on the average
closing price of the Common Stock for the five (5) trading days
immediately prior to the closing date of such tenth (10th) ISP
Purchase), which shares of Restricted Stock shall be issued to
Employee within fifteen (15) days following the closing date of such
tenth (10th) ISP Purchase.
(c) (i) for each net New User of an ISP described in Section 2(a), other
than a Retained User or an Acquired User, who or which becomes a
client of Employer, Employee shall receive an option to acquire
shares of Common Stock, which option shall have an exercise
price or US$8.75 per share;
(ii) for each Acquired User of an ISP described in Section 2(a)
above, Employee shall receive an option to acquire one (1) share
of Common Stock, which option shall have an exercise price of
US$8.75 per share;
(iii) for each Retained User of an ISP described in Section 2(a)
above, Employee shall not be entitled to receive any options to
purchase shares of Common Stock or other compensation pursuant
to this Agreement.
All shares of Restricted Stock granted to Employee hereunder as Bonus
Compensation shall be deemed fully vested on the date of grant to Employee and
shall not be subject to forfeiture. With respect to Sections 1(c) and 2(c)
above, the parties agrees as follows:
A. the number of Options to be granted as compensation to Employee shall
be determined and issued and delivered to Employee on a quarterly
basis for the prior quarter, commencing with July 1, 1999 (each such
date, a "Determination Date");
B. all calculations of changes in the number of Users shall be on a net
basis (i.e., options shall only be granted to the extent that there is
a total increase in the number of Users and any decreases in the
number of Users in a given category described above -- new Users,
Retained Users and/or Acquired Users -- shall offset increases in
Users in the other categories and any loss of Users in a given
category in excess of the gain of Users in a different category shall
be carried forward to offset any increase in the number of Users with
respect to any subsequent periods);
C. no Options shall be issued or shares shall be granted unless Employee
is employed on each Determination Date, all Options shall become
vested and exercisable on the one (1) year anniversary of the date of
issuance, if Employee is Terminated Without Cause or Voluntarily
Terminates with Good Reason, then any unvested Options shall vest and
be exercisable immediately and any vested but unexercised Options
shall be subject to
A-3
<PAGE>
forfeiture in the event Employee's employment is terminated by
Employer for Cause or Employee Voluntarily Terminates without Good
Reason;
D. all shares of Restricted Stock and Options to acquire shares of Common
Stock granted hereunder to Employee shall, except as otherwise
expressly provided herein, be subject to the terms and conditions of
the Stock Plan, and, as applicable, a Stock Option Agreement to be
executed between Employer and Employee;
E. for the purposes hereof, the term "User" shall mean each single client
of Employer (i) who or which has been a client of Employer, including
any subsidiary of Employer, for a period of at least three (3)
consecutive months, (ii) whose account is current (i.e., no amounts
due from such client are more than sixty (60) days past due) as of the
applicable Determination Date, and (iii) for whom or which Employer
has current billing and address information; provided, however, that:
(x) any client who uses one of the ISPs to maintain or host a web site
shall be counted as one User for each such maintained or hosted web
site, and with respect to dedicated lines, (y) the parties agree that
the number of Users shall be deemed to be the greater of (i) fifteen
(15) Users for each 64k dedicated line, and (ii) that number as shall
be determined by dividing (A) the actual amount received by Employer
per month the dedicated line, by (B) the average dial-up account price
charged by Employer (on a monthly basis) as of the applicable
Determination Date, and (z) for any Internet service that is at least
twice the price of the average dial up service (and not described
above), the number of users shall be deemed to equal the price of that
service divided by the price of the average dial-up service charged by
that ISP; and
F. for the purposes hereof, the term "Retained User" shall mean any User
who or which is a client of Employer acquired pursuant to an Initial
ISP Purchase, which User remains continuously active and current in
payments from the date thereof for a period of at least three (3)
consecutive months thereafter.
A-4
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction
------------------ ------------
<S> <C>
1. IFX/Communications Ventures, Inc. State of Delaware
2. FX Chicago, Inc. State of Delaware
(a) IMSI, Inc. State of Illinois
3. IFX/Telecom, Inc. State of Delaware
(a) Telcom.Net, L.P. State of Delaware
4. IFX/EN, Inc. State of Delaware
(a) Emerging Networks, Inc. British Virgin Islands
(i) IFX Online, Inc. State of Delaware
(ii) IFX/ENI-SPC I, Inc. British Virgin Islands
(A) Internacional Conection Service 1500, C.A Venezuela
(iii) IFX/ENI-SPC II, Inc. British Virgin Islands
(A) ENI Costa Rica SRL Costa Rica
(iv) IFX/ENI-SPC III, Inc. British Virgin Islands
(A) ENI Colombia Limitada Columbia
(v) IFX/ENI-SPC IV, Inc. British Virgin Islands
(A) Servicios de Internet ENI Chile, Limitada Chile
(B) Interaccess, S.A. Chile
(vi) IFX/ENI-SPC V, Inc. British Virgin Islands
(A) ENI de Argentina SRL Argentina
(vii) IFX/ENI-SPC VI, Inc. British Virgin Islands
(A) ENI de Honduras SRL Honduras
(viii) IFX/ENI-SPC VII, Inc. British Virgin Islands
(A) ENI de Nicaragua SRL Nicaragua
(ix) IFX/ENI-SPC VIII, Inc. British Virgin Islands
(A) Zupernet Limitada Bolivia
(x) IFX/ENI-SPC IX, Inc. British Virgin Islands
(xi) IFX/ENI-SPC X, Inc. British Virgin Islands
(xii) ENI Mexican Holdings, Inc. State of Delaware
(A) Interweb de Mexico, S.A. de C.V. Mexico
(xiii) IFX/ENI-SPC Ecuador, Inc. British Virgin Islands
(xiv) IFX/ENI-SPC El Salvador, Inc. British Virgin Islands
(xv) IFX/ENI-SPC Guatemala, Inc. British Virgin Islands
(xvi) IFX/ENI-SPC Nicaragua, Inc. British Virgin Islands
(xvii) IFX/ENI-SPC Honduras, Inc. British Virgin Islands
(xviii)IFX/ENI-SPC Panama, Inc. British Virgin Islands
(xix) IFX/ENI-SPC Uruguay, Inc. British Virgin Islands
(xx) Minority Stock Holding Corp. British Virgin Islands
(xxi) ENI Brazilian Holdings, Inc. State of Delaware
(xxii) CELC/IFX, LLC State of Delaware
(A) Communications Equipment Leasing Corp. British Virgin Islands
</TABLE>
<PAGE>
EXHIBIT 23.1A
CONSENT OF INDEPENDENT CERTIFIED ACCOUNTANT
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-76257) pertaining to the 1998 Stock Option and Incentive Plan of IFX
Corporation of our report dated September 24, 1999, with respect to the
consolidated financial statements of IFX Corporation included in the Annual
Report (Form 10-K) for the year ended June 30, 1999.
Miami, Florida
September 28, 1999
/S/ ERNST & YOUNG LLP
<PAGE>
EXHIBIT 23.1B
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into the Company's previously filed
S-8 Registration Statement File No. 33-76257.
Chicago, Illinois
September 24, 1999
/S/ ARTHUR ANDERSEN LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 482,000 321,900
<SECURITIES> 5,000,000 5,311,300
<RECEIVABLES> 538,400 104,900
<ALLOWANCES> 80,100 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 9,668,000 10,772,600
<PP&E> 2,253,500 14,400
<DEPRECIATION> (369,300) (1,700)
<TOTAL-ASSETS> 18,861,500 11,543,400
<CURRENT-LIABILITIES> 2,447,200 208,200
<BONDS> 0 0
0 0
0 0
<COMMON> 136,600 123,100
<OTHER-SE> 15,960,800 11,212,100
<TOTAL-LIABILITY-AND-EQUITY> 18,861,500 11,543,400
<SALES> 725,300 0
<TOTAL-REVENUES> 725,300 0
<CGS> 445,500 0
<TOTAL-COSTS> 3,656,300 733,100
<OTHER-EXPENSES> 107,700 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (2,526,400) (316,500)
<INCOME-TAX> (811,000) (108,000)
<INCOME-CONTINUING> (1,715,400) (208,500)
<DISCONTINUED> 3,117,600 3,575,200
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,402,200 3,366,700
<EPS-BASIC> 0.22 0.54
<EPS-DILUTED> 0.22 0.54
</TABLE>
