<PAGE>
As filed with the Securities and Exchange Commission on April 12, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GLOBAL CROSSING LTD.
(Exact Name of Registrant as Specified in Its Charter)
--------------------------
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<S> <C> <C>
Bermuda 4813 98-0189783
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code Number) Number)
</TABLE>
Wessex House
45 Reid Street
Hamilton HM12, Bermuda
(441) 296-8600
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
---------------
CT Corporation System
1633 Broadway
New York, New York 10019
(212) 479-8200
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
---------------
Copies to:
D. Rhett Brandon, Esq.
Caroline B. Gottschalk, Esq. Joseph A. Coco, Esq.
Simpson Thacher & Bartlett Skadden, Arps, Slate, Meagher & Flom LLP
425 Lexington Avenue Four Times Square
New York, New York 10017 New York, New York 10036
(212) 455-2000 (212) 735-3000
---------------
Approximate date of commencement of proposed sale to the public:
As soon as possible after this Registration Statement is declared effective
and all other conditions to the mergers contemplated by the Agreement and Plan
of Merger, dated as of February 22, 2000, described in the enclosed Information
Statement/Prospectus have been satisfied or waived.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed maximum Proposed maximum
Title of each class of securities aggregate aggregate Amount of
to Amount to be offering offering registration
be registered registered (1) price per unit price fee (2)
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<S> <C> <C> <C> <C>
Common Stock, par value $.01 per 70,413,237 Not applicable Not applicable $611,036
share .......................... shares
</TABLE>
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(1) Based on the maximum number of shares to be issued in connection with the
mergers, calculated as the sum of (i) the product of (a) 9,261,000, the
aggregate number of shares of Common Stock, par value $0.01 per share, of
IPC Communications, Inc. outstanding on April 4, 2000 (other than shares
held in treasury of IPC Communications, Inc. and shares owned by the
Registrant which shall be canceled in the mergers) assuming exercise of all
stock options and warrants (whether or not currently exercisable) and (b)
5.417, the number of shares of Common Stock of the Registrant issuable in
respect of each share of Common Stock of IPC Communications, Inc. and (ii)
the product of (a) 17,100,000, the aggregate number of shares of Common
Stock, par value $0.01 per share, of IXnet, Inc. outstanding on April 4,
2000 (other than shares held in treasury of IXnet, Inc., shares owned by
IPC Communications, Inc. and shares owned by the Registrant which shall be
canceled in the mergers) assuming exercise of all stock options and
warrants (whether or not currently exercisable) and (b) 1.184, the number
of shares of Common Stock of the Registrant issuable in respect of each
share of Common Stock of IXnet, Inc.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) and 457(c) under the Securities Act of 1933, as
amended, and based upon (i) the average of the high and low sales prices
of Common Stock of IPC Communications, Inc. as reported on the American
Stock Exchange on April 10, 2000 ($179) and (ii) the average of the bid
and ask price of Common Stock of IXnet, Inc. as reported on the Nasdaq
National Market on April 10, 2000 ($38.41).
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this document is not complete and may be changed. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. We may not sell these securities until +
+that registration statement is effective. This document is not an offer to +
+sell these securities, and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to completion, dated April 12, 2000
IPC Communications, Inc. IXnet, Inc.
88 Pine Street
88 Pine Street New York, NY 10005
New York, NY 10005
, 2000
Dear Stockholder:
We are pleased to inform you of the pending mergers involving IPC
Communications, Inc., IXnet, Inc. and Global Crossing Ltd. which were
unanimously approved by the IPC and IXnet boards of directors. Under the terms
of the mergers, each share of IPC will be converted into the right to receive
5.417 shares of Global Crossing common stock, and each share of IXnet will be
converted into the right to receive 1.184 shares of Global Crossing common
stock.
Global Crossing common stock is traded on the Nasdaq National Market under
the symbol "GBLX." On April 11, 2000, the closing price for the common stock on
the Nasdaq National Market was $33.00 per share.
The holders of more than a majority of the outstanding shares of each of IPC
and IXnet common stock have agreed to the mergers. Therefore, we are not asking
you for a proxy and you are requested not to send us a proxy.
The boards of directors of IPC and IXnet are furnishing this document to you
to provide you with important information about the mergers. This document is
also a prospectus of Global Crossing relating to the shares of Global Crossing
common stock to be issued in the mergers.
Sincerely,
[ signature ]
Richard W. Smith
Chairman of the Board
IPC Communications, Inc.
IXnet, Inc.
See "Risk Factors" beginning on page 32 for some of the matters you should
consider.
Neither the Securities and Exchange Commission nor any
state securities regulators have approved or
disapproved of the shares of Global Crossing common
stock to be issued in the mergers or determined if
this document is truthful or complete. Any
representative to the contrary is a criminal offense.
This document is dated , 2000 and was first mailed to stockholders on
or about , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Graphic Representation of the Mergers..................................... 1
Questions & Answers about the Mergers..................................... 2
Summary................................................................... 3
Overview................................................................ 3
The companies........................................................... 3
What you will receive in the mergers.................................... 4
Ownership of Global Crossing after the mergers.......................... 5
Tax consequences........................................................ 5
Board approvals......................................................... 5
Interests of members of IPC's and IXnet's boards of directors and
management in the mergers.............................................. 5
Opinions of financial advisors.......................................... 6
The consents; no further stockholder approval required.................. 6
Appraisal rights........................................................ 6
Conditions to the completion of the mergers............................. 7
Termination of the merger agreement..................................... 7
Regulatory matters...................................................... 7
Accounting treatment.................................................... 7
Trading of Global Crossing common stock................................. 7
Selected historical financial information............................... 8
Recent financial accounting developments................................ 21
Selected unaudited pro forma financial information...................... 22
Comparative per share data.............................................. 29
Market prices and dividends............................................. 30
Risk Factors.............................................................. 32
Cautionary Statement Regarding Forwarding-Looking Statements.............. 40
The Mergers............................................................... 41
What you will receive in the mergers.................................... 41
Background of the mergers............................................... 41
Recommendation of the IPC and IXnet boards of directors; Reasons for
mergers................................................................ 43
Opinions of IXnet's and IPC's financial advisors........................ 44
Interests of members of IPC's and IXnet's boards of directors and
management in the merger............................................... 65
Certain United States federal income tax and Bermuda tax consequences... 67
Regulatory approvals.................................................... 73
Anticipated accounting treatment........................................ 74
Litigation.............................................................. 74
Quotation on the Nasdaq National Market................................. 74
Resales of Global Crossing common stock................................. 75
The Merger Agreement...................................................... 76
The mergers............................................................. 76
Effective time of the mergers........................................... 77
Exchange procedures..................................................... 77
Fractional shares....................................................... 78
Stock options........................................................... 78
Representations and warranties.......................................... 78
Covenants............................................................... 79
Additional agreements................................................... 81
</TABLE>
i
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<TABLE>
<CAPTION>
Page
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Access to information.................................................. 82
Reasonable best efforts................................................ 82
Benefit plans.......................................................... 82
Indemnification and insurance.......................................... 82
No solicitation........................................................ 83
Conditions to the completion of the mergers............................ 84
Termination of the merger agreement.................................... 84
Other expenses......................................................... 85
Amendments; waivers.................................................... 85
Related Agreements....................................................... 86
Consent and voting agreement........................................... 86
Waiver and amendment agreement......................................... 88
Registration rights agreement.......................................... 88
Global Crossing and IPC.................................................. 89
IXnet.................................................................... 89
Overview............................................................... 89
The IXnet solution..................................................... 90
Business strategy...................................................... 92
Services............................................................... 92
Sales and marketing.................................................... 93
Customers.............................................................. 95
Customer service....................................................... 95
Competition............................................................ 95
Legal proceedings...................................................... 96
Intellectual property.................................................. 96
Employees.............................................................. 96
Properties............................................................. 96
IXnet: Management Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 98
Overview............................................................... 98
Components of revenues................................................. 99
Pricing policies....................................................... 99
Long-term agreements................................................... 99
Components of costs and expenses....................................... 100
Acquisitions and strategic agreements.................................. 101
Results of operations.................................................. 103
Quarterly results...................................................... 106
Liquidity and capital resources........................................ 107
Cash flows............................................................. 108
Commitments, capital expenditures and future financing requirements.... 109
Other possible strategic relationships and acquisitions................ 110
Foreign exchange rate risk............................................. 110
Interest rate risk..................................................... 110
Effects of recently issued accounting standards........................ 111
Year 2000 update....................................................... 111
Regulatory Environment................................................... 112
United States regulatory considerations................................ 112
International regulatory considerations................................ 113
Expansion into other foreign countries................................. 114
</TABLE>
ii
<PAGE>
<TABLE>
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Page
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<S> <C>
Information Regarding Directors, Executive Officers and 5% Shareholders
of Global Crossing...................................................... 115
Stock Ownership of Management, Directors and 5% Stockholders of IPC...... 117
Stock Ownership of Management, Directors and 5% Stockholders of IXnet.... 120
Description of Global Crossing Capital Stock............................. 122
General................................................................ 122
Voting and transfer restrictions....................................... 122
Distributions.......................................................... 123
Global Crossing registration rights agreement.......................... 123
Transfer agent......................................................... 123
Some Differences Between Rights of Stockholders of IPC and IXnet and
Rights of Shareholders of Global Crossing............................... 124
Size and classification of the board of directors...................... 124
Removal of directors; vacancies; alternate directors................... 124
Meeting of shareholders/stockholders................................... 125
Action by written consent and resolutions of
shareholders/stockholders............................................. 125
Vote required for extraordinary corporate transactions................. 125
Interested director transactions....................................... 126
Transfer restrictions.................................................. 127
Business combinations with interested stockholders..................... 127
Shareholder/stockholder suits.......................................... 127
Dissenters' rights..................................................... 128
Dividends.............................................................. 129
Voting................................................................. 129
Preemptive rights...................................................... 129
Amendments to corporate governance documents........................... 129
Limitations on directors' liability.................................... 130
Rights of inspection................................................... 130
Repurchase of untraced shares.......................................... 131
Indemnification of officers and directors.............................. 131
Indemnification of Global Crossing by shareholders for
some taxes and other impositions...................................... 132
Indemnification of shareholders by Global Crossing for some taxes...... 132
Listing................................................................ 132
Legal Matters............................................................ 133
Experts.................................................................. 133
Service of Process and Enforcement of Liabilities........................ 134
Submission of Future Stockholder Proposals............................... 134
IPC.................................................................... 134
IXnet.................................................................. 134
Incorporation by Reference............................................... 134
Global Crossing........................................................ 134
IPC.................................................................... 134
Where You Can Find More Information...................................... 135
Global Crossing........................................................ 135
IPC.................................................................... 135
IXnet.................................................................. 136
IXnet Financial Statements............................................... F-1
</TABLE>
iii
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<CAPTION>
Page
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<C> <S> <C>
ANNEX A Agreement and Plan of Merger, dated February 22, 2000........ A-1
ANNEX B Consent and Voting Agreement, dated February 22, 2000........ B-1
ANNEX C-1 Opinion of Salomon Smith Barney Inc. to the board of
directors of IXnet,
dated February 22, 2000...................................... C-1-1
ANNEX C-2 Opinion of Salomon Smith Barney Inc. to the board of
directors of IPC,
dated February 22, 2000...................................... C-2-1
ANNEX D-1 Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation to
the board of directors of IXnet, dated February 22, 2000..... D-1-1
ANNEX D-2 Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation to
the board of directors of IPC, dated February 22, 2000....... D-2-1
</TABLE>
iv
<PAGE>
Graphic Representation of the Mergers
The following chart describes the mergers as a result of which IPC and IXnet
will become wholly-owned subsidiaries of Global Crossing. For a written
description of the mergers, see "The Mergers" on page 41.
<TABLE>
<CAPTION>
[FLOW CHART APPEARS HERE]
<S> <C> <C>
THE IPC Merger
PHASE I PHASE II
[IPC Communications, Inc. [IPC Information Systems, Inc. [Global Crossing Ltd.]
[Delaware]] [Delaware]] [Bermuda]
[line that shows 100% [line that shows IPC Information [line that shows 100%
ownership of IPC Systems, Inc. owning 84.3% ownership of Georgia
Information Systems, Inc. of IXnet, Inc. [Delaware]] Merger Sub Corporation [Delaware]]
[Delaware]]
[line that shows IPC [line that shows Georgia Merger Sub
Communications, Inc. Corporation merging into IPC
merging into IPC Information Systems, Inc.]
Information Systems, Inc.]
[line that shows IPC
Information Systems, Inc. [Delaware]
owning 84.3% of IXnet, Inc.,
[Delaware]]
Description: Description:
. IPC Communications, Inc. merges . Georgia Merger Sub Corporation merges with
with IPC Information Systems, Inc. IPC IPC Systems. IPC Systems is the
Systems is the surviving entity. surviving entity and becomes 100% owned by
. IPC stockholders receive one share Global Crossing Ltd.
of IPC Systems common stock for each
share of IPC common stock. . IPC Systems stockholders receive 5.417 shares of
Global Crossing common stock
for each share of IPC Systems common stock.
The IXnet Merger After the Mergers
PHASE III PHASE IV
--------- --------
[Global Crossing Ltd.
[Global Crossing Ltd. [Bermuda]]
[Bermuda]]
[line that shows [line that shows 100%
100% ownership ownership of IPC
of IPC Information Information Systems,
Systems, Inc. [Delaware]] Inc. [Delaware]]
[line that shows IPC Information [line that shows IPC Information [line that shows 100%
Systems, Inc. [Delaware] Systems, Inc. [Delaware] owning ownership of IXnet, Inc.
owning 84.3% of IXnet, Inc. 100% of Idaho Merger Sub Corporation [Delaware]]
[Delaware]] [Delaware]]
[line that shows Idaho Merger
Sub Corporation merging into
IXnet, Inc.]
Description:
. Idaho Merger Sub Corporation merges with IXnet, Inc. IXnet is the surviving
entity and becomes 100% owned by Global Crossing.
. IXnet stockholders receive 1.184 shares of Global Crossing common stock for
each share of IXnet common stock.
</TABLE>
1
<PAGE>
Questions & Answers About the Mergers
Q: What are the mechanics of the mergers?
A: First, IPC will merge into IPC Systems, a wholly-owned subsidiary of IPC.
Then IPC Systems will merge with a wholly-owned subsidiary of Global
Crossing, so that IPC Systems will become a wholly-owned subsidiary of
Global Crossing. We refer to this first series of mergers as the "IPC
merger". Second, IXnet will merge with a wholly-owned subsidiary of IPC
Systems, so that IXnet will become an indirect wholly-owned subsidiary of
Global Crossing. We refer to this merger as the "IXnet merger".
Q: What will I be entitled to receive in connection with the mergers?
A: If you are an IPC stockholder, each share of IPC common stock you own will
be canceled and converted into the right to receive 5.417 shares of Global
Crossing common stock. If you are an IXnet stockholder, each share of
IXnet common stock you own will be canceled and converted into the right
to receive 1.184 shares of Global Crossing common stock.
Q: Will I receive a dividend on my shares after the mergers?
A: Global Crossing does not currently pay cash dividends on its common stock
and does not anticipate paying dividends in the foreseeable future.
Q: Will I recognize gain or loss in connection with the mergers?
A: No. We expect the mergers to qualify as tax-free reorganizations for
United States federal income tax purposes. In general, IPC and IXnet
stockholders will not recognize any gain or loss on the exchange of their
common stock in the mergers, except to the extent they receive cash
instead of fractional shares.
Q: Do I need to vote in connection with the mergers?
A: No. IPC stockholders that own approximately 67.3% of IPC have given their
written consents approving the IPC merger. In addition, IPC Systems, which
owns approximately 84.3% of IXnet, has given its written consent as
majority stockholder of IXnet approving the IXnet merger. These written
consents are sufficient under Delaware law to proceed with and complete
the mergers without your vote.
Q: Do I have appraisal rights?
A: No. Under Delaware law, which governs the mergers, neither IPC nor IXnet
stockholders are entitled to appraisal rights.
Q: When do you expect to complete the mergers?
A: We expect to complete the mergers in the second quarter of 2000. However,
we may not be able to complete the mergers by that time if we have not yet
obtained the necessary regulatory approvals.
Q: What do I need to do to get my Global Crossing shares?
A: After the mergers are completed, Global Crossing will send you written
instructions for exchanging your stock certificates. You should not send
in your stock certificates now.
Q: Whom should I call with questions?
A: IPC stockholders:
Investor Relations--IPC
(212) 825-9060
IXnet stockholders:
Investors Relations--IXnet
(212) 412-6400
2
<PAGE>
SUMMARY
This summary highlights selected information from this document. It does not
contain all the information that is important to you. We urge you to read
carefully the entire document and the other documents incorporated by reference
in this document to fully understand the mergers. More information on IXnet is
included in this document beginning on page 89. For a guide as to where you can
obtain more information on Global Crossing, IPC and IXnet see "Where You Can
Find More Information" on page 135.
Overview
Global Crossing, IPC, IPC Systems, IXnet, a wholly-owned subsidiary of
Global Crossing and a wholly- owned subsidiary of IPC Systems entered into a
merger agreement on February 22, 2000. Under the terms of the merger agreement,
at the closing, (1) IPC stockholders will be entitled to receive 5.417 shares
of Global Crossing common stock for each share of IPC common stock and (2)
IXnet stockholders will be entitled to receive 1.184 shares of Global Crossing
common stock for each share of IXnet common stock. Upon completion of the
mergers, IPC Systems, which will be the successor to IPC, and IXnet will become
wholly- owned subsidiaries of Global Crossing. In this document, we refer to
the number of shares of Global Crossing common stock that each IPC or IXnet
stockholder will be entitled to receive in the mergers for each IPC or IXnet
share as the "exchange ratio".
The companies
Global Crossing
Global Crossing is building and offering services over the world's first
integrated global fiber optic network, consisting of 101,000 announced route
miles and serving five continents, 27 countries and more than 200 major cities.
Upon completion of Global Crossing's currently announced systems, the Global
Crossing network and its telecommunications and Internet product offerings will
be available in markets constituting over 80% of the world's international
communications traffic.
Global Crossing is included in both the S&P 500 index and the Nasdaq 100
index. Global Crossing's operations are headquartered in Hamilton, Bermuda,
with executive offices in Los Angeles, California, Morristown, New Jersey and
Rochester, New York.
Global Crossing is incorporated in Bermuda, and the address of its principal
executive offices is Wessex House, 45 Reid Street, Hamilton HM12, Bermuda. Its
telephone number is 441-296-8600. You may visit Global Crossing at its web site
located at www.globalcrossing.com.
Recent Developments. Global Crossing is currently engaged in two concurrent
offerings of its common stock and preferred stock. The common stock offering
involves selling shareholders. Global Crossing expects that the aggregate gross
proceeds of the common stock offering, if consummated, to Global Crossing will
be approximately $709.5 million and the aggregate gross proceeds of the
preferred stock offering, if consummated, will be approximately $1.0 billion.
Neither offering is conditioned on the closing of the other. Global Crossing
will use the net proceeds from the offerings for general corporate purposes,
including repayment of debt, capital expenditures, possible acquisitions,
investments, repurchase of its capital stock and any other purposes that Global
Crossing may specify. Global Crossing expects that the offerings will close on
or about April 14, 2000.
On March 2, 2000, Global Crossing announced plans to create a new class of
common stock that will track the performance of its complex web hosting
business operated by its wholly-owned subsidiary, GlobalCenter Inc. The
creation of this new class of common stock will be subject to shareholder
approval. Global Crossing expects to complete its initial public offering of
this stock in the summer of 2000, subject to market conditions.
3
<PAGE>
Global Crossing's subsidiary, Asia Global Crossing, intends to do an initial
public offering of shares of its common stock and to file a registration
statement under the Securities Act of 1933 in respect of the proposed offering.
Asia Global Crossing intends to use the net proceeds from the offering
primarily to make additional capital investments in its operations and for
general corporate purposes. Asia Global Crossing anticipates that the offering
will be completed in the summer of 2000, subject to market conditions.
The statements in the two paragraphs immediately above do not constitute an
offer of any securities for sale. The offerings, if made, will be made only by
means of a prospectus contained in a registration statement as filed with the
SEC.
IPC
IPC is the leading provider of integrated telecommunications equipment and
services that facilitate the execution of transactions by the worldwide
financial services community. These transactions involve the trading of equity
and debt securities, commodities, currencies and other financial instruments.
IPC designs, manufactures, installs and services turret systems which provide
desktop access to time-sensitive communications and data. In addition, through
its subsidiary, IXnet, IPC operates a high performance intelligent global
network, the IXnet Extranet, providing a variety of voice, data and content
distribution services specifically designed to meet the specialized
communications requirements of the financial services community. IPC's primary
customers include securities and investment banking firms, merchant and
commercial banks, interdealer brokers, foreign exchange and commodity brokers
and dealers, securities and commodity exchanges, mutual and hedge fund
companies, asset managers and insurance companies. IPC uses an integrated
approach to marketing its products and services, leveraging its established
customer base throughout the financial sector.
IPC is incorporated in Delaware, and the address of its principal executive
offices is Wall Street Plaza, 88 Pine Street, New York, New York 10005. Its
telephone number is 212-825-9060. You may visit IPC at its web site located at
www.ipc.com.
IXnet (Page 89)
IXnet is a leading provider of communications services to the worldwide
financial services community. IXnet has built and operates the IXnet Extranet
connecting financial services firms and their business partners as well as
multiple offices within the same firm using a global seamless network. Through
the IXnet Extranet, IXnet's customers obtain highly reliable, secure and fully
managed voice and data connectivity without having to access multiple disparate
public networks or rely on multiple customer service organizations.
IXnet provides services tailored to meet the specialized needs of the
financial services community, including managed voice and data services,
virtual private network services and fully outsourced network solutions. In
addition, IXnet aggregates, hosts and distributes financial oriented content,
such as news, research, analytics and market data, for information service
providers, enabling them to efficiently reach this community.
IXnet is incorporated in Delaware, and the address of its principal
executive offices is Wall Street Plaza, 88 Pine Street, New York, New York
10005. Its telephone number is 212-412-6400. You may visit IXnet at its web
site located at www.ixnet.com.
What you will receive in the mergers (Page 41)
What IPC stockholders will receive in the IPC merger:
When the IPC merger is completed, each IPC share of common stock will be
canceled, and each IPC stockholder will receive for each share of IPC common
stock 5.417 shares of Global Crossing common stock.
4
<PAGE>
What IXnet stockholders will receive in the IXnet merger:
When the IXnet merger is completed, each IXnet share will be canceled, and
each IXnet stockholder will receive for each share of IXnet common stock 1.184
shares of Global Crossing common stock.
Ownership of Global Crossing after the mergers
Global Crossing will issue approximately 57,410,879 shares of common stock
in the mergers. These shares will represent approximately 6.9% of the
outstanding shares of Global Crossing common stock immediately after the
mergers. This information is based on the number of outstanding shares of
common stock of IPC and IXnet on April 4, 2000 and the number of outstanding
shares of Global Crossing common stock on February 18, 2000, without taking
into account shares issuable upon exercise of stock options or warrants.
Tax consequences (Page 67)
We expect the mergers to qualify as tax-free reorganizations for United
States federal income tax purposes. In general, IPC and IXnet stockholders will
not recognize any gain or loss on the exchange of their common stock in the
mergers, except to the extent they receive cash instead of fractional shares.
There will be no Bermuda tax of any kind payable in respect of the exchange
of shares in the mergers. We urge IPC and IXnet stockholders to consult their
own tax advisors to discuss the tax consequence of the mergers.
Board approvals
The IPC board of directors and the IXnet board of directors have unanimously
approved the merger agreement. For a description of the IPC and IXnet boards of
directors' reasons for approving the mergers, see page 43.
Interests of members of IPC's and IXnet's boards of directors and management in
the mergers (Page 65)
Some IPC and IXnet directors and executive officers have interests in the
mergers that may be different from, or in addition to, the interests of other
IPC or IXnet stockholders. These interests include employment agreements and
stock options. You should be aware of these interests because they may conflict
with yours. Specifically, these interests include:
. David A. Walsh, Chief Executive Officer of IXnet, will become head of
global sales and marketing at Global Crossing when the mergers are
complete;
. Global Crossing has agreed to cause the surviving corporations in the
mergers to honor certain employment, change in control, severance,
retirement or termination agreements with current or former officers,
directors or employees of those corporations or their subsidiaries;
. Global Crossing has agreed to grant to David Walsh, as soon as
practicable following the closing of the mergers, an option to purchase
1,000,000 shares of Global Crossing common stock; Global Crossing has
also agreed to grant to certain officers and employees of IXnet and IPC
options to purchase 3,000,000 shares of Global Crossing Common Stock;
and
. 14 senior executives of IPC and IXnet, including David Walsh, have
entered into an agreement with Global Crossing under which:
. only 50% of their unvested options for IPC common stock, which would
otherwise have vested at the effective time of the mergers, and 25%
of their unvested options for IXnet common stock will become vested
at the effective time of the mergers;
. David Walsh has agreed, as of the effective time of the mergers, to
relinquish vesting with respect to 50% of his currently fully vested
options for IXnet common stock;
5
<PAGE>
. one third of the remaining unvested options of those 14 senior
executives of IPC and IXnet, including David Walsh, will vest on each
of the first three anniversary dates of the closing date of the
mergers; and
. if an excise tax is imposed on any of the 14 senior executives by
reason of the accelerated vesting of the options, Global Crossing has
agreed to reimburse the executives in the aggregate amount of up to
$20,000,000.
Opinions of financial advisors
In connection with the mergers, each of the IXnet and IPC boards of
directors received written opinions, dated February 22, 2000, from:
. Salomon Smith Barney Inc., which we refer to as "Salomon Smith
Barney". Salomon Smith Barney's opinion to the IXnet board of
directors addressed the fairness, from a financial point of view, to
the holders of IXnet common stock of the IXnet exchange ratio,
subject to the assumptions, limitations and qualifications included
in its opinion. Salomon Smith Barney's opinion to the IPC board of
directors addressed the fairness, from a financial point of view, to
the holders of IPC common stock of the IPC exchange ratio, subject
to the assumptions, limitations and qualifications included in its
opinion; and
. Donaldson, Lufkin & Jenrette Securities Corporation, which we refer
to as "DLJ". DLJ's opinion to the IPC board of directors was to the
effect that, based upon and subject to the assumptions, limitations
and qualifications included in its opinion, the IPC exchange ratio
of 5.417 shares of Global Crossing common stock for each share of
IPC common stock was fair from a financial point of view to the
holders of IPC common stock, other than Citicorp Venture Capital
Ltd. and its affiliates. DLJ's opinion to the IXnet board of
directors was to the effect that, based upon and subject to the
assumptions, limitations and qualifications included in its opinion,
the IXnet exchange ratio of 1.184 shares of Global Crossing common
stock for each share of IXnet common stock was fair from a financial
point of view to the holders of IXnet common stock other than IPC.
The full text of Salomon Smith Barney's opinions is attached to this
document as Appendices C-1 and C-2. The full text of DLJ's opinions is attached
to this document as Appendices D-1 and D-2. We encourage you to read these
opinions carefully in their entirety for a description of the assumptions made,
matters considered and limitations on the review undertaken. Salomon Smith
Barney's and DLJ's opinions are directed to the IXnet and IPC boards of
directors and do not constitute recommendations to any stockholders as to any
matters relating to the proposed mergers.
The consents; no further stockholder approval required
We are not asking you to vote on the mergers. On February 22, 2000, IPC
stockholders that own approximately 67.3% of IPC's voting power gave their
written consents to the IPC merger. Also on February 22, 2000, IPC Systems,
which owns approximately 84.3% of IXnet, gave its written consent to the IXnet
merger. These written consents are sufficient under Delaware law to proceed
with and complete the mergers without any further stockholder vote.
Appraisal rights
Under the Delaware General Corporation Law, neither IPC nor IXnet
stockholders are entitled to appraisal rights in connection with the mergers.
6
<PAGE>
Conditions to the completion of the mergers (Page 84)
The completion of the mergers depends on the satisfaction or waiver of a
number of conditions, including the following:
. approval of the Global Crossing common stock to be issued in the mergers
for trading on the Nasdaq National Market or any other national
securities exchange on which the Global Crossing common stock may be
listed upon official notice of issuance;
. expiration or early termination of the applicable waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976;
. the absence of legal prohibitions to the mergers;
. receipt of all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities and other third
parties that are necessary in connection with the transactions
contemplated by the merger agreement, other than those which are not
material to Global Crossing, IPC or IXnet or, if not obtained, would not
reasonably be expected to result in a material adverse effect on Global
Crossing, IPC or IXnet and their respective subsidiaries;
. receipt of opinions with respect to the tax-free nature of the mergers;
and
. material compliance by Global Crossing, IPC and IXnet with their
obligations, and truth and correctness of the representations made by
each of them, under the merger agreement.
Termination of the merger agreement (Page 84)
1. Global Crossing, IPC and IXnet may agree to terminate the merger
agreement at any time if all three companies agree.
2. Global Crossing, IPC or IXnet may also terminate the merger agreement
if:
. any governmental entity, domestic or foreign, permanently enjoins,
restrains or otherwise prohibits the IPC or IXnet merger and that
action is final;
. the mergers are not completed by December 31, 2000; or
. any party materially breaches any representation, warranty, covenant
or other agreement in the merger agreement and that breach has not
been or cannot be cured within 20 business days of notice.
Neither IPC nor IXnet may terminate the merger agreement to accept a
competing acquisition proposal.
Regulatory matters (Page 73)
The completion of the mergers is subject to regulatory requirements,
including the expiration or termination of the waiting period under the Hart-
Scott-Rodino Act. The completion of the mergers is also subject to obtaining
required regulatory approvals from governmental entities, including the Federal
Communications Commission, some state public utilities commissions and some
foreign telecommunications regulators and competition authorities. The mergers
may still be completed even in the absence of obtaining all necessary approvals
if those approvals are not material to Global Crossing or are not reasonably
expected to have a material adverse effect on IPC, IXnet or Global Crossing.
Accounting treatment (Page 74)
Global Crossing anticipates that the mergers will be accounted for using the
purchase method of accounting.
Trading of Global Crossing common stock (Page 74)
Global Crossing's common stock is currently trading on the Nasdaq National
Market and the Bermuda Stock Exchange. The shares of Global Crossing common
stock to be issued in the mergers will also trade on the Nasdaq National Market
and the Bermuda Stock Exchange.
7
<PAGE>
Selected historical financial information
Global Crossing
Global Crossing acquired Global Marine Systems on July 2, 1999 and Frontier
on September 28, 1999.
On November 24, 1999, Global Crossing formed, together with Softbank Corp.
and Microsoft Corporation, a new joint venture company called Asia Global
Crossing. Global Crossing has contributed to Asia Global Crossing its 57.75%
ownership interest in Pacific Crossing and its development rights in East Asia
Crossing. Among other things, each of Softbank and Microsoft contributed $175
million in cash to Asia Global Crossing. Also on November 24, 1999, Global
Crossing acquired Racal Telecom, a group of wholly-owned subsidiaries of Racal
Electronics plc. On January 12, 2000, Global Crossing formed a joint venture
with Hutchison Whampoa Limited, called Hutchison Global Crossing, and issued
$400 million aggregate liquidation preference of Global Crossing's 6 3/8%
cumulative convertible preferred stock, series B, to Hutchison Whampoa.
In the following tables, we provide selected historical financial
information for (1) Global Crossing, (2) Global Marine Systems, (3) Frontier,
(4) Racal Telecom and (5) HCL Holdings Limited, a group of wholly-owned
subsidiaries of Hutchison Whampoa which has been contributed into the Hutchison
Global Crossing joint venture. We do not provide any separate historical
financial information relating to the Asia Global Crossing joint venture, as
all relevant historical financial information is reflected in the historical
financial information of Global Crossing.
The selected historical financial information presented in the following
tables has been derived from the audited and unaudited financial statements of
Global Crossing, Global Marine Systems, Frontier, Racal Telecom and HCL
Holdings for the periods presented. This information is only a summary, and you
should read it together with the more detailed historical financial information
included or incorporated by reference in this document. For instructions on how
to obtain information incorporated by reference, see "Where You Can Find More
Information" on page 135.
Global Crossing selected historical financial information
The table below shows the selected historical financial information for
Global Crossing. This information has been prepared using the consolidated
financial statements of Global Crossing as of the dates indicated and for each
of the fiscal years in the period from inception, March 19, 1997, to December
31, 1999. The consolidated income statement data below for each of the fiscal
years in the period from inception, March 19, 1997, to December 31, 1999 and
the consolidated balance sheet data as of December 31, 1999 and 1998 have been
derived from financial statements audited by Arthur Andersen, independent
public accountants, which are incorporated by reference in this document.
Global Crossing derived the remaining data from unaudited condensed
consolidated financial statements.
In reading the following selected historical financial information, please
note the following:
. The statement of operations data for the year ended December 31, 1999
includes the results of Global Marine Systems for the period from July
2, 1999, date of acquisition, through December 31, 1999; the results of
Frontier for the period from September 30, 1999, date of acquisition,
through December 31, 1999; and the results of Racal Telecom for the
period from November 24, 1999; date of acquisition, through December 31,
1999. The consolidated balance sheet as of December 31, 1999 includes
amounts related to Global Marine Systems, Frontier and Racal Telecom.
. During the year ended December 31, 1999, Global Crossing recorded a $15
million expense, net of tax benefit, due to the adoption of Statement of
Position 98-5, "Reporting on the Cost of Start-Up
8
<PAGE>
Activities". See the "Cumulative effect of change in accounting
principles" item in the statement of operations data.
. During the years ended December 31, 1999 and 1998, Global Crossing
recognized $51 million and $39 million, respectively, of stock-related
expense relating to stock options and rights to purchase stock issued
during that period which entitle the holders to purchase common stock.
See the "Stock-related expense" item in the statement of operations
data.
. On December 15, 1999, Global Crossing issued 2,600,000 shares of 7%
cumulative convertible preferred stock at a liquidation preference of
$250.00 for net proceeds of $630 million. Each share of preferred stock
is convertible into 4.6948 shares of common stock based on a conversion
price of $53.25. Dividends on the preferred stock are cumulative from
the date of issue and will be payable on February 1, May 1, August 1 and
November 1 of each year, beginning on February 1, 2000, at the annual
rate of 7%.
. On November 24, 1999, Global Crossing completed its acquisition of Racal
Telecom, a group of wholly-owned subsidiaries of Racal Electronics plc,
for approximately $1.6 billion in cash. Racal Telecom owns one of the
most extensive fiber telecommunications networks in the United Kingdom,
consisting of approximately 4,650 route miles of fiber and reaching more
than 2,000 cities and towns.
. On November 12, 1999, Global Crossing's wholly-owned subsidiary, Global
Crossing Holdings Ltd., issued two series of senior unsecured notes,
which we refer to in this document as the "new senior notes". The 9 1/8%
senior notes are due November 15, 2006 with a face value of $900
million, and the 9 1/2% senior notes are due November 15, 2009 with a
face value of $1,100 million. The new senior notes are guaranteed by
Global Crossing. Interest will be paid on the notes on May 15 and
November 15 of each year, beginning on May 15, 2000.
. On November 5, 1999, Global Crossing issued 10,000,000 shares of 6 3/8%
cumulative convertible preferred stock at a liquidation preference of
$100.00 for net proceeds of approximately $969 million. Each share of
preferred stock is convertible into 2.2222 shares of common stock, based
on a conversion price of $45.00. Dividends on the preferred stock are
cumulative from the date of issue and will be payable on February 1, May
1, August 1 and November 1 of each year, beginning on February 1, 2000,
at the annual rate of 6 3/8%.
. On September 28, 1999, Global Crossing completed the acquisition of
Frontier in a merger transaction valued at over $10 billion, with
Frontier shareholders receiving 2.05 shares of our common stock for each
share of Frontier common stock held. Frontier is one of the largest long
distance telecommunications companies in the United States and one of
the leading providers of facilities-based integrated communications and
Internet services.
. On July 2, 1999, Global Crossing completed its acquisition of the Global
Marine Systems division of Cable & Wireless Plc for approximately $908
million in cash and assumed liabilities. Global Marine Systems owns the
largest fleet of cable laying and maintenance vessels in the world and
currently services more than a third of the world's undersea cable
miles.
. On May 16, 1999, Global Crossing entered into a definitive agreement to
merge with U S WEST, Inc. On July 18, 1999, Global Crossing and U S WEST
agreed to terminate their merger agreement, and U S WEST agreed to merge
with Qwest Communications International Inc. As a result, U S WEST paid
Global Crossing a termination fee of $140 million in cash and returned
2,231,076 shares of Global Crossing's common stock purchased in a
related tender offer, and Qwest committed to purchase capacity on the
Global Crossing network at established market unit prices for delivery
over the next four years and committed to make purchase price payments
to us for this capacity of $140 million over the next two years. During
the year ended December 31, 1999, Global Crossing
9
<PAGE>
recognized $210 million, net of merger related expenses, of other income
in connection with the termination of the U S WEST merger agreement.
. The "Termination of advisory services agreement" item in the statements
of operations data includes a charge for the termination of the advisory
services agreement as of June 30, 1998. Global Crossing acquired the
rights from those entitled to fees payable under the advisory services
agreement in consideration for the issuance of common stock having an
aggregate value of $135 million and the cancellation of approximately $3
million owed to Global Crossing under a related advance agreement. As a
result of this transaction, Global Crossing recorded a non-recurring
charge in the approximate amount of $138 million during the year ended
December 31, 1998. In addition, Global Crossing recognized as an expense
approximately $2 million of advisory fees incurred before the
termination of the contract.
. Global Crossing granted warrants to Pacific Capital Group, Inc., a
shareholder, and some of its affiliates for the Pacific Crossing, Mid-
Atlantic Crossing and Pan American Crossing systems and related rights.
The $275 million value of the common stock was originally allocated to
"Construction in progress" in the amount of $112 million and as
"Investment in and advances to/from affiliates" in the amount of $163
million. See the "property and equipment" item in the balance sheet
data. The "Investment in and advance to/from affiliates" item in the
balance sheet data includes $163 million as of December 31, 1999 and
1998, respectively, representing the value of the warrants described in
the bullet point immediately above applicable to the Pacific Crossing
system.
. Adjusted EBITDA is defined as operating income (loss), plus goodwill
amortization, depreciation and amortization, non-cash cost of capacity
sold, stock related expenses, incremental cash deferred revenue and
amounts relating to the termination of the advisory services agreement.
This definition is consistent with financial covenants contained in
Global Crossing's major financial agreements. This information should
not be considered as an alternative to any measure of performance as
promulgated under generally accepted accounting principles, which we
refer to as "GAAP". Global Crossing's calculation of adjusted EBITDA may
be different from the calculation used by other companies and,
therefore, comparability may be limited.
10
<PAGE>
Global Crossing Ltd. and Subsidiaries
(in thousands, except share and per share information)
<TABLE>
<CAPTION>
Period from
March 19, 1997
Year Ended Year Ended (Date of Inception)
December 31, 1999 December 31, 1998 to December 31, 1997
----------------- ----------------- --------------------
<S> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ 1,664,824 $ 419,866 $ --
----------- ----------- -----------
Expenses:
Cost of sales.......... 850,483 178,492 --
Operations,
administration and
maintenance........... 133,202 18,056 --
Sales and marketing.... 149,119 26,194 1,366
Network development.... 26,153 10,962 78
General and
administrative........ 210,107 26,303 1,618
Stock related expense
...................... 51,306 39,374 --
Depreciation and
amortization.......... 124,294 541 39
Goodwill and
intangibles
amortization.......... 127,621 -- --
Termination of advisory
services agreement ... -- 139,669 --
----------- ----------- -----------
1,672,285 439,591 3,101
----------- ----------- -----------
Operating loss.......... (7,461) (19,725) (3,101)
Equity in income (loss)
of affiliates.......... 15,708 (2,508) --
Minority interest....... (1,338) -- --
Other income (expense):
Interest income........ 67,407 29,986 2,941
Interest expense....... (139,077) (42,880) --
Other income, net...... 180,765 -- --
Provision for income
taxes.................. (126,539) (33,067) --
----------- ----------- -----------
Loss before
extraordinary item and
cumulative effect of
change in accounting
principle.............. (10,535) (68,194) (160)
Extraordinary loss on
retirement of debt..... (45,681) (19,709) --
----------- ----------- -----------
Loss before cumulative
effect of change in
accounting principle... (56,216) (87,903) (160)
Cumulative effect of
change in accounting
principle, net of
income tax benefit of
$1,400................. (14,710) -- --
----------- ----------- -----------
Net loss................ (70,926) (87,903) (160)
Preferred stock
dividends.............. (66,642) (12,681) (12,690)
Redemption of preferred
stock.................. -- (34,140) --
----------- ----------- -----------
Net loss applicable to
common shareholders.... $ (137,568) $ (134,724) $ (12,850)
=========== =========== ===========
Net Loss Per Common
Share:
Loss applicable to
common shareholders
before extraordinary
item and cumulative
effect of change in
accounting principle
Basic and diluted....... $ (0.15) $ (0.32) $ (0.04)
=========== =========== ===========
Extraordinary item
Basic and diluted...... $ (0.09) $ (0.06) $ --
=========== =========== ===========
Cumulative effect of
change in accounting
principle
Basic and diluted...... $ (0.03) $ -- $ --
=========== =========== ===========
Net loss applicable to
common shareholders
Basic and diluted...... $ (0.27) $ (0.38) $ (0.04)
=========== =========== ===========
Shares used in computing
basic and diluted loss
per share.............. 502,400,851 358,735,340 325,773,934
=========== =========== ===========
Other Operating Data:
Cash from operating
activities............. $ 506,084 $ 208,727 $ 5,121
Cash used for investing
activities............. (4,009,977) (430,697) (428,743)
Cash from financing
activities............. 4,330,799 1,027,110 425,075
Adjusted EBITDA ........ $ 708,181 $ 364,948 $ 343,233
</TABLE>
11
<PAGE>
Global Crossing Ltd. and Subsidiaries
(in thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998 1997
----------- ---------- --------
<S> <C> <C> <C>
Balance sheet data:
Current assets including cash and cash
equivalents and restricted cash and cash
equivalents................................ $ 2,946,533 $ 976,615 $ 27,744
Long term restricted cash and cash
equivalents................................ 138,118 367,600 --
Long term accounts receivable............... 52,052 43,315 --
Capacity available for sale................. -- 574,849 --
Property and equipment, net ................ 6,026,053 433,707 518,519
Other assets................................ 661,442 65,757 25,934
Investment in and advances to/from
affiliates, net............................ 323,960 177,334 --
Goodwill and intangibles, net............... 9,557,422 -- --
----------- ---------- --------
Total assets................................ $19,705,580 $2,639,177 $572,197
=========== ========== ========
Current liabilities......................... $ 1,852,593 $ 256,265 $ 90,817
Long term debt.............................. 5,018,544 1,066,093 312,325
Deferred revenue............................ 383,287 25,325 --
Deferred credits and other.................. 796,606 34,174 3,009
----------- ---------- --------
Total liabilities........................... 8,051,030 1,381,857 406,151
Minority interest........................... 351,338 -- --
Mandatorily redeemable and cumulative
convertible preferred stock ............... 2,084,697 483,000 91,925
Shareholders' equity
Common stock............................... 7,992 4,328 3,258
Treasury stock............................. (209,415) (209,415) --
Other shareholders' equity................. 9,578,927 1,067,470 71,023
Accumulated deficit........................ (158,989) (88,063) (160)
----------- ---------- --------
Total shareholders' equity.................. 9,218,515 774,320 74,121
----------- ---------- --------
Total liabilities and shareholders' equity.. $19,705,580 $2,639,177 $572,197
=========== ========== ========
</TABLE>
12
<PAGE>
Global Marine Systems selected historical financial information
The table below shows selected historical financial information for Global
Marine Systems presented in United States GAAP. This information has been
prepared using the combined financial statements of Global Marine Systems as of
the dates indicated and for each of the fiscal years in the five-year period
ended March 31, 1999. The combined income statement data below for each of the
three fiscal years ended March 31, 1999 and the combined balance sheet data at
March 31, 1999 and 1998 were derived from United Kingdom GAAP financial
statements audited by KPMG Audit Plc, chartered accountants, which are
incorporated by reference in this document. The combined income statement data
below for each of the fiscal years ended March 31, 1996 and 1995 and the
combined balance sheet data as of March 31, 1997, 1996 and 1995 were derived
from management accounts.
The unaudited translations of Global Marine Systems' sterling amounts into
United States dollars have been translated using convenience translation rates
for the fiscal year ended March 31, 1999. The convenience translations should
not be construed as representations that the sterling amounts have been, could
have been or could in the future be converted into United States dollars at
this rate or any other rate of exchange.
<TABLE>
<CAPTION>
For the Years Ended March 31,
----------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------ --------------- --------------- --------------- ---------------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues...... $347,335 (Pounds)209,997 (Pounds)170,953 (Pounds)181,987 (Pounds)147,996 (Pounds) 79,778
Income from continuing
operations............. 47,051 28,447 13,843 18,992 26,923 10,829
Total assets............ 753,333 466,749 441,899 380,635 359,148 235,459
Long-term obligations... $261,923 (Pounds)162,282 (Pounds)198,055 (Pounds)163,209 (Pounds)167,454 (Pounds) 54,900
</TABLE>
Frontier selected historical financial information
The table below shows selected historical financial information for
Frontier. This information has been prepared using the consolidated financial
statements of Frontier as of the dates indicated and for each of the fiscal
years in the five-year period ended December 31, 1998 and for the nine months
ended September 30, 1999 and 1998. The consolidated income statement data below
for each of the fiscal years in the five-year period ending December 31, 1998
and the consolidated balance sheet data as of December 31, 1994 through
December 31, 1998 have been derived from financial statements audited by
PricewaterhouseCoopers LLP, independent accountants, of which the financial
statements for the three-year period ending December 31, 1998 are incorporated
by reference in this document. Global Crossing derived the remaining data from
unaudited consolidated financial statements, which are incorporated by
reference in this document.
Revenues have been impacted by the following acquisitions for the periods
presented:
. On February 27, 1998, Frontier acquired GlobalCenter Inc., a leading
provider in digital distribution, Internet and data services
headquartered in Sunnyvale, California. Frontier acquired all of the
outstanding shares of GlobalCenter and issued 6.4 million shares to
effect this merger. At the time of the merger, GlobalCenter had 1.1
million stock options and warrants outstanding as converted into
Frontier equivalents. This transaction was accounted for using the
pooling of interests method of accounting and, accordingly, historical
information has been restated to include GlobalCenter.
. In August 1995, Frontier merged with ALC Communications Corporation.
Frontier exchanged two shares of its common stock for each ALC common
share. The total shares issued by Frontier to effect the merger were
69.2 million. In March 1995, Frontier acquired American Sharecom Inc.
Frontier acquired all of the outstanding shares of American Sharecom for
approximately 8.7 million shares of Frontier common stock. These
transactions were accounted for as poolings of interests and,
accordingly, historical information has been restated to include ALC and
American Sharecom.
13
<PAGE>
. In 1995, Frontier paid $318.4 million in cash for several acquisitions
that were accounted for as purchases. These purchase acquisitions were
Minnesota Southern Cellular Telephone Company, ConferTech International,
Inc., WCT Communications, Inc., Enhanced Telemanagement, Schneider
Communications, Inc. and Schneider Communications' 80.8 percent interest
in LinkUSA Corporation and Link-VTC, Inc. In February 1996, Frontier
acquired the remaining 19.2 percent interest in LinkUSA Corporation for
$2.3 million in cash, and in June 1996 made a payment of $4.3 million to
Link-VTC, Inc. in settlement of the original earnout agreement.
The following extraordinary, unusual or infrequently occurring items have
impacted net income for the periods presented:
. During the nine-month period ended September 30, 1999, Frontier recorded
a $74.5 million charge for costs related to the merger with Global
Crossing. These charges primarily include investment banker fees, legal
fees, accelerated restricted stock compensation and other direct costs.
. In the first quarter of 1998, Frontier recorded a pre-tax charge of $6.5
million associated with the acquisition of GlobalCenter. These charges
included investment banker fees, legal fees and other direct costs.
. In October 1997, Frontier recorded a pre-tax charge of $86.8 million
consisting of a restructuring charge of $43.0 million and a provision
for asset and lease impairments of $43.8 million. The restructuring
charge was primarily associated with a workforce reduction, program
cancellations and discontinuing some product lines. The provision for
asset and lease impairments primarily relates to long-term assets and
some lease obligations Frontier was in the process of disposing of or
exiting.
. In March 1997, Frontier recorded a $96.6 million pre-tax charge
primarily related to the write-off of certain leased network facilities
no longer required as a result of the migration of Frontier's major
carrier customer's one-plus traffic volume to other networks and
Frontier's overall network integration efforts.
. In November 1996, Frontier recorded a $48.8 million pre-tax charge. This
charge included $28.0 million for the curtailment of specified Frontier
pension plans and a $20.8 million charge primarily to the write-off of
unrecoverable product development costs for its conference calling
product line.
. In December 1996, Frontier, through GlobalCenter, recorded a pre-tax
charge of $18.9 million related to the write-off of in-process product
development costs associated with the 1996 merger with GCIS, an Internet
management services company.
. Frontier's 1995 operating results reflect pre-tax acquisition related
charges of $114.2 million associated with the integration of a number of
long distance companies acquired during the year, including the August
1995 merger with ALC Communications.
. Frontier determined in 1995 that Statement of Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of
Regulation", was no longer applicable based upon changes in regulation,
increasingly rapid advancements in telecommunications technology and
other factors creating competitive markets. As a result of the
discontinuance of FAS 71, Frontier recorded a non-cash extraordinary
charge of $112.1 million, net of an income tax benefit of $68.4 million,
as of September 30, 1995. Frontier also recorded a $9.0 million loss on
the early extinguishment of debt in 1995.
14
<PAGE>
Frontier Corporation and Subsidiaries
(in thousands, except per share information)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended Year Ended December 31,
September 30, September 30, ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------------- ------------- ---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Income:
Revenues................ $ 1,995,556 $1,938,522 $2,593,558 $2,374,809 $2,588,519 $2,150,328 $1,667,545
Costs and expenses...... 1,835,514 1,708,518 2,276,162 2,288,651 2,220,296 1,865,492 1,341,919
----------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income........ 160,042 230,004 317,396 86,158 368,223 284,836 325,626
Interest expense........ 48,739 39,516 55,318 48,239 43,312 53,572 50,216
Other income, net of
other expense.......... 19,643 33,480 45,025 38,070 15,850 14,991 20,922
Income taxes............ 77,181 96,634 129,560 44,188 142,556 101,126 109,078
----------- ---------- ---------- ---------- ---------- ---------- ----------
Income before
extraordinary items and
cumulative effect of
changes in accounting
principles............. 53,765 127,334 177,543 31,801 198,205 145,129 187,254
Extraordinary items..... -- -- -- -- -- (121,208) --
Cumulative effect of
changes in accounting
principles............. -- (1,755) (1,755) -- (8,018) (1,477) (7,197)
----------- ---------- ---------- ---------- ---------- ---------- ----------
Consolidated net
income................. 53,765 125,579 175,788 31,801 190,187 22,444 180,057
Dividends on preferred
stock.................. (510) (754) (1,005) (1,019) (1,182) (1,191) (1,187)
----------- ---------- ---------- ---------- ---------- ---------- ----------
Income applicable to
common stock........... $ 53,255 $ 124,825 $ 174,783 $ 30,782 $ 189,005 $ 21,253 $ 178,870
=========== ========== ========== ========== ========== ========== ==========
Earnings per common
share:
Income before
extraordinary item and
cumulative effect of
changes in accounting
principles
Basic.................. $ 1.03 $ .18 $ 1.19 $ .94 $ 1.26
Diluted................ 1.02 .18 1.18 .88 1.16
Cash dividends declared
per common share....... $ .100 $ .668 $ .89 $ .875 $ .855 $ .835 $ .815
Consolidated Balance
Sheets (at period end):
Current assets.......... $ 644,023 $ 566,674 $ 490,305 $ 477,761 $ 524,200 $ 673,826
Property, plant and
equipment, net......... 2,189,138 1,677,559 1,046,884 975,982 883,046 1,034,442
Goodwill and customer
base, net.............. 7,794,241 484,015 517,754 538,296 550,081 222,442
Deferred and other
assets................. 431,614 330,495 432,977 237,353 154,088 130,084
----------- ---------- ---------- ---------- ---------- ----------
Total assets........... $11,059,016 $3,058,743 $2,487,920 $2,229,392 $2,111,415 $2,060,794
=========== ========== ========== ========== ========== ==========
Current liabilities..... $ 750,974 $ 567,697 $ 492,978 $ 424,397 $ 506,073 $ 305,698
Long-term debt.......... 1,800,651 1,350,821 934,681 677,570 618,867 661,549
Other long-term
liabilities............ 31,928 -- -- -- -- --
Deferred income taxes... -- 40,046 10,927 2,542 15,644 98,217
Deferred employee
benefits obligation.... 89,596 81,925 74,965 57,573 58,385 46,001
Shareholder's equity.... 8,385,867 1,018,254 974,369 1,067,310 912,446 949,329
----------- ---------- ---------- ---------- ---------- ----------
Total liabilities and
shareholders' equity.. $11,059,016 $3,058,743 $2,487,920 $2,229,392 $2,111,415 $2,060,794
=========== ========== ========== ========== ========== ==========
</TABLE>
15
<PAGE>
Racal Telecom selected historical financial information
The table below shows selected historical financial information for Racal
Telecom prepared in United States GAAP. This information has been prepared
using the combined financial statements of Racal Telecom as of the dates
indicated and for each of the fiscal years in the three-year period ended March
31, 1999. The combined income statement data below for each of the two years
ended March 31, 1999 and the combined balance sheet data at March 31, 1999 and
1998 were derived from financial statements audited by Deloitte & Touche,
chartered accountants, which are incorporated by reference in this document.
Racal Telecom derived the remaining data from unaudited combined financial
statements.
The unaudited translations of Racal Telecom's sterling amounts into United
States dollars have been translated using convenience translation rates for the
fiscal year ended March 31, 1999. The convenience translations should not be
construed as representations that the sterling amounts have been, could have
been or could in the future be converted into United States dollars at this
rate or any other rate of exchange.
<TABLE>
<CAPTION>
For the Years Ended March 31,
------------------------------------------------------------
1999 1998 1997
--------------------------- --------------- ---------------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C>
Revenues................ $492,130 (Pounds)295,800 (Pounds)273,000 (Pounds)260,000
Income (loss) from
continuing operations.. (30,450) (18,300) 12,100 16,000
Total assets............ 656,250 401,200 355,900 311,700
Long-term obligations... $118,920 (Pounds) 72,700 (Pounds) 86,400 (Pounds)101,200
</TABLE>
HCL Holdings selected historical financial information
The table below shows selected historical financial information for HCL
Holdings prepared in United States GAAP. This information has been prepared
using the combined financial statements of HCL Holdings as of the dates
indicated and for each of the years in the three-year period ended December 31,
1998 and for the nine months ended September 30, 1999 and 1998. The combined
financial information below as of and for each of the three years ended
December 31, 1998 were derived from financial statements audited by
PricewaterhouseCoopers, certified public accountants, which are incorporated by
reference in this document. The combined financial information below as of and
for the nine months ended September 30, 1999 and 1998 were derived from
unaudited combined financial statements.
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended For the Years Ended December 31,
September 30, September 30, --------------------------------------
1999 1998 1998 1997 1996
------------- ------------- ------------ ------------ ----------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues................ HK$ 615,940 HK$735,933 HK$ 950,120 HK$1,262,106 HK$790,995
Income (loss) from
continuing operations.. (190,748) (177,318) (279,526) (356,847) (153,626)
Total assets............ 2,364,497 1,857,539 1,369,610 705,687
Long-term obligations... HK$3,022,594 HK$2,306,024 HK$1,403,847 HK$704,586
</TABLE>
16
<PAGE>
The unaudited translations of HCL Holdings' Hong Kong dollar amounts into
United States dollars have been translated using convenience translation rates
for the fiscal year ended December 31, 1998 and for the nine months ended
September 30, 1999. The convenience translations should not be construed as
representations that the Hong Kong dollar amounts have been, could have been or
could in the future be converted into United States dollars at this rate or any
other rate of exchange.
<TABLE>
<CAPTION>
For the Nine For the Year
Months Ended Ended
September 30, December 31,
1999 1998
------------- ------------
(unaudited)
(in thousands)
<S> <C> <C>
Revenues...................................... $ 79,429 $122,664
Income (loss) from continuing operations...... (24,598) (36,088)
Total assets.................................. 304,401 239,794
Long-term obligations......................... $389,123 $297,690
</TABLE>
IPC
The table below shows the selected historical financial information for IPC.
This information has been prepared using the consolidated financial statements
of IPC as of the dates indicated and for each of the fiscal years in the period
from September 30, 1995 through September 30, 1999. The statement of operations
and statement of cash flow data for the three years ended September 30, 1999,
1998 and 1997 and the balance sheet data as of September 30, 1999 and 1998 have
been derived from financial statements audited by PricewaterhouseCoopers LLP,
independent accountants, which are incorporated by reference in this document.
The statement of operations and statement of cash flow data for the two years
ended September 30, 1996 and 1995, as well as the balance sheet data as of
September 30, 1997, 1996 and 1995, have been derived from financial statements
audited by PricewaterhouseCoopers LLP, independent accountants, which are not
included nor incorporated by reference in this document. The statement of
operations, statement of cash flows and balance sheet data for the quarter
ended December 31, 1999 and 1998 have been derived from unaudited financial
statements, which are incorporated by reference in this document.
In reading the following selected historical financial information, please
note the following:
. On April 30, 1998, IPC merged with Arizona Acquisition Corp., which was
formed at the direction of (1) Cable Systems Holding LLC and one of its
subsidiaries and (2) the investment fund of Lawrence Smith & Horey III,
L.P., now known as Allegra Capital Partners III, L.P. IPC accounted for
that merger as a leveraged recapitalization. Certain stockholders of
IPC, including Richard P. Kleinknecht, elected to retain IPC common
stock in the IPC merger with Arizona Acquisition Corp. instead of
receiving cash. Accordingly, the historical cost basis of IPC's assets
and liabilities have not been impacted by that merger.
. EBITDA consists of income from operations before depreciation and
amortization. For fiscal year 1998, IPC excluded from the calculation
$10.6 million of non recurring change in control expense from the merger
with Arizona Acquisition Corp. For fiscal year 1999, IPC excluded from
the calculation the $9.1 million stock compensation charge. EBITDA is
provided because it is a measure commonly used in the telecommunications
industry. It is presented to enhance an understanding of IPC's operating
results and is not intended to represent cash flow or results of
operations under GAAP for the periods indicated. EBITDA is not
necessarily comparable to similarly titled measures of other companies.
IPC's EBITDA will not necessarily be available to pay its interest
expense due to limitations that began in fiscal year 1998 on IPC's
ability to utilize foreign tax credits and net operating losses for
federal income tax purposes, for certain state income tax purposes,
including
17
<PAGE>
New York State, where a substantial portion of IPC's revenues and net
income have been generated, and its inability to deduct the losses of
IXnet which have been material to the income of its other operations.
See "EBITDA" under the statement of operations data.
. IPC's EBITDA has been reduced by $20.8 million for the fiscal year ended
September 30, 1999; $13.3 million for the fiscal year ended September
30, 1998; $9.6 million for the fiscal year ended September 30, 1997; and
$4.4 million for the fiscal year ended September 30, 1996, in each case
related to the operations of IXnet.
. In fiscal year 1998, IPC declared a two-for-one stock split effected in
the form of a 100% stock dividend. All prior period share information
has been restated for the stock split. See "basic (loss) earnings per
share", "basic weighted average shares outstanding", "diluted (loss)
earnings per share" and "diluted weighted average shares outstanding" in
the statement of operations data. See also "shares issued and
outstanding" in the balance sheet data.
. IPC has reclassified certain previous year amounts to conform to the
current year presentation.
<TABLE>
<CAPTION>
Three Months Ended
December 31, Year Ended September 30,
-------------------- -------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
--------- --------- --------- -------- -------- -------- --------
(unaudited)
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues................................ $ 83,480 $ 67,750 $ 339,192 $295,817 $270,058 $249,508 $206,254
Gross profit (excluding depreciation and
amortization).......................... 21,753 23,953 107,951 106,759 74,761 75,269 63,705
Selling, general and administrative
expense................................ 18,911 12,594 58,047 53,345 48,100 38,528 28,326
Research and development expense........ 2,912 2,401 9,786 8,276 8,490 10,512 9,512
Depreciation & amortization............. 10,783 5,661 30,110 15,690 8,630 6,021 3,840
Stock compensation charge............... 1,363 -- 9,079 -- -- -- --
Change in control expense............... -- -- -- 10,640 -- -- --
--------- -------- --------- -------- -------- -------- --------
(Loss) income from operations........... (12,216) 3,297 929 18,808 9,541 20,208 22,027
Interest income (expense) net........... (6,795) (6,191) (27,263) (10,337) (1,844) (678) 233
Other income (expense).................. 196 76 451 (2) 417 591 226
Provision for income taxes.............. 1,241 841 (7,968) (6,191) (4,280) (7,992) (9,219)
--------- -------- --------- -------- -------- -------- --------
Net (loss) income....................... $ (16,489) $ (3,659) $ (32,456) $ 2,278 $ 3,834 $ 12,129 $ 13,267
========= ======== ========= ======== ======== ======== ========
Basic (loss) earnings per share......... $ (1.95) $ (0.45) $ (3.97) $ 0.14 $ 0.18 $ 0.57 $ 0.63
Basic weighted average shares
outstanding............................ 8,467 8,076 8,172 15,774 21,328 21,180 21,012
Diluted (loss) earnings per share ...... $ (1.95) $ (0.45) $ (3.97) $ 0.14 $ 0.18 $ 0.57 $ 0.63
Diluted weighted average shares
outstanding............................ $ 8,467 $ 8,076 $ 8,172 $ 15,941 $ 21,408 $ 21,230 $ 21,012
Statement of Cash Flows Data:
Net cash provided by (used in) operating
activities............................. (8,141) 5,928 $ 12,313 $ 46,762 $ 24,681 $(14,737) $ 7,343
Net cash used in investing activities... (26,179) (45,015) (124,272) (25,828) (15,009) (12,737) (8,506)
Net cash provided by (used in) financing
activities............................. 4,746 19,097 127,882 6,344 (10,043) 13,785 14,337
Other Data:
EBITDA.................................. (70) 8,958 40,118 45,138 18,171 26,229 25,867
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
December 31, September 30,
------------------ ----------------------------------------------
1999 1998 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(unaudited) (in thousands, except per share amounts)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data (at
period end):
Cash and cash
equivalents............ $ 13,760 $ 8,173 $ 43,946 $ 28,084 $ 1,465 $ 2,306 $ 15,786
Marketable securities... 48,553 -- 54,857 -- -- -- --
Working capital......... 71,707 6,546 88,807 51,136 46,398 50,807 46,851
Total assets............ 395,209 277,191 413,209 241,642 158,897 141,877 128,036
Long-term debt, net of
current portion........ 231,342 203,383 227,584 188,223 2,133 -- --
Capital lease
obligations............ 23,634 18,258 21,916 16,952 13,323 4,369 --
Minority interest....... 22,261 -- 25,828 -- -- -- --
Stockholders' equity
(deficit).............. (15,185) (70,293) (379) (66,541) 77,628 71,715 58,504
Book value (deficit) per
share.................. $ (1.76) $ (8.70) $ (0.04) $ (8.24) $ 3.63 $ 3.38 $ 2.78
Shares issued and
outstanding............ 8,625 8,076 8,577 8,076 21,380 21,236 21,044
</TABLE>
IXnet
The table below shows the selected historical financial information for
IXnet. This information has been prepared using the consolidated and combined
financial statements of IXnet as of the dates indicated and for each of the
fiscal years in the period from September 30, 1995 through September 30, 1999.
The statement of operations and statement of cash flows data for the three
years ended September 30, 1999, 1998 and 1997 and the balance sheet data as of
September 30, 1999 and 1998 have been derived from financial statements audited
by PricewaterhouseCoopers LLP, independent accountants, which are included in
this document. The statement of operations and statement of cash flows data for
the year ended September 30, 1996 and the balance sheet data as of September
30, 1997 have been derived from IXnet's audited consolidated financial
statements which do not appear in this document. The statement of operations
and statement of cash flows data for the three months ended December 31, 1999
and 1998 have been derived from IXnet's unaudited consolidated financial
statements which are included in this document. The statement of operations and
statement of cash flows data for the year ended September 30, 1995 and the
balance sheet data as of September 30, 1996 and 1995, as well as December 31,
1998, have been derived from IXnet's unaudited consolidated financial
statements which do not appear in this document.
In reading the following selected historical financial information, please
note the following:
. The "special charge" item in the statement of operations data represents
bonuses and payments for cancellation of stock options in connection
with IPC's leveraged recapitalization. See Note 5 of the notes to
IXnet's consolidated and combined financial statements on page F-21.
. EBITDA represents operating loss before interest, income taxes,
depreciation and amortization expenses. EBITDA is not a measurement of
financial performance under GAAP, is not intended to represent cash flow
from operations and should not be considered as an alternative to net
loss as an indicator of IXnet's operating performance or to cash flows
as a measure of liquidity. IXnet believes that EBITDA is widely used by
analysts, investors and others in the telecommunications industry.
EBITDA is not necessarily comparable with similarly titled measures used
by other companies. EBITDA for the year ended September 30, 1999 and the
three months ended December 31, 1999 excludes the stock compensation
charge of $9.1 million and $1.4 million, respectively.
. In the "note payable to parent" item of the balance sheet data, the
September 30, 1999 figure represents amounts due to IPC and is net of
the capitalization to paid-in capital of $73.0 million as of March 31,
1999.
19
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
December 31, Year Ended September 30,
-------------------- --------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
--------- --------- -------- -------- -------- ------- -----------
(unaudited) (unaudited)
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ 23,125 $ 12,752 $ 73,615 $ 35,853 $ 17,838 $ 3,459 $ --
Cost of revenue
(exclusive of
depreciation and
amortization shown
separately below)...... 24,745 12,458 73,097 35,652 19,823 4,406 500
Sales and marketing
expense................ 5,805 2,092 13,063 8,455 4,172 1,057 --
General and
administrative
expense................ 4,476 1,215 8,312 5,001 3,439 2,868 229
Depreciation and
amortization........... 8,211 3,922 21,575 9,060 3,460 998 --
Special charge.......... -- -- -- 1,350 -- -- --
Stock compensation
charge................. 1,363 -- 9,079 -- -- -- --
--------- --------- -------- -------- -------- ------- ------
Loss from operations.... (21,475) (6,935) (51,511) (23,665) (13,056) (5,870) (729)
Interest expense, net... (1,160) (1,825) (6,999) (3,527) (2,040) (247) (3)
Other income, net....... 99 46 336 26 117 -- 49
--------- --------- -------- -------- -------- ------- ------
Loss before provision
for income taxes....... (22,536) (8,714) (58,174) (27,166) (14,979) (6,117) (683)
Provision for income
taxes.................. 312 123 1,293 473 229 62 --
--------- --------- -------- -------- -------- ------- ------
Net loss................ $ (22,848) $ (8,837) $(59,467) $(27,639) $(15,208) $(6,179) $ (683)
========= ========= ======== ======== ======== ======= ======
Basic and diluted loss
per share.............. $ (0.45) $ (0.21) $ (1.35) $ (0.64) $ (0.35) $ (0.14) $(0.02)
Basic and diluted
weighted average common
shares outstanding..... 51,075 43,100 44,085 43,100 43,100 43,100 43,100
Statement of Cash Flows
Data:
Cash used in operating
activities............. $(19,880) $ (6,280) $(29,114) $(15,093) $(14,669) $(6,240) $ (576)
Cash used in investing
activities............. (25,299) (38,262) (87,278) (13,772) (3,495) (4,858) --
Cash provided by
financing activities... 47,054 47,054 181,895 29,829 16,604 7,591 5,735
Other Data:
EBITDA.................. (11,901) (3,013) (20,857) (14,605) (9,596) (4,872) (729)
Capital expenditures.... 10,487 3,549 24,208 12,930 3,495 4,858 --
<CAPTION>
December 31, September 30,
-------------------- --------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
--------- --------- -------- -------- -------- ------- -----------
(unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data (at
period end):
Cash and cash
equivalents............ $ 7,397 $ 3,692 $ 39,020 $ 1,255 $ 525 $ 1,616 $5,159
Total assets............ 241,715 121,068 248,038 60,332 27,646 13,703 6,431
Note payable to parent.. 70,661 88,812 52,122 43,629 20,072 7,026 1,474
Notes payable, net of
current portion........ 4,233 10,032 4,854 -- -- -- --
Lease obligations, net
of current portion..... 16,522 12,453 15,412 11,570 9,576 3,429 --
Total stockholder's
equity (deficit)....... 101,638 (21,064) 122,869 (14,959) (8,581) 890 4,845
</TABLE>
20
<PAGE>
Recent financial accounting developments
During the third and fourth quarters of 1999, changes in Global Crossing's
business activities, together with a newly effective accounting standard,
caused Global Crossing to modify some of its practices regarding recognition of
revenue and costs related to sales of capacity. None of the accounting
practices described below affect Global Crossing's cash flows.
As a result of Financial Accounting Standards Board (FASB) Interpretation
No. 43, "Real Estate Sales, an interpretation of FASB Statement No. 66" (FIN
43), which became effective July 1, 1999, Global Crossing has accounted for
revenue from terrestrial circuits sold after that date as operating leases and
have amortized that revenue over the terms of the related contracts.
Previously, Global Crossing had recognized these sales as current revenue upon
activation of the circuits. This deferral in revenue recognition has no impact
on cash flow.
With the consummation of the Frontier acquisition on September 28, 1999,
service offerings became a significant source of Global Crossing's revenue.
Consequently, Global Crossing initiated service contract accounting for Global
Crossing's subsea systems during the fourth quarter, because Global Crossing,
since that date, no longer holds subsea capacity exclusively for sale. As a
result, since the beginning of the fourth quarter of 1999, Global Crossing has
depreciated investments in both subsea and terrestrial systems over their
remaining economic lives and has recognized revenue related to service
contracts over the terms of the contracts. Global Crossing has recognized
revenue and costs related to the sale of subsea circuits upon activation, if
the criteria of sales-type lease accounting have been satisfied with respect to
those circuits.
During the fourth quarter of 1999, Global Crossing's global network service
capabilities were significantly expanded by the activation of several
previously announced systems and by the integration of other networks obtained
through acquisition and joint venture agreements. With this network expansion,
Global Crossing began offering its customers flexible bandwidth products to
multiple destinations, which makes the historical practice of fixed, point-to-
point routing of traffic and restoration capacity both impractical and
inefficient. To ensure the required network flexibility, Global Crossing will
modify its future capacity purchase agreements and its network management in a
manner that precludes the use of sales-type lease accounting.
Because of these contract changes and the network management required to
meet customer demands for flexible bandwidth, multiple destinations and system
performance, Global Crossing anticipates that most of the contracts for subsea
circuits entered into after January 1, 2000 will be part of a service offering
and, therefore, will not meet the criteria of sales-type lease accounting and
will be accounted for as operating leases. Consequently, Global Crossing will
defer revenue related to those circuits and amortize it over the appropriate
term of the contract. In certain circumstances, if a contract meets all of the
requirements of sales-type lease accounting, Global Crossing will recognize
revenue without deferral upon payment and activation.
Global Crossing notes that accounting practice and authoritative guidance
regarding the applicability of sales-type lease accounting to the sale of
capacity is still evolving. Based on the accounting practices described above,
Global Crossing believes that additional changes, if any, in accounting
practice or authoritative guidance affecting sales of capacity would have
little or no impact on its results of operations.
21
<PAGE>
Global Crossing Ltd.
Selected unaudited pro forma financial information
The following unaudited pro forma condensed combined financial information
of Global Crossing, Global Marine Systems, Frontier, Racal Telecom and the
Hutchison Global Crossing joint venture, which we refer to as "Pro Forma Global
Crossing Ltd.", has been prepared to demonstrate how these companies or
businesses might have looked if (1) the Global Marine Systems acquisition and
related financing, (2) the Frontier acquisition, (3) the Racal Telecom
acquisition and related financing, (4) the Hutchison Global Crossing joint
venture, including the related issuance of the 6 3/8% cumulative convertible
preferred stock, series B, of Global Crossing, (5) the offering of Global
Crossing's 6 3/8% cumulative convertible preferred stock completed on November
5, 1999, (6) the offering of the 9 1/8% senior notes due 2006 and 9 1/2% senior
notes due 2009 of Global Crossing Holdings completed on November 19, 1999 and
(7) the offering of Global Crossing's 7% cumulative convertible preferred stock
completed on December 15, 1999 had been completed as of the date or at the
beginning of the period presented. This pro forma information does not give
effect to (a) the $350 million in cash received in connection with the
formation of the Asia Global Crossing joint venture or (b) the IPC and IXnet
mergers.
Global Crossing has prepared the pro forma financial information using the
purchase method of accounting. Global Crossing expects that it will have
reorganization and restructuring expenses and potential synergies relating to
the acquisitions of Global Marine Systems and Racal Telecom, the Hutchison
Global Crossing joint venture and the acquisition of Frontier's long distance
business and increased opportunities to earn more revenue as a result of those
transactions. The unaudited pro forma information does not reflect these
expenses and synergies.
The pro forma information, while helpful in illustrating the financial
characteristics of the combined company under one set of assumptions, does not
attempt to predict or suggest future results. The pro forma information also
does not attempt to show how the combined company would actually have performed
had the companies been combined throughout these periods. If the companies had
actually been combined in prior periods, these companies and businesses might
have performed differently. You should not rely on pro forma financial
information as an indication of the results that would have been achieved if
the Global Marine Systems, Frontier and Racal Telecom acquisitions and the
Hutchison Global Crossing joint venture had taken place earlier or the future
results that the companies will experience after completion of these
transactions.
You should read these unaudited pro forma condensed combined financial
statements in conjunction with the historical financial statements of Global
Crossing, Global Marine Systems, Frontier, Racal Telecom and HCL Holdings,
which are incorporated by reference in this document.
22
<PAGE>
Pro Forma Global Crossing Ltd.
Unaudited Pro Forma Condensed Combined Balance Sheet
as of December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Global Hutchison Global
Crossing Global Crossing Crossing
Historical(1) Adjustments(2) Pro Forma
------------- --------------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash, restricted cash and
investments....................... $ 1,726,793 $(50,000) $ 1,676,793
Accounts receivable, net........... 966,973 -- 966,973
Other assets and prepaid costs..... 252,767 -- 252,767
----------- -------- -----------
Total Current Assets............. 2,946,533 (50,000) 2,896,533
Restricted cash and cash
equivalents........................ 138,118 -- 138,118
Accounts receivable................. 52,052 -- 52,052
Property and equipment, net......... 6,026,053 (83,800) 5,942,253
Goodwill and other intangibles,
net................................ 9,557,422 -- 9,557,422
Investment in and advances to/from
affiliates, net.................... 323,960 538,800 862,760
Other assets, net................... 661,442 -- 661,442
----------- -------- -----------
Total Assets..................... $19,705,580 $405,000 $20,110,580
=========== ======== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accrued construction costs......... $ 275,361 $ -- $ 275,361
Accounts payable and accrued
liabilities....................... 944,780 5,000 949,780
Accrued interest and preferred
dividends......................... 66,745 -- 66,745
Deferred revenue................... 127,367 -- 127,367
Income taxes payable............... 140,034 -- 140,034
Current portion of long term
debt.............................. 5,496 -- 5,496
Other current liabilities.......... 292,810 -- 292,810
----------- -------- -----------
Total Current Liabilities........ 1,852,593 5,000 1,857,593
Long term debt..................... 5,018,544 -- 5,018,544
Deferred revenue................... 383,287 -- 383,287
Deferred credits and other......... 796,606 -- 796,606
----------- -------- -----------
Total Liabilities................ 8,051,030 5,000 8,056,030
----------- -------- -----------
MINORITY INTEREST................... 351,338 -- 351,338
----------- -------- -----------
MANDATORILY REDEEMABLE AND
CUMULATIVE CONVERTIBLE PREFERRED
STOCK:
10 1/2% Mandatorily Redeemable
Preferred Stock, 5,000,000 shares
issued and outstanding as of
December 31, 1999, $100
liquidation preference per
share............................. 485,947 -- 485,947
----------- -------- -----------
6 3/8% Cumulative Convertible
Preferred Stock, 10,000,000
shares issued and outstanding as
of December 31, 1999, $100
liquidation preference per
share............................. 969,000 400,000 1,369,000
----------- -------- -----------
7% Cumulative Convertible
Preferred Stock, 2,600,000 and no
shares issued and outstanding as
of December 31, 1999, $250
liquidation preference per
share............................. 629,750 -- 629,750
----------- -------- -----------
SHAREHOLDERS' EQUITY:
Common stock, 3,000,000,000 shares
authorized, par value $.01,
799,137,142 issued as of December
31, 1999.......................... 7,992 -- 7,992
Treasury stock, 22,033,758
shares............................ (209,415) -- (209,415)
Other shareholders' equity......... 9,578,927 -- 9,578,927
Accumulated deficit................ (158,989) -- (158,989)
----------- -------- -----------
9,218,515 -- 9,218,515
----------- -------- -----------
Total Liabilities and
Shareholder's Equity............ $19,705,580 $405,000 $20,110,580
=========== ======== ===========
</TABLE>
23
<PAGE>
Pro Forma Global Crossing Ltd.
Unaudited Pro Forma Condensed Combined Statements of Operations
For the Year Ended December 31, 1999
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Global
Global Global Marine Marine Racal
Crossing Systems Systems Frontier Frontier Racal Telecom Telecom
Historical(3) Historical(4) Adjustments Historical(8) Adjustments Historical(13) Adjustments
------------- ------------- ----------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating
Revenues........... $ 1,664,824 $173,498 $ -- $1,995,556 $ -- $306,019 $ --
----------- -------- -------- ---------- --------- -------- ---------
Operating Expenses:
Operating,
selling, general
and
administrative.... 1,369,064 127,165 -- 1,551,234 -- 286,442 --
Stock-related
expense........... 51,306 -- -- 10,412 (10,412)(9) -- --
Merger expenses... -- -- -- 74,519 -- 24,600 --
Depreciation and
amortization...... 124,294 12,817 -- 173,600 -- 52,716 --
Goodwill and
intangibles
amortization...... 127,621 812 (812)(5) 25,749 (25,749)(10) -- 55,843 (14)
19,690 (5) 303,774 (10)
----------- -------- -------- ---------- --------- -------- ---------
1,672,285 140,794 18,878 1,835,514 267,613 363,758 55,843
----------- -------- -------- ---------- --------- -------- ---------
Operating income
(loss)............. (7,461) 32,704 (18,878) 160,042 (267,613) (57,739) (55,843)
Equity in income
(loss) of
affiliates......... 15,708 4,539 -- 17,235 -- (560) --
Minority interest.. (1,338) -- -- -- -- -- --
Other income
(expense):
Interest
expense........... (139,077) (6,869) (24,000)(6) (48,739) -- (30,908) (96,363)(15)
Interest income... 67,407 511 -- 4,754 -- 3,856 --
Other income
(expenses)........ 180,765 143 -- (2,346) -- 369 --
----------- -------- -------- ---------- --------- -------- ---------
Income (loss)
before provision
for income taxes,
extraordinary item
and cumulative
effect of change in
accounting
principle.......... 116,004 31,028 (42,878) 130,946 (267,613) (84,982) (152,206)
(Provision)
benefit for
income taxes...... (126,539) (11,885) 7,200 (7) (77,181) -- 30,116 23,115 (16)
----------- -------- -------- ---------- --------- -------- ---------
Income (loss)
before
extraordinary item
and cumulative
effect of change in
accounting
principle.......... (10,535) 19,143 (35,678) 53,765 (267,613) (54,866) (129,091)
Preferred stock
dividends......... (66,642) -- -- (510) 510 (11) -- --
----------- -------- -------- ---------- --------- -------- ---------
Income (loss)
applicable to
common shareholders
before
extraordinary item
and cumulative
effect of change in
accounting
principle.......... (77,177) 19,143 (35,678) 53,255 (267,103) (54,866) (129,091)
Diluted earnings
adjustment........ -- -- -- 270 (270)(12) -- --
----------- -------- -------- ---------- --------- -------- ---------
Income (loss)
applicable to
common shareholders
before
extrarodinary item
and cumulative
effect of change in
accounting
principle.......... $ (77,177) $ 19,143 $(35,678) $ 53,525 $(267,373) $(54,866) $(129,091)
=========== ======== ======== ========== ========= ======== =========
Income (loss) per
common share:
Income (loss)
applicable to
common
shareholders
before
extraordinary
item and
cumulative effect
of change in
accounting principle
Basic and
diluted......... $ (0.15)
===========
Shares used in
computing
information
applicable to
common
shareholders
Basic and
diluted......... 502,400,851
===========
<CAPTION>
Hutchison
Global Global
Crossing Financing Crossing
Adjustments(2) Adjustments(17) Pro Forma
-------------- --------------- ----------------
<S> <C> <C> <C>
Operating
Revenues........... $ -- $ -- $ 4,139,897
-------------- --------------- ----------------
Operating Expenses:
Operating,
selling, general
and
administrative.... -- -- 3,333,905
Stock-related
expense........... -- -- 51,306
Merger expenses... -- -- 99,119
Depreciation and
amortization...... -- -- 363,427
Goodwill and
intangibles
amortization...... -- -- 506,928
-------------- --------------- ----------------
-- -- 4,354,685
-------------- --------------- ----------------
Operating income
(loss)............. -- -- (214,788)
Equity in income
(loss) of
affiliates......... (15,825) -- (143)
(21,240) --
Minority interest.. -- (1,338)
Other income
(expense):
Interest
expense........... -- 93,577 (495,695)
(243,316)
Interest income... -- -- 76,528
Other income
(expenses)........ -- -- 178,931
-------------- --------------- ----------------
Income (loss)
before provision
for income taxes,
extraordinary item
and cumulative
effect of change in
accounting
principle.......... (37,065) (149,739) (456,505)
(Provision)
benefit for
income taxes...... -- (7,200) (162,374)
-------------- --------------- ----------------
Income (loss)
before
extraordinary item
and cumulative
effect of change in
accounting
principle.......... (37,065) (156,939) (618,879)
Preferred stock
dividends......... (25,529) (108,936) (201,107)
-------------- --------------- ----------------
Income (loss)
applicable to
common shareholders
before
extraordinary item
and cumulative
effect of change in
accounting
principle.......... (62,594) (265,875) (819,986)
Diluted earnings
adjustment........ -- --
-------------- --------------- ----------------
Income (loss)
applicable to
common shareholders
before
extrarodinary item
and cumulative
effect of change in
accounting
principle.......... $(62,594) $(265,875) $ (819,986)
============== =============== ================
Income (loss) per
common share:
Income (loss)
applicable to
common
shareholders
before
extraordinary
item and
cumulative effect
of change in
accounting principle
Basic and
diluted......... $ (1.07)
================
Shares used in
computing
information
applicable to
common
shareholders
Basic and
diluted......... 767,355,151 (18)
================
</TABLE>
24
<PAGE>
Pro Forma Global Crossing Ltd.
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
(1) This column represents the historical financial position of Global
Crossing as of December 31, 1999, including the assets acquired in the
Frontier merger and the Global Marine Systems and Racal Telecom
acquisitions.
(2) On January 12, 2000, Global Crossing and Hutchison Whampoa Limited formed
a joint venture called Hutchison Global Crossing. This joint venture is
owned in equal parts by Global Crossing and Hutchison Whampoa. In
exchange for its 50% interest, Hutchison Whampoa contributed to the joint
venture its existing building-to-building fixed-line telecommunications
network in Hong Kong and certain Internet-related assets previously held
by Hutchison Telecommunications Limited. In exchange for its 50%
interest, Global Crossing contributed to the joint venture international
telecommunications capacity rights on its network and know-how related to
Internet data centers valued at $350 million and $50 million in cash. In
addition, Global Crossing issued to Hutchison Whampoa $400 million
aggregate liquidation preference of Global Crossing's 6 3/8% cumulative
convertible preferred stock, series B, convertible into Global Crossing
common stock. The Hutchison Global Crossing joint venture is anticipated
to be accounted for as an unconsolidated joint venture under the equity
method of accounting.
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C> <C>
Total Consideration
Cash contributed....................................... $ 50,000
6 3/8% Cumulative Convertible Preferred Stock, Series
B..................................................... 400,000
Estimated cost of capacity contributed................. 83,800
Global Crossing transaction costs...................... 5,000
--------
Total consideration...................................... 538,800
Less:Historical net tangible book value of HCL Holdings:
Historical HCL Holdings net liabilities at December 31,
1999................................................... $(149,393)
Cash contributed....................................... 50,000
Estimated cost of capacity contributed................. 83,800
---------
Adjusted net tangible book value....................... (15,593)
50% ownership interest................................. 7,797
---------
(7,796)
--------
Total Goodwill........................................... $546,596
========
</TABLE>
Global Crossing has tentatively considered the carrying value of the
acquired assets to approximate their fair value, with all of the excess of
those acquisition costs being attributable to goodwill. Global Crossing is
in the process of fully evaluating the assets acquired and, as a result,
the purchase price allocation among the tangible and intangible assets
acquired and their useful lives may change. Global Crossing currently
anticipates that goodwill associated with the transaction will be amortized
over a 25-year life.
These adjustments also include the assumed equity in the results of
operations of Hutchison Global Crossing for the year ended December 31,
1999.
(3) This column represents the historical results of operations for the year
ended December 31, 1999, including the results of Global Marine Systems
operations for the six months ended December 31, 1999, the results of
Frontier operations for the three months ended December 31, 1999 and
Racal Telecom for the period from November 24, 1999 to December 31, 1999.
(4) This column represents the historical results of operations of Global
Marine Systems for the six months ended June 30, 1999.
25
<PAGE>
(5) These adjustments reflect the amortization expense of the excess
consideration over the net assets acquired (goodwill in the Global Marine
Systems acquisition), which Global Crossing has estimated to be
approximately $693 million. Global Crossing is amortizing goodwill and
other intangible assets on the straight-line method over 3-25 years. The
initial purchase price allocation is based on current estimates. Global
Crossing will make the final purchase price allocation based upon final
values for certain assets and liabilities. As a result, the final purchase
price allocation may differ from the presented estimate.
(6) This amount reflects the assumed interest expense, at an 8% interest rate,
incurred on the $600 million debt assumed issued as of the earliest date
presented in connection with the acquisition of Global Marine Systems.
(7) This adjustment represents the tax benefit resulting from the interest
expense assumed in connection with the debt issued for the acquisition of
Global Marine Systems.
(8) This column represents Frontier's historical results of operations for the
nine months ended September 30, 1999.
(9) This adjustment assumes Frontier's stock related expenses would not have
been incurred had the Frontier merger occurred at the earliest date
presented.
(10) These adjustments reflect the amortization expense of the excess
consideration over the net assets acquired (goodwill), which Global
Crossing has estimated to be approximately $7.7 billion. Global Crossing
is amortizing goodwill and other intangible assets on a straight-line
method over 6-25 years. The initial purchase price allocation is based on
current estimates. Global Crossing will make the final purchase price
allocation based upon final values for certain assets and liabilities. As
a result, the final purchase price allocation may differ from the
presented estimate.
(11) This adjustment assumes that Frontier's preferred stock dividends would
not have been incurred, as Frontier's preferred stock would have been
redeemed as of the earliest date presented.
(12) To eliminate diluted earnings adjustment due to the combined net loss
position.
26
<PAGE>
(13) This column represents Racal Telecom's results from operations in United
States GAAP, the disposal of the Racal Translink and Racal Fieldforce
divisions of Racal Telecommunications Limited which Global Crossing did
not acquire and pro forma adjustments to reflect the likely effect of the
trading among Racal Translink, Racal Fieldforce and Racal Telecom based on
contractual obligations among the divisions. Global Crossing summarizes
these adjustments in the table below:
Racal Telecom Pro Forma
Unaudited Pro Forma Condensed Combined Statements of Operations
For the period from January 1, 1999 to November 23, 1999
(in thousands)
<TABLE>
<CAPTION>
US GAAP and Racal
BV Acquisition Accounting Telecom Racal
and Carve-Out Policy Interim Telecom
Historical(a) Adjustments Adjustments(d) Period(e) Pro Forma
------------ -------------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating Revenues...... $390,578 $(110,354)(c) $(22,447) $47,937 $306,019
305 (b)
-------- --------- -------- ------- --------
Operating Expenses:
Operating, selling,
general and
administrative........ 355,110 (99,595)(c) 1,737 53,544 311,042
246 (b)
Depreciation and
amortization.......... 61,774 (11,978)(c) (3,340) 6,265 52,716
(5)(b)
-------- --------- -------- ------- --------
416,884 (111,332) (1,603) 59,809 363,758
-------- --------- -------- ------- --------
Operating income
(loss)................. (26,306) 1,283 (20,844) (11,872) (57,739)
Equity in income (loss)
of affiliates.......... (560) -- -- (560)
Other income (expense):
Interest expense....... (30,905) (3)(b) -- -- (30,908)
Interest income........ -- 3,089 (c) -- 767 3,856
Other income
(expense)............. 76,390 (76,021)(c) -- -- 369
-------- --------- -------- ------- --------
Income (loss) before
extraordinary item,
taxes and cumulative
effect of changes in
accounting principle... 18,619 (71,652) (20,844) (11,105) (84,982)
(Provision) benefit for
income taxes.......... 3,563 (70)(b) 18,918 7,705 30,116
-------- --------- -------- ------- --------
Income (loss) before
extraordinary item and
cumulative effect of
changes in accounting
principle.............. $ 22,182 $ (71,722) $ (1,926) $(3,400) $(54,866)
======== ========= ======== ======= ========
</TABLE>
(a) This column represents the combined historical results of operations
of Racal Telecommunications Limited, Racal Telecommunications Networks
Limited, Racal Internet Services Limited and Racal Telecommunications
Inc., which we refer to as "Racal Telecom", in accordance with United
Kingdom GAAP translated into United States dollars for the 41 weeks
ended October 15, 1999.
(b) Global Crossing is treated as having acquired the business and assets
of Racal Network Services BV as that company was in the process of
being reorganized into Racal Telecommunications Networks Limited in
the course of 1999. These adjustments reflect the financial position
and results of operations of Racal Network Services BV as if this
transaction had been completed as of the dates or at the beginning of
the periods presented.
(c) In July 1999, the Racal Telecom business was separated into three
divisions: Racal Telecom, Racal Translink and Racal Fieldforce. On
October 1, 1999, the Racal Translink and Racal Fieldforce businesses
were sold to another company within the Racal Electronics plc group.
This adjustment eliminates the results of operations of Racal
Translink and Racal Fieldforce, reflects the likely effect of the
trading among Racal Translink, Racal Fieldforce and Racal Telecom
based on contractual obligations among the divisions and adjusts the
profit on disposal of these operations. No taxation liabilities were
incurred on the disposal as this disposal was to another Racal
Electronics plc group company.
(d) The Racal Telecom combined financial statements are prepared in
accordance with United Kingdom GAAP which differ in certain material
respects from United States GAAP. The differences that are material
are disclosed in the notes to the combined financial statements,
incorporated by reference. In addition, an adjustment has been made to
treat sales of dark fiber made by Racal Telecom after July 1, 1999 as
operating leases, recognizing income over the period of the service
provision in accordance with the provision of FASB Interpretation No
43.
(e) This column represents Racal Telecom's historical results from October
16, 1999 to November 23, 1999.
27
<PAGE>
(14) This adjustment reflects the amortization expense of the excess
consideration over the net assets acquired (goodwill), which Global
Crossing has preliminarily estimated to be $1.6 billion. Global Crossing
has tentatively considered the carrying value of the acquired assets to
approximate fair value, with all excess of those acquisition costs being
attributable to goodwill. Global Crossing is in the process of fully
evaluating the assets acquired and, as a result, the purchase price
allocation among the tangible and intangible assets acquired, and their
related useful lives, may change. Global Crossing currently anticipates
that goodwill associated with the transaction will be amortized over a 25-
year life.
(15) This amount reflects the assumed interest expense, at a 9% interest rate,
including the amortization of deferred financing fees, incurred on the
$1.1 billion debt issued to finance the acquisition of Racal Telecom
assumed issued as of the earliest date presented.
(16) This adjustment represents the tax benefit resulting from the interest
expense assumed in connection with the debt issued for the acquisition of
Racal Telecom.
(17) These adjustments represent the assumed interest expenses, including
amortization of deferred financing fees and the resulting tax adjustment,
in connection with the issuance and assumed repayment of existing debt
related to the 9 1/8% senior notes due 2006 and 9 1/2% senior notes due
2009 of Global Crossing Holdings, Global Crossing's 6 3/8% cumulative
convertible preferred stock and Global Crossing's 7% cumulative
convertible preferred stock. In connection with the issuance of the 9 1/8%
senior notes due 2006 and 9 1/2% senior notes due 2009 of Global Crossing
Holdings, Global Crossing incurred approximately $29.7 million in
financing fees. The financing fees will be amortized over the life of the
debt.
(18) Pro forma per share data are based on the number of Global Crossing's
common shares that would have been outstanding had the Frontier merger
occurred at the earliest date presented. Global Crossing issued
355,181,000 shares in connection with the Frontier merger.
28
<PAGE>
Comparative per share data
Presented below is the loss before extraordinary item and cumulative effect
of changes in accounting principle per share, book value per common share and
cash dividends per common share data for Global Crossing, IPC and IXnet on an
historical basis and a pro forma basis. Combined historical consolidated
financial information of Global Crossing, IPC and IXnet has been combined using
the purchase method of accounting for business combinations.
The unaudited IPC equivalent pro forma information was calculated by
multiplying the corresponding Unaudited Pro Forma Global Crossing consolidated
data by the exchange ratio of 5.417. The unaudited IXnet equivalent pro forma
information was calculated by multiplying the corresponding Unaudited Pro Forma
Global Crossing consolidated data by the exchange ratio of 1.184. This
information shows how each share of IPC and IXnet common stock would have
participated in net earnings and book value of Global Crossing if the mergers
had been completed at January 1, 1999. These amounts, however, do not
necessarily reflect future per share levels of net earnings or book value of
Global Crossing.
In reviewing the following data please note that IPC's and IXnet's
historical fiscal year ends September 30, 1999 and Global Crossing historical
and all pro forma data is for the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
For the 1999 Three months ended
fiscal year December 31, 1999
------------ ------------------
Global Crossing historical:
<S> <C> <C>
Loss per share:
Basic......................................... $ (0.27) NA
Diluted....................................... (0.27) NA
Book value per common share.................... 11.54 NA
Cash dividends declared per common share....... 0.00 NA
IPC historical:
Loss per share:
Basic......................................... (3.97) $(1.95)
Diluted....................................... (3.97) (1.95)
Book value per common share.................... (0.04) (1.76)
Cash dividends declared per common share....... 0.00 0.00
IXnet historical:
Loss per share:
Basic......................................... (1.35) (.45)
Diluted....................................... (1.35) (.45)
Book value per common share.................... 2.41 (1.99)
Cash dividends declared per common share....... 0.00 0.00
Unaudited Global Crossing equivalent pro forma
Loss per share:
Basic......................................... (1.41) NA
Diluted....................................... (1.41) NA
Book value per common share.................... 14.55 NA
Unaudited IPC equivalent pro forma
Loss per share:
Basic......................................... (7.64) NA
Diluted....................................... (7.64) NA
Book value per common share.................... 78.82 NA
Unaudited IXnet equivalent pro forma
Loss per share:
Basic......................................... (1.67) NA
Diluted....................................... (1.67) NA
Book value per common share.................... $ 17.23 NA
</TABLE>
29
<PAGE>
Market prices and dividends
The Global Crossing common stock trades on both the Nasdaq National Market
and the Bermuda Stock Exchange under the symbol "GBLX". The IPC common stock is
listed on the American Stock Exchange under the symbol "IPI". The IXnet common
stock trades on the Nasdaq National Market under the symbol "EXNT".
The table below shows, for the calendar quarters indicated, the reported
high and low bid prices of Global Crossing common stock and IXnet common stock
as reported on the Nasdaq National Market and the reported high and low sales
prices of IPC common stock as reported on the American Stock Exchange, based on
published financial sources. To date, Global Crossing, IPC and IXnet have not
paid cash dividends on their common stock. Share amounts and values for Global
Crossing common stock take into account the two-for-one stock split in the form
of a stock dividend effective March 9, 1999. Share amounts and values for IPC
common stock take into account the two-for-one stock split in the form of a
100% stock dividend effective June 25, 1998. The third quarter 1998 information
for Global Crossing covers the period between August 14, the date of the
initial public offering of the Global Crossing common stock, through September
30. The second quarter 1998 information for IPC covers the period between May
7, the date of the initial public offering of the IPC common stock, through
June 30. The third quarter 1999 information for IXnet covers the period between
August 12, the date of the initial public offering of the IXnet common stock,
through September 30.
<TABLE>
<CAPTION>
Global
Crossing IPC IXnet
Common Stock Common Stock Common Stock
------------- --------------- -------------
Market Price Market Price Market Price
------------- --------------- -------------
High Low High Low High Low
------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Calendar 1998
First Quarter..................... -- -- $ 10.44 $ 9.88 -- --
Second Quarter.................... -- -- 13.50 9.56 -- --
Third Quarter..................... $13.41 $ 8.00 11.75 6.88 -- --
Fourth Quarter.................... 24.28 8.00 7.00 4.75 -- --
Calendar 1999
First Quarter..................... 62.63 18.94 21.50 4.94 -- --
Second Quarter.................... 64.25 39.63 70.75 19.00 -- --
Third Quarter..................... 50.00 20.25 74.00 36.00 24.56 13.75
Fourth Quarter.................... 55.75 24.81 77.50 51.00 36.25 13.50
Calendar 2000
First Quarter..................... 61.81 38.00 299.25 66.00 69.00 27.00
Second Quarter (through April 11,
2000)............................ $42.00 $32.25 $211.56 $169.00 $47.13 $37.75
</TABLE>
From the date of the merger agreement through April 11, 2000, the Global
Crossing common stock has traded within a range from $61.00 to $32.25.
30
<PAGE>
The following table presents trading information for the Global Crossing
common stock, IPC common stock and IXnet common stock on February 18, 2000 and
April 11, 2000. February 18, 2000 was the last full trading day before our
announcement of the signing of the merger agreement. April 11, 2000 was the
last practicable trading day for which information was available before the
date of this document. The equivalent pro forma price of IPC and IXnet common
stock is also presented below for each price. The equivalent pro forma price
for each date was determined by multiplying the per share price of Global
Crossing common stock on that date by the exchange ratio. We cannot assure you
what the market prices of the Global Crossing common stock will be on the
merger date. You should obtain current market quotations.
<TABLE>
<CAPTION>
Global Crossing IPC IPC Equivalent
Common Stock Common Stock Pro Forma
--------------- ------------ ----------------
<S> <C> <C> <C>
Closing price on February 18,
2000........................... $52.38 $140.00 $283.74
Closing price on April 11,
2000........................... $33.00 $172.00 $178.76
<CAPTION>
Global Crossing IXnet IXnet Equivalent
Common Stock Common Stock Pro Forma
--------------- ------------ ----------------
<S> <C> <C> <C>
Closing price on February 18,
2000........................... $52.38 $ 52.50 $ 62.02
Closing price on April 11,
2000........................... $33.00 $ 38.19 $ 39.07
</TABLE>
Global Crossing does not anticipate paying cash dividends on its common
stock in the foreseeable future. The terms of some debt instruments of Global
Crossing limit its ability to pay cash dividends. Future cash dividends, if
any, will be at the discretion of the Global Crossing board of directors and
will depend upon, among other things, Global Crossing's operations, capital
requirements and surplus, general financial condition, contractual restrictions
and those other factors the Global Crossing board of directors may deem
relevant. See "Global Crossing's Management Discussion and Analysis of
Financial Condition and Results of Operations" which is incorporated in this
document by reference to Global Crossing's annual report on Form 10-K for the
year ended December 31, 1999.
31
<PAGE>
RISK FACTORS
Shareholders of Global Crossing, IPC and IXnet should consider the following
factors, in addition to the other information contained in this document. In
the section "Risk Factors Relating to the Mergers" below, "we", "us" or "our"
refers to Global Crossing, IPC and IXnet. In the section "Risk Factors Relating
to Global Crossing's Business" below, "we", "us" or "our" refers to Global
Crossing.
Risk Factors Relating to the Mergers
We cannot assure you of the successful integration of IPC's and IXnet's
businesses or of other newly acquired businesses or of the achievement of
expected benefits.
We expect that the mergers will result in benefits arising out of the
distribution of sophisticated IP and data services via the Global Crossing
network. Achieving the benefits of the mergers will depend in part upon the
integration of the businesses of Global Crossing, IPC and IXnet in an efficient
manner. Likewise, achieving the benefits of other newly acquired businesses
will depend in part on the integration of those businesses with our business in
an efficient manner. We cannot assure you that this will happen or that it will
happen in a timely manner. The consolidation of operations will require
substantial attention from management. The diversion of management attention
and any difficulties encountered in the transition and integration process
could have a material adverse effect on the revenues, levels of expenses and
operating results of the combined company. We cannot assure you that the
combined company will realize any of the anticipated benefits of the mergers or
any other acquisitions.
Because the market price of the Global Crossing common stock will vary, IPC
and IXnet stockholders cannot be sure of the value of the Global Crossing
common stock to be received in the mergers.
IPC and IXnet stockholders will receive a fixed number of shares of Global
Crossing common stock in the mergers, rather than a number of shares of Global
Crossing common stock with a particular fixed market value. The market values
of the Global Crossing common stock, the IPC common stock and the IXnet common
stock at the time of the mergers may vary significantly from their market
values on the date the merger agreement was executed or the date of this
document. Any decrease in the price of Global Crossing common stock before the
completion of the mergers will directly reduce the value of the Global Crossing
common stock that IPC and IXnet stockholders will receive in the mergers.
Variations in the market value of the Global Crossing common stock may be the
result of changes in the business, operations or prospects of Global Crossing,
IPC or IXnet, market assessments of the likelihood that the mergers will be
consummated, the timing of the mergers and the prospects for the post-merger
operations of the combined company, regulatory and tax considerations, general
market and economic conditions and other factors beyond the control of Global
Crossing, IPC or IXnet. Because the exchange ratios will not be adjusted to
reflect any changes in the market value of the Global Crossing, IPC or IXnet
common stock, the market value of the shares of Global Crossing common stock
issued in the mergers and the market value of the shares of IPC and IXnet
common stock surrendered in the mergers may be higher or lower than the market
values of those shares on the date of the merger agreement or the date of this
document.
Risk Factors Relating to Global Crossing's Business
It may be difficult to evaluate our business because we have a limited
operating history.
We were organized in March 1997 and, with the exception of our Frontier,
Global Marine Systems and Racal Telecom subsidiaries, have a limited operating
history. Because of this limited history and our rapid growth through
successive acquisitions, it may be difficult for potential investors to
evaluate the performance of our operations. In particular, comparisons of our
results of operations from one period to another may not be fully indicative of
our current ability to conduct our business.
32
<PAGE>
We may encounter difficulties in completing our cable systems currently under
development.
Our ability to achieve our strategic objectives will depend in large part
upon the successful, timely and cost-effective completion of our cable systems
currently under development, as well as on achieving substantial capacity sales
on these systems once they become operational and on our other operational
systems. The construction of these systems will be affected by a variety of
factors, uncertainties and contingencies, many of which are beyond our control,
including:
. our ability to manage their construction effectively;
. our ability to obtain all construction and operating permits and
licenses;
. third party contractors performing their obligations on schedule; and
. our ability to enter into favorable construction contracts with a
limited number of suppliers.
These factors may significantly delay or prevent completion of one or more
of our systems currently under development, which could have a material adverse
effect on our business, financial condition and results of operations.
We cannot assure you that each of these systems will be completed at the
cost and in the time frame currently estimated by us, or even at all. Although
we award contracts for construction of our systems to suppliers who in most
cases are expected to be bound by a fixed-price construction cost schedule and
to provide guarantees in respect of completion dates and system design
specifications, we cannot assure you that the actual construction costs or the
time required to complete these systems will not exceed our current estimates.
These circumstances could have a material adverse effect on our business,
financial condition and results of operations.
Our revenue growth plan depends on product and service expansion.
We intend to grow revenue and profits by:
. introducing new services and products;
. developing or acquiring additional cable systems; and
. upgrading capacity on our planned systems.
Our inability to effect these expansions of our products and services could
have a material adverse effect on our business, financial condition and results
of operations.
We face competition which may reduce demand for our products and services.
The international telecommunications industry is highly competitive. We
compete primarily on the basis of price, availability, service quality and
reliability, customer service and the location of our systems and services. The
ability of our competitors to provide comparable products and services at
similar prices could have a material adverse effect on demand for our products
and services. In addition, much of our planned growth is predicated upon the
growth in demand for international telecommunications capacity and services. We
cannot assure you that this anticipated demand growth will occur.
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We are growing rapidly in a changing industry.
Our strategy is to be the premier provider of global broadband
telecommunications services for both wholesale and retail customers. As a
result of this aggressive strategy, we are experiencing rapid expansion and
expect it to continue for the foreseeable future. This growth has increased our
operating complexity. At the same time, the international telecommunications
industry is changing rapidly due to, among other things:
. the easing of regulatory constraints;
. the privatization of established carriers;
. the expansion of telecommunications infrastructure;
. the growth in demand for bandwidth caused by expansion of Internet and
data transmissions;
. the globalization of the world's economies; and
. the changing technology for wired, wireless and satellite communication.
We cannot assure you that we will succeed in adapting to the rapid changes
in the international telecommunications industry.
We may have difficulty in obtaining the additional financing required to
develop our business.
In order to further implement our aggressive growth strategy, we anticipate
that we will require substantial additional equity and debt financing. Under
our business plan, we and our affiliates expect to require significant
additional financing by the end of 2000 to build out the Global Crossing
network and provide additional services to our customers. Obtaining additional
financing will be subject to a number of factors, including the following:
. the state of operations of our company;
. our actual or anticipated results of operations, financial condition and
cash flows;
. investor sentiment towards companies with substantial international
operations; and
. generally prevailing market conditions.
If additional funds are raised through the issuance of equity securities,
the percentage ownership of our then current shareholders will be reduced and
the new equity securities may have rights, preferences or privileges senior to
those of the holders of our common stock. If additional funds are raised
through the issuance of debt securities, these securities would have some
rights, preferences and privileges senior to those of the holders of our common
stock, and the terms of this debt could impose restrictions on our operations
and result in significant interest expense to us. In the event that we are
unable to raise sufficient financing on satisfactory terms and conditions in
the future, our company would be adversely affected.
We face price declines that could adversely affect our business.
Advances in fiber optic technology have resulted in significant per circuit
price declines in the fiber optic cable transmission industry. Recent changes
in technology have caused prices for telecommunications capacity and services
to go down even further. If there is less demand than we project or a bigger
drop in prices than we project, there could be a material adverse effect on our
business, financial condition and results of operations. We cannot assure you,
even if our projections with respect to those factors are realized, that we
will be able to implement our strategy or that our strategy will be successful
in the rapidly evolving telecommunications market.
We confront several system risks that could affect our operations.
Each of our systems is and will be subject to the risks inherent in a large-
scale, complex fiber optic telecommunications system. The operation,
administration, maintenance and repair of our systems requires the coordination
and integration of sophisticated and highly specialized hardware and software
technologies and equipment located throughout the world. We cannot assure you
that our systems will continue to function as expected in a cost-effective
manner. The failure of the hardware or software to function as required could
render a cable system unable to perform at design specifications.
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Each of our undersea systems either has or is expected to have a design
life of generally 25 years, while each of our terrestrial systems either has
or is expected to have a design life of at least 20 years. The economic lives
of these systems, however, are expected to be shorter than their design lives,
and we cannot assure you of the actual useful life of any of these systems. A
number of factors will ultimately affect the useful life of each of our
systems, including, among other things:
. quality of construction;
. unexpected damage or deterioration; and
. technological or economic obsolescence.
Failure of any of our systems to operate for its full design life could
have a material adverse effect on our business, financial condition and
results of operations.
Our success depends on our ability to maintain, hire and successfully
integrate key personnel.
Our future success depends on the skills, experience and efforts of our
officers and key technical and sales employees. In particular, our senior
management has significant experience in the telecommunications and Internet
industries, and the loss of any of them could negatively affect our ability to
execute our business strategy. In addition, we cannot assure you that we will
be able to integrate new management into our existing operations. Competition
for these individuals is intense, and we may not be able to attract, motivate
and retain highly skilled and qualified personnel. We do not have "key person"
life insurance policies covering any of our employees.
We face risks associated with international operations.
Because we will derive substantial revenue from international operations
and intend to have substantial physical assets in several jurisdictions along
our routes, our business is subject to risks inherent to international
operations, including:
. political and economic conditions;
. unexpected changes in regulatory environments;
. exposure to different legal standards; and
. difficulties in staffing and managing operations.
We have not experienced any material adverse effects with respect to our
foreign operations arising from these factors. However, problems associated
with these risks could arise in the future. Finally, managing operations in
multiple jurisdictions may place further strain on our ability to manage our
overall growth.
Because many of our customers deal predominantly in foreign currencies, we
may be exposed to exchange rate risks and our net income may suffer due to
currency translations.
We primarily invoice for our services in United States dollars; however,
most of our customers and many of our prospective customers derive their
revenue in currencies other than United States dollars. The obligations of
customers with substantial revenue in foreign currencies may be subject to
unpredictable and indeterminate increases in the event that those currencies
devalue relative to the United States dollar. Furthermore, those customers may
become subject to exchange control regulations restricting the conversion of
their revenue currencies into United States dollars. In that event, the
affected customers may not be able to pay us in United States dollars. In
addition, where we invoice for our services in currencies other than United
States dollars, our net income may suffer due to currency translations in the
event that those currencies devalue relative to the United States dollar and
we do not elect to enter into currency hedging arrangements in respect of
those payment obligations.
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Our operations are subject to regulation in the United States and abroad and
require us to obtain and maintain a number of governmental licenses and
permits. If we fail to comply with applicable regulatory requirements or
obtain and maintain those licenses and permits, we may not be able to conduct
our business.
In the United States, our intrastate, interstate and international
telecommunications networks and services are subject to regulation at the
federal, state and local levels. We also have facilities and provide services
in numerous countries in Europe, Latin America and Asia. Our operations in
those countries are subject to regulation at the national level and, in some
cases, at the state, provincial and local levels.
. Our interstate and international operations in the United States are
governed by the Communications Act of 1934, as amended by the
Telecommunications Act of 1996 and by the Submarine Cable Landing
License Act of 1921. There are several ongoing proceedings at the
Federal Communications Commission and in the federal courts regarding
the implementation of various aspects of the Telecommunications Act. The
outcomes of these proceedings may affect the manner in which we are
permitted to provide our services in the United States and may have a
material adverse effect on our operations.
. The intrastate activities of our local telephone service companies are
regulated by the states in which they do business. A number of states in
which we operate are conducting proceedings related to the provision of
services in a competitive telecommunications environment. These
proceedings may affect the manner in which we are permitted to provide
our services in one or more states and may have a material adverse
effect on our operations.
. Our operations outside the United States are governed by the laws of the
countries in which we operate. The regulation of telecommunications
networks and services outside the United States varies widely. In some
countries, the range of services that we are legally permitted to
provide may be limited. In other countries, existing telecommunications
legislation is in the process of development, is unclear or inconsistent
or is applied in an unequal or discriminatory fashion. Our inability or
failure to comply with the telecommunications laws or regulations of one
or more countries in which we operate could result in the temporary or
permanent suspension of operations in one or more countries. We also may
be prohibited from entering certain countries at all or from providing
all of our services in one or more countries. In addition, many of the
countries in which we operate are conducting proceedings that will
affect the implementation of their telecommunications legislation. We
cannot be certain of the outcome of these proceedings. These proceedings
may affect the manner in which we are permitted to provide our services
in these countries and may have a material adverse effect on our
operations.
. In the ordinary course of constructing our networks and providing our
services we are required to obtain and maintain a variety of
telecommunications and other licenses and authorizations in the
countries in which we operate. We must also comply with a variety of
regulatory obligations. Our failure to obtain or maintain necessary
licenses and authorizations, or to comply with the obligations imposed
upon license holders in one or more countries, may result in sanctions,
including the revocation of authority to provide services in one or more
countries.
We depend on third parties for many functions. If the services of those third
parties are not available to us, we may not be able to conduct our business.
We depend and will continue to depend upon third parties to:
. construct some of our systems and provide equipment and maintenance;
. provide access to a number of origination and termination points of our
systems in various jurisdictions;
. construct and operate landing stations in a number of those
jurisdictions;
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. acquire rights of way;
. provide terrestrial capacity to our customers through contractual
arrangements; and
. act as joint venture participants with regard to some of our current and
potential future systems.
We cannot assure you that third parties will perform their contractual
obligations or that they will not be subject to political or economic events
which may have a material adverse effect on our business, financial condition
and results of operations. If they fail to perform their obligations, we may
not be able to conduct our business. If any of our joint venture participants
experiences a change in strategic direction such that their strategy regarding
our mutual joint venture diverges from our own, we may not be able to realize
the benefits anticipated to be derived from the joint venture.
We have substantial leverage which may limit our ability to comply with the
terms of our indebtedness and may restrict our ability to operate.
Our significant indebtedness could adversely affect us by leaving us with
insufficient cash to fund operations and impairing our ability to obtain
additional financing. The amount of our debt could have important consequences
for our future, including:
. cash from operations may be insufficient to meet the principal and
interest on our indebtedness as it becomes due;
. payments of principal and interest on borrowing may leave us with
insufficient cash resources for our operations; and
. restrictive debt covenants may impair our ability to obtain additional
financing.
We have incurred a high level of debt. As of December 31, 1999, we and our
consolidated subsidiaries had a total of $8,051 million of total liabilities,
including approximately $5,056 million in senior indebtedness, of which $1,295
million was secured. As of that date, we additionally had outstanding
convertible preferred stock with a face value of $1,650 million. Our
subsidiary, Global Crossing Holdings, also has mandatorily redeemable
preferred stock outstanding with a face value of $500 million. In addition,
our Pacific Crossing joint venture entered into an $850 million non-recourse
credit facility, under which it had incurred $750 million of indebtedness as
of December 31, 1999.
Our ability to repay our debt depends upon a number of factors, many of
which are beyond our control. In addition, we rely on dividends, loan
repayments and other intercompany cash flows from our subsidiaries to repay
our obligations. Our operating subsidiaries have entered into a senior secured
corporate credit facility. Accordingly, the payment of dividends from these
operating subsidiaries and the making and repayments of loans and advances are
subject to statutory, contractual and other restrictions.
In addition, if we are unable to generate sufficient cash flow to meet our
debt service requirements, we may have to renegotiate the terms of our long-
term debt. We cannot assure you that we would be able to renegotiate
successfully those terms or refinance our indebtedness when required or that
satisfactory terms of any refinancing would be available. If we were not able
to refinance our indebtedness or obtain new financing under these
circumstances, we would have to consider other options, including:
. sales of some assets;
. sales of equity;
. negotiations with our lenders to restructure applicable indebtedness; or
. other options available to us under applicable law.
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Our principal shareholders may be able to influence materially the outcome of
shareholder votes.
As of March 3, 2000, Pacific Capital Group and its affiliates had an 11.98%
beneficial ownership interest in us. We have entered into various transactions
with Pacific Capital Group and its affiliates and assumed the on-going
development of some of our systems from an affiliate of Pacific Capital Group.
Mr. Gary Winnick, Chairman of our board of directors, controls Pacific Capital
Group and its subsidiaries. In addition, several of our other officers and
directors are affiliated with Pacific Capital Group. Furthermore, as of March
3, 2000, Canadian Imperial Bank of Commerce and its affiliates had a 9.69%
beneficial ownership interest in us. Canadian Imperial Bank of Commerce and its
affiliates have acted as underwriter, lender or initial purchaser in several of
our financial transactions in connection with the development and construction
of our systems. Several members of our board of directors are employees of an
affiliate of Canadian Imperial Bank of Commerce.
As of March 3, 2000, Pacific Capital Group and Canadian Imperial Bank of
Commerce collectively beneficially owned 21.67% of the outstanding shares of
our common stock. Accordingly, Pacific Capital Group and Canadian Imperial Bank
of Commerce may be able to influence materially the outcome of matters
submitted to a vote of our shareholders, including the election of directors.
Officers and directors own a substantial portion of us and may have conflicts
of interest.
Our executive officers and directors have substantial equity interests in
us. As of March 3, 2000, all of our directors and executive officers as a group
collectively beneficially owned 24.72% of our outstanding common stock,
including shares beneficially owned by Pacific Capital Group and certain shares
beneficially owned by Canadian Imperial Bank of Commerce. Some of these
individuals have also received amounts from us due to advisory services fees
paid to Pacific Capital Group and its affiliates.
Some of our directors and executive officers also serve as officers and
directors of other companies. Additionally, some of our officers and directors
are active investors in the telecommunications industry. Service as one of our
directors or officers and as a director or officer of another company could
create conflicts of interest when the director or officer is faced with
decisions that could have different implications for us and the other company.
A conflict of interest could also exist with respect to allocation of time and
attention of persons who are our directors and officers and directors and
officers of another company. The pursuit of these other business interests
could distract these officers from pursuing opportunities on our behalf. These
conflicts of interest could have a material adverse effect on our business,
financial condition and results of operations.
We cannot predict our future tax liabilities.
We believe that a significant portion of the income derived from our
undersea systems will not be subject to tax by any of (1) Bermuda, which
currently does not have a corporate income tax, or (2) some other countries in
which we conduct activities or in which our customers are located. However, we
base this belief upon:
. the anticipated nature and conduct of our business, which may change;
and
. our understanding of our position under the tax laws of the various
countries in which we have assets or conduct activities, which position
is subject to review and possible challenge by taxing authorities and to
possible changes in law, which may have retroactive effect.
We cannot predict the amount of tax to which we may become subject and
cannot be certain that any of these factors would not have a material adverse
effect on our business, financial condition and results of operations.
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Our shareholders may be subject to Foreign Personal Holding Company, Passive
Foreign Investment Company, Controlled Foreign Corporation and Personal
Holding Company rules.
We believe that neither we nor any of our non-United States subsidiaries are
a foreign personal holding company and do not expect that either we or any of
our affiliates will become a foreign personal holding company. However, we
cannot assure you in this regard. If one of our shareholders is a United States
person and we or one of our non-United States subsidiaries are classified as a
foreign personal holding company, then that shareholder would be required to
pay tax on its pro rata share of our or our relevant non-United States
subsidiary's undistributed foreign personal holding income. We intend to manage
our affairs so as to attempt to avoid or minimize having income imputed to
United States persons under these rules, to the extent this management of our
affairs would be consistent with our business goals, although we cannot assure
you in this regard.
We believe that we are not a passive foreign investment company and do not
expect to become a passive foreign investment company in the future. However,
we cannot assure you in this regard. In addition, our expectations are based,
in part, on interpretations of existing law that we believe are reasonable, but
which have not been approved by any taxing authority. If we were a passive
foreign investment company, then any of our shareholders that is a United
States person could be liable to pay tax at the then prevailing rates on
ordinary income plus an interest charge upon some distributions by us or when
that shareholder sold our capital stock at a gain.
Furthermore, additional tax considerations would apply if we or any of our
affiliates were a controlled foreign corporation or a personal holding company.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Global Crossing, IPC and IXnet have included forward-looking statements
throughout this document. These statements describe their attempt to predict
future occurrences. Global Crossing, IPC and IXnet use the words "believe",
"anticipate", "expect", "intend" and similar expressions to identify forward-
looking statements. These statements also include references to cost savings,
benefits, revenues and earnings estimated to result from the mergers and
estimated costs of combining Global Crossing, IPC and IXnet. Forward-looking
statements are subject to a number of risks, assumptions and uncertainties. For
Global Crossing, IPC and IXnet, these risks, assumptions and uncertainties,
which may cause actual results to differ materially from those predicted by the
forward-looking statements, include:
. the ability to complete systems within the currently estimated time
frames and budgets;
. the ability to compete effectively in a rapidly evolving and price
competitive marketplace;
. changes in the nature of telecommunications regulation in the United
States and other countries;
. changes in business strategy;
. the successful integration of Global Crossing, IPC, IXnet and other
newly acquired businesses;
. the impact of technological change; and
. other risks referenced from time to time in Global Crossing's, IPC's and
IXnet's filings with the SEC.
This list provides only an example of some of the risks, uncertainties and
assumptions that may affect the forward-looking statements of Global Crossing,
IPC and IXnet. If any of these risks or uncertainties materialize or fail to
materialize, as applicable, or if the underlying assumptions prove incorrect,
actual results may differ materially from those projected in the forward-
looking statements.
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THE MERGERS
What you will receive in the mergers
At the effective time of the mergers:
. each issued and outstanding share of IPC common stock, other than shares
owned or held directly or indirectly by Global Crossing or directly by
IPC, which will be canceled, will be converted into the right to receive
5.417 shares of Global Crossing common stock; and
. each share of IXnet common stock, other than shares owned directly or
indirectly by Global Crossing, IPC or IPC Systems or directly by IXnet,
which will be canceled, will be canceled and converted into the right to
receive 1.184 shares of Global Crossing common stock.
The exchange ratios in the IPC and IXnet mergers will be fixed.
Global Crossing will not issue fractional shares of Global Crossing common
stock in the mergers. Instead, IPC and IXnet stockholders who would otherwise
have been entitled to receive a fraction of a share of Global Crossing common
stock will receive cash, without interest, in an amount equal to the product of
the fractional part of a share of Global Crossing common stock multiplied by
the average closing price of the Global Crossing common stock reported on the
Nasdaq National Market for the 20 trading days ending on the trading day
immediately preceding the closing of the mergers.
Background of the mergers
After IXnet's initial public offering, IXnet and IPC management explored
various strategic alliances and other investment and financing opportunities
for both IXnet and IPC. In late December 1999, IXnet explored with a number of
different companies the possibility of making a strategic investment in IXnet.
Through an introduction by Salomon Smith Barney, Mr. Thomas J. Casey, Vice
Chairman of Global Crossing, spoke with Mr. Richard M. Cashin, Jr., a director
of both IPC and IXnet; then Mr. Casey spoke with Mr. David A. Walsh, Chief
Executive Officer of IXnet, Mr. James Demitrieus, Chief Financial Officer of
IXnet and IPC and Charles F. Auster, Chief Operating Officer of IXnet. Other
than Global Crossing, no firm offers for an investment or other transaction
materialized.
On January 3, 2000, IXnet, on its own behalf and on and behalf of its
affiliates, entered into a confidentiality agreement with Global Crossing
regarding the exchange of information with respect to a possible strategic
investment or other possible transaction. Throughout January 2000, IXnet, IPC
and Global Crossing exchanged information, conducted due diligence reviews and
held several meetings to discuss each of their businesses.
On January 11, 2000, Mr. Walsh and Mr. Demitrieus spoke with Mr. Gary
Winnick, Co-Chairman of Global Crossing, and Mr. Casey regarding a possible
transaction. Following these discussions, Global Crossing expressed an interest
to continue discussions concerning a proposed business combination with IXnet,
IPC or both.
At a regular meeting of each of the IXnet and IPC boards of directors on
February 8, 2000, Mr. Walsh briefed the IXnet and IPC boards of directors on
the preliminary discussions with Global Crossing regarding a possible
transaction. Mr. Walsh discussed with both the IXnet and IPC boards of
directors recent developments in the information systems industry and the
potential benefits of a business combination of each company with Global
Crossing. Both the IXnet and IPC boards of directors indicated their support of
initiatives to enhance stockholder value and authorized Mr. Walsh to continue
to pursue the possibility of a business combination with Global Crossing.
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On February 14 and February 15, 2000, executives of IXnet and IPC met with
executives from Global Crossing at the offices of Global Crossing in California
for preliminary discussions regarding a potential business combination of IPC,
IXnet and Global Crossing. On behalf of IPC and IXnet, Mr. Walsh, Mr.
Demitrieus and Mr. Auster attended the meeting. Mr. Casey, Mr. Clint Walker,
Vice President Corporate Development for Global Crossing, and Mr. Justin
O'Neill, Vice President and Assistant General Counsel for Global Crossing,
attended the meetings on behalf of Global Crossing. Mr. Winnick participated in
some of the discussions.
On February 16, 2000, the parties continued their discussions regarding a
potential business combination. On February 17, 2000, executives from IXnet,
IPC and Global Crossing met at the offices of Skadden, Arps, Slate, Meagher &
Flom LLP, special counsel for IXnet and IPC. These meetings included legal,
business and financial due diligence.
An initial draft of the merger agreement was distributed to all parties on
February 17, 2000, and an initial draft of a consent and voting agreement was
delivered on February 18, 2000, by Simpson Thacher & Bartlett, counsel for
Global Crossing. Between February 18 and 21, 2000, Global Crossing, IXnet and
IPC management and their respective legal counsel and financial advisors
continued to discuss and negotiate the terms of the proposed merger, the merger
agreement, the consent and voting agreement and related agreements.
Concurrently with the negotiations of the merger agreement, each party
continued with its legal, business, accounting and financial due diligence
review. In addition, Global Crossing and its counsel continued to negotiate the
terms of the consent and voting agreement with representatives of Citicorp
Venture Capital, on behalf of Cable Systems Holding, David Walsh and the other
principal stockholders of IPC and their counsel. On the evening of February 21,
2000, management of Global Crossing, IXnet and IPC reached agreement on the
material terms of the merger agreement, including the IPC exchange ratio of
5.417 shares of Global Crossing common stock for each share of IPC common stock
and the IXnet exchange ratio of 1.184 shares of Global Crossing common stock
for each share of IXnet common stock, and the consent and voting agreement that
they would submit to each of their boards of directors for approval.
On the night of February 21, 2000, the IPC and IXnet boards of directors
each had a meeting to consider the proposed mergers. At the board meetings,
Skadden, Arps, Slate, Meagher & Flom LLP advised each board of directors of its
fiduciary obligations under applicable law. In addition, at the board meetings,
executive management of IPC and IXnet presented key aspects of the merger
transactions. Also, at the board meetings, each of Salomon Smith Barney and
DLJ, both of which had been retained by each of IPC and IXnet to act as
financial advisors, separately presented its financial analysis of the exchange
ratios provided for in the mergers and delivered orally its opinions, each of
which was confirmed by delivery of written opinions dated February 22, 2000,
the date of execution of the merger agreement, as to the fairness, from a
financial point of view, of the exchange ratios. These opinions are fully
described below under the caption "Opinions of IXnet's and IPC's financial
advisors" on page 44.
After an active discussion and review of numerous factors described below
under "Reasons for the mergers", each of the IPC and IXnet boards of directors
concluded that the mergers were in the best interests of the IPC stockholders,
in the case of the IPC board of directors, and the IXnet stockholders, in the
case of the IXnet board of directors, and voted unanimously to approve the
mergers, the merger agreement and each of the transactions contemplated by the
merger agreement, as well as, in the case of the IPC board of directors, the
consent and voting agreement. In addition, the IPC board of directors took a
separate vote in which only the IPC directors that are unaffiliated with the
controlling stockholders of IPC participated. These unaffiliated directors
unanimously approved the merger agreement and each of the transactions
contemplated by the merger agreement. The IXnet board of directors also took a
separate vote in which only the IXnet directors that are unaffiliated with the
controlling stockholders of IXnet participated. These unaffiliated directors
unanimously approved the merger agreement and each of the transactions
contemplated by the merger agreement.
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On the night of February 21, 2000, the Global Crossing board of directors
had a meeting to discuss the proposed mergers. After a full discussion, the
board of directors decided to reconvene the following morning to vote on the
proposed mergers.
On the morning of February 22, 2000, the Global Crossing board of directors
met to continue discussing the proposed mergers. At the board meeting,
executive management of Global Crossing, as well as Global Crossing's advisors,
made presentations to the Global Crossing board of directors regarding the
proposed mergers. The Global Crossing board of directors concluded that the
proposed mergers were in the best interests of the Global Crossing shareholders
and voted unanimously to approve the mergers, the merger agreement and each of
the transactions contemplated by the merger agreement.
On February 22, 2000, Global Crossing, IXnet and IPC signed the merger
agreement and all related agreements and documents. On that date, the parties
announced the proposed merger of Global Crossing with IXnet and IPC by a joint
press release.
Recommendation of the IPC and IXnet boards of directors; Reasons for the
mergers
On February 21, 2000, the IPC and IXnet boards of directors unanimously
determined that the merger agreement and the transactions contemplated by the
merger agreement are advisable and fair to, and in the best interests of, IPC,
IXnet and their stockholders.
In reaching their respective decisions to approve the merger agreement, the
IPC and the IXnet boards of directors consulted with their legal and financial
advisors and with senior management and considered a number of factors,
including the following material factors:
. the information and discussions with IPC's and IXnet's management and
financial advisors concerning each of IPC's, IXnet's and Global
Crossing's businesses, assets, management, competitive position and
prospects;
. the financial condition, cash flows and results of operations of IPC,
IXnet and Global Crossing, both on a historical and prospective basis;
. the opportunity for IPC and IXnet stockholders to participate, as
holders of Global Crossing common stock, in a larger, more diversified,
Internet and telecommunications company and to benefit from the
additional value expected to be generated through the combination of the
three companies;
. the opportunity for IPC stockholders to receive Global Crossing common
stock, valued at a premium to the recent market price of the IPC common
stock of 102.7% over the closing price on February 18, 2000, the last
trading day before public announcement of the mergers, 158.2% over the
closing price on January 21, 2000, one month before public announcement
of the mergers, and 369.9% over the closing price on December 22, 1999,
two months before public announcement of the mergers;
. the opportunity for IXnet stockholders to receive Global Crossing common
stock, valued at a premium to the recent market price of the IXnet
common stock of 18.1% over the closing price on February 18, 2000, the
last trading day before public announcement of the mergers, 34.6% over
the closing price on January 21, 2000, one month before public
announcement of the mergers, 181.8% over the closing price on December
22, 1999, two months before the public announcement of the mergers, and
313.4% over the closing price on August 12, 1999, the date of IXnet's
initial public offering;
. the strategic and financial alternatives available to IPC and IXnet in
the rapidly changing environment of the industries in which they
operate, including remaining as independent companies;
. the fact that no other party demonstrated sufficient interest in or was
expected to yield greater strategic benefits to IPC or IXnet;
43
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. the separate financial presentations and written opinions to the IXnet
and IPC boards of directors by Salomon Smith Barney as to the fairness,
from a financial point of view, of the exchange ratios provided for in
the mergers, as described below under the subcaptions "--Opinions of
IXnet's and IPC's financial advisors--Opinion of Salomon Smith Barney to
the IXnet board of directors" and "--Opinion of Salomon Smith Barney to
the IPC board of directors" on pages 44 and 48;
. the separate financial presentations and written opinions to the IPC and
IXnet boards of directors by DLJ to the effect that as of that date,
based upon and subject to the assumptions, limitations and
qualifications included in its opinions, (1) the IPC exchange ratio of
5.417 shares of Global Crossing common stock for each share of IPC
common stock was fair from a financial point of view to the holders of
IPC common stock, other than Citicorp Venture Capital and its affiliates
and (2) the IXnet exchange ratio of 1.184 shares of Global Crossing
common stock for each share of IXnet common stock was fair from a
financial point of view to the holders of IXnet common stock, other than
IPC; and
. the fact that the mergers are intended to be a tax-free exchange to IPC
and IXnet stockholders.
The IPC and the IXnet boards of directors also considered potentially
negative factors in their deliberations concerning the mergers, including:
. the risk that anticipated benefits of the mergers for IPC and IXnet
stockholders might not be realized as a result of possible changes in
the Internet or telecommunications industries or potential difficulties
in integrating the businesses of IPC, IXnet and Global Crossing;
. the fact that the exchange ratios are fixed with no floor which means
that IPC and IXnet stockholders will bear the risks of any decrease in
the market price if the Global Crossing stock declines during the period
before the closing of the mergers;
. the fact that the possible difficulties of integrating the operations,
management and corporate cultures of IPC, IXnet and Global Crossing; and
. entering into a merger agreement would preclude alternative proposals
for IPC and IXnet in light of the consent of the majority stockholders
to the mergers.
The foregoing discussion of the information and factors considered by the
IPC and IXnet boards of directors is not intended to be exhaustive. While the
IPC and IXnet boards of directors considered each of the foregoing factors in
reaching its determination, individual members for the IPC and IXnet board of
directors may have attached different importance to each of the factors. In
view of the number and wide variety of factors considered in connection with
its evaluation of the mergers, the IPC and IXnet boards of directors did not
consider it practicable, nor did it attempt, to assign relative weight to the
factors considered in reaching its determination. In addition, the IPC and
IXnet boards of directors did not undertake to make any specific determination
as to whether any particular factor was favorable or unfavorable to the boards
of directors' ultimate determination or assign any particular weight to any
factor, but rather conducted an overall evaluation of the reasons described
above. IPC's and IXnet's boards of directors considered all these factors as
whole, and considered the factors to be favorable to and to support each of
their determinations.
Opinions of IXnet's and IPC's financial advisors
Opinion of Salomon Smith Barney to the IXnet board of directors
IXnet retained Salomon Smith Barney to act as its financial advisor in
connection with the proposed IXnet merger. In connection with its engagement,
IXnet requested that Salomon Smith Barney evaluate the fairness, from a
financial point of view, to the holders of IXnet common stock of the IXnet
exchange ratio provided for in the IXnet merger. On February 21, 2000, at a
meeting of the IXnet board held to evaluate the proposed IXnet merger, Salomon
Smith Barney delivered to the IXnet board an oral opinion, which opinion was
confirmed by delivery of a written opinion dated February 22, 2000, the date of
the merger agreement, to the effect that, as of that date and based on and
subject to the matters described in the opinion, the IXnet exchange ratio was
fair, from a financial point of view, to the holders of IXnet common stock.
44
<PAGE>
In arriving at its opinion, Salomon Smith Barney:
. reviewed the terms of the merger agreement;
. held discussions with senior officers, directors and other
representatives and advisors of IXnet and senior officers,
representatives and advisors of Global Crossing concerning the
businesses, operations and prospects of IXnet and Global Crossing;
. examined publicly available business and financial information relating
to IXnet and Global Crossing;
. examined financial forecasts and other information and data for IXnet
and Global Crossing which were provided to or otherwise discussed with
Salomon Smith Barney by the managements of IXnet and Global Crossing,
including information relating to strategic implications and operational
benefits anticipated to result from the IXnet merger;
. reviewed the financial terms of the IXnet merger as described in the
merger agreement in relation to, among other things, current and
historical market prices and trading volumes of IXnet common stock and
Global Crossing common stock, the historical and projected earnings and
other operating data of IXnet and Global Crossing and the capitalization
and financial condition of IXnet and Global Crossing;
. considered, to the extent publicly available, the financial terms of
other transactions recently effected that Salomon Smith Barney
considered relevant in evaluating the IXnet merger;
. analyzed financial, stock market and other publicly available
information relating to the businesses of other companies whose
operations Salomon Smith Barney considered relevant in evaluating those
of IXnet and Global Crossing;
. evaluated the potential pro forma financial impact of the mergers on
Global Crossing; and
. conducted other analyses and examinations and considered other
financial, economic and market criteria as Salomon Smith Barney deemed
appropriate in arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, on the accuracy and completeness of all financial and
other information and data that it reviewed or considered. With respect to
financial forecasts and other information and data relating to IXnet and Global
Crossing, the managements of IXnet and Global Crossing advised Salomon Smith
Barney that they were prepared on bases reflecting the best currently available
estimates and judgments of the managements of IXnet and Global Crossing as to
the future financial performance of IXnet and Global Crossing and the strategic
implications and operational benefits anticipated to result from the IXnet
merger. Salomon Smith Barney assumed that the IXnet merger will be treated as a
tax-free reorganization for federal income tax purposes.
Salomon Smith Barney did not express any opinion as to what the value of
Global Crossing common stock will be when issued to IXnet stockholders in the
IXnet merger or the price at which the Global Crossing common stock will trade
after the IXnet merger. Salomon Smith Barney did not make and was not provided
with an independent evaluation or appraisal of the assets or liabilities,
contingent or otherwise, of IXnet or Global Crossing, and Salomon Smith Barney
did not make any physical inspection of the properties or assets of IXnet or
Global Crossing.
In connection with its engagement, Salomon Smith Barney was not requested
to, and it did not, solicit third party indications of interest in the
acquisition of all or a part of IXnet. Salomon Smith Barney expressed no view
as to, and its opinion does not address, the relative merits of the IXnet
merger as compared to any alternative business strategies that might exist for
IXnet or the effect of any other transaction in which IXnet might engage.
Salomon Smith Barney's opinion was necessarily based on information available,
and financial, stock market and other conditions and circumstances existing and
disclosed to Salomon Smith Barney, as of the date of its opinion. Although
Salomon Smith Barney evaluated the IXnet exchange ratio from a financial point
of view, Salomon Smith Barney was not asked to and did not recommend the
specific consideration payable in
45
<PAGE>
the IXnet merger, which was determined through negotiation between IXnet and
Global Crossing. No other instructions or limitations were imposed by IXnet on
Salomon Smith Barney with respect to the investigations made or procedures
followed by Salomon Smith Barney in rendering its opinion.
The full text of Salomon Smith Barney's written opinion dated February 22,
2000 to the IXnet board, which describes the assumptions made, matters
considered and limitations on the review undertaken, is attached to this
document as Appendix C-1 and is incorporated in this document by reference. We
encourage you to read this opinion carefully. Salomon Smith Barney's opinion is
directed to the IXnet board and relates only to the fairness of the IXnet
exchange ratio from a financial point of view, does not address any other
aspect of the IXnet merger or any related transaction and does not constitute a
recommendation to any stockholders as to any matters relating to the proposed
IXnet merger.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The
summary of these analyses is not a complete description of the analyses
underlying Salomon Smith Barney's opinion. The preparation of a fairness
opinion is a complex analytical process involving various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore, a
fairness opinion is not readily susceptible to summary description.
Accordingly, Salomon Smith Barney believes that its analyses must be considered
as a whole and that selecting portions of its analyses and factors or focusing
on information presented in tabular format, without considering all analyses
and factors or the narrative description of the analyses, could create a
misleading or incomplete view of the processes underlying its analyses and
opinion.
In its analyses, Salomon Smith Barney considered industry performance,
general business, economic, market and financial conditions and other matters
existing as of the date of its opinion, many of which are beyond the control of
IXnet and Global Crossing. No company, transaction or business used in those
analyses as a comparison is identical to IXnet, Global Crossing or the proposed
IXnet merger, and an evaluation of those analyses is not entirely mathematical.
Rather, the analyses involve complex considerations and judgments concerning
financial and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the companies, business segments
or transactions analyzed.
The estimates contained in Salomon Smith Barney's analyses and the valuation
ranges resulting from any particular analysis are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by its analyses. In
addition, analyses relating to the value of businesses or securities do not
necessarily purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, Salomon Smith
Barney's analyses and estimates are inherently subject to substantial
uncertainty.
Salomon Smith Barney's opinion and analyses were only one of many factors
considered by the IXnet board in its evaluation of the IXnet merger and should
not be viewed as determinative of the views of the IXnet board or management
with respect to the IXnet exchange ratio or the proposed IXnet merger.
The following is a summary of the material financial analyses performed by
Salomon Smith Barney in connection with the rendering of its opinion, dated
February 22, 2000, to the IXnet board. The financial analyses summarized below
include information presented in tabular format. In order to fully understand
Salomon Smith Barney's financial analyses, the tables must be read together
with the text of each summary. The tables alone do not constitute a complete
description of the financial analyses. Considering the data below without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of Salomon Smith Barney's financial analyses.
46
<PAGE>
IXnet analyses
Public market analysis. Using publicly available information, Salomon Smith
Barney reviewed the market values and trading multiples of the following six
publicly traded companies in the backbone/business internet service provider
industry:
. Digex, Inc.
. EQUANT N.V.
. Exodus Communications, Inc.
. Globix Corporation
. PSINet Inc.
. Verio Inc.
Salomon Smith Barney compared enterprise values, calculated as equity market
value, plus debt, minority investments, straight preferred stock and out-of-the
money convertibles, less investments in unconsolidated affiliates and cash, as
a multiple of latest quarter annualized and estimated calendar years 2000 and
2001 revenues. All multiples were based on closing prices on February 18, 2000.
Estimated financial data for the selected backbone/business internet service
provider companies were based on publicly available research analysts'
estimates and estimated financial data for IXnet were based on internal
estimates of the management of IXnet.
Salomon Smith Barney then applied to IXnet's latest quarter annualized and
estimated calendar years 2000 and 2001 revenues a range of selected multiples
derived from corresponding financial data of a subset of the selected companies
which Salomon Smith Barney believed reflected growth characteristics generally
similar to those of IXnet. This subset included EQUANT N.V., Globix
Corporation, PSInet Inc. and Verio Inc. This analysis resulted in the following
implied per share equity reference range for IXnet, as compared to the per
share equity value for IXnet implied by the IXnet exchange ratio based on the
closing price of Global Crossing common stock on February 18, 2000:
<TABLE>
<CAPTION>
Implied per
share
equity
reference Per share equity value
range for for IXnet implied by
IXnet IXnet exchange ratio
----------- ----------------------
<S> <C>
$46.00-$55.00 $62.03
</TABLE>
Private market analysis. Using publicly available information, Salomon Smith
Barney reviewed the purchase prices and implied transaction value multiples
paid or proposed to be paid in the following three selected transactions in the
backbone/business internet service provider industry:
<TABLE>
<CAPTION>
Acquiror Target
-------- ------
<S> <C>
.NEXTLINK Communications, Inc. Concentric Network Corporation
.McLeodUSA Incorporated SplitRock Services, Inc.
.Metromedia Fiber Network, Inc. AboveNet Communications, Inc.
</TABLE>
Salomon Smith Barney compared enterprise values in the selected transactions
as a multiple of latest quarter annualized and estimated calendar years 1999,
2000 and 2001 revenues. All multiples for the selected transactions were based
on publicly available financial information.
47
<PAGE>
Salomon Smith Barney then applied a range of selected multiples of latest
quarter annualized and estimated calendar years 1999, 2000 and 2001 revenues
derived from the selected transactions to corresponding financial data of
IXnet. This analysis resulted in the following implied per share equity
reference range for IXnet, as compared to the per share equity value for IXnet
implied by the IXnet exchange ratio based on the closing price of Global
Crossing common stock on February 18, 2000:
<TABLE>
<CAPTION>
Implied per
share
equity
reference Per share equity value
range for for IXnet implied by
IXnet IXnet exchange ratio
----------- ----------------------
<S> <C>
$32.00-$38.00 $62.03
</TABLE>
Discounted cash flow analysis. Salomon Smith Barney performed a discounted
cash flow analysis of IXnet to estimate the stand-alone unlevered free cash
flows that IXnet could generate over fiscal years 2000 through 2009 based on
internal estimates of the management of IXnet. The range of estimated terminal
values for IXnet was calculated by applying terminal value multiples of 9.5x to
11.5x to IXnet's projected 2009 earnings before interest, taxes, depreciation
and amortization, commonly known as EBITDA. The cash flows and terminal values
were discounted to present value using discount rates ranging from 13.0% to
15.0%. This analysis resulted in the following implied per share equity
reference range for IXnet, as compared to the per share equity value for IXnet
implied by the IXnet exchange ratio based on the closing price of Global
Crossing common stock on February 18, 2000:
<TABLE>
<CAPTION>
Implied per
share
equity
reference Per share equity value
range for for IXnet implied by
IXnet IXnet exchange ratio
----------- ----------------------
<S> <C>
$48.00-$68.00 $62.03
</TABLE>
Other factors. In rendering its opinion, Salomon Smith Barney also reviewed
and considered other factors, including:
. historical market prices and trading volumes for IXnet common stock and
Global Crossing common stock;
. the relationship between movements in IXnet common stock and Global
Crossing common stock with movements in the common stock of selected
companies in similar industries as those in which IXnet and Global
Crossing operate and movements in broad stock market indices; and
. selected analysts' reports on IXnet and Global Crossing.
Opinion of Salomon Smith Barney to the IPC board of directors
IPC retained Salomon Smith Barney to act as co-financial advisor in
connection with the proposed IPC merger. In connection with its engagement, IPC
requested that Salomon Smith Barney evaluate the fairness, from a financial
point of view, to the holders of IPC common stock of the IPC exchange ratio
provided for in the IPC merger. On February 21, 2000, at a meeting of the IPC
board held to evaluate the proposed IPC merger, Salomon Smith Barney delivered
to the IPC board an oral opinion, which opinion was confirmed by delivery of a
written opinion dated February 22, 2000, the date of the merger agreement, to
the effect that, as of that date and based on and subject to the matters
described in the opinion, the IPC exchange ratio was fair, from a financial
point of view, to the holders of IPC common stock.
In arriving at its opinion, Salomon Smith Barney:
. reviewed the terms of the merger agreement;
48
<PAGE>
. held discussions with senior officers, directors and other
representatives and advisors of IPC and senior officers, representatives
and advisors of Global Crossing concerning the businesses, operations
and prospects of IPC and Global Crossing;
. examined publicly available business and financial information relating
to IPC and Global Crossing;
. examined financial forecasts and other information and data for IPC and
Global Crossing which were provided to or otherwise discussed with
Salomon Smith Barney by the managements of IPC and Global Crossing,
including information relating to strategic implications and operational
benefits anticipated to result from the IPC merger;
. reviewed the financial terms of the IPC merger as described in the
merger agreement in relation to, among other things, current and
historical market prices and trading volumes of IPC common stock and
Global Crossing common stock, the historical and projected earnings and
other operating data of IPC and Global Crossing, and the capitalization
and financial condition of IPC and Global Crossing;
. considered, to the extent publicly available, the financial terms of
other transactions recently effected that Salomon Smith Barney
considered relevant in evaluating the IPC merger;
. analyzed financial, stock market and other publicly available
information relating to the businesses of other companies whose
operations Salomon Smith Barney considered relevant in evaluating those
of IPC and Global Crossing;
. evaluated the potential pro forma financial impact of the mergers on
Global Crossing; and
. conducted other analyses and examinations and considered other
financial, economic and market criteria as Salomon Smith Barney deemed
appropriate in arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data that it reviewed or considered. With respect to
financial forecasts and other information and data relating to IPC and Global
Crossing, the managements of IPC and Global Crossing advised Salomon Smith
Barney that they were prepared on bases reflecting the best currently available
estimates and judgments of the managements of IPC and Global Crossing as to the
future financial performance of IPC and Global Crossing and the strategic
implications and operational benefits anticipated to result from the IPC
merger. Salomon Smith Barney assumed that the IPC merger will be treated as a
tax-free reorganization for federal income tax purposes.
Salomon Smith Barney did not express any opinion as to what the value of
Global Crossing common stock will be when issued to IPC stockholders in the IPC
merger or the price at which the Global Crossing common stock will trade after
the IPC merger. Salomon Smith Barney did not make and was not provided with an
independent evaluation or appraisal of the assets or liabilities, contingent or
otherwise, of IPC or Global Crossing, and Salomon Smith Barney did not make any
physical inspection of the properties or assets of IPC or Global Crossing.
In connection with its engagement, Salomon Smith Barney was not requested
to, and it did not, solicit third party indications of interest in the
acquisition of all or a part of IPC. Salomon Smith Barney expressed no view as
to, and its opinion does not address, the relative merits of the IPC merger as
compared to any alternative business strategies that might exist for IPC or the
effect of any other transaction in which IPC might engage. Salomon Smith
Barney's opinion was necessarily based on information available, and financial,
stock market and other conditions and circumstances existing and disclosed to
Salomon Smith Barney, as of the date of its opinion. Although Salomon Smith
Barney evaluated the IPC exchange ratio from a financial point of view, Salomon
Smith Barney was not asked to and did not recommend the specific consideration
payable in the IPC merger, which was determined through negotiation between IPC
and Global Crossing. No other instructions or limitations were imposed by IPC
on Salomon Smith Barney with respect to the investigations made or procedures
followed by Salomon Smith Barney in rendering its opinion.
49
<PAGE>
The full text of Salomon Smith Barney's written opinion dated February 22,
2000 to the IPC board, which describes the assumptions made, matters considered
and limitations on the review undertaken, is attached to this document as
Appendix C-2 and is incorporated in this document by reference. We encourage
you to read this opinion carefully. Salomon Smith Barney's opinion is directed
to the IPC board and relates only to the fairness of the IPC exchange ratio
from a financial point of view, does not address any other aspect of the IPC
merger or any related transaction and does not constitute a recommendation to
any stockholders as to any matters relating to the proposed IPC merger.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The
summary of these analyses is not a complete description of the analyses
underlying Salomon Smith Barney's opinion. The preparation of a fairness
opinion is a complex analytical process involving various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore, a
fairness opinion is not readily susceptible to summary description.
Accordingly, Salomon Smith Barney believes that its analyses must be considered
as a whole and that selecting portions of its analyses and factors or focusing
on information presented in tabular format, without considering all analyses
and factors or the narrative description of the analyses, could create a
misleading or incomplete view of the processes underlying its analyses and
opinion.
In its analyses, Salomon Smith Barney considered industry performance,
general business, economic, market and financial conditions and other matters
existing as of the date of its opinion, many of which are beyond the control of
IPC and Global Crossing. No company, transaction or business used in those
analyses as a comparison is identical to IPC, Global Crossing or the proposed
IPC merger, and an evaluation of those analyses is not entirely mathematical.
Rather, the analyses involve complex considerations and judgments concerning
financial and operating characteristics and other factors that could affect the
acquisition, public trading or other values of the companies, business segments
or transactions analyzed.
The estimates contained in Salomon Smith Barney's analyses and the valuation
ranges resulting from any particular analysis are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by its analyses. In
addition, analyses relating to the value of businesses or securities do not
necessarily purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, Salomon Smith
Barney's analyses and estimates are inherently subject to substantial
uncertainty.
Salomon Smith Barney's opinion and analyses were only one of many factors
considered by the IPC board in its evaluation of the IPC merger and should not
be viewed as determinative of the views of the IPC board or management with
respect to the IPC exchange ratio or the proposed IPC merger.
The following is a summary of the material financial analyses performed by
Salomon Smith Barney in connection with the rendering of its opinion, dated
February 22, 2000, to the IPC board. The financial analyses summarized below
include information presented in tabular format. In order to fully understand
Salomon Smith Barney's financial analyses, the tables must be read together
with the text of each summary. The tables alone do not constitute a complete
description of the financial analyses. Considering the data below without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of Salomon Smith Barney's financial analyses.
50
<PAGE>
IPC analyses
Private market analysis. Using publicly available information, Salomon Smith
Barney reviewed the purchase prices and implied transaction value multiples
paid or proposed to be paid in the following four selected transactions in the
telecommunications service industry:
<TABLE>
<CAPTION>
Acquiror Target
-------- ------
<S> <C>
.Intel Corporation Shiva Corporation
.ECI Telecomm Ltd. Tadiran Telecommunications Ltd.
.Ascend Communications, Inc. Stratus Computer, Inc.
.RELTEC Corp. Rainford Group plc
</TABLE>
Salomon Smith Barney compared enterprise values in the selected transactions
as multiples of latest 12 months revenue and earnings before interest and
taxes, commonly known as EBIT. All multiples for the selected transactions were
based on publicly available financial information for the relevant transaction.
Salomon Smith Barney then applied a range of selected multiples of latest 12
months revenue and EBIT derived from the selected transactions to corresponding
financial data of IPC, excluding its approximate 72.7% equity interest in
IXnet. Salomon Smith Barney then added to the resulting implied equity
reference range 72.7% of the implied equity reference range derived for IXnet
based on the "IXnet analyses--private market analysis" described above in order
to estimate an aggregate implied equity reference range for IPC. This analysis
resulted in the following implied aggregate per share equity reference range
for IPC, as compared to the per share equity value for IPC implied by the IPC
exchange ratio based on the closing price of Global Crossing common stock on
February 18, 2000:
<TABLE>
<CAPTION>
Implied aggregate per share Per share equity value
equity reference for IPC implied by
range for IPC IPC exchange ratio
--------------------------- ----------------------
<S> <C>
$157.00-$192.00 $283.71
</TABLE>
Discounted cash flow analysis. Salomon Smith Barney performed a discounted
cash flow analysis of IPC to estimate the stand-alone unlevered free cash flows
that IPC could generate over fiscal years 2000 through 2003 based on internal
estimates of the management of IPC. The range of estimated terminal values for
IPC was calculated by applying terminal value multiples of 6.0x to 7.0x to
IPC's projected 2003 EBITDA. The cash flows and terminal values were discounted
to present value using discount rates ranging from 9.5% to 10.5%. Salomon Smith
Barney then added to the resulting implied equity reference range 72.7% of the
implied equity reference range derived for IXnet based on the "IXnet analyses--
discounted cash flow analysis" described above in order to estimate an
aggregate implied equity reference range for IPC. This analysis resulted in the
following implied aggregate per share equity reference range for IPC, as
compared to the per share equity value for IPC implied by the IPC exchange
ratio based on the closing price of Global Crossing common stock on February
18, 2000:
<TABLE>
<CAPTION>
Implied aggregate per share Per share equity value
equity reference for IPC implied by
range for IPC IPC exchange ratio
--------------------------- ----------------------
<S> <C>
$236.00-$329.00 $283.71
</TABLE>
Public market analysis. Salomon Smith Barney performed a public market
analysis of IPC by aggregating the implied equity reference range for IPC based
on the "IPC analyses--private market analysis" described above and 72.7% of the
implied equity reference range for IXnet based on the "IXnet analyses-- public
market analysis" described above. This analysis resulted in the following
implied aggregate per share equity reference range for IPC, as compared to the
per share equity value for IPC implied by the IPC exchange ratio based on the
closing price of Global Crossing common stock on February 18, 2000:
<TABLE>
<CAPTION>
Implied aggregate per share Per share equity value
equity reference for IPC implied by
range for IPC IPC exchange ratio
--------------------------- ----------------------
<S> <C>
$217.00-$267.00 $283.71
</TABLE>
51
<PAGE>
Other factors. In rendering its opinion, Salomon Smith Barney also reviewed
and considered other factors, including:
. historical market prices and trading volumes for IPC common stock and
Global Crossing common stock; and
. the relationship between movements in IPC common stock and Global
Crossing common stock with movements in the common stock of selected
companies in similar industries as those in which IPC and Global
Crossing operate and movements in broad stock market indices.
Global Crossing analyses
Public market analysis. Salomon Smith Barney performed a sum-of-the-parts
analysis of each of Global Crossing's businesses and derived implied equity
reference ranges for those businesses utilizing various methodologies. In
arriving at an equity reference range for Global Crossing's network, long
distance, local and competitive local exchange carrier businesses and its
global center business, Salomon Smith Barney utilized publicly available
research analysts' estimates of selected publicly traded companies in those
industries. In arriving at an equity reference range for Global Crossing's
Racal business, Salomon Smith Barney utilized the purchase price paid by Global
Crossing for that business, and in arriving at equity reference ranges for
Global Crossing's Hutchison Global Crossing and Asia Global Crossing
businesses, Salomon Smith Barney utilized Global Crossing's contributions for
its joint venture or partnership interests in those businesses. This analysis
resulted in the following implied aggregate per share equity reference range
for Global Crossing, as compared to the closing price of Global Crossing common
stock on February 18, 2000:
<TABLE>
<CAPTION>
Implied aggregate per share
equity reference Per share closing price of Global Crossing
range for Global Crossing common stock on February 18, 2000
--------------------------- ------------------------------------------
<S> <C>
$48.00-$64.00 $52.375
</TABLE>
Discounted cash flow analysis. Salomon Smith Barney performed a discounted
cash flow analysis of Global Crossing to estimate the stand-alone unlevered
free cash flows that Global Crossing could generate over fiscal years 2000
through 2009 based on publicly available research analysts' estimates. The
range of estimated terminal values for Global Crossing was calculated by
applying terminal value multiples of 12.0x to 14.0x to Global Crossing's
projected 2009 EBITDA. The cash flows and terminal values were discounted to
present value using discount rates ranging from 13.0% to 15.0%. This analysis
resulted in the following implied aggregate per share equity reference range
for Global Crossing, as compared to the closing price of Global Crossing common
stock on February 18, 2000:
<TABLE>
<CAPTION>
Implied aggregate per share
equity reference Per share closing price of Global Crossing
range for Global Crossing common stock on February 18, 2000
--------------------------- ------------------------------------------
<S> <C>
$50.00-$68.00 $52.375
</TABLE>
Pro forma merger analysis. Salomon Smith Barney analyzed the potential
impact of the mergers on Global Crossing's estimated EPS for fiscal years 1999
through 2004. In this analysis, in the case of Global Crossing, Salomon Smith
Barney used both publicly available research analysts' estimates and internal
estimates of the management of Global Crossing and, in the case of IPC and
IXnet, Salomon Smith Barney used internal estimates of the managements of IPC
and IXnet, in each case without taking into account cost savings and other
potential synergies anticipated by the managements of IPC, IXnet and Global
Crossing to result from the mergers. Based on publicly available research
analysts' estimates for Global Crossing and internal estimates of the
managements of IPC and IXnet, this analysis indicated that the mergers could be
dilutive to Global Crossing's EPS in each of the years analyzed. Based on
internal estimates of the managements of Global Crossing, IPC and IXnet, this
analysis indicated that the mergers could be accretive to Global Crossing's EPS
in calendar years 2000 and 2001 and dilutive in the other calendar years
analyzed. The actual results achieved by the combined company may vary from
projected results and the variations may be material.
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<PAGE>
Exchange ratio analyses
Exchange ratio analysis--IXnet. Salomon Smith Barney calculated the
aggregate exchange ratio reference ranges implied by the results derived from
the analyses described above for IXnet and Global Crossing and compared these
ranges to the IXnet exchange ratio provided for in the IXnet merger. This
analysis indicated the following implied approximate exchange ratio reference
ranges, as compared to the IXnet exchange ratio provided for in the IXnet
merger:
<TABLE>
<CAPTION>
IXnet
discounted
IXnet public cash
market flow analysis/
analysis/ IXnet private Global
Global market analysis/ Crossing
Crossing Global Crossing discounted
public market discounted cash flow Proposed
analysis cash flow analysis analysis IXnet merger
------------- ------------------ -------------- ------------
<S> <C> <C> <C> <C>
Implied exchange ratio
range.................. 0.719x-1.146x 0.471x-0.760x 0.706x-1.360x 1.184x
</TABLE>
Exchange ratio analysis--IPC. Salomon Smith Barney calculated the aggregate
exchange ratio reference ranges implied by the results derived from the
analyses described above for IPC and Global Crossing and compared these ranges
to the IPC exchange ratio provided for in the IPC merger. This analysis
indicated the following implied approximate exchange ratio reference ranges, as
compared to the IPC exchange ratio provided for in the IPC merger:
<TABLE>
<CAPTION>
IPC private IPC discounted
market cash flow
analysis/Global analysis/Global
Crossing Crossing Proposed
discounted cash discounted cash IPC
flow analysis flow analysis merger
--------------- --------------- --------
<S> <C> <C> <C>
Implied exchange ratio range...... 2.309x-3.840x 3.471x-6.580x 5.417x
</TABLE>
Historical exchange ratio analysis--IXnet. Salomon Smith Barney compared the
IXnet exchange ratio in the IXnet merger with the historical ratio of the daily
closing prices of IXnet common stock and Global Crossing common stock during
the one-month and three-month periods preceding February 18, 2000 and over the
period from August 11, 1999 to February 18, 2000. This analysis indicated the
following implied approximate historical exchange ratio reference ranges, as
compared to the IXnet exchange ratio provided for in the IXnet merger:
<TABLE>
<CAPTION>
Range of historical
exchange ratios Proposed IXnet merger
------------------- ---------------------
<S> <C> <C>
Implied exchange ratio range..... 0.36x-1.00x 1.184x
</TABLE>
Historical exchange ratio analysis--IPC. Salomon Smith Barney compared the
IPC exchange ratio in the IPC merger with the historical ratio of the daily
closing prices of IPC common stock and Global Crossing common stock during the
one-month, three-month and six-month periods preceding February 18, 2000 and
over the period from August 11, 1999 to February 18, 2000. This analysis
indicated the following implied approximate historical exchange ratio reference
ranges, as compared to the IPC exchange ratio provided for in the IPC merger:
<TABLE>
<CAPTION>
Range of historical
exchange ratios Proposed IPC merger
------------------- -------------------
<S> <C> <C>
Implied exchange ratio range......... 1.10x-2.67x 5.417x
</TABLE>
Miscellaneous
Under the terms of its engagement, IPC and IXnet have agreed to pay Salomon
Smith Barney upon completion of the mergers an aggregate financial advisory fee
customary in transactions of this nature. IPC and IXnet also have agreed to
reimburse Salomon Smith Barney for its reasonable travel and other expenses
incurred, including the reasonable fees and expenses of its legal counsel, and
to indemnify Salomon Smith Barney and related persons against liabilities,
including liabilities under the federal securities laws, arising out of Salomon
Smith Barney's engagement.
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<PAGE>
In the ordinary course of business, Salomon Smith Barney and its affiliates
may actively trade or hold the securities of IPC, IXnet and Global Crossing for
their own account or for the account of customers and, accordingly, may at any
time hold a long or short position in those securities. Salomon Smith Barney
has in the past provided investment banking services to IPC, IXnet and Global
Crossing unrelated to the proposed mergers, for which services Salomon Smith
Barney has received compensation. An affiliate of Citigroup Inc., the parent
company of Salomon Smith Barney, beneficially owns approximately 60% of the
outstanding shares of IPC common stock, and IPC indirectly owns approximately
73% of the outstanding shares of IXnet common stock. In addition, Salomon Smith
Barney and its affiliates, including Citigroup Inc. and its affiliates, may
maintain relationships with IPC, IXnet, Global Crossing and their respective
affiliates.
Salomon Smith Barney is an internationally recognized investment banking
firm and was selected by IPC and IXnet based on its experience, expertise and
familiarity with IPC, IXnet and Global Crossing and their businesses. Salomon
Smith Barney regularly engages in the valuation of businesses and their
securities in connection with exchanges and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes.
Opinions of DLJ
Opinion of DLJ to IXnet's board of directors
IXnet asked DLJ to render an opinion to the IXnet board of directors as to
the fairness to IXnet stockholders, other than IPC, from a financial point of
view, of the IXnet exchange ratio. On February 21, 2000, DLJ delivered to the
IXnet board of directors its oral opinion, which was confirmed in writing on
February 22, 2000, to the effect that, as of that date, and based on and
subject to the assumptions, limitations and qualifications included in the
opinion, the exchange ratio of 1.184 shares of Global Crossing common stock in
exchange for each share of IXnet common stock was fair to holders of IXnet
common stock, other than IPC, from a financial point of view.
The full text of the DLJ opinion is attached as Annex D-1 to this document
and is incorporated in this document by reference. The summary of the DLJ
opinion included in this document is qualified in its entirety by reference to
the full text of the DLJ opinion. IXnet stockholders are urged to read the DLJ
opinion carefully and in its entirety for the procedures followed, assumptions
made, other matters considered and limits of the review by DLJ in connection
with its opinion.
DLJ prepared its opinion for the IXnet board of directors. The opinion
addresses only the fairness from a financial point of view, as of February 22,
2000, of the IXnet exchange ratio to the IXnet stockholders, other than IPC.
The DLJ opinion does not address the relative merits of the IXnet merger or any
other business strategies being considered by the IXnet board of directors, nor
does it express any opinion as to the IXnet board of directors' decision to
proceed with the IXnet merger. DLJ expressed no opinion as to the price at
which the Global Crossing common stock will actually trade at any time. The
type and amount of consideration was determined in arm's length negotiations
among IXnet, Global Crossing and IPC, in which negotiations IXnet and IPC were
advised by DLJ. The DLJ opinion did not constitute a recommendation to any
IXnet stockholder as to how any stockholder should vote on the IXnet merger.
IXnet selected DLJ as its financial advisor because it is an internationally
recognized investment banking firm that has substantial experience in the media
and communications industries and is familiar with IXnet and its business. DLJ
was not retained as an advisor or agent to the stockholders of IXnet or any
other person other than IPC. As part of its investment banking business, DLJ is
regularly engaged in the valuation of businesses and securities in connection
with mergers, acquisitions, underwritings, sales and distributions of listed
and unlisted securities, private placements and valuations for corporate and
other purposes.
54
<PAGE>
In arriving at its opinion, DLJ:
. reviewed the merger agreement and the exhibits to that agreement;
. reviewed financial and other information that was publicly available or
furnished to it by IXnet and Global Crossing, including information
provided during discussions with their respective
managements. Included in the information provided during discussions
with the respective managements were certain financial projections of
IXnet for the period beginning October 1, 1999, and ending September 30,
2009, prepared by the management of IXnet and certain financial
projections of Global Crossing for the period beginning January 1, 2000,
and ending December 31, 2004, prepared by the management of Global
Crossing;
. compared certain financial and securities data of IXnet and Global
Crossing with various other companies whose securities are traded in
public markets;
. reviewed the historical stock prices and trading volumes of IXnet common
stock and Global Crossing common stock;
. reviewed prices and premiums paid in certain other business
combinations; and
. conducted other financial studies, analyses and investigations as it
deemed appropriate for purposes of rendering its opinion.
DLJ was not requested to, nor did it, solicit the interest of any other
party in acquiring IXnet or IPC.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to DLJ from public sources, that was provided to DLJ by IXnet or Global
Crossing or their respective representatives or that was otherwise reviewed by
DLJ. DLJ assumed that IXnet was not aware of any information prepared by it or
its advisors that might be material to DLJ's opinion that was not made
available to DLJ. With respect to the financial projections supplied to DLJ,
DLJ relied on representations that they were reasonably prepared on the basis
reflecting the best currently available estimates and judgments of the
management of IXnet and Global Crossing as to the future operating and
financial performance of IXnet and Global Crossing, respectively. DLJ did not
assume any responsibility for making any independent evaluation of any assets
or liabilities or for making any independent verification of any of the
information reviewed by DLJ. DLJ relied as to certain legal matters on advice
of counsel to IXnet.
The DLJ opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to
DLJ as of, the date of the DLJ opinion. Although subsequent developments may
affect its opinion, DLJ does not have any obligation to update, revise or
reaffirm its opinion.
Financial analyses performed by DLJ
The following is a summary of the presentation made by DLJ to the IXnet
board of directors on February 21, 2000, in connection with the preparation of
the DLJ opinion. The order of analyses and the results described do not
represent relative importance or weight given to these analyses or the results
by DLJ. No company or transaction used in the following analyses is directly
comparable to IXnet, Global Crossing or the merger. In addition, mathematical
analysis such as determining the average or median is not in itself a
meaningful method of using selected company or transaction data. The analyses
performed by DLJ are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
these analyses. The information summarized in the tables below should be read
in conjunction with the accompanying text.
55
<PAGE>
Exchange ratio analysis
DLJ reviewed the daily closing prices of IXnet common stock and Global
Crossing common stock over the six months before February 18, 2000, to
determine the implied exchange ratio based upon the relative prices of IXnet
common stock and Global Crossing common stock at various time intervals during
that six month period. Based on February 18, 2000, intraday average prices of
$52.00 for IXnet and $55.06 for Global Crossing, the implied exchange ratio was
0.944x. DLJ also analyzed the implied exchange ratio between IXnet common stock
and Global Crossing common stock for the average of five days, 20 days, 30
days, three months and six months before February 18, 2000. The implied
exchange ratios for these periods were 0.872x, 0.834x, 0.826x, 0.634x and
0.603x, respectively.
Public comparables analysis of IXnet
DLJ analyzed selected historical and projected operating information, stock
market data and financial ratios for eight publicly traded companies that DLJ
believed to be reasonably comparable to IXnet. The companies consisted of:
. Digex, Inc.
. Equant N.V.
. Exodus Communications, Inc.
. Globix Corporation
. Infonet Services Corporation
. PSINet Inc.
. Savvis Communications Corp.
. Verio Inc.
DLJ examined the enterprise value and selected financial data of each of the
comparable companies as of February 18, 2000 as derived from such companies'
public filings and published research analysts' reports prepared by investment
banking firms, including DLJ. DLJ defined enterprise value as the value of
fully-diluted common equity plus long-term debt and the liquidation value of
outstanding preferred stock, if any, minus cash, the proceeds, if any, from the
exercise of outstanding options and warrants and the value of certain other
non-core assets, including minority interests in other entities. In examining
these comparable companies, DLJ analyzed, among other things, the enterprise
value of the companies as a multiple of each company's respective last quarter
of revenue on an annualized basis, or LQA revenue, as well as estimated 1999,
estimated 2000 and estimated 2001 revenue. DLJ's analysis of the comparable
companies yielded the following:
. enterprise value as a multiple of estimated 2000 revenue ranged from
10.0x to 73.6x for the comparable companies with an average of 30.4x and
a median of 17.7x, compared to a current value of 24.6x for IXnet; and
. enterprise value as a multiple of estimated 2001 revenue ranged from
7.6x to 41.6x for the comparable companies with an average of 18.7x and
a median of 15.8x, compared to a current value of 16.4x for IXnet.
Based on this analysis, DLJ selected a reference range of enterprise value
multiples and from these multiples, derived an implied per share equity value
range and implied exchange ratios for IXnet as follows:
<TABLE>
<CAPTION>
Implied
equity Implied
Enterprise value value per exchange
multiple reference share, ratio range
range for IXnet for IXnet for IXnet
------------------ ------------- -------------
<S> <C> <C> <C>
2000 estimated revenue.......... 15.0x-25.0x $35.69-$59.84 N/A
2001 estimated revenue.......... 10.0x-20.0x $37.42-$75.38 N/A
Reference range................. N/A $35.00-$65.00 0.668x-1.241x
</TABLE>
56
<PAGE>
Comparable transactions analysis
DLJ reviewed 11 selected transactions or proposed transactions involving
companies that DLJ believed to be reasonably comparable to IXnet. These
transactions were divided between comparable ISP/Web hosting transactions and
comparable competitive local exchange carrier, or CLEC, transactions and
include both control transactions and minority investments:
ISP/Web hosting transactions:
Control transactions:
. NEXTLINK Communications, Inc./Concentric Network Corporation
. McLeodUSA, Incorporated/Splitrock Services, Inc.
. PSINet Inc./Transaction Network Services Inc.
. Verio Inc./digitalNATION
Minority investments:
. Hicks, Muse, Tate & Furst/Globix Corporation
CLEC transactions:
Control transactions:
. RCN Corp./21st Century Telecom Group Inc.
. AT&T Canada Inc./MetroNet Communications Corp.
Minority investments:
. Forstmann Little & Co./NEXTLINK Communications, Inc.
. Vulcan Ventures Inc./RCN Corp.
. Forstmann Little & Co./McLeod USA, Incorporated
. Hicks, Muse, Tate & Furst/RCN Corp.
In examining these transactions, DLJ compared, among other things, the
enterprise value of the acquired company implied by each of these transactions
as a multiple of LQA revenue and latest twelve months, or LTM, revenue as
obtained by DLJ from various public and industry sources. DLJ's analysis of
enterprise value as a multiple of LQA revenue of the comparable ISP/Web hosting
control transactions yielded a range of multiples of 4.4x to 19.2x with an
average of 15.6x and a median of 14.5x, the average excludes the PSI
Net/Transaction Network Services transaction because that transaction was
determined to be to be less relevant than the other ISP/Web hosting control
transactions. Based on LTM revenues, the ISP/Web hosting control transactions
yielded a range of multiples of 5.2x to 24.9x with an average of 22.3x and a
median of 21.0x, the average excludes the PSI Net/Transaction Network Services
transaction because that transaction was determined to be less relevant than
the other ISP/Web hosting control transactions. DLJ's analysis of enterprise
value as a multiple of LQA revenue of the comparable CLEC control transactions
yielded a range of multiples of 9.4x to 40.5x with an average of 27.0x and a
median of 22.9x. Based on LTM revenues, the CLEC control transactions yielded a
range of multiples of 13.4x to 62.1x with an average of 39.3x and a median of
28.7x.
Based on this analysis, DLJ selected a reference range of enterprise value
multiples and from these multiples, derived an implied per share equity value
range and implied exchange ratios for IXnet as follows:
<TABLE>
<CAPTION>
Implied
equity
Enterprise value value per Implied exchange
multiple reference share ratio range
range for IXnet for IXnet for IXnet
------------------ ------------- ----------------
<S> <C> <C> <C>
LQA Sales..................... 25.0x-40.0x $40.62-$64.04 N/A
LTM Sales..................... 30.0x-45.0x $44.12-$65.39 N/A
Reference range............... N/A $42.00-$66.00 0.802x-1.260x
</TABLE>
57
<PAGE>
Discounted cash flow analysis of IXnet
DLJ performed a discounted cash flow analysis of IXnet for the period
starting on October 1, 1999 and ending September 30, 2009, using projections
and assumptions provided by IXnet's management. DLJ's discounted cash flow
calculation is an analysis of the present value of projected unlevered free
cash flows and
an estimated terminal year enterprise value using the discount rates and
terminal year EBITDA multiples indicated below. The discounted cash flow value
per share of IXnet stock was estimated using weighted average cost of capital
discount rates ranging from 14.0% to 18.0% based on estimates of and judgments
related to the weighted average cost of capital of IXnet and terminal multiples
of estimated EBITDA for IXnet's fiscal year ending September 30, 2009, ranging
from 10.0x to 12.0x.
Based on this analysis, DLJ calculated an implied equity value per share of
IXnet ranging from $38.72 to $64.11 and implied exchange ratios for IXnet
ranging from 0.739x to 1.224x.
Comparable premiums paid analysis of IXnet
DLJ determined the implied premium over the common stock trading prices as
of one day, one week and one month before the announcement date of the
comparable ISP/Web hosting transactions, as well as all transactions, which DLJ
refers to as "all transactions", with enterprise values between $2.0 and $4.0
billion over the past two years. The CLEC transactions were not considered
because most involved a minority investment.
Based on this analysis of the ISP/Web hosting transactions and all
transactions, DLJ calculated average premiums paid and then derived implied per
share equity values and implied exchange ratios for IXnet as follows:
<TABLE>
<CAPTION>
ISP/Web hosting transactions All transactions
-------------------------------- --------------------------------
Implied equity Implied Implied equity Implied
Average value per share exchange Average value per share exchange
Premium Paid premium for IXnet ratio premium for IXnet ratio
------------ ------- --------------- -------- ------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
One Day...... 36.4% $71.63 1.368x 31.1% $68.81 1.314x
One Week..... 48.4% $61.41 1.173x 33.5% $55.25 1.055x
One Month.... 59.3% $67.31 1.285x 35.5% $57.24 1.093x
</TABLE>
Contribution analysis
DLJ analyzed the respective contributions that IXnet and Global Crossing
would make on a pro forma basis to calendar year 1999, estimated 2000 and
estimated 2001 total revenue, EBITDA, equity value and enterprise value and
compared these analyses to the pro forma equity ownership of the combined
company.
<TABLE>
<CAPTION>
Global
Crossing IXnet Combined %
-------- ----- ----------
<S> <C> <C> <C>
CY 1999 Total Revenue......................... 98.0% 2.0% 100.0%
CY 2000E Total Revenue........................ 97.3% 2.7% 100.0%
CY 2001E Total Revenue........................ 96.9% 3.1% 100.0%
CY 1999 EBITDA................................ 102.7% (2.7)% 100.0%
CY 2000E EBITDA............................... 101.0% (1.0)% 100.0%
CY 2001E EBITDA............................... 99.3% 0.7% 100.0%
Current equity value.......................... 93.6% 6.4% 100.0%
Current enterprise value...................... 94.2% 5.8% 100.0%
Pro forma ownership........................... 92.1% 7.9% 100.0%
</TABLE>
58
<PAGE>
Public comparables analysis of Global Crossing
DLJ analyzed selected historical and projected operating information, stock
market data and financial ratios for three publicly traded companies that DLJ
believed to be reasonably comparable to Global Crossing. The comparable
companies consisted of Energis PLC, Qwest/US WEST and Level 3 Communications,
Inc.
DLJ compared the enterprise value of each of the comparable companies as of
February 18, 2000 to certain selected financial data for each of those
companies. In examining these comparable companies, DLJ
analyzed the enterprise value of the companies as a multiple of each company's
LTM and estimated 2000 and 2001 revenue and EBITDA. Estimated 2000 and 2001
revenue and EBITDA for Global Crossing were obtained from its management and
estimated 2000 and 2001 revenue and EBITDA for the comparable companies were
obtained from DLJ's equity research analysts and from publicly available
information:
. enterprise value as a multiple of LTM revenue ranged from 4.7x to 83.4x
for the comparable companies with a median of 28.5x, compared to a
current value of 11.7x for Global Crossing;
. enterprise value as a multiple of estimated 2000 revenue ranged from
4.3x to 44.0x for the comparable companies with a median of 15.7x.
compared to a current value of 10.1x for Global Crossing;
. enterprise value as a multiple of estimated 2001 revenue ranged from
3.8x to 23.2x for the comparable companies with a median of 11.1x.
compared to a current value of 8.1x for Global Crossing;
. enterprise value as a multiple of LTM EBITDA was 13.2x for the
comparable companies, compared to a current value of 41.9x for Global
Crossing;
. enterprise value as a multiple of estimated 2000 EBITDA ranged from
10.9x to 72.1x for the comparable companies with a median of 41.5x
compared to a current value of 28.5x for Global Crossing; and
. enterprise value as a multiple of estimated 2001 EBITDA ranged from 9.3x
to 43.5x for the comparable companies with a median of 26.4x, compared
to a current value of 22.8x for Global Crossing.
Based on this analysis, DLJ then derived an implied per share equity value
range for Global Crossing of $47.00 to $70.00.
Discounted cash flow analysis of Global Crossing
DLJ performed a discounted cash flow analysis for the period starting on
January 1, 2000 and ending December 31, 2004, using projections and assumptions
provided by Global Crossing's management. DLJ's discounted cash flow
calculation is an analysis of the present value of projected unlevered free
cash flows and an estimated terminal year enterprise value using the discount
rates and terminal year EBITDA multiples indicated below. The discounted cash
flow value per share of Global Crossing's stock was estimated using weighted
average cost of capital discount rates ranging from 12.0% to 16.0% based on
estimates of and judgments related to the weighted average cost of capital of
Global Crossing and terminal multiples of estimated EBITDA for Global
Crossing's fiscal year ending December 31, 2004 ranging from 11.0x to 13.0x.
Based on this analysis, DLJ calculated an implied equity value per share of
Global Crossing ranging from $42.13 to $61.86.
The above summary describes, in summary form, the material elements of the
presentation made by DLJ to the IXnet board of directors on February 21, 2000.
The preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of these methods to the particular circumstances and, therefore, such an
opinion is not readily susceptible to
59
<PAGE>
summary description. Each of the analyses conducted by DLJ was carried out in
order to provide a different perspective on the merger and to add to the total
mix of information available. DLJ did not form a conclusion as to whether any
individual analysis, considered in isolation, supported or failed to support an
opinion as to fairness from a financial point of view. Rather, in reaching its
conclusions DLJ considered the results of the analyses in light of each other
and ultimately reached its opinion based on the results of all analyses
undertaken in connection with its opinion taken together as a whole.
Accordingly, notwithstanding the separate factors summarized above, DLJ has
indicated to IXnet that it believes that its analyses must be considered as a
whole and that selecting portions of its analyses and the factors considered by
it, without considering all analyses and factors, could create an incomplete
view of the evaluation process underlying its opinion. The analyses performed
by DLJ are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by these analyses.
Engagement
Pursuant to the terms of an engagement agreement dated February 17, 2000,
IXnet agreed to pay DLJ fees customary in transactions of this nature. In
addition, IXnet agreed to reimburse DLJ, upon request by DLJ from time to time,
for all out-of-pocket expenses, including the reasonable fees and expenses of
counsel, incurred by DLJ in connection with its engagement and to indemnify DLJ
and related persons against certain liabilities and expenses arising out of the
merger or the transactions in connection with the merger, including liabilities
under United States federal securities laws. DLJ and IXnet management
negotiated the terms of the fee arrangement.
Other relationships
In the ordinary course of business, DLJ and its affiliates may own or
actively trade the securities of IXnet and Global Crossing for their own
accounts and for the accounts of their customers and because of this may at any
time hold a long or short position in IXnet or Global Crossing securities.
DLJ has performed investment banking and other services for IXnet and Global
Crossing in the past and has been compensated for those services, including
acting as co-lead manager for the initial public offering of IXnet common stock
in August 1999 and acting as co-manager for Global Crossing's offerings of
common stock, exchangeable preferred stock and cumulative convertible preferred
stock in August 1998, December 1998 and December 1999, respectively.
Opinion of DLJ to IPC's board of directors
IPC asked DLJ to render an opinion to the IPC board of directors as to the
fairness to IPC stockholders, other than Citicorp Venture Capital and its
affiliates, from a financial point of view, of the IPC exchange ratio. On
February 21, 2000, DLJ delivered to the IPC board its oral opinion, which was
confirmed in writing on February 22, 2000, to the effect that, as of that date,
and based on and subject to the assumptions, limitations and qualifications
included in the opinion, the exchange ratio of 5.417 shares of Global Crossing
common stock in exchange for each share of IPC common stock was fair to holders
of IPC common stock, other than Citicorp Venture Capital and its affiliates,
from a financial point of view.
The full text of the DLJ opinion is attached as Annex D-2 to this document
and is incorporated in this document by reference. The summary of the DLJ
opinion included in this document is qualified in its entirety by reference to
the full text of the DLJ opinion. IPC stockholders are urged to read the DLJ
opinion carefully and in its entirety for the procedures followed, assumptions
made, other matters considered and limits of the review by DLJ in connection
with its opinion.
DLJ prepared its opinion for the IPC board. The opinion addresses only the
fairness from a financial point of view, as of February 22, 2000, of the IPC
exchange ratio to the IPC stockholders, other than Citicorp Venture Capital and
its affiliates. The DLJ opinion does not address the relative merits of the IPC
merger or
60
<PAGE>
any other business strategies being considered by the IPC board of directors,
nor does it express any opinion as to the IPC board of directors' decision to
proceed with the IPC merger. DLJ expressed no opinion as to the price at which
the Global Crossing common stock will actually trade at any time. The type and
amount of consideration was determined in arm's length negotiations among IPC,
Global Crossing and IXnet in which negotiations IPC and IXnet were advised by
DLJ. The DLJ opinion did not constitute a recommendation to any IPC stockholder
as to how any stockholder should vote on the IPC merger.
IPC selected DLJ as its financial advisor because it is an internationally
recognized investment banking firm that has substantial experience in the media
and communications industries and is familiar with IPC and its business. DLJ
was not retained as an advisor or agent to the stockholders of IPC or any other
person other than IXnet. As part of its investment banking business, DLJ is
regularly engaged in the valuation of businesses and securities in connection
with mergers, acquisitions, underwritings, sales and distributions of listed
and unlisted securities, private placements and valuations for corporate and
other purposes.
In arriving at its opinion, DLJ:
. reviewed the merger agreement and the exhibits to that agreement;
. reviewed financial and other information that was publicly available or
furnished to it by IPC and Global Crossing, including information
provided during discussions with their respective managements. Included
in the information provided during discussions with the respective
managements were certain financial projections of IPC for the period
beginning October 1, 1999, and ending September 30, 2009, prepared by
the management of IPC, certain financial projections of IXnet for the
period beginning October 1, 1999, and ending September 30, 2009,
prepared by management of IXnet and certain financial projections of
Global Crossing for the period beginning January 1, 2000, and ending
December 31, 2004, prepared by the management of Global Crossing;
. compared certain financial and securities data of IPC, IXnet and Global
Crossing with various other companies whose securities are traded in
public markets;
. reviewed the historical stock prices and trading volumes of IPC common
stock and Global Crossing common stock;
. reviewed prices and premiums paid in certain other business
combinations; and
. conducted other financial studies, analyses and investigations as it
deemed appropriate for purposes of rendering its opinion.
DLJ was not requested to, nor did it, solicit the interest of any other
party in acquiring IPC or IXnet.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to DLJ from public sources, that was provided to DLJ by IPC, IXnet or Global
Crossing or their respective representatives, or that was otherwise reviewed by
DLJ, and DLJ assumed that IPC was not aware of any information prepared by it
or its advisors that might be material to DLJ's opinion that was not made
available to DLJ. With respect to the financial projections supplied to DLJ,
DLJ relied on representations that they were reasonably prepared on the basis
reflecting the best currently available estimates and judgments of the
management of IPC, IXnet and Global Crossing as to the future operating and
financial performance of IPC, IXnet and Global Crossing, respectively. DLJ did
not assume any responsibility for making any independent evaluation of any
assets or liabilities or for making any independent verification of any of the
information reviewed by DLJ. DLJ relied as to certain legal matters on advice
of counsel to IPC.
The DLJ opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to
DLJ as of, the date of the DLJ opinion. Although subsequent developments may
affect its opinion, DLJ does not have any obligation to update, revise or
reaffirm its opinion.
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Financial analyses performed by DLJ
The following is a summary of the presentation made by DLJ to the IPC board
on February 21, 2000, in connection with the preparation of the DLJ opinion.
The order of analyses, and results thereof, described do not represent relative
importance or weight given to these analyses, or results thereof, by DLJ. No
company or transaction used in the following analysis is directly comparable to
IPC, Global Crossing or the merger. In addition, mathematical analysis such as
determining the average or median is not in itself a meaningful method of using
selected company or transaction data. The analyses performed by DLJ are not
necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by these analyses. The
information summarized in the tables below should be read in conjunction with
the accompanying text.
Exchange ratio analysis
DLJ reviewed the daily closing prices of IPC common stock and Global
Crossing common stock over the six months before February 18, 2000, to
determine the implied exchange ratio based upon the relative prices of IPC
common stock and Global Crossing common stock at various time intervals during
that six month period. Based on February 18, 2000 intraday average prices of
$138.69 for IPC and $55.06 for Global Crossing, the implied exchange ratio was
2.519x. DLJ also analyzed the implied exchange ratio between IPC common stock
and Global Crossing common stock for the five days, 20 days, 30 days, three
months and six months before February 18, 2000. The implied exchange ratios for
these periods were 2.186x, 1.932x, 1.818x, 1.533x and 1.627x, respectively.
Public comparables analysis
DLJ analyzed selected historical and projected operating information, stock
market data and financial ratios for 10 publicly traded companies that DLJ
believed to be reasonably comparable to IPC. The companies consisted of:
. Amphenol Corp.
. Centigram Communications Corporation
. Cooper Industries, Inc.
. General Datacomm Industries, Inc.
. Glenayre Technologies Inc.
. Hubbell Incorporated
. Molex Incorporated
. Network Equipment Technologies Inc.
. Picturetel Corporation
. Thomas & Betts Corp.
DLJ examined the enterprise value and selected financial data of each of the
comparable companies as of February 18, 2000 as derived from such companies'
public filings and published research analysts' reports prepared by investment
banking firms including DLJ. DLJ defined enterprise value as the value of
fully-diluted common equity plus long-term debt and the liquidation value of
outstanding preferred stock, if any, minus cash, the proceeds, if any, from the
exercise of outstanding options and warrants and the value of certain other
non-core assets, including minority interests in other entities. In examining
these comparable companies, DLJ analyzed, among other things, the enterprise
value of the companies as a multiple of each company's respective last twelve
months of revenue, or LTM revenue and last twelve months of EBITDA, or LTM
EBITDA. DLJ's analysis of the comparable companies yielded the following:
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. enterprise value as a multiple of LTM revenue ranged from 0.5x to 4.0x
for the comparable companies with an average of 1.4x and a median of
1.2x, compared to a current value of 4.5x for IPC, the average excludes
Molex, Inc. because Molex was deemed to be less relevant than the other
comparable companies.
. enterprise value as a multiple of LTM EBITDA ranged from 5.6x to 18.0x
for the comparable companies with an average of 9.0x and a median of
9.6x, compared to a current value of 51.8x for IPC, the average excludes
Molex, Inc. because Molex was deemed to be less relevant than the other
comparable companies.
Based on this analysis, DLJ selected a reference range of enterprise value
multiples and from these multiples, derived an implied per share equity value
range and implied exchange ratios for IPC as follows:
<TABLE>
<CAPTION>
Implied
Enterprise value Implied equity exchange
multiple reference Implied equity value per share ratio range
range for IPC value for IPC for IPC for IPC
------------------ --------------- --------------- -------------
<S> <C> <C> <C> <C>
LTM sales............... 0.8x-1.5x $ 35.00-$225.00 N/A N/A
LTM EBITDA.............. 5.0x-8.0x $121.00-$303.00 N/A N/A
Reference range......... N/A $ 75.00-$260.00 $161.04-$318.52 3.075x-6.082x
</TABLE>
Comparable transactions analysis
DLJ reviewed nine selected transactions or proposed transactions involving
companies that DLJ believed to be reasonably comparable to IPC. These
transactions were divided between selected transactions, which DLJ refers to as
"selected transactions", and other transactions, which DLJ refers to as "other
transactions", which although reviewed, DLJ believed to be less comparable than
the selected transactions:
Selected transactions:
. Tyco International Ltd./Raychem Corp.
. Framatome Connectors International/Berg Electronics Corp.
. Moeller Holding GmbH/Felten & Guilleaume Energietechnik
Aktiengesellschaft
. Kohlberg Kravis Roberts/Amphenol Corp.
Other transactions:
. Nortel Networks Corporation / Periphonics, Inc.
. World Access Inc. / Telco Systems Corporation
. Cable Systems International / IPC Information Systems, Inc.
. Comverse Technology Inc. / Boston Technology Inc.
. Lucent Technologies Inc. / Octel Communications Corp.
In examining these transactions, DLJ compared, among other things, the
enterprise value of the acquired company implied by each of these transactions
as a multiple of LTM revenue and LTM EBITDA as obtained by DLJ from various
public and industry sources. DLJ's analysis of enterprise value as a multiple
of LTM revenue of the comparable selected transactions yielded a range of
multiples of 0.4x to 2.3x with an average of 1.6x and a median of 1.8x. Based
on LTM EBITDA, the selected transactions yielded a range of multiples of 4.1x
to 11.5x with an average of 8.7x and a median of 9.6x. DLJ's analysis of
enterprise value as a multiple of LTM revenue of the comparable other
transactions yielded a range of multiples of 0.9x to 3.6x with an average of
2.3x and a median of 2.4x. Based on LTM EBITDA, the other transactions yielded
a range of multiples of 13.8x to 24.3x with an average of 17.7x and a median of
16.5x.
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Based on this analysis, DLJ selected a reference range of enterprise value
multiples and from these multiples, derived an implied per share equity value
range and implied exchange ratios for IPC as follows:
<TABLE>
<CAPTION>
Enterprise value Implied equity Implied exchange
multiple reference Implied equity value per share ratio range
range for IPC value for IPC for IPC for IPC
------------------ --------------- --------------- ----------------
<S> <C> <C> <C> <C>
LTM sales............... 1.0x-1.5x $120.00-$255.00 N/A N/A
LTM EBITDA.............. 5.0x-10.0x $152.00-$455.00 N/A N/A
Reference range......... N/A $135.00-$355.00 $159.76-$306.14 3.050x-5.845x
</TABLE>
Discounted cash flow analysis
DLJ performed a discounted cash flow analysis of IPC for the period starting
on October 1, 1999 and ending September 30, 2009, using projections and
assumptions provided by IPC's management. DLJ's discounted cash flow
calculation is an analysis of the present value of projected unlevered free
cash flows and an estimated terminal year enterprise value using the discount
rates and terminal year EBITDA multiples indicated below. The discounted cash
flow value per share of IPC stock was estimated using weighted average cost of
capital discount rates ranging from 12.5% to 14.5% based on estimates of and
judgments related to the weighted average cost of capital of IPC and terminal
multiples of estimated EBITDA for IPC's fiscal year ending September 30, 2009,
ranging from 7.0x to 10.0x.
Based on this analysis, DLJ calculated an implied equity value per share of
IPC ranging from $190.16 to $313.90 and implied exchange ratios for IPC ranging
from 3.631x to 5.993x.
Contribution analysis
DLJ analyzed the respective contributions that IPC and Global Crossing would
make on a pro forma basis to calendar year 1999, estimated 2000 and estimated
2001 total revenue, EBITDA, equity value and enterprise value and compared
these analyses to the pro forma equity ownership of the combined company.
<TABLE>
<CAPTION>
Global
Crossing % IPC % Combined %
---------- ----- ----------
<S> <C> <C> <C>
CY 1999 Total Revenue......................... 92.1% 7.9% 100.0%
CY 2000E Total Revenue........................ 93.1% 6.9% 100.0%
CY 2001E Total Revenue........................ 93.8% 6.2% 100.0%
CY 1999 EBITDA................................ 97.4% 2.6% 100.0%
CY 2000E EBITDA............................... 96.9% 3.1% 100.0%
CY 2001E EBITDA............................... 96.2% 3.8% 100.0%
Current equity value.......................... 96.7% 3.3% 100.0%
Current enterprise value...................... 96.6% 3.4% 100.0%
Pro forma ownership........................... 93.5% 6.5% 100.0%
</TABLE>
Analyses of Global Crossing
The analyses which DLJ undertook in connection with arriving at its opinion
included analyses of Global Crossing, which are described in the "Opinion of
DLJ to IXnet's board of directors--Financial analyses performed by DLJ--Public
comparables analysis of Global Crossing and discounted cash flow analysis of
Global Crossing" on page 59 of this document.
The above summary describes, in summary form, the material elements of the
presentation made by DLJ to the IPC board on February 21, 2000. The preparation
of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to
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the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Each of the analyses conducted by DLJ was
carried out in order to provide a different perspective on the merger and to
add to the total mix of information available. DLJ did not form a conclusion as
to whether any individual analysis, considered in isolation, supported or
failed to support an opinion as to fairness from a financial point of view.
Rather, in reaching its conclusions DLJ considered the results of the analyses
in light of each other and ultimately reached its opinion based on the results
of all analyses undertaken in connection with its opinion taken together as a
whole. Accordingly, notwithstanding the separate factors summarized above, DLJ
has indicated to IPC that it believes that its analyses must be considered as a
whole and that selecting portions of its analyses and the factors considered by
it, without considering all analyses and factors, could create an incomplete
view of the evaluation process underlying its opinion. The analyses performed
by DLJ are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by these analyses.
Engagement
Under the terms of an engagement agreement dated February 17, 2000, IPC
agreed to pay DLJ fees customary in transactions of this nature. In addition,
IPC agreed to reimburse DLJ, upon request by DLJ from time to time, for all
out-of-pocket expenses, including the reasonable fees and expenses of counsel,
incurred by DLJ in connection with its engagement, and to indemnify DLJ and
related persons against certain liabilities and expenses arising out of the
merger or the transactions in connection with the merger, including liabilities
under United States federal securities laws. DLJ and IPC management negotiated
the terms of the fee arrangement.
Other relationships
In the ordinary course of business, DLJ and its affiliates may own or
actively trade the securities of IPC and Global Crossing for their own accounts
and for the accounts of their customers and because of this may at any time
hold a long or short position in IPC or Global Crossing securities.
DLJ has performed investment banking and other services for IXnet and Global
Crossing in the past and has been compensated for those services, including
acting as co-lead manager for the initial public offering of IXnet common stock
in August 1999 and acting as co-manager for Global Crossing's offerings of
common stock, exchangeable preferred stock and cumulative convertible preferred
stock in August 1998, December 1998 and December 1999, respectively.
Interests of members of IPC's and IXnet's boards of directors and management in
the mergers
When you consider the recommendations of the IPC and IXnet boards of
directors in favor of the adoption of the merger agreement, you should be aware
that a number of directors and executive officers of IPC and IXnet have
interests in the mergers in addition to their interests solely as IPC and IXnet
stockholders, as described below. These interests may create potential
conflicts of interest. Both the IPC and IXnet boards of directors were aware of
these interests when they considered, adopted and approved the merger agreement
and the mergers.
David Walsh to become an officer of Global Crossing
David A. Walsh, who is currently the Chief Executive Officer of IPC and
IXnet, will become head of global sales and marketing at Global Crossing when
the mergers are completed.
Global Crossing to cause a number of agreements to be honored
Global Crossing has agreed to cause the surviving corporations in the
mergers to honor certain employment, change in control, severance, retirement
or termination agreements with current or former officers, directors or
employees of those corporations or their subsidiaries.
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Additional options to David Walsh and other IPC and IXnet officers and
employees
Global Crossing has agreed to grant to David Walsh, as soon as practicable
following the closing of the mergers, an option to purchase 1,000,000 shares of
Global Crossing common stock; Global Crossing has also agreed to grant to
certain officers and employees of IXnet and IPC options to purchase 3,000,000
shares of Global Crossing common stock.
Effects of the mergers under IPC and IXnet stock option plans
Under both the IPC and IXnet stock option plans, the mergers will constitute
a change of control of IPC and IXnet. The IPC plan provides that upon a change
of control, all options will become vested and immediately exercisable. Upon a
change of control, the IXnet plan provides for accelerated vesting of up to 50%
of the unvested options with no change to the time of exercise.
Under the merger agreement, at the effective time of the mergers, all stock
options then held by IPC and IXnet employees which are then outstanding and
unexercised will become options to purchase shares of Global Crossing common
stock on terms substantially identical to the terms of the IPC and IXnet plans
before the effective time of the mergers. Global Crossing will assume those
stock option plans, subject to the next two sentences. On February 22, 2000,
several senior executives of IPC and IXnet, including William Adiletta, James
Demitrieus, John Faccibene, Richard Farrell, Peter Hase, Drew Kelton, John
McSherry, Paul Pluschkell, Alexander Russo, Anthony Servidio, David Walsh,
William Walsh, Timothy Whelan and Robert Woog, entered into an agreement with
Global Crossing, which we refer to as the "option limitation agreement". The
option limitation agreement provides with respect to these senior executives
that:
. only 50% of their unvested options for IPC common stock and 25% of their
unvested options for IXnet common stock will become vested at the
effective time of the mergers;
. David Walsh has agreed to relinquish vesting with respect to 50% of his
currently fully vested options for IXnet common stock at the effective
time of the mergers;
. one third of the remaining options of the 14 senior executives of IPC
and IXnet referred to above will vest on each of the first three
anniversary dates of the closing date of the mergers; and
. to the extent that an excise tax is imposed upon any of the 14 senior
executives by reason of the accelerated vesting of the options, Global
Crossing has agreed to reimburse the executives in the aggregate amount
of up to $20,000,000.
In addition, the IXnet stock option plan will be amended to provide that 25%
of IXnet options held by a person who is not a party to the option limitation
agreement or held by William Adiletta or Richard Farrell will become
exercisable upon a change of control of IXnet. The change in control of IXnet
resulting from the mergers will trigger this provision.
After the effective time of the mergers, the number of shares of Global
Crossing common stock that a holder of an IPC or IXnet option may purchase upon
exercise of that option will equal the number of shares of Global Crossing
common stock subject to that option, multiplied by (1) 5.417, in the case of an
IPC option, or (2) 1.184, in the case of an IXnet option. Those shares of
Global Crossing common stock will be purchased at a price equal to the exercise
price specified in the option divided by 5.417, in the case of an IPC option,
and 1.184, in the case of an IXnet option.
Restrictions on the transfer of Global Crossing common stock
The 14 senior executives of IPC and IXnet that are parties to the option
limitation agreement have agreed to transfer restrictions on the shares of
Global Crossing common stock they will acquire (1) upon the exercise of
converted stock options after the mergers or (2) in the mergers in exchange for
shares of IPC or IXnet common stock that they have acquired as a result of the
exercise of IPC or IXnet stock options before the mergers. We refer to those
shares of Global Crossing common stock as the "restricted shares". These
transfer restrictions include:
. during the first year after the closing of the mergers, none of these
stockholders may transfer more than 25% of the restricted shares without
Global Crossing's written consent; and
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. during the second year after the closing of the mergers, none of these
stockholders may transfer more than 50% of their restricted shares.
These transfer restrictions terminate on the second anniversary of the
closing of the mergers.
In addition, David Walsh and Anthony Servidio have agreed to transfer
restrictions which are substantially similar to those outlined above with
respect to the shares of Global Crossing common stock (1) which they will
acquire in the mergers and (2) which are issuable under their stock options
which are vested and exercisable as of the mergers.
Benefit plans
Under the merger agreement and subject to specified exceptions, all retained
employees of IPC and its subsidiaries not subject to collective bargaining
agreements will participate in IPC's existing employee benefit plans through
December 31, 2000. After that date, at Global Crossing's option, those
employees will continue to participate in IPC's employee benefit plans or will
participate in Global Crossing's employee benefit plans on a basis no less
favorable in the aggregate than similarly situated employees of Global Crossing
and its subsidiaries. Benefits to employees who belong to collective bargaining
agreements will be provided in accordance with those agreements.
Indemnification and insurance
Under the merger agreement and subject to specified limitations, IPC and
IXnet have agreed to indemnify, during a period of six years after the
completion of the mergers, all directors and executive officers of IPC and
IXnet and their respective subsidiaries for acts and omissions occurring before
the mergers, if those acts or omissions are uninsured. In addition, for a
period of six years after the completion of the mergers, Global Crossing has
agreed to maintain the current insurance and indemnification policies of IPC,
IXnet and their respective subsidiaries in favor of IPC and IXnet directors and
officers. If the annual premium for these policies exceeds, in the case of each
of IPC and IXnet, 200% of the last annual premium paid by that company before
the date of the merger agreement, Global Crossing has the option to substitute
each of those policies with the best directors' and officers' insurance
coverage then available, as determined in the reasonable judgment of the board
of directors of Global Crossing up to an annual premium equal to 200% of the
last annual premium paid by that company before the date of the merger
agreement.
Certain United States federal income tax and Bermuda tax consequences
United States federal income tax consequences
The following discussion is a summary of the material United States federal
income tax consequences to United States persons of the mergers and the
ownership of Global Crossing common stock. The discussion is based on the
United States Internal Revenue Code, applicable Treasury regulations,
administrative rulings and pronouncements and judicial decisions as of the date
of this document, all of which could change. Any change, which may be
retroactive, could alter the tax consequences we discuss in this document. Our
discussion of tax consequences is also based on representations made by Global
Crossing, Georgia Merger Sub Corporation, a wholly-owned subsidiary of Global
Crossing, IPC, IPC Systems, Idaho Merger Sub Corporation, a wholly-owned
subsidiary of IPC Systems, and IXnet. If any of these representations is
inaccurate, the tax consequences of the mergers could differ from those
described in this document. You are a United States person if you are:
. a citizen or resident of the United States;
. a corporation or partnership created or organized in or under the laws
of the United States or any political subdivision of the United States;
. an estate, the income of which is subject to United States federal
income taxation regardless of its source; or
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. a trust that (1) is subject to the supervision of a court within the
United States and the control of one or more United States persons or
(2) has a valid election in effect under applicable United States
Treasury regulations to be treated as a United States person.
The discussion below, except where specifically noted, does not address the
effects of any state, local or non-United States tax laws. In addition, the
discussion below assumes that you hold your IPC or IXnet common stock and will
hold your Global Crossing common stock as capital assets and does not address
the tax consequences that may be relevant to you in light of your particular
circumstances. Moreover, it does not present a description of the United States
federal income tax consequences applicable to you if you are subject to special
treatment under the United States federal income tax laws, including if you
are:
. a dealer in securities or currencies;
. a trader in securities if you elect to use a mark-to-market method of
accounting for your securities holdings;
. a financial institution;
. an insurance company;
. a tax-exempt organization;
. a person liable for alternative minimum tax;
. a person holding stock as part of a hedging, integrated or conversion
transaction, constructive sale or straddle;
. a United States person whose "functional currency" is not the United
States dollar;
. not a United States person; or
. an individual who received IPC or IXnet common stock pursuant to the
exercise of employee stock options or otherwise as compensation.
If a partnership holds shares of IPC or IXnet common stock or will hold
Global Crossing common stock, the tax treatment of a partner will generally
depend upon the status of the partner and the activities of the partnership. If
you are a partner of a partnership holding IPC or IXnet common stock or Global
Crossing common stock, you should consult your tax advisor.
In addition, this discussion does not address all of the tax consequences to
shareholders that will own 5% or more of either the total voting power or the
total value of the outstanding Global Crossing common stock after the mergers,
determined after we take into account ownership under the applicable
attribution rules of the Internal Revenue Code and applicable Treasury
regulations. We will refer to these shareholders as "5% transferee
shareholders".
Tax matters are very complicated, and the tax consequences to you of the
mergers and of the ownership of Global Crossing common stock will depend upon
the facts of your particular situation. We encourage you to consult your own
tax advisors regarding the specific tax consequences of the mergers, including
tax return reporting requirements and the applicability of federal, state,
local and foreign tax laws.
Consequences of the mergers
The obligations of Global Crossing, Georgia Merger Sub, IPC, IPC Systems,
Idaho Merger Sub and IXnet to complete the merger are conditioned on the
receipt of opinions from their respective counsel, Skadden, Arps, Slate,
Meagher & Flom LLP for IPC and IXnet and Simpson Thacher & Bartlett for Global
Crossing. These opinions, which will be based on facts, representations and
assumptions as counsel may reasonably deem relevant, will be to the effect
that:
. the mergers will be treated for United States federal income tax
purposes as reorganizations within the meaning of Section 368(a) of the
Internal Revenue Code;
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. Global Crossing, Georgia Merger Sub, IPC, IPC Systems, Idaho Merger Sub
and IXnet will each be a party to the reorganizations within the meaning
of Section 368(b) of the Internal Revenue Code; and
. Section 367 of the Internal Revenue Code will not apply to the exchange
of IPC common stock or IXnet common stock for Global Crossing common
stock pursuant to the mergers, other than with respect to any 5%
transferee stockholders that fail to enter into a valid "gain
recognition agreement" under applicable Treasury regulations.
Based on those conclusions, if the mergers are completed, the following
additional federal income tax consequences will apply to IXnet and IPC
stockholders except with respect to 5% transferee shareholders that fail to
enter into a valid "gain recognition agreement" under applicable Treasury
regulations:
. No gain or loss. IPC stockholders will not recognize any gain or loss on
the exchange of their IPC common stock solely for IPC Systems common
stock or the exchange of IPC Systems common stock solely for Global
Crossing common stock. IXnet stockholders will not recognize any gain or
loss on the exchange of their IXnet common stock solely for Global
Crossing common stock.
. Tax basis. The aggregate tax basis of Global Crossing common stock you
receive in the mergers will be the same as the aggregate tax basis of
the IPC, IPC Systems or IXnet common stock you surrender in the mergers,
decreased by the tax basis allocated to any fractional share interest
exchanged for cash.
. Holding period. The holding period of the Global Crossing common stock
you receive pursuant to the mergers will include the holding period of
the IPC, IPC Systems or IXnet common stock you surrender in the mergers
for the Global Crossing common stock.
. Fractional shares. If you receive cash in payment for a fractional share
interest in Global Crossing common stock pursuant to the mergers you
will be treated as having received the cash in exchange for the
fractional share interest and generally will recognize capital gain or
loss on the deemed exchange in an amount equal to the difference between
the amount of cash received and the basis of the IPC, IPC Systems or
IXnet common stock allocable to that fractional share.
Ownership of Global Crossing common stock
Distributions. Distributions made to you on or with respect to Global
Crossing common stock will be treated as dividends and will be taxable as
ordinary income to the extent that those distributions are made out of Global
Crossing's current or accumulated earnings and profits as determined for United
States federal income tax purposes. Subject to the passive foreign investment
company rules discussed below, to the extent that the amount of any
distribution exceeds Global Crossing's current or accumulated earnings and
profits for a taxable year, the excess will be treated as a tax-free return of
capital which reduces your tax basis in the Global Crossing common stock to the
extent of the tax basis, and any remaining amount will be treated as capital
gain from the sale or exchange of property. If you are a corporation you
generally will not be entitled to claim a dividends received deduction with
respect to distributions by Global Crossing because Global Crossing is a
foreign corporation. Global Crossing does not currently pay dividends on its
common stock and does not anticipate paying dividends in the foreseeable
future.
For so long as Global Crossing is a "United States-owned foreign
corporation", distributions with respect to the common stock that are taxable
as dividends generally will be treated for United States foreign tax credit
purposes as either (1) foreign source "passive income" or, in the case of some
Global Crossing shareholders, foreign source "financial services income" or (2)
United States source income, in proportion to the earnings and profits of
Global Crossing in the year of the distribution allocable to foreign and United
States sources, respectively. For this purpose, Global Crossing will be treated
as a United States-owned foreign corporation so long as stock representing 50%
or more of the voting power or value of Global Crossing is owned, directly or
indirectly, by United States persons.
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Disposition. Subject to the passive foreign investment company and
controlled foreign corporations rules discussed below, gain or loss you realize
on the sale, exchange or other taxable disposition of Global Crossing common
stock will be subject to United States federal income taxation as capital gain
or loss in an amount equal to the difference between the amount realized on
that sale, exchange or other disposition and your adjusted tax basis in the
Global Crossing common stock surrendered. The gain or loss will be long term
capital gain or loss if your holding period for the Global Crossing common
stock is more than one year. Any gain or loss so realized will generally be
United States source. Your ability to deduct capital losses is subject to
limitations.
Passive foreign investment company. In general, Global Crossing will be
classified as a "passive foreign investment company", for any taxable year if
either (1) at least 75% of Global Crossing's gross income is passive income or
(2) at least 50% of the value, determined on the basis of a quarterly average,
of Global Crossing's assets produce or are held for the production of passive
income. Global Crossing believes that it is not a passive foreign investment
company and does not expect to become a passive foreign investment company in
the future for United States federal income tax purposes, although Global
Crossing cannot assure you in this regard. See "Risk Factors--Our shareholders
may be subject to Foreign Personal Holding Company, Passive Foreign Investment
Company, Controlled Foreign Corporation and Personal Holding Company rules".
This conclusion is a factual determination made annually and is subject to
change. In addition, it is based, in part, on interpretations of existing law
that Global Crossing believes are reasonable, but which have not been approved
by any taxing authority.
If Global Crossing is classified as a passive foreign investment company in
any year with respect to which a United States person is a shareholder, Global
Crossing generally will continue to be treated as a passive foreign investment
company with respect to that shareholder in all succeeding years, regardless of
whether it continues to meet the income or asset test described above, subject
to certain possible shareholder elections that may apply in some circumstances.
If Global Crossing is treated as a passive foreign investment company
. Distributions made by Global Crossing during a taxable year to a
shareholder with respect to Global Crossing stock that are "excess
distributions", which are generally defined as the excess of the amount
received with respect to that stock in any taxable year over 125% of the
average received in the shorter of either the three previous years or
the shareholder's holding period before the taxable year, must be
allocated ratably to each day of the shareholder's holding period. The
amounts allocated to the current taxable year and to taxable years
before the first year in which Global Crossing was classified as a
passive foreign investment company are included as ordinary income in
the shareholder's gross income for that current year. The amount
allocated to each other prior passive foreign investment company taxable
year is subject to tax at the highest rate in effect for that taxable
year and the tax is subject to an interest charge at the rate applicable
to deficiencies in income taxes.
. The entire amount of any gain realized upon the sale or other
disposition including for these purposes, a pledge of Global Crossing
stock, will be treated as an excess distribution made in the year of
sale or other disposition. As a result, that gain will be treated as
ordinary income and, to the extent allocated to PFIC years before the
year of sale or disposition, will be subject to the interest charge
described above. In addition, shareholders who acquire their Global
Crossing stock from decedent's generally will not receive a "stepped up"
basis in the stock. Instead, these shareholders will have a tax basis
equal to the lower of the fair market value of the stock or the
decedent's basis.
The special passive foreign investment company tax rules described above
will not apply to a Global Crossing shareholder if the shareholder (1) elects
to have Global Crossing treated as a "qualified electing fund" or (2) makes a
mark to market election.
. Qualified electing fund election. If Global Crossing is treated as a
passive foreign investment company, it intends to notify its
shareholders and to provide to its shareholders all information that
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may be required to make the qualified electing fund election effective.
A shareholder that makes a qualified electing fund election will be
taxable currently on its pro rata share of Global Crossing's ordinary
earnings and net capital gain, at ordinary income and capital gain
rates, respectively, for each taxable year of Global Crossing during
which it is treated as a passive foreign investment company, regardless
of whether or not distributions were received. The shareholder's basis
in the Global Crossing stock will be increased to reflect taxed but
undistributed income. Distributions of income that had previously been
taxed will result in a corresponding reduction of basis in the Global
Crossing stock and will not be taxed again as a distribution to the
shareholder.
. Mark to market election. The mark to market election is only available
with respect to stock that is regularly traded on a qualified exchange,
including specified United States exchanges and other exchanges
designated by the United States Treasury. The Global Crossing common
stock is currently listed on the Nasdaq National Market which is a
qualified exchange for purposes of the mark to market election, although
no assurance can be given that the Global Crossing common stock will be
regularly traded for these purposes. In general, an electing shareholder
will include in each year as ordinary income the excess, if any, of the
fair market value of that stock at the end of the taxable year over its
adjusted basis and will be permitted an ordinary loss in respect of the
excess, if any, of the adjusted basis of that stock over its fair market
value at the end of the taxable year, but only to the extent of the net
amount previously included in income as a result of the mark to market
election. The electing shareholder's basis in the stock will be adjusted
to reflect any of these income or loss amounts. Any gain or loss on the
sale of the Global Crossing stock will be ordinary income or loss,
except that a loss will be ordinary loss only to the extent of the
previously included net mark to market gain.
A shareholder who owns Global Crossing stock during any year that Global
Crossing is a passive foreign investment company must file IRS Form 8621.
Shareholders are urged to consult their tax advisors concerning the United
States federal income tax consequences of holding stock of Global Crossing if
it is a passive foreign investment company, including the advisability and
availability of making any of the elections described above.
Foreign personal holding company. A foreign corporation will be classified
as a foreign personal holding company if:
. at any time during the corporation's taxable year, five or fewer
individuals, who are United States citizens or residents, directly or
indirectly own more than 50% of the corporation's stock by either voting
power or value; we refer to this as the "shareholder test"; and
. the corporation receives at least 60% of its gross income, 50% after the
initial year of qualification, as adjusted, for the taxable year from
certain passive sources; we refer to this as the "income test".
It is possible that Global Crossing or one of its non-United States
subsidiaries will meet the income test in a given year. However, Global
Crossing does not expect that the shareholder test will be met after the
mergers. Accordingly, it is not expected that Global Crossing or any of its
non-United States subsidiaries will be treated as a foreign personal holding
company, although we cannot assure you in this regard. Global Crossing intends
to manage its affairs so as to attempt to avoid or minimize having income
imputed to its shareholders under these rules, to the extent this management
of its affairs is consistent with its business goals.
If Global Crossing or one of its non-United States subsidiaries were
classified as a foreign personal holding company, all shareholders, including
certain indirect holders, regardless of their percentage ownership, would be
required to include in income, as a dividend, their pro rata share of Global
Crossing's or its relevant non-United States subsidiary's undistributed
foreign personal holding company income if they were holders on the last day
of Global Crossing's taxable year or, if earlier, the last day on which Global
Crossing satisfied the shareholder test. Foreign personal holding company
income is generally equal to taxable income with certain adjustments. In
addition, if Global Crossing were classified as a foreign personal holding
company,
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shareholders who acquire their Global Crossing stock from decedents would not
receive a "stepped-up" basis in that stock. Instead, these shareholders would
have a tax basis equal to the lower of the fair market value of the stock or
the decedent's basis.
Personal holding company. A corporation classified as a personal holding
company is subject to a 39.6% tax on its undistributed personal holding company
income. Foreign corporations like Global Crossing determine their liability for
personal holding company tax by considering only (1) gross income derived from
United States sources and (2) gross income that is effectively connected with a
United States trade or business. A corporation will be classified as a personal
holding company if:
. at any time during the last half of the corporation's taxable year, five
or fewer individuals own more than 50% of the corporation's stock
measured by value, directly or indirectly; and
. the corporation receives at least 60% of its adjusted gross income from
certain passive sources.
However, if a corporation is a foreign personal holding company or a passive
foreign investment company, it cannot be a personal holding company. It is
possible that Global Crossing or one of its non-United States subsidiaries will
meet the income test in a given year. However, it is not expected that the
shareholder test will be met after the mergers. Accordingly, it is not expected
that Global Crossing or any of its subsidiaries will be treated as a personal
holding company, although we cannot assure you in this regard. Global Crossing
intends to manage its affairs so as to attempt to avoid or minimize the
imposition of the personal holding company tax, to the extent this management
of its affairs is consistent with its business goals.
Controlled foreign corporations. For purposes of this discussion, when we
use the term "10% United States shareholders", we mean United States persons
who individually own, or are deemed for United States federal income tax
purposes to own, under complex attribution and constructive ownership rules,
10% or more of the voting stock of Global Crossing or any of its non-United
States subsidiaries.
If 10% United States shareholders own, in the aggregate, more than 50%,
measured by voting power or value, of the shares of Global Crossing or any of
its non-United States corporate subsidiaries, directly, indirectly, or by
attribution, Global Crossing or any of its non-United States subsidiaries would
be a controlled foreign corporation. If characterized as controlled foreign
corporations, then a portion of the undistributed income of Global Crossing and
its non-United States subsidiaries may be includible in the taxable income of
10% United States shareholders of those entities, and a portion of the gain
recognized by 10% United States shareholders on the disposition of their shares
in Global Crossing, which could otherwise qualify for capital gains treatment,
may be converted into ordinary dividend income. It is possible that Global
Crossing and its non-United States subsidiaries may be controlled foreign
corporations or may become controlled foreign corporations in the future.
However, as discussed above, controlled foreign corporation status generally
only has potentially adverse consequences to 10% United States shareholders.
In order to attempt to prevent any United States person from being a 10%
United States shareholder of Global Crossing, the bye-laws of Global Crossing
generally provide, among other things, that no holder of Global Crossing common
stock or any group of holders through whom ownership may be attributed to
another holder by the constructive ownership or attribution rules of Section
958 of the Internal Revenue Code will be allowed to cast votes with respect to
more than 9.5% of the common stock, and some restrictions have been placed on
the transferability of shares. See "Description of Global Crossing Capital
Stock--Voting and transfer restrictions" beginning on page 122. We cannot
assure you that these limitations will prevent the characterization of Global
Crossing or any of its non-United States subsidiaries as a controlled foreign
corporation or of any shareholder as a 10% United States shareholder. However,
a shareholder that owns directly less than 10% of the common stock generally
will not be treated as a 10% United States shareholder unless it is attributed
common stock owned by other shareholders.
Information reporting and backup withholding. In general, information
reporting requirements will apply to dividends in respect of the Global
Crossing common stock or the proceeds received on the sale, exchange, or
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redemption of the Global Crossing common stock paid within the United States
and, in some cases, outside of the United States, to shareholders other than
certain exempt recipients, such as corporations, and a 31% backup withholding
may apply to the amounts if the shareholder fails to provide an accurate
taxpayer identification number or to report dividends required to be shown on
its United States federal income tax returns. The amount of any backup
withholding from a payment to a shareholder will be allowable as a refund or
credit against the shareholder's United States federal income tax liability,
provided that the required information or appropriate claim for refund is
furnished to the Internal Revenue Service.
Bermuda tax consequences
In the opinions of Conyers Dill & Pearman, special Bermuda tax counsel for
IPC and IXnet, and Appleby, Spurling & Kempe, Bermuda tax counsel for Global
Crossing, there will be no Bermuda
. income, corporation or profits tax;
. withholding tax;
. capital gains tax;
. capital transfer tax;
. estate duty; or
. inheritance tax
payable pursuant to the mergers. In addition, as of the date of this document,
there is no Bermuda income, corporation or profits tax, withholding tax,
capital gains tax, capital transfer tax, estate duty or inheritance tax payable
in respect of capital gains realized on a disposition of Global Crossing common
stock or in respect of distributions by Global Crossing with respect to Global
Crossing common stock. Under current Bermuda law, Global Crossing is not
subject to tax on income or capital gains. Furthermore, Global Crossing has
obtained from the Minister of Finance of Bermuda under the Exempted
Undertakings Tax Protection Act 1966 an undertaking that, in the event that
Bermuda enacts any legislation imposing tax computed on profits, income, any
capital asset, gain or appreciation, or any tax in the nature of estate duty or
inheritance tax, then the imposition of that tax will not be applicable to
Global Crossing or to any of its operations or the shares, debentures or other
obligations of Global Crossing, until March 28, 2016. This undertaking does
not, however, prevent the application of any tax or duty to persons ordinarily
resident in Bermuda or of any tax payable pursuant to The Land Tax Act 1967 of
Bermuda or otherwise payable in relation to land leased to Global Crossing.
Regulatory approvals
Hart-Scott-Rodino Act and state antitrust laws
We cannot complete the mergers until we give notification and furnish
information to the Federal Trade Commission and the Antitrust Division of the
Department of Justice and the specified waiting period requirements have been
satisfied. We filed the required notification and report forms with the Federal
Trade Commission and the Antitrust Division on March 20, 2000 and the waiting
period will expire on April 19, 2000. At any time before or after the
completion of the mergers, and notwithstanding that the waiting period may have
terminated or that the mergers have been consummated, the Federal Trade
Commission, the Antitrust Division or any state could take action under the
applicable antitrust or competition laws as it deems necessary or desirable.
This action could include seeking to enjoin the completion of the mergers.
Private parties may also institute legal actions under the antitrust laws under
some circumstances.
FCC, utility commissions, foreign regulatory agencies and competition agencies
approvals
It is a condition to the mergers that Global Crossing receive any necessary
approvals from;
. the Federal Communications Commission;
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. state public utility commissions;
. foreign regulatory agencies; and
. foreign competition authorities,
unless the failure to obtain any of those approvals would not reasonably be
expected to have a material adverse effect on Global Crossing and its
subsidiaries, including, following the merger, IXnet and IPC.
Anticipated accounting treatment
For accounting and financial reporting purposes, the mergers are intended
to be treated as a purchase by Global Crossing under generally accepted
accounting principles. Under the purchase method of accounting, IPC's and
IXnet's assets and liabilities, as of the effective date of the mergers, will
be recorded at their respective fair values and added to those of Global
Crossing. For purposes of preparing Global Crossing's consolidated financial
statements, Global Crossing will establish a new accounting basis for IPC's
and IXnet's assets and liabilities based upon the fair values of these assets
and liabilities, the merger consideration and the costs of the transactions.
Global Crossing's management believes that any excess of cost over the fair
value of the net assets of IPC or IXnet will be recorded as goodwill. A final
determination of the intangible asset lives and required purchase accounting
adjustments, including the allocation of the purchase price to the assets
acquired and liabilities assumed based on their respective fair values, has
not yet been made. Global Crossing has undertaken a study to determine the
fair value of some of IPC and IXnet's assets and liabilities and will make
appropriate purchase accounting adjustments upon completion of that study. For
financial reporting purposes, the results of operations of IPC and IXnet will
be included in the Global Crossing consolidated statement of operations
following the effective time of the mergers and Global Crossing's historical
consolidated statements of operations will not be restated.
Litigation
From February 20, 2000 to March 8, 2000, three lawsuits purporting to be
class action suits were filed in the Court of Chancery in the State of
Delaware in and for New Castle County. The complaints, captioned Weintraub v.
Smith, et al., Blisko v. Smith, et al. and Koening v. Smith, et al., allege
that IXnet, IPC and the individual directors of IXnet and IPC breached their
fiduciary duties to IXnet's minority stockholders in connection with the
mergers. The plaintiffs allege, among other things, that when measured in
percentage terms, IXnet's minority stockholders will receive a lower premium
for their shares than IPC stockholders. Although Global Crossing is not named
as a defendant in any of these actions, the suits may have an impact on Global
Crossing because the stockholder plaintiffs seek:
. injunctive relief against the defendants' allocation of the merger
consideration;
. rescission of the transaction between Global Crossing, IXnet and IPC to
the extent that the mergers are consummated before entry of a final
judgment;
. an accounting for all damages suffered by the purported class; and
. costs and attorneys' fees.
The defendants believe that these actions are entirely without merit and
intend to contest them vigorously.
Quotation on the Nasdaq National Market
It is a condition to the mergers that the shares of Global Crossing common
stock to be issued in the mergers and the other shares to be reserved for
issuance in connection with the mergers be approved for trading on the Nasdaq
National Market upon official notice of issuance. The merger agreement
provides that Global Crossing will use its reasonable best efforts to cause
the shares of Global Crossing common stock to be issued in the mergers and the
shares of Global Crossing common stock to be reserved for issuance in
connection with the mergers to be approved for trading on the Nasdaq National
Market.
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Resales of Global Crossing common stock
All shares of Global Crossing common stock received by IPC or IXnet
stockholders in the mergers will be registered under the Securities Act and
will be freely tradeable without restriction by persons who will not be
affiliates of Global Crossing after the mergers and who were not affiliates of
IPC or IXnet on the date of the IPC or IXnet written consents approving the
mergers. Any of those affiliates may resell the Global Crossing common stock
received by him or her in the merger only if the shares are registered for
resale under the Securities Act or an exemption from registration under the
Securities Act is available. Those people may be permitted to effect resales
under the safe harbor provisions of Rule 145 under the Securities Act or Rule
144 in the case of persons who become affiliates of Global Crossing or as
otherwise permitted under the Securities Act. People who may be deemed to be
affiliates of IPC, IXnet or Global Crossing generally include individuals or
entities that control, are controlled by or are under common control with
Global Crossing, IPC or IXnet, as applicable, and may include some officers and
all directors of that party as well as principal shareholders of Global
Crossing, IPC or IXnet. We recommend that any of those people obtain advice of
securities counsel before making any resale.
The merger agreement provides that:
. before the closing of the mergers, IPC and IXnet will deliver to Global
Crossing a letter identifying all persons who may be deemed to be
affiliates of IPC or IXnet for purposes of Rule 145 under the Securities
Act; and
. on or before the closing of the mergers, IPC and IXnet will deliver to
Global Crossing a written agreement of each affiliate to the effect that
each affiliate will not offer or sell or otherwise dispose of any shares
of Global Crossing common stock received in the mergers in violation of
the Securities Act or the rules and regulations under that act.
This document does not cover resales of Global Crossing common stock
received by any person who may be deemed an affiliate of Global Crossing, IPC
or IXnet.
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THE MERGER AGREEMENT
This section is a summary of the material terms of the merger agreement, a
copy of which is attached as Annex A to this document. The following
description does not purport to be complete and is qualified in its entirety by
reference to the merger agreement. You should refer to the full text of the
merger agreement for details of the mergers and the terms and conditions of the
merger agreement.
The Mergers
There will be a series of mergers as a result of which IPC and IXnet will
become wholly-owned subsidiaries of Global Crossing. The first series of
mergers, which we refer to in this document as the "IPC merger", will involve
the following steps:
. IPC will merge with IPC Information Systems, Inc., a wholly-owned
subsidiary of IPC; IPC Systems will be the surviving entity of that
merger;
. IPC stockholders will receive one share of IPC Systems common stock for
each share of IPC common stock, and the shares of IPC common stock will
be canceled;
. IPC Systems will then merge with Georgia Merger Sub Corporation, a
Delaware corporation and a wholly-owned subsidiary of Global Crossing;
IPC Systems will survive that merger as a wholly-owned subsidiary of
Global Crossing; and
. IPC Systems stockholders will have the right to receive 5.417 shares of
Global Crossing common stock for each share of IPC Systems common stock,
and the shares of IPC Systems common stock will be canceled.
The IXnet merger will follow the IPC merger and will involve the following
steps:
. IXnet will merge with Idaho Merger Sub Corporation, a Delaware
corporation and a wholly-owned subsidiary of IPC Systems, at that time a
wholly-owned subsidiary of Global Crossing; IXnet will survive that
merger as a wholly-owned subsidiary of IPC Systems; and
. IXnet stockholders will have the right to receive 1.184 shares of Global
Crossing common stock for each share of IXnet common stock, and the
shares of IXnet common stock will be canceled.
After the mergers have been completed, each holder of a certificate
representing any shares of IPC or IXnet common stock will no longer have any
rights with respect to those shares of IPC or IXnet common stock, except the
right to receive Global Crossing common stock, any cash issued in lieu of
fractional shares and any unpaid dividends and distributions on unexchanged
Global Crossing common stock. The Global Crossing common stock is described
beginning on page 122.
Any shares of IPC Systems or IXnet common stock
. owned by IPC Systems or IXnet or held by IPC Systems or IXnet as
treasury shares; or
. owned by any direct or indirect wholly-owned subsidiary of IPC Systems
or IXnet or by Global Crossing or any of its direct or indirect wholly-
owned subsidiaries
will be canceled automatically once the mergers are complete and will not
receive the right to convert into any shares of Global Crossing common stock.
Under the terms of the merger agreement:
(1) immediately after the merger between IPC and IPC Systems:
. the certificate of incorporation and by-laws of IPC Systems will be
the same as before the merger, except that the authorized share
capital of IPC Systems will be increased; and
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. the directors and officers of IPC at the effective time of the
merger will be the directors and officers of IPC Systems;
(2) immediately after the merger between IPC Systems and Georgia Merger
Sub:
. the certificate of incorporation and by-laws of IPC Systems will be
the same as before the merger, except that the authorized share
capital of IPC Systems will be reduced; and
. the directors and officers of Georgia Merger Sub at the effective
time of the merger will become the directors and officers of IPC
Systems; and
(3) immediately after the merger between IXnet and Idaho Merger Sub:
. the certificate of incorporation and by-laws of IXnet will be the
same as before the merger, except that the authorized share capital
of IXnet will be reduced; and
. the directors and officers of Idaho Merger Sub at the effective time
of the merger will become the directors and officers of IXnet.
Effective time of the mergers
Each merger will become effective when we file a certificate of merger
relating to that merger with the Secretary of State of the State of Delaware
and make all other filings or recordings required under the Delaware General
Corporation Law. However, we may agree to a later effective time for each
merger and specify that time in the certificate of merger relating to that
merger. We expect to file all certificates of merger on the second business day
after the satisfaction or waiver of all conditions in the merger agreement,
other than conditions that cannot be satisfied until the closing date. See "--
Conditions to the completion of the mergers" on page 84.
Exchange procedures
After the effective time of the mergers, EquiServe, as the exchange agent,
will mail to each person who held shares of IPC, IPC Systems or IXnet common
stock at the effective time of the mergers a letter of transmittal. This letter
will include instructions for the exchange of IPC, IPC Systems and IXnet stock
certificates for Global Crossing stock certificates. After surrendering an IPC,
IPC Systems or IXnet stock certificate together with the letter of transmittal,
and any other documents the exchange agent reasonably requires, the holder of
an IPC, IPC Systems or IXnet stock certificate will be entitled to receive a
Global Crossing stock certificate. IPC, IPC Systems and IXnet stockholders
should not send in their respective IPC, IPC Systems or IXnet common stock
certificates until they receive a letter of transmittal.
In addition to a certificate representing Global Crossing common stock, the
holder of a surrendered IPC, IPC Systems or IXnet stock certificate will
receive a check in the amount of cash the holder is entitled to receive,
including:
. cash paid instead of fractional shares; and
. any dividends or other distributions on the shares of Global Crossing
common stock that have a record date after the effective time of the
mergers, and a payment date before or on the date the holder surrenders
the IPC, IPC Systems or IXnet common stock certificate, less any
withholding taxes.
However, no cash will be paid to any holder of an IPC, IPC Systems or IXnet
common stock certificate until that holder surrenders the certificate.
After the mergers, there will be no transfers on the transfer books of IPC,
IPC Systems or IXnet of shares of IPC, IPC Systems or IXnet common stock that
were outstanding immediately before the mergers.
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Any Global Crossing stock certificate and any cash deposited by Global
Crossing with the exchange agent that remains unclaimed by former IPC, IPC
Systems or IXnet stockholders six months after the mergers will be delivered to
Global Crossing. Any former IPC, IPC Systems or IXnet stockholders who have not
complied with the exchange procedures within six months from the effective date
of the mergers may look only to Global Crossing for payment of the merger
consideration and any cash instead of fractional shares and unpaid dividends or
distributions on the shares of Global Crossing common stock. Neither Global
Crossing, IPC, IPC Systems or IXnet nor the exchange agent will be liable to
any holder for any amount delivered to a public official under any applicable
abandoned property, escheat or similar law. Any amounts remaining unclaimed by
former IPC, IPC Systems or IXnet stockholders seven years after the mergers
will become the property of Global Crossing to the extent permitted by law.
No interest will be paid or accrued on any cash payable instead of
fractional shares, as unpaid dividends and distributions with respect to
unexchanged shares or otherwise as merger consideration.
If your IPC, IPC Systems or IXnet stock certificates have been lost, stolen
or destroyed, you will only be entitled to obtain shares of Global Crossing
common stock by making an affidavit and, if required by Global Crossing, by
posting a bond in a reasonable amount indicated by Global Crossing to indemnify
Global Crossing or any of its subsidiaries against any claims related to your
IPC, IPC Systems or IXnet stock certificate.
Fractional shares
Global Crossing will not issue fractional shares of Global Crossing common
stock in the mergers. Instead, IPC and IXnet stockholders who would otherwise
have been entitled to receive a fraction of a share of Global Crossing common
stock will receive cash, without interest, in an amount equal to the product of
the fractional part of a share of Global Crossing common stock multiplied by
the average closing price of the Global Crossing common stock reported on the
Nasdaq National Market for the 20 trading days ending on the trading day
immediately preceding the closing of the mergers.
Stock options
In the mergers, each option that has been granted to an employee to buy
shares of IPC or IXnet common stock will become an option to purchase Global
Crossing common stock on terms substantially identical to those in effect
immediately before the effective time of the mergers under the terms of the
stock option plan or other agreement under which that option was granted.
Global Crossing will assume those stock option plans or other agreements, as
described more fully on page 65 under "The Mergers--Interest of members of
IPC's and IXnet's boards of directors and management in the mergers".
In addition, the IXnet stock option plan will be amended to provide that 25%
of options for IXnet common stock held by a person who is not a party to the
option limitation agreement or held by William Adiletta or Richard Farrell will
become exercisable upon a change in control of IXnet. The change in control of
IXnet resulting from the mergers will trigger this provision.
The number of shares of Global Crossing common stock that a holder of an IPC
or IXnet option may purchase upon exercise of that option will equal (1) the
number of shares of IPC or IXnet common stock subject to that option, (2)
multiplied by 5.417, in the case of an IPC option, and 1.184, in the case of an
IXnet option. Those shares of Global Crossing common stock will be purchased at
a price equal to the exercise price specified in the option divided by 5.417,
in the case of an IPC option, and 1.184, in the case of an IXnet option.
Representations and warranties
The merger agreement contains representations and warranties made by each of
Global Crossing, IPC, IPC Systems, IXnet and Georgia Merger Sub to each other,
including representations and warranties relating to:
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. organization, standing and corporate power;
. ownership of subsidiaries;
. capital structure;
. power and authority to enter into and consummate the transactions under
the merger agreement;
. absence of conflicts between organizational documents, laws and
agreements and the transactions under the merger agreement;
. governmental consents in connection with transactions under the merger
agreement;
. compliance with applicable laws;
. timely and compliant filings of SEC documents, financial statements and
absence of undisclosed liabilities;
. information supplied for this document;
. absence of a number of changes or events;
. litigation and labor matters;
. absence of changes with respect to employees and employee benefit plans;
. tax returns and tax payments;
. board of directors approval and other voting matters in connection with
the mergers;
. environmental matters;
. material contract defaults and no competition provisions;
. brokers and finder fees with respect to the mergers;
. receipt of opinions of financial advisors;
. required votes in connection with the mergers;
. properties;
. intellectual property; and
. transactions with affiliates.
All representations of the parties will expire at the effective time of the
mergers.
Covenants
Conduct of business of IPC and IXnet pending completion of the mergers
Each of IPC and IXnet has agreed that, until the completion of the mergers,
except as otherwise permitted by the merger agreement or if Global Crossing
consents in writing, it will, and will cause its subsidiaries to:
. carry on its business in the usual, regular and ordinary course in all
material respects and use its reasonable best efforts to preserve intact
its current business organizations, keep available the services of its
current officers and employees and preserve its relationships with
customers, suppliers, licensors, licensees, advertisers, distributors
and others having business dealings with them to the end that its
goodwill and ongoing businesses will not be materially impaired;
. not declare any dividends on its capital stock, other than dividends and
distributions paid by a direct or indirect wholly owned subsidiary of
IPC to its parent;
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. not split, combine or reclassify its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock;
. not purchase, redeem or otherwise acquire any shares of capital stock,
any other securities or any rights, warrants or options to acquire any
such shares or other securities;
. not authorize, issue, sell, transfer, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any
securities convertible into or exercisable or exchangeable for, or any
rights, warrants, calls, commitments or options to acquire, any such
shares, voting securities or convertible securities or any other
securities or equity equivalents other than upon the exercise of stock
options outstanding on the date of the merger agreement;
. not amend its certificate of incorporation, by-laws or other comparable
organizational documents;
. not acquire or agree to acquire by merging or consolidating with, by
purchasing a substantial portion of the stock or assets of or by any
other manner any business or any corporation, partnership, joint
venture, association or other business organization or division;
. not sell, lease, license, mortgage or otherwise encumber or subject to
any lien or otherwise dispose of any of its properties or assets or
close or shut down its properties or assets, other than reasonable sales
of inventory in the ordinary course of business and assets having an
aggregate value not in excess of $500,000;
. not incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of IPC or IXnet
or any of its subsidiaries, guarantee any debt securities of another
person, enter into any "keep well" or other agreement to maintain any
financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, except
for short-term borrowings incurred in the ordinary course of business
consistent with past practice;
. not amend the terms of any outstanding security;
. not make any loans, advances or capital contributions to, or investments
in, any other person, other than by a wholly owned subsidiary to its
parent or to any direct or indirect wholly owned subsidiary;
. not acquire or agree to acquire any assets the value of which,
individually or in the aggregate, exceeds $250,000, or make or agree to
make any capital expenditures except for capital expenditures included
in the business plans as capital expenditure budgets of IPC or IXnet
provided to Global Crossing;
. not pay, discharge or satisfy any claims, liabilities or obligations,
except for the payment, discharge or satisfaction:
. of liabilities or obligations in the ordinary course of business
consistent with past practice;
. liabilities reflected or reserved against in, or contemplated by,
the most recent consolidated financial statements, or the notes to
those financial statements, included in the recent IPC SEC
documents; or
. other claims, liabilities or obligations in the aggregate in an
amount not in excess of $1,000,000;
. not waive, release, grant or transfer any rights of value or modify or
change any existing license, lease, contract or other document in any
manner that would be material to IPC or enter into any new lease,
license or other contract or document;
. not adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
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. not enter into any new collective bargaining agreement or any successor
collective bargaining agreement to any collective bargaining agreement
or amend any existing collective bargaining agreement;
. not change any accounting principle, except for changes that may be
required to be implemented after February 22, 2000 under generally
accepted accounting principles or rules and regulations of the SEC
promulgated following the date of the merger agreement;
. not settle or compromise any litigation, other than litigation not in
excess of amounts reserved for in the most recent consolidated financial
statements of IPC included in the recent IPC SEC documents or, if not so
reserved for, in an aggregate amount not in excess of $250,000, as long
as those settlement documents do not involve any material non-monetary
obligations on the part of IPC;
. not close, shut down or otherwise eliminate any facilities;
. not enter into any transaction, agreement, arrangement or understanding
with affiliates, subject to limited exceptions;
. not change any tax election, annual tax accounting period or any method
of tax accounting; not file any amended tax return; not enter into any
closing agreement relating to any material tax; not settle any material
tax claim or assessment; not surrender any right to claim a tax refund
or consent to any extension or waiver of the limitations period
applicable to any tax claim or assessment;
. not change the composition, fill any vacancies or increase the size of
IPC's or IXnet's board of directors; and
. not authorize any of, or commit or agree to take any of, the actions
outlined above.
Changes in employment arrangements and severance
IPC and IXnet have agreed that, except with the previous written consent of
Global Crossing, they and their subsidiaries will not:
. increase the compensation or fringe benefits of any present or former
director, officer or employee, except for increases in salary or wages
in the ordinary course of business consistent with past practice;
. grant any severance or termination pay to any present or former
director, officer or employee, except in the ordinary course of business
consistent with past practice or as required by law or agreements or
plans in effect as of February 22, 2000;
. loan or advance any money or other property to any present or former
director, officer or employee;
. establish, adopt, enter into, amend or terminate any IPC or IXnet
employee benefit plan, except as required by law; or
. take any action that would accelerate the ability of a holder of any
option to acquire shares of common stock of IPC, IXnet or any of their
subsidiaries.
Transition planning
Global Crossing and IPC have agreed to appoint three officers each,
including their chief financial officers, to serve from time to time as their
representatives on a committee that will be responsible for coordinating
transition planning and implementation relating to the mergers.
Additional agreements
IPC has delivered under Section 228 of the Delaware General Corporation Law
an irrevocable written consent in favor of the merger between IPC and IPC
Systems. In addition, IPC Systems has delivered under
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Section 228 of the Delaware General Corporation Law an irrevocable written
consent in favor of the merger between IXnet and Idaho Merger Sub. In addition,
IPC and IPC Systems have agreed to vote or consent all the shares of IXnet
common stock and other voting securities of IXnet they or their controlled
affiliates beneficially own or have the right to vote:
. in favor of the IXnet merger, in respect of which a consent has been
delivered;
. against any action or agreement that would result in a material breach
of any covenant, representation or warranty or any other obligation of
any party under the merger agreement; and
. except as otherwise agreed to in advance in writing by Global Crossing,
against certain extraordinary transactions and material changes.
Access to information
Each party to the merger agreement has agreed that it will, and will cause
its subsidiaries, officers, employees, counsel, financial advisors and other
representatives to allow Global Crossing and its representatives reasonable
access during normal business hours throughout the period before the effective
date of the mergers to its properties, books, contracts, commitments, personnel
and records, and during that period, will provide to Global Crossing:
. a copy of each report, schedule, registration statement and other
document filed by it during the period before the effective time of the
mergers under the requirements of federal or state securities laws;
. all other information concerning its business, properties, financial
condition, operations and personnel as may be reasonably requested; and
. no later than 15 days following the end of each calendar month, monthly
financial statements prepared on a basis consistent with the quarterly
financial statements.
Reasonable best efforts
Each party to the merger agreement has agreed to use its reasonable best
efforts to take all actions and do all things necessary or advisable to
consummate and make effective the mergers and the other transactions
contemplated by the merger agreement, including all the necessary notifications
and filings under the Hart-Scott-Rodino Antitrust Improvements Act, responses
to inquiries from the Federal Trade Commission or the Antitrust Division of
Department of Justice and responses to inquiries from any State attorney
general or other governmental entity.
Benefit plans
The merger agreement provides that, subject to specified exceptions, all
retained employees of IPC and its subsidiaries not subject to collective
bargaining agreements will participate in IPC's existing employee benefit plans
through December 31, 2000. After that date, at Global Crossing's option, those
employees will continue to participate in IPC's employee benefit plans or will
participate in Global Crossing's employee benefit plans on a basis no less
favorable in the aggregate than similarly situated employees of Global Crossing
and its subsidiaries. Benefits to employees who belong to collective bargaining
agreements will be provided in accordance with those agreements.
Indemnification and insurance
Under the merger agreement, IPC and IXnet will indemnify, for a period of
six years from the effective time of the mergers, all directors and officers of
IPC and IXnet and their respective subsidiaries for acts and omissions
occurring before the effective time of the mergers, if those acts or omissions
are uninsured. In
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addition, Global Crossing has agreed that for a period of six years after the
effective time of the mergers, it will cause to be maintained in effect the
existing insurance and indemnification policies of IPC, IXnet and their
respective subsidiaries in favor of directors and officers with respect to
events occurring at or before the effective time of the mergers. For a more
detailed description see "The Mergers--Interests of members of IPC's and
IXnet's boards of directors and management in the mergers" on page 65.
No solicitation
In the merger agreement, IPC and IXnet have agreed that neither IPC nor
IXnet will, directly or indirectly, through any officer, director, employee,
stockholder, financial advisor, agent or other representative:
. solicit, initiate, encourage or facilitate, including by way of
furnishing information, any inquiries or proposals that constitute, or
would reasonably be expected to lead to:
. a breach of the merger agreement or the consent and voting agreement
entered into in connection with the merger agreement or otherwise
interfere in any material respect with the completion of the
mergers; or
. a proposal or offer for an "alternative transaction" involving IPC
or IXnet or any of their subsidiaries; "alternative transaction" in
this section means (1) a transaction as a result of which any group
or person, other than Global Crossing and its affiliates, would
acquire, directly or indirectly, more than 25% of the outstanding
shares of IPC or IXnet common stock; (2) a merger or other business
combination involving IPC or IXnet as a result of which any person
or group would acquire, directly or indirectly, more than 25% of the
outstanding shares of IPC or IXnet common stock or shares
exercisable or convertible into or exchangeable for more than 25% of
the outstanding shares of IPC or IXnet common stock or of the entity
surviving the merger or business combination; (3) any other
transaction as a result of which any person or group acquires
control of assets or businesses of IPC or IXnet with a fair market
value equal to more than 25% of the fair market value of all the
assets and business of either company and its subsidiaries, taken as
a whole; (4) any recapitalization, restructuring or other
transaction which would reasonably be expected to prevent or
materially impair or delay the completion of the mergers; or (5) any
public announcement of a proposal, plan or intention to do any of
the actions included in (1) through (4);
. participate or engage in negotiations or discussions concerning, or
provide any non-public information to any person relating to, or
otherwise facilitate any effort or attempt to make or implement, any
alternative transaction involving IPC or IXnet or any of their
subsidiaries; or
. agree to or recommend to its stockholders any alternative transaction
involving IPC or IXnet or any of their subsidiaries.
In the merger agreement, IXnet and IPC have agreed to cease and terminate
any existing activities, discussions or negotiations with any persons, other
than with Global Crossing, conducted with respect to any alternative
transaction involving them or their subsidiaries. IPC and IXnet have also
agreed not to release any other person from, or waive any provision of, any
standstill agreement to which they are a party or any confidentiality agreement
between either of them and another person who has made or who may reasonably be
considered likely to make a proposal relating to an alternative transaction
involving them or their subsidiaries.
IPC and IXnet have also agreed to notify Global Crossing immediately after
they or their advisors receive any proposal for an alternative transaction
involving either of them or their subsidiaries or any request for nonpublic
information in connection with any such action or for access to the properties,
books or records of IPC or IXnet by any person or entity that informs that
party that it is considering making, or has made, a proposal for such an
alternative transaction.
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Conditions to the completion of the mergers
The respective obligations of each party to effect the mergers is subject to
the satisfaction or waiver on or before the closing of the mergers of the
following conditions:
. the shares of Global Crossing common stock to be issued in the mergers
having been listed on the Nasdaq National Market or any other national
securities exchange on which Global Crossing common stock may be listed
upon official notice of issuance;
. the expiration or early termination of the applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act;
. the absence of any order, injunction or other legal restraint or
prohibition enjoining or preventing the consummation of the mergers;
. the representations and warranties of the other parties in the merger
agreement, without regard to qualifications and exceptions relating to
materiality or material adverse effect, being true and correct on the
date of the merger agreement and as of the closing date, except to the
extent they speak as of a specified date, except where the failure of
those representations and warranties to be true and correct would not,
individually or in the aggregate, reasonably be expected to have a
material adverse effect on IPC, IXnet or Global Crossing;
. the other parties have performed in all material respects their
obligations under the merger agreement at or before the closing date of
the mergers;
. each party receives from its counsel a written opinion dated as of the
closing date with respect to the tax-free nature of the mergers;
. all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental entities and other third
parties that are necessary in connection with the transactions
contemplated by the merger agreement have been obtained, except for
those which are not, individually or in the aggregate, material to
Global Crossing, IPC or IXnet or the failure to obtain would not
reasonably be expected to have a material adverse effect on IPC, IXnet
or Global Crossing; and
. there will not be certain pending or threatened litigation by any
governmental entity relating to the mergers or the business of IPC or
IXnet.
Termination of the merger agreement
The merger agreement may be terminated at any time before the effective time
of the mergers:
. by mutual written consent of Global Crossing, IPC and IXnet;
. by any of Global Crossing, IPC or IXnet if:
. any federal, state or local government or any court, administrative
agency or commission or other governmental authority or agency,
domestic or foreign, within the United States or any other
jurisdiction in which Global Crossing, IPC or IXnet, directly or
indirectly, has material assets or operations, will issue a final,
nonappealable order, decree or ruling or taken any other final,
nonappealable action enjoining, restraining or otherwise prohibiting
the mergers;
. if the mergers have not been consummated on or before December 31,
2000, other than due to the failure of the party seeking to
terminate the merger agreement to perform its obligations required
to be performed at or before the effective time of the mergers; or
. if any party breaches in any material respect any representation or
warranty, covenant or other agreement contained in the merger
agreement which would give rise to a failure of a condition to the
completion of the mergers and cannot be or has not been cured within
20 business days after written notice.
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In the event of a valid termination of the merger agreement by either
Global Crossing, IPC or IXnet, the merger agreement will become void and will
have no effect, without any liability or obligation on the part of Global
Crossing, IPC or IXnet, other than under the provisions of the merger
agreement relating to confidential treatment of proprietary information, fees
and expenses.
Neither IPC nor IXnet may terminate the merger agreement to accept a
competing acquisition proposal.
Other expenses
Except as described above, all fees and expenses incurred in connection
with the merger agreement, the consent and voting agreement and the
transactions contemplated by those agreements will be paid by the party
incurring the expenses, whether or not the mergers are completed. Global
Crossing will pay all fees and expenses, other than accountants' and
attorneys' fees, incurred in connection with the printing and filing of this
document.
IPC and IXnet will pay all transfer, documentary, sales, use, registration,
stock transfer taxes and all other similar taxes and related fees incurred in
connection with the merger agreement and the transactions contemplated by the
merger agreement.
Amendments; waivers
Any provision of the merger agreement may be amended or waived before the
effective time of the mergers if the amendment or waiver is in writing and
signed, in the case of an amendment, by Global Crossing, IPC and IXnet or, in
the case of a waiver, by the party against which the waiver is to be
effective. After the approval of the merger agreement by the shareholders of
Global Crossing and the stockholders of IPC and IXnet, there may be made no
amendment that by law requires further approval by stockholders without the
further approval of those stockholders.
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RELATED AGREEMENTS
Consent and voting agreement
This section is a summary of the material terms of the consent and voting
agreement, a copy of which is attached as Annex B to this document. The
following description does not purport to be complete and is qualified in its
entirety by reference to the consent and voting agreement. You should refer to
the full text of the consent and voting agreement for details of the terms and
conditions of the consent and voting agreement.
On February 22, 2000, a number of IPC stockholders, including Cable Systems
Holding, LLC, Richard Kleinknecht, David Walsh, Anthony Servidio and Allegra
Capital Partners III, L.P., entered into a consent and voting agreement with
Global Crossing. Under the consent and voting agreement, these IPC stockholders
executed and delivered a consent in favor of the adoption of the merger
agreement. As of February 22, 2000, these IPC stockholders beneficially owned
5,936,188 shares of IPC common stock, representing approximately 67.3% of the
voting power of the outstanding IPC common stock.
In addition, under the consent and voting agreement, the IPC stockholders
named in the previous paragraph have agreed to vote their IPC shares (1) in
favor of the IPC merger, (2) against any action or agreement that would result
in a material breach of any covenant, representation or warranty or any other
obligation or agreement of IPC or any of its subsidiaries under the merger
agreement and (3) except if agreed to previously in writing by Global Crossing,
against a number of extraordinary transactions, such as:
. a merger, consolidation or other business combination involving IPC or
its subsidiaries;
. a sale, lease or transfer of a material amount of assets of IPC or its
subsidiaries or a reorganization, recapitalization, dissolution or
liquidation of IPC or its subsidiaries;
. any change in the majority of the board of directors of IPC;
. any material change in the present capitalization of IPC or any
amendment to IPC's certificate of incorporation or by-laws; or
. any other material change in IPC's corporate structure or business or
change in any manner of the voting rights of the IPC common stock.
The consent and voting agreement imposes restrictions on the transfer of
shares of IPC common stock held by the IPC stockholders who are parties to that
agreement. Specifically, the consent and voting agreement provides that, except
as permitted under the merger agreement, no IPC stockholder party to that
agreement may:
. offer for sale, sell or enter into any contract or other arrangement
with respect to or consent to the offer for sale, sale, transfer,
tender, pledge, encumbrance, assignment or other disposition of his or
her shares of IPC common stock;
. grant any proxies or powers of attorney or enter into any voting
agreement with respect to his or her shares of IPC common stock, or
deposit any of those shares in a voting trust;
. take any action that would make any representation or warranty of that
stockholder in the consent and voting agreement untrue or incorrect or
have the effect of preventing or disabling that stockholder from
performing his or her obligations under that agreement; or
. commit or agree to take any of the actions listed above.
However, Cable Systems Holding is permitted to transfer up to 20% of the
shares of IPC common stock it beneficially owned as of the date of the consent
and voting agreement to its members, without any of the members being subject
to the provisions of the consent and voting agreement.
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In addition, the consent and voting agreement contains transfer restrictions
with respect to the shares of Global Crossing common stock which the IPC
stockholders will acquire in the mergers. Specifically, Cable Systems Holding
and Richard Kleinknecht may not, directly or indirectly, offer for sale in any
manner or otherwise dispose of, including by gift, their Global Crossing shares
for one year after the closing of the mergers. The following exceptions to
these transfer restrictions apply:
. Cable Systems Holding may transfer its shares to Citicorp Venture
Capital or another subsidiary of Citigroup which agrees to be bound by
these transfer restrictions and the provisions outlined in the following
paragraph; and
. Cable Systems Holding and Richard Kleinknecht may transfer shares in
certain registered sales permitted under the registration rights
agreement described below or in a tender offer, self tender offer,
exchange offer or other transaction offered generally to shareholders of
Global Crossing and approved by Global Crossing's board of directors.
Under the consent and voting agreement, Cable Systems Holding has agreed
that from the effective date of the mergers until the earlier of one year from
the closing of the mergers and the date on which it and its affiliates no
longer beneficially own at least 25% of the shares of Global Crossing common
stock it received in the mergers, it will not directly or indirectly:
. seek to effect a change in control of Global Crossing or the business,
operations or policies of Global Crossing;
. initiate or propose any shareholder proxies or participate in a
solicitation with respect to the voting of any Global Crossing stock in
a manner that is inconsistent with a recommendation of a majority of
Global Crossing's board of directors;
. propose or seek to effect a merger, consolidation, recapitalization,
reorganization, sale, lease, or other disposition of all of
substantially all of Global Crossing's or its subsidiaries' assets or
other business combination involving Global Crossing or its subsidiaries
that has not been approved by Global Crossing's board of directors;
. join a partnership, limited partnership, syndicate or other group, other
than a group consisting of Cable Systems Holding, its permitted
transferees and any of their subsidiaries, or otherwise act with others
for the purpose of acquiring, holding, voting or disposing of Global
Crossing voting stock or become a "person" within the meaning of Section
13(d)(3) of the Exchange Act; or
. request, induce or encourage any other person to request that Global
Crossing amend or waive any of the above listed items.
In addition, the consent and voting agreement provides that, other than as
permitted above, no IPC stockholder party to that agreement may directly or
indirectly:
. solicit, initiate, engage or facilitate any inquiries or proposals that
are, or would lead to, a proposal or offer for an alternative
transaction, as defined on page 83, involving IPC or IXnet or any of
their subsidiaries or any transfer of shares; or
. participate, negotiate, discuss or provide any non-public information to
any person in an effort or attempt to make or implement any proposal or
offer for an alternative transaction involving IPC or IXnet or any of
their subsidiaries or transfer of shares.
Each IPC stockholder party to the consent and voting agreement also agreed to
end any activities in connection with a proposal or offer for an alternative
transaction involving IPC or IXnet or any of their subsidiaries or transfer of
shares, that had begun before the effective date of the consent and voting
agreement. These stockholders have also agreed to notify Global Crossing of
their receipt of any proposal or offer for an alternative transaction involving
IPC or IXnet or any of their subsidiaries, any proposal or offer for any
transfer of shares, or any request for non-public information or access to
IPC's records in connection with a proposal or offer for an alternative
transaction involving IPC or IXnet or any of their subsidiaries or transfer of
shares.
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Waiver and amendment agreement
On March 23, 2000, Global Crossing and the IPC stockholders who are parties
to the consent and voting agreement listed above entered into a waiver and
amendment agreement to the consent and voting agreement described above. The
waiver and amendment agreement grants David Walsh a waiver from the transfer
restrictions of the consent and voting agreement to permit him to pledge 67,904
shares of his IPC common stock in connection with a personal loan.
Registration rights agreement
In the consent and voting agreement, Global Crossing agreed with Cable
Systems Holding and Richard Kleinknecht to enter into a registration rights
agreement at the effective time of the mergers. Under the registration rights
agreement, Cable Systems Holding and Richard Kleinknecht have the right, after
one year from the date of the registration rights agreement:
. on one occasion, to demand that Global Crossing file a registration
statement to register the shares of Global Crossing common stock that
Cable Systems Holding and Richard Kleinknecht will acquire in the
mergers; and
. to cause Global Crossing to include their shares received in the mergers
in any registration statement filed by Global Crossing for any other
shares of its common stock, subject to certain cutbacks.
Each of Cable Systems Holding and Richard Kleinknecht may not exercise the
demand right acting alone, unless it or he represents more than 50% of the
aggregate number of shares of Global Crossing common stock that are held by
both Cable Systems Holding and Richard Kleinknecht at any given time and that
are subject to the registration rights agreement. The registration rights
terminate when the shares of Global Crossing common stock that are held by
Cable Systems Holding and Richard Kleinknecht and that are subject to the
registration rights agreement represent less than 1% of all shares of Global
Crossing common stock which Cable Systems Holding and Richard Kleinknecht will
acquire in the mergers.
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GLOBAL CROSSING AND IPC
Information relating to the business of Global Crossing and IPC is
incorporated in this document by reference. For instructions on how to obtain
information incorporated by reference, see "Where You Can Find More
Information" on page 135. For information on IXnet, please see below.
IXNET
Overview
IXnet is a leading provider of communications services to the worldwide
financial services community. IXnet has built and operates the IXnet Extranet
connecting financial services firms and their business partners as well as
multiple offices within the same firm using a global seamless network. Through
its Extranet, its customers obtain highly reliable, secure and fully managed
voice and data connectivity without having to access multiple disparate public
networks or rely on multiple customer service organizations.
IXnet provides services tailored to meet the specialized needs of the
financial services community, including managed voice and data services,
virtual private network services and turnkey outsourced network solutions. In
addition, IXnet aggregates, hosts and distributes financial oriented content,
such as news, research, analytics and market data, for information service
providers, enabling them to efficiently reach this community. IXnet's customers
receive the following benefits by connecting to its Extranet:
. access to IXnet's high performance global network that connects
approximately 600 financial services firms and their business partners;
. multiple voice and data services over a single high capacity network
connection;
. outsourced network solutions;
. on-demand access to multiple content providers;
. rapid and efficient provisioning of inter- and intra-firm communication
links;
. superior customer service and support from a single network provider;
and
. a content neutral delivery mechanism for content providers to
efficiently, economically and effectively reach their target market.
Financial service firms and their business partners comprise a large global
community that relies heavily on efficient communication, interaction among its
members and timely access to industry-related information to conduct its
business. As a result, highly reliable communication services are mission-
critical to this community. IXnet believes the Extranet provides a unique value
proposition, that enables the global financial community to reliably
communicate over a common multi-protocol network platform, and to efficiently
access information from multiple providers. IXnet connects customers to its
Extranet by installing intelligent network gateways, known as customer access
nodes, on its customers' premises. Once IXnet has installed a customer's access
node at the customer site, it refers to the customer as being on-net.
As the number of on-net customers increases, the value of the Extranet to
current and prospective customers grows. Adding key firms and sites to IXnet's
Extranet will greatly increase its value to end-users by allowing:
. customers broader accessibility to directly connect to other on-net
users;
. quicker delivery of dedicated communications links between firms;
. greater cost efficiencies to end-users for on-net communications; and
. higher performance communications among on-net customers.
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IXnet believes that its growing customer base of financial services firms
will attract many of its business partners to also become customers of its
Extranet. IXnet believes that this should create a cycle that will attract new
customers and fuel growth in the number of services IXnet provides to
individual firms. IXnet also believes that more content providers will be
attracted to its Extranet due to the efficient and cost-effective method the
Extranet offers to reach the desktops of IXnet's significant audience of on-net
financial services customers. IXnet believes that as it delivers the services
of an increasing number of content providers over its Extranet, additional
customers will be attracted to the expanded content offerings on its Extranet.
IXnet's Extranet currently connects customers in financial centers in 38
countries around the world, including New York, Chicago, Toronto, London,
Frankfurt, Paris, Zurich, Hong Kong, Tokyo, Sydney and Singapore. IXnet's
Extranet employs:
. internet protocol, a networking technology which tracks the Internet
address of nodes, routes outgoing messages, and recognizes incoming
messages; and
. asynchronous transfer mode, a high bandwidth, low-delay, connection-
oriented switching technique.
The Extranet is designed to maximize performance and reliability through
features such as redundant dedicated fiber optic facilities, strategically
located network operations centers and geographically distributed physical
points of presence. In addition, IXnet has three data centers where IXnet
provides hosting for content providers and manages servers and other equipment
for customers who have outsourced their network applications to IXnet. IXnet
has approximately 600 customers and has deployed approximately 1,400 customer
access nodes globally.
IXnet is focused on providing a seamless global network and operates
principally in one segment providing a variety of voice, data and content
distribution services which has been specifically designed to meet the
specialized requirements of the financial services industry. All of IXnet's
revenue is derived from its global network.
IXnet started its business in June 1995 as International Exchange Networks,
Ltd., or "IEXN". On May 4, 1999, IEXN reorganized and became a direct, wholly
owned subsidiary of IXnet, a newly formed Delaware corporation. In August 1999,
IXnet completed its initial public offering through the sale of approximately
7,475,000 shares of common stock at $15 per share. As of March 10, 2000, there
were 51,148,867 shares of IXnet common stock outstanding, of which 43,100,000
shares were owned by IPC. IPC is a leader in providing integrated
telecommunications equipment and services that facilitate the execution of
transactions by the financial services community.
The IXnet solution
Through IXnet's Extranet, customers obtain the benefits of a dedicated
private network, including highly reliable and secure global voice and data
connectivity, with the additional benefits of:
. seamless inter-firm connectivity;
. a fully managed and/or outsourced network solution through one contact
point for all matters of accountability; and
. not having to incur the substantial cost of building, maintaining and
operating a sophisticated network infrastructure.
IXnet believes that it offers many significant advantages, including:
. High performance global network. IXnet's Extranet is a scalable network
that currently provides seamless connectivity to approximately 600
customers in 38 countries. The Extranet was built using the latest
networking technologies and redundant fiber optic facilities, which
enable IXnet to reliably, securely and efficiently deliver multiple
services worldwide. IXnet employs a uniform platform
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throughout the Extranet consisting primarily of Newbridge Networks and
Cisco Systems networking technologies, enabling IXnet to provide
mission-critical voice and data services over dedicated fiber optic
facilities. In addition, IXnet deploys asynchronous transfer mode
switches in the backbone to support high bandwidth multimedia
applications in combination with internet protocol switches for
specialized data delivery.
. Fully managed end-to-end network services. By connecting customers to
IXnet's Extranet through a customer access node physically located at
each on-net customer site, IXnet is able to provide fully managed end-
to-end network services. Once a customer access node is deployed, IXnet
is able to remotely monitor, administer and provision network
connections to the customer site and in many cases directly to the
desktop. In addition, IXnet is a single point of responsibility for the
installation, maintenance and operation of IXnet's services and
equipment. IXnet provides technical support 24 hours per day, seven days
per week, and utilizes IPC's global field service personnel to address
local network issues in many of the cities where IXnet provides service.
. Multiple communication services through a single pipe. By deploying
customer access nodes at IXnet's customer sites, IXnet is able to
provide bundled services over a single, high capacity network
connection. Customer access nodes serve as multi-purpose gateways that
support commonly used voice and data protocols as well as specialized
protocols such as financial information exchange, commonly referred to
as FIX, for trading applications. Customer access nodes typically
connect to IXnet's Extranet through a high capacity connection enabling
customers to cost-effectively provision multiple voice and data services
as opposed to ordering single, low capacity circuits from a local
carrier.
. Critical mass of on net customers. IXnet has established a global
customer base of approximately 600 financial services firms on its
Extranet. IXnet will continue to penetrate its current customer base and
believes that this core group of financial services firms will attract
many of their business partners to also become customers of IXnet's
Extranet.
. Singular focus on the financial services community. IXnet's singular
focus enables it to offer services tailored to the specialized needs of
its customers. IXnet's understanding of the trading environment and
IXnet's customers' needs has resulted in the development of unique
product offerings such as its DigiHoot(TM) service, a specialized open
voice conference system allowing continuous voice contact between
trading floors. In addition, IXnet believes the combination of its
management team's great depth of knowledge and experience in providing
communications services to financial services firms and its relationship
with IPC provides IXnet with significant competitive advantages.
. IPC relationship. IPC is a worldwide market leader in providing voice
trading systems to the financial services community and has served this
market for more than 25 years. IPC provides IXnet with an important
entree into the financial services sector. Through IXnet's relationship
with IPC, IXnet is able to provide turret-to-turret on-net connections
using the installed turrets within IPC customer base and integrate
IXnet's customer access nodes into IPC turret systems so that IXnet can
rapidly provision IPC customers with on-net services. IXnet also
coordinates its sales and marketing efforts with the IPC sales efforts,
thereby offering a complete hardware and network solution for the
communications needs of financial services firms.
. High level of customer service and flexibility in customer
relations. IXnet offers services at competitive prices and dedicates
considerable resources to providing the highest quality global network
with well-qualified and responsive customer service representatives.
IXnet monitors and manages its Extranet from its network operations
centers, 24 hours per day, seven days per week. Together with IPC, IXnet
has a worldwide presence of field service representatives and, in many
cases, on-site technical support personnel. IXnet is also focused on
offering highly customized solutions for all of its customers' service,
billing and reporting needs. In addition to its broad
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portfolio of globally available services, IXnet's Extranet allows it to
implement solutions that meet the individual connectivity needs and
requirements of each customer.
. Corporate position as content neutral. IXnet does not compete with
content providers who use its Extranet. IXnet is focused on being an
efficient and effective distribution vehicle for the content of others.
Its Extranet serves as a content neutral delivery system to the desktops
of the financial services community. This approach allows its customers
to display content in the formats they desire.
Business strategy
IXnet's goal is to be the leading provider of multimedia communications
services to the financial services community. IXnet's business strategy
includes the following elements:
. Exploit IXnet's advantage of being the first to offer a global dedicated
communications network exclusively to the financial services
community. IXnet is the first company to offer network services through
a dedicated Extranet exclusively focused on the financial services
community. IXnet intends to significantly leverage its position in the
marketplace by aggressively expanding its direct salesforce and
investing in the IXnet brand.
. Rapidly deploy customer access nodes. Adding key firms and sites to
IXnet's Extranet will greatly increase its value by enabling IXnet to
offer greater inter-firm connectivity. IXnet expects that the addition
of new customers to its Extranet will also attract new content providers
to its Extranet who seek to deliver content to IXnet's expanded customer
base. Similarly, IXnet believes that as the number of content providers
whose services IXnet delivers over IXnet's Extranet increases,
additional customers will be attracted to the expanded content on
IXnet's Extranet.
. Accelerate network expansion. IXnet is focused on expanding the
infrastructure of IXnet's Extranet to extend IXnet's addressable market,
enhance reliability and increase cost efficiencies.
. Aggressively add content providers to IXnet's Extranet. IXnet intends to
become the best delivery vehicle for content providers who want to reach
the financial services community. IXnet will seek to accomplish this
goal by remaining a content neutral delivery system and by offering
content providers a cost-effective method of reaching their target
market through a network gateway or by having IXnet host their content
at one of IXnet's data centers.
. Further leverage IPC's installed base. IXnet will continue to leverage
IPC's existing long-term customer relationships in the financial
services community into new IXnet business opportunities, including
through the launch of bundled network and equipment services.
. Further penetrate IXnet's existing customer base. IXnet currently has a
significant established customer base encompassing many of the key
global financial services firms, but IXnet captures only a small
percentage of those customers' communications services expenditures. As
the number of on-net users increases, the value of the Extranet to
current and prospective customers grows.
. Expand portfolio of focused service offerings. IXnet plans to
continuously expand its service offerings to help further penetrate its
customer base, attract new customers and increase the value of its
Extranet.
Services
IXnet offers its customers a variety of specialized voice and data services
over its Extranet. The following table sets forth a brief description and the
benefits of each of IXnet's services. IXnet is capable of providing any one of
these services either alone or in combination with one or more other services,
or collectively as part of IXnet's management of the customer's entire
network.
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<TABLE>
<CAPTION>
Type of Name of
Service Description Benefits Service
------- ----------- -------- -------
<S> <C> <C> <C>
Premium Voice Dedicated voice Access to high quality voice DigiHoot(TM)
communications lines which services without the need to MetroLink SM
are primarily used in build a private network.
conjunction with turrets and
trading applications.
Virtual Seamless global virtual Fast call connect time, IXGlobal(TM)
Private private network with a industry-wide abbreviated
Voice Network single uniform technology dialing and cost effective
platform and global toll for on-net customers.
free feature.
Switched Voice High quality voice Competitive rates and IXPrime(TM)
communications worldwide simplified billing.
with simplified pricing.
Managed High speed digital data Access to high quality IXLink(TM)
Bandwidth transmission links, with digital services without the
end-to-end service need to build a private
management for connections network.
between local area networks,
wide area networks and data
centers.
Outsourcing End-to-end management of a Outsourcing enables Trader
customer's entire network. customers to focus on core Connect(TM)
business by placing
responsibility for network
and hardware on IXnet.
Shared Network delivery of third- Efficient distribution Liquidity(TM)
Internet party news, research, method for content
Protocol analytics, market data and providers. Simplicity of
other trading applications multiple services through a
via data center hosting and single network connection
IXnet's Extranet. for end-users.
Frame relay Transport for data Cost effective alternative IXFrame(TM)
applications. Includes to leased line networks.
router deployment and
management.
</TABLE>
IXnet also provides the following additional services:
Content Hosting. IXnet provides content hosting services that permit
financial information services providers to deliver data to the desktop of the
financial services community without having to invest significantly in
technology, infrastructure or operations staff. The level of hosting services
IXnet provides scales from simple co-location to fully outsourced network
solutions.
Bandwidth Resale. IXnet provides leased bulk bandwidth at speeds of 768Kbps
and above for various customer applications. This is a cost effective service
for customers with large bandwidth requirements.
Dedicated Internet Access. IXnet offers dedicated high-speed continuous
access to the Internet to customers. This service is provided at speeds up to
1.5Mbps.
Sales and marketing
IXnet's sales and marketing activities are targeted to members of the
financial services community in the key financial centers worldwide. IXnet's
customers include members of the financial services community including broker-
dealers, investment banks, asset managers/hedge funds, inter-dealer brokers,
electronic trading firms, commodities/futures trading firms, content providers,
exchanges, trade execution systems, correspondents, clearing and settlement
firms and insurance companies.
The major components of IXnet's sales strategy are as follows:
. Utilize a direct salesforce. IXnet has deployed a dedicated and
experienced salesforce in many of the major cities worldwide where IXnet
has operational points of presence. As of February 29, 2000, IXnet's
salesforce consisted of 51 commissioned salespeople. Because IXnet's
salespeople are regionally based, they are able to consult prospective
customers face-to-face to discuss their network needs and technical
requirements and develop tailored solutions. IXnet's sales
representatives also market IXnet's services to financial institutions
at industry seminars and trade shows. IXnet's salespeople are familiar
with the applications, requirements and technical terminology of the
financial services community as well as its unique business practices.
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. Expand IXnet's salesforce. IXnet believes that its rate of growth is
directly related to the size and productivity of IXnet's sales force.
IXnet is focused on expanding its salesforce through the hiring of
motivated personnel who have backgrounds in network services or
experience with the specialized communications needs of the financial
services community. IXnet intends on growing its salesforce both within
North America and in Europe and the Asia/Pacific area. Until the full
network deployment is complete to all major cities, some foreign markets
will be handled through distributor relationships.
. Focus sales efforts on strategic customer sites. IXnet places emphasis
on adding customers and customer access nodes in sites that IXnet
believes are strategic in nature. Strategic sites are those with which
IXnet's existing on-net customers or potential customers are interested
in communicating, such as those with large trading or processing volume.
. Leverage the salesforces of IXnet's content providers. The salesforces
of IXnet's content providers have, in effect, become secondary
salesforces for IXnet by selling their content delivered over IXnet's
Extranet to their end-users. In order to access this content, end-users
must connect to IXnet's Extranet.
. Coordinate joint sales efforts worldwide. IXnet's regional salesforces
work together in a cooperative and coordinated manner to create higher
levels of customer satisfaction which IXnet believes will lead to
additional business. This approach maximizes the benefits of selling
IXnet's services locally as well as globally and confers a unified
corporate level sales relationship between IXnet's regional salesforces
for IXnet's customers worldwide.
. Coordinate joint sales efforts with the IPC salesforce. Coordinating the
efforts of IXnet's salesforce with the IPC salesforce has helped to
introduce IXnet's Extranet to the significant installed base of IPC
customers. IPC's salesforce is provided with incentives to reach certain
sales targets in connection with their sales of IXnet's services.
IXnet maintains a high profile in the financial services marketplace with
targeted marketing and public relations efforts. IXnet places information and
press releases in many financial services industry publications such as the
Security Industry News, Wall Street and Technology and Trading Technology Week.
IXnet actively participates in financial industry organizations such as the
Wall Street Telecommunications Association and the Securities Industry
Association and seminars such as the "On-Line Securities Trading Seminar" and
the "Future of Buy Side/Sell Side Transaction Technologies" which enable
IXnet's representatives to communicate IXnet's vision and capabilities directly
to prospective customers.
Moreover, IXnet is highly visible at key industry trade shows including "IT
for Wall Street" and the "SIA Technology Management Conference".
Geographic sales information is based on the currency in which the customer
is billed. Long-lived asset information is based on the physical location of
the assets. The following is revenue and long-lived asset information for
geographic areas (in thousands):
<TABLE>
<CAPTION>
Year ended September 30,
------------------------------------------------
1999 1998 1997
---------------- --------------- ---------------
Revenue Assets Revenue Assets Revenue Assets
------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
North America.................. $38,764 $ 78,958 $21,892 $40,404 $ 7,757 $15,298
Europe......................... 22,131 55,258 12,596 6,122 9,712 4,245
Asia/Pacific................... 12,720 2,681 1,365 -- 369 --
------- -------- ------- ------- ------- -------
$73,615 $136,897 $35,853 $46,526 $17,838 $19,543
======= ======== ======= ======= ======= =======
</TABLE>
For the year ended September 30, 1999, revenue from the United States,
United Kingdom, and Australia represented 51.6%, 27.7%, and 10.7% of total
revenue, respectively. For the year ended September 30, 1998, revenue from the
United States and United Kingdom represented 59.4% and 31.4% of total revenue,
respectively. For the year ended September 30, 1997, revenue from the United
States and United Kingdom represented 43.5% and 54.4% of total revenue,
respectively.
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For the year ended September 30, 1999, long-lived assets located within the
United States and United Kingdom represented 57.7% and 39.2% of total long-
lived assets, respectively. For the year ended September 30, 1998 and 1997,
long-lived assets were primarily located within the United States and
represented 86.8% and 78.3% of total long-lived assets, respectively.
Customers
IXnet's customers are members of the financial services community and
include broker-dealers, investment banks, asset managers/hedgefunds, inter-
dealer brokers, electronic trading firms, commodities/futures trading firms,
content providers, exchanges, trade execution systems, correspondents, clearing
and settlement firms, and insurance companies. IXnet currently has
approximately 600 customers and provides hosting services for over 30 content
providers. Optimark Inc. and Deutsche Bank accounted for 14% and 10%,
respectively, of IXnet's consolidated revenues for the fiscal year ended
September 30, 1999, and 14% and 23%, respectively, of IXnet's consolidated
revenues for the fiscal year ended September 30, 1998. IXnet expects these
percentages to continue to decrease as overall revenue growth increases.
Customer service
High quality customer service and support are critical to IXnet's objective
of retaining and developing IXnet's customer base. IXnet differentiates itself
from many of its competitors by customizing solutions and providing
individualized support to its customers. For example, IXnet utilizes customized
billing in local currencies and provides reports designed to address the
specific needs of IXnet's customers. To support a customer's business
requirements, IXnet makes available numerous IXnet resources, including
technical support, engineers and project managers in the pre-implementation
phase and customer service representatives and help desk personnel in the post-
implementation phase. To ensure a rapid response and remedy to any customer
network concerns, IXnet monitors and manages its Extranet from its network
operations centers, 24 hours per day, seven days per week. When necessary,
IXnet also dispatches IPC's global field service personnel to address specified
local network issues.
Competition
IXnet's competition varies geographically and by service offerings. IXnet
competes with and expects continued competition from:
. Large interexchange carriers and partnerships. Many of the large
carriers, such as MCI WorldCom Inc., Cable & Wireless plc, Global One
and the AT&T Corp./British Telecommunications plc venture, are expanding
their capabilities to support high-speed, end-to-end communications
services. These large carriers compete with IXnet in the areas of
switched voice, outsourcing, premium voice and frame relay;
. Specific product competitors and other communications companies. Several
companies, such as EQUANT N.V., Infonet Services Corporation, PSInet's
subsidiary TNS and GTE Internetworking, have focused on competing within
a particular service category and offer some of the same communications
services including frame relay, managed bandwidth and premium voice;
. Common carriers. Common carriers, such as British Telecommunications
plc, France Telecom and the former Bell Operating Companies, have
extensive regional networks. Common carriers currently provide some
communications services to many members of the financial services
community in their market area;
. Content providers. Content providers, such as Bloomberg L.P., Bridge
Information Systems, Inc. and Reuters Holdings Plc, have developed
extensive communications networks in the financial services industry and
distribute their content and the content of other providers. Although
they have wide distribution in the industry, their focus is on content,
not network services. In addition, while they are potential customers
for IXnet's services, they also compete directly with IXnet in the
content delivery segment of IXnet's business; some content providers
have made plans to spin off their
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distribution networks and sell services in direct competition with
IXnet; Bridge purchased a company called Savvis; and Reuters has formed
a new joint venture with EQUANT for this purpose; and
. Resellers. Resellers, such as Sector, Inc. and WESTCom Corp., resell
other companies' network services.
Depending on the specific competitor, IXnet competes on the basis of many
elements, including customer service, quality, reliability, network security,
service provisioning speed, service features, functionality and cost
effectiveness.
Legal proceedings
Except for claims and lawsuits arising in the normal course of business,
IXnet and its subsidiaries are not involved in any pending material legal
proceedings. See also "The Mergers--Litigation" on page 74 and "Regulatory
Environment" on page 112.
Intellectual property
IXnet relies on a combination of trade secret, trademark, copyright and
other intellectual property law, as well as its execution of license
agreements, nondisclosure agreements and other protective measures to protect
its proprietary rights.
IXnet uses the following unregistered trademarks and service marks:
IXnet(TM); IXPrime(TM); IXGlobal(TM); Trade 24(TM); IXLink(TM); DigiHoot(TM);
MetroLink SM; and Liquidity(TM).
There can be no assurance that the steps taken by IXnet will be adequate to
protect its proprietary technology and intellectual property or that its
competitors will not independently develop technologies that are substantially
equivalent or superior to its technology. It may be possible for a third party
to copy or otherwise obtain and use IXnet's services or technology without
authorization or to independently develop similar technology. This could
adversely affect IXnet's business, financial condition and results of
operations.
Employees
As of February 29, 2000, IXnet and its subsidiaries employed 417 persons.
Under an intercompany agreement, IPC and IXnet share corporate personnel
relating to accounting, executive management, legal, administrative, human
resources, information systems and other corporate functions. IXnet believes
that its future success will depend in part on its continued ability to
attract, hire, integrate, retain and motivate highly qualified sales,
technical and managerial personnel, and upon the continued service of its
senior management and key sales and technical personnel. None of its employees
are represented by a labor union. IXnet has never experienced a work stoppage
and believes its relationship with its employees is good.
Properties
IXnet's properties consist of a combination of real estate leases in its
name and certain real estate facilities shared with IPC, the terms of which
are governed by the inter-company agreement with IPC.
IXnet leases directly:
. 17,956 square feet in Houston, Texas where IXnet's Houston point of
presence, "POP", is located, under a lease expiring in October 2009;
. 15,500 square feet in New York City where IXnet's New York network
operations center and primary POP are located, under subleases expiring
in March 2002;
. 14,732 square feet in Boston, Massachusetts where IXnet's Boston POP is
located under a lease expiring in December 2010;
. 12,771 square feet in Newark, New Jersey where IXnet's second New York
area POP is currently being built, under a lease expiring in July 2009;
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. 12,060 square feet in San Francisco under a lease expiring in January
2010;
. 5,300 square feet in Chicago, Illinois where IXnet's Chicago POP is
located, under a lease expiring in June 2005;
. 4,900 and 2,400 square feet in Sydney and Melbourne, Australia, 4,300
square feet in Hong Kong, 1,340 square feet in Singapore, and 2,962
square feet in Tokyo, Japan, of office space and housing for
telecommunications equipment through leases acquired as part of the
Saturn acquisition;
. 2,200, 450 and 175 square feet, primarily for telecommunications
equipment housing in Paris, France, and Zurich and Geneva, Switzerland,
respectively; and
. Various smaller spaces under lease or collocation agreements for
telecommunications equipment housing in Frankfurt, Milan, Atlanta, New
York, Chicago, Los Angeles, San Jose and Toronto.
Under an inter-company agreement between IPC and IXnet, IXnet has agreed
with IPC regarding assignments or subleases of certain leases and the
allocation of costs incurred for IXnet's occupancy of portions of IPC-leased
office facilities.
IXnet's London, England, executive, sales and network operations center
occupies two floors of a building that is under a long-term lease to IPC.
IXnet will, in the future, explore a formal sub-lease arrangement from IPC.
Until IPC and IXnet agree to formal sub-lease arrangements with respect to
this space, as well as with respect to IXnet's occupancy of portions of IPC-
leased branch office facilities, all costs incurred by IPC for such space,
including maintenance, electric and other utility costs and telephone system
usage, will be charged to IXnet as incurred for actual discernable costs and
otherwise allocated between the companies based upon the square footage
occupied by each of IPC and IXnet.
A number of IXnet's leases represent space under construction in connection
with its network buildout.
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IXNET
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read together with IXnet's
Consolidated and Combined Financial Statements, and related notes to these
statements, beginning on page F-1 of this document.
Overview
IXnet is a leading provider of communications services to the worldwide
financial services community. IXnet has built and operates a global seamless
communications network connecting financial services firms and their business
partners, as well as multiple offices within the same firm. IXnet refers to
this network as its Extranet. Through its Extranet, IXnet's customers obtain
highly reliable, secure and fully managed voice and data connectivity without
having to access multiple disparate public networks or rely on multiple
customer service organizations.
IXnet provides a variety of voice, data, and content distribution services,
which has been specifically designed to meet the specialized requirements of
the financial services industry. All of IXnet's revenue is derived from its
global network.
In 1995, IXnet began building its Extranet and offering voice and data
services. IXnet funded the initial construction of its Extranet, including
capital expenditures and working capital, through inter-company investments and
loans provided by IXnet's parent, IPC Information Systems, Inc. As of February
29, 2000, IXnet's Extranet was comprised of two network operations centers, 3
data centers, 72 points of presence, approximately 1,400 customer access nodes
placed on customer premises and high capacity bandwidth facilities. IXnet's
Extranet connects approximately 600 customers in 38 countries in financial
centers around the world, including New York, Chicago, Los Angeles, London,
Frankfurt, Paris, Zurich, Hong Kong, Tokyo, Sydney and Singapore.
IXnet provides services to meet the specialized needs of the financial
services community, including managed voice and data services, virtual private
network services and fully outsourced network solutions. In addition, IXnet
aggregates, hosts and distributes financial content, such as news, research,
analytics and market data, for information service providers.
IXnet has incurred operating losses, net losses and negative operating cash
flow for each month since IXnet's formation. As of December 31, 1999, IXnet had
an accumulated deficit of approximately $132.0 million. IXnet expects to
substantially increase its expenditures and operating expenses as it continues
the buildout of its Extranet. IXnet expects to incur substantial operating
losses, net losses, and negative cash flow during the buildout of its network
and penetration of new markets.
On August 12, 1999, IXnet completed its initial public offering, or "IPO",
of 6,500,000 shares at price of $15 per share. On August 30, 1999, the
underwriters exercised their over-allotment option and purchased an additional
975,000 shares at $15 per share.
Total proceeds received by IXnet net of commissions and expenses were
approximately $102.1 million. The proceeds of the IPO are to be used to finance
the continued expansion of IXnet's network and for possible acquisitions,
strategic alliances, or investments in IXnet's business.
As of March 10, 2000, IXnet had 51,148,867 shares of common stock
outstanding, of which 43,100,000 shares are owned by IPC.
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Components of revenues
IXnet offers a full range of services to meet the needs of its customers,
including the following voice and data communications services:
. Premium voice--dedicated private voice lines;
. Managed bandwidth--fully managed dedicated bandwidth facilities;
. Outsourcing--end-to-end management of a communications networks;
. Switched voice--high quality voice communications services;
. Shared internet protocol--network delivery and hosting of third party
market data, research, analytics, news and other trading information to
the desktop, also known as IXnet's Liquidity service; and
. Frame relay--dedicated transport of data applications.
IXnet currently derives a majority of its revenues from sales of premium
voice, managed bandwidth and outsourcing services, and to a lesser extent
switched voice, shared internet protocol and other services. IXnet's services
are billed on a monthly basis in advance of customer utilization, except for
switched voice services, which are billed monthly after service is provided.
Revenue is recorded as services are provided. IXnet expects future revenues
will include software revenue recognition, however, this amount is not expected
to be significant to IXnet's overall revenue.
Pricing policies
Rates for IXnet's premium voice, managed bandwidth and frame relay services
are determined by geographic location and bandwidth utilization. These fees may
be adjusted for customer volume commitments and term of contract.
The primary components of pricing for switched voice are duration of call
and geographic location, which may be adjusted for customer volume commitment,
term of contract and connections to an on-net customer.
Rates for IXnet's outsourcing service are determined by geographic location,
bandwidth utilization, telecommunications equipment deployed on the customers'
premises, level of service requested and any custom requirements. The rate may
be adjusted for customer volume commitments and term of contract.
The components of pricing shared internet protocol may include the following
charges paid by content providers:
. an access fee to connect to IXnet's Extranet;
. a fee to deliver service to end-users; and
. fees associated with housing of equipment and customer application
support.
The access and delivery fees are determined by geographic location and
bandwidth utilization. The hosting fee is determined by amount of space and
level of required service. The other component of pricing, paid either by the
end-user or the content provider, is a fee for end-user access to IXnet's
Extranet. This fee is determined by geographic location and bandwidth
utilization and may be adjusted for volume commitment and term of contract.
IXnet also expects to charge fees in connection with the use of licensed
software for the delivery of content over its network.
Long-term agreements
The terms of IXnet's sales agreements typically range from one to five years
and are determined based on the level of service requested. Customers who
outsource their network needs to IXnet tend to have longer term
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agreements, up to five years. IXnet's ability to obtain fixed term agreements
from its customers provides it with a certain level of predictability as to
revenue generation. IXnet continues to penetrate its customer base by marketing
additional services to existing customers, adding new customer locations and
renewing the terms of its existing customer agreements. IXnet also provides
services to some of its customers on a month-to-month basis.
Components of costs and expenses
Cost of revenue
Cost of revenue consists primarily of leased local and long distance circuit
costs, personnel and related operating expenses associated with network
operations, customer support and field service support. Depreciation and
amortization related to the cost of IXnet's network operations centers, points
of presence, customer access nodes, and indefeasible rights to use cable and
fiber optic lines, are included in depreciation and amortization expense. The
increase in these expenses relates primarily to the expansion of IXnet's
network and resulting increases in leased circuit, maintenance, personnel,
facilities, and customer support costs. Although IXnet expects that cost of
revenue will continue to increase as its customer base increases, IXnet
anticipates that such expenses as a percentage of revenues will decrease over
time. These expenses may be incurred prior to the realization of anticipated
revenue. IXnet intends to lease or buy higher capacity local and long distance
circuits. As a result of these lease agreements and purchases, IXnet expects to
realize the associated benefits of lower unit costs as the use of its network
increases. In addition, as revenues grow, IXnet expects to realize economies of
scale associated with a relatively fixed operating infrastructure.
Sales and marketing expense
Sales and marketing expense consists primarily of personnel costs,
commissions, bad debt, travel and entertainment, marketing and advertising.
IXnet markets its services to the financial services community primarily
through IXnet's direct salesforce. IXnet intends to significantly expand its
salesforce within the U.S., Europe and the AsiaPacific region through the
hiring of personnel who have backgrounds in network services or experience with
the specialized communication needs of the financial services community.
Although IXnet compensates its salesforce employees, in part, on a commission
basis, hiring, training, integrating and retaining these new hires requires
substantial expenditures in advance of any revenue realization that may arise
from the sales efforts of new hires. IXnet estimates that an average of three
months elapses between the hiring of a new sales employee and the realization
of recognizable productivity, and approximately another two months elapses
before any significant revenues result. IXnet expects that sales and marketing
expenses will increase in the future as IXnet expands its sales and marketing
staffs to keep pace with its rapid growth both domestically and internationally
but that such expenses will decrease over time as a percent of revenue.
General and administrative expense
General and administrative expense consists primarily of salaries and
occupancy costs for executive, financial, and management information systems
personnel. A number of accounting and management information systems functions,
human resources, legal, executive and administrative services have been
performed under an inter-company agreement with IXnet's parent, IPC. The
related costs of providing such services have been, and will continue to be,
allocated based upon utilization of the specific services. IXnet expects that
general and administrative expenses will increase in the future as IXnet
expands its management and administrative staffs to keep pace with its rapid
growth both domestically and internationally, but that such expenses will
decrease over time as a percent of revenue.
Depreciation and amortization
Depreciation and amortization expense includes the allocation of cost for
property and equipment and goodwill over their expected useful lives. Property
and equipment, excluding indefeasible rights of use,
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leasehold improvements and network software, are depreciated over two to five
years. The cost of indefeasible rights of use are amortized over the leased
term, generally 20 to 25 years, leasehold improvements are amortized over the
life of the lease term, generally five years, network software is amortized
over 3 years, and goodwill is amortized over periods ranging from 2.25 to 10
years.
Network expansion
Since the beginning of IXnet's operations, IXnet has undertaken a program of
developing and expanding its Extranet. IXnet has made significant investments
in network capacity and telecommunications equipment, including routers,
customer access nodes, transmission electronics, switches, circuits and other
equipment to produce a technologically advanced global Extranet. Historically,
a large portion of IXnet's network expense was associated with the development
of its Extranet and was only undertaken based on customer demand. Subsequent to
IXnet's initial public offering, IXnet has begun to make greater network
investments in certain strategic areas in anticipation of increased customer
demand. Investments in customer access nodes and network capacity through
acquisitions of indefeasible rights of use and the buildout of IXnet's points
of presence will continue to represent significant capital expenditures and are
expected to be substantially above historical levels.
Deferred Compensation
During May 1999, IXnet's board of directors and IXnet's sole stockholder,
IPC, approved the IXnet, Inc. 1999 Stock Option Plan, referred to as the
"Plan", authorizing the grant of options to purchase up to 7,053,409 shares of
IXnet's common stock. At that time, options to purchase 6,530,184 shares were
granted to employees, directors and others at an exercise price of $13.96 per
share. Except for 1,763,352 options granted to IXnet's Chief Executive Officer
which vested immediately, such options vest over four years. All such options
become exercisable, to the extent then vested, 30 months from the date the Plan
was adopted, subject to specified exceptions.
In connection with this issuance of stock options, IXnet recorded deferred
compensation in the aggregate amount of approximately $26 million, based upon
the deemed fair market value of IXnet's common stock at the date of grant.
IXnet recorded an additional $2.3 million of non-cash deferred stock
compensation during the quarter ended December 31, 1999 which represents the
charge for the issuance of options in May 1999 which are treated as variable
options for accounting purposes. During the three month period ended December
31, 1999, $1.4 million of expense was recorded. The remaining deferred
compensation will be amortized over the remaining vesting period of the
options. In addition, some of these options are treated as variable options and
may result in additional deferred compensation expense in future periods as the
value of IXnet's shares changes over the vesting period.
In connection with the mergers, 14 senior executives of IPC and IXnet have
entered into an agreement with Global Crossing under which only 25% of their
unvested options for IXnet common stock will become vested at the effective
time of the mergers. In addition, David Walsh has agreed to relinquish vesting
with respect to 50% of his fully vested options for IXnet common stock at the
time of the merger. Also, the IXnet stock option plan will be amended to
provide that 25% of IXnet options held by a person who is not a party to the
option limitation agreement or held by William Adiletta or Richard Farrell will
become exercisable upon a change of control, as defined under the IXnet stock
option plan.
Acquisitions and strategic agreements
IEXN
During June 1995, IPC acquired an 80% interest in IEXN for $5.5 million in
cash. The acquisition was accounted for using the purchase method of accounting
and resulted in $1.3 million of goodwill. Under the initial acquisition
agreement, IPC is obligated to pay additional consideration to former
shareholders using a
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formula based upon operating results and market capitalization through fiscal
2000. Based upon data as of December 31, 1999, IPC's obligation calculated
under this agreement is not material. On April 30, 1998, IPC acquired the
remaining 20% interest in IEXN held by two management shareholders in exchange
for 457,140 shares of IPC common stock, valued at $4.8 million based upon the
IPC closing share price on that data. The acquisition of the remaining interest
was accounted for using the purchase method of accounting and resulted in $4.8
of goodwill. IEXN goodwill is being amortized over seven years from the date of
the original acquisition.
MXNet, Inc.
On February 13, 1998, IPC acquired all of the issued and outstanding common
stock of MXNet, a wholly-owned subsidiary of National Discount Brokers Group,
Inc., and paid $6.7 million by the issuance of a promissory note. This
acquisition was accounted for using the purchase method of accounting and
resulted in $5.5 million of goodwill, which is being amortized on a straight-
line basis over 2.25 years. IPC contributed the shares of MXNet to us in May
1999.
Saturn Global Network Services Holdings Limited
On December 18, 1998, International Exchange Networks acquired all of the
issued and outstanding shares of Saturn from Marshalls 106 Limited. This
acquisition was accounted for using the purchase method of accounting. As a
result of the acquisition, IXnet recorded approximately $49.2 million of
goodwill, which is being amortized on a straight-line basis over ten years.
The purchase price for Saturn included a cash payment of $35.7 million made
through borrowings from IPC, and the issuance of a promissory note guaranteed
by IPC in the amount of $7.5 million. In addition, IXnet assumed indebtedness
of Saturn due to Marshalls in the amount of $5.0 million. Under the agreement,
the Marshalls note is subject to a working capital adjustment and right of
offset. This working capital adjustment was settled in June 1999 resulting in a
reduction of IXnet's obligation by approximately $2.0 million.
Strategic Agreement
On September 24, 1999, IXnet entered into a strategic agreement, including
the licensing of software products to enhance the intelligence of IXnet's
network for a purchase price of $20 million consisting of $10 million in cash
and 500,000 shares of restricted IXnet common stock valued at an average
closing price prior to the agreement date. The strategic agreement is designed
to enhance IXnet's network capabilities with embedded intelligence, delivering
financial enterprise integration, subject-based addressing, trading turret
integration and application management capabilities.
BNNY
Effective January 1, 2000, IXnet acquired all of the issued and outstanding
common shares of Business Networks of New York, Inc. or "BNNY". The $26.5
million purchase price consisted of $24.5 million in cash and 45,707 shares of
IXnet common stock. BNNY is a leader in providing voice and data services to
the financial community, primarily in the New York Metropolitan Area.
SPNC
On January 25, 2000, IXnet acquired all of the issued and outstanding common
shares of Systems Programming & Network Computing, Inc. or "SPNC". The purchase
price was approximately $1.5 million and consisted of $300,000 in cash, a
$100,000 promissory note issued by IXnet and 6,080 shares of IXnet common
stock. SPNC is a leader in providing and integrating sophisticated multi-
system, multi-platform applications for the financial services community.
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Results of operations
The following table presents the components of IXnet's results of operations
data as a percentage of IXnet's revenues:
<TABLE>
<CAPTION>
Quarter Ended Year Ended
December 31, September 30,
--------------- ---------------------
1999 1998 1999 1998 1997
------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue.............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue (exclusive of
depreciation and amortization shown
separately below)................... 107.0 97.7 99.3 99.4 111.1
Sales and marketing expense.......... 25.1 16.4 17.7 23.6 23.4
General and administrative expense... 19.4 9.5 11.3 14.0 19.3
Depreciation and amortization........ 35.5 30.8 29.3 25.3 19.4
Special charge....................... -- -- -- 3.8 --
Stock compensation charge............ 5.9 -- 12.4 -- --
------ ------ ----- ----- -----
Loss from operations............... (92.9) (54.4) (70.0) (66.1) (73.2)
Interest expense, net................ (5.0) (14.3) (9.5) (9.8) (11.4)
Other income, net.................... 0.4 0.4 0.5 0.1 0.7
------ ------ ----- ----- -----
Loss before provision for income
taxes............................. (97.5) (68.3) (79.0) (75.8) (84.0)
Provision for income taxes........... 1.4 1.0 1.8 1.3 1.3
------ ------ ----- ----- -----
Net loss............................. (98.8)% (69.3)% (80.8)% (77.1)% (85.3)%
====== ====== ===== ===== =====
</TABLE>
Historical Operating Trends
Operating costs increased in each of the periods presented but decreased as
a percentage of revenue. IXnet expects these costs to continue to increase in
dollars due to the continued expansion and build-out of the network but
decrease as a percentage of revenue due to the continued expected increase in
revenues.
Comparison of the three months ended December 31, 1999 to the three months
ended December 31, 1998
Revenue. Revenue was $23.1 million for the three months ended December 31,
1999, an increase of $10.3 million, or 80.5%, from $12.8 million for the three
months ended December 31, 1998. Of this increase, $7.7 million related to
revenues from Saturn which was acquired in December 1998. The balance of the
increase was primarily due to increased revenue from the growth in IXnet's
overall customer base and additional revenue from IXnet's existing customer
base.
Cost of revenue. Cost of revenue was $24.7 million for the three months
ended December 31, 1999, an increase of $12.2 million, or 97.6%, from $12.5
million for the three month ended December 31, 1998. The increase was primarily
due to increased leased circuit costs and, to a lesser extent, the increase in
operations personnel. Leased circuit costs increased due to the expansion of
IXnet's points of presence, increased engineering support and the build out of
the network ahead of revenue growth.
Sales and marketing expense. Sales and marketing expense was $5.8 million
for the year ended December 31, 1999, an increase of $3.7 million, or 176.2%,
from $2.1 million for the three months ended December 31, 1998. This increase
was primarily due to the growth in IXnet's sales force, related support
personnel, consulting fees, advertising, and product marketing program.
General and administrative expense. General and administrative expense was
$4.5 million for the three months ended December 31, 1999, an increase of $3.3
million, or 275%, from $1.2 million for the three months ended December 31,
1998. This increase was primarily due to an increase in personnel costs, higher
occupancy fees and professional fees as IXnet builds and expands in European
and Asia/Pacific markets.
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Depreciation and amortization. Depreciation and amortization was $8.2
million for the three months ended December 31, 1999, an increase of $4.3
million, or 110.3%, from $3.9 million for the year ended December 31, 1999.
This increase was primarily due to the increase in property and equipment in
connection with the expansion of IXnet's network and includes the amortization
of IXnet's TIBCO software license, as well as $4.6 million of amortization of
goodwill associated with the Saturn acquisition.
Stock compensation charge. IXnet recognized approximately $1.4 million in
stock compensation expense during the three month period ended December 31,
1999 related to stock options issued in connection with the initial public
offering. The deferred compensation balance in equity, $17.7 million, will be
amortized over the remaining vesting period which is approximately 40 months.
Interest expense, net. Interest expense, net was $1.2 million for the three
months ended December 31, 1999, a decrease of $.6 million, or 33.3%, from $1.8
million for the three months ended December 31, 1998. This decrease was
primarily due to an offset of interest expense by higher interest income
resulting from the investment of the IPO proceeds in short-term marketable
securities. IXnet expects interest expense to increase in future periods as
IXnet uses the proceeds of the offering for acquisition and expansion of the
network and increase IXnet's borrowings from IPC and IXnet's capital lease
obligations.
Provision for income taxes. The provision for income taxes consisted of
primarily foreign taxes in 1999 and 1998. IXnet is included in the IPC
consolidated tax return and the benefits of the NOL's realized on the
consolidated return are recorded as capital contributions.
Comparison of the year ended September 30, 1999 to the year ended September
30, 1998
Revenue. Revenue was $73.6 million for the year ended September 30, 1999, an
increase of $37.7 million, or 105.0%, from $35.9 million for the year ended
September 30, 1998. Of this increase, $22.7 million related to revenues from
Saturn which was acquired in December 1998. The balance of the increase was
primarily due to increased revenue from the growth in IXnet's overall customer
base.
Cost of revenue. Cost of revenue was $73.1 million for the year ended
September 30, 1999, an increase of $37.4 million, or 104.8%, from $35.7 million
for the year ended September 30, 1998. The increase was primarily due to
increased leased circuit costs and, to a lesser extent, the increase in
operations personnel. This increase was due to the expansion of IXnet's points
of presence, increased engineering support and the buildout of the network
ahead of revenue growth.
Sales and marketing expense. Sales and marketing expense was $13.1 million
for the year ended September 30, 1999, an increase of $4.6 million, or 54.1%,
from $8.5 million for the year ended September 30, 1998. This increase was
primarily due to the growth in IXnet's sales force and related support
personnel.
General and administrative expense. General and administrative expense was
$8.3 million for the year ended September 30, 1999, an increase of $3.3
million, or 66.0%, from $5.0 million for the year ended September 30, 1998.
This increase was primarily due to an increase in the costs of shared
administrative and general services provided by IPC, personnel costs related to
internal growth and acquisitions, and, to a lesser extent, higher occupancy and
professional fees.
Depreciation and amortization. Depreciation and amortization was $21.6
million for the year ended September 30, 1999, an increase of $12.5 million, or
137.4%, from $9.1 million for the year ended September 30, 1998. This increase
was primarily due to the increase in property, plant and equipment in
connection with the expansion of IXnet's network and the $4.6 million of
amortization of goodwill associated with the Saturn acquisition.
Special charge. In April 1998, IPC completed a recapitalization. In
connection with the recapitalization, certain IXnet employees received bonuses
and payments in the aggregate of $1.4 million in consideration of the
cancellation of their IPC stock options.
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Stock compensation charge. IXnet recognized approximately $9.1 million in
stock compensation expense during 1999 related to stock options issued in
connection with the initial public offering.
Interest expense, net. Interest expense, net was $7.0 million for the year
ended September 30, 1999, an increase of $3.5 million, or 100.0%, from $3.5
million for the year ended September 30, 1998. This increase was primarily due
to higher average borrowings from IPC during the year in order to fund the
Saturn acquisition, losses from operations, debt service payments and capital
expenditures. Also contributing to the increase in interest expense, net, were
increased capital lease obligations related to certain network assets acquired.
Provision for income taxes. The provision for income taxes consisted of
primarily foreign taxes in 1999 and 1998. IXnet is included in the IPC
consolidated tax return and the benefits of the NOL's realized on the
consolidated return are recorded as capital contributions.
Comparison of the year ended September 30, 1998 to the year ended September
30, 1997
Revenue. Revenue was $35.9 million for the year ended September 30, 1998, an
increase of $18.1 million, or 101.7% from $17.8 million for the year ended
September 30, 1997. Approximately $15.6 million of the increase was primarily
due to growth in IXnet's customer base. The balance of the increase was
primarily due to the MXNet acquisition.
Cost of revenue. Cost of revenue was $35.7 million for the year ended
September 30, 1998, an increase of $15.8 million, or 79.9%, from $19.8 million
for the year ended September 30, 1997. The increase was primarily due to
expanding and maintaining the leased bandwidth to service customer growth on
IXnet's Extranet. The largest component of cost of revenue was leased circuit
costs.
Sales and marketing expense. Sales and marketing expense was $8.5 million
for the year ended September 30, 1998, an increase of $4.3 million, or 102.7%,
from $4.2 million for the year ended September 30, 1997. This increase was
primarily due to an increase in sales and related personnel and an increase in
the provision for bad debts.
General and administrative expense. General and administrative expense was
$5.0 million for the year ended September 30, 1998, an increase of $1.6
million, or 45.4%, from $3.4 million for the year ended September 30, 1997. The
increase was primarily due to additional personnel and an increase in the
allocation of certain shared administrative and general expenses provided by
IPC.
Depreciation and amortization. Depreciation and amortization was $9.1
million for the year ended September 30, 1998, an increase of $5.6 million, or
161.9%, from $3.5 million for the year ended September 30, 1997. This increase
was primarily due to the increase in property, plant and equipment during the
year ended September 30, 1998, as well as $1.5 million of goodwill amortization
associated with the MXNet acquisition.
Special charge. In April 1998, IPC completed its recapitalization and
certain of IXnet's employees received $1.4 million in bonus payments in
consideration of the cancellation of their IPC stock options.
Interest expense, net. Interest expense, net was $3.5 million for the year
ended September 30, 1998, an increase of $1.5 million, or 72.9%, from $2.0
million for the year ended September 30, 1997. The increase was primarily due
to higher average borrowings from IPC to fund operations, the MXNet
acquisition, debt service payments and capital expenditures, as well as
interest expense on increased capital lease obligations associated with some
capital expenditures.
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Provision for income taxes. The provision for income taxes consisted of
foreign taxes in 1998 and 1997. IXnet is included in the IPC consolidated tax
return and the benefits of the NOL's realized on the consolidated return are
recorded as capital contributions.
Quarterly results
The following tables set forth unaudited quarterly financial data, and data
expressed as a percentage of revenue, for the years ended September 30, 1999
and 1998. IXnet believes that the unaudited financial information set forth
below has been prepared on the same basis as the audited financial information
included elsewhere in this Form S-4 Registration Statement and includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information. The operating results for any quarter are
not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------------
Fiscal Year 1999 Fiscal Year 1998
--------------------------------------- -------------------------------------------
Dec 31 Mar 31 June 30 Sept 30 Dec 31 Mar 31 June 30 Sept 30
------- ------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $12,752 $19,859 $ 20,038 $ 20,966 $ 7,390 $ 7,928 $ 9,917 $10,618
Cost of revenue
(exclusive of
depreciation and
amortization shown
separately below)...... 12,458 18,476 20,093 22,070 7,770 7,643 9,439 10,800
Sales and marketing
expense................ 2,092 2,786 3,377 4,808 1,352 1,861 2,247 2,995
General and
administrative
expense................ 1,215 1,600 2,078 3,419 762 1,569 1,472 1,198
Depreciation and
amortization........... 3,922 5,586 5,297 6,770 1,289 1,635 2,692 3,444
Special charge.......... -- -- -- -- -- -- 1,350 --
Stock compensation
charge................. -- -- 7,881 1,198 -- -- -- --
Loss from operations.... $(6,935) $(8,589) $(18,688) $(17,299) $(3,783) $(4,780) $(7,283) $(7,819)
EBITDA(1).............. $(3,013) $(3,003) $ (5,510) $ (9,331) $(2,494) $(3,145) $(4,591) $(4,375)
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------------
Fiscal Year 1999 Fiscal Year 1998
--------------------------------------- -------------------------------------------
Dec 31 Mar 31 June 30 Sept 30 Dec 31 Mar 31 June 30 Sept 30
------- ------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue
(exclusive of
depreciation and
amortization shown
separately below)...... 97.7 93.0 100.3 105.3 105.1 96.4 95.2 101.7
Sales and marketing
expense................ 16.4 14.0 16.9 22.9 18.3 23.5 22.7 28.2
General and
administrative
expense................ 9.5 8.1 10.4 16.3 10.3 19.8 14.8 11.3
Depreciation and
amortization........... 30.8 28.1 26.4 32.3 17.4 20.6 27.2 32.4
Special charge.......... -- -- -- -- -- -- 13.6 --
Stock compensation
charge................. -- -- 39.3 5.7 -- -- -- --
Loss from operations.... (54.4)% (43.2)% (93.3)% (82.5)% (51.2)% (60.3)% (73.4)% (73.6)%
EBITDA(1).............. (23.6)% (15.1)% (27.5)% (44.5)% (33.8)% (39.7)% (46.3)% (41.2)%
</TABLE>
- --------
(1) EBITDA represents operating income before interest, income taxes,
depreciation and amortization expenses. EBITDA is not a measurement of
financial performance under generally accepted accounting principles, is
not intended to represent cash flow from operations and should not be
considered as an alternative to net loss as an indicator of IXnet's
operating performance or to cash flows as a measure of liquidity. IXnet
believes that EBITDA is widely used by analysts, investors and others in
the telecommunications industry. EBITDA is not necessarily comparable with
similarly titled measures used by other companies. EBITDA for the three
months ended June 30, 1999 and September 30, 1999 excludes the stock
compensation charge of $7.9 million and $1.2 million, respectively.
IXnet's quarterly operating results will continue to fluctuate from period
to period for the foreseeable future depending upon such factors as:
. the success of IXnet's efforts to expand IXnet's customer base, and to
sell additional services to our existing customer base;
. changes in the timing of expenditures relating to the continued
expansion of IXnet's Extranet;
. the success of IXnet's efforts to add content providers to IXnet's
Extranet;
. the development of new service offerings;
. changes in pricing policies by IXnet or IXnet's competitors;
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. the growth in IXnet's sales force; and
. the timing of acquisitions.
In view of the significant historical growth of IXnet's operations, IXnet
believes that period-to-period comparisons of IXnet's financial results should
not be relied upon as an indication of future performance and that IXnet may
experience significant period-to-period fluctuations in operating results in
the future. IXnet expects to focus in the near term on building and increasing
IXnet's customer base and increasing IXnet's Extranet utilization both through
internal growth and through acquisitions which may require IXnet from time to
time to increase IXnet's expenditures for personnel, marketing, global network
infrastructure and the development of new services offerings.
Liquidity and capital resources
Since the commencement of IXnet's operations in 1995, IXnet has relied
primarily on IPC to fund IXnet's operating cash requirements, property and
equipment expenditures, debt service payments and acquisitions. IXnet has also
obtained financing for some of IXnet's network equipment, which is either
guaranteed by IPC and/or partially supported by letters of credit issued under
IPC's credit agreement. In addition, IXnet obtained seller financing for the
Saturn acquisition, which has been guaranteed by IPC. From inception to
December 31, 1999, the aggregate net amount of intercompany funding, exclusive
of guarantees and letters of credit, was approximately $143.7 million, of which
$73.0 million was contributed to equity effective March 31, 1999.
Initial public offering. On August 12, 1999 IXnet completed its initial
public offering of 6,500,000 shares at a price of $15 per share. On August 30,
1999, the underwriters exercised their over-allotment option and purchased an
additional 975,000 shares at $15 per share. Total proceeds received by IXnet
net of commissions and expenses were approximately $102.1 million. The proceeds
of the initial public offering are to be used to finance the continued
expansion of IXnet's network and for possible acquisitions, strategic
alliances, or investments in IXnet's business. As of February 29, 2000, the net
offering proceeds have been used or committed as follows:
. IXnet has paid approximately $5 million in connection with a strategic
agreement including the license of software products to enhance its
network intelligence. IXnet has committed an additional $5 million to
this agreement.
. IXnet has invested approximately $3 million in indefeasible rights of
use and bandwidth capacity.
. IXnet has paid approximately $25 million in connection with the
acquisition of other companies.
. IXnet has spent approximately $38 million to fund investments in network
telecommunications equipment in its continuing expansion of its network
and build-out of its points of presence.
. IXnet has invested approximately $31 million in United States investment
grade government securities and cash equivalent accounts. These amounts
will be used for continued deployment and expansion of IXnet's Extranet,
as well as possible future acquisitions, strategic alliances or
investments in property or assets used in IXnet's business.
Financing arrangements. Subject to the terms and conditions of the
intercompany agreement, IPC has agreed to continue to provide IXnet with
ongoing financing and to obtain letters of credit on IXnet's behalf. The amount
available under the intercompany agreement starts at $6.25 million and
increases by that amount quarterly thereafter, up to an aggregate of $50
million during the period beginning July 1, 1999 through June 30, 2001. On June
30, 2001, all amounts loaned and outstanding under the inter-company agreement
will become immediately due and payable. In addition, IPC, in its sole
discretion, will continue to provide guarantees of IXnet's obligations. During
the quarters ended September 30, 1999 and December 31, 1999 presented in this
Form S-4 Registration Statement, the $6.25 million limitation had been exceeded
representing a delay in reimbursement of quarterly funding by IPC and interest
expense on the outstanding amounts, as well as the transfer of a UK VAT
receivable from IPC to IXnet in the quarter ended September 30, 1999. The
amounts were subsequently reimbursed and the balances are now consistent with
the intercompany agreement.
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IPC has primarily two sources of funds from which it can fund IXnet's
working capital needs. The first is from its cash flow and the second is
through its $65 million secured credit facility, consisting of a $20 million
term loan facility and a revolving credit facility of up to $45 million.
However, IPC will not make loans to IXnet, obtain letters of credit on IXnet's
behalf or provide IXnet with guarantees if, such requests would be prohibited
under IPC's credit agreement; would result in a default or event of default
under IPC's agreement; or would result in a default or event of default under
the indenture for IPC's senior discount notes. IXnet expects that available
cash, marketable securities, and existing funding from IPC as well as third-
party vendor financing will be sufficient to meet its normal operating
requirements, including increased expenditures in property and equipment, over
the near term.
All borrowings under the intercompany agreement will be evidenced by demand
notes. However IPC has agreed not to demand payment on those notes until June
30, 2001, unless a default or an event of default under IPC's credit agreement
or a change in control occurs. In either case, all amounts owing under the
intercompany agreement will be immediately due and payable upon demand. A
change in control will occur if IPC ceases to own at least 50% of IXnet's
voting securities.
Under the intercompany agreement, all currently outstanding and any future
loans from IPC will be made at a rate per annum equal to 2% over the base rate
under IPC's credit agreement. The base rate under IPC's credit agreement is
equal to the higher of the rate of interest announced publicly by Citibank,
N.A. at its head office in New York as its base rate or 1/2 of 1% per annum
above the federal funds rate.
In addition, any amounts loaned by IPC to IXnet which are outstanding on
July 1, 1999 will bear interest at a rate equal to 2% over the base rate and
will not reduce the amount of funding that will be available to IXnet.
The intercompany agreement provides that the letters of credit or guarantees
provided by IPC which were outstanding on July 1, 1999 of $5.75 million shall
continue in full force and effect on their same terms and conditions until
their expiration. Loans from IPC and letters of credit procured by IPC, which
were outstanding on July 1, 1999, do not reduce the amounts available to IXnet
under the intercompany agreement.
IXnet will reimburse IPC for the applicable costs, fees and charges incurred
by IPC in obtaining letters of credit or for providing guarantees to IXnet
after July 1, 1999 or payments made by IPC in connection with any enforcement
by third parties of such letters of credit and guarantees. All other costs
under IPC's credit agreement will continue to be borne by IPC.
The intercompany agreement also provides for the allocation between IXnet
and IPC of allowances and limitations provided for in IPC's credit agreement,
which include sales of assets, investments and the amount of debt that may be
incurred.
Cash flows
Cash flows from operating activities can vary significantly from period to
period depending upon the timing of operating cash receipts and payments,
particularly accounts receivable, prepaid expenses and other assets, and
accounts payable and accrued liabilities. During the three months ended
December 31, 1999 and 1998, IXnet's net losses were the primary components of
net cash used in operating activities. Net cash used in operating activities
was $19.9 million for the three months ended December 31, 1999, as compared to
$6.3 million for the three months ended December 31, 1998.
Cash used in investing activities was $25.3 million for the three months
ended December 31, 1999, compared to $38.3 million for the same period ended
December 31, 1998. The components of cash used in investing activities during
the three month period ended December 31, 1999, resulted from $10.5 million
used for capital expenditures, as well as a net investment of $14.8 million in
marketable securities using proceeds from government grade commercial paper
which were classified as cash equivalents at September 30, 1999. For
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the three months ended December 31, 1998, components of cash used in investing
activities were $3.5 million in capital expenditures, as well as $34.7 million
used for the Saturn acquisition.
Cash provided by financing activities was $13.9 million for the three months
ended December 31, 1999, compared to $47.1 million for the three months ended
December 31, 1998. The largest component of cash provided from financing
activities for the three months ended December 31, 1999 and 1998, resulted from
net borrowings from IXnet's parent, IPC, in the amount of $19.1 million and
$45.2 million, respectively. Borrowings increased each period to fund losses
from operations, debt service payments, costs associated with IXnet's initial
public offering, and capital expenditures. In addition, borrowings increased
during the quarter ended December 31, 1998, due to the funding of the Saturn
acquisition.
During the three years ended September 30, 1999, our net losses were the
primary component of net cash used in operating activities, offset by
significant non-cash depreciation and amortization expenses. Net cash used in
operating activities was $29.1 million for the year ended September 30, 1999,
as compared to $15.1 million for the year ended September 30, 1998.
Cash used in investing activities was $87.3 million for the year ended
September 30, 1999, compared to $13.8 million for the year ended September 30,
1998. The components of cash used in investing activities during the year ended
September 30, 1999, resulted from $34.7 million used for the Saturn acquisition
as well as $24.2 million used for expenditures of property, plant, and
equipment, which consisted primarily of network equipment. Furthermore, $28.4
million of the initial public offering proceeds are being invested in short-
term commercial paper. For the year ended September 30, 1997, total additions
to fixed assets were $13.2 million, of which $9.7 million was financed and $3.5
million was expended in cash.
Cash provided by financing activities was $181.9 million for the year ended
September 30, 1999, compared to $29.8 million for the year ended September 30,
1998. The two largest components of cash used in financing activities for the
year ended September 30, 1999, resulted from net proceeds of approximately
$102.1 million from the completion of our initial public offering and
approximately $82.6 million in borrowings from IPC. This increase in borrowings
was due to funding for the Saturn acquisition, losses from operations, debt
service payments, costs associated with our initial public offering, and
capital expenditures.
Commitments, capital expenditures and future financing requirements
As of December 31, 1999, IXnet had capital lease commitments to
telecommunications vendors totaling $22.9 million payable in various years
through 2004 of which $6.4 million plus finance charges were due within one
year.
Capital expenditures, funded through IPO proceeds and borrowings from IPC,
were $10.5 million for the three months ended December 31, 1999. In addition,
IXnet had notes in the aggregate amount of $15.6 million outstanding as of
December 31, 1999 consisting of $8.6 million due to the former shareholders of
Saturn and $7.0 million in connection with the strategic agreement entered into
in September 1999. As of December 31, 1999, $11.4 million is payable within one
year.
As of September 30, 1999, we had capital lease commitments to certain
telecommunications vendors totaling $21.1 million payable in various years
through 2004 of which $7.6 million were due within one year. Additionally, as
of September 30, 1999, we were obligated to make future minimum lease payments
for property, leased circuits and equipment of $43.7 million under non-
cancelable operating leases expiring in various years through 2005.
Capital expenditures, funded through IPO proceeds and borrowings from IPC,
were $24.2 million for the year ended September 30, 1999. In addition, we had
notes in the aggregate amount of $19.4 million outstanding as of September 30,
1999 consisting of $9.4 million due to the former shareholders of Saturn and
$10.0 million in connection with the strategic agreement entered into in
September 1999. As of September 30, 1999, $14.5 million is payable within one
year.
Installation of customer access nodes, acquisition of indefeasible rights of
use, or IRU's, and the buildout of IXnet's points of presence are expected to
be IXnet's most significant capital expenditure items over the next
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<PAGE>
12 months. IXnet expects to continue to acquire high capacity bandwidth to
enhance IXnet's global network capabilities in North America, Europe and the
Asia/Pacific region which would be accompanied by capital expenditures in the
deployment of points of presence. IXnet expects that IXnet's purchase of
property and equipment will increase substantially from historic levels and
that its net proceeds from the IPO, along with third party equipment financing
arrangements, should be sufficient to meet IXnet's near term needs for property
and equipment.
As of December 31, 1999, IXnet had available cash and cash equivalents of
$7.4 million and restricted cash of $21.1 million in connection with the
strategic agreement and future payments for IRU's. As of September 30, 1999, we
had available cash and cash equivalents of $39.0 million and restricted cash of
$26.5 million in connection with the strategic agreement and future payments
for IRU's. IXnet is currently generating operating losses and expects to
continue to do so for the foreseeable future. Under the indenture for IPC's
senior discount notes, the net proceeds from IXnet's IPO is limited in its use
to fund IXnet's working capital needs. IXnet believes that it will need
additional working capital, along with the funding of IXnet's debt obligations,
which consist of capital lease obligations, installment payments for
indefeasible rights to use international cable systems, and payments on the
notes to Saturn. Payments in connection with the strategic agreement
installment note and payments for certain IRU's are made against the restricted
cash balance. Under IPC's credit agreement and IXnet's inter-company agreement
with IPC, there are some restrictions from seeking additional debt or equity
financing other than debt financing from IPC for working capital and other
operating costs. Accordingly IXnet expects to continue to rely upon IPC to fund
these requirements.
IXnet has purchased or committed to purchase interests in or indefeasible
rights to use international cable systems on projects such as TAT12/13, TAT14,
Gemini, CANTAT3, Germany-U.K.6, Japan-U.S., TPC-5, Hermes, Solas and NTL.
Further, IXnet expects to evaluate its current and future bandwidth
requirements in connection with the merger.
Other possible strategic relationships and acquisitions
IXnet intends to make strategic acquisitions as appropriate opportunities
arise to expand its service offerings, expand its Extranet and/or increase
IXnet's customer base. See "Overview" located in the beginning of this section.
Foreign exchange rate risk
IXnet conducts its business in more than 38 countries, and transactions from
these foreign operations are denominated in local currencies. With respect to
these foreign operations, IXnet is exposed to foreign currency fluctuations for
its net working capital positions. Foreign currency fluctuations historically
have not had a significant impact on IXnet's revenues or operating results.
IXnet currently does not have a foreign exchange hedging program; however,
IXnet may implement a program to mitigate foreign currency transaction risk in
the future. Although IXnet's foreign operations are subject to economic, fiscal
and monetary policy of foreign governments, to date these factors have not had
a material effect on IXnet's results of operations or liquidity. A significant
and growing portion of IXnet's business is from IXnet's international
operations, and changes in the global economy, foreign tax laws, international
business practices and currency exchange rates could adversely affect IXnet's
business.
On January 1, 1999, several members of the European Union established fixed
conversion rates between their existing sovereign currencies and adopted the
Euro as their new legal currency. Since its adoption, the Euro has not had a
material adverse effect on the IXnet's business or financial condition.
Interest rate risk
IXnet is exposed to changes in interest rates primarily from its outstanding
debt and its investments in certain marketable securities. The interest rate
for all outstanding debt is variable and therefore will fluctuate
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with market conditions. As a result, IXnet is exposed to interest rate
fluctuations, which could have a negative impact on its results of operations.
Historically, interest rate fluctuations have not had a significant impact on
IXnet's results of operations. IXnet currently does not have an interest rate
hedging program, however, it may implement a program to mitigate future
fluctuations in interest rates. IXnet's marketable securities consist of fixed
income investments in the form of short-term commercial paper. IXnet
continually monitors its exposure to changes in interest rates from its
marketable securities. Accordingly, IXnet believes that the effects of changes
in interest rates are limited, however, it is possible that IXnet would be at
risk if interest rates change in an unfavorable direction. The magnitude of any
gain or loss will be a function of the difference between the fixed rate of the
financial instrument and the market rate, which could have a material effect on
IXnet's financial condition and results of operations.
Effects of recently issued accounting standards
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments and hedging activities. The effective date of this
standard was deferred to all fiscal quarters of fiscal years beginning after
June 15, 2000 by SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133"
which was issued on June 30, 1999. IXnet does not currently use derivative
financial instruments.
Year 2000 update
Even though the date is now past January 1, 2000 and IXnet has not
experienced any immediate adverse impact on IXnet's operations from the
transition to the Year 2000, IXnet cannot provide complete assurance that
IXnet's operations have not been affected in a manner that is not yet apparent
or that will arise in the future. In addition, computer programs that were date
sensitive to the Year 2000 may not have been programmed to process the Year
2000 as a leap year, and any negative consequential effects remain unknown. As
a result, IXnet will continue to monitor IXnet's Year 2000 compliance and the
Year 2000 compliance of IXnet's suppliers. However, IXnet anticipates no Year
2000 problems that are reasonably likely to have a material adverse effect on
IXnet's operations.
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REGULATORY ENVIRONMENT
The telecommunications services that IXnet and IPC provide must be
structured to comply with the laws and regulations of national, state and local
government agencies in countries IXnet and IPC serve. The primary regulatory
policy of the United States in this area is to promote effective competition in
the United States telecommunications service market, including the market for
international services. The United States government has advocated that
competitive international markets will provide incentives for further market
entry both in the United States and foreign markets. Many other countries are
also moving toward the implementation of competitive market structures.
United States regulatory considerations
For domestic telecommunication services in the United States, the FCC and
state public utility commissions have direct jurisdiction, granted by statute,
over all aspects of IXnet's and IPC's telecommunications service offerings.
With international traffic, however, the United States regulatory structure is
limited to the origination or termination of telecommunications services in the
United States. As a result, the United States and each foreign country share
jurisdiction over policies and regulations controlling international
telecommunications services between the two. Thus, the United States cannot
unilaterally implement a regulatory policy for international
telecommunications, thereby limiting the impact a domestic statute, such as the
Telecommunications Act, can have in developing a new structure for
international telecommunications.
In the United States, IXnet's and IPC's telecommunications services are
subject to the Communications Act of 1934, as amended by various statutes,
including the Telecommunications Act, and the FCC's regulations promulgated
thereunder, as well as the applicable laws and regulations of the various
states as administered by the relevant public utility commissions. The recent
trend in the United States, for both federal and state regulation of
telecommunications service providers, has been in the direction of reduced
regulation. Despite recent trends toward deregulation, the FCC and relevant
public utility commissions continue to exercise extensive authority to regulate
ownership of transmission facilities, telecommunications services and the terms
and conditions under which IXnet's and IPC's services are provided. In
addition, IXnet and IPC are required by federal and state laws and regulations
to file tariffs listing the rates, terms and conditions of the
telecommunications services IXnet and IPC provide. Any failure to maintain
proper federal and state tariffs or certification or any finding by the federal
or state agencies that IXnet and IPC are not operating under permissible terms
and conditions may result in an enforcement action or investigation, either of
which could have a material adverse effect on IXnet's and IPC's businesses.
IXnet and IPC currently hold several FCC authorizations for
telecommunications services. These authorizations permit IXnet and IPC to
acquire interests in submarine cable and international satellite facilities
previously authorized by the FCC. IXnet and IPC can also resell private lines
that are not interconnected to the public switched telephone network for
communication services between the United States and all other countries and
offer switched service by the use of private lines interconnected to the public
switched telephone network under an arrangement with a non-dominant carrier on
all United States international routes; or under an arrangement with a dominant
carrier only on routes expressly authorized by the FCC, currently, Australia,
Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong,
Iceland, Ireland, Israel, Italy, Japan, Luxembourg, The Netherlands,
Netherlands Antilles, New Zealand, Norway, Poland, Singapore, Spain, Sweden,
Switzerland and the United Kingdom.
State public utility commissions exercise jurisdiction over intrastate
services which are communications that originate and terminate in the same
state. IXnet and IPC hold a certificate of public convenience and necessity to
resell forms of telephone service within New York State and also has the
appropriate authority to offer intrastate service in a number of other states.
Regulatory requirements pertinent to IXnet's and IPC's operations have
recently changed and will continue to change as a result of the World Trade
Organization Basic Telecommunication Agreement, federal legislation,
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<PAGE>
court decisions and new and revised policies of the FCC and public utility
commissions. In particular, the FCC continues to refine its international
service rules to promote competition and reflect and encourage liberalization
in foreign countries. To the extent the FCC is successful in this endeavor, a
more competitive environment for international telecommunications services is
likely to develop. This may increase competition and alter IXnet's and IPC's
ability to compete with other service providers. It also may affect IXnet's and
IPC's ability to provide certain services, or introduce new services. The
impact on IXnet's and IPC's operations of any changes in applicable regulatory
requirements cannot be predicted. As the regulatory regimes change in the
United States and elsewhere, IXnet's and IPC's authorizations also may need to
be adjusted.
International regulatory considerations
Significant liberalization of telecommunications regulation in a number of
countries has provided IXnet and IPC with greater flexibility to obtain
authorizations to provide service. The specific licensing approach or
regulation of IXnet's and IPC's services has differed from country-to-country
depending on the status of deregulation and the development of competition in
each country. Detailed below are a variety of the licensing approaches taken by
IXnet in operating its worldwide network.
Canada. IXnet and IPC were recently granted a Class A license in Canada that
allows IXnet and IPC to provide international telecommunications services to
the public in Canada and operate telecommunications facilities used in
transporting basic telecommunications service traffic between Canada and
another country.
United Kingdom. The United Kingdom generally permits competition in all
sectors of the telecommunications market, subject to licensing requirements and
license conditions. Individual licenses are required for the provision of
facilities-based services and for the resale of leased lines. IXnet's
subsidiary holds a Public Telecommunications Operator, or PTO, License. The PTO
license entitles IXnet to acquire indefeasible rights of use on international
satellites and submarine cable systems, to resell international private lines,
including ones interconnected to the Public Switched Telephone network, as well
as interconnect with, and lease capacity at, wholesale rates from, facility-
based carriers. The international simple voice resale license allows us to
resell international private lines, as well as interconnect with, and obtain
capacity at wholesale rates from facility-based carriers.
Other European Union Countries. Before January 1, 1998, a majority of the
European Union, or EU, countries maintained the position that all or most
telecommunications services were under the exclusive jurisdiction of state-
sanctioned monopolies. Under that regulatory regime, provision of many
competitive telecommunications services was strictly limited to particular
services or banned to preserve the privileged position of the state-sanctioned
monopoly. Effective January 1, 1998, the EU required that member states
liberalize their telecommunications regulations to permit the introduction of
competition in all sectors of the telecommunications market. Nonetheless, IXnet
and IPC initiated service before these reforms. In some cases, IXnet and IPC
were able to take advantage of a special status granted to closed user groups.
Closed user groups are communities of interest that are common among a company
and its subsidiaries or group of companies. The EU definition of closed user
groups looks to see if the link between the members of the group is a common
business activity. IXnet, IPC and their subsidiaries fit this definition of
closed user groups in several countries. In addition, in several EU countries,
IXnet and IPC structured their service offerings to not require interconnection
to the local public switched telephone network. For example, based on closed
user groups status and/or lack of interconnection to the public switched
network, IXnet and IPC have been granted licenses in Belgium, Ireland, Italy
and Spain to provide voice and data services to closed user groups.
Additionally, IXnet's and IPC's subsidiaries are able to operate in France,
Denmark, Finland, Sweden, and Germany without the need for licenses in these
countries. In these cases, IXnet provides private line and virtual private
network voice services and a full range of data services.
Switzerland. Although Switzerland is not part of the EU, it has followed the
EU's market liberalization approach. Even before the January 1, 1998 opening of
the Swiss telecommunications market, IXnet and IPC, through their subsidiaries,
have been able to provide private line and virtual private network voice
services and
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<PAGE>
a full range of data services in Switzerland due to its status as a closed user
groups and its lack of interconnection to the Swiss public switched telephone
network.
Japan. In January 1997, the Japanese Ministry of Post & Telephone granted
IXnet's Japanese subsidiary a Special Type II telecommunications carrier
license. This license allows IXnet to provide virtual private network and
private line voice services, data transmission services, image transmission
services, packet switched data transmission and managed digital network
services. In October 1999, the Japanese Ministry of Post and Telephone granted
IXnet's new Japanese subsidiary a Type I telecommunications license. IXnet is
in the process of completing administrative and technical requirements
associated with this license. This will allow IXnet to own or operate
facilities in Japan as well as to land international facilities of IXnet's own
using submarine cable systems either as original owner or purchaser of IRU's.
Hong Kong. IXnet's subsidiary has received from the Hong Kong Government
Office of the Telecommunications Authority a Public Non-exclusive
Telecommunications Services, or PNETS, license for external telecommunications
services.
Singapore. In October 1997, the Telecommunications Authority of Singapore
granted IXnet's Singapore subsidiary a license to operate a network in
Singapore for closed user groups of entities actively involved in the financial
services industry for the provision of data services including bandwidth on
demand, frame relay, ATM, and multi-protocol transport services. IXnet also
holds a license to resell leased circuits to provide Intracompany voice and
data services in Singapore.
South Korea. In December 1999, the Ministry of Information and Communication
granted IXnet a license to provide international value-added network services.
Brazil. In April 1998, the Brazilian Agencia Nacional de Telecomunicacoes,
"Anatel", granted IXnet's Brazilian subsidiary a limited service license to
offer specialized limited telecommunications services to and from Brazil. This
license allows IXnet to provide virtual private network and private line voice
and data services to closed user groups.
Australia and New Zealand. In both Australia and New Zealand, IXnet is able
to provide private line and a full range of data services to closed user groups
pursuant to a class license.
Expansion into other foreign countries
IXnet and IPC intend to expand their operations into other jurisdictions as
such markets deregulate and IXnet and IPC are able to offer a full range of
services to their customers. However, in countries that enact legislation
intended to deregulate the telecommunications sector or that have made
commitments to open their markets to competition in the WTO Agreement, there
may be significant delays in the adoption of implementing regulations and
uncertainties as to the implementation of the deregulatory programs which could
delay or make more expensive IXnet's and IPC's entry into those additional
markets. IXnet's and IPC's ability to enter a particular market and provide
telecommunications services, particularly in developing countries, is dependent
upon the extent to which the regulations in a particular market permit new
entrants. In some countries, regulators may make subjective judgments in
awarding licenses and permits, without any legal recourse for unsuccessful
applicants. In the event IXnet and IPC are able to gain entry to such a market,
no assurances can be given that IXnet and IPC will be able to provide a full
range of services in such market, that it will not have to significantly modify
its operations to comply with changes in the regulatory environment in such
market, or that any such changes will not have a material adverse effect on its
business, results of operations or financial condition.
In those countries where IXnet and IPC are strictly prohibited from offering
service, IXnet and IPC may enter into a relationship with the state-sanctioned
telecommunications monopoly so that IXnet's and IPC's services can be offered
in that jurisdiction. In these situations, the local telecommunications service
provider would provide the facilities and offer local services to IXnet's and
IPC's are customers. It is likely that services would cost more in these
situations. There are, however, certain countries which do not require
licensing for the provision of telecommunications network services.
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INFORMATION REGARDING DIRECTORS, EXECUTIVE
OFFICERS AND 5% SHAREHOLDERS OF GLOBAL CROSSING
The following table presents, as of March 3, 2000, certain information
regarding the beneficial ownership of the Global Crossing common stock by (1)
each person or entity who is known by Global Crossing to own beneficially 5% or
more of Global Crossing's voting common stock, (2) each of Global Crossing's
directors and executive officers and (3) all of Global Crossing's directors and
executive officers as a group. To Global Crossing's knowledge, each of those
shareholders has sole voting and investment power with respect to the shares
shown, unless otherwise noted. For purposes of this table, an individual is
deemed to have sole beneficial ownership of securities owned jointly with that
individual's spouse. Amounts appearing in the table below include (1) all
shares of common stock outstanding as of March 3, 2000, (2) all shares of
common stock issuable upon the exercise of options within 60 days of March 3,
2000 and (3) all shares of common stock issuable upon the exercise of warrants
within 60 days of March 3, 2000. The warrants designated below as "new PCG
warrants" and "GCL warrants" each represent the right to immediately purchase
shares of Global Crossing common stock at an exercise price of $9.50 per share.
<TABLE>
<CAPTION>
Beneficial Ownership of Common Stock
------------------------------------------------------
Shares Shares
subject to subject Shares
Number of new PCG to GCL subject to Percentage
shares(1) warrants warrants options(2) of class
----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Pacific Capital Group,
Inc.(3)................ 85,861,172 6,050,004 2,515,788 0 11.98%
360 North Crescent
Drive
Beverly Hills,
California 90210
Canadian Imperial Bank
of Commerce(4)......... 75,297,827 0 0 240,000 9.69%
161 Bay Street, 8th
Floor--BCE Place
P.P. Box 500
M5J258, Toronto, Canada
Gary Winnick(5)......... 87,301,383 6,050,004 2,515,788 1,800,000 12.36%
Lodwrick M. Cook........ 3,443,929 950,002 0 362,240 *
Leo J. Hindery, Jr...... 0 0 0 170,000 *
Thomas J. Casey(6)...... 630,412 0 0 1,006,666 *
Abbott L. Brown(7)...... 10,386,029 1,450,002 367,666 900,000 1.68%
Joseph Clayton.......... 542,396 0 0 1,640,000 *
Dan J. Cohrs............ 10,000 0 0 708,668 *
John Comparin........... 5,000 0 0 0 *
James C. Gorton......... 15,000 0 0 709,606 *
David L. Lee(8)......... 18,559,028 1,825,002 663,456 900,000 2.80%
Barry Porter............ 17,063,809 1,825,002 610,266 900,000 2.60%
John M. Scanlon......... 363,748 0 0 2,234,560 *
John A. Scarpati........ 900 0 0 333,334 *
Robert Sheh............. 0 0 0 583,685 *
William B. Carter....... 239,520 0 0 1,706,096 *
Wallace S. Dawson....... 108,958 0 0 530,400 *
Edward Mulligan......... 6,012 0 0 50,000 *
Robert Annunziata....... 0 0 0 5,438,424 *
Jay R. Bloom(9)......... 13,993,966 0 0 128,533 1.81%
William E. Conway,
Jr.(10)................ 2,247,640 0 0 75,000 *
Canning Fok Kin-ning.... 0 0 0 8,898,889 1.13%
Eric Hippeau............ 35,895 0 0 42,300 *
Dean C. Kehler(9)....... 14,848,648 0 0 128,533 1.92%
Geoffrey J.W. Kent...... 0 0 0 75,000 *
Douglas McCorkindale.... 38,855 0 0 87,400 *
James McDonald.......... 5,351 0 0 40,932 *
Bruce Raben............. 0 0 0 120,000 *
Michael R. Steed........ 0 0 0 120,000 *
All Directors and
Executive Officers as a
Group.................. 158,157,917 12,100,012 4,157,176 29,690,266 24.72%
</TABLE>
- --------
* Percentage of shares beneficially owned does not exceed one percent.
(1) As of March 3, 2000, 779,714,470 shares of common stock were issued and
outstanding.
(2) Represents stock options issued under stock option plans of Global
Crossing, except that Mr. Fok's amount includes 8,888,889 shares of
common stock issuable upon conversion of the 400,000 shares of
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convertible preferred stock issued to Hutchison Whampoa in connection with
the formation of the Hutchison Global Crossing joint venture. As Managing
Director of Hutchison Whampoa, Mr. Fok may be deemed to share investment
and voting control over these shares.
(3) Includes 70,107,766 shares of common stock and common stock warrants
owned or managed by GKW Unified Holdings, a company formed for the
benefit of Gary Winnick and members of his family and managed by Pacific
Capital Group, which thereby shares investment and voting power over such
shares. Also includes 25,133 shares of common stock owned by Casey
Pacific Holdings LLC for the benefit of Thomas J. Casey and managed by
Pacific Capital Group, which thereby shares investment and voting power
over such shares.
(4) These share amounts, which are effective as of March 9, 2000, include
11,453,529 shares held by certain affiliates of Canadian Imperial Bank of
Commerce in such a manner that CIBC shares investment power over such
shares. The indicated options have been assigned to Canadian Imperial
Bank of Commerce by its employees who previously served on the Global
Crossing board of directors.
(5) Includes (a) all shares of common stock beneficially owned by Pacific
Capital Group, a company controlled by Mr. Winnick, and (b) 1,440,211
shares held by The Winnick Family Foundation, a non-profit organization
over whose portfolio securities Mr. Winnick shares investment and voting
power.
(6) Includes 605,279 shares of common stock owned by Casey Global Holdings
LLC and 25,133 shares of common stock owned by Casey Pacific Holdings
LLC, which companies are managed by GCL and Pacific Capital Group,
respectively, in such a manner that Mr. Casey shares investment and
voting power over such shares.
(7) Includes (a) 75,350 shares of common stock held by the Ridgestone
Foundation, a non-profit organization of which Mr. Brown is trustee and
(b) 150,000 shares of common stock held by the Abbott and Linda Brown
Family Foundation, a non-profit organization of which Mr. Brown is
trustee. Mr. Brown resigned as a director and officer of Global Crossing
effective March 31, 2000.
(8) Includes (a) all 9,900,822 shares of common stock and 513,156 shares of
common stock issuable upon the exercise of warrants owned by San Pasqual
Corp., a corporation of which Mr. Lee and his family are the sole
shareholders and over whose portfolio securities Mr. Lee shares
investment and voting power and (b) all 3,988,242 shares of common stock
and 150,300 shares of common stock issuable upon the exercise of warrants
owned by the David and Ellen Lee Family Trust, of which Mr. Lee is a
trustee and in that capacity shares investment and voting power over
those shares.
(9) Includes (a) 11,453,529 shares held by certain affiliates of Canadian
Imperial Bank of Commerce in such a manner that Messrs. Bloom and Kehler
have shared investment and voting power over those shares and (b) 218,434
shares held by Caravelle Investment Fund, LLC, for whose investment
advisor Messrs. Bloom and Kehler serve as managing directors.
(10) Includes 2,239,640 shares of common stock beneficially owned by The
Carlyle Group, of which Mr. Conway is managing director and in such
capacity shares voting and investment control over those shares.
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<PAGE>
STOCK OWNERSHIP OF MANAGEMENT, DIRECTORS AND 5% STOCKHOLDERS OF IPC
Management and Directors
The following table presents, as of March 10, 2000, certain information
regarding the beneficial ownership of IPC common stock and IXnet common stock
by: (1) each director of IPC; (2) (a) IPC's Chief Executive Officer and (b)
each of the other four most highly compensated executive officers of IPC who
were serving as executive officers at the end of the last completed fiscal
year and whose aggregate salary plus bonus for the fiscal year ended September
30, 1999 was at least $100,000; and (3) all executive officers and directors
as a group. To IPC's knowledge, each shareholder indicated below has sole
voting and investment power with respect to the shares shown unless otherwise
noted. Amounts appearing on the tables below include (1) all shares of common
stock outstanding as of March 10, 2000, (2) all shares of common stock
issuable upon the exercise of options within 60 days of March 10, 2000 and (3)
all shares of common stock issuable upon the exercise of warrants within 60
days of March 10, 2000.
<TABLE>
<CAPTION>
Amount and Exercisable Stock
Nature of Options Included in Approximate
Title and Beneficial the Previous Percent of Class
Name of Beneficial Owner Class of Security Ownership(1) Column (2) (3)
- ------------------------ ------------------ ----------- ------------------- ----------------
<S> <C> <C> <C> <C>
Richard M. Cashin, 196,498(4) 0 2.22%
Jr. ................... IPC common stock
IXnet common stock 0 -- --
James M. Demitrieus..... IPC common stock 0 -- --
IXnet common stock 14,000(5) 0 *
David Y. Howe........... IPC common stock 6,664(6) 0 *
IXnet common stock 0 -- --
Richard P. Kleinknecht.. IPC common stock 877,344(7) 115,440 9.8%
IXnet common stock 0 -- --
William Lavery.......... IPC common stock 46,176 46,176 *
IXnet common stock 750(8) -- *
Robert J. McInerney..... IPC common stock 0 -- --
IXnet common stock 2,500 0 *
Richard W. Smith........ IPC common stock 381,904(9) 0 4.32%
IXnet common stock 0 -- --
Gerald E. Starr......... IPC common stock 92,362 82,829 1.04%
IXnet common stock 3,000(10) 0 *
David A. Walsh.......... IPC common stock 446,798(11) 175,181 4.96%
IXnet common stock 0 -- --
John Wayt, III.......... IPC common stock 15,395 0 *
IXnet common stock 100 0 *
Peter A. Woog........... IPC common stock 47,489(12) 0 *
IXnet common stock 500(13) 0 *
All executive officers
and directors as a
group (14 persons)..... IPC common stock 2,041,024 425,098 23.10%
IXnet common stock 20,950 -- 3.49%
</TABLE>
- --------
* Less than 1%
(1) Based upon information supplied by officers and directors and by filings
under Sections 13 and 16 of the Securities Exchange Act of 1934.
(2) The figures in this column represent the number of shares which the
individual and group could have acquired upon exercise of stock options
granted under the IPC Stock Incentive Plan and the IXnet, Inc. 1999 Stock
Option Plan that, as of March 10, 2000, were exercisable or were expected
to become exercisable within 60 days. Any options which might become
exercisable upon consummation of the merger are not included.
(3) For IPC, percentage of ownership is based on 8,838,855 shares of IPC
common stock outstanding on March 10, 2000. For IXnet, percentage of
ownership is based on 51,148,867 shares of IXnet common
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stock outstanding on March 10, 2000. The percentages also include, in the
case of each individual and the group, the additional number of shares
listed in the fourth column.
(4) Cable Systems Holding LLC, Richard M. Cashin, Jr., David Y. Howe, Allegra
Capital Partners III, L.P., Richard P. Kleinknecht, David A. Walsh,
Anthony M. Servidio, Charles F. Auster, IPC and certain other persons are
parties to an investors agreement which contains provisions concerning
the voting and transfer of shares of common stock of IPC. The investors
agreement will be terminated upon the consummation of the mergers. Mr.
Cashin may be deemed to have shared voting power over his shares with
Cable Systems Holding under the investors agreement. The number of shares
shown on the table does not include 6,113,801 shares owned, as of March
10, 2000, by other signatories to the investors agreement. As of March
10, 2000, the persons who have entered into the investors agreement may
be deemed to beneficially own as a group 6,310,299 shares, or 71.39% of
the outstanding shares, of IPC's common stock under the investors
agreement. Mr. Cashin is a member of Cable Systems Holding and a director
of IPC and IXnet.
(5) Includes 5,000 shares owned jointly with spouse and 2,000 shares owned by
his children. Mr. Demitrieus has shared voting and investment power with
regard to all 14,000 shares.
(6) Mr. Howe may be deemed to have shared voting power over his shares with
Cable Systems Holding under the investors agreement. The number shown in
the table does not include 6,303,635 shares owned, as of March 10, 2000,
by other signatories to the investors agreement. Mr. Howe is a member of
Cable Systems Holding and a director of IPC.
(7) Includes 761,904 shares owned directly by Richard P. Kleinknecht and
115,440 shares that could be acquired upon the exercise of stock options.
That number does not include 5,548,395 shares owned, as of March 10,
2000, by other signatories to the investors agreement. Mr. Kleinknecht
may also be deemed to have shared voting power over his shares with
Global Crossing under the consent and voting agreement. Mr. Kleinknecht
is Vice-Chairman of IPC and a director of IPC.
(8) Includes 750 shares held by minor children over which Mr. Lavery has
shared voting and investment power.
(9) Includes 381,904 shares beneficially owned by Allegra of which Mr. Smith
is a general partner. Mr. Smith has shared voting and investment power
over all 381,904 shares owned by Allegra. That number does not include
5,928,395 shares owned as of March 10, 2000, by other signatories to the
investors agreement. Allegra may also be deemed to have shared voting
power over its shares with Global Crossing under the consent and voting
agreement. Mr. Smith is Chairman of the board of directors of IXnet and a
general partner of Allegra.
(10) Held in trust for the benefit of minor children. Mr. Starr has shared
voting and investment power with respect to all of these shares.
(11) That number does not include 6,038,662 shares owned, as of March 10,
2000, by other signatories to the investors agreement. Mr. Walsh is
President and a director of IXnet and IPC.
(12) Includes 1,000 shares over which Mr. Woog has sole investment and voting
power and 46,489 shares over which Mr. Woog has shared investment and
voting power. The 46,489 shares over which Mr. Woog has shared power
include 3,000 shares held jointly by Peter A. Woog and Helene S. Woog and
43,489 shares held in the name of the Woog Family Limited Partnership.
(13) Mr. Woog has shared voting and investment power over all 250 shares owned
by his children.
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5% Stockholders
The following table presents certain information, as of the dates indicated
in the footnotes below, with respect to the beneficial ownership of IPC common
stock by each person known by IPC to own beneficially more than 5% of its
outstanding shares of common stock, other than directors and executive
officers. Unless indicated otherwise, each person listed has sole voting and
investment power over the shares beneficially owned.
<TABLE>
<CAPTION>
Amount and Nature of Approximate Percent
Name of Beneficial Owner Beneficial Ownership of Class (1)
------------------------ -------------------- -------------------
<S> <C> <C>
Cable Systems Holding, LLC........... 4,686,985(2) 53.03%
206 East Forest Hills Drive
Phoenix, Arizona 85022
Chesapeake Partners Management Co.,
Inc................................. 535,000(1) 6.06%
Chesapeake Partners Limited
Partnership......................... 498,000(3) 5.64%
1829 Reisterstown Road
Suite 220
Baltimore, Maryland 21208
</TABLE>
- --------
(1) Percentage of ownership is based on 8,838,855 shares of common stock
outstanding on March 10, 2000.
(2) Based on Amendment No. 7 to Schedule 13D filed on March 13, 2000. Includes
1,107,311 shares owned by certain members of Cable Systems Holding,
including Richard M. Cashin, Jr. and David Y. Howe, as to which Cable
Systems Holding may be deemed to have shared voting power. Cable Systems
Holding may be deemed to have shared voting power over all of its shares
with Global Crossing under the consent and voting agreement. The shares
beneficially owned by Cable Systems Holding may also be deemed to be
indirectly beneficially owned by Citigroup, Inc., Citigroup Holdings
Company, Citicorp, Citibank N.A. and Citicorp Venture Capital, Ltd. through
their indirect ownership of units in Cable Systems Holding.
(3) Based on Amendment No. 2 to Schedule 13G filed on July 2, 1999.
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STOCK OWNERSHIP OF MANAGEMENT, DIRECTORS AND 5% STOCKHOLDERS OF IXNET
Management and Directors
The following table presents, as of March 10, 2000, certain information
regarding the beneficial ownership of IXnet common stock, IPC common stock and
the stock of any of IXnet's subsidiaries by: (1) each IXnet director; (2) (a)
IXnet's Chief Executive Officer and (b) each of the other four most highly
compensated executive officers of IXnet who were serving as executive officers
at the end of the last completed fiscal year and whose aggregate salary plus
bonus for the fiscal year ended September 30, 1999 was at least $100,000; and
(3) all executive officers and directors as a group. To IXnet's knowledge, each
shareholder indicated below has sole voting and investment power with respect
to the shares shown unless otherwise noted. Amounts appearing on the tables
below include (1) all shares of common stock outstanding as of March 10, 2000,
(2) all shares of common stock issuable upon the exercise of options within 60
days of March 10, 2000, (3) all shares of common stock issuable upon the
exercise of warrants within 60 days of March 10, 2000.
<TABLE>
<CAPTION>
Amount and
Nature of Exercisable Stock
Title and Beneficial Options Included in Approximate
Class of Security Ownership(1) the Third Column (2) Percent of Class (3)
Name of Beneficial Owner ------------------ ------------ -------------------- --------------------
<S> <C> <C> <C> <C>
Charles F. Auster....... IXnet common stock 4,400(4) 0 *
IPC common stock 115,968(5) 82,829 1.3%
Richard M. Cashin,
Jr. ................... IXnet common stock 0 -- --
IPC common stock 196,498(6) 0 2.22%
Douglas T. Hickey....... IXnet common stock 0 -- --
IPC common stock 0 -- --
Douglas J. Mello........ IXnet common stock 0 -- --
IPC common stock 500 0 *
Paul Pluschkell, Jr. ... IXnet common stock 0 -- --
IPC common stock 9,250 9,250 *
Anthony M. Servidio..... IXnet common stock 1,300(7) 0 *
IPC common stock 174,730(8) 0 1.98%
John T. Sharkey......... IXnet common stock 40,000 0 *
IPC common stock 0 -- --
Richard W. Smith........ IXnet common stock 0 -- --
IPC common stock 381,904(9) 0 4.33%
Gerald E. Starr......... IXnet common stock 3,000(10) 0 *
IPC common stock 92,352 82,829 1.04%
David A. Walsh.......... IXnet common stock 0 -- --
IPC common stock 446,798(11) 175,181 4.96%
Peter A. Woog........... IXnet common stock 250(12) 0 *
IPC common stock 47,489(13) 0 *
All executive officers
and directors as a
group (20 persons)..... IXnet common stock 62,800 0 *
IPC common stock 1,540,672 483,469 17.43%
</TABLE>
- --------
(1) Based upon information supplied by officers and directors and filings
under Sections 13 and 16 of the Exchange Act.
(2) The figures in this column represent the number of shares which the
individual and group could have acquired upon exercise of stock options
granted under the IXnet Stock Option Plan or the IPC Stock Incentive Plan
that, as of March 10, 2000, were exercisable or were expected to become
exercisable within 60 days. Any options which might become exercisable
upon consummation of the merger are not included.
(3) For IXnet, ownership is based on 51,148,867 shares of common stock
outstanding on March 10, 2000. For IPC, ownership is based on 8,838,855
shares of IPC common stock outstanding on March 10, 2000.
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The percentages also include, in the case of each individual and the
group, the additional number of shares listed in the fourth column.
(4) Includes 3,000 shares owned by spouse and 1,000 shares owned by minor
children.
(5) Includes 3,000 shares owned by Mr. Auster and his spouse and 300 shares
owned by his minor children. Cable Systems Holding, Richard M. Cashin,
Jr., David Y. Howe, Allegra Capital Partners III, L.P., Richard P.
Kleinknecht, David A. Walsh, Anthony M. Servidio, Charles F. Auster, IPC
and certain other persons are parties to an investors agreement which
contains provisions concerning the voting and transfer of shares of
common stock of IPC. The investors agreement will be terminated upon the
consummation of the mergers. The number of shares shown on the table does
not include 6,277,160 shares owned, as of March 10, 2000, by other
signatories to the investors agreement. As of March 10, 2000, the persons
who have entered into the investors agreement may be deemed to
beneficially own as a group 6,310,299 shares, or 71.39% of the
outstanding shares, of IPC's common stock pursuant to the investors
agreement.
(6) Mr. Cashin may be deemed to have shared voting power over his shares with
Cable Systems Holding under the investors agreement. The number of shares
shown on the table does not include 6,113,801 shares owned, as of March
10, 2000, by other signatories to the investors agreement.
(7) Includes 1,300 shares owned by his children.
(8) The number of shares shown on the table does not include 6,135,569 shares
owned, as of March 10, 2000, by other signatories to the investors
agreement.
(9) Includes 381,904 shares beneficially owned by Allegra Capital Partners
III, L.P., of which Mr. Smith is a general partner. Mr. Smith has shared
voting and investment power over all 381,904 shares owned by Allegra. The
number of shares shown on the table does not include 5,928,395 shares
owned as of March 10, 2000 by other signatories of the investors
agreement. Allegra may also be deemed to have shared voting power over
its shares with Global Crossing under the consent and voting agreement.
(10) The number of shares shown on the table are held in trust for the benefit
of minor children. Mr. Starr has shared voting and investment power with
respect to all of these shares.
(11) That number does not include 6,038,662 shares owned, as of March 10, 2000
by other signatories to the investors agreement.
(12) Mr. Woog has shared voting and investment power over all 250 shares owned
by his children.
(13) Includes 1,000 shares over which Mr. Woog has sole investment and voting
power and 46,489 shares over which Mr. Woog has shared investment and
voting power. The 46,489 shares over which Mr. Woog has shared investment
and voting power include 3,000 shares held jointly by Peter A. Woog and
Helene S. Woog and 43,489 shares held in the name of the Woog Family
Limited Partnership.
5% Stockholders
The following table presents certain information, as of March 10, 2000,
with respect to the beneficial ownership of IXnet common stock by each person
known by to own beneficially more than 5% of its outstanding shares of common
stock. Unless indicated otherwise, each person listed has sole voting and
investment power over the shares beneficially owned.
<TABLE>
<CAPTION>
Amount and Nature of
Name and Address of Beneficial Approximate Percent
Beneficial Owner Ownership of Class (1)
------------------- -------------------- -------------------
<S> <C> <C>
IPC Communications, Inc............... 43,100,000 84.3%
Wall Street Plaza
88 Pine Street
15th Floor
New York, New York 10005
</TABLE>
- --------
(1) Percentage of ownership is based on 51,148,867 shares of common stock
outstanding on March 10, 2000.
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<PAGE>
DESCRIPTION OF GLOBAL CROSSING CAPITAL STOCK
The following summary is a description of the material terms of the Global
Crossing common stock, which does not purport to be complete and is subject in
all respects to the applicable provisions of Bermuda law and of the constituent
documents of Global Crossing and each of its subsidiaries. The Global Crossing
memorandum of association and bye-laws are filed as exhibits to the
registration statement of which this document is a part.
General
Under its memorandum of association, Global Crossing's authorized share
capital is $30,200,000, divided into:
. 3,000,000,000 shares of common stock, par value $0.01 per share; and
. 20,000,000 shares of preferred stock, par value $0.01 per share.
Voting and transfer restrictions
Voting Restriction. Each share of Global Crossing common stock has one vote,
except that if any shareholder owns, directly, indirectly or constructively
under Section 958 of the Internal Revenue Code or beneficially directly or
indirectly as a result of the possession of sole or shared voting power within
the meaning of Section 13(d) of the Securities Exchange Act of 1934 and the
rules and regulations promulgated under that act, more than 9.5%, or, in the
case of Canadian Imperial Bank of Commerce and its affiliates, collectively,
more than 20%, of the votes cast in connection with any matter which Global
Crossing shareholders are voting on, the number of votes of that shareholder
will be limited to 9.5%, or, in the case of Canadian Imperial Bank of Commerce
and its affiliates, collectively, to 20% of those votes cast, based on a
formula contained in the Global Crossing bye-laws. The additional votes that
could be cast by that shareholder but for the restrictions on the voting rights
will be allocated to the other shareholders pro rata, based on their number of
shares of common stock. Shareholders that have been allocated additional votes
may not exceed the voting limitations as a result of that allocation.
Transfer restriction. The Global Crossing bye-laws also provide that any
transfer of shares of common stock or any interest in those shares that results
in a shareholder, other than Pacific Capital Group, GKW Unified Holdings,
Canadian Imperial Bank of Commerce, Continental Casualty Company or MRCo or
their affiliates or some of their lenders, beneficially owning within the
meaning of Section 13(d) of the Exchange Act, directly or indirectly, 5% of the
outstanding shares of the Global Crossing common stock, if that shareholder is
a natural person, or otherwise 9.5% of the outstanding shares of the Global
Crossing common stock, without approval of a majority of the members of the
board of directors and of shareholders representing at least a majority of the
total votes at the shareholder meeting called to approve that transfer will not
be registered in the share registry and will be void and of no effect.
Amendments to the voting reallocation and transfer restriction provisions of
the Global Crossing bye-laws require the approval of the Global Crossing board
of directors and shareholders holding at least 75% of the votes of all
outstanding shares of common stock. In the event of any amendment to these bye-
laws, under some circumstances, Global Crossing has the obligation to indemnify
and hold harmless any shareholder who, as a result of that amendment, becomes
subject to treatment as a United States shareholder for purposes of Section 951
and subsequent sections of the Internal Revenue Code from and against all
losses, costs, damages, liabilities and expenses directly or indirectly arising
out of that treatment.
These voting and transfer restrictions could make it difficult for any
person or group of persons acting in concert, other than some existing owners,
to acquire control of Global Crossing.
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Distributions
Holders of common stock are treated equally with respect to all
distributions to Global Crossing's shareholders.
Global Crossing registration rights agreement
Pacific Capital Group, GKW Unified Holdings, affiliates of Canadian Imperial
Bank of Commerce, Continental Casualty Company, MRCo, Global Crossing and some
other Global Crossing shareholders, including some Global Crossing officers and
directors and their affiliates, have entered into a stockholders agreement and
a registration rights agreement, each incorporated by reference as an exhibit
to the registration statement of which this document is a part.
Under the registration rights agreement, Global Crossing shareholders who
are parties to that agreement and a number of their transferees have demand and
piggyback registration rights and will receive indemnification and, in some
circumstances, reimbursement for expenses from Global Crossing in connection
with applicable registration.
Transfer agent
The transfer agent for the shares of Global Crossing common stock is
EquiServe.
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SOME DIFFERENCES BETWEEN RIGHTS OF STOCKHOLDERS OF IPC AND IXNET
AND RIGHTS OF SHAREHOLDERS OF GLOBAL CROSSING
Upon completion of the mergers, holders of IPC and IXnet common stock will
be entitled to receive Global Crossing common stock. Global Crossing is a
company formed under the laws of Bermuda, and each of IPC and IXnet is a
corporation incorporated under the laws of the State of Delaware. The Companies
Act 1981 is the statute that governs Bermuda companies and the Delaware General
Corporation Law is the statute that governs Delaware corporations.
The following is a summary of some material differences among the rights of
holders of IPC, IXnet and Global Crossing common stock. These differences arise
from differences between the corporate laws of the State of Delaware and
Bermuda as well as differences among the companies' governing documents,
including certificates of incorporation, memorandum of association and by-laws.
This discussion is not a complete statement of all differences among the rights
of holders of IPC, IXnet and Global Crossing common stock. This summary
discusses material differences between the laws of Bermuda and those of the
State of Delaware and material differences among the IPC and IXnet certificates
of incorporation and by-laws and the Global Crossing memorandum of association
and bye-laws. This summary is qualified by the full text of each document, the
Companies Act and the Delaware General Corporation Law. For information as to
how to get those documents, see "Where You Can Find More Information" beginning
on page 135.
In reading the following section, please note that, throughout this section
and this document, we refer to holders of common stock of Global Crossing as
"shareholders" and to holders of common stock of IPC and IXnet as
"stockholders". These terms are consistent with the terms used in the Companies
Act and the Delaware General Corporation Law.
Size and classification of the board of directors
Global Crossing. Bermuda law permits a company's board of directors to be
divided into classes with staggered terms of office. The Global Crossing bye-
laws provide for three classes of directors with staggered terms. The Global
Crossing bye-laws mandate that Global Crossing have not less than 11 directors
and not more than 20. The Global Crossing board of directors currently consists
of 19 directors.
IPC and IXnet. The Delaware General Corporation Law provides that a
company's board of directors may be divided into classes with staggered terms
of offices. Neither IPC's nor IXnet's certificate of incorporation provides for
a staggered board of directors. The IPC certificate of incorporation states
that the board of directors will have not fewer than two and no more than nine
directors; the IXnet certificate of incorporation states that the board of
directors will have not fewer than three and no more than 11 directors.
Removal of directors; vacancies; alternate directors
Global Crossing. The Global Crossing bye-laws provide that shareholders may
in a special meeting called for that purpose remove a director, as long as
notice of the meeting is given to the director not less than 14 days before the
meeting and the director is entitled to be heard at the meeting. Any vacancy
created by the removal of a director at a special meeting may be filled at the
meeting by the election of another director or, in the absence of an election,
by the board of directors. The Global Crossing bye-laws also provide that any
director may be removed from office (A) upon resolution of the board, if the
director or the director's alternate was absent from board meetings for more
than six consecutive months without permission of the board or (B) if, after
the initial term, that is, the term for any director commencing on August 13,
1998, no less than three-quarters of the directors request the director to
resign.
Under Global Crossing's bye-laws, any director may appoint any other
director or any other person approved by resolution of the Global Crossing
board of directors to act as an alternate director to represent that director.
A director may remove an alternate director appointed by that director.
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IPC and IXnet. The Delaware General Corporation Law allows directors of a
company to be removed from office with or without cause by the vote of the
holders of a majority of the shares entitled to vote in any election of
directors, except (1) in the case of a corporation with a classified board
serving staggered terms of office, in which case that removal can be effected
only for cause, unless the company's certificate of incorporation provides
otherwise or (2) in the case of companies with cumulative voting, to which
different provisions apply. Both the IPC and IXnet certificates of
incorporation do not provide otherwise nor do they provide for cumulative
voting.
The Delaware General Corporation Law allows a vacancy on the board of
directors to be filled by the remaining directors in office, although less than
a quorum, or by a sole remaining director unless the company's certificate of
incorporation or by-laws state otherwise. Both IPC's and IXnet's by-laws
provide that stockholders will fill vacancies on the board of directors, caused
by a director's removal, except that if a director was elected by stockholders
voting as a separate class, then only those stockholders may fill that vacancy.
Vacancies which are not filled at the stockholders meeting at which the
director was removed and all other vacancies which are not the result of a
removal may be filled by the remaining directors.
Meeting of shareholders/stockholders
Global Crossing. Under Bermuda law, an annual meting must be held once every
calendar year. A special meeting of shareholders may be convened by a majority
of the directors at any time and must be convened upon the request of
shareholders holding not less than one-tenth of the paid up capital of the
company carrying the right to vote at general meetings. In addition, under the
Global Crossing bye-laws, a special meeting may be called by the chairman or
co-chairman of the board of directors at any time.
IPC and IXnet. Under the Delaware General Corporation Law, stockholders
generally do not have the right to call meetings of stockholders unless that
right is granted in the certificate of incorporation or by-laws. However, if a
company fails to hold its annual meeting within a period of 30 days after the
date designated for that meeting or if no date has been designated for a period
of 13 months after the latest to occur of the organization of the corporation,
its last annual meeting or after the last action by written consent to elect
directors in lieu of an annual meeting, the Delaware Court of Chancery may
order a meeting to be held upon the application of a stockholder or director.
However, Delaware law does not provide for a stockholder to call such a meeting
other than by application to the Delaware Court of Chancery. The IPC and IXnet
by-laws provide that the annual meeting may be called only by the board of
directors, and a special meeting may be called only by the board of directors,
the chairman of the board or any two of the directors then in office.
Action by written consent and resolutions of shareholders/stockholders
Global Crossing. Action by written consent of shareholders is permitted in
Bermuda, except for the purpose of removing an auditor or director before the
expiration of his or her term of office. A written resolution must be signed by
all shareholders entitled to attend and vote at a meeting. In addition, the
Global Crossing bye-laws provide that, unless a greater percentage is required
by the Companies Act or by specific bye-law provisions, any matter proposed for
consideration at any general meeting requires the affirmative vote of a
majority of the votes cast at the meeting.
IPC and IXnet. The Delaware General Corporation Law provides that, unless a
company's certificate of incorporation provides otherwise, stockholders may
take any action without a meeting by written consent if the consenting
stockholders represent at least the minimum number of votes that would be
necessary to approve the matter if it were voted on at a stockholders meeting
at which all shares entitled to vote were present and voted. The IPC and IXnet
certificates of incorporation do not provide otherwise.
Vote required for extraordinary corporate transactions
Global Crossing. Bermuda law permits an amalgamation between two or more
Bermuda companies or between one or more Bermuda exempted companies and one or
more foreign companies subject, unless the
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bye-laws otherwise provide, to obtaining a majority vote of three-fourths of
the shareholders of each company present and voting in person or by proxy at a
meeting called for that purpose at which the quorum will be two persons holding
more than one-third of the issued shares. Short form amalgamations are
permitted between a holding company and one or more of its wholly owned
subsidiary companies or between two or more wholly owned subsidiary companies
of the same holding company subject to approval of the amalgamation by a
resolution of the directors of each amalgamating company. The Global Crossing
bye-laws provide that an amalgamation requires the approval of a simple
majority of votes cast at any shareholders' meeting, subject to specified
quorum requirements.
IPC and IXnet. Under the Delaware General Corporation Law, approval of
mergers and consolidations or sales, leases or exchanges of all or
substantially all of the property or assets of a company require the approval
of the holders of a majority of the outstanding shares entitled to vote, except
that no vote of stockholders of the company surviving a merger is necessary if:
. the merger does not amend the certificate of incorporation of that
company;
. each outstanding share of stock immediately before the effective date of
the merger is to be an identical outstanding or treasury share after the
merger; and
. either no common shares of the company and no securities or obligations
convertible into common shares are to be issued in the merger or common
shares to be issued in the merger, or the shares of common stock to be
issued in the merger plus shares of common stock initially issuable on
conversion of other securities issued in the merger does not exceed 20%
of the shares of common stock of the company outstanding immediately
before the effective date of the merger.
Interested director transactions
Global Crossing. The Global Crossing bye-laws provide that a director may be
a party to or otherwise interested in any transaction or arrangement with
Global Crossing or in which Global Crossing is otherwise interested. So long as
the director declares the nature of his or her interest in writing as required
by the bye-laws of the Companies Act, he or she will not be accountable to
Global Crossing for any benefit which he or she derives from a similar
transaction or arrangement. For the purposes of the bye-laws, a director is
deemed to have an interest in a transaction or arrangement with Global Crossing
if he or she is the holder of, or is beneficially interested in, 5% or more of
any class of stock of a company, or of the voting rights available to
shareholders of a company, with which Global Crossing is proposing to enter
into a transaction or arrangement.
IPC and IXnet. Under the Delaware General Corporation law, no contract or
transaction between a company and one or more of its directors or officers, or
between a company or another entity in which one or more of its directors or
officers has a financial interest, will be void or voidable solely for that
reason or solely because that director or officer is present at or participates
in the meeting which authorizes the contract or solely because that director's
votes are counted for that purpose, if:
. the material facts of the director's relationship or interest and the
material facts of the contract or transaction are disclosed or known to
the board of directors or a committee of the board, which authorizes the
contract or transaction in good faith by the affirmative vote of a
majority of the disinterested directors, even though the disinterested
directors are less than a quorum;
. the material facts of the director's relationship and interest and the
material facts of the contract or transaction are known to the
stockholders and the contract is specifically approved in good faith by
the stockholders; or
. the contract or transaction is fair to the corporation at the time it is
authorized.
Common or interested directors may be counted in determining the presence of
a quorum at a meeting which authorizes the contract or the transaction.
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A corporation may make loans to, guarantee the obligations of or otherwise
assist its officers or other employees and those of a subsidiary, including
directors who are also officers or employees of the corporation or a
subsidiary, when that action, in the judgment of the directors, may reasonably
be expected to benefit the corporation.
Transfer restrictions
Global Crossing. The Global Crossing bye-laws also provide that transfers to
a shareholder that result in the shareholder beneficially owning more than a
specified percentage of Global Crossing stock will not be registered in the
share register of Global Crossing and will be void and of no effect unless the
transfer is duly approved. See "Description of Global Crossing Capital Stock--
Voting and transfer restrictions" on page 122.
IPC and IXnet. There are no similar restrictions on transfers of shares
under the Delaware General Corporation Law or IPC's or IXnet's certificates of
incorporation or by-laws.
Business combinations with interested stockholders
Global Crossing. The Companies Act does not contain any business combination
statute similar to the Delaware statute described below.
IPC and IXnet. Generally, Section 203 of the Delaware General Corporation
Law prohibits a publicly held company from engaging in a business combination
with an interested stockholder for a period of three years after the time the
person became an interested stockholder, unless:
. before that time, the board of directors of the company approved either
the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the outstanding voting stock, with specified exceptions; or
. the business combination is approved by the board of directors and by
the affirmative vote, and not by written consent, of at least 66 2/3% of
the outstanding voting shares that are not owned by the interested
stockholder.
A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates or
associates, owns or, within three years, did own 15% or more of the company's
voting stock.
Under the Delaware General Corporation Law, a corporation may elect not to
be governed by Section 203 of the Delaware General Corporation Law in either
its certificate of incorporation or its by-laws. IPC, in its by-laws, and
IXnet, in its certificate of incorporation, have elected not to be governed by
Section 203 of the Delaware General Corporation Law.
Shareholder/stockholder suits
Global Crossing. The Bermuda courts would permit a shareholder to begin a
derivative action in the name of the company to remedy a wrong done to the
company only (1) where the act complained of is alleged to be beyond the
corporate power of the company or illegal, (2) where the act complained of is
alleged to constitute fraud against the minority shareholders by those
controlling the company, as long as the majority shareholders have used their
controlling position to prevent the company from taking action against the
wrongdoers, (3) where an act requires approval by a greater percentage of the
company's shareholders than actually approved it or (4) where there is an
absolute necessity to waive the general rule that a shareholder may not bring
such a derivative action to prevent a violation of the company's memorandum of
association or bye-laws.
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There is also a statutory remedy under Section 111 of the Companies Act,
which provides that a shareholder may seek redress of the court as long as he
or she can establish that the company's affairs are being conducted, or have
been conducted, in a manner oppressive or prejudicial to the interests of some
of the shareholders, including himself or herself.
IPC and IXnet. Derivative actions may be brought in Delaware by a
stockholder on behalf of, and for the benefit of, the company. The Delaware
General Corporation Law provides that a stockholder must state in the complaint
that he or she was a stockholder of the company at the time of the transaction
of which he or she complains or that he or she received the stock by operation
of law from a person who was a stockholder at the time of the transaction. A
stockholder may not sue derivatively unless he or she first makes demand on the
company that it bring suit and that demand has been refused, unless it is shown
that demand would have been futile.
Dissenters' rights
Global Crossing. Under Bermuda law, a dissenting shareholder of a company
participating in an amalgamation, other than an amalgamation between a company
and its wholly-owned subsidiary or between two or more wholly-owned
subsidiaries of the same holding company, may, in specified circumstances,
receive cash or other consideration in the amount of the fair value of the
shareholder's shares as determined by a court, instead of the consideration he
or she would otherwise receive in that amalgamation.
IPC and IXnet. Stockholders are not entitled to demand appraisal rights in
the case of a sale, lease, exchange or other disposition by a company of all or
substantially all of its property or assets. Stockholders are entitled to
demand appraisal of their shares in the case of mergers or consolidations,
except when:
. they are stockholders of the surviving corporation and the merger did
not require their approval under the Delaware General Corporation Law;
. the company's shares that they own are listed either on a national
securities exchange or on the Nasdaq National Market; or
. the company's shares are held of record by more than 2,000 stockholders.
However, appraisal rights are available in any of the three cases listed
above if the stockholders are required by the terms of the merger or
consolidation to accept consideration other than:
. shares of stock of the company surviving or resulting from the merger or
consolidation;
. shares of stock of another company which are listed either on a national
securities exchange or on the Nasdaq National Market or held of record
by more than 2,000 stockholders;
. cash in lieu of fractional shares; or
. any combination of the above three.
In addition, under the Delaware General Corporation Law, a company may
provide in its certificate of incorporation that appraisal rights are available
as a result of:
. an amendment to its certificate of incorporation;
. any merger or consolidation in which the corporation is a "constituent
corporation"; or
. the sale of all or substantially all of the assets of the corporation.
The IPC and IXnet certificates of incorporation do not provide for appraisal
rights in any of the three cases listed directly above.
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Dividends
Global Crossing. The Global Crossing bye-laws provide that the board of
directors may from time to time declare dividends or distributions out of
contributed surplus to be paid to the shareholders according to their rights
and interest including any interim dividends that appear to the board of
directors to be justified. The board of directors must be satisfied on
reasonable grounds that at the time when the dividends are declared and at the
time when the dividends are paid, Global Crossing is, and would after the
payment be, able to pay its debts as they fall due and that the realizable
value of Global Crossing's assets would not be less than the aggregate of its
liabilities and its issued share capital and share premium accounts.
IPC and IXnet. The Delaware General Corporation Law generally allows
dividends to be paid out of surplus of the company and, if there is no
surplus, out of the net profit of the company for the current fiscal year
and/or the previous fiscal year. No dividends may be paid if they would result
in the capital of the company being less than the capital represented by the
shares of preferred stock of the company. Surplus is defined as the excess of
the net assets over capital, as such capital may be adjusted by the board of
directors.
Voting
Global Crossing. The Global Crossing bye-laws contain restrictions on
voting shares if a holder owns more than a specified percentage of the voting
power. See "Description of Global Crossing Capital Stock--Voting and transfer
restrictions" on page 122.
IPC and IXnet. The IPC and IXnet certificates of incorporation do not
contain any similar restriction.
Preemptive rights
Global Crossing. Bermuda law does not require that preemptive rights be
provided for in the bye-laws of the company. Preemptive rights may exist by
contractual arrangement or under the terms of issue of the shares. The Global
Crossing bye-laws do no contain any provision concerning preemptive rights,
nor has Global Crossing entered into any agreement or arrangement granting
preemptive rights.
IPC and IXnet. Under the Delaware General Corporation Law, no stockholder
has a preemptive right to subscribe to additional issues of a company's stock
unless, and to the extent that, that right is expressly granted to the
stockholders in the company's certificate of incorporation. Neither IPC's nor
IXnet's certificates of incorporation provide for preemptive rights.
Amendments to corporate governance documents
Global Crossing. Amendments to the memorandum of association of a Bermuda
company must be submitted to a general meeting of the shareholders and will be
effective only to the extent approved by the shareholders at that meeting and,
in respect of certain amendments to a company's objects, by the Bermuda
Minister of Finance. The Global Crossing bye-laws provide that the bye-laws
may be amended by resolution of the board of directors, subject to approval by
shareholder resolution at a general meeting. In some circumstances, the vote
or consent of the holders of 75% of the outstanding shares of capital stock of
Global Crossing and the approval of the majority of the Global Crossing board
of directors are required.
IPC and IXnet. Under the Delaware General Corporation Law, unless a higher
vote is required in the certificate of incorporation, the certificate of
incorporation may be amended if:
. the board of directors includes the proposed amendment in a resolution,
declares the advisability of the amendment and directs that it be
submitted to a vote at the meeting of stockholders; and
. the holders of at least a majority of the shares of stock entitled to
vote on the amendment approve it.
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If the holders of the outstanding shares of a class are entitled to vote as
a class upon a proposed amendment, the holders of a majority of the outstanding
shares of that class must also vote in favor of the amendment.
The IPC and IXnet certificates of incorporation provide that they can only
be amended by the majority vote of their respective stockholders and respective
directors then in office. Provisions of the IPC and IXnet certificates of
incorporation require the approval of holders of 70% of the outstanding stock
and a majority of the directors in order to amend that provision.
Under the Delaware General Corporation Law, the board of directors may amend
by-laws if so authorized in the certificate of incorporation. The stockholders
of a Delaware company also have the power to amend by-laws. Both IPC's and
IXnet's certificates of incorporation authorize the board of directors to
adopt, amend or repeal their by-laws.
Limitations on directors' liability
Global Crossing. Under Bermuda law, a director must observe the statutory
duty of care which requires the director to act honestly and in good faith with
a view to the best interest of the company and exercise the care, diligence and
skill that a reasonably prudent person would exercise in comparable
circumstances. Directors are also subject to common law fiduciary duties which
require directors to act in what they reasonably believe to be the best
interest of the company and for a proper purpose. Bermuda law renders void any
provision in the bye-laws or any contract between a company and any director
exempting him or her from or indemnifying him or her against any liability in
respect of any fraud or dishonesty of which he or she may be guilty in relation
to the company. The Global Crossing bye-laws contain a number of provisions
limiting the liability of directors as permitted under Bermuda law.
The Global Crossing bye-laws provide that each shareholder agrees to waive
any claim or right of action he or she may have, whether individually or by or
in the right of Global Crossing, against any director of Global Crossing on
account of any action taken by any director, or the failure of any director to
take any action in the performance of his or her duties with or for Global
Crossing. This waiver, however, does not apply to any claims or rights of
action arising out of the fraud or dishonesty of a director.
IPC and IXnet. The Delaware General Corporation Law permits the adoption of
a provision in the certificate of incorporation limiting or eliminating the
monetary liability of a director to a corporation or its stockholders by reason
of a director's breach of the fiduciary duty of care. However, the law does not
permit any limitation of the liability of a director for:
. breaching the duty of loyalty to the corporation or its stockholders;
. failing to act in good faith;
. engaging in intentional misconduct or a known violation of law;
. obtaining an improper personal benefit from the corporation; or
. paying a dividend or approving a stock repurchase that was illegal under
the Delaware law.
The certificates of incorporation of both IPC and IXnet limit the monetary
liability of a director to the fullest extent permitted by Delaware law.
Rights of inspection
Global Crossing. Bermuda law provides the public with a right of inspection
of a Bermuda company's public documents at the office of the Registrar of
Companies in Bermuda and provides a Bermuda company's shareholders with a right
of inspection of the company's bye-laws, minutes of general shareholder
meetings, and audited financial statements. The register of shareholders is
also open to inspection by shareholders free of
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charge and, upon payment of a small fee, by any other person. A Bermuda company
is required to maintain its share register in Bermuda, but if it is a public
company, it may establish a branch register outside Bermuda. A Bermuda company
is required to keep at its registered office a register of its directors and
officers which is open for inspection by members of the public without charge.
Bermuda law does not, however, provide a general right for shareholders to
inspect or obtain copies of any other corporate records.
IPC and IXnet. Under Delaware law, any stockholder of record, in person or
by attorney or other agent, upon written demand under oath stating the purpose
for his or her request, has the right during a company's usual hours for
business to inspect, for any proper purpose, the company's stock ledger, a list
of its stockholders and its other books and records and to make copies or
extracts of those items. A proper purpose means a purpose reasonably related to
that person's interest as a stockholder.
Repurchase of untraced shares
Global Crossing. The Global Crossing bye-laws provide that Global Crossing
will be entitled to sell at the best price reasonably obtainable, or if the
shares are listed on a stock exchange, to purchase at the trading price as of
the date of purchase, the shares of a shareholder or the shares that a person
is entitled to as a result of death, bankruptcy or otherwise by operation of
law if:
. during a period of 12 years, at least three dividends have been declared
and all dividends that have been sent in the manner authorized by the
bye-laws remained uncashed;
. after twelve years, advertisements are placed both in a national daily
newspaper and a newspaper circulating in the area of the last known
address of that shareholder or other person giving notice of Global
Crossing's intention to purchase or sell the shares;
. for three months after the advertisements are placed, no information
regarding that shareholder is received; and
. if the shares are listed on a stock exchange, notice is given to the
stock exchange of Global Crossing's intention to sell or purchase those
shares before the publication of the advertisements.
Global Crossing will hold the proceeds of any such sale for six years,
during which period the applicable shareholder will be a creditor of Global
Crossing and will be entitled, upon request, to payment of the proceeds from
the sale of those shares without interest. After the six-year period ends, any
unclaimed proceeds will become the property of Global Crossing.
IPC and IXnet. The IPC and IXnet by-laws do not contain any provision
regarding untraced shares.
Indemnification of officers and directors
Global Crossing. Under Bermuda law, a company is permitted to indemnify any
officer or director out of the funds of the company against (1) any liability
incurred by him or her in defending any proceedings, whether civil or criminal,
in which judgment is given in his or her favor, or in which he or she is
acquitted, or in connection with any application under relevant Bermuda
legislation in which relief from liability is granted to him or her by the
court and (2) any loss or liability resulting from negligence, default, breach
of duty or breach of trust, save for fraud and dishonesty. The Global Crossing
bye-laws contain provisions regarding the indemnification of officers and
directors. The Global Crossing bye-laws generally provide for indemnification
to the extent permitted under Bermuda law.
IPC and IXnet. Under the Delaware General Corporation Law, a company is
permitted to indemnify its officers, directors and certain other persons
against any expenses, judgments, fines and amounts paid in settlement incurred
in any civil, criminal, administrative or investigative action or proceeding if
that individual acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the company and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his
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or her conduct was unlawful. In addition, under Delaware law, to the extent
that a director, officer, employee or agent of a company has been successful on
the merits or otherwise in defense of any proceeding referred to above or in
defense of any claim, issue or matter in such an action or proceeding, he or
she must be indemnified against expenses, including attorneys' fees, actually
and reasonably incurred by him or her in connection with that proceeding.
However, in the case of actions by or in the right of the corporation,
indemnification is limited to expenses, including attorneys' fees, actually and
reasonably incurred, and no indemnification may be made for any claim, issue or
matter as to which the person has been adjudged to be liable to the
corporation, unless indemnification is otherwise authorized by a court.
The IPC and IXnet by-laws require IPC and IXnet to indemnify any director,
officer or employee of IPC or IXnet or their respective subsidiaries to the
full extent permitted by Delaware law. This right to indemnification includes
the advancement of expenses to the fullest extent permitted under Delaware law.
The by-laws of IPC and IXnet also allow for the maintenance of insurance, at
IPC's, or IXnet's, expense, to protect an officer or director against any
expense, liability or loss whether or not IPC or IXnet would be entitled to
indemnify the officer or director for the expense, liability or loss under
Delaware General Corporate Law.
Indemnification of Global Crossing by shareholders for some taxes and other
impositions
Global Crossing. The Global Crossing bye-laws provide that if any law
imposes or purports to impose any immediate, future or possible liability on
Global Crossing to make any payment in respect of shares held by or
distributions payable or paid to any shareholder then Global Crossing will be
fully indemnified by that shareholder or that shareholder's executor or
administrator from that liability. In addition, Global Crossing will have a
lien on all dividends and other money payable in respect of the shares held by
that shareholder until the applicable liability is paid, plus interest, and may
recover as a debt due from that shareholder or his or her administrator any
money paid by Global Crossing as a result of that liability. Global Crossing
may also refuse to register a transfer of any shares until that money and
interest is repaid or set off.
IPC and IXnet. The IPC and IXnet corporate governance documents do not
contain any similar provisions.
Indemnification of shareholders by Global Crossing for some taxes
Global Crossing. The Global Crossing bye-laws provide that, if the existing
voting and transfer restrictions in the bye-laws are amended or the board of
directors and shareholders approve a restricted transfer of shares, Global
Crossing will indemnify each shareholder that is treated as a "United States
Shareholder" under Section 951 and its sequence of the Internal Revenue Code as
a result of that amendment from and against all losses, costs, damages,
liabilities and expenses arising out of, directly or indirectly, that
treatment.
IPC and IXnet. IPC and IXnet do not have similar indemnification obligations
under their corporate governance documents.
Listing
Global Crossing. Global Crossing common stock trades on both the Nasdaq
National Market and the Bermuda Stock Exchange.
IPC. IPC common stock trades on the American Stock Exchange.
IXnet. IXnet common stock trades on the Nasdaq National Market.
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LEGAL MATTERS
The validity of the Global Crossing common stock to be issued to IPC and
IXnet stockholders in the mergers will be passed upon by Global Crossing's
counsel, Appleby Spurling & Kempe, Hamilton, Bermuda. Simpson Thacher &
Bartlett, New York, New York, counsel to Global Crossing and Skadden, Arps,
Slate, Meagher & Flom LLP, New York, New York, counsel to IPC and IXnet, will
be delivering opinions concerning United States federal income tax consequences
of the mergers. Appleby, Spurling & Kempe will be delivering opinions
concerning Bermuda income tax consequences of the mergers. As of April 10,
2000, lawyers of Simpson Thacher & Bartlett who have participated in the
preparation of this document beneficially owned less than 1% of the outstanding
shares of Global Crossing common stock. As of April 10, 2000, lawyers of
Appleby, Spurling & Kempe who have participated in the preparation of this
document beneficially owned approximately less than 1% of the outstanding
shares of Global Crossing common stock.
EXPERTS
The consolidated financial statements of Global Crossing and its
subsidiaries incorporated by reference in this information statement/prospectus
and elsewhere in the registration statement have been audited by Arthur
Andersen, independent public accountants, as indicated in their reports with
respect thereto, and are incorporated by reference in reliance upon the
authority of said firm as experts in giving said reports.
The consolidated financial statements incorporated by reference in this
registration statement of which this information statement/prospectus is a part
to the annual report on Form 10-K of Frontier Corporation for the year ended
December 31, 1998 and audited historical financial statements included on pages
22-42 of Frontier Corporation's Form 8-K dated January 26, 1999, have been so
incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The combined financial statements of Global Marine Systems incorporated by
reference in this information statement/prospectus have been incorporated by
reference in reliance upon the report of KPMG Audit Plc, chartered accountants,
incorporated by reference in this information statement/prospectus and upon the
authority of said firm as experts in accounting and auditing.
The financial statements of Racal Telecom incorporated by reference in this
registration statement of which this information statement/prospectus is a part
have been audited by Deloitte & Touche, independent auditors, as stated in
their report incorporated by reference in this registration statement of which
this information statement/prospectus is a part.
The consolidated financial statements incorporated by reference in this
registration statement of which this information statement/prospectus is a part
of HCL Holdings Limited and subsidiaries have been so incorporated in reliance
on the reports of PricewaterhouseCoopers, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of IPC incorporated by reference in
the registration statement of which this information statement/prospectus is a
part to the annual report on Form 10-K for the year ended September 30, 1999,
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The consolidated and combined financial statements of IXnet and subsidiaries
included in the registration statement of which this information
statement/prospectus is a part have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in accounting and auditing.
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SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES
Global Crossing is organized under the laws of Bermuda. In addition, some
directors and officers of Global Crossing reside outside the United States and
a substantial portion of the assets of Global Crossing are located outside the
United States. As a result, it may be difficult for investors to effect service
of process within the United States upon those persons or to realize against
them in courts of the United States upon judgments of courts of the United
States predicated upon civil liabilities under the United States federal
securities laws. Global Crossing has been advised by its legal counsel in
Bermuda, Appleby, Spurling & Kempe, that there is doubt as to the enforcement
in Bermuda, in original actions or in actions for enforcement of judgments of
United States courts, of liabilities predicated upon United States federal
securities laws, although Bermuda courts will enforce foreign judgments for
liquidated amounts in civil matters subject to specified conditions and
exceptions.
SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS
IPC
Proposals of IPC stockholders which are intended to be presented by those
stockholders at IPC's 2001 annual meeting of stockholders must be received by
IPC at Wall Street Plaza, 88 Pine Street, New York, New York 10005 no later
than October 7, 2000, in order to be included in the 2001 annual meeting proxy
materials. If a stockholder does not notify IPC by December 21, 2000 of a
proposal, then the persons named as proxies in the proxy card for the 2001
annual meeting may use their discretionary voting authority if the proposal is
raised at the meeting.
IXnet
Proposals of IXnet stockholders which are intended to be presented by those
stockholders at IXnet's 2001 annual meeting of stockholders must have been
received by IXnet at its principal executive offices at Wall Street Plaza, 88
Pine Street, New York, NY 10005, no later than October 7, 2000, in order to be
included in the proxy statement and proxy relating to that meeting. If a
stockholder does not notify IXnet by December 21, 2000 of a proposal, then the
persons names as proxies in the proxy accompanying the 2001 annual meeting
proxy statement may use their discretionary voting authority if the proposal is
raised at the 2001 annual meeting.
INCORPORATION BY REFERENCE
Global Crossing
Global Crossing is incorporating the following information by reference in
this document:
. Global Crossing's annual report on Form 10-K for the fiscal year ended
December 31, 1999;
. Global Crossing's current reports on Form 8-K filed on January 11, 2000,
as amended by Form 8-K/A filed on January 19, 2000; February 18, 2000;
March 2, 2000; and March 3, 2000;
. the financial statements of Frontier Corporation and the Global Marine
Systems business of Cable & Wireless Plc incorporated by reference or
included in Global Crossing's registration statement on Form S-4 (File
No. 333-86693), filed with the SEC on September 8, 1999; and
. all documents that Global Crossing files with the SEC under Sections
13(a), 13(c), 14 or 15 of the Securities Exchange Act of 1934 until the
effective time of the mergers.
IPC
IPC is incorporating the following information by reference in this
document:
. IPC's annual report on Form 10-K for the fiscal year ended September 30,
1999;
. IPC's current report on Form 10-Q for the fiscal quarter ended December
31, 1999, filed on February 15, 2000, as amended by Form 10-Q/A filed on
April 12, 2000;
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. IPC's current report on Form 8-K filed on March 6, 2000; and
. all documents that IPC files with the SEC under Sections 13(a), 13(c),
14 or 15 of the Securities Exchange Act of 1934 until the effective time
of the mergers.
WHERE YOU CAN FIND MORE INFORMATION
Global Crossing
Global Crossing files reports, proxy statements and other information with
the SEC. You may read and copy these reports, proxy statements and other
information at the public reference facilities maintained by the SEC at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional
offices located at 7 World Trade Center, 13th floor, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may also
obtain copies of those materials at prescribed rates from the public reference
section of the SEC at 450 Fifth Street, Washington, D.C. 20549. You may obtain
copies from the public reference room by calling the SEC at (800) 732-0330. In
addition, Global Crossing is required to file electronic versions of those
materials with the SEC through the SEC's EDGAR system. The SEC maintains a web
site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. You may also review reports and other information concerning
Global Crossing at the offices of the National Association of Securities
Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20001-1500.
You may also request a copy of these materials, free of cost, by writing or
telephoning Global Crossing at the following address:
Investor Relations
Global Crossing Ltd.
360 N. Crescent Drive
Beverly Hills, CA 90210
310-385-5200.
IPC
IPC is subject to the information requirements of the Securities Exchange
Act of 1934, as amended, and in accordance with that act files reports, proxy
statements and other information with the SEC.
Copies of IPC's reports, proxy statements and other information can be
obtained, upon payment of prescribed fees, from the public reference facilities
of the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, such reports, proxy statements and other information can be inspected
at the SEC's facilities referred to above and at the SEC's Regional Offices at
7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. If available,
such information may also be accessed through the SEC's EDGAR system, via
electronic means, including the SEC's website on the internet at
http://www.sec.gov.
The shares of IPC common stock are included for quotation on The American
Stock Exchange, and those reports, proxy statements and other information
concerning IPC are available for inspection and copying at the offices of The
American Stock Exchange, 86 Trinity Place, New York, NY 10006.
You may also request a copy of these materials, free of cost, by writing or
telephoning IPC at the following address:
IPC Communications, Inc.
Investor Relations
88 Pine Street
New York, NY 10005
212-825-9060
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IXnet
IXnet is subject to the information requirements of the Securities Exchange
Act of 1934, as amended, and in accordance with that act files reports, proxy
statements and other information with the SEC.
Copies of IXnet's reports, proxy statements and other information can be
obtained, upon payment of prescribed fees, from the public reference facilities
of the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, such reports, proxy statements and other information can be inspected
at the SEC's facilities referred to above and at the SEC's Regional Offices at
7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. If available,
such information may also be accessed through the SEC's EDGAR system, via
electronic means, including the SEC's website on the internet at
http://www.sec.gov.
You may also review reports, proxy statements and other information
concerning IXnet at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
You may also request a copy of these materials, free of cost, by writing or
telephoning IXnet at the following address:
IXnet, Inc.
Investor Relations
88 Pine Street
New York, NY 10005
212-412-6400
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INDEX TO FINANCIAL STATEMENTS
IXNET AND SUBSIDIARIES
<TABLE>
<S> <C>
Consolidated Balance Sheets at December 31, 1999 and
September 30, 1999 (unaudited)........................................... F-1
Consolidated and Combined Statements of Operations
for the Three Months Ended December 31, 1999 and 1998 (unaudited)........ F-2
Consolidated and Combined Statements of Cash Flows
for the Three Months Ended December 31, 1999 and 1998 (unaudited)........ F-3
Notes to Consolidated and Combined Financial Statements (unaudited)....... F-4
Report of Independent Public Accountants.................................. F-10
Consolidated and Combined Balance Sheets at September 30, 1999 and 1998... F-11
Consolidated and Combined Statements of Operations for the
Years Ended September 30, 1999, 1998 and 1997............................ F-12
Consolidated and Combined Statements of Cash Flows
for the Years Ended September 30, 1999, 1998 and 1997.................... F-13
Consolidated and Combined Statements of Changes
in Stockholders' Equity (Deficit) for the years ended September 30, 1999,
1998 and 1997............................................................ F-14
Notes to Consolidated and Combined Financial Statements................... F-16
</TABLE>
<PAGE>
IXNET, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands, except per share amount)
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 7,397 $ 39,020
Marketable securities............................. 48,553 28,357
Marketable securities, restricted................. 15,051 20,435
Accounts receivable, net.......................... 23,948 17,824
Prepaids and other current assets................. 4,418 5,505
-------- --------
Total current assets............................ 99,367 111,141
Long term marketable securities, restricted......... 6,065 6,065
Property and equipment, net......................... 87,809 80,170
Goodwill, net....................................... 47,614 49,773
Other assets........................................ 860 889
-------- --------
Total assets.................................... $241,715 $248,038
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 9,249 $ 10,198
Accrued liabilities............................... 21,671 22,445
Current portion of capital leases................. 6,365 5,636
Current portion of notes payable.................. 11,376 14,502
-------- --------
Total current liabilities....................... 48,661 52,781
Note payable to parent.............................. 70,661 52,122
Lease obligations, less current portion............. 16,522 15,412
Notes payable, less current portion................. 4,233 4,854
-------- --------
Total liabilities................................... 140,077 125,169
======== ========
Commitments and contingencies
Stockholders' equity:
Common stock--$0.01 par value, authorized 100,000
shares; 51,075 and 51,075 shares issued and out-
standing at December 31, 1999 and September 30,
1999, respectively............................... 511 511
Paid-in capital................................... 251,953 249,080
Accumulated deficit............................... (132,024) (109,176)
Deferred compensation............................. (17,720) (16,797)
Accumulated other comprehensive loss.............. (1,082) (749)
-------- --------
Total stockholders' equity...................... 101,638 122,869
-------- --------
Total liabilities and stockholders' equity...... $241,715 $248,038
======== ========
</TABLE>
See Notes to Consolidated and Combined Financial Statements
F-1
<PAGE>
IXNET, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------
1999 1998
--------- --------
<S> <C> <C>
Revenue.................................................. $ 23,125 $ 12,752
Cost of revenue (exclusive of depreciation and
amortization shown separately below).................... 24,745 12,458
Sales and marketing expense.............................. 5,805 2,092
General and administrative expense....................... 4,476 1,215
Depreciation and amortization............................ 8,211 3,922
Stock compensation charge................................ 1,363 --
--------- --------
Loss from operations................................... (21,475) (6,935)
Interest expense, net.................................... (1,160) (1,825)
Other income, net........................................ 99 46
--------- --------
Loss before provision for income taxes................. (22,536) (8,714)
Provision for income taxes............................... 312 123
--------- --------
Net loss............................................... $ (22,848) $ (8,837)
========= ========
Basic and diluted loss per share......................... $ (0.45) $ (0.21)
========= ========
Basic and diluted weighted average number of shares
outstanding............................................. 51,075 43,100
========= ========
</TABLE>
See Notes to Consolidated and Combined Financial Statements.
F-2
<PAGE>
IXNET, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Three Months ended
December 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss .............................................. $(22,848) $ (8,837)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ....................... 6,052 2,676
Amortization of goodwill ............................ 2,159 1,246
Provision for doubtful accounts ..................... 744 124
Deferred compensation charges ....................... 1,363 --
Changes in operating assets and liabilities:
Trade receivables ................................. (6,868) 575
Prepaids and other assets ......................... 1,116 1,344
Accounts payable and accrued liabilities .......... (1,598) (3,408)
--------- ---------
Net cash used in operating activities ................. (19,880) (6,280)
--------- ---------
Cash flows from investing activities:
Capital expenditures .................................. (10,487) (3,549)
Acquisition of Saturn, net of cash acquired ........... -- (34,713)
Net increase in investments in marketable securities .. (14,812) --
--------- ---------
Net cash used in investing activities ................. (25,299) (38,262)
--------- ---------
Cash flows from financing activities:
Financing from parent, net ............................ 18,539 45,183
Principal payments on capital leases .................. (1,365) (1,026)
Capital transactions with parent ...................... 587 2,897
Repayment of notes payable ............................ (3,872) --
--------- ---------
Net cash provided by financing activities ............. 13,889 47,054
--------- ---------
Effect of exchange rate changes on cash ................. (333) (75)
Net (decrease)/increase in cash ......................... (31,623) 2,437
Cash and cash equivalents, beginning of period .......... 39,020 1,255
--------- ---------
Cash and cash equivalents, end of period ................ $ 7,397 $ 3,692
========= =========
Cash paid during the period for interest ................ $ 780 $ 142
Non-cash investing and financing activities--
Capital lease obligations entered into during the
period ............................................... $ 3,204 $ 2,146
Deferred compensation in connection with grants of
stock options ........................................ 2,286
Acquisition of Saturn:
Fair value of assets acquired ......................... $ 58,456
Less: Fair value of liabilities assumed and note issued
...................................................... 23,743
---------
Acquisition of Saturn, net of cash acquired ........... $ 34,713
=========
</TABLE>
See Notes to Consolidated and Combined Financial Statements.
F-3
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Unaudited)
1. Background and Basis of Presentation
IXnet, Inc. ("IXnet" or the "Company") provides communications services
tailored to the specialized needs of the worldwide financial services
community. The Company has built and operates an Extranet, a global network
connecting members of the financial services community as well as multiple
offices within the same firm. The Company's services include globally available
services including managed voice and data services, switched voice
communications and content hosting and distribution of news, research,
analytics and market data.
IXnet started its business as International Exchange Networks, Ltd.
("IEXN"), which was incorporated in Delaware on March 8, 1993. On June 23,
1995, IPC Information Systems, Inc. ("IPC"), acquired 80% of the outstanding
common stock of IEXN and acquired the remaining 20% on April 30, 1998. On March
31, 1999, IPC contributed $73 million of IEXN's then outstanding note payable
to IPC into IEXN's paid-in capital.
MXNet, Inc. ("MXNet") was incorporated in Delaware on May 24, 1996, as a
wholly owned subsidiary of National Discount Brokers Group, Inc. On February
13, 1998, IPC acquired the outstanding common stock of MXNet, which was
contributed to IEXN in May 1999.
On May 4, 1999, IPC contributed 100% of the outstanding common stock of IEXN
to the Company. In addition, on May 4, 1999, the Company was incorporated in
Delaware as a wholly owned subsidiary of IPC with 2,000 shares of common stock,
par value $0.01 per share, authorized, and 1,000 shares issued to IPC.
Effective July 1, 1999, the Company amended its certificate of incorporation to
increase its authorized shares to 100,000,000. On June 30, 1999, the Company
declared a 43,100 for one stock split effective July 1, 1999, resulting in
43,100,000 shares issued and outstanding.
The Company completed an initial public offering (the "Offering") of
6,500,000 shares of common stock at $15 per share on August 12, 1999. On August
30, 1999, the underwriters exercised their over-allotment option and purchased
an additional 975,000 shares of common stock at $15 per share.
The financial statements as of and for the quarter ended December 31, 1999,
as well as September 30, 1999, include the accounts of IXnet and its
consolidated subsidiaries. The financial statements for the quarter ended
December 31, 1998, combine the historical financial information of IEXN and its
consolidated subsidiaries with the historical financial information of MXNet.
Intercompany balances and transactions between IEXN and MXNet have been
eliminated. Additionally, the financial statements present the issued and
outstanding shares of IXnet as if they had been in place for the quarter ended
December 31, 1998. The financial statements include certain corporate expenses
incurred by IPC that have been charged to the Company. Management believes
these allocations are reasonable.
In the opinion of management, the accompanying unaudited financial
statements include all necessary adjustments (consisting of normal recurring
accruals and appropriate inter-company elimination adjustments) for a fair
presentation of the financial position of IXnet, Inc. as of December 31, 1999,
and the results of its operations for the three months ended December 31, 1999
and 1998, in conformity with generally accepted accounting principles, commonly
referred to as GAAP, for interim financial information applied on a consistent
basis. The results of operations for the three months ended December 31, 1999,
are not necessarily indicative of the results to be expected for the full year.
Certain information and note disclosures normally included in financial
statements prepared in accordance with GAAP have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. These
financial statements should be read in conjunction with IXnet's Annual Report
on Form 10-K for the year ended September 30, 1999.
F-4
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
2. Summary of Significant Accounting Policies
Accounts Receivable
Accounts receivable relate to the billing of communication services and are
net of allowance for doubtful accounts of $2.8 million and $2.1 million at
December 31, 1999 and September 30, 1999.
Earnings Per Share
Basic loss per share is computed using the weighted average number of common
shares outstanding during the year. Diluted loss per share is computed using
the weighted average number of shares of common stock adjusted for the dilutive
effect of common stock equivalent shares of common stock options. Common stock
equivalent shares are calculated using the treasury stock method. All stock
options outstanding have been excluded from the computation of diluted loss per
share, as their effect would be antidilutive. Accordingly, there is no
difference between basic and diluted EPS.
3. Comprehensive Loss
Comprehensive loss includes the Company's net loss and foreign currency
translation adjustments. The tax effect and reclassifications are not
significant. The Company's total comprehensive loss for the three months ended
December 31, 1999 and 1998 was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended December 31,
---------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
Net loss............................... $(22,848) $(8,837)
Translation adjustment................. (333) (75)
---------------- ---------------
Total comprehensive loss............. $(23,181) $(8,912)
================ ===============
</TABLE>
4. Acquisitions and Strategic Agreement
IEXN
During June 1995, IPC acquired an 80% interest in IEXN for $5.5 million in
cash. The acquisition was accounted for using the purchase method of accounting
and resulted in $1.3 million of goodwill. Under the initial acquisition
agreement, the Company is obligated to pay additional consideration to former
shareholders using a formula based upon operating results and market
capitalization through fiscal 2000. Based upon data as of December 31, 1999,
the Company's obligation calculated under this agreement is not material. On
April 30, 1998, IPC acquired the remaining 20% interest in IEXN held by two
management shareholders in exchange for 457,140 shares of IPC common stock,
valued at $4.8 million based upon the IPC closing share price on that date. The
acquisition of the remaining interest was accounted for using the purchase
method of accounting and resulted in $4.8 million of goodwill. IEXN goodwill is
being amortized over seven years from the date of the original acquisition.
MXNet
In February 1998, IPC acquired, by the issuance of a promissory note in the
amount of $6.7 million, all of the issued and outstanding common stock of
MXNet, a wholly owned subsidiary of National Discount Brokers Group, Inc. This
acquisition was accounted for using the purchase method of accounting and
resulted in $5.5 million of goodwill. MXNet goodwill is being amortized over
2.25 years from the date of acquisition.
F-5
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Saturn Global Network Services Holdings Ltd.
On December 18, 1998, the Company acquired all of the issued and outstanding
common shares of Saturn Global Network Services Holdings Limited ("Saturn")
from Marshalls 106 Limited ("Marshalls"). The purchase price included the
payment of cash in the amount of $35.7 million (paid by the Company through
borrowings from IPC) and the issuance by the Company of a promissory note,
guaranteed by IPC, in the amount of $7.5 million bearing interest at the UK
Sterling Base Rate, as defined, plus three percent and payable over three years
(the "Marshalls Note"). In addition, the Company assumed indebtedness of Saturn
due to Marshalls in the amount of $5 million payable over 24 months with
interest at 9.25% (the "Saturn Note"). Under this agreement, the Marshalls note
is subject to a working capital adjustment and right of offset. The working
capital adjustment was settled in June 1999 resulting in a reduction
approximately $2 million.
Saturn, a UK holding company, owns telecommunication network operating
subsidiaries in the United Kingdom, USA, Hong Kong, Australia, Japan and
Singapore which sell managed premium grade voice and data communication
services to the financial community. The acquisition was accounted for using
the purchase method of accounting and resulted in $49.2 million of goodwill.
Saturn goodwill is being amortized over 10 years from the date of the
acquisition.
Strategic Agreement
On September 24, 1999, IXnet entered into a $20 million strategic agreement,
including the licensing of certain software products to enhance the
intelligence of the network, for a purchase price consisting of $10.0 million
in cash, payable within the next twelve months, and 500,000 shares of
restricted IXnet common stock valued at an average closing price prior to the
agreement date. The strategic agreement is intended to create a unique network
infrastructure with embedded intelligence, delivering financial enterprise
integration, subject-based addressing, trading turret integration and
application management capabilities.
5. Stock Compensation Charge
In May 1999, IXnet recorded $26.4 million in non-cash deferred stock
compensation reflecting the issuance by the Company of options to purchase
6,530,184 shares of common stock of IXnet at $13.96 per share. The deferred
stock compensation is based upon the deemed fair market value of IXnet's common
stock and the exercise price of such options issued on the date of grant. The
Company recorded an additional $2.3 million of non-cash deferred stock
compensation during the quarter which represents the charge for the issuance of
options in May 1999 which are treated as variable options for accounting
purposes. Approximately $1.4 million of deferred stock compensation is included
as expense for the three months ended December 31, 1999. The remaining deferred
compensation will be amortized over the remaining vesting period of the
options. In addition, certain of these options may be treated as variable
options and may result in additional compensation expense in future periods.
F-6
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
6. Property and Equipment
Property and equipment is comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
Useful Lives 1999 1999
------------ ------------ -------------
<S> <C> <C> <C>
Network equipment................... 2 to 5 years $37,406 $39,700
Network equipment under capital
leases............................. 5 years 38,980 28,637
Indefeasible rights of use.......... IRU term 9,423 6,571
Network software.................... 3 years 23,405 21,485
Office equipment and furniture...... 5 years 6,551 6,227
Leasehold improvements.............. Lease term 3,070 2,524
------- -------
Total depreciable property and
equipment........................ 118,835 105,144
Less accumulated depreciation and
amortization..................... 31,026 24,974
------- -------
$87,809 $80,170
======= =======
</TABLE>
Accumulated depreciation of network equipment under capital leases at
December 31, 1999 and September 30, 1999, was $12.4 million and $10.8 million,
respectively.
7. Disclosures about Segments of an Enterprise and Related Information
The Company is focused on providing a seamless global network providing a
variety of voice, data, and content distribution services which has been
specifically designed to meet the specialized requirements of the financial
services industry. All of our revenue is derived from our global network. All
operating expenses and assets of the Company are combined and reviewed by the
chief operating decision makers on an enterprise wide-basis, resulting in no
additional discrete financial information or reportable segment information.
Our network connects customers in 37 countries around the world and we have
major offices in New York, London and Sydney from which we coordinate our sales
and marketing, finance and administrative functions in North America, Europe
and the Asia Pacific countries. We refer to these areas as regions. We focus on
the global needs of the financial services community. There is a high degree of
similarity across our customer base, products and services in each region.
Enterprise wide information is provided in accordance with SFAS 131
"Disclosures about Segments of an Enterprise and Related Information".
Geographic sales information is based on the currency in which the customer is
billed. Long-lived asset information is based on the physical location of the
assets. The following is revenue and long-lived asset information for
geographic areas (in thousands):
<TABLE>
<CAPTION>
Three Months ended December 31,
-------------------------------------
1999 1998
---- ----
Long-Lived Long-Lived
Revenue Assets Revenue Assets
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
North America.......................... $11,653 $ 77,394 $ 8,431 $36,883
Europe................................. 6,499 11,703 3,758 15,073
Asia/Pacific........................... 4,973 47,186 563 --
------- -------- ------- -------
$23,125 $136,283 $12,752 $51,956
======= ======== ======= =======
</TABLE>
For the three months ended December 31, 1999, revenue from the United
States, United Kingdom, and Australia represented 49.1%, 22.7%, and 11.6% of
total revenue, respectively. For the three months ended December 31, 1998,
revenue was generated primarily from the United States and the United Kingdom.
F-7
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Long-lived assets primarily located within the United States, represent
34.6%, and 70.0% of total assets, as of December 31, 1999, and 1998,
respectively.
For the three months ended December 31, 1999, one customer accounted for
11.3% of total revenue. For the three months ended December 31, 1998, two
customers accounted for 17.5% and 14.7% of total revenue.
8. Commitments and Contingencies:
Intercompany Agreement
As of July 1, 1999, the Company, IPC and IEXN entered into an intercompany
agreement which provides, among other matters, for IPC to furnish up to $50.0
million of credit, including the provision of letters of credit, guarantees and
other forms of credit enhancements limited to $6.25 million per quarter,
commencing July 1, 1999 and continuing through the quarter ending June 30,
2001. Outstanding notes payable on July 1, 1999 and additional amounts borrowed
under the agreement bear interest at the Base Rate, as defined, plus 2%. Any
and all amounts advanced by IPC which are outstanding on June 30, 2001 shall be
immediately due and payable.
The amount due IPC at December 31, 1999 and September 30, 1999,
respectively, was $70.7 million and $52.1 million. During each quarter
presented in this Interim Report on form 10-Q, the $6.25 million limitation had
been exceeded representing a delay in reimbursement of quarterly funding by IPC
and interest expense on the outstanding amounts, as well as the transfer of a
UK VAT receivable from IPC to the Company in the quarter ended September 30,
1999. The amounts were subsequently reimbursed and the balances are now
consistent with the intercompany agreement.
9. Subsequent Events
Effective January 1, 2000, IXnet acquired all of the issued and outstanding
common shares of Business Networks of New York, Inc. ("BNNY"). The $26.5
million purchase price consisted of $24.5 million in cash and 45,707 shares of
IXnet common stock.
BNNY is a leader in providing voice and data services to the financial
community, primarily in the New York Metropolitan Area.
On January 25, 2000, IXnet acquired all of the issued and outstanding common
shares of Systems Programming & Network Computing, Inc. ("SPNC"). The purchase
price was approximately $1.5 million and consisted of $300,000 in cash, a
$100,000 promissory note issued by the Company and 6,080 shares of IXnet common
stock.
SPNC is a leader in providing and integrating sophisticated multi-system,
multi-platform applications for the financial services community.
On February 22, 2000, IXnet announced along with its parent, IPC
Communications, Inc. that both entities had entered into an agreement and plan
of merger with Global Crossing Ltd. valued at $3.8 billion. Under the terms of
the merger agreement IXnet stockholders will be entitled to receive 1.184
shares of Global Crossing common stock for each share of IXnet common stock and
IPC stockholders will be entitled to receive 5.417 shares of Global Crossing
common stock for each share of IPC common stock. Upon completion of the
mergers, IPC Information Systems Inc., which will be the successor to IPC
Communications, Inc., and IXnet will become wholly owned subsidiaries of Global
Crossing. The acquisition will be accounted for using the purchase method of
accounting and is expected to close in June 2000.
F-8
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
From February 20, 2000 to March 8, 2000, three lawsuits purporting to be
class action suits were filed in the Delaware Chancery Court in and for New
Castle County. The complaints, captioned Weinbtraub v. Smith, et al., Blisko v.
Smith, et al., and Koening v. Smith et al., allege that IXnet, IPC, and the
individual directors of IXnet and IPC breached their fiduciary duties to
IXnet's minority shareholders in connection with the mergers of Global Crossing
Ltd., IXnet and IPC. The plaintiffs allege, among other things, that when
measured in percentage terms, IXnet's minority stockholders will receive a
lower premium for their shares than IPC stockholders. The plaintiffs seek an
injunction of the mergers, money damages and attorney's fees. The defendants
believe these actions are entirely without merit and will contest them
vigorously.
F-9
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
IXnet, Inc.:
In our opinion, the accompanying consolidated and combined balance sheets
and the related consolidated and combined statements of operations,
stockholders' equity and cash flows present fairly, in all material respects,
the financial position of IXnet, Inc. and its subsidiaries at September 30,
1999 and September 30, 1998, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 1999 in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conduced our audits of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
November 30, 1999
F-10
<PAGE>
IXNET, INC.
CONSOLIDATED AND COMBINED BALANCE SHEETS
(Amounts in thousands, except per share amount)
<TABLE>
<CAPTION>
September 30,
-------------------
1999 1998
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 39,020 $ 1,255
Marketable securities................................... 28,357 --
Marketable securities, restricted....................... 20,435 --
Accounts receivable, net................................ 17,824 9,844
Prepaids and other current assets....................... 5,505 2,707
--------- --------
Total current assets.................................. 111,141 13,806
Property and equipment, net............................... 80,170 36,351
Long term marketable securities, restricted............... 6,065 --
Goodwill, net............................................. 49,773 9,023
Other assets.............................................. 889 1,152
--------- --------
Total assets.......................................... $ 248,038 $ 60,332
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................ $ 10,198 $ 7,028
Accrued liabilities..................................... 22,445 9,007
Current portion of capital leases....................... 5,636 4,057
Current portion of notes payable........................ 14,502 --
--------- --------
Total current liabilities............................. 52,781 20,092
Note payable to parent.................................... 52,122 43,629
Lease obligations, less current portion................... 15,412 11,570
Notes payable, less current portion....................... 4,854 --
--------- --------
Total liabilities..................................... 125,169 75,291
--------- --------
Commitments and contingencies
Stockholders' equity (deficit):
Common stock--$0.01 par value, authorized 100,000
shares;
51,075 and 43,100 shares issued and outstanding at Sep-
tember 30, 1999 and 1998, respectively................. 511 431
Paid-in Capital......................................... 249,080 33,830
Accumulated deficit..................................... (109,176) (49,709)
Deferred compensation................................. (16,797) --
Accumulated other comprehensive (loss) income........... (749) 489
--------- --------
Total stockholders' equity (deficit).................. 122,869 (14,959)
--------- --------
Total liabilities and stockholders' equity (deficit).. $ 248,038 $ 60,332
========= ========
</TABLE>
See Notes to Consolidated and Combined Financial Statements
F-11
<PAGE>
IXNET, INC:
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue......................................... $ 73,615 $ 35,853 $ 17,838
Cost of revenue (exclusive of depreciation and
amortization shown separately below)........... 73,097 35,652 19,823
Sales and marketing expense..................... 13,063 8,455 4,172
General and administrative expense.............. 8,312 5,001 3,439
Depreciation and amortization................... 21,575 9,060 3,460
Special charge.................................. -- 1,350 --
Stock compensation charge....................... 9,079 -- --
-------- -------- --------
Loss from operations.......................... (51,511) (23,665) (13,056)
Interest expense, net........................... (6,999) (3,527) (2,040)
Other income (expense), net..................... 336 26 117
-------- -------- --------
Loss before provision for income taxes........ (58,174) (27,166) (14,979)
Provision for income taxes...................... 1,293 473 229
-------- -------- --------
Net loss...................................... $(59,467) $(27,639) $(15,208)
======== ======== ========
Basic and diluted loss per share................ $ (1.35) $ (0.64) $ (0.35)
======== ======== ========
Basic and diluted weighted average number of
shares outstanding............................. 44,085 43,100 43,100
======== ======== ========
</TABLE>
See Notes to Consolidated and Combined Financial Statements.
F-12
<PAGE>
IXNET, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(59,467) $(27,639) $(15,208)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 15,656 6,865 3,279
Amortization of goodwill....................... 5,919 2,195 181
Provision for doubtful accounts................ 1,693 1,674 325
Deferred compensation charges.................. 9,079 -- --
Changes in operating assets and liabilities:
Trade receivables............................ (6,190) (5,957) (3,178)
Prepaids and other assets.................... (1,566) (135) (2,471)
Accounts payable and accrued liabilities..... 5,762 7,904 2,403
-------- -------- --------
Net cash used in operating activities.......... (29,114) (15,093) (14,669)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures......................... (24,208) (12,930) (3,495)
Acquisition of Saturn, net of cash acquired.. (34,713) -- --
Investment in marketable securities.......... (28,357) (842) --
-------- -------- --------
Net cash used in investing activities........ (87,278) (13,772) (3,495)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from initial public offering.... 102,775 -- --
Financings from parent, net.................. 82,792 23,476 12,887
Capital transactions with parent............. 3,098 9,478 5,535
Principal payments on capital leases......... (5,214) (3,125) (1,818)
Repayment of notes payable................... (1,556) -- --
-------- -------- --------
Net cash provided by financing activities.... 181,895 29,829 16,604
-------- -------- --------
Effect of exchange rate changes on cash.......... (1,238) (234) 469
-------- -------- --------
Net increase (decrease) in cash.................. 64,265 730 (1,091)
Cash and cash equivalents, beginning of period... 1,255 525 1,616
-------- -------- --------
Cash and cash equivalents, end of period......... $ 65,520 $ 1,255 $ 525
======== ======== ========
Cash paid during the period for interest......... $ 6,118 $ 3,527 $ 2,040
Non-cash investing and financing activities--
Capital contributed by parent:
Acquisition of remaining 20% of International
Exchange
Networks, Ltd............................... $ -- $ 4,800 $ --
Acquisition of MXNet Inc., net of cash
acquired.................................... -- 6,660 --
Capitalization of note payable to parent..... 73,000 -- --
Installment purchase of indefeasible rights of
use........................................... -- 3,600 --
Capital lease obligations entered into during
the period.................................... 10,284 6,414 9,685
Deferred compensation in connection with grants
of stock options.............................. 26,382 -- --
Purchase of software in connection with the
strategic agreement........................... 20,000 -- --
Acquisition of Saturn:
Fair value of assets acquired.................. $ 58,456 $ -- $ --
Less: Fair value of liabilities assumed and
note issued................................... 23,743 -- --
-------- -------- --------
Acquisition of Saturn, net of cash acquired.... $ 34,713 $ -- $ --
======== ======== ========
</TABLE>
See Notes to Consolidated and Combined Financial Statements.
F-13
<PAGE>
IXNET, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)(1)
(In thousands)
<TABLE>
<CAPTION>
Common Stock
-------------
Paid-in Accumulated Deferred
Shares Amount Capital Deficit Compensation Subtotal(1)
------ ------ -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30,
1996................... 43,100 $431 $ 7,357 $ (6,862) $ -- $ 926
Paid-in capital....... -- -- 5,535 -- -- 5,535
Net loss.............. -- -- -- (15,208) -- (15,208)
Translation
adjustment........... -- -- -- -- -- --
------ ---- -------- --------- -------- --------
Balance, September 30,
1997................... 43,100 431 12,892 (22,070) -- (8,747)
Paid-in capital....... -- -- 20,938 -- -- 20,938
Net loss.............. -- -- -- (27,639) -- (27,639)
Translation
adjustment........... -- -- -- -- -- --
------ ---- -------- --------- -------- --------
Balance, September 30,
1998................... 43,100 431 33,830 (49,709) -- (15,448)
Issuance of common
stock in initial
public offering, net
of expenses.......... 7,475 75 102,775 -- -- 102,850
Issuance of common
stock in connection
with strategic
agreement............ 500 5 9,995 -- -- 10,000
Capitalization of note
payable to Parent.... -- -- 73,000 -- -- 73,000
Deferred stock option
compensation......... -- -- 26,382 -- (26,382) --
Amortization of
deferred
compensation......... -- -- -- -- 9,079 9,079
Other deferred
compensation
adjustments.......... -- -- (506) -- 506 --
Capital contribution
for IPC's utilization
of tax benefits...... -- -- 3,604 -- -- 3,604
Net loss............ -- -- -- (59,467) -- (59,467)
Translation
adjustment......... -- -- -- -- -- --
------ ---- -------- --------- -------- --------
Balance, September 30,
1999................... 51,075 $511 $249,080 $(109,176) $(16,797) $123,618
====== ==== ======== ========= ======== ========
</TABLE>
- --------
(1) The Consolidated and Combined Statements of Changes in Stockholders' Equity
(Deficit) continues on page F-15.
See Notes to Consolidated and Combined Financial Statements.
F-14
<PAGE>
IXNET, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Comprehensive
Subtotal(1) Income (Loss) Total Loss
----------- ------------- -------- -------------
<S> <C> <C> <C> <C>
Balance, September 30, 1996.. $ 926 $ (36) $ 890 $ --
Paid-in capital.......... 5,535 -- 5,535 --
Net loss................. (15,208) -- (15,208) $(15,208)
Translation adjustment... -- 202 202 202
-------- ------- -------- --------
Total comprehensive
loss.................. $(15,006)
========
Balance, September 30, 1997.. (8,747) 166 (8,581) --
Paid-in capital.......... 20,938 -- 20,938 --
Net loss................. (27,639) -- (27,639) $(27,639)
Translation adjustment... -- 323 323 323
-------- ------- -------- --------
Total comprehensive
loss.................. $(27,316)
========
Balance, September 30, 1998.. (15,448) 489 (14,959)
Issuance of common stock in
initial public offering,
net of expenses........... 102,850 -- 102,850 --
Issuance of common stock in
connection with strategic
agreement................. 10,000 -- 10,000 --
Capitalization of note
payable to Parent......... 73,000 -- 73,000 --
Deferred stock option
compensation.............. -- -- -- --
Amortization of deferred
compensation.............. 9,079 -- 9,079 --
Other deferred compensation
adjustments............... -- -- -- --
Capital contribution for
IPC's utilization of tax
benefits.................. 3,604 -- 3,604 --
Net loss................. (59,467) -- (59,467) (59,467)
Translation adjustment... -- (1,238) (1,238) (1,238)
-------- ------- -------- --------
Total comprehensive
loss.................. $(60,705)
========
Balance, September 30, 1999.. $123,618 $ (749) $122,869
======== ======= ========
</TABLE>
- --------
(1) The Consolidated and Combined Statements of Changes in Stockholders' Equity
(Deficit) is continued from page F-14.
See Notes to Consolidated and Combined Financial Statements.
F-15
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1. Background and Basis of Presentation:
IXnet, Inc. ("IXnet" or the "Company") provides communications services
tailored to the specialized needs of the worldwide financial services
community. The Company established and operates an extranet, a global network
connecting members of the financial services community as well as multiple
offices within the same firm. The Company's services include globally available
services including managed voice and data services, switched voice
communications and content hosting and distribution of news, research,
analytics and market data.
The Company completed an initial public offering (the "Offering") of
6,500,000 shares of common stock at $15 per share on August 12, 1999. On August
30, 1999, the underwriters exercised their over-allotment option and purchased
an additional 975,000 shares of common stock at $15 per share. In connection
with the Offering, IXnet was incorporated in Delaware on May 4, 1999, as a
wholly owned subsidiary of IPC Information Systems, Inc. ("IPC") with 2,000
shares of common stock, par value $0.01 per share, authorized, and 1,000 shares
issued to IPC. Effective July 1, 1999 the Company amended its certificate of
incorporation to increase its authorized shares to 100,000,000. On June 30,
1999, the Company declared a 43,100 for one stock split effective July 1, 1999,
resulting in 43,100,000 shares issued and outstanding.
On May 4, 1999, IPC contributed 100% of the outstanding common stock of
International Exchange Networks, Ltd. ("IEXN") to the Company.
IEXN was incorporated in Delaware on March 8, 1993, with 10,000 shares of
common stock, par value $0.01 per share, authorized. On June 23, 1995, IPC
acquired 2,280 shares of IEXN (80% of the outstanding common stock after the
acquisition) and acquired the remaining 560 shares outstanding on April 30,
1998. On March 31, 1999, IPC contributed $73.0 million of IEXN's then
outstanding note payable to IPC into IEXN's paid-in capital.
MXNet Inc. ("MXNet") was incorporated in Delaware on May 24, 1996, as a
wholly owned subsidiary of National Discount Brokers Group, Inc. with 3,000
shares of common stock, par value $0.01 per share, authorized. On February 13,
1998, IPC acquired the outstanding common stock of MXNet which was contributed
to IEXN in May 1999.
The financial statements present the consolidated financial position,
results of operations, changes in stockholder's (deficit) equity and cash flows
of IEXN and its subsidiaries combined with the financial position, results of
operations, changes in stockholder's deficit and cash flows of MXNet as of and
for the periods that they were under common control. Additionally, the
financial statements present the issued and outstanding shares of IXnet as if
they had been in place for all periods presented. The financial statements
include certain corporate expenses (see Note 11) incurred by IPC that have been
charged to the Company on a direct or allocated basis. Management believes
these allocations are reasonable.
2. Summary of Significant Accounting Policies:
Principles of Consolidation and Combination
The consolidated financial statements as of and for the year ended September
30, 1999 include the accounts of IXnet and its consolidated subsidiaries. The
financial statements as of September 30, 1998 combine the historical financial
information of IEXN and its consolidated subsidiaries with the historical
financial information of MXNet from the date of its acquisition. Intercompany
balances and transactions within and between IEXN and MXNet have been
eliminated. The financial statements for the year ended September 30, 1997,
include the historical financial information of IEXN and its consolidated
subsidiaries.
F-16
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
Cash and Cash Equivalents
The Company places cash with high-credit quality financial institutions.
Temporary cash investments with original maturities of three months or less are
considered cash equivalents. Temporary cash investments are stated at cost,
which approximates fair value. These investments are not subject to significant
market risk.
Marketable Securities
Marketable securities consist of investments in short term government grade
commercial paper with maturities less than 1 year. Such securities are
classified as available for sale and, accordingly, are carried at fair value,
which approximates cost at September 30, 1999. The amortized cost of debt
securities is adjusted for amortization of premium and accretion of discounts
to maturity. Amortization of purchase premiums or accretion of discounts and
realized gains and losses are included in interest income.
On September 24, 1999, the Company entered into a strategic agreement
including the licensing of certain software products to enhance the
intelligence of the network. The purchase price included $10.0 million in cash
to be paid in installments over six months beginning on October 30, 1999.
Separately, the Company also entered into agreements to purchase indefeasible
rights of use ("IRU's") over the next three years in an aggregate amount of
$16.5 million. In accordance with an amendment to IPC's credit agreement
revised in connection with the strategic agreement, these amounts are invested
in marketable securities dedicated to satisfy these commitments.
Accounts Receivable
Accounts receivable relate to the billing of communication services and are
net of allowance for doubtful accounts of $2.1 million and $0.6 million for the
year ended September 30, 1999 and 1998, respectively.
Revenue Recognition
Revenues are billed and recognized monthly based on flat-rate monthly
charges. Installation revenue is deferred and recognized ratably over the
average contract term. Bandwidth and switched voice charges are billed and
recognized monthly based on customer usage.
Property and Equipment
Property and equipment are stated at cost and depreciated or amortized on a
straight-line basis over their estimated useful lives or related contract
terms, beginning in the year the asset is placed into service. Direct costs
related to the installation of network equipment are capitalized and
depreciated over the life of the asset.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
the identifiable net assets acquired in purchase acquisitions. Goodwill is
amortized on a straight-line basis over the periods benefited. Goodwill
includes the related amounts recorded in connection with IPC's acquisitions of
IEXN and MXNet and IXnet's acquisition of Saturn. The Company assesses whether
its goodwill is impaired as required by SFAS 121, "Accounting for the
Impairment of Long Lived Assets and for Long Lived Assets to be Disposed of".
F-17
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
Comprehensive Loss
Effective October 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement requires the Company to include within
its financial statements information on comprehensive income, which is defined
as all activity impacting equity from non-owner sources. Comprehensive loss
includes the Company's net loss and foreign currency translation adjustments.
The tax effect and reclassifications were not significant.
Income Taxes
The Company recognizes deferred income taxes for the tax consequences in
future years of differences between the tax bases of assets and liabilities and
the financial reporting amounts at each year end, based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount that is more likely than
not to be realized. The provision for income taxes is the tax payable for the
period and the change during the period in deferred tax assets and liabilities.
The Company is included in the consolidated federal income tax return of IPC
and computes its federal income tax provision on a separate return basis. Under
the tax sharing arrangement with its parent, the Company is reimbursed for the
benefit derived from inclusion of its tax losses in the consolidated federal
income tax return. Any difference between the amount of the federal income tax
provision or benefit determined on a separate return basis and the amount
received under the tax sharing arrangement is treated as a contribution to
paid-in capital.
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 the
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of revenues and expenses during the period reported.
Actual results could differ from those estimates.
Segment Information
In 1999, the Company adopted Statement of Financial Accounting Standards
(SFAS) 131, "Disclosures about Segments of an Enterprise and Related
Information". SFAS 131 supersedes SFAS 14, "Financial Reporting for Segments of
a Business Enterprise", replacing the "industry" segment approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. SFAS
131 also requires disclosures about products and services, geographic areas and
major customers. The adoption of SFAS 131 did not effect the Company's results
of operations or financial position.
Foreign Currency Translation Adjustment
The balance sheets and statements of operations of the Company's foreign
operations are recorded using the local currency as the functional currency.
Assets and liabilities of these foreign operations are translated at the year-
end exchange rates and revenue and expense amounts are translated at the
average rates of exchange prevailing during the periods reported. Translation
adjustments arising from the use of differing exchange rates from period to
period are included in the cumulative translation adjustment account in
stockholders' equity (deficit).
F-18
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
Earnings Per Share
Basic loss per share is computed using the weighted average number of common
shares outstanding during the year. Diluted loss per share is computed using
the weighted average number of shares of common stock adjusted for the dilutive
effect of common stock equivalent shares of common stock options. Common stock
equivalent shares are calculated using the treasury stock method. All stock
options outstanding have been excluded from the computation of diluted loss per
share as their effect would be antidilutive. Accordingly, there is no
difference between basic and diluted EPS.
3. Effects of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivatives and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments and hedging
activities. The effective date of this standard was deferred to all fiscal
quarters of fiscal years beginning after June 15, 2000 by SFAS 137, "Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement No. 133", which was issued on June 30, 1999. Management
does not believe the adoption of this standard will have a material impact on
the Company's operations.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. The Company does
not anticipate the adoption of the standard to have a material effect on its
financial position, results of operations or cash flows.
4. Acquisitions and Strategic Agreement:
IEXN
During June 1995, IPC acquired an 80% interest in IEXN for $5.5 million in
cash. The acquisition was accounted for using the purchase method of accounting
and resulted in $1.3 million of goodwill. Under the initial acquisition
agreement, the Company is obligated to pay additional consideration to former
shareholders using a formula based upon operating results and market
capitalization through fiscal 2000. Based upon data as of September 30, 1999,
the Company's obligation calculated under this agreement is not material. On
April 30, 1998, IPC acquired the remaining 20% interest in IEXN held by two
management shareholders in exchange for 457,140 shares of IPC common stock,
valued at $4.8 million based upon the IPC closing share price on that date. The
acquisition of the remaining interest was accounted for using the purchase
method of accounting and resulted in $4.8 million of goodwill is being
amortized over seven years from the date of the original acquisition.
MXNet
In February 1998, IPC acquired, by the issuance of a promissory note in the
amount of $6.7 million, all of the issued and outstanding common stock of
MXNet, a wholly owned subsidiary of National Discount Brokers Group, Inc. The
promissory note plus accrued interest was paid on April 8, 1998. This
acquisition was accounted for using the purchase method of accounting and
resulted in $5.5 million of goodwill. MXNet goodwill is being amortized over
2.25 years from the date of acquisition.
F-19
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
The following unaudited pro forma statement of operations data for the years
ended September 30, 1998 and 1997, gives effect to the acquisition of MXNet as
if it had occurred on October 1, 1997 and 1996, respectively (in thousands):
<TABLE>
<CAPTION>
Year ended
September 30,
------------------
1998 1997
-------- --------
<S> <C> <C>
Revenue.............................................. $ 36,386 $ 18,663
Loss before provision for income taxes............... $(28,669) $(18,804)
</TABLE>
Pro forma adjustments include: (i) financial results of MXNet for the year
ended September 30, 1997; (ii) financial results of MXNet from October 1, 1997
to the date of acquisition; and (iii) amortization of goodwill over 2.25 years.
The pro forma financial information presented above is not necessarily
indicative of the operating results which would have been achieved had the
acquisition occurred at October 1, 1996 or 1997, or of the results to be
achieved thereafter.
Saturn Global Network Services Holdings Ltd.
On December 18, 1998, the Company acquired all of the issued and outstanding
common shares of Saturn Global Network Services Holdings Limited ("Saturn")
from Marshalls 106 Limited ("Marshalls"). The purchase price included the
payment of cash in the amount of $35.7 million (paid by the Company through
borrowings from IPC) and the issuance by the Company of a promissory note,
guaranteed by IPC, in the amount of $7.5 million bearing interest at the UK
Sterling Base Rate, as defined, plus three percent and payable over three years
(the "Marshalls Note"). In addition, the Company assumed indebtedness of Saturn
due to Marshalls in the amount of $5.0 million payable over 24 months with
interest at 9.25% (the "Saturn Note"). Under this agreement, the Marshalls note
is subject to a working capital adjustment and right of offset. The working
capital adjustment was settled in June 1999 resulting in a reduction of our
obligation by approximately $2.0 million. These notes, including interest, is
payable in the amounts of $4.7 million, $3.2 million and $2.4 million in 2000,
2001 and 2002, respectively.
Saturn, a UK holding company, owns telecommunication network operating
subsidiaries in the United Kingdom, USA, Hong Kong, Australia, Japan and
Singapore. It has an established business of selling managed premium grade
voice and data communication services to the financial community. The
acquisition was accounted for using the purchase method of accounting and
resulted in $49.2 million of goodwill. Saturn goodwill is being amortized over
10 years from the date of the original acquisition.
The following unaudited pro forma statement of operations data for the years
ended September 30, 1999 and 1998 gives effect to the Saturn acquisition as if
it had occurred on October 1, 1998 and 1997, respectively (in thousands):
<TABLE>
<CAPTION>
Year ended
September 30,
------------------
1999 1998
-------- --------
<S> <C> <C>
Revenue.............................................. $ 78,414 $ 61,171
Loss before provision for income taxes............... $(60,686) $(37,834)
</TABLE>
Pro forma adjustments include: (i) amortization of goodwill over 10 years;
(ii) interest expense on the Saturn Note and the Marshalls Note; and (iii)
interest expense on borrowings from IPC at a US bank prime rate plus two
percent. The pro forma financial information presented above is not necessarily
indicative of the operating results which would have been achieved had the
acquisition occurred at October 1, 1998 or 1997, or of the results to be
achieved thereafter.
F-20
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
Strategic Agreement
On September 24, 1999, IXnet entered into a $20 million strategic agreement,
including the licensing of certain software products to enhance the
intelligence of the network, for a purchase price consisting of $10.0 million
in cash, payable within the next twelve months, and 500,000 shares of
restricted IXnet common stock valued at an average closing price prior to the
agreement date. The strategic agreement is intended to create a unique network
infrastructure with embedded intelligence, delivering financial enterprise
integration, subject-based addressing, trading turret integration and
application management capabilities.
5. IPC Merger and Special Charge:
On April 30, 1998, Arizona Acquisition Corp. was merged into IPC (the
"Merger"). In connection with the Merger, IPC issued $247.4 million aggregate
principal amount at maturity of 10 7/8% Senior Discount Notes due 2008 (the
"Notes"). The Notes were issued under an indenture between IPC, as issuer, and
United States Trust Company of New York, as trustee.
The indenture contains various covenants and conditions which impose
limitations on IPC and its subsidiaries (including IXnet), including, (i)
indebtedness, (ii) restricted payments, (iii) dividends, (iv) issuance and sale
of capital stock of subsidiaries, (v) issuance of guarantees by subsidiaries,
(vi) certain transactions with shareholders and affiliates, (vii) liens, (viii)
sale-leaseback transactions, (ix) asset sales, and (x) maintaining various
financial ratios.
In connection with the Merger, IEXN incurred a special charge for bonuses
and the cancellation of IPC stock options of $1.4 million.
6. Property and Equipment:
Property and equipment is comprised of the following (in thousands):
<TABLE>
<CAPTION>
September 30,
----------------
Useful Lives 1999 1998
------------ -------- -------
<S> <C> <C> <C>
Network equipment............................. 2 to 5 years $ 39,700 $15,907
Network equipment under capital leases........ 5 years 28,637 20,717
Indefeasible rights of use.................... IRU term 6,571 4,448
Network software.............................. 3 years 21,485 --
Office equipment and furniture................ 5 years 6,227 3,871
Leasehold improvements........................ Lease term 2,524 2,127
-------- -------
Total depreciable property and equipment.... 105,144 47,070
Less accumulated depreciation and
amortization............................... 24,974 10,719
-------- -------
$ 80,170 $36,351
======== =======
</TABLE>
Included in accumulated depreciation and amortization at September 30, 1999
and 1998, was $10.8 million and $5.8 million, respectively, representing
accumulated depreciation of network equipment under capital leases.
F-21
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
7. Benefit Plans:
Pension Plans
The Company participates in IPC's defined contribution plan covering all
eligible US employees. According to plan provisions, IPC contributions are
discretionary and are subject to approval by IPC's board of directors. Eligible
employees may contribute 15% of their compensation up to $10,000 annually. The
Company contributed $184,519, $103,000 and $48,000 to the plan on behalf of the
Company's employees for the years ended September 30, 1999, 1998 and 1997.
IPC's Stock Option and Incentive Plans
Under IPC's 1994 Stock Option and Incentive Plan, 1998 Stock Option Plan,
and 1999 Incentive Stock Option Plan certain employees of the Company received
grants of stock options.
A summary of IPC's stock option plan and changes related to employees of the
Company as of September 30, 1999, 1998, and 1997, and for the years then ended
is presented below.
<TABLE>
<CAPTION>
Weighted
Average
Option Exercise
Shares Price
-------- --------
<S> <C> <C>
Outstanding at September 30, 1996............................ 231,000 $ 7.93
Options granted............................................ 186,000 $ 7.25
Options forfeited.......................................... (53,334) $ 7.53
Options exercised.......................................... (26,666) $ 6.83
-------- ------
Outstanding at September 30, 1997............................ 337,000 $ 7.71
Options forfeited.......................................... (4,002) $ 7.63
Options exercised.......................................... (4,998) $ 8.00
Options exercised and retired at merger.................... (328,000) $ 7.70
Options granted (1998 Option Plan)......................... 401,734 $10.50
-------- ------
Outstanding at September 30, 1998............................ 401,734 $10.50
Options forfeited.......................................... (22,868) $10.50
Options exercised.......................................... (160,300) $10.50
Options granted............................................ 195,146 $10.50
-------- ------
Outstanding at September 30, 1999............................ 413,712 $10.50
======== ======
</TABLE>
There were 413,712, 0, and 53,445 options exercisable at September 30, 1999,
1998 and 1997, respectively. The weighted average fair value per share of
options granted was $10.50, $4.10, $3.31 for the years ended September 30,
1999, 1998 and 1997, respectively. The weighted average contractual life of
stock options outstanding at September 30, 1999 was 9.1 years.
In connection with the Merger, IPC terminated the 1994 Option Plan and
replaced it with the 1998 Option Plan. Under the 1998 Option Plan, employees
generally vest in stock options over a five-year period, subject to certain
accelerated vesting provisions based on IPC common stock achieving specified
fair market levels for specified periods. Such fair market levels have been met
and accordingly, all options are vested and exercisable.
F-22
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
IXnet 1999 Stock Option Plan
During May 1999, IXnet's Board of Directors and IPC approved the 1999 Stock
Option Plan, authorizing the grant of options to purchase up to 7,053,409
shares of the Company's common stock. At that time, options to purchase
6,530,184 shares were granted to employees, directors and others at an
exercise price of $13.96 per share. Except for 1,763,352 options granted to
the Chief Executive Officer which vested immediately, such options vest over
four years. Options become exercisable, to the extent then vested, 30 months
from the date of grant.
In connection with the issuance of stock options under the Plan, the
Company recorded deferred compensation in the aggregate amount of
approximately $26.4 million based upon the deemed fair market value for
accounting purposes of IXnet's common stock at the date of grant. For the year
ended September 30, 1999, $9.1 million of the deferred compensation was
included as expense. The remaining balance will be amortized over the
remaining vesting period of the options. In addition, certain of these options
are treated as variable options for accounting purposes and may result in
additional deferred compensation expense in future periods.
A summary of IXnet's stock option plan from the initial issuance to
September 30, 1999 is as follows:
<TABLE>
<CAPTION>
Option Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Beginning Balance............................. 6,530,184 $13.96
Options granted............................... 489,764 $16.04
Options forfeited............................. (193,919) $13.98
--------- ------
Outstanding at September 30, 1999............. 6,826,029 $14.11
========= ======
</TABLE>
Stock-Based Compensation
IXnet applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations in accounting for its
stock based compensation plans. Accordingly, no compensation expense has been
recognized for the 1994 or 1998 IPC Option Plan. The Company has adopted the
disclosure-only provisions of SFAS 123, "Accounting for Stock-Based
Compensation". In connection with the IPC Merger, the Company recognized
compensation expense in the amount of $875,000 in the year ended September 30,
1998, representing payments to IXnet option holders upon cancellation of their
IPC stock options. Had compensation expense for employees of the Company
receiving stock options under IXnet's 1999 Stock Option Plan, IPC's 1998 Stock
Option Plan and IPC's 1994 Option Plan been determined based on the fair value
at the grant date for awards under these plans in the years ended September
30, 1999, 1998, and 1997 respectively, consistent with the provisions of SFAS
123, the Company's net loss would have been increased to the pro forma amounts
indicated below (in thousands):
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net loss--as reported...................... $(59,467) $(27,639) $(15,208)
Net loss--pro forma........................ $(63,076) $(28,114) $(15,859)
Basic and diluted loss per share--as
reported.................................. $ (1.35) $ (0.64) $ (0.35)
Basic and diluted loss per share--pro
forma..................................... $ (1.43) $ (0.65) $ (0.37)
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes Option-Pricing Model with the following weighted
average assumptions used for grants for the years ended September
F-23
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
30, 1999, 1998 and 1997, respectively: zero dividend yield and expected
volatility of 0.3%, 0.5% and 0.5%; weighted average risk-free interest rate of
6.0%, 5.61% and 6.01%; and expected lives of 4, 3 and 4 years.
8. Supplemental Financial Data:
Prepaids and other current assets include the following (in thousands):
<TABLE>
<CAPTION>
September 30,
-------------
1999 1998
------ ------
<S> <C> <C>
Value added tax recoverable................................ $3,349 $1,211
Prepaid telecommunication transport lines and circuits..... -- 376
Deposits................................................... -- 750
Other receivables.......................................... 590 --
Other...................................................... 1,566 370
------ ------
$5,505 $2,707
====== ======
</TABLE>
Accounts payable include the following (in thousands):
<TABLE>
<CAPTION>
September 30,
--------------
1999 1998
------- ------
<S> <C> <C>
Installment purchase of IRU................................ $ -- $3,600
Trade accounts payable..................................... 10,198 3,428
------- ------
$10,198 $7,028
======= ======
</TABLE>
Accrued liabilities include the following (in thousands):
<TABLE>
<CAPTION>
September 30,
--------------
1999 1998
------- ------
<S> <C> <C>
Carrier costs.............................................. $12,351 $3,815
Compensation and benefits.................................. 3,463 2,206
Deferred revenue........................................... 2,695 615
Other...................................................... 3,936 2,371
------- ------
$22,445 $9,007
======= ======
</TABLE>
9. IPC's Revolving Credit Facility:
On June 21, 1999, IPC amended and restated its $55.0 million Revolving
Credit Facility to provide for a Working Capital Facility of $45.0 million and
a $20.0 million Term Loan. In addition, certain terms relating to eligibility
of receivables used in determining the amount available under the Working
Capital Facility were changed to increase the availability. The amendment and
restatement also provided for a pledge by IPC Communications of IPC common
stock and a pledge by IPC of IXnet common stock and certain additional
financial covenants including a leverage ratio and fixed charge ratio. All of
the Company's real and personal property will continue to be pledged as
collateral and the Company and its subsidiaries will continue to be guarantors
under IPC's revolving credit agreement. The $20.0 million Term Loan is
repayable in quarterly installments of $1.3 million, commencing September 30,
1999 and bears interest at LIBOR plus 2.75% or at the Base Rate plus 1.75% at
IPC's option. IPC's credit agreement, which provides for both the Working
Capital Facility and the Term Loan, matures on April 30, 2003.
F-24
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
10. Commitments and Contingencies:
Leases
The Company has entered into various operating leases for real estate,
equipment, and telecommunication transport lines and circuits and has entered
into capital lease agreements for certain network equipment.
Future minimum lease payments required under noncancellable capital and
operating leases at September 30, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Fiscal Leases Leases
------ ------- ---------
<S> <C> <C>
2000.................................................. 7,608 24,154
2001.................................................. 7,322 5,438
2002.................................................. 5,184 4,268
2003.................................................. 3,414 3,853
2004.................................................. 1,525 3,813
Thereafter............................................ -- 2,142
------- -------
Total................................................. $25,053 $43,668
=======
Less, amounts representing interest................... 4,005
-------
Net present value of minimum lease payments under
capital leases....................................... $21,048
=======
</TABLE>
Expenses under operating leases were $17.1 million, $13.3 million, and $8.3
million for the years ended September 30, 1999, 1998, and 1997 respectively.
Indefeasible Rights of Use
The Company may enter into IRU agreements for participation in international
cable systems. Commitments under these agreements are payable as follows (in
thousands):
<TABLE>
<CAPTION>
Fiscal
------
<S> <C>
2000........................................... $10,435
2001........................................... 5,202
2002........................................... 863
-------
$16,500
=======
</TABLE>
Intercompany Agreement
As of July 1, 1999, the Company, IPC and IEXN entered into an intercompany
agreement which provides, among other matters, for IPC to furnish up to $50.0
million of credit, including the provision of letters of credit, guarantees and
other forms of credit enhancements limited to $6.25 million per quarter,
commencing July 1, 1999 and continuing through the quarter ending June 30,
2001. Outstanding notes payable on July 1, 1999 and additional amounts borrowed
under the agreement bear interest at the Base Rate, as defined, plus 2%. Any
and all amounts advanced by IPC which are outstanding on June 30, 2001 shall be
immediately due and payable.
F-25
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
The amount due IPC at September 30, 1999 and 1998, respectively, was $52.1
million and $43.6 million. For the quarter ended September 30, 1999, the $6.25
million limitation had been exceeded representing a delay in reimbursement of a
fourth quarter funding by IPC, the transfer of a UK VAT receivable from IPC to
the Company and interest expense on the outstanding amounts. The amounts were
subsequently reimbursed and the balances are now consistent with the
intercompany agreement.
Employment Agreements
The Company has executed employment contracts with certain senior executives
for future services that vary in length up to 5 years, for which the Company
has a minimum commitment aggregating $8.6 million at September 30, 1999.
11. Transactions with IPC:
IPC provided certain corporate functions on behalf of IXnet (relating to
accounting, executive management, legal, administrative, human resources,
information systems, insurance and other corporate functions). These expenses
have been allocated to IXnet based on its direct and indirect utilization of
specific services. Indirect expenses were allocated based on IXnet's headcount
in proportion to combined IXnet and IPC headcount. Included in general and
administrative expenses were corporate allocations of $1.8 million, $1.5
million, and $0.9 million for the years ended September 30, 1999, 1998 and
1997, respectively. Management believes these allocations are reasonable.
Amounts due IPC for these expenses are included in note payable to parent.
The note payable to parent includes net cash advances, payments of third-
party liabilities on behalf of IXnet and amounts due for direct and indirect
services performed by IPC, offset in part by tax benefits related to IXnet
which were utilized by IPC in its consolidated tax return. Interest expense in
the amounts of $5.1 million, $2.2 million, and $1.1 million for the years ended
September 30, 1999, 1998 and 1997, respectively, was charged based on a U.S.
bank prime rate plus two percent on the average net amount outstanding each
month. In addition, the Company uses IPC technicians to install certain network
equipment. Costs incurred for these technicians for the years ended September
30, 1999, 1998 and 1997 were $1.9 million, $325,000 and $250,000, respectively.
IXnet provides domestic and international long distance telecommunications
services to IPC as well as private line services between IPC's domestic
locations. Amounts charged to IPC were $155,000, $170,000 and $165,000 for the
years ended September 30, 1999, 1998 and 1997, respectively.
12. Income Taxes:
Pre tax earnings consisted of the following (in thousands):
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
United States............................... $(55,768) $(28,218) $(15,425)
Foreign..................................... (2,406) 1,052 446
-------- -------- --------
Total pretax earnings....................... $(58,174) $(27,166) $(14,979)
======== ======== ========
</TABLE>
F-26
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
Year ended
September 30,
------------------
1999 1998 1997
------ ----- -----
<S> <C> <C> <C>
Current:
Federal.............................................. $ -- $ -- $ --
State and local...................................... -- -- --
Foreign.............................................. 1,149 358 --
------ ----- -----
$1,149 $ 358 $ --
====== ===== =====
Deferred:
Federal.............................................. $ -- $ -- $ --
State and local...................................... -- -- --
Foreign.............................................. 144 115 229
------ ----- -----
144 115 229
------ ----- -----
Income tax provision................................... $1,293 $ 473 $ 229
====== ===== =====
</TABLE>
The components of net deferred tax liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
September 30,
------------------------------------------------------------------------
1999 1998
----------------------------------- -----------------------------------
Federal State Foreign Total Federal State Foreign Total
-------- ------- ------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Amortization of
intangibles........... $ 3,343 $ 544 $ -- $ 3,887 $ 481 $ 80 $ -- $ 561
Accounts receivable.... -- -- -- -- 217 36 -- 253
Accrued expenses....... 398 65 -- 463 477 80 -- 557
Net operating loss..... 33,300 5,421 -- 38,721 17,512 2,927 -- 20,439
-------- ------- ----- -------- -------- ------- ----- --------
Total deferred tax
assets.............. 37,041 6,030 -- 43,071 18,687 3,123 -- 21,810
Deferred tax
liabilities:
Excess tax over book
depreciation.......... 1,701 367 550 2,618 1,402 234 406 2,042
-------- ------- ----- -------- -------- ------- ----- --------
Net deferred tax
(liability) asset..... 35,340 5,663 (550) 40,453 17,285 2,889 (406) 19,768
Less valuation
allowance........... (35,340) (5,663) -- (41,003) (17,285) (2,889) -- (20,174)
-------- ------- ----- -------- -------- ------- ----- --------
Net deferred tax
liability........... $ -- $ -- $(550) $ (550) $ -- $ -- $(406) $ (406)
======== ======= ===== ======== ======== ======= ===== ========
</TABLE>
The Company is included in the IPC consolidated federal income tax return
and the benefits of their net operating losses have been realized on such
return. Amounts received from IPC related to these benefits have been recorded
as capital contributions. Future income tax benefits from operating losses and
temporary timing differences will be recognized to the extent they would be
realized on a separate return basis.
The following table summarizes the significant differences between the U.S.
federal statutory income tax rate and the Company's effective tax rate for
financial statement purposes.
<TABLE>
<CAPTION>
Year ended September 30,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
U.S. federal statutory income tax rate.. (35.0)% (35.0)% (35.0)%
State and local taxes, net of federal
income tax effect...................... (5.9) (5.9) (5.9)
Change in valuation allowance........... 35.8 41.2 41.3
Other................................... 2.9 1.4 1.1
-------- -------- --------
2.2% 1.7% 1.5%
======== ======== ========
</TABLE>
F-27
<PAGE>
IXNET, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
13. Disclosures about Segments of an Enterprise and Related Information
The Company is focused on providing a seamless global network providing a
variety of voice, data, and content distribution services which has been
specifically designed to meet the specialized requirements of the financial
services industry. All of our revenue is derived from our global network. All
operating expenses and assets of the Company are combined and reviewed by the
chief operating decision makers on an enterprise wide-basis, resulting in no
additional discrete financial information or reportable segment information.
Our network connects customers in 37 countries around the world and we have
major offices in New York, London and Sydney from which we coordinate our sales
and marketing, finance and administrative functions in North America, Europe
and the Asia Pacific countries. We refer to these areas as regions. All of our
products and services are similar in each of the regions. We specifically
address the needs of the financial services industry and therefore the types
and class of customers for all products and services in each of the regions are
similar. The methods of providing services on our global network are similar.
Enterprise wide information is provided in accordance with SFAS 131
"Disclosures about Segments of an Enterprise and Related Information"
Geographic sales information is based on the currency in which the customer is
billed. Long-lived asset information is based on the physical location of the
assets. The following is revenue and long-lived asset information for
geographic areas (in thousands):
<TABLE>
<CAPTION>
Year ended September 30,
------------------------------------------------
1999 1998 1997
---------------- --------------- ---------------
Revenue Assets Revenue Assets Revenue Assets
------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
North America................ $38,764 $ 78,958 $21,892 $40,404 $7,757 $15,298
Europe....................... 22,131 10,693 12,596 6,122 9,712 4,245
Asia/Pacific................. 12,720 47,246 1,365 -- 369 --
------- -------- ------- ------- ------- -------
$73,615 $136,897 $35,853 $46,526 $17,838 $19,543
======= ======== ======= ======= ======= =======
</TABLE>
For the year ended September 30, 1999, revenue from the United States,
United Kingdom, and Australia represented 51.6%, 27.7%, and 10.7% of total
revenue, respectively. For the years ended September 30, 1998 and 1997, revenue
was generated primarily from the United States and the United Kingdom.
Long-lived assets primarily located within the United States, represent
31.8%, 67.0%, and 55.3% of total assets, as of September 30, 1999.
For the year ended September 30, 1999, two customers accounted for 14.0% and
10.0% of total revenue. For the year ended September 30, 1998, two customers
accounted for 23% and 14% of total revenue For the year ended September 30,
1997, one customer accounted for 45% of the total revenue.
F-28
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
Dated as of February 22, 2000
Among
GLOBAL CROSSING LTD.,
GEORGIA MERGER SUB CORPORATION,
IPC COMMUNICATIONS, INC.,
IPC INFORMATION SYSTEMS, INC.,
IDAHO MERGER SUB CORPORATION
and
IXNET, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
<C> <S> <C>
The Mergers............................................................. 2
SECTION 1.01 The Mergers............................................ 2
SECTION 1.02 Closing................................................ 2
SECTION 1.03 Effective Time of the Mergers.......................... 2
SECTION 1.04 Effects of the Mergers................................. 3
SECTION 1.05 Certificate of Incorporation; By-Laws.................. 3
SECTION 1.06 Directors.............................................. 3
SECTION 1.07 Officers............................................... 4
ARTICLE II
Effect of the Merger on the Capital Stock of the Constituent
Corporations........................................................... 4
SECTION 2.01 Effect of Intercompany Merger on Capital Stock......... 4
SECTION 2.02 Effect of IPC Merger on Capital Stock.................. 4
SECTION 2.03 Effect of IXnet Merger on Capital Stock................ 5
SECTION 2.04 Stock Plans............................................ 6
SECTION 2.05 Exchange of Certificates............................... 7
SECTION 2.06 Fractional Shares...................................... 8
SECTION 2.07 Lost, Stolen or Destroyed Certificates................. 8
SECTION 2.08 Appraisal Rights....................................... 8
ARTICLE III
Representations and Warranties.......................................... 9
SECTION 3.01 Representations and Warranties of IPC and IPC Systems.. 9
SECTION 3.02 Representations and Warranties of IXnet................ 19
SECTION 3.03 Representations and Warranties of Parent and Sub....... 28
SECTION 3.04 Representations of Parent and Sub...................... 30
ARTICLE IV
Covenants Relating to Conduct of Business Prior to Mergers.............. 31
SECTION 4.01 Conduct of Business of the Companies................... 31
ARTICLE V
Additional Agreements................................................... 33
SECTION 5.01 Preparation of Forms S-4 and the Information
Statement/Prospectuses; Stockholder Meetings........... 33
SECTION 5.02 Letter of the Companies' Accountants................... 35
SECTION 5.03 Letter of Parent's Accountants......................... 35
SECTION 5.04 Access to Information; Confidentiality................. 36
SECTION 5.05 Reasonable Best Efforts................................ 36
SECTION 5.06 Benefit Plans.......................................... 36
SECTION 5.07 Indemnification........................................ 37
SECTION 5.08 Expenses............................................... 38
SECTION 5.09 Public Announcements................................... 38
SECTION 5.10 Affiliates............................................. 39
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
SECTION 5.11 Listing of Parent Common Stock......................... 39
SECTION 5.12 No Solicitation........................................ 39
SECTION 5.13 Certain Agreements..................................... 40
SECTION 5.14 Stop Transfer.......................................... 40
SECTION 5.15 Compliance with Section 228 of the DGCL................ 40
ARTICLE VI
Conditions Precedent.................................................... 40
SECTION 6.01 Conditions to Each Party's Obligation To Effect the
Mergers............................................... 40
SECTION 6.02 Conditions to Obligations of Parent and GC Merger Sub.. 41
SECTION 6.03 Conditions to Obligation of the Companies and IPC
Systems............................................... 42
ARTICLE VII
Termination, Amendment and Waiver....................................... 42
SECTION 7.01 Termination............................................ 42
SECTION 7.02 Effect of Termination.................................. 43
SECTION 7.03 Amendment.............................................. 43
SECTION 7.04 Extension; Waiver...................................... 43
ARTICLE VIII
General Provisions...................................................... 43
SECTION 8.01 Nonsurvival of Representations and Warranties.......... 43
SECTION 8.02 Notices................................................ 44
SECTION 8.03 Definitions............................................ 44
SECTION 8.04 Interpretation......................................... 45
SECTION 8.05 Counterparts........................................... 45
SECTION 8.06 Entire Agreement; No Third-Party Beneficiaries......... 45
SECTION 8.07 Governing Law.......................................... 45
SECTION 8.08 Assignment............................................. 45
SECTION 8.09 Enforcement; Jurisdiction.............................. 45
SECTION 8.10 Severability........................................... 46
EXHIBITS
Exhibit A Form of Stockholder Consent
Exhibit B Form of Affiliate Letter
</TABLE>
ii
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER dated as of February 22, 2000 among
GLOBAL CROSSING LTD., a company formed under the laws of Bermuda
("Parent"), GEORGIA MERGER SUB CORPORATION, a Delaware corporation and
a wholly owned subsidiary of Parent ("GC Merger Sub"), IPC
COMMUNICATIONS, INC., a Delaware corporation ("IPC"), IPC INFORMATION
SYSTEMS, INC., a Delaware corporation and a wholly owned subsidiary of
IPC ("IPC Systems"), IDAHO MERGER SUB CORPORATION, a Delaware
corporation and a wholly owned subsidiary of IPC Systems ("IPC Merger
Sub" and, together with GC Merger Sub, "Subs"), IXNET, INC., a Delaware
corporation ("IXnet" and, together with IPC, the "Companies")
WHEREAS, the respective Boards of Directors of Parent, GC Merger Sub, IPC
and IPC Systems have determined that the merger of IPC with and into IPC
Systems (the "Intercompany Merger"), and the immediately subsequent merger of
GC Merger Sub with and into IPC Systems (the "IPC Merger"), each upon the terms
and subject to the conditions set forth in this Agreement, would be fair to and
in the best interests of their respective stockholders, and such Boards of
Directors have approved (a) the Intercompany Merger, pursuant to which each
share of Common Stock, par value $0.01 per share, of IPC ("IPC Common Stock")
issued and outstanding immediately prior to the Effective Time of the
Intercompany Merger (as defined in Section 1.03), other than shares of IPC
Common Stock owned, directly or indirectly, by IPC or any wholly owned
subsidiary (as defined in Section 8.03) of IPC or held by IPC as treasury
shares or owned by Parent, GC Merger Sub or any other wholly owned subsidiary
of Parent, will be converted into the right to receive one share of Common
Stock, par value $0.01 per share, of IPC Systems ("IPC Systems Common Stock")
and (b) the IPC Merger, pursuant to which each share of IPC Systems Common
Stock issued and outstanding immediately prior to the Effective Time of the IPC
Merger (as defined in Section 1.03), other than shares of IPC Systems Common
Stock owned, directly or indirectly, by IPC Systems or any wholly owned
subsidiary of IPC Systems or held by IPC Systems as treasury shares or owned by
Parent, GC Merger Sub or any other wholly owned subsidiary of Parent, will be
converted into the right to receive shares of Common Stock, par value $0.01 per
share, of Parent ("Parent Common Stock");
WHEREAS, the respective Boards of Directors of Parent, IPC Merger Sub, IPC,
IPC Systems and IXnet have determined that the merger of IPC Merger Sub with
and into IXnet (the "IXnet Merger", together with the IPC Merger and the
Intercompany Merger, the "Mergers"), upon the terms and subject to the
conditions set forth in this Agreement, would be fair to and in the best
interests of their respective stockholders, and such Boards of Directors have
approved the IXnet Merger, pursuant to which each share of Common Stock, par
value $0.01 per share, of IXnet ("IXnet Common Stock") issued and outstanding
immediately prior to the Effective Time of the IXnet Merger (as defined in
Section 1.03), other than shares of IXnet Common Stock owned, directly or
indirectly, by IPC Systems or IXnet or any of their respective wholly owned
subsidiaries or held by IXnet as treasury shares or owned by Parent or any
wholly owned subsidiary of Parent, will be converted into the right to receive
shares of Parent Common Stock;
WHEREAS, (i) the affirmative vote, by ballot or written consent, of a
majority of the outstanding shares of the IPC Common Stock is required for the
adoption of this Agreement (the "IPC Stockholder Approval") and (ii) the
affirmative vote, by ballot or written consent, of a majority of the
outstanding shares of the IXnet Common Stock is required for the adoption of
this Merger Agreement (the "IXnet Stockholder Approval" and, together with the
IPC Stockholder Approval and the IPC Systems Stockholder Approval (as defined
herein), the "Stockholder Approvals");
WHEREAS, as a condition to its willingness to enter into this Agreement,
Parent has required that Cable Systems Holding, LLC and the other stockholders
of IPC party thereto (the "IPC Stockholders") enter into, and the IPC
Stockholders have agreed to enter into, the Consent and Voting Agreement with
Parent dated of even date herewith (as amended from time to time in accordance
with its terms, the "Voting Agreement") relating to, among other things, the
agreement of the IPC Stockholders to execute and deliver the IPC
A-1
<PAGE>
Stockholder Consent (as defined herein) immediately following the execution and
delivery of this Agreement; and, in order to induce Parent to enter into this
Agreement, the Board of the Directors of IPC has approved the entering into by
Parent and the IPC Stockholders of the Voting Agreement and the consummation of
the transactions contemplated thereby;
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with the Mergers and also to
prescribe various conditions to the Mergers; and
WHEREAS, for Federal income tax purposes, it is intended that each of the
Mergers qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
The Mergers
SECTION 1.01 The Mergers. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General
Corporation Law (the "DGCL"), (a) IPC shall be merged with and into IPC Systems
at the Effective Time of the Intercompany Merger, (b) following the
Intercompany Merger, GC Merger Sub shall be merged with and into IPC Systems at
the Effective Time of the IPC Merger and (c) following the IPC Merger, IPC
Merger Sub shall be merged with and into IXnet at the Effective Time of the
IXnet Merger. Upon the Effective Time of the Intercompany Merger, the separate
existence of IPC shall cease, and IPC Systems shall continue as the surviving
corporation (the "Intercompany Merger Surviving Corporation") of the
Intercompany Merger. Upon the Effective Time of the IPC Merger, the separate
existence of GC Merger Sub shall cease, and IPC Systems shall continue as the
surviving corporation (the "IPC Merger Surviving Corporation") of the IPC
Merger. Upon the Effective Time of the IXnet Merger, the separate existence of
IPC Merger Sub shall cease, and IXnet shall continue as the surviving
corporation (the "IXnet Merger Surviving Corporation" and, together with the
Intercompany Merger Surviving Corporation and the IPC Merger Surviving
Corporation, the "Surviving Corporations") of the IXnet Merger.
SECTION 1.02. Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 7.01 and subject to the satisfaction or waiver of the conditions set
forth in Article VI, the closing of the Mergers (the "Closing") will take place
at 10:00 a.m. on a date to be specified by the parties (the "Closing Date"),
which date shall be no later than the second business day after satisfaction of
the conditions set forth in Article VI, at the offices of Simpson Thacher &
Bartlett, 425 Lexington Avenue, New York, New York 10017, unless another date,
time or place is agreed to in writing by the parties hereto.
SECTION 1.03 Effective Time of the Mergers. Upon the Closing, the parties
shall cause each Surviving Corporation to file a certificate of merger relating
to its Merger (the "Certificates of Merger") with the Secretary of State of the
State of Delaware and shall make all other filings or recordings required under
the DGCL. The Intercompany Merger shall become effective at such time as the
Certificate of Merger for the Intercompany Merger shall have been duly filed
with the Secretary of State of the State of Delaware, or at such later time as
is agreed by Parent and IPC and specified in such Certificate of Merger (the
time the Intercompany Merger becomes effective being the "Effective Time of the
Intercompany Merger"). The IPC Merger shall become effective at such time as
the Certificate of Merger for the IPC Merger shall have been duly filed with
the Secretary of State of the State of Delaware, or at such later time as is
agreed by Parent and IPC and specified in such Certificate of Merger (the time
the IPC Merger becomes effective being the "Effective Time of the IPC Merger").
The IXnet Merger shall become effective at such time as the Certificate
A-2
<PAGE>
of Merger for the IXnet Merger shall have been duly filed with the Secretary of
State of the State of Delaware, or at such later time as agreed by Parent and
IXnet and specified in such Certificate of Merger (the time the IXnet Merger
becomes effective being the "Effective Time of the IXnet Merger"; and the time
by which all the Mergers have become effective being the "Effective Time"). The
parties shall cause the IPC Merger to become effective immediately following
the Effective Time of the Intercompany Merger and the IXnet Merger to become
effective immediately following the Effective Time of the IPC Merger.
SECTION 1.04 Effects of the Mergers. The Mergers shall have the effects set
forth in Section 259 of the DGCL (or any successor provision).
SECTION 1.05 Certificate of Incorporation; By-Laws. (a) (i) The certificate
of incorporation of IPC Systems, as in effect immediately prior to the
Effective Time of the Intercompany Merger, shall be the certificate of
incorporation of the Intercompany Merger Surviving Corporation, except that at
the Effective Time of the Intercompany Merger such certificate of incorporation
shall be amended as follows: Article Four shall be amended to read in its
entirety as follows: "The total number of shares of stock which the Corporation
shall have the authority to issue is 25,000,000 shares, each having a par value
of one cent ($0.01).".
(ii) The By-laws of IPC Systems as in effect at the Effective Time of the
Intercompany Merger shall be the By-laws of the Intercompany Merger Surviving
Corporation until thereafter changed or amended as provided therein or by
applicable law.
(b) (i) The certificate of incorporation of IPC Systems, as in effect
immediately prior to the Effective Time of the IPC Merger, shall be the
certificate of incorporation of the IPC Merger Surviving Corporation, except
that at the Effective Time of the IPC Merger such certificate of incorporation
shall be amended as follows: Article Four shall be amended to read in its
entirety as follows: "The total number of shares of stock which the Corporation
shall have the authority to issue is 1,000 shares, each having a par value of
one cent ($0.01)."
(ii) The By-laws of IPC Systems as in effect at the Effective Time of the
IPC Merger shall be the By-laws of the IPC Merger Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
(c) (i) The certificate of incorporation of IXnet, as in effect immediately
prior to the Effective Time of the IXnet Merger, shall be the certificate of
incorporation of the IXnet Merger Surviving Corporation, except that at the
Effective Time of the IXnet Merger such certificate of incorporation shall be
amended as follows: Article Four shall be amended to read in its entirety as
follows: "The total number of shares of stock which the Corporation shall have
the authority to issue is 1,000 shares, each having a par value of one cent
($0.01)."
(ii) The By-laws of IXnet as in effect at the Effective Time of the IXnet
Merger shall be the By-laws of the IXnet Merger Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.06 Directors. (a) The directors of IPC at the Effective Time of
the Intercompany Merger shall be the directors of the Intercompany Merger
Surviving Corporation, until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
(b) The directors of GC Merger Sub at the Effective Time of the IPC Merger
shall be the directors of the IPC Merger Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
(c) The directors of IPC Merger Sub at the Effective Time of the IXnet
Merger shall be the directors of the IXnet Merger Surviving Corporation, until
the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
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SECTION 1.07 Officers. (a) The officers of IPC at the Effective Time of the
Intercompany Merger shall be the officers of the Intercompany Merger Surviving
Corporation, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.
(b) The officers of GC Merger Sub at the Effective Time of the IPC Merger
shall be the officers of the IPC Merger Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
(c) The officers of IPC Merger Sub at the Effective Time of the IXnet Merger
shall be the officers of the IXnet Merger Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
ARTICLE II
Effect of the Merger on the Capital Stock of the Constituent Corporations
SECTION 2.01 Effect of Intercompany Merger on Capital Stock. As of the
Effective Time of the Intercompany Merger, by virtue of the Intercompany Merger
and without any action on the part of the holder of any shares of IPC Common
Stock or any shares of capital stock of IPC Systems:
(a) Common Stock of IPC Systems. Each share of IPC Systems Common Stock
issued and outstanding immediately prior to the Effective Time of the
Intercompany Merger shall automatically be cancelled and retired and shall
cease to exist, and no consideration shall be delivered or deliverable in
exchange therefor.
(b) Conversion of IPC Common Stock. Except as otherwise provided herein,
each issued and outstanding share of IPC Common Stock shall be converted into
one fully paid and nonassessable share of the common stock ("Intercompany
Merger Surviving Corporation Common Stock") of the Intercompany Merger
Surviving Corporation (the "Intercompany Merger Exchange Ratio").
(c) Cancellation and Retirement of IPC Common Stock. Except as otherwise
provided herein, from and after the Effective Time of the Intercompany Merger,
all shares of IPC Common Stock issued and outstanding immediately prior to the
Effective Time of the Intercompany Merger shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to exist, and each
certificate which immediately prior to the Effective Time of the Intercompany
Merger represented shares of IPC Common Stock (an "IPC Share Certificate")
shall automatically be deemed to represent the number of shares of Intercompany
Merger Surviving Corporation Common Stock to be issued to the holder of such
IPC Share Certificate pursuant to Section 2.01(b) (the "Intercompany Merger
Consideration").
SECTION 2.02 Effect of IPC Merger on Capital Stock. As of the Effective Time
of the IPC Merger, by virtue of the IPC Merger and without any action on the
part of the holder of any shares of IPC Systems Common Stock or any shares of
capital stock of GC Merger Sub:
(a) Common Stock of GC Merger Sub. Each share of common stock, par value
$0.01 per share, of GC Merger Sub issued and outstanding immediately prior to
the Effective Time of the IPC Merger shall be converted into one share of the
common stock of the IPC Merger Surviving Corporation and shall constitute the
only issued and outstanding capital stock of the IPC Merger Surviving
Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Intercompany Merger
Surviving Corporation Common Stock. Each share of Intercompany Merger Surviving
Corporation Common Stock that is owned by the Intercompany Merger Surviving
Corporation or held by the Intercompany Merger Surviving Corporation as
treasury shares or owned by any direct or indirect wholly owned subsidiary of
the Intercompany Merger Surviving Corporation and each share of Intercompany
Merger Surviving Corporation Common Stock that is
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owned by Parent, GC Merger Sub or any other direct or indirect wholly owned
subsidiary of Parent shall automatically be cancelled and retired and shall
cease to exist, and no Parent Common Stock or other consideration shall be
delivered or deliverable in exchange therefor.
(c) Conversion of Intercompany Merger Surviving Corporation Common
Stock. Except as otherwise provided herein, each issued and outstanding share
of Intercompany Merger Surviving Corporation Common Stock shall be converted
into the right to receive from Parent 5.417 fully paid and nonassessable shares
of Parent Common Stock (the "IPC Merger Exchange Ratio"); provided, however,
that, in any event, if between the date of this Agreement and the Effective
Time of the IPC Merger the outstanding shares of Parent Common Stock or IPC
Common Stock shall have been changed into a different number of shares or a
different class (other than pursuant to the Intercompany Merger), by reason of
any stock dividend, subdivision, reclassification, recapitalization,
redenomination, split, combination or exchange of shares, the IPC Merger
Exchange Ratio shall be correspondingly adjusted to reflect such stock
dividend, subdivision, reclassification, recapitalization, redenomination,
split, combination or exchange of shares.
(d) Cancellation and Retirement of Intercompany Merger Surviving Corporation
Common Stock. From and after the Effective Time of the IPC Merger, all shares
of Intercompany Merger Surviving Corporation Common Stock issued and
outstanding immediately prior to the Effective Time of the IPC Merger shall no
longer be outstanding and shall automatically be cancelled and retired and
shall cease to exist, and each holder of an IPC Share Certificate shall cease
to have any rights with respect to the common stock formerly represented
thereby, except the right to receive the consideration to be issued to holders
of Intercompany Merger Surviving Corporation Common Stock in the IPC Merger
pursuant to Section 2.02(c) (the "IPC Merger Consideration"), any cash in lieu
of fractional shares of Parent Common Stock to be paid in consideration
therefor upon surrender of such certificate in accordance with Section 2.06 and
any dividends payable pursuant to Section 2.05(f).
SECTION 2.03 Effect of IXnet Merger on Capital Stock. As of the Effective
Time of the IXnet Merger, by virtue of the IXnet Merger and without any action
on the part of the holder of any shares of IXnet Common Stock or any shares of
capital stock of IPC Merger Sub:
(a) Common Stock of IPC Merger Sub. Each share of common stock, par value
$0.01 per share, of IPC Merger Sub issued and outstanding immediately prior to
the Effective Time of the IXnet Merger shall be converted into one share of the
common stock of the IXnet Merger Surviving Corporation and shall constitute the
only issued and outstanding capital stock of the IXnet Merger Surviving
Corporation.
(b) Cancellation of Treasury Stock and Parent-and IPC Merger Surviving
Corporation-Owned IXnet Common Stock. Each share of IXnet Common Stock that is
owned by IXnet or held by IXnet as treasury shares or owned by any direct or
indirect wholly owned subsidiary of IXnet, and each share of IXnet Common Stock
that is owned by Parent, the IPC Merger Surviving Corporation or any of their
direct or indirect wholly owned subsidiaries shall automatically be cancelled
and retired and shall cease to exist, and no Parent Common Stock or other
consideration shall be delivered or deliverable in exchange therefor.
(c) Conversion of IXnet Common Stock. Except as otherwise provided herein,
each issued and outstanding share of IXnet Common Stock shall be converted into
the right to receive from Parent 1.184 fully paid and nonassessable shares of
Parent Common Stock (the "IXnet Merger Exchange Ratio"); provided, however,
that, in any event, if between the date of this Agreement and the Effective
Time of the IXnet Merger the outstanding shares of Parent Common Stock or IXnet
Common Stock shall have been changed into a different number of shares or a
different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, redenomination, split, combination or
exchange of shares, the IXnet Merger Exchange Ratio shall be correspondingly
adjusted to reflect such stock dividend, subdivision, reclassification,
recapitalization, redenomination, split, combination or exchange of shares.
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(d) Cancellation and Retirement of IXnet Common Stock. From and after the
Effective Time of the IXnet Merger, all shares of IXnet Common Stock issued and
outstanding immediately prior to the Effective Time of the IXnet Merger shall
no longer be outstanding and shall automatically be cancelled and retired and
shall cease to exist, and each holder of a certificate which immediately prior
to the Effective Time of the IXnet Merger represented shares of IXnet Common
Stock (an "IXnet Share Certificate" and, together with the IPC Share
Certificates, "Share Certificates") shall cease to have any rights with respect
thereto, except the right to receive the consideration to be issued to holders
of IXnet Common Stock in the IXnet Merger pursuant to Section 2.03(c) (the
"IXnet Merger Consideration" and, together with the IPC Merger Consideration,
the "Merger Consideration"), any cash in lieu of fractional shares of Parent
Common Stock to be paid in consideration therefor upon surrender of such
certificate in accordance with Section 2.06 and any dividends payable pursuant
to Section 2.05(f).
SECTION 2.04 Stock Plans. (a) Prior to the Effective Time of the Mergers,
each of IPC and IXnet (x) shall take all action necessary (including obtaining
any necessary consents and/or waivers) to ensure that from and after the
Effective Time of the Mergers, all options granted to Employees to purchase
shares of IPC Common Stock ("IPC Options") or IXnet Common Stock ("IXnet
Options" and, together with IPC Options, "Options"), which are then outstanding
and unexercised (whether or not vested or exercisable), shall, without any
further action on the part of the holders thereof, be converted into and
become, respectively, options to purchase shares of Parent Common Stock on
terms substantially identical to those in effect immediately prior to the
Effective Time of the Mergers under the terms of the stock option plan or other
agreement or award pursuant to which such Options were granted (collectively,
such plans, agreements and awards of IPC or IXnet being hereinafter referred to
as the "Stock Plans") and Parent shall assume the Stock Plans with respect to
then outstanding options (but taking into account any changes thereto,
including the acceleration thereof, provided for in the applicable Stock Plans
resulting from the Mergers) as limited by the Agreement entered into February
22, 2000, among Parent, IPC, IXnet and certain holders of Options ("Option
Limitation Agreement") and (y) shall amend Section 5(c) of each Stock Plan to
provide that vesting of any Option thereunder held by a party to the Option
Limitation Agreement in connection with or relating to a change of control (as
such term is defined in the Stock Plans) shall be limited in accordance with
the Option Limitation Agreement and shall amend Section 5(d) of the IXnet Stock
Plan to provide that 25% of IXnet Options held by a person who is not a party
to the Option Limitation Agreement or held by William Adiletta or Richard
Farrell shall become exercisable upon a Change in Control; provided, however,
that from and after the Effective Time of the Mergers (i) each such Option
assumed by Parent may be exercised solely to purchase shares of Parent Common
Stock, (ii) the number of shares of Parent Common Stock purchasable upon
exercise of such Option shall be equal to, in the case of IPC Options, the
number of shares of Parent Common Stock subject to such Option multiplied by
the IPC Merger Exchange Ratio, rounded, if necessary, to the nearest whole
share of Parent Common Stock, at a price per share (rounded to the nearest one-
hundredth of a cent) equal to the per share exercise price specified in such
Option divided by the IPC Merger Exchange Ratio and, in the case of IXnet
Options, the number of shares of Parent Common Stock subject to such Option
multiplied by the IXnet Merger Exchange Ratio, rounded, if necessary, to the
nearest whole share of Parent Common Stock, at a price per share (rounded to
the nearest one-hundredth of a cent) equal to the per share exercise price
specified in such Option divided by the IXnet Merger Exchange Ratio.
(b) Neither the vesting nor the exercisability of any Option shall
accelerate as a result of, or in connection with, the transactions contemplated
hereby, except to the extent required by the existing terms of the Stock Plan
or stock option agreement pursuant to which such Option was granted, as in
effect on the date hereof and as limited or as adjusted pursuant to the
amendments referred to in Section 2.04(a) and the Option Limitation Agreement.
Notwithstanding the foregoing, the number of shares and the per share exercise
price of each Option which is intended to be an "incentive stock option" (as
defined in Section 422 of the Code) shall be adjusted in accordance with the
requirements of Section 424 of the Code.
(c) Parent shall, as of the Effective Time of the Mergers, reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of Options assumed by it in accordance with this
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Section 2.04, such number not to be reduced except to the extent such Options
are exercised, canceled or terminated pursuant to their terms. Upon the
Effective Time of the Mergers or as soon as reasonably practicable thereafter,
Parent shall file, or cause to be filed, a registration statement(s) on Form S-
3 or Form S-8, as the case may be (or any successor or other appropriate
forms), with respect to the shares of Parent Common Stock subject to such
Options and shall cause such registration statement(s) to remain effective (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as such Options remain outstanding.
(d) At least ten days prior to the Effective Time of the Mergers, the
Companies shall notify each grantee under every Stock Plan that such plan is to
be assumed by Parent as of the Effective Time of the Mergers, and that, to the
extent not exercised prior to the Effective Time of the Mergers, each
outstanding Option thereunder will be assumed by Parent and thereafter may be
exercised solely to purchase shares of Parent Common Stock in accordance with
Section 2.04(a) hereof.
SECTION 2.05 Exchange of Certificates. (a) Prior to the Effective Time of
the Mergers, Parent shall appoint an agent (the "Exchange Agent") for the
purpose of exchanging Share Certificates for the applicable Merger
Consideration. Immediately following the Effective Time of the Mergers, Parent
shall deposit with the Exchange Agent, for the benefit of the holders of Share
Certificates, certificates representing the Parent Common Stock issuable
pursuant to Section 2.02 or 2.03 in exchange for Share Certificates. Promptly
after the Effective Time of the Mergers, Parent will send, or will cause the
Exchange Agent to send, to each holder of a Share Certificate at the Effective
Time of the Mergers (i) a letter of transmittal for use in such exchange which
shall specify that delivery of the applicable Merger Consideration shall be
effected, and risk of loss and title to the certificates representing Parent
Common Stock and Share Certificates shall pass, only upon proper delivery of
the Share Certificates to the Exchange Agent and (ii) instructions for use in
effecting the surrender of such Share Certificates in exchange for the
certificates representing Parent Common Stock.
(b) Each holder of Share Certificates that formerly represented shares of
IPC Common Stock, IPC Systems Common Stock or IXnet Common Stock which have
been converted into a right to receive Merger Consideration, upon surrender to
the Exchange Agent of such Share Certificates, together with a properly
completed letter of transmittal covering such Share Certificates, will be
entitled to receive the applicable Merger Consideration payable in respect of
such Share Certificates and any dividends payable pursuant to Section 2.05(f).
Until so surrendered, each such Share Certificate shall, after the Effective
Time of the Mergers, represent for all purposes only the right to receive the
applicable Merger Consideration, any cash payable in lieu of fractional shares
pursuant to Section 2.06 and any dividends payable pursuant to Section 2.05(f).
(c) If any portion of the applicable Merger Consideration is to be paid to a
person other than the registered holder of a Share Certificate, it shall be a
condition to such payment that such Share Certificate so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
person requesting such payment shall pay to the Exchange Agent any transfer or
other taxes required by reason of the issuance of shares of Parent Common Stock
in exchange for the Share Certificate so surrendered or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
(d) After the Effective Time of the Mergers, there shall be no further
registration of transfers of shares of IPC Common Stock, IPC Systems Common
Stock or IXnet Common Stock. If, after the Effective Time of the Mergers, Share
Certificates are presented to a Surviving Corporation, they shall be cancelled
and exchanged for the applicable Merger Consideration provided for, and in
accordance with the procedures set forth, in this Article II.
(e) Any portion of the applicable Merger Consideration made available to the
Exchange Agent pursuant to Section 2.05(a) that remains unclaimed by the
holders of Share Certificates six months after the Effective Time of the
Mergers shall be returned to Parent, upon demand, and any such holder who has
not exchanged his Share Certificates for the applicable Merger Consideration in
accordance with this Section 2.05 prior to that time shall thereafter look only
to Parent for payment of the applicable Merger Consideration, any cash payable
in lieu of
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fractional shares pursuant to Section 2.06 and any dividends payable pursuant
to Section 2.05(f) in respect of his shares. Notwithstanding the foregoing,
Parent shall not be liable to any holder of Share Certificates for any amount
paid to a public official pursuant to applicable abandoned property laws. Any
amounts remaining unclaimed by holders of Share Certificates seven years after
the Effective Time of the Mergers (or such earlier date immediately prior to
such time as such amounts would otherwise escheat to or become property of any
governmental entity) shall, to the extent permitted by applicable law, become
the property of Parent free and clear of any claims or interest of any person
previously entitled thereto.
(f) No dividends or other distributions with respect to Parent Common Stock
issued in the Mergers shall be paid, and no voting rights with respect to
Parent Common Stock issued in the Mergers will be accorded, to the holder of
any unsurrendered Share Certificates until such certificates are surrendered as
provided in this Section 2.05. Subject to the effect of applicable laws,
following the surrender of such certificates, there shall be paid, without
interest, to the record holder of the Parent Common Stock issued in exchange
therefor at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time of the Mergers
payable prior to or on the date of such surrender with respect to such whole
shares of Parent Common Stock and not previously paid, less the amount of any
withholding taxes (if any) which may be required thereon.
SECTION 2.06 Fractional Shares. (a) No certificates or scrip representing
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Share Certificates and such fractional share interests will not
entitle the owner thereof to vote or to have any rights of a holder of Parent
Common Stock.
(b) Notwithstanding any other provision of this Agreement, each holder of
shares of IPC Systems Common Stock or IXnet Common Stock exchanged pursuant to
the Mergers who would otherwise have been entitled to receive a fraction of a
share of Parent Common Stock (after taking into account all Share Certificates
delivered by such holder) shall be entitled to receive, in lieu thereof, cash
(without interest) in an amount equal to the product of (i) such fractional
part of a share of Parent Common Stock and (ii) the average closing price of
the Parent Common Stock on NASDAQ for the 20 trading days prior to and ending
on the trading day immediately preceding the Closing Date (the "Average
Price"). As promptly as practicable after the determination of the amount of
cash, if any, to be paid to holders of fractional interests, the Exchange Agent
shall so notify Parent, and Parent shall deposit such amount with the Exchange
Agent and shall cause the Exchange Agent to forward payments to such holders of
fractional interests subject to and in accordance with the terms hereof.
SECTION 2.07 Lost, Stolen or Destroyed Certificates. If any Share
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such certificate to be lost,
stolen or destroyed and, if requested by Parent, the posting by such person of
a bond in such reasonable amount as Parent may direct as indemnity against any
claim that may be made against it or its subsidiaries with respect to such
certificate, the Exchange Agent will deliver in exchange for such lost, stolen
or destroyed certificate the applicable Merger Consideration with respect to
the shares of capital stock formerly represented thereby, any cash in lieu of
fractional shares of Parent Common Stock, and any unpaid dividends or
distributions in respect of or on Parent Common Stock deliverable in respect
thereof pursuant to this Agreement.
SECTION 2.08 Appraisal Rights. (a) Notwithstanding anything in this
Agreement to the contrary, if provided for by applicable law, shares of IPC
Common Stock that are issued and outstanding immediately prior to the Effective
Time of the Intercompany Merger and that are owned by stockholders who have
properly perfected their rights of appraisal within the meaning of Section 262
of the DGCL (the "IPC Dissenting Shares") shall not be converted into the right
to receive the Intercompany Merger Consideration with respect thereto, unless
and until such stockholders shall have failed to perfect their right of
appraisal under applicable law, but, instead, if provided by applicable law,
the holders thereof shall be entitled to payment of the appraised value of such
IPC Dissenting Shares in accordance with Section 262 of the DGCL. If any such
holder shall
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have failed to perfect or shall have effectively withdrawn or lost such right
of appraisal, each share of IPC Common Stock held by such stockholder shall
thereupon be deemed to have been converted into the right to receive and become
exchangeable for, at the Effective Time of the Intercompany Merger, the
Intercompany Merger Consideration with respect thereto, in the manner provided
for in Section 2.01.
(b) IPC shall give Parent (i) prompt notice of any demands for appraisal
filed pursuant to Section 262 of the DGCL received by IPC, withdrawals of such
objections and any other instruments served or delivered in connection with
such demands pursuant to the DGCL and received by IPC and (B) the opportunity
to participate in all negotiations and proceedings with respect to demands
under the DGCL consistent with the obligations of IPC thereunder. IPC shall
not, except with the prior written consent of Parent, (x) make any payment with
respect to any such demand, (y) offer to settle or settle any such demand or
(z) waive any failure to timely deliver a written demand for appraisal or
timely take any other action to perfect appraisal rights in accordance with the
DGCL.
ARTICLE III
Representations and Warranties
SECTION 3.01 Representations and Warranties of IPC and IPC Systems. Each of
IPC and IPC Systems represents and warrants to Parent and GC Merger Sub as
follows:
(a) Organization, Standing and Corporate Power. IPC and each of its
subsidiaries is duly organized, validly existing and in good standing (with
respect to jurisdictions which recognize the concept of good standing)
under the laws of the jurisdiction in which it is incorporated and has the
requisite corporate power and authority to carry on its business as now
being conducted, except where the failure to have such power and authority
could not reasonably be expected to have an IPC Material Adverse Effect or
an IXnet Material Adverse Effect (each as defined in Section 8.3). IPC and
each of its subsidiaries is duly qualified or licensed to do business and
is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) would not be reasonably expected to have an IPC Material Adverse
Effect. The Recent SEC Documents (as defined in Section 3.01(e)) contain as
exhibits complete and correct copies of the Certificate of Incorporation
and By-laws of each of IPC and IXnet, in each case as amended to the date
of this Agreement.
(b) Subsidiaries. The only direct or indirect subsidiaries of IPC are
those listed in Section 3.01(b) of the disclosure schedule ("Disclosure
Schedule") delivered to Parent by IPC at the time of execution of this
Agreement. All the outstanding shares of capital stock of each such
subsidiary have been validly issued and are fully paid and nonassessable
and are owned (of record and beneficially) by IPC, by another subsidiary
(wholly owned) of IPC or by IPC and another such subsidiary (wholly owned),
free and clear of all pledges, claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever (collectively,
"Liens"), except as set forth in Section 3.01(b) of the Disclosure
Schedule. Except for the ownership interests set forth in Section 3.01(b)
of the Disclosure Schedule or in the Recent SEC Documents, IPC does not
own, directly or indirectly, any capital stock or other ownership interest,
and does not have any option or similar right to acquire any assets or
equity or other ownership interest, in any corporation, partnership,
business association, joint venture or other entity. IPC directly owns all
the issued and outstanding capital stock of IPC Systems and IPC Systems
directly owns all the issued and outstanding shares of capital stock of
IXnet that are beneficially owned by IPC.
(c) Capital Structure. As of February 21, 2000, the authorized capital
stock of IPC consists of (i) 25,000,000 shares of IPC Common Stock, and
(ii) 10,000,000 shares of preferred stock, each having a par value of one
cent ($0.01) ("IPC Preferred Stock"). As of the close of business on
February 21, 2000, there were (i) 8,823,151 shares of IPC Common Stock and
0 shares of IPC Preferred Stock issued and
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outstanding; (ii) 0 shares of IPC Common Stock held in the treasury of IPC;
(iii) 40 shares of IPC Common Stock reserved for issuance upon exercise of
authorized but unissued IPC Options pursuant to the Stock Plans; and (iv)
1,132,793 shares of IPC Common Stock issuable upon exercise of outstanding
IPC Options. Section 3.01(c) of the Disclosure Schedule sets forth the name
of each holder of outstanding options to acquire shares of IPC Common
Stock, the number of options held and the exercise prices of such options.
Except as set forth above, as of the date hereof, no shares of capital
stock or other equity securities of IPC are issued, reserved for issuance
or outstanding. All outstanding shares of capital stock of IPC are, and all
shares which may be issued pursuant to the Stock Plans will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. Other than IPC Options, there are no
outstanding bonds, debentures, notes or other indebtedness or other
securities of IPC having the right to vote (or convertible into, or
exchangeable or exercisable for, securities having the right to vote) on
any matters on which stockholders of IPC may vote. Except as set forth
above, there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind
to which IPC or any of its subsidiaries is a party or by which any of them
is bound obligating IPC or any of its subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other equity or voting securities of IPC or of any of its
subsidiaries or obligating IPC or any of its subsidiaries to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. Except as set forth in
the Recent SEC Documents and except for such indebtedness which is not
material to IPC, IPC and its subsidiaries have no indebtedness. Other than
the Options, (i) there are no outstanding contractual obligations,
commitments, understandings or arrangements of IPC or any of its
subsidiaries to repurchase, redeem or otherwise acquire or make any payment
in respect of any shares of capital stock of IPC or any of its subsidiaries
and (ii) there are no irrevocable proxies with respect to shares of capital
stock of IPC or any subsidiary of IPC. Except as set forth above or in
Section 3.01(c) of the Disclosure Schedule or in the Recent SEC Documents,
there are no agreements or arrangements pursuant to which IPC is or could
be required to register shares of IPC Common Stock or other securities
under the Securities Act of 1933, as amended (the "Securities Act"), or
other agreements or arrangements with or among any securityholders of IPC
with respect to securities of IPC. The authorized capital stock of IPC
Merger Sub consists of 100 shares of common stock, par value $0.01 per
share, all of which have been validly issued, are fully paid and
nonassessable and are owned directly by IPC, free and clear of any Lien.
(d) Authority; Noncontravention. Each of IPC, IPC Systems and IPC Merger
Sub has the requisite corporate and other power and authority to enter into
this Agreement and, subject to the Stockholder Approvals, each of which is
being obtained by written consent immediately following the execution of
this Agreement, each of them has the requisite corporate and other power
and authority to consummate the transactions contemplated hereby and
thereby. After the delivery of the Stockholder Consents, no vote, approval
or other action on the part of any holder of IPC Common Stock, IPC Systems
Common Stock or IXnet Common Stock shall be required to adopt this
Agreement and consummate the transactions contemplated hereby, including
the Mergers. No corporate action is required to be taken by IXnet or its
stockholders in connection with the consummation of the Intercompany Merger
or the IPC Merger. The execution and delivery of this Agreement by IPC, IPC
Systems, IXnet and IPC Merger Sub and the consummation by them of the
transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of IPC, IPC Systems and IPC
Merger Sub, subject, in the case of the IPC Merger and the Intercompany
Merger to the IPC Systems Stockholder Approval and the IPC Stockholder
Approval, respectively. This Agreement has been duly executed and delivered
by each of IPC, IPC Systems, IXnet and IPC Merger Sub and constitutes a
valid and binding obligation of IPC, IPC Systems, IXnet and IPC Merger Sub,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors generally,
by general equitable principles (regardless of whether such enforceability
is considered in a proceeding in equity or at law) or by an implied
covenant of good faith and fair dealing. Except as disclosed in Section
3.01(d) of the Disclosure Schedule, the execution and delivery of this
Agreement and the Voting Agreement do not, and the consummation of the
transactions
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contemplated hereby and thereby and compliance with the provisions hereof
and thereof will not (including the delivery of the Stockholder Consents),
conflict with, or result in any breach or violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of or "put" right with respect to
any obligation or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of IPC or any of
its subsidiaries under, (i) the Certificate of Incorporation or By-laws of
IPC or the comparable charter or organizational documents of any of its
subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to IPC or any of its subsidiaries or their
respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule, regulation or
arbitration award applicable to IPC or any of its subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii)
and (iii), any such conflicts, breaches, violations, defaults, rights,
losses or Liens that individually or in the aggregate could not be
reasonably expected to have an IPC Material Adverse Effect. No consent,
approval, order or authorization of, or registration, declaration or filing
with, or notice to, any Federal, state or local government or any court,
administrative agency or commission or other governmental authority or
agency, domestic or foreign (a "Governmental Entity"), is required by or
with respect to IPC or any of its subsidiaries in connection with the
execution and delivery of this Agreement by IPC, IPC Systems, IXnet or IPC
Merger Sub, as applicable, or the consummation by IPC, IPC Systems, IXnet
or IPC Merger Sub of the transactions contemplated hereby or thereby
(including the delivery of the Stockholder Consents), except, with respect
to this Agreement, for (i) the filing of a premerger notification and
report form by IPC and IXnet under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (ii) the filing with
the SEC of (y) Information Statements (as defined herein) relating to each
of the Mergers, and (z) such reports under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as may be required in connection
with this Agreement, the Voting Agreement and the transactions contemplated
hereby and thereby, (iii) the filing of the Certificates of Merger with the
Secretary of State of the State of Delaware and the filing of appropriate
documents with the relevant authorities of other states in which IPC or
IXnet is qualified to do business and (iv) such other consents, approvals,
orders, authorizations, registrations, declarations, filings or notices as
are set forth in Section 3.01(d) of the Disclosure Schedule.
(e) SEC Documents; Undisclosed Liabilities. IPC and, to the extent
applicable, its subsidiaries have filed all required reports, schedules,
forms, statements and other documents with the Securities and Exchange
Commission (the "SEC") since October 1, 1998, and IPC has delivered or made
available to Parent all reports, schedules, forms, statements and other
documents filed by IPC and, to the extent applicable, its subsidiaries with
the SEC since such date (collectively, and in each case including all
exhibits and schedules thereto and documents incorporated by reference
therein, the "SEC Documents"). As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such SEC
Documents, and none of the SEC Documents (including any and all financial
statements included therein) as of such dates (and, if amended or
superseded by a filing prior to the date of this Agreement, then on the
date of such filing) contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The consolidated financial
statements (including the related notes) of IPC and of IXnet included in
all SEC Documents filed since October 1, 1998 (the "SEC Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited
consolidated quarterly statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated
financial position of IPC and its consolidated subsidiaries or IXnet and
its consolidated subsidiaries as the case may be as of the dates thereof
and the consolidated
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results of their respective operations and cash flows for the periods then
ended (subject, in the case of unaudited quarterly statements, to normal
year-end audit adjustments that have not been and are not expected to be
material in amount). Except as set forth in Schedule 3.01(e), at the date
of the most recent audited financial statements of IPC included in the SEC
Documents filed by IPC or its subsidiaries since October 1, 1998 and prior
to the date of this Agreement (the "Recent SEC Documents"), neither IPC nor
any of its subsidiaries had, and since such date neither IPC nor any of
such subsidiaries incurred, any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) which, individually or
in the aggregate, would reasonably be expected to have an IPC Material
Adverse Effect. To the best of IPC's knowledge, (i) all historical
financial statements supplied to Parent by IPC for periods subsequent to
December 31, 1999 have been prepared in accordance with generally accepted
accounting principles (except as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated
financial position of IPC and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for
the periods then ended (subject to normal year-end adjustments that have
not been and are not expected to be material in amount) and (ii) all
financial data so supplied for such periods is true and accurate in all
material respects.
(f) Information Supplied. None of the information supplied or to be
supplied by IPC for inclusion or incorporation by reference in (i) the
Forms S-4 (as defined in Section 5.01) will, at the time each Form S-4 is
filed with the SEC, and at any time it is amended or supplemented or at the
time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, and (ii) each Information Statement/Prospectus (as defined in
Section 5.01(a)) will, at the date it is first mailed to IPC's stockholders
or IXnet's stockholders, as the case may be, or at the time of the
applicable Stockholders Meeting (as defined in Section 5.01(c)) or the
IXnet Stockholder Meeting, as the case may be, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Forms S-4
and the Information Statement/Prospectuses will comply as to form in all
material respects with the requirements of the Exchange Act and the
Securities Act and the rules and regulations promulgated thereunder, except
that no representation is made by IPC with respect to statements made or
incorporated by reference therein based on information supplied by Parent
or its subsidiaries for inclusion or incorporation by reference in the
Forms S-4 and the Information Statement/Prospectuses.
(g) Absence of Certain Changes or Events. Except as disclosed in Section
3.01(g) of the Disclosure Schedule or except as included in the Recent SEC
Documents, since October 1, 1998, IPC has conducted its business in all
material respects only in the ordinary course consistent with past practice
and there is not and has not been any condition, event or occurrence which,
individually or in the aggregate, would reasonably be expected to have an
IPC Material Adverse Effect or an IXnet Material Adverse Effect.
(h) Litigation; Labor Matters; Compliance with Laws. (i) Except as
disclosed in the Recent SEC Documents, there are no suits, actions,
complaints, charges, arbitrations, inquiries, counterclaims, proceedings or
governmental or internal investigations pending or, to the knowledge of
IPC, threatened in writing against or affecting IPC or any of its
subsidiaries which, individually or in the aggregate, would reasonably be
expected to have an IPC Material Adverse Effect; in addition, there is not
any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against IPC or any of its subsidiaries having, or
which could reasonably be expected to have any such effect.
(ii) Except as disclosed in Section 3.01(h)(ii) of the Disclosure
Schedule, (A) neither IPC nor any of its subsidiaries is a party to, or
bound by, any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor organization, (B) neither IPC
nor any of its subsidiaries is the subject of any proceeding asserting that
it or any subsidiary has committed an unfair labor practice or seeking to
compel it to bargain with any labor organization as to wages or conditions
of employment nor is such unfair labor practice threatened or otherwise
affecting IPC or any of its subsidiaries, (C) there is
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not any strike, work stoppage, dispute, lockout or other labor controversy
involving it or any of its subsidiaries pending or, to its knowledge,
threatened, any of which would reasonably be expected to have an IPC
Material Adverse Effect; (D) no representation question exists or has been
raised respecting any of the Company=s employees or any of its
subsidiaries' employees within the past three years, nor to the knowledge
of IPC are there any campaigns being conducted to solicit cards from
employees of IPC or any of its subsidiaries to authorize representation by
any labor organization; (E) neither IPC nor any of its subsidiaries has
closed any plant or facility, effectuated any layoffs of employees or
implemented any early retirement, separation or window program within the
past three years, nor has IPC or any of its subsidiaries planned or
announced any such action or program for the future; (F) neither IPC nor
any of its subsidiaries shall, at any time within the 90-day period prior
to the Closing Date, effectuate a "plant closing" or "mass layoff", as
those terms are defined in the Worker Adjustment and Retraining
Notification Act of 1988, as amended ("WARN"), or any state law, affecting
in whole of in part any site of employment, facility, operating unit or
employee; and (G) the Company and its subsidiaries are in compliance with
their obligations pursuant to WARN, and all other notification and
bargaining obligations arising under any collective bargaining agreement,
statute or otherwise.
(iii) The conduct of the business of each of IPC and each of its
subsidiaries and, to the knowledge of IPC, its contractors complies with
all statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees or arbitration awards applicable thereto, including the Foreign
Corrupt Practices Act, except for violations or failures so to comply, if
any, that, individually or in the aggregate, could not reasonably be
expected to have an IPC Material Adverse Effect.
(i) Absence of Changes with respect to Employees and Employee Benefit
Plans. Except as set forth in Section 3.01(i) of the Disclosure Schedule or
in the Recent SEC Documents, since September 1, 1999, there has not been
any (i) increase in the compensation or fringe benefits of any present or
former director or Employee (as defined in Section 3.01(j) hereof) whose
base salary equals or is in excess of $100,000 per annum as of September 1,
1999, of IPC or any subsidiary thereof (except for increases in salary or
wages in the ordinary course of business consistent with past practice),
(ii) grant of any severance or termination pay to any present or former
director or Employee whose base salary equals or is in excess of $100,000
per annum as of September 1, 1999, of IPC or any subsidiary thereof (except
in the ordinary course of business consistent with past practice or as
required by law or agreements or plans in effect as of September 1, 1999),
(iii) loan or advance of money or other property by IPC or any subsidiary
thereof to any of their present or former directors or Employees which is
outstanding as of the date hereof; or (iv) establishment, adoption,
entrance into, amendment or termination of any IPC Plan (as defined in
Section 3.01(j) hereof).
(j) (i) Except as set forth therein, Section 3.01(j)(i) of the
Disclosure Schedule contains a true and complete list of each "employee
benefit plan" (within the meaning of section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), including,
without limitation, multiemployer plans within the meaning of ERISA section
3(37)), and all stock purchase, stock option, consulting, severance,
employment, change-in-control, termination, indemnification, fringe
benefit, collective bargaining, bonus, incentive, deferred compensation and
all other employee benefit plans, agreements, programs, policies or other
arrangements, whether or not subject to ERISA (including any funding
mechanism therefor now in effect or required in the future as a result of
the transactions contemplated by this Agreement or otherwise), whether
formal or informal, oral or written, legally binding or not, under which
any current or former director or any employee or former employee of IPC or
any subsidiary thereof (the "Employees") has any present or future right to
benefits, sponsored or maintained by IPC or its subsidiaries or under which
IPC or any subsidiary thereof has had or has any present or future
liability. All such plans, agreements, programs, policies and arrangements
shall be collectively referred to as the "IPC Plans".
(ii) Except as set forth in Section 3.10(j)(ii) of the Disclosure
Schedule, with respect to each IPC Plan, IPC has made available to Parent a
current, accurate and complete copy (or, to the extent no such copy exists,
an accurate description) thereof and, to the extent applicable: (A) any
related trust agreement
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or other funding instrument; (B) the most recent determination letter, if
applicable; (C) any summary plan description and other written
communications (or a description of any oral communications) by IPC or any
subsidiary thereof to their employees concerning the extent of the benefits
provided under an IPC Plan; and (D) with respect to each employee pension
plan, for the three (3) most recent years (I) the Form 5500 and attached
schedules, (II) audited financial statements, (III) actuarial valuation
reports and (IV) attorney's response to an auditor's request for
information.
(iii) (A) Each IPC Plan has been established and administered in
accordance with its terms, and in compliance with the applicable provisions
of ERISA, the Code and other applicable laws, rules and regulations; (B)
each IPC Plan which is intended to be qualified within the meaning of Code
section 401(a) is so qualified and has received a favorable determination
letter as to its qualification, and nothing has occurred, whether by action
or failure to act, that would reasonably be expected to cause the loss of
such qualification; (C) no event has occurred and no condition exists that
would subject IPC or any subsidiary thereof, either directly or by reason
of their affiliation with any member of their "Controlled Group" (defined
as any organization which is a member of a controlled group of
organizations within the meaning of Code sections 414(b), (c), (m) or (o)),
to any tax, fine, lien, penalty or other liability imposed by ERISA, the
Code or other applicable laws, rules and regulations; (D) for each IPC Plan
with respect to which a Form 5500 has been filed, no material change has
occurred with respect to the matters covered by the most recent Form since
the date thereof; (E) no "reportable event" (as such term is defined in
ERISA section 4043), "prohibited transaction" (as such term is defined in
ERISA section 406 and Code section 4975) or "accumulated funding
deficiency" (as such term is defined in ERISA section 302 and Code section
412 (whether or not waived)) has occurred with respect to any IPC Plan; (F)
no IPC Plan provides retiree welfare benefits and neither IPC nor any
subsidiary thereof has any obligations to provide any retiree welfare
benefits, other than those mandated by the Consolidated Omnibus Budget
Reconciliation Act of 1995; and (G) except as set forth in Section
3.01(j)(iii) of the Disclosure Schedule, all awards, grants or bonuses made
pursuant to any IPC Plan have been, or will be, fully deductible to IPC or
its subsidiaries notwithstanding the provisions of Section 162(m) of the
Internal Revenue Code and the regulations promulgated thereunder; provided
that with respect to each IPC Plan that is a multi-employer plan, the
representations contained in this Section 3.01(j)(iii) are made to the
knowledge of IPC.
(iv) There are no IPC Plans (that are not multiemployer plans) which are
subject to Title IV of ERISA.
(v) With respect to any multiemployer plan (within the meaning of ERISA
section 4001(a)(3)) to which IPC, any subsidiary thereof, or any member of
their Controlled Group has any liability or contributes (or has at any time
contributed or had an obligation to contribute): (A) none of IPC, any
subsidiary thereof, or any member of their Controlled Group has incurred
any withdrawal liability under Title IV of ERISA, or to the best knowledge
of IPC, would be subject to such liability if, as of the Closing Date, IPC,
any of its subsidiaries or any member of their Controlled Group were to
engage in a complete withdrawal (as defined in ERISA section 4203) or
partial withdrawal (as defined in ERISA section 4205) from any such
multiemployer plan; and (B) to the best knowledge of IPC, no such
multiemployer plan is in reorganization or insolvent (as those terms are
defined in ERISA sections 4241 and 4245, respectively).
(vi) With respect to any IPC Plan other than a multiemployer plan, and
to the best knowledge of IPC with respect to any multiemployer plan, (A) no
actions, suits or claims (other than routine claims for benefits in the
ordinary course) are pending or threatened, (B) no facts or circumstances
exist that could give rise to any such actions, suits or claims, and (C) no
administrative investigation, audit or other administrative proceeding by
the Department of Labor, the Pension Benefit Guaranty Corporation, the
Internal Revenue Service or any other governmental agency is pending,
threatened or in progress.
(vii) Except as set forth in Section 3.01(j)(vii) of the Disclosure
Schedule, no IPC Plan exists that, as a result of the transaction
contemplated by this Agreement, could result in the payment to any current
or former Employee or director of IPC or any subsidiary thereof of any
money or other property or could result in the acceleration or provision of
any other rights or benefits to any current or former Employee or
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<PAGE>
director of IPC or any subsidiary thereof, whether or not such payment,
right or benefit would constitute a parachute payment within the meaning of
Code section 280G.
(k) Tax Returns and Tax Payments. IPC and each of its subsidiaries, and
any consolidated, combined, unitary or aggregate group for Tax purposes of
which IPC or any of its subsidiaries is or has been a member (a
"Consolidated Group") has timely filed all Tax Returns required to be filed
by it and all such Tax Returns are correct and complete in all material
respects. All Taxes shown on such Tax Returns have been timely paid, and
IPC and each of its subsidiaries has timely paid or accrued all Taxes for
which a notice of assessment or collection has been received (other than
amounts being contested in good faith by appropriate proceedings). IPC and
its subsidiaries have made adequate provision (to the extent required by,
and in accordance with generally accepted accounting principles ("GAAP"))
for all Taxes payable for any periods that end before the Effective Time of
the Mergers for which no Tax Returns have yet been filed and for any
periods that begin before the Effective Time of the Mergers and end after
the Effective Time of the Mergers to the extent such Taxes are attributable
to the portion of any such period ending at the Effective Time of the
Mergers, and the charges, accruals and reserves for Taxes reflected in the
financial statements of IPC and its subsidiaries are adequate under GAAP to
cover the Tax liability accruing or payable by IPC and its subsidiaries in
respect of periods prior to the date hereof. Except as set forth in Section
3.01(k) of the Disclosure Schedule: (i) no material claim for unpaid Taxes
has become a lien against the property of IPC or any of its subsidiaries or
is being asserted in writing against IPC or any of its subsidiaries, (ii)
neither IPC nor any of its subsidiaries is delinquent in the payment of any
Tax and have not requested or filed any document having the effect of
causing any extension of time within which to file any Tax Returns in
respect of any fiscal year which have not since been filed, (iii) no
material audit or other proceeding with respect to any Taxes due from IPC
or any of its subsidiaries or any Tax Return of IPC or any of its
subsidiaries is pending, threatened, to IPC's knowledge, or being conducted
by a Tax authority, (iv) no extension of the statute of limitations on the
assessment of any Taxes has been granted by IPC nor any of its subsidiaries
and is currently in effect, (v) neither IPC or any of its subsidiaries (A)
has been a member of a Consolidated Group filing a consolidated federal
income Tax Return (other than a group the common parent of which was IPC)
or (B) has any liability for the Taxes of any person (other than IPC and
its subsidiaries), including liability arising from the application of
Treasury Regulation section 1.1502-6 or any analogous provision of state,
local or foreign law, or as a transferee or successor, by contract, or
otherwise, (vi) no consent under Section 341(f) of the Code has been filed
with respect to IPC or any of its subsidiaries, and (vii) all Taxes
required to be withheld, collected or deposited by or with respect to IPC
and each of its subsidiaries have been timely withheld, collected or
deposited, as the case may be, and, to the extent required, have been paid
to the relevant taxing authority. As used herein, "Taxes" shall mean all
taxes of any kind, including those on or measured by or referred to as
income, gross receipts, sales, use, ad valorem, franchise, profits,
license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, value added, property or windfall profits taxes,
customs, duties or similar fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any governmental authority, domestic or
foreign. As used herein, "Tax Return" shall mean any return, report or
statement required to be filed with any Governmental Entity with respect to
Taxes.
(l) Board Approval; Section 203 of the DGCL. The Board of Directors of
IPC has, prior to the execution hereof and prior to the execution of the
Voting Agreement, (i) approved the execution and delivery by IPC of this
Agreement, and the execution and delivery by the parties thereto of the
Voting Agreement and the consummation of the Mergers and the other
transactions contemplated by this Agreement and the Voting Agreement.
Section 203 of the DGCL is inapplicable to this Agreement, the Mergers, the
Voting Agreement and the other transactions contemplated hereby and thereby
with respect to both IPC and IXnet. No state takeover statute or similar
statute or regulation of the State of Delaware or of any other state or
jurisdiction applies or purports to apply to this Agreement, the Mergers,
the Voting Agreement, the Stockholder Consents or any of the other
transactions contemplated hereby or thereby and (z) no provision of the
certificate of incorporation, by-laws or other governing instruments of IPC
or any of its subsidiaries or the terms of any rights plan or preferred
stock of IPC or any of its subsidiaries would,
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directly or indirectly, restrict or impair the ability of Parent to vote,
or otherwise to exercise the rights of a stockholder with respect to,
securities of IPC and its subsidiaries that may be acquired or controlled
by Parent or permit any stockholder to acquire securities of IPC, IPC
Systems, IXnet or any Surviving Corporation on a basis not available to
Parent in the event that Parent were to acquire securities of IPC, IPC
Systems or IXnet. The Board of Directors of IPC Merger Sub has duly
approved this Agreement and the IXnet Merger and declared this Agreement
advisable.
(m) Environmental Matters. (i) Except as disclosed in Section 3.01(m)
of the Disclosure Schedule:
(A) IPC and its subsidiaries including their predecessors and their
properties (I) are in compliance in all material respects with all
applicable Environmental Laws; (II) hold all material Environmental
Permits (each of which is in full force and effect) required for any of
their current or intended operations or for any property owned, leased,
or otherwise operated by any of them; (III) are in compliance in all
material respects with all of their Environmental Permits; and (IV)
reasonably believe that: each of their Environmental Permits will be
timely renewed and complied with, without material expense; any
additional Environmental Permits that may be required of any of them
will be timely obtained and complied with, without material expense; and
compliance with any Environmental Law that is or is expected to become
applicable to any of them will be timely attained and maintained,
without material expense;
(B) None of IPC and its subsidiaries has received any Environmental
Claim, and none of IPC and its subsidiaries is aware, after reasonable
inquiry, of any threatened Environmental Claim or of any circumstances,
conditions or events that would reasonably be expected to give rise to
an Environmental Claim, against IPC or any of its subsidiaries, in each
case that, individually or in the aggregate, would reasonably be
expected to have an IPC Material Adverse Effect;
(C) None of IPC and its subsidiaries has entered into or agreed to
any consent decree or order under any Environmental Law, and none of IPC
and its subsidiaries is subject to any judgment, decree or order of any
governmental authority relating to compliance with any Environmental Law
or to investigation, cleanup, remediation or removal of regulated
substances under any Environmental Law;
(D) There are no (I) underground storage tanks, (II) polychlorinated
biphenyls, (III) asbestos or asbestos-containing materials or (IV)
Hazardous Materials present at any facility currently or, to the
knowledge of IPC, formerly owned, leased or operated by IPC or any of
its subsidiaries that would reasonably be expected to give rise to
material liability of IPC or any of its subsidiaries under any
Environmental Laws;
(E) There are no past (including, to the knowledge of IPC, with
respect to assets or businesses formerly owned, leased or operated by
IPC or any of its subsidiaries) or present actions, activities, events,
conditions or circumstances, including the release, threatened release,
emission, discharge, generation, treatment, storage or disposal of
Hazardous Materials, that would reasonably be expected to give rise to
material liability of IPC or any of its subsidiaries under any
Environmental Laws or any contract or agreement; and
(F) None of IPC and its subsidiaries has assumed or retained, by
contract or, to the knowledge of IPC, operation of law, any material
liabilities of any kind, fixed or contingent, under any Environmental
Law or with respect to any Hazardous Material or Environmental Claim.
(ii) The items on Section 3.01(m) of the Disclosure Schedule,
individually and in the aggregate, would not reasonably be expected to have
an IPC Material Adverse Effect.
(iii) IPC has provided or made available to Parent true and complete
copies of all Environmental Reports in its possession or control.
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(iv) For purposes of this Agreement, the following terms shall have the
following meanings:
"Environmental Claim" means any written notice, claim, demand,
action, suit, complaint, proceeding or other communication by any
person alleging liability or potential liability (including liability
or potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resource damages, property damage,
personal injury, fines or penalties) arising out of, relating to, based
on or resulting from (i) the presence, discharge, emission, release or
threatened release of any Hazardous Materials at any location, whether
or not owned, leased or operated by IPC or any of its subsidiaries, or
Parent or any of its subsidiaries, as the case may be, or (ii) any
Environmental Law or Environmental Permit.
"Environmental Laws" means any and all laws, rules, orders,
regulations, statutes, ordinances, guidelines, codes, decrees, or other
legally enforceable requirement (including common law) of any foreign
government, the United States, or any state, local, municipal or other
governmental authority, regulating, relating to or imposing liability
or standards of conduct concerning protection of the environment or of
human health, or employee health and safety, as has been, is now, or
may at any time hereafter be, in effect.
"Environmental Permits" means any and all permits, licenses,
approvals, registrations, notifications, exemptions and any other
authorization required under any Environmental Law.
"Environmental Report" means any report, study, assessment, audit,
or other similar document that addresses any issue of actual or
potential noncompliance with, or actual or potential liability under or
cost arising out of, any Environmental Law that may in any way affect
IPC or any of its subsidiaries.
"Hazardous Materials" means any gasoline or petroleum (including
crude oil or any fraction thereof) or petroleum products,
polychlorinated biphenyls, urea-formaldehyde insulation, asbestos,
pollutants, contaminants, radioactivity, and any other substances or
forces of any kind, whether or not any such substance or force is
defined as hazardous or toxic under any Environmental Law, that is
regulated pursuant to or could give rise to liability under any
Environmental Law.
(n) Material Contract Defaults; Non-Competes. (i) IPC has provided or
made available to Parent copies, and has provided a true and correct list
to Parent, of all material contracts, agreements, commitments,
arrangements, leases, licenses, policies or other instruments to which it
or any of its subsidiaries is a party or by which it or any such subsidiary
is bound ("IPC Material Contracts"). Neither IPC nor any of its
subsidiaries is, or has received any notice or has any knowledge that any
other party is, in default or unable to perform in any respect under any
such IPC Material Contract, including any license or agreement relating to
intellectual property, except for those defaults which could not reasonably
be expected, either individually or in the aggregate, to have an IPC
Material Adverse Effect; and there has not occurred any event that with the
lapse of time or the giving of notice or both would constitute such a
material default.
(ii) Except as disclosed in Section 3.01(n) of the Disclosure Schedule
or in the Recent SEC Documents, neither IPC nor any of its subsidiaries is
a party to any agreement that expressly limits the ability of IPC or any of
its subsidiaries to compete in or conduct any line of business or compete
with any person in any geographic area or during any period of time.
(o) Brokers. No broker, investment banker, financial advisor or other
person other than Salomon Smith Barney Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of IPC.
(p) Opinion of Financial Advisor. IPC has received the opinions of
Salomon Smith Barney Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation, each dated the date of this Agreement, to the effect that, as
of the date thereof, the IPC Merger Exchange Ratio is fair, from a
financial point of view, to the holders of IPC Common Stock.
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(q) Board Recommendation. The Board of Directors of IPC, at a meeting
duly called and held, has (i) determined that this Agreement and the
transactions contemplated hereby, including the Mergers, and the Voting
Agreement and the transactions contemplated thereby, taken together, are
fair to and in the best interests of the stockholders of IPC, and (ii)
declared this Agreement advisable and resolved to recommend that the
holders of the shares of IPC Common Stock adopt this Agreement.
(r) Required Votes. The IPC Stockholder Approval, being the affirmative
approval, by vote or written consent, of a majority of the outstanding
shares of IPC Common Stock, is the only vote of the holders of any class or
series of IPC's securities necessary to adopt the Merger Agreement and
approve the Mergers and the other transactions contemplated hereby. There
is no vote of the holders of any class or series of IPC's securities
necessary to approve the Voting Agreement or the transactions contemplated
thereby. The affirmative approval, by vote or written consent, of a
majority of the outstanding shares of IPC Systems Common Stock to adopt
this Agreement (the "IPC Systems Stockholder Approval") is the only vote of
the holders of any class or series of IPC Systems' securities necessary to
adopt the Merger Agreement and approve the Mergers and the other
transactions contemplated hereby.
(s) Properties. Except as disclosed in Section 3.01(s) of the Disclosure
Schedule or in the Recent SEC Documents, each of IPC and its subsidiaries
(i) has good and marketable title to all the properties and assets
reflected in the latest audited balance sheet included in the Recent SEC
Documents as being owned by IPC or one of its subsidiaries or acquired
after the date thereof which are, individually or in the aggregate,
material to IPC's business on a consolidated basis (except properties sold
or otherwise disposed of since the date thereof in the ordinary course of
business), free and clear of (A) all Liens except (1) statutory liens
securing payments not yet delinquent and (2) such imperfections or
irregularities of title, or other Liens (other than real property mortgages
or deeds of trust) as do not materially and adversely affect the current
use of the properties or assets subject thereto or affected thereby or
otherwise materially impair business operations currently conducted at such
properties, (B) all real property mortgages and deeds of trust and (C) the
Liens disclosed in Section 3.01(s) of the Disclosure Schedule and (ii) is
the lessee of all leasehold estates reflected in Section 3.01(s) of the
Disclosure Schedule hereto or acquired after the date thereof which are
material to its business on a consolidated basis and is in possession of
the properties purported to be leased thereunder, and each such lease is in
full force and effect and is valid without material default (and the lessee
has not received any written notice of default, whether or not material)
thereunder by the lessee or, to IPC's knowledge, the lessor.
(t) Intellectual Property. (i) Except as disclosed in the Recent SEC
Documents, IPC has heretofore made available to Parent, with respect to the
Intellectual Property owned, held or used by IPC or its subsidiaries ("IPC
IP"), all material patents, registrations and applications relating
thereto, all material unregistered copyrights, trademarks, service marks,
brand names, corporate names, technology and inventions and each and every
material license, sublicense, consent-to-use agreement and other agreement
granting or obtaining any right to use or practice any rights under any IPC
IP to which IPC and/or any of its subsidiaries is a party ("IPC IP
Licenses").
(ii) Except as disclosed on Section 3.01(t)(ii) of the Disclosure
Schedule, (1) IPC and/or any of its subsidiaries own or has the right to
use all the Intellectual Property necessary for IPC and its subsidiaries to
conduct their businesses as is currently conducted and consistent with past
practice; (2) all of the material owned IPC IP is valid, enforceable and
unexpired, is free of Liens, and has not been abandoned; (3) to IPC's
knowledge, the IPC IP does not infringe or otherwise impair the
Intellectual Property of any third party and is not being infringed or
impaired by any third party; (4) no judgment, decree, injunction, rule or
order has been rendered or, to the knowledge of IPC, is threatened by any
Governmental Entity which would limit, cancel or question the validity of
(or IPC or any subsidiary's right to own or use) any material IPC IP; (5)
IPC takes all reasonable steps to protect, maintain and safeguard the
material IPC IP, including executing all appropriate confidentiality
agreements; (6) neither IPC and its subsidiaries, nor, to IPC's knowledge,
any other party to an IP License, is alleged in writing to be, in breach or
default thereunder, and IPC and its subsidiaries have not received any
written notification from any third party
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that there is any such breach or default; (7) the transactions contemplated
by this Agreement shall in no material way impair or limit the rights of
IPC or any of its subsidiaries under any IP License, or cause any material
payments to be due thereunder.
For the purposes of this Agreement, "Intellectual Property" shall mean
all U.S., state and foreign intellectual property, including without
limitation all (1) (A) inventions, discoveries, processes, designs,
techniques, developments, technology, and related improvements and know-
how, whether or not patented or patentable; (B) copyrights and works of
authorship in any media, including computer programs, software programs,
databases and related items, advertising and promotional materials
(including graphics and text), and Internet site content; (C) trademarks,
service marks, trade names, brand names, corporate names, domain names,
logos, trade dress and all elements thereof, the goodwill of any business
symbolized thereby, and all common-law rights relating thereto; (D) trade
secrets and other confidential information; (2) all registrations,
applications, recordings, and licenses or other agreements related thereto;
(3) all rights to obtain renewals, extensions, continuations,
continuations-in-part, reissues, divisions or similar legal protections
related thereto; and (4) rights to bring an action at law or in equity for
the infringement or other impairment of the foregoing before the Closing
Date, including the right to receive all proceeds and damages therefrom.
(u) Transactions with Affiliates. Except as disclosed in the Recent SEC
Documents and as set forth on Section 3.01(u) of the Disclosure Schedule
and in the SEC Documents, from October 1, 1998 through the date of this
Agreement, there has been no transaction, agreement, arrangement or
understanding, or any related series thereof, between IPC or its
subsidiaries or contractors, on the one hand, and IPC's affiliates (other
than wholly-owned (excluding directors' and nominee shares) subsidiaries of
IPC), on the other hand, in which the amount or value involved exceeded
$60,000.
SECTION 3.02 Representations and Warranties of IXnet. IXnet represents and
warrants to Parent and GC Merger Sub as follows:
(a) Organization, Standing and Corporate Power. Each of IXnet and each
of its subsidiaries is duly organized, validly existing and in good
standing (with respect to jurisdictions which recognize the concept of good
standing) under the laws of the jurisdiction in which it is incorporated
and has the requisite corporate power and authority to carry on its
business as now being conducted, except where the failure to have such
power and authority could not reasonably be expected to have an IXnet
Material Adverse Effect. Each of IXnet and each of its subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified or
licensed (individually or in the aggregate) would not be reasonably
expected to have an IXnet Material Adverse Effect. The Recent IXnet SEC
Documents (as defined in Section 3.02(e)) contain as exhibits complete and
correct copies of the Certificate of Incorporation and By-laws of IXnet, in
each case as amended to the date of this Agreement.
(b) Subsidiaries. The only direct or indirect subsidiaries of IXnet are
those listed in Section 3.01(b) of the Disclosure Schedule. All the
outstanding shares of capital stock of each such subsidiary have been
validly issued and are fully paid and nonassessable and are owned (of
record and beneficially) by IXnet, by another subsidiary (wholly owned) of
IXnet or by IXnet and another such subsidiary (wholly owned), free and
clear of all Liens, except as set forth in Section 3.01(b) of the
Disclosure Schedule. Except for the ownership interests set forth in
Section 3.01(b) of the Disclosure Schedule or in the Recent IXnet SEC
Documents, IXnet does not own, directly or indirectly, any capital stock or
other ownership interest, and does not have any option or similar right to
acquire any assets or equity or other ownership interest, in any
corporation, partnership, business association, joint venture or other
entity.
(c) Capital Structure. As of February 21, 2000, the authorized capital
stock of IXnet consists of 100,000,000 shares of IXnet Common Stock. As of
the close of business on February 21, 2000, there were (i) 51,148,867
shares of IXnet Common Stock were issued and outstanding; (ii) 0 shares of
IXnet
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Common Stock held in the treasury of IXnet; (iii) 907,557 shares of IXnet
Common Stock reserved for issuance upon exercise of authorized but unissued
IXnet Options pursuant to the Stock Plans; and (iv) 9,053,409 shares of
IXnet Common Stock issuable upon exercise of outstanding IXnet Options.
Section 3.01(c) of the Disclosure Schedule sets forth the name of each
holder of outstanding options to acquire shares of IXnet Common Stock, the
number of options held and the exercise prices of such options. Except as
set forth above, no shares of capital stock or other equity securities of
IXnet are authorized, issued, reserved for issuance or outstanding. All
outstanding shares of capital stock of IXnet are, and all shares which may
be issued pursuant to the Stock Plans will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Other than the IXnet Options, there are no outstanding
bonds, debentures, notes or other indebtedness or other securities of IXnet
having the right to vote (or convertible into, or exchangeable or
exercisable for, securities having the right to vote) on any matters on
which stockholders of IXnet may vote. Except as set forth above, there are
no outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which IXnet or any
of its subsidiaries is a party or by which any of them is bound obligating
IXnet or any of its subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock or other
equity or voting securities of IXnet or of any of its subsidiaries or
obligating IXnet or any of its subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. Except as set forth in the Recent
IXnet SEC Documents and except for such indebtedness which is not material
to IXnet, IXnet and its subsidiaries have no indebtedness. Other than the
IXnet Options, (i) there are no outstanding contractual obligations,
commitments, understandings or arrangements of IXnet or any of its
subsidiaries to repurchase, redeem or otherwise acquire or make any payment
in respect of any shares of capital stock of IXnet or any of its
subsidiaries and (ii) there are no irrevocable proxies with respect to
shares of capital stock of IXnet or any subsidiary of IXnet. Except as set
forth above or in Section 3.01(c) of the Disclosure Schedule or in the
Recent IXnet SEC Documents, there are no agreements or arrangements
pursuant to which IXnet is or could be required to register shares of IXnet
Common Stock or other securities under the Securities Act or other
agreements or arrangements with or among any securityholders of IXnet with
respect to securities of IXnet.
(d) Authority; Noncontravention. IXnet has the requisite corporate and
other power and authority to enter into this Agreement and, subject to the
IXnet Stockholder Approval with respect to the consummation of the IXnet
Merger, which is being obtained by written consent immediately following
the execution of this Agreement, to consummate the transactions
contemplated hereby. Other than in its capacity as a stockholder of IXnet,
no corporate action is required to be taken by IPC or its stockholders in
connection with the consummation of the IXnet Merger. The execution and
delivery of this Agreement by IXnet and the consummation by IXnet of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of IXnet, subject, in the case of the IXnet
Merger, to the IXnet Stockholder Approval. This Agreement has been duly
executed and delivered by IXnet and constitutes a valid and binding
obligation of IXnet, enforceable against IXnet in accordance with its
terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or
affecting creditors generally, by general equitable principles (regardless
of whether such enforceability is considered in a proceeding in equity or
at law) or by an implied covenant of good faith and fair dealing. Except as
disclosed in Section 3.01(d) of the Disclosure Schedule, the execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions hereof
will not, conflict with, or result in any breach or violation of, or
default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of or "put"
right with respect to any obligation or to loss of a material benefit
under, or result in the creation of any Lien upon any of the properties or
assets of IXnet or any of its subsidiaries under, (i) the Certificate of
Incorporation or By-laws of IXnet or the comparable charter or
organizational documents of any of its subsidiaries, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable
to IXnet or any of its subsidiaries or their respective properties or
assets or
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(iii) subject to the governmental filings and other matters referred to in
the following sentence, any judgment, order, decree, statute, law,
ordinance, rule, regulation or arbitration award applicable to IXnet or any
of its subsidiaries or their respective properties or assets, other than,
in the case of clauses (ii) and (iii), any such conflicts, breaches,
violations, defaults, rights, losses or Liens that individually or in the
aggregate could not be reasonably expected to have an IXnet Material
Adverse Effect. No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any Governmental
Entity, is required by or with respect to IXnet or any of its subsidiaries
in connection with the execution and delivery of this Agreement by IXnet or
the consummation by IXnet of the transactions contemplated hereby, except,
with respect to this Agreement, for (i) the filing of a premerger
notification and report form by IXnet under the HSR Act, (ii) the filing
with the SEC of (y) Information Statements relating to the Mergers, and (z)
such reports under the Exchange Act, as may be required in connection with
this Agreement and the transactions contemplated by this Agreement, (iii)
the filing of the Certificates of Merger with the Secretary of State of the
State of Delaware and the filing of appropriate documents with the relevant
authorities of other states in which IXnet is qualified to do business and
(iv) such other consents, approvals, orders, authorizations, registrations,
declarations, filings or notices as are set forth in Section 3.01(d) of the
Disclosure Schedule.
(e) SEC Documents; Undisclosed Liabilities. IXnet and, to the extent
applicable, its subsidiaries have filed all required reports, schedules,
forms, statements and other documents with the SEC since October 1, 1998,
and IXnet has delivered or made available to Parent all reports, schedules,
forms, statements and other documents filed by IXnet and, to the extent
applicable, its subsidiaries with the SEC since such date (collectively,
and in each case including all exhibits and schedules thereto and documents
incorporated by reference therein, the "IXnet SEC Documents"). As of their
respective dates, the IXnet SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such IXnet SEC Documents, and none of the IXnet
SEC Documents (including any and all financial statements included therein)
as of such dates (and, if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements (including the related
notes) of IXnet included in all IXnet SEC Documents filed since October 1,
1998 (the "IXnet SEC Financial Statements") comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared
in accordance with generally accepted accounting principles (except, in the
case of unaudited consolidated quarterly statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of IXnet and its consolidated subsidiaries
as of the dates thereof and the consolidated results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited
quarterly statements, to normal year-end audit adjustments that have not
been and are not expected to be material in amount). Except as set forth in
Schedule 3.01(e), at the date of the most recent audited financial
statements of IXnet included in the IXnet SEC Documents filed by IXnet or
its subsidiaries since October 1, 1998 and prior to the date of this
Agreement (the "Recent IXnet SEC Documents"), neither IXnet nor any of its
subsidiaries had, and since such date neither IXnet nor any of such
subsidiaries incurred, any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) which, individually or
in the aggregate, would reasonably be expected to have an IXnet Material
Adverse Effect. To the best of IXnet's knowledge, (i) all historical
financial statements supplied to Parent by IXnet for periods subsequent to
December 31, 1999 have been prepared in accordance with generally accepted
accounting principles (except as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated
financial position of IXnet and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject to normal year-end adjustments
that have not been and are not expected to be material in amount) and (ii)
all financial data so supplied for such periods is true and accurate in all
material respects.
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(f) Information Supplied. None of the information supplied or to be
supplied by IXnet for inclusion or incorporation by reference in (i) the
Forms S-4 will, at the time each Form S-4 is filed with the SEC, and at any
time it is amended or supplemented or at the time it becomes effective
under the Securities Act, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) each
Information Statement/Prospectus will, at the date it is first mailed to
IXnet's stockholders or IPC's stockholders, as the case may be, at the time
of the IXnet Stockholder Meeting or the IPC Stockholder Meeting, as the
case may be, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Forms S-4 and the Information
Statement/Prospectuses will comply as to form in all material respects with
the requirements of the Exchange Act and the Securities Act and the rules
and regulations promulgated thereunder, except that no representation is
made by IXnet with respect to statements made or incorporated by reference
therein based on information supplied by Parent or GC Merger Sub for
inclusion or incorporation by reference in the Forms S-4 and the
Information Statement/Prospectuses.
(g) Absence of Certain Changes or Events. Except as disclosed in Section
3.01(g) of the Disclosure Schedule or except as included in the Recent
IXnet SEC Documents, since October 1, 1998, IXnet has conducted its
business in all material respects only in the ordinary course consistent
with past practice and there is not and has not been any condition, event
or occurrence which, individually or in the aggregate, would reasonably be
expected to have an IXnet Material Adverse Effect.
(h) Litigation; Labor Matters; Compliance with Laws. (i) Except as
disclosed in the Recent SEC Documents, there are no suits, actions,
complaints, charges, arbitrations, inquiries, counterclaims, proceedings or
governmental or internal investigations pending or, to the knowledge of
IXnet, threatened in writing against or affecting IPC or any of its
subsidiaries which, individually or in the aggregate, would reasonably be
expected to have an IXnet Material Adverse Effect; in addition, there is
not any judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against IXnet or any of its subsidiaries
having, or which could reasonably be expected to have any such effect.
(ii) Except as disclosed in Section 3.01(h)(ii) of the Disclosure
Schedule, (A) neither IXnet nor any of its subsidiaries is a party to, or
bound by, any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor organization, (B) neither IPC
nor any of its subsidiaries is the subject of any proceeding asserting that
it or any subsidiary has committed an unfair labor practice or seeking to
compel it to bargain with any labor organization as to wages or conditions
of employment nor is such unfair labor practice threatened or otherwise
affecting IXnet or any of its subsidiaries, (C) there is not any strike,
work stoppage, dispute, lockout or other labor controversy involving it or
any of its subsidiaries pending or, to its knowledge, threatened, any of
which would reasonably be expected to have an IXnet Material Adverse
Effect; (D) no representation question exists or has been raised respecting
any of the Company's employees or any of its subsidiaries' employees within
the past three years, nor to the knowledge of IXnet are there any campaigns
being conducted to solicit cards from employees of IXnet or any of its
subsidiaries to authorize representation by any labor organization; (E)
neither IXnet nor any of its subsidiaries has closed any plant or facility,
effectuated any layoffs of employees or implemented any early retirement,
separation or window program within the past three years, nor has IXnet or
any of its subsidiaries planned or announced any such action or program for
the future; (F) neither IXnet nor any of its subsidiaries shall, at any
time within the 90-day period prior to the Closing Date, effectuate a
"plant closing" or "mass layoff", as those terms are defined in WARN, or
any state law, affecting in whole of in part any site of employment,
facility, operating unit or employee; and (G) the Company and its
subsidiaries are in compliance with their obligations pursuant to WARN, and
all other notification and bargaining obligations arising under any
collective bargaining agreement, statute or otherwise.
(iii) The conduct of the business of each of IXnet and each of its
subsidiaries and, to the knowledge of IXnet, its contractors complies with
all statutes, laws, regulations, ordinances, rules, judgments, orders,
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decrees or arbitration awards applicable thereto, including the Foreign
Corrupt Practices Act, except for violations or failures so to comply, if
any, that, individually or in the aggregate, could not reasonably be
expected to have an IXnet Material Adverse Effect.
(i) Absence of Changes with respect to Employees and Employee Benefit
Plans. Except as set forth in Section 3.01(i) of the Disclosure Schedule or
in the Recent IXnet SEC Documents, since September 1, 1999, there has not
been any (i) increase in the compensation or fringe benefits of any present
or former director or IXnet Employee (as defined below) whose base salary
equals or is in excess of $100,000 per annum as of September 1, 1999
(except for increases in salary or wages in the ordinary course of business
consistent with past practice), (ii) grant of any severance or termination
pay to any present or former director or IXnet Employee whose base salary
equals or is in excess of $100,000 per annum as of September 1, 1999
(except in the ordinary course of business consistent with past practice or
as required by law or agreements or plans in effect as of September 1,
1999), (iii) loan or advance of money or other property by IXnet or any
subsidiary thereof to any of their present or former directors or IXnet
Employees which is outstanding as of the date hereof or (iv) establishment,
adoption, entrance into, amendment or termination of any IXnet Plan (as
defined below).
(j) (i) Except as set forth therein, Section 3.01(j)(i) of the
Disclosure Schedule contains a true and complete list of each "employee
benefit plan" (within the meaning of section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), including,
without limitation, multiemployer plans within the meaning of ERISA section
3(37)), and all stock purchase, stock option, consulting, severance,
employment, change-in-control, termination, indemnification, fringe
benefit, collective bargaining, bonus, incentive, deferred compensation and
all other employee benefit plans, agreements, programs, policies or other
arrangements, whether or not subject to ERISA (including any funding
mechanism therefor now in effect or required in the future as a result of
the transaction contemplated by this Agreement or otherwise), whether
formal or informal, oral or written, legally binding or not, under which
any current or former director or any employee or former employee of IXnet
or any subsidiary thereof (the "IXnet Employees") has any present or future
right to benefits, sponsored or maintained by IXnet or its subsidiaries or
under which IXnet or any subsidiary thereof has had or has any present or
future liability. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "IXnet Plans".
(ii) Except as set forth in Section 3.01(j)(ii) of the Disclosure
Schedule, with respect to each IXnet Plan, IXnet has made available to
Parent a current, accurate and complete copy (or, to the extent no such
copy exists, an accurate description) thereof and, to the extent
applicable: (A) any related trust agreement or other funding instrument;
(B) the most recent determination letter, if applicable; (C) any summary
plan description and other written communications (or a description of any
oral communications) by IXnet or any subsidiary thereof to their employees
concerning the extent of the benefits provided under a IXnet Plan; and (D)
with respect to each employee pension benefit plan, for the three (3) most
recent years (I) the Form 5500 and attached schedules, (II) audited
financial statements, (III) actuarial valuation reports and (IV) attorney's
response to an auditor's request for information.
(iii) (A) Each IXnet Plan has been established and administered in
accordance with its terms, and in compliance with the applicable provisions
of ERISA, the Code and other applicable laws, rules and regulations; (B)
each IXnet Plan which is intended to be qualified within the meaning of
Code section 401(a) is so qualified and has received a favorable
determination letter as to its qualification, and nothing has occurred,
whether by action or failure to act, that would reasonably be expected to
cause the loss of such qualification; (C) no event has occurred and no
condition exists that would subject IXnet or any subsidiary thereof, either
directly or by reason of their affiliation with any member of their
"Controlled Group" (defined as any organization which is a member of a
controlled group of organizations within the meaning of Code sections
414(b), (c), (m) or (o)), to any tax, fine, lien, penalty or other
liability imposed by ERISA, the Code or other applicable laws, rules and
regulations; (D) for each IXnet Plan with respect to which a Form 5500 has
been filed, no material change has occurred with respect to the matters
covered by the most recent Form since the date thereof; (E) no "reportable
event" (as such term is defined in
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ERISA section 4043), "prohibited transaction" (as such term is defined in
ERISA section 406 and Code section 4975) or "accumulated funding
deficiency" (as such term is defined in ERISA section 302 and Code section
412 (whether or not waived)) has occurred with respect to any IXnet Plan;
(F) no IXnet Plan provides retiree welfare benefits and neither IXnet nor
any subsidiary thereof has any obligations to provide any retiree welfare
benefits, other than those mandated by the Consolidated Omnibus Budget
Reconciliation Act of 1995; and (G) except as set forth in Section
3.01(j)(iii) of the Disclosure Schedule, all awards, grants or bonuses made
pursuant to any IXnet Plan have been, or will be, fully deductible to IXnet
or its subsidiaries notwithstanding the provisions of Section 162(m) of the
Code and the regulations promulgated thereunder; provided that with respect
to each IXnet Plan that is a multi-employer plan, the representations
contained in this Section 3.02(j)(iii) are made to the knowledge of IXnet.
(iv) There are no IXnet Plans that are not multiemployer plans which are
subject to Title IV of ERISA.
(v) With respect to any multiemployer plan (within the meaning of ERISA
section 4001(a)(3)) to which IXnet, any subsidiary thereof, or any member
of their Controlled Group has any liability or contributes (or has at any
time contributed or had an obligation to contribute): (A) none of IXnet,
any subsidiary thereof, or any member of their Controlled Group has
incurred any withdrawal liability under Title IV of ERISA or, to the best
knowledge of IXnet, would be subject to such liability if, as of the
Closing Date, IXnet, any of its subsidiaries or any member of their
Controlled Group were to engage in a complete withdrawal (as defined in
ERISA section 4203) or partial withdrawal (as defined in ERISA section
4205) from any such multiemployer plan; and (B) to the best knowledge of
IXnet, no such multiemployer plan is in reorganization or insolvent (as
those terms are defined in ERISA sections 4241 and 4245, respectively).
(vi) With respect to any IXnet Plan other than a multiemployer plan, and
to the best knowledge of IXnet with respect to any multiemployer plan, (A)
no actions, suits or claims (other than routine claims for benefits in the
ordinary course) are pending or threatened, (B) no facts or circumstances
exist that could give rise to any such actions, suits or claims, and (C) no
administrative investigation, audit or other administrative proceeding by
the Department of Labor, the Pension Benefit Guaranty Corporation, the
Internal Revenue Service or any other governmental agency is pending,
threatened or in progress.
(vii) Except as set forth in Section 3.01(j)(vii) of the Disclosure
Schedule, no IXnet Plan exists that, as a result of the transaction
contemplated by this Agreement, could result in the payment to any current
or former Employee or director of IXnet or any subsidiary thereof of any
money or other property or could result in the acceleration or provision of
any other rights or benefits to any current or former Employee or director
of IXnet or any subsidiary thereof, whether or not such payment, right or
benefit would constitute a parachute payment within the meaning of Code
section 280G.
(k) Tax Returns and Tax Payments. IXnet and each of its subsidiaries,
and any Consolidated Group for Tax purposes of which IXnet or any of its
subsidiaries is or has been a member (an "IXnet Consolidated Group") has
timely filed all Tax Returns required to be filed by it and all such Tax
Returns are correct and complete in all material respects. All Taxes shown
on such Tax Returns have been timely paid, and IXnet, each of its
subsidiaries and each IXnet Consolidated Group has timely paid or accrued
all Taxes for which a notice of assessment or collection has been received
(other than amounts being contested in good faith by appropriate
proceedings). IXnet, its subsidiaries and each IXnet Consolidated Group
have made adequate provision (to the extent required by, and in accordance
with GAAP) for all Taxes payable for any periods that end before the
Effective Time of the Mergers for which no Tax Returns have yet been filed
and for any periods that begin before the Effective Time of the Mergers and
end after the Effective Time of the Mergers to the extent such Taxes are
attributable to the portion of any such period ending at the Effective Time
of the Mergers, and the charges, accruals and reserves for Taxes reflected
in the financial statements of IXnet, its subsidiaries and each IXnet
Consolidated Group are adequate under GAAP to cover the Tax liability
accruing or payable by IXnet and its subsidiaries in respect of periods
prior to the date hereof. Except as set forth in Section 3.01(k) of the
Disclosure
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Schedule: (i) no material claim for unpaid Taxes has become a lien against
the property of IXnet or any of its subsidiaries or is being asserted in
writing against IXnet or any of its subsidiaries, (ii) neither IXnet nor
any of its subsidiaries is delinquent in the payment of any Tax or has
requested or filed any document having the effect of causing any extension
of time within which to file any Tax Returns in respect of any fiscal year
which have not since been filed, (iii) no material audit or other
proceeding with respect to any Taxes due from IXnet, any of its
subsidiaries or any IXnet Consolidated Group or any Tax Return of IXnet,
any of its subsidiaries or any IXnet Consolidated Group is pending,
threatened, to the best of IXnet's knowledge, or being conducted by a Tax
authority, (iv) no extension of the statute of limitations on the
assessment of any Taxes has been granted by IXnet, any of its subsidiaries
or any IXnet Consolidated Group and is currently in effect, (v) neither
IXnet or any of its subsidiaries (A) has been a member of a Consolidated
Group filing a consolidated federal income Tax Return (other than a group
the common parent of which was IPC) or (B) has any liability for the Taxes
of any person (other than IXnet and its subsidiaries), including liability
arising from the application of Treasury Regulation section 1.1502-6 or any
analogous provision of state, local or foreign law, or as a transferee or
successor, by contract, or otherwise, (vi) no consent under Section 341(f)
of the Code has been filed with respect to IXnet or any of its
subsidiaries, and (vii) all Taxes required to be withheld, collected or
deposited by or with respect to IXnet, each of its subsidiaries and each
IXnet Consolidated Group have been timely withheld, collected or deposited,
as the case may be, and, to the extent required, have been paid to the
relevant taxing authority.
(l) Board Approval; Section 203 of the DGCL. The Board of Directors of
IXnet has, prior to the execution hereof, approved the execution and
delivery by IXnet of this Agreement and the consummation of the Mergers and
the other transactions contemplated by this Agreement. Section 203 of the
DGCL is inapplicable to this Agreement, the Mergers, the Voting Agreement
and the other transactions contemplated hereby and thereby with respect to
IXnet. No state takeover statute or similar statute or regulation of the
State of Delaware or of any other state or jurisdiction applies or purports
to apply to this Agreement, the Mergers, the Voting Agreement, the
Stockholder Consents or any of the other transactions contemplated hereby
or thereby and no provision of the certificate of incorporation, by-laws or
other governing instruments of IXnet or any of its subsidiaries or the
terms of any rights plan or preferred stock of IXnet would, directly or
indirectly, restrict or impair the ability of Parent to vote, or otherwise
to exercise the rights of a stockholder with respect to, securities of
IXnet and its subsidiaries that may be acquired or controlled by Parent or
permit any stockholder to acquire securities of IXnet or the IXnet Merger
Surviving Corporation on a basis not available to Parent in the event that
Parent were to acquire securities of IXnet or its subsidiaries.
(m) Environmental Matters. (i) Except as disclosed in Section 3.01(m) of
the Disclosure Schedule:
(A) IXnet and its subsidiaries including their predecessors and their
properties (I) are in compliance in all material respects with all
applicable Environmental Laws; (II) hold all material Environmental
Permits (each of which is in full force and effect) required for any of
their current or intended operations or for any property owned, leased,
or otherwise operated by any of them; (III) are in compliance in all
material respects with all of their Environmental Permits; and (IV)
reasonably believe that: each of their Environmental Permits will be
timely renewed and complied with, without material expense; any
additional Environmental Permits that may be required of any of them
will be timely obtained and complied with, without material expense; and
compliance with any Environmental Law that is or is expected to become
applicable to any of them will be timely attained and maintained,
without material expense;
(B) None of IXnet and its subsidiaries has received any Environmental
Claim, and none of IXnet and its subsidiaries is aware, after reasonable
inquiry, of any threatened Environmental Claim or of any circumstances,
conditions or events that would reasonably be expected to give rise to
an Environmental Claim, against IXnet or any of its subsidiaries, in
each case that, individually or in the aggregate, would reasonably be
expected to have an IXnet Material Adverse Effect;
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(C) None of IXnet and its subsidiaries has entered into or agreed to
any consent decree or order under any Environmental Law, and none of
IXnet and its subsidiaries is subject to any judgment, decree or order
of any governmental authority relating to compliance with any
Environmental Law or to investigation, cleanup, remediation or removal
of regulated substances under any Environmental Law;
(D) There are no (I) underground storage tanks, (II) polychlorinated
biphenyls, (III) asbestos or asbestos-containing materials or (IV)
Hazardous Materials present at any facility currently or, to the
knowledge of IXnet, formerly owned, leased or operated by IXnet or any
of its subsidiaries that would reasonably be expected to give rise to
material liability of IXnet or any of its subsidiaries under any
Environmental Laws;
(E) There are no past (including, to the knowledge of IXnet, with
respect to assets or businesses formerly owned, leased or operated by
IXnet or any of its subsidiaries) or present actions, activities,
events, conditions or circumstances, including the release, threatened
release, emission, discharge, generation, treatment, storage or
disposal of Hazardous Materials, that would reasonably be expected to
give rise to material liability of IXnet or any of its subsidiaries
under any Environmental Laws or any contract or agreement; and
(F) To the knowledge of IXnet, none of IXnet and its subsidiaries
has assumed or retained, by contract or operation of law, any material
liabilities of any kind, fixed or contingent, under any Environmental
Law or with respect to any Hazardous Material or Environmental Claim.
(ii) The items on Section 3.01(m) of the Disclosure Schedule,
individually and in the aggregate, would not reasonably be expected to have
an IXnet Material Adverse Effect.
(iii) IXnet has provided or made available to Parent and GC Merger Sub
true and complete copies of all Environmental Reports in its possession or
control.
(n) Material Contract Defaults; Non-Competes. (i) IXnet has provided or
made available to Parent copies, and has provided a true and correct list
to Parent, of all material contracts, agreements, commitments,
arrangements, leases, licenses, policies or other instruments to which it
or any of its subsidiaries is a party or by which it or any such subsidiary
is bound ("IXnet Material Contracts"). Neither IXnet nor any of its
subsidiaries is, or has received any notice or has any knowledge that any
other party is, in default or unable to perform in any respect under any
such IXnet Material Contract, including any license or agreement relating
to intellectual property, except for those defaults which could not
reasonably be expected, either individually or in the aggregate, to have a
material adverse effect with respect to IXnet; and there has not occurred
any event that with the lapse of time or the giving of notice or both would
constitute such a material default.
(ii) Except as disclosed in Section 3.01(n) of the Disclosure Schedule
or in the Recent IXnet SEC Documents, neither IXnet nor any of its
subsidiaries is a party to any agreement that expressly limits the ability
of IXnet or any of its subsidiaries to compete in or conduct any line of
business or compete with any person in any geographic area or during any
period of time.
(o) Brokers. No broker, investment banker, financial advisor or other
person other than Salomon Smith Barney Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of IXnet.
(p) Opinion of Financial Advisor. IXnet has received the opinions of
Salomon Smith Barney Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation, each dated the date of this Agreement, to the effect that, as
of the date thereof, the IXnet Merger Exchange Ratio is fair, from a
financial point of view, to the holders of IXnet Common Stock.
(q) Board Recommendation. The Board of Directors of IXnet, at a meeting
duly called and held, has (i) determined that this Agreement and the
transactions contemplated hereby, including the Mergers,
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and the Voting Agreement and the transactions contemplated thereby, taken
together, are fair to and in the best interests of the stockholders of
IXnet, and (ii) declared this Agreement advisable and resolved to recommend
that the holders of the shares of IXnet Common Stock adopt this Agreement.
(r) Required IXnet Vote. The IXnet Stockholder Approval, being the
affirmative approval, by vote or written consent, of a majority of the
outstanding shares of IXnet Common Stock, is the only vote of the holders
of any class or series of IXnet's securities necessary to adopt the Merger
Agreement and approve the Mergers and the other transactions contemplated
hereby. There is no vote of the holders of any class or series of IXnet's
securities necessary to approve the Voting Agreement or the transactions
contemplated thereby.
(s) Properties. Except as disclosed in the Recent IXnet SEC Documents or
in Section 3.01(s) of the Disclosure Schedule hereto, each of IXnet and its
subsidiaries (i) has good and marketable title to all the properties and
assets reflected in the latest audited balance sheet included in the Recent
IXnet SEC Documents as being owned by IXnet or one of its subsidiaries or
acquired after the date thereof which are, individually or in the
aggregate, material to IXnet's business on a consolidated basis (except
properties sold or otherwise disposed of since the date thereof in the
ordinary course of business), free and clear of (A) all Liens except (1)
statutory liens securing payments not yet delinquent and (2) such
imperfections or irregularities of title, or other Liens (other than real
property mortgages or deeds of trust) as do not materially and adversely
affect the current use of the properties or assets subject thereto or
affected thereby or otherwise materially impair business operations
currently conducted at such properties, (B) all real property mortgages and
deeds of trust and (C) the Liens disclosed in Section 3.01(s) of the
Disclosure Schedule and (ii) is the lessee of all leasehold estates
reflected in Section 3.01(s) of the Disclosure Schedule or acquired after
the date thereof which are material to its business on a consolidated basis
and is in possession of the properties purported to be leased thereunder,
and each such lease is in full force and effect and is valid without
material default (and the lessee has not received any notice of default,
whether or not material) thereunder by the lessee or, to IXnet's knowledge,
the lessor.
(t) Intellectual Property. (i) Except as disclosed in the Recent IXnet
SEC Documents, IXnet has heretofore made available to Parent, with respect
to the Intellectual Property owned, held or used by IXnet or its
subsidiaries ("IXnet IP"), all material patents, registrations and
applications relating thereto, all material unregistered copyrights,
trademarks, service marks, brand names, corporate names, technology and
inventions and each and every material license, sublicense, consent-to-use
agreement and other agreement granting or obtaining any right to use or
practice any rights under any IXnet IP to which IXnet and/or any of its
subsidiaries is a party ("IXnet IP Licenses").
(ii) Except as disclosed on Section 3.01(t)(ii) of the Disclosure
Schedule, (1) IXnet and/or any of its subsidiaries own or has the right to
use all the Intellectual Property necessary for IXnet and its subsidiaries
to conduct their businesses as is currently conducted and consistent with
past practice; (2) all of the material IXnet IP is valid, enforceable and
unexpired, is free of Liens, and has not been abandoned; (3) to IXnet's
knowledge, the IXnet IP does not infringe or otherwise impair the
Intellectual Property of any third party and is not being infringed or
impaired by any third party; (4) no judgment, decree, injunction, rule or
order has been rendered or, to the knowledge of IXnet, is threatened by any
Governmental Entity which would limit, cancel or question the validity of
(or IXnet or any subsidiary's right to own or use) any material IXnet IP;
(5) IXnet takes all reasonable steps to protect, maintain and safeguard the
material IXnet IP, including executing all appropriate confidentiality
agreements; (6) neither IXnet and its subsidiaries, nor, to the best of
IXnet's knowledge, any other party to an IP License, is alleged in writing
to be, in breach or default thereunder, and IXnet and its subsidiaries have
not received any written notification from any third party that there is
any such breach or default; (7) the transactions contemplated by this
Agreement shall in no material way impair or limit the rights of IXnet or
any of its subsidiaries under any IP License, or cause any material
payments to be due thereunder.
(u) Transaction with Affiliates. Except as set forth in Section 3.01(u)
of the Disclosure Schedule and in the IXnet SEC Documents, from October 1,
1997 through the date of this Agreement, there has
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been no transaction, agreement, arrangement or understanding, or any
related series thereof, between IXnet or its subsidiaries or contractors,
on the one hand, and IXnet's affiliates (other than IPC and the wholly-
owned (excluding directors' and nominee shares) subsidiaries of IPC or
IXnet), on the other hand, in which the amount or value involved exceeded
$60,000.
SECTION 3.03 Representations and Warranties of Parent and Sub. Parent and GC
Merger Sub represent and warrant to the Companies as follows:
(a) Organization, Standing and Corporate Power. Each of Parent, GC
Merger Sub and the other subsidiaries of Parent is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has all requisite power and authority to
carry on its business as now being conducted and is duly qualified or
licensed and in good standing to do business in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties
makes such qualification or licensing necessary other than in such
jurisdictions where the failure so to qualify or to be in good standing
would not, either individually or in the aggregate, reasonably be expected
to have a Parent Material Adverse Effect. The copies of the memorandum of
association and by-laws of Parent which were previously furnished to IXnet
are true, complete and correct copies of such documents as in effect on the
date of this Agreement. For purposes of this Section 3.03, "subsidiary"
shall mean those subsidiaries of Parent that constitute "Significant
Subsidiaries" within the meaning of Rule 1-02 of Regulation S-X of the SEC.
(b) Capital Structure. (i) As of February 18, 2000, the authorized
capital stock of Parent consisted of (a) 3,000,000,000 shares of Parent
Common Stock of which 780,156,745 shares were outstanding (not including
22,033,758 shares of Parent Common Stock held by a subsidiary of Parent and
considered "treasury stock" for U.S. GAAP purposes) and (b) 20,000,000
shares of preferred stock of which (A) 10,000,000 shares of Parent's 6 3/8%
Cumulative Convertible Preferred Stock, (B) 400,000 shares of Parent's 6
3/8% Cumulative Convertible Preferred Stock, Series B, and (C) 2,600,000
shares of Parent=s 7% Cumulative Convertible Preferred Stock (collectively,
the "Parent Preferred Stock") were outstanding. As of February 18, 2000,
(a) 2,000,000 shares of Parent Common Stock were reserved for issuance to
pay dividends on the outstanding shares of Parent Preferred Stock, (b)
43,317,369 shares of Parent Common Stock were reserved for issuance upon
conversion of the shares of Parent Preferred Stock and (c) 90,000,000
shares of Parent Common Stock were reserved for issuance pursuant to
Parent's 1998 Stock Incentive Plan (the "Parent Stock Incentive Plan").
Since February 18, 2000 to the date of this Agreement, there have been no
issuances of shares of the capital stock of Parent or any other securities
of Parent other than (a) issuances of shares pursuant to options or rights
outstanding under the stock plans of Parent and (b) issuances of shares of
Parent Common Stock upon conversion of shares of Parent Preferred Stock.
All issued and outstanding shares of the capital stock of Parent are duly
authorized, validly issued, fully paid and non-assessable, and no class of
capital stock is entitled to preemptive rights. There were outstanding as
of February 18, 2000 no options, warrants or other rights to acquire
capital stock from Parent other than (A) options representing in the
aggregate the right to purchase 80,232,932 shares of Parent Common Stock
issued to current or former employees, directors and consultants of Parent
and its subsidiaries pursuant to the Parent Stock Incentive Plan and (B)
(i) warrants to purchase 12,500,012 shares of Parent Common Stock expiring
August 13, 2003, exercisable at $9.50 per share of Parent Common Stock, and
(ii) warrants to purchase 5,108,358 shares of Parent Common Stock expiring
August 13, 2008, exercisable at $9.50 per share of Parent Common Stock
(collectively, the "Parent Warrants"). No options or warrants or other
rights to acquire capital stock from Parent have been issued or granted
since February 18, 2000 to the date of this Agreement.
(ii) As of the date of this Agreement, other than Parent Common Stock
and Parent Preferred Stock, no bonds, debentures, notes or other
indebtedness or other securities of Parent having the right to vote on any
matters on which shareholders may vote ("Parent Voting Debt") are issued or
outstanding.
(iii) Except as otherwise set forth in this Section 3.03(b), as of the
date of this Agreement, there are no securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of
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any kind to which Parent or any of its subsidiaries is a party or by which
any of them is bound obligating Parent or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of Parent or any of its
subsidiaries or obligating Parent or any of its subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. As of the date of
this Agreement, there are no outstanding obligations of Parent or any of
its subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of Parent or any of its subsidiaries, other than with respect
to Parent Preferred Stock and the 10 1/2 % Senior Exchangeable Preferred
Stock due 2008 of Global Crossing Holdings Ltd., in each case in accordance
with the terms thereof.
(c) Authority; Noncontravention. (i) Parent has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby, subject to the approval of the Bermuda
Monetary Authority of the issuance of the shares of Parent Common Stock to
be issued in the Mergers (and the subsequent free transferability of the
corresponding shares between nonresident persons for exchange control
purposes). The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent. This
Agreement has been duly executed and delivered by Parent and constitutes a
valid and binding agreement of Parent, enforceable against it in accordance
with its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or
affecting creditors generally, by general equity principles (regardless of
whether such enforceability is considered in a proceeding in equity or at
law) or by an implied covenant of good faith and fair dealing.
(ii) The execution and delivery of this Agreement by Parent does not or
will not, as the case may be, and the consummation by Parent of the Mergers
and the other transactions contemplated hereby will not, conflict with, or
result in a violation of, or constitute a default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
amendment, cancellation or acceleration of any obligation or the loss of a
material benefit under, or the creation of a lien, pledge, security
interest, charge or other encumbrance on any assets (any such conflict,
violation, default, right of termination, amendment, cancellation or
acceleration, loss or creation, a "Violation") pursuant to: (A) any
provision of the memorandum of association or by-laws of Parent or any
other constituent document of any subsidiary of Parent, or (B) except as
would not, individually or in the aggregate, reasonably be expected to have
a Parent Material Adverse Effect, subject to obtaining or making the
consents, approvals, orders, authorizations, registrations, declarations
and filings referred to in paragraph (iii) below, any loan or credit
agreement, note, mortgage, bond, indenture, lease, benefit plan or other
agreement, obligation, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or any subsidiary of Parent or their respective
properties or assets.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Parent or any subsidiary of Parent in connection with the
execution and delivery of this Agreement by Parent or the consummation of
the Mergers and the other transactions contemplated hereby, except for (i)
the filing of a premerger notification and report form under the HSR Act,
(ii) the filing with the SEC of (y) the Information Statements relating to
the Mergers and, if applicable, the Schedules 13E-3, and (z) such reports
under the Exchange Act as may be required in connection with this
Agreement, the Voting Agreement and the transactions contemplated hereby
and thereby, (iii) the filing of the Certificates of Merger with the
Secretary of State of the State of Delaware and the filing of appropriate
documents with the relevant authorities of other states in which IPC or
IXnet is qualified to do business, (iv) such other consents, approvals,
orders, authorizations, registrations, declarations, filings or notices as
are set forth in Section 3.01(d) of the Disclosure Schedule, and (vi) the
approval of the issuance of the shares of Parent Common Stock to be issued
in the Mergers (and of the subsequent free transferability of the
corresponding shares between nonresident persons for exchange control
purposes) by the Bermuda Monetary Authority and such consents, approvals,
orders,
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authorizations, registrations, declarations and filings the failure of
which to make or obtain would not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect.
(d) Reports and Financial Statements. Parent has filed all required
reports, schedules, forms, statements and other documents required to be
filed by it with the SEC since January 1, 1999 (collectively, including all
exhibits thereto, the "Parent SEC Reports"). None of the Parent SEC
Reports, as of their respective dates (and, if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such
filing), contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Each of the financial statements (including the
related notes) included in the Parent SEC Reports presents fairly, in all
material respects, the consolidated financial position and consolidated
results of operations and cash flows of Parent and its subsidiaries as of
the respective dates or for the respective periods set forth therein, all
in conformity with GAAP consistently applied during the periods involved
except as otherwise noted therein, and subject, in the case of the
unaudited interim financial statements, to normal year-end adjustments that
have not been and are not expected to be material in amount. All of such
Parent SEC Reports, as of their respective dates, complied as to form in
all material respects with the applicable requirements of the Securities
Act and the Exchange Act and the rules and regulations promulgated
thereunder.
(e) Information Supplied. None of the information supplied or to be
supplied by Parent for inclusion or incorporation by reference in (i) the
Forms S-4 will, at the time each Form S-4 becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and (ii) each Information
Statement/Prospectus will, on the date it is first mailed to IPC's
stockholders or IXnet's stockholders, as the case may be, or at the time of
the IXnet Stockholder Meeting or the IPC Stockholder Meeting, as the case
may be, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. Each of the Forms S-4 and the Information
Statement/Prospectuses will comply as to form in all material respects with
the requirements of the Exchange Act and the Securities Act and the rules
and regulations of the SEC thereunder. Notwithstanding the foregoing
provisions of this Section 3.03(e), no representation or warranty is made
by Parent with respect to statements made or incorporated by reference in
the Forms S-4 or the Information Statement/Prospectuses based on
information supplied by IXnet or IPC or their subsidiaries for inclusion or
incorporation by reference therein.
(f) Board Approval. The Board of Directors of Parent, by resolutions
duly adopted at a meeting duly called and held and not subsequently
rescinded or modified in any way, has approved this Agreement, the Merger
and the Voting Agreement. The Board of Directors of GC Merger Sub has duly
approved this Agreement and the IPC Merger and declared this Agreement
advisable.
(g) Brokers. No agent, broker, investment banker, financial advisor or
other firm or person is or will be entitled to any broker's or finder's fee
or any other similar commission or fee in connection with any of the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of Parent, except Chase Securities Inc. ("Chase"), whose fees
and expenses will be paid by Parent in accordance with Parent's agreement
with such firm based upon arrangements made by or on behalf of Parent.
SECTION 3.04 Representations of Parent and Sub. Parent and GC Merger Sub
represent and warrant to the Company as follows:
(a) Organization and Corporate Power. GC Merger Sub is a corporation
duly incorporated, validly existing and in good standing under the laws of
Delaware. GC Merger Sub is a direct wholly-owned subsidiary of Parent.
(b) Corporate Authorization. GC Merger Sub has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution,
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delivery and performance by GC Merger Sub of this Agreement and the
consummation by GC Merger Sub of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of GC
Merger Sub. This Agreement has been duly executed and delivered by GC
Merger Sub and constitutes a valid and binding agreement of GC Merger Sub,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors
generally, by general equity principles (regardless or whether such
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing.
(c) Non-Contravention. The execution, delivery and performance by GC
Merger Sub of this Agreement and the consummation by GC Merger Sub of the
transactions contemplated hereby do not and will not contravene or conflict
with the certificate of incorporation or by-laws of GC Merger Sub.
(d) No Business Activities. GC Merger Sub has not conducted any
activities other than in connection with the organization of GC Merger Sub,
the negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby. GC Merger Sub has no subsidiaries.
(e) Capitalization of GC Merger Sub. The authorized capital stock of GC
Merger Sub consists of 100 shares of common stock, par value $0.01 per
share, all of which have been validly issued, are fully paid and
nonassessable and are owned by Parent, free and clear of any Lien.
ARTICLE IV
Covenants Relating to Conduct of Business Prior to Mergers
SECTION 4.01 Conduct of Business of the Companies (a) Conduct of Business
by the Companies. During the period from the date of this Agreement to the
Effective Time of the Mergers (except as otherwise specifically required by
the terms of this Agreement), each of the Companies shall, and shall cause its
subsidiaries to, act and carry on their respective businesses in all material
respects in the usual, regular and ordinary course of business consistent with
past practice and, to the extent consistent therewith, use its reasonable best
efforts to preserve intact their current business organizations, keep
available the services of their current officers and employees and preserve
their relationships with customers, suppliers, licensors, licensees,
advertisers, distributors and others having business dealings with them to the
end that their goodwill and ongoing businesses shall be materially unimpaired
at the Effective Time of the Mergers. Without limiting the generality of the
foregoing, during the period from the date of this Agreement to the Effective
Time of the Mergers, the Companies shall not, and shall not permit any of
their subsidiaries to, without the prior written consent of Parent:
(i) (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions paid by a direct or indirect wholly owned subsidiary of
IPC to its parent, (y) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock, or (z)
purchase, redeem or otherwise acquire any shares of capital stock of the
Companies or any of their subsidiaries or any other securities thereof or
any rights, warrants or options to acquire any such shares or other
securities;
(ii) authorize for issuance, issue, deliver, sell, transfer, pledge or
otherwise encumber any shares of its capital stock or the capital stock of
any of its subsidiaries, any other voting securities or any securities
convertible into or exercisable or exchangeable for, or any rights,
warrants, calls, commitments or options to acquire, any such shares, voting
securities or convertible securities or any other securities or equity
equivalents (including stock appreciation rights) (other than the issuance
of IPC Common Stock or IXnet Common Stock upon the exercise of options to
purchase shares of such common stock outstanding on the date of this
Agreement and in accordance with their present terms);
(iii) amend its certificate of incorporation, by-laws or other
comparable organizational documents;
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(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of, close or shut down its properties
or assets, other than reasonable sales of inventory in the ordinary course
of business and assets having an aggregate value not in excess of $500,000;
(vi) (x) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Companies or
any of their subsidiaries, guarantee any debt securities of another person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having
the economic effect of any of the foregoing, except for short-term
borrowings incurred in the ordinary course of business consistent with past
practice, (y) amend the terms of any outstanding security or (z) make any
loans, advances or capital contributions to, or investments in, any other
person, other than by a wholly owned subsidiary to its parent or to any
direct or indirect wholly owned subsidiary;
(vii) acquire or agree to acquire any assets the value of which,
individually or in the aggregate, exceeds $250,000, or make or agree to
make any capital expenditures except for capital expenditures set forth in
the business plans as capital expenditure budgets of the Companies provided
to Parent prior the date hereof;
(viii) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise),
except for the payment, discharge or satisfaction, (x) of liabilities or
obligations in the ordinary course of business consistent with past
practice, (y) liabilities reflected or reserved against in, or contemplated
by, the most recent consolidated financial statements (or the notes
thereto) included in the Recent IPC SEC Documents or (z) other claims,
liabilities or obligations in the aggregate in an amount (or having a value
in an amount) not in excess of $1,000,000, or waive, release, grant, or
transfer any rights of value or modify or change any existing license,
lease, contract or other document in any manner that would be material to
IPC or enter into any new lease, license or other contract or document;
(ix) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
(x) enter into any new collective bargaining agreement or any successor
collective bargaining agreement to any collective bargaining agreement or
amend any existing collective bargaining agreement;
(xi) change any accounting principle used by it, except for such changes
as may be required to be implemented following the date of this Agreement
pursuant to GAAP or rules and regulations of the SEC promulgated following
the date hereof;
(xii) settle or compromise any litigation (whether or not commenced
prior to the date of this Agreement), other than litigation not in excess
of amounts reserved for in the most recent consolidated financial
statements of IPC included in the Recent IPC SEC Documents or, if not so
reserved for, in an aggregate amount not in excess of $250,000 (provided in
either case such settlement documents do not involve any material non-
monetary obligations on the part of IPC);
(xiii) close, shut down or otherwise eliminate any of its facilities;
(xiv) enter into any transaction, agreement, arrangement or
understanding, or any related series thereof, between itself or its
subsidiaries, on the one hand, and its affiliates (other than IPC and the
wholly-owned (excluding directors' and nominee shares) subsidiaries of IPC
or IXnet), on the other hand;
(xv) change any Tax election, change any annual Tax accounting period,
change any method of Tax accounting, file any amended Tax return, enter
into any closing agreement relating to any material Tax, settle any
material Tax claim or assessment, surrender any right to claim a Tax refund
or consent to any extension or waiver of the limitations period applicable
to any Tax claim or assessment;
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(xvi) change the composition, fill any vacancies or increase the size of
IPC's or IXnet's Board of Directors; or
(xvii) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) Changes in Employment Arrangements and Severance. Following the date of
this Agreement, none of IPC, IXnet nor any subsidiary thereof shall, without
the Parent's prior written consent, (a) increase the compensation or fringe
benefits of any present or former director, officer or Employee of IPC, IXnet
or any subsidiary thereof (except for increases in salary or wages in the
ordinary course of business consistent with past practice), (b) grant any
severance or termination pay to any present or former director, officer or
Employee of IPC, IXnet or any subsidiary thereof (except in the ordinary course
of business consistent with past practice or as required by law or agreements
or plans in effect as of the date of this Agreement), (iii) loan or advance any
money or other property to any present or former director, officer or Employee
of IPC, IXnet or any subsidiary thereof, (iv) establish, adopt, enter into,
amend or terminate any IPC or IXnet Plan, except as required by law, or (v)
take any action that would accelerate the ability of a holder of any option to
acquire shares of IPC, IXnet or any of their subsidiaries pursuant to the
exercise of such option.
(c) Transition Planning. (i) Parent and IPC shall each appoint three
officers, including in each case its chief financial officer, to serve from
time to time as their respective representatives on a committee that will be
responsible for coordinating transition planning and implementation relating to
the Mergers. Either party may remove and replace its appointees at any time.
During the period between the date of this Agreement and the Effective Time of
the Mergers, such committee shall (A) examine various alternatives regarding
the manner in which to best organize and manage the businesses of Parent and
the Companies after the Effective Time of the Mergers and (B) coordinate
policies and strategies with respect to regulatory authorities and bodies, in
all cases subject to applicable law and regulation.
(ii) In order to facilitate an orderly transition of the business of the
Companies to a wholly owned subsidiary of Parent and to permit the coordination
of their related operations on a timely basis, the Companies shall consult with
Parent on all strategic and material operational matters. Without in any way
limiting the provisions of Section 5.04, Parent, its subsidiaries, officers,
employees, counsel, financial advisors and other representatives shall, upon
reasonable notice to either Company, be entitled to review the operations and
visit the facilities of such Company and its subsidiaries during business hours
as may be deemed reasonably necessary by Parent in order to accomplish the
foregoing. Nothing contained in this Agreement shall give Parent, directly or
indirectly, the right to control or direct either Company's operations prior to
the Effective Time of the Mergers.
(iii) Promptly following the date hereof, Parent and the Companies shall, to
the extent not violative in any material respect of any law or of any contracts
or agreements to which any party hereto or any of its subsidiaries or
controlled affiliates is a party, commence to negotiate in good faith an
agreement to transition the Companies' business onto Parent's network and
review Parent's and the Companies' U.S. domestic network to obtain the maximum
network optimization and synergies as necessary for the Companies' future
business plans.
ARTICLE V
Additional Agreements
SECTION 5.01 Preparation of Forms S-4 and the Information
Statement/Prospectuses; Stockholder Meetings. (a) As promptly as practicable
following the date hereof, (i) the parties shall prepare and the Companies
shall file with the SEC transaction or information statements relating to each
of the Mergers, which in each case shall, together with the prospectuses
referred to below, constitute an information statement and prospectus and, if
necessary, a transaction statement on Schedule 13E-3 (such transaction or
information statement/prospectuses, and any amendments or supplements thereto,
the "Information Statement/Prospectuses"), and (ii) Parent shall, in
cooperation with the Companies, prepare and file with the SEC registration
statements on Form S-4 with respect to the issuance of Parent Common Stock in
the Mergers
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(including any amendments or supplements thereto, the "Forms S-4"). The
Information Statement/Prospectuses will be included in a Form S-4 as Parent's
prospectus. The Forms S-4, the Information Statement/Prospectuses shall comply
as to form in all material respects with the applicable provisions of the
Securities Act and the Exchange Act and the rules and regulations thereunder.
Each of Parent and the Companies shall use all reasonable efforts to have the
Forms S-4 declared effective by the SEC as promptly as practicable after filing
with the SEC and to keep the Forms S-4 effective as long as is necessary to
consummate the Mergers. The Companies will use their reasonable best efforts to
cause the Information Statement/Prospectuses to be mailed to each Company's
stockholders, as applicable, as promptly as practicable after the applicable
Form S-4 is declared effective under the Securities Act. The parties shall
promptly provide copies, consult with each other and prepare written responses
with respect to any written comments received from the SEC with respect to each
Information Statement/Prospectus and Form S-4 and advise one another of any
oral comments with respect to each Information Statement/Prospectus or Form S-4
received from the SEC. The parties will cooperate in preparing and filing with
the SEC any amendment or supplement to the Information Statement/Prospectuses
or Forms S-4. No amendment or supplement to the Information
Statement/Prospectuses shall be filed without the prior approval of Parent and
the Companies, which approvals shall not be unreasonably withheld or delayed.
(b) The IPC Stockholders have agreed to execute and deliver, or cause to be
executed and delivered, in accordance with Section 228 of the DGCL, immediately
following execution and delivery of this Agreement, a written consent with
respect to all shares of the IPC Common Stock owned by them or which they have
the right to vote or consent in favor of the adoption of this Agreement (the
"IPC Stockholder Consent"). IPC agrees that immediately following the execution
and delivery of this Agreement, it shall execute and deliver in accordance with
Section 228 of the DGCL, in its capacity as the sole stockholder of IPC
Systems, a Stockholders Consent in the form of Exhibit A hereto (the "IPC
Systems Stockholder Consent") and IPC Systems agrees that immediately following
the execution and delivery of this Agreement, it shall execute and deliver in
accordance with Section 228 of the DGCL, in its capacity as a stockholder of
IXnet, a Stockholders Consent in the form of Exhibit A hereto (the "IXnet
Stockholder Consent" and, together with the IPC Stockholder Consent and the IPC
Systems Stockholder Consent, the "Stockholder Consents"). Each such Stockholder
Consent shall be irrevocable, with respect to all shares of IPC Common Stock or
IXnet Common Stock that are owned beneficially or of record by IPC or IPC
Systems, as the case may be, or as to which they have, directly or indirectly,
the right to vote or direct the voting. Each of IPC and IPC Systems hereby
further agrees that, during the term of this Agreement, it shall, from time to
time, at the request of Parent, at any meeting (whether annual or special and
whether or not an adjourned or postponed meeting) of stockholders of IXnet,
however called, or in connection with any written consent of the holders of
IXnet Common Stock, in either case, prior to the earlier of the Effective Time
of the Mergers and the termination of this Agreement, if a meeting is held,
appear at such meeting or otherwise cause all shares of IXnet Common Stock
beneficially owned by it to be counted as present thereat for purposes of
establishing a quorum, and it shall vote or consent (or cause to be voted or
consented), in person or by proxy, all such shares of IXnet Common Stock, and
any other voting securities of IXnet (whether acquired heretofore or
hereafter), that are beneficially owned by it or its controlled affiliates or
as to which it has, directly or indirectly, the right to vote or direct the
voting, (i) in favor of the IXnet Merger, the adoption of this Agreement and
the approval of the other transactions and other matters contemplated by this
Agreement and any actions required in furtherance hereof; (ii) against any
action or agreement that would result in a breach in any material respect of
any covenant, representation or warranty or any other obligation or agreement
of any party under this Agreement; (iii) except as otherwise agreed to in
writing in advance by Parent, against the following actions (other than the
IXnet Merger and the transactions and other matters contemplated by this
Agreement): (1) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving IXnet or its
subsidiaries; (2) a sale, lease or transfer of a material amount of assets of
IXnet or its subsidiaries or a reorganization, recapitalization, dissolution or
liquidation of IXnet or its subsidiaries; (3) (A) any change in the majority of
the board of directors of IXnet; (B) any material change in the present
capitalization of IXnet or any amendment of its Certificate of Incorporation or
By-laws; (C) any other material change in IXnet's corporate structure or
business; or (D) any other action; which, in the case of each of the matters
referred to in clauses 3(A), (B), (C)
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or (D), is intended, or could reasonably be expected, to impede, frustrate,
prevent, interfere with, delay, postpone, discourage or adversely affect the
contemplated economic benefits to Parent of the Mergers or the transactions
contemplated by this Agreement or change in any manner the voting rights of the
IXnet Common Stock. Neither IPC nor IPC Systems shall enter into any agreement
or understanding with any person or entity prior to the termination of this
Agreement to vote or give instructions after such termination in a manner
inconsistent with clauses (i), (ii) or (iii) of the preceding sentence. IPC
Systems hereby grants to, and appoints, Parent and Robert Annunziata, Chief
Executive Officer of Parent, Dan J. Cohrs, Chief Financial Officer of Parent,
and James C. Gorton, Senior Vice President and General Counsel of Parent, in
their respective capacities as officers of Parent, and any individual who shall
hereafter succeed to any such office of Parent, and any other designee of
Parent, each of them individually, its irrevocable proxy and attorney-in-fact
(with full power of substitution) to execute and deliver a written consent and
to vote IPC Systems' shares of IXnet Common Stock as indicated in this Section
5.01(b). IPC Systems intends this proxy to be irrevocable and coupled with an
interest and will take such further action and execute such other instruments
as may be necessary to effectuate the intent of this proxy and hereby revokes
any proxy previously granted by it with respect to its shares of IXnet Common
Stock.
(c) Notwithstanding the foregoing, if Parent so requests, each Company
shall, as promptly as practicable following such request, take all action
necessary in accordance with applicable law and its certificate of
incorporation and by-laws to duly call, give notice of and convene a meeting of
its stockholders (in either case, a "Stockholders Meeting") to consider and
vote upon the approval and adoption of this Agreement and the applicable
Merger, and to submit this Agreement to the stockholders of such Company for
their approval, in which case all references in this Agreement to an
"Information Statement" with respect to such Company's Merger shall be deemed
to be references to a "Proxy Statement," and such Company and its Board of
Directors shall take all lawful reasonable action to solicit, and use all
reasonable efforts to obtain, such approval. The Board of Directors of each
Company shall recommend approval of the Merger Agreement to the stockholders of
such Company and shall not be permitted to withdraw, amend or modify in a
manner adverse to Parent such recommendation (or announce publicly its
intention to do so).
(d) Each Company will cause its transfer agent to make stock transfer
records relating to such Company available to the extent reasonably necessary
to effectuate the intent of this Agreement.
(e) Each of the parties hereto shall use commercially reasonable efforts to
cause the Mergers to qualify, and will not take any actions which to its
knowledge would reasonably be expected to prevent the Mergers from qualifying
as reorganizations under the provisions of Section 368 of the Code.
SECTION 5.02 Letter of the Companies' Accountants. Each Company shall use
its reasonable best efforts to cause to be delivered to Parent a letter of
PricewaterhouseCoopers, LLP, the independent public accountants for both
Companies, dated a date within two business days before the date on which each
Form S-4 shall become effective and addressed to Parent, in form and substance
reasonably satisfactory to Parent and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Forms S-4. In connection with each
Company's efforts to obtain such letter, if requested by PricewaterhouseCoopers
LLP, Parent shall provide a representation letter to PricewaterhouseCoopers,
LLP complying with SAS 72, if then required.
SECTION 5.03 Letter of Parent's Accountants. Parent shall use its reasonable
best efforts to cause to be delivered to each Company a letter of Arthur
Andersen & Co., Parent's independent public accountants, dated a date within
two business days before the date on which each Form S-4 shall become effective
and addressed to the applicable Company, in form and substance reasonably
satisfactory to such Company and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the Form S-4. In connection with the Parent's efforts to
obtain such letter, if requested by Arthur Andersen & Co., each Company shall
provide a representation letter to Arthur Andersen & Co. complying with SAS 72,
if then required.
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SECTION 5.04 Access to Information; Confidentiality. (a) Each Company shall,
and shall cause its subsidiaries, officers, employees, counsel, financial
advisors and other representatives to, afford to Parent and its representatives
reasonable access during normal business hours during the period prior to the
Effective Time of the Mergers to its properties, books, contracts, commitments,
personnel and records and, during such period, each Company shall, and shall
cause its subsidiaries, officers, employees and representatives to, furnish
promptly to Parent (i) a copy of each report, schedule, registration statement
and other document filed by it during such period pursuant to the requirements
of Federal or state securities laws, (ii) all other information concerning its
business, properties, financial condition, operations and personnel as such
other party may from time to time reasonably request and (iii) no later than 15
days following the end of each calendar month, monthly financial statements
prepared on a basis consistent with the quarterly financial statements referred
to in Section 3.01(e) or Section 3.02(e). Parent will hold, and will cause its
directors, officers, employees, accountants, counsel, financial advisors and
other representatives to hold, any nonpublic information of the Companies in
confidence to the extent required by, and in accordance with, the provisions of
the confidentiality letter between Parent and IXnet and the confidentiality
letter between Parent and IPC (collectively, the "Confidentiality Agreement").
(b) No investigation pursuant to this Section 5.04 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
SECTION 5.05 Reasonable Best Efforts. (a) Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use its
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Mergers and the
other transactions contemplated by this Agreement. Each of the parties hereto
will use its reasonable best efforts and cooperate with one another (i) in
promptly determining whether any filings are required to be made or consents,
approvals, waivers, permits or authorizations are required to be obtained (or,
which if not obtained, would result in an event of default, termination or
acceleration of any agreement or any put right under any agreement) under any
applicable law or regulation or from any governmental authorities or third
parties, including parties to loan agreements or other debt instruments and
including such consents, approvals, waivers, permits or authorizations as may
be required or necessary to transfer any assets and related liabilities of the
Companies to the Surviving Corporations in the Mergers, in connection with the
transactions contemplated by this Agreement, including the Mergers, and the
Voting Agreement and (ii) in promptly making any such filings, in furnishing
information required in connection therewith and in timely seeking to obtain
any such consents, approvals, permits or authorizations. Parent and the
Companies shall mutually cooperate in order to facilitate the achievement of
the benefits reasonably anticipated from the Mergers. In connection with the
legal opinions referred to in Sections 6.02(c) and 6.03(c), Parent, GC Merger
Sub, IPC Merger Sub, IPC Systems and the Companies agree to deliver letters of
representation reasonable under the circumstances as to their present intention
and present knowledge.
(b) The parties hereto shall file as soon as practicable notifications under
the HSR Act with respect to the transactions contemplated hereby and respond as
promptly as practicable to any inquiries received from the Federal Trade
Commission or the Antitrust Division of the Department of Justice for
additional information or documentation and respond as promptly as practicable
to all inquiries and requests received from any State attorney general or other
Governmental Entity in connection with the transactions contemplated hereby.
Concurrently with the filing of notifications under the HSR Act or as soon
thereafter as practicable, the Company and Parent shall each request early
termination of the HSR Act waiting period.
SECTION 5.06 Benefit Plans. (a) Effective as of the Closing, Parent shall
provide that all retained employees of IPC and its subsidiaries, who are not
subject to collective bargaining agreements, shall participate in IPC's
existing employee benefit plans through December 31, 2000, and thereafter,
either shall continue to participate in any or all of such plans or, at the
option of the Parent, shall participate in Parent's benefit plans (other than
those plans that are the subject of collective bargaining) on a basis no less
favorable in the aggregate than similarly situated employees of Parent and its
subsidiaries and, with respect to employees who
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are the subject of collective bargaining agreements, all benefits and other
terms and conditions of employment shall be provided in accordance with the
applicable collective bargaining agreement; provided, however, that for
purposes of the foregoing, no Stock Plan or other plan, program or arrangement
related to the stock of IPC or its subsidiaries shall be considered nor shall
Parent or any affiliate thereof have any obligation to issue or provide any
benefits related to the stock of IPC or its subsidiaries, other than as
provided in Section 2.03. In the event that any employee of IPC or its
affiliates is transferred to Parent or any affiliate of Parent or becomes a
participant in an employee benefit plan, program or arrangement maintained by
or contributed to by the Surviving Corporations or their affiliates, Parent
shall cause such plan, program or arrangement to treat the prior service of
such employee with IPC or its affiliates, to the extent such prior service is
recognized under the comparable plan, program or arrangement of IPC, as service
rendered to the Surviving Corporations or their affiliates, as the case may be;
provided, however, that Parent may cause a reduction of benefits under any such
plans, programs or arrangements to the extent necessary to avoid duplication of
benefits with respect to the same covered years of service and with respect to
any defined benefit pension plan of Parent or any affiliate of Parent, no such
prior service shall be recognized for any purposes other than eligibility to
participate or vesting of benefits.
(b) To the extent that retained employees of IPC and its subsidiaries become
eligible to participate in plans sponsored by Parent and its subsidiaries
(other than Companies' benefit plans), Parent shall (i) waive all limitations
as to preexisting condition exclusions and waiting periods with respect to
participation and coverage requirements applicable to such employees and their
respective dependents under any welfare benefit plans that such employees and
dependents may be eligible to participate in, effective on or after the Closing
Date, but only to the extent that such exclusions and waiting periods were
inapplicable or satisfied under the analogous benefit plan of the Companies and
(ii) provide each such employee or dependent with credit for any co-payments
and deductibles paid prior to the Closing Date in respect of the plan year in
progress at the time such participation begins in satisfying any applicable co-
payment, deductible or out-of-pocket requirement under any analogous welfare
plans that such employees or dependents are eligible to participate in on or
after the Closing Date, but only to the extent such co-payment, deductible or
out-of-pocket requirements would be deemed satisfied under the analogous
benefit plan of the Companies.
(c) Parent shall cause the Surviving Corporations to honor, in accordance
with their terms as in effect on the date hereof, any individual employment,
change in control, severance, retirement or termination agreement between a
Company or any subsidiary thereof, on the one hand, and any current or former
officer, director or employee of such Company or subsidiary, on the other hand
that has been made available to Parent and is listed in Section 5.06(c) of the
Disclosure Schedule. As soon as practicable following the Closing, Parent will
cause to be issued to the officers or employees of IPC and IXnet options to
purchase Parent Common Stock as set forth in Section 5.06(c) of the Disclosure
Schedule.
(d) Parent agrees that subject to the Option Limitation Agreement and the
amendments to the Stock Plans referred to in Section 2.04(a) hereof, the
approval of this Merger Agreement by the Stockholders of IPC and IXnet shall
constitute a "Change of Control" within the meaning of the Stock Plans, the
IXnet Stock Option Certificate for Executives, and the Employment Agreement
dated July 1, 1999 between Gerald Starr and International Exchange Networks,
Ltd.
SECTION 5.07 Indemnification. (a) Commencing at the Effective Time of the
Mergers and for six years thereafter, each Company shall indemnify all present
and former directors or officers of it and its subsidiaries for acts or
omissions occurring prior to the Effective Time of the Mergers to the fullest
extent now provided in their respective certificate of incorporation or by-
laws, provided such indemnification is consistent with applicable law, to the
extent such acts or omissions are uninsured; provided that to the extent that
during any period insurance does not fully indemnify any person contemplated to
be indemnified in accordance with the first sentence of this Section 5.07, the
applicable Company shall indemnify such person in accordance with such terms.
(b) Parent will cause to be maintained for a period of not less than six
years from the Effective Time of the Mergers the Companies' current directors'
and officers' insurance and indemnification policies (or at
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Parent's option replacement policies having terms no less advantageous than the
Companies' current policies) to the extent that each such policy provides
coverage for events occurring prior to the Effective Time of the Mergers for
all persons who are or were directors and officers of the Companies on the date
of this Agreement, so long as the annual premium therefor would not be in
excess of 200% of the last annual premium paid prior to the date of this
Agreement for each such policy (200% of such premium, the "Maximum Premium"),
provided that (i) Parent following the Effective Time of the Mergers shall not
be required to spend an amount in any year in excess of 200% of the annual
aggregate premiums currently paid by the Companies for such insurance; and
provided, further, that if the annual premiums of such insurance coverage
exceed such amount, Parent shall be obligated to cause the Surviving
Corporations to obtain policies with the best coverage available, in the
reasonable judgment of the Board of Directors of Parent following the Mergers,
for a cost not exceeding such amount, and (ii) in the sole discretion of Parent
(x) such policies may be one or more "tail" policies for all or any portion of
the full four-year period or (y) Parent may cause comparable coverage in
accordance with the foregoing clauses to be provided under any policy
maintained for the benefit of the directors and officers of Parent or any of
its subsidiaries.
(c) Each indemnified party shall, promptly after receipt of notice of a
claim or action against such indemnified party in respect of which indemnity
may be sought thereunder, notify the applicable Surviving Corporation or the
Parent, as the case may be (each an "indemnifying party") in writing of the
claim or action. If any such claim or action shall be brought against an
indemnified party, and it shall have notified the indemnifying party thereof,
unless based on the written advice of counsel to such indemnified party, a
conflict of interest between such indemnified party and indemnifying parties
may exist in respect of such claim, the indemnifying party shall be entitled to
participate therein, and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof. After
notice from the indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, the indemnifying party shall not be
liable to the indemnified party under this Section 5.07 for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof. Any indemnifying party against whom indemnity may be sought
under this Section 5.07 shall not be liable to indemnify an indemnified party
if such indemnified party settles such claim or action without the consent of
the indemnifying party. The indemnifying party may not agree to any settlement
of any such claim or action, other than solely for monetary damages for which
the indemnifying party shall be responsible hereunder, as a result of which any
remedy or relief shall be applied to or against the indemnified party, without
the prior written consent of the indemnified party, which consent shall not be
unreasonably withheld. In any action hereunder as to which the indemnifying
party has assumed the defense thereof, the indemnified party shall continue to
be entitled to participate in the defense thereof, with counsel of its own
choice, but the indemnifying party shall not be obligated hereunder to
reimburse the indemnified party of the costs thereof.
SECTION 5.08 Expenses.
(a) Except as set forth in this Section 5.08, all fees and expenses incurred
in connection with this Agreement, the Voting Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expenses, whether or not the Mergers are consummated; provided, however, that
Parent shall pay all fees and expenses, other than accountants' and attorneys'
fees, incurred in connection with the printing and filing of the Information
Statement/Prospectuses (including any preliminary materials related thereto)
and the Forms S-4 (including financial statements and exhibits).
(b) All transfer, documentary, sales, use, registration, stock transfer
Taxes and other such Taxes (including all applicable real estate transfer or
gains Taxes) and related fees (including any penalties, interest and additions
to Tax) incurred in connection with this Agreement and the transactions
contemplated hereby, shall be paid by the Companies and the Companies shall
timely make all filings, returns, reports and forms as may be required to
comply with the provisions of such Tax laws.
SECTION 5.09 Public Announcements. Parent and GC Merger Sub, on the one
hand, and the Companies and their subsidiaries, on the other hand, will consult
with each other before holding any press
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conferences or analyst calls and before issuing any press releases relating to
this Agreement or the Mergers. The parties will provide each other the
opportunity to review and comment upon any press release with respect to the
transactions contemplated by this Agreement and the Voting Agreement, including
the Mergers, and shall not issue any such press release prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release or releases to be
issued with respect to the transactions contemplated by this Agreement shall be
mutually agreed upon prior to the issuance thereof.
SECTION 5.10 Affiliates. Prior to the Closing Date, the Companies shall
deliver to Parent a letter identifying all persons who are, at the time this
Agreement is executed and, if applicable, at the time this Agreement is
submitted for approval to the stockholders of the Companies, "affiliates" of
either Company for purposes of Rule 145 under the Securities Act. The Companies
shall deliver to Parent with respect to each such "affiliate" on or prior to
the Closing a written agreement substantially in the form attached as Exhibit B
hereto.
SECTION 5.11 Listing of Parent Common Stock. Parent shall use its reasonable
best efforts to cause the shares of Parent Common Stock to be issued in the
Mergers and under the Stock Plans to be approved, subject to official notice of
issuance, for quotation on NASDAQ or for listing on any other national
securities exchange on which the Parent Common Stock may be listed in lieu
NASDAQ.
SECTION 5.12 No Solicitation.
(a) Neither of the Companies shall, directly or indirectly, through any
officer, director, employee, stockholder, financial advisor, agent or other
representative (including any investment banker, attorney or accountant
retained by the Companies or by any of their subsidiaries or stockholders) (i)
solicit, initiate, encourage or facilitate (including by way of furnishing
information) any inquiries or proposals that constitute, or would reasonably be
expected to lead to, (x) a breach of this Agreement or the Voting Agreement or
otherwise interfere in any material respect with the completion of the Mergers
or (y) a proposal or offer for an Alternative Transaction (as defined below)
involving either of the Companies or any of their subsidiaries (any of the
foregoing inquiries or proposals being referred to in this Agreement as an
"Acquisition Proposal"), (ii) participate or engage in negotiations or
discussions concerning, or provide any non-public information to any person
relating to, or otherwise facilitate any effort or attempt to make or
implement, any Acquisition Proposal, or (iii) agree to or recommend to its
stockholders any Acquisition Proposal; provided, however, that nothing
contained in this Agreement shall prevent either Company from complying with
Rule 14e-2 under the Exchange Act with respect to an Acquisition Proposal. The
Companies agrees that they will immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any persons (other
than Parent and GC Merger Sub) conducted heretofore with respect to any
Acquisition Proposal. The Companies agrees not to release any other person
from, or waive any provision of, any standstill agreement to which it is a
party or any confidentiality agreement between it and another person who has
made or who may reasonably be considered likely to make an Acquisition
Proposal. The Companies agrees that they will take the necessary steps to
inform promptly the individuals or entities referred to in the first sentence
of this Section 5.12 of the obligations undertaken in this Section 5.12.
(b) The Companies shall notify Parent immediately after receipt by either
Company (or its advisors) of any Acquisition Proposal or any request for
nonpublic information in connection with an Acquisition Proposal or for access
to the properties, books or records of either Company by any person or entity
that informs such party that it is considering making, or has made, an
Acquisition Proposal. Such notice shall be made orally and in writing and shall
indicate in reasonable detail the identity of the person making such
Acquisition Proposal and the terms and conditions of such proposal, inquiry or
contact.
(c) As used in this Agreement, "Alternative Transaction" means (i) a
transaction pursuant to which any person or group other than Parent or its
affiliates (a "Third Party") would acquire, directly or indirectly, more than
25% of the outstanding shares of IPC Common Stock or IXnet Common Stock whether
pursuant to a tender offer or exchange offer or otherwise, (ii) a merger or
other business combination involving either Company pursuant to which any
person or group would acquire, directly or indirectly, more than 25% of the
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outstanding shares of IPC Common Stock or IXnet Common Stock or shares
exercisable or convertible into or exchangeable for more than 25% of the
outstanding shares of IPC Common Stock or IXnet Common Stock, or of the entity
surviving such merger or business combination, (iii) any other transaction
pursuant to which any person or group acquires control of assets or businesses
(including for this purpose the outstanding equity securities of subsidiaries
of IPC, and the entity surviving any merger or business combination including
any of them) of IPC or IXnet having a fair market value equal to more than 25%
of the fair market value of all the assets or businesses of either Company and
its subsidiaries, taken as a whole, immediately prior to such transaction, (iv)
any recapitalization, restructuring or other transaction which would reasonably
be expected to prevent or materially impair or delay the consummation of the
Mergers or (v) any public announcement of a proposal, plan or intention to do
any of the foregoing or any agreement to engage in any of the foregoing.
SECTION 5.13 Certain Agreements. Neither Company nor any of their
subsidiaries will waive or fail to enforce any provision of any confidentiality
or standstill or similar agreement to which it is a party without the prior
written consent of Parent.
SECTION 5.14 Stop Transfer. IPC acknowledges and agrees to be bound by and
comply with the provisions of Section 7 of the Voting Agreement as if a party
thereto with respect to transfers of record ownership of shares of IPC Common
Stock, and agrees to notify the transfer agent for any shares of IPC Common
Stock or voting rights certificates and provide such documentation and do such
other things as may be necessary to effectuate the provisions of such
agreement.
SECTION 5.15 Compliance with Section 228 of the DGCL. IPC will deliver,
concurrently with the delivery to it of the IPC Stockholder Consent, a
certificate of its Secretary as to the sufficiency of the IPC Stockholder
Consent to adopt the Merger Agreement by IPC stockholders. IXnet will deliver,
concurrently with the delivery to it of the IXnet Stockholder Consent, a
certificate of its Secretary as to the sufficiency of the IXnet Stockholder
Consent to adopt the Merger Agreement by the IXnet stockholders. In accordance
with Section 228 of the DGCL, each Company shall promptly (but in any event
within 10 days of the date hereof) notify its stockholders who have not
consented in writing to the adoption of the Merger Agreement and who, if such
action had been taken at a meeting, would have been entitled to notice of the
meeting if the record date for such meeting had been the date of the applicable
Stockholder Consent.
ARTICLE VI
Conditions Precedent
SECTION 6.01 Conditions to Each Party's Obligation To Effect the
Mergers. The respective obligation of each party to effect the Mergers is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approvals. The Stockholder Approvals shall have been
obtained.
(b) Listing. The shares of Parent Common Stock issuable to the
stockholders of the Companies pursuant to this Agreement (including upon
the exercise of options) shall have been approved for listing on the NASDAQ
or on any other national securities exchange on which the Parent Common
Stock may be listed in lieu thereof, subject to official notice of
issuance.
(c) HSR Act. The waiting period (and any extension thereof) applicable
to the Mergers under the HSR Act shall have been terminated or shall have
expired.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition enjoining or
preventing the consummation of the Mergers shall be in effect.
(e) Forms S-4. The Forms S-4 shall have become effective under the
Securities Act and no stop order suspending the effectiveness thereof shall
be in effect and no procedures for such purpose shall be pending before or
threatened by the SEC.
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SECTION 6.02 Conditions to Obligations of Parent and GC Merger Sub. The
obligations of Parent and GC Merger Sub to effect the Mergers are further
subject to the satisfaction (or waiver by Parent) of the following conditions:
(a) Representations and Warranties. The representations and warranties
of the Companies and IPC Systems set forth in this Agreement, disregarding
all qualifications and exceptions contained therein relating to materiality
or Material Adverse Effect, shall be true and correct as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date, except for those representations and warranties which address
matters only as of a particular date (which shall have been true and
correct as of such date), except where the failure of such representations
and warranties to be true and correct would not, individually or in the
aggregate, reasonably be expected to have an IPC Material Adverse Effect or
an IXnet Material Adverse Effect. Parent shall have received a certificate
signed on behalf of the Companies by the chief executive officer and the
chief financial officer of each of the Companies to the effect set forth in
this paragraph.
(b) Performance of Obligations. The Companies, IPC Systems and IPC
Merger Sub shall have performed in all material respects the obligations
required to be performed by them under this Agreement at or prior to the
Closing Date, and Parent shall have received a certificate signed on behalf
of IPC by the chief executive officer and the chief financial officer of
IPC to such effect.
(c) Tax Opinion. Parent shall have received the opinion of Simpson
Thacher & Bartlett, counsel to Parent, based on appropriate
representations, including representations of Parent, the Companies, IPC
Systems and the Subs, to the effect that (i) the Mergers will be treated
for U.S. federal income tax purposes as reorganizations within the meaning
of Section 368(a) of the Code, (ii) Parent, GC Merger Sub, the Companies,
IPC Systems and IPC Merger Sub will each be a party to the reorganizations
within the meaning of Section 368(b) of the Code and (iii) Section 367 of
the Code will not apply to the exchange of IPC Common Stock or IXnet Common
Stock for Parent Common Stock pursuant to the Mergers, other than with
respect to any "five percent transferee shareholders" who fail to enter
into a "gain recognition agreement" in accordance with applicable treasury
regulations.
(d) Consents, etc. Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that such licenses, permits,
consents, approvals, authorizations, qualifications and orders of
Governmental Entities and other third parties as are necessary in
connection with the transactions contemplated hereby have been obtained,
except such licenses, permits, consents, approvals, authorizations,
qualifications and orders which are not, individually or in the aggregate,
material to Parent or the Companies or the failure of which to have been
received would not reasonably be expected to have an IPC Material Adverse
Effect, an IXnet Material Adverse Effect or a Parent Material Adverse
Effect.
(e) No Litigation. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding (i) challenging or
seeking to restrain or prohibit the consummation of the Mergers or any of
the other transactions contemplated by this Agreement or the Voting
Agreement or seeking to obtain from Parent or any of its subsidiaries any
damages that are material in relation to Parent and its subsidiaries taken
as a whole, (ii) seeking to prohibit or limit the ownership or operation by
the Companies, Parent or any of their respective subsidiaries of any
material portion of the business or assets of the Companies, Parent or any
of their respective subsidiaries, to dispose of or hold separate any
material portion of the business or assets of the Companies, Parent or any
of their respective subsidiaries, as a result of the Mergers or any of the
other transactions contemplated by this Agreement or the Voting Agreement,
(iii) seeking to impose limitations on the ability of Parent or GC Merger
Sub to acquire or hold, or exercise full rights of ownership of, any shares
of IPC Common Stock, IXnet Common Stock or common stock of the Surviving
Corporations, including the right to vote such common stock on all matters
properly presented to the stockholders of the Companies or the Surviving
Corporations, respectively, or (iv) seeking to prohibit Parent or any of
its subsidiaries from effectively controlling in any material respect the
business or operations of the Companies or their subsidiaries.
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SECTION 6.03 Conditions to Obligation of the Companies and IPC Systems. The
obligation of the Companies and IPC Systems to effect the Mergers is further
subject to the satisfaction (or waiver by IPC) of the following conditions.
(a) Representations and Warranties. The representations and warranties
of Parent set forth in this Agreement, disregarding all qualifications and
exceptions contained therein relating to materiality or Material Adverse
Effect, shall be true and correct as of the date of this Agreement and as
of the Closing Date as though made on and as of the Closing Date, except
for those representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date),
except where the failure of such representations and warranties to be true
and correct would not, individually or in the aggregate, reasonably be
expected to have a Parent Material Adverse Effect. IPC shall have received
a certificate signed on behalf of Parent by the chief financial officer of
Parent to the effect set forth in this paragraph.
(b) Performance of Obligations and the Subs. Parent and GC Merger Sub
shall have performed in all material respects the obligations required to
be performed by them under this Agreement at or prior to the Closing Date,
and IPC shall have received a certificate signed on behalf of Parent by the
chief financial officer of Parent to such effect.
(c) Tax Opinion. The Companies shall have received the opinion of
Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Companies, based on
appropriate representations, including representations, of Parent, the
Companies, IPC Systems and the Subs, to the effect that (i) the Mergers
will be treated for U.S. federal income tax purposes as reorganizations
within the meaning of Section 368(a) of the Code, (ii) Parent, GC Merger
Sub, IPC Merger Sub, IPC Systems and the Companies will each be a party to
the reorganizations within the meaning of Section 368(b) of the Code and
(iii) Section 367 of the Code will not apply to the exchange of IPC Common
Stock or IXnet Common Stock for Parent Common Stock pursuant to the
Mergers, other than with respect to any "five percent transferee
shareholders" who fail to enter into a "gain recognition agreement" in
accordance with applicable treasury regulations.
(d) No Litigation. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding which would reasonably
be expected, if adversely determined, to result in criminal or material
uninsured and unindemnified or unindemnifiable personal liability on the
part of one or more directors of the Companies, (i) challenging or seeking
to restrain or prohibit the consummation of the Mergers or any of the other
transactions contemplated by this Agreement or (ii) seeking to prohibit or
limit the ownership or operation by the Companies, Parent or any of their
respective subsidiaries of any material portion of the business or assets
of the Companies, Parent or any of their respective subsidiaries, or to
dispose of or hold separate any material portion of the business or assets
of the Companies, Parent or any of their respective subsidiaries, as a
result of the Mergers or any of the other transactions contemplated by this
Agreement or the Voting Agreement.
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.01 Termination. This Agreement may be terminated and abandoned at
any time prior to the Effective Time of the Mergers, whether before or after
approval of matters presented in connection with the Mergers by the
stockholders of the Companies:
(a) by mutual written consent of Parent and the Companies; or
(b) by either Parent or the Companies if any Governmental Entity within
the United States or any country or other jurisdiction in which the
Companies or Parent, directly or indirectly, has material assets or
operations shall have issued an order, decree or ruling or taken any other
action permanently enjoining, restraining or otherwise prohibiting any of
the Mergers and such order, decree, ruling or other action shall have
become final and nonappealable; or
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(c) by either Parent or the Companies if the Mergers shall not have been
consummated on or before December 31, 2000 (other than due to the failure
of the party seeking to terminate this Agreement to perform its obligations
under this Agreement required to be performed at or prior to the Effective
Time of the Mergers); or
(d) by Parent, if any required approval of the stockholders of either
Company shall not have been obtained by reason of the failure to obtain the
required vote upon a vote held at a duly held meeting of stockholders, at
any adjournment thereof, or by written consent; or
(e) by the Companies, if Parent or GC Merger Sub has breached in any
material respect any representation or warranty, covenant or other
agreement contained in this Agreement which (i) would give rise to a
failure of a condition set forth in clauses (a) or (b) of Section 6.03 and
(ii) cannot be or has not been cured prior to the date 20 business days
after the giving of written notice of such breach to Parent; or
(f) by Parent, if either of the Companies, IPC Systems or IPC Merger Sub
has breached in any material respect any representation or warranty,
covenant or other agreement contained in this Agreement which (i) would
give rise to a failure of a condition set forth in clauses (a) or (b) of
Section 6.02 and (ii) cannot be or has not been cured prior to the date 20
business days after the giving of written notice of such breach to the
Companies.
SECTION 7.02 Effect of Termination. In the event of termination of this
Agreement by the Companies or Parent as provided in Section 7.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of any party, other than the last sentence of Section
5.04(a), Section 5.08, Section 5.13 and this Section 7.02. Nothing contained in
this Section 7.02 shall relieve any party for any breach of the
representations, warranties, covenants or agreements set forth in this
Agreement or for fraud.
SECTION 7.03 Amendment. Any provision of this Agreement may be amended or
waived prior to the Effective Time of the Mergers (whether before or after
approval of matters presented in connection with Mergers by stockholders of the
constituent corporations in the Mergers) if, and only if, such amendment or
waiver is in writing and signed, in the case of an amendment, by the Companies
and Parent or, in the case of a waiver, by the party against whom the waiver is
to be effective; provided that after the adoption of this Agreement by the
stockholders of the Companies, there shall be made no amendment that by law
requires further approval by the stockholders of the Companies without the
further approval of such stockholders.
SECTION 7.04 Extension; Waiver. At any time prior to the Effective Time of
the Mergers, the parties may (a) extend the time for the performance of any of
the obligations or other acts of the other parties, (b) waive any inaccuracies
in the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 7.03, waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
ARTICLE VIII
General Provisions
SECTION 8.01 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time of the Mergers.
This Section 8.01 shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the Effective Time of the
Mergers.
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SECTION 8.02 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Parent or GC Merger Sub, to
Global Crossing Ltd.
360 N. Crescent Drive
Beverly Hills, CA 90210
Facsimile: 310-281-5820
Attention: James C. Gorton
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Facsimile: 212-455-2502
Attention: D. Rhett Brandon
(b) if to either Company, to
IPC Communications, Inc. or IXnet, Inc., as applicable
Wall Street Plaza
88 Pine Street
New York, New York 10005
Facsimile: 212-509-7888
Attention: Alexander Russo
with copies to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York
Facsimile: 212-735-2000
Attention: Joseph A. Coco; and
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Facsimile: 212-309-6273
Attention: Philip H. Werner
SECTION 8.03 Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person; as used in this
definition, the term "control" means possession, directly or indirectly, of
the power to direct or cause the direktion of the management or policies of
a person, whether throughthe ownership of voting securities, by contract or
otherwise.
(b) "IPC Material Adverse Effect" means any event, change, occurrence,
effect, fact or circumstance that (i) is materially adverse to, or would
pre~ent or materially delay, the ability of IPC or its subsidiaries to
perform their obligaions under this Agreement or to consummate the
transactions contemplated hereby or (ii) the business, assets, liabilities,
results of operations or condition (financial or otherwise) of IPC and its
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subsidiaries taken as a whole; "IXnet Material Adverse Effect" means any
event, change, occurrence, effect, fact or circumstance that (i) is
materially adverse to, or would prevent or materially delay, the ability of
IXnet or its subsidiaries to perform their obligations under this Agreement
or to consummate the transactions contemplated hereby or (ii) the business,
assets, liabilities, results of operations or condition (financial or
otherwise) of IXnet and its subsidiaries taken as a whole; "Parent Material
Adverse Effect" means any event, change, occurrence, effect, fact or
circumstance that (i) is materially adverse to, or would prevent or
materially delay, the ability of Parent or its subsidiaries to perform
their obligations under this Agreement or to consummate the transactions
contemplated hereby or (ii) the business, assets, liabilities, results of
operations or condition (financial or otherwise) of Parent and its
subsidiaries taken as a whole;
(c) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
and
(d) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership, partnership or member interests
of which is sufficient to elect at least a majority of its Board of
Directors or other governing body or managing member or partner (or, if
there are no such voting interests, 50% or more of the equity interests of
which) is owned directly or indirectly by such first person.
SECTION 8.04 Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 8.05 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
SECTION 8.06 Entire Agreement; No Third-Party Beneficiaries. This Agreement
and the other agreements referred to herein constitute the entire agreement,
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter of this Agreement. This
Agreement is not intended to confer upon any person other than the parties any
rights or remedies, except Section 5.06(c), Section 5.06(d) and Section 5.07.
SECTION 8.07 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the state of Delaware.
SECTION 8.08 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.09 Enforcement; Jurisdiction. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any Federal court
located in the State of Delaware or any Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity.
Any suit, action or proceeding seeking to enforce any provision of, or based on
any matter arising out of or in connection with, this Agreement or the
transactions contemplated by this Agreement may be brought against any of the
parties in
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any Federal court located in the State of Delaware or any Delaware state court,
and each of the parties hereto hereby consents to the exclusive jurisdiction of
such courts (and of the appropriate appellate courts therefrom) in any such
suit, action or proceeding and waives any objection to venue laid therein.
Process in any such suit, action or proceeding may be served on any party
anywhere in the world, whether within or without the State of Delaware. Without
limiting the generality of the foregoing, each party hereto agrees that service
of process upon such party at the address referred to in Section 8.02, together
with written notice of such service to such party, shall be deemed effective
service of process upon such party.
SECTION 8.10 Severability. Whenever possible, each provision or portion of
any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
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IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement to
be signed by their respective officers thereunto duly authorized, all as of the
date first written above.
GLOBAL CROSSING LTD.
By: /s/ Thomas J. Casey
----------------------------------
Name: Thomas J. Casey
Title:
GEORGIA MERGER SUB CORPORATION
By: /s/ Thomas J. Casey
----------------------------------
Name: Thomas J. Casey
Title:
IPC COMMUNICATIONS, INC.
By: /s/ David Walsh
----------------------------------
Name: David Walsh
Title:
IPC INFORMATION SYSTEMS, INC.
By: /s/ David Walsh
----------------------------------
Name: David Walsh
Title:
IXNET, INC.
By: /s/ David Walsh
----------------------------------
Name: David Walsh
Title:
IDAHO MERGER SUB CORPORATION
By: /s/ David Walsh
----------------------------------
Name: David Walsh
Title:
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ANNEX B
CONSENT AND VOTING AGREEMENT
CONSENT AND VOTING AGREEMENT, dated as of February 22, 2000 (the
"Agreement"), among GLOBAL CROSSING LTD., a company formed under the laws of
Bermuda ("Parent"), CABLE SYSTEMS HOLDING, LLC, a Delaware limited liability
company ("CSH"), and each of the other signatories hereto (and together with
CSH, the "Stockholders").
WHEREAS, concurrently herewith, Parent, Georgia Merger Sub Corporation, a
Delaware corporation and a wholly owned subsidiary of Parent ("GC Merger Sub"),
IPC Communications, Inc., a Delaware corporation (the "Company"), IPC
Information Systems, Inc., a Delaware corporation and a wholly owned subsidiary
of the Company ("IPC Systems"), Idaho Merger Sub Corporation, a Delaware
corporation and a wholly owned subsidiary of the Company ("IPC Merger Sub"),
and Ixnet, Inc., a Delaware corporation and a subsidiary of the Company
("IXnet"), are entering into an Agreement and Plan of Merger (as such agreement
may be amended from time to time and whether or not such agreement has been
terminated, the "Merger Agreement"; terms used but not defined herein shall
have the meanings set forth in the Merger Agreement) pursuant to which (i) the
Company will be merged with and into IPC Systems (the "Intercompany Merger"),
(ii) GC Merger Sub will be merged with and into IPC Systems (the "IPC Merger")
and (iii) IPC Sub will be merged with and into IXnet (the "IXnet Merger" and
together with the Intercompany Merger and the IPC Merger, the "Mergers");
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Parent and Sub have required that CSH and the other Stockholders
enter into this Agreement pursuant to which, among other things, the
Stockholders have agreed to certain consent and voting provisions in connection
with and in favor of the Company Merger; and
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
1. Consent and Voting Matters
1.1 Consent and Agreement to Vote. Each Stockholder agrees (for itself and
not as to any other Stockholder) that immediately following the execution and
delivery of this Agreement and the Merger Agreement, it shall execute and
deliver, as the record owner thereof, in accordance with Section 228 of the
DGCL, the Stockholders Consent in the form of Exhibit A hereto (the "Consent"),
which shall be irrevocable, with respect to all Shares that are owned
beneficially or of record by such Stockholder or as to which such Stockholder
has, directly or indirectly, the right to vote or direct the voting.
Each Stockholder hereby further agrees (for itself and not as to any other
Stockholder) that, during the term of this Agreement, it shall, from time to
time, at the request of Parent, at any meeting (whether annual or special and
whether or not an adjourned or postponed meeting) of stockholders of the
Company, however called, or in connection with any written consent of the
holders of Common Stock, par value $.01 per share, of the Company ("Company
Common Stock"), in either case, prior to the earlier of the Effective Time of
the Mergers and the termination of this Agreement, if a meeting is held, appear
at such meeting or otherwise cause such Stockholder's Shares to be counted as
present thereat for purposes of establishing a quorum, and it shall vote or
consent (or cause to be voted or consented), in person or by proxy, all such
Stockholder's Shares, and any other voting securities of the Company (whether
acquired heretofore or hereafter), that are beneficially owned by such
Stockholder or its subsidiaries or as to which such Stockholder has, directly
or indirectly, the right to vote or direct the voting, (a) in favor of the
Intercompany Merger and the IPC Merger, the adoption of the Merger Agreement
and the approval of the terms thereof and each of the other transactions and
other matters contemplated by the Merger Agreement and this Agreement and any
actions required in furtherance hereof and thereof; (b) against any action or
agreement that would result in a breach in any material respect of any
covenant, representation or warranty or any other obligation or agreement of
the Company or any subsidiary thereof under the Merger Agreement; (c) except as
otherwise agreed to in writing in advance by Parent, against the following
actions (other than the Mergers and the transactions and other matters
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contemplated by the Merger Agreement): (1) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company or its subsidiaries; (2) a sale, lease or transfer of a
material amount of assets of the Company or its subsidiaries or a
reorganization, recapitalization, dissolution or liquidation of the Company or
its subsidiaries; (3) (a) any change in the majority of the board of directors
of the Company; (b) any material change in the present capitalization of the
Company or any amendment of the Company's Certificate of Incorporation or By-
laws; or (c) any other material change in the Company's corporate structure or
business or change in any manner of the voting rights of the Company Common
Stock. Such Stockholder shall not enter into any agreement or understanding
with any person or entity prior to the termination of this Agreement to vote or
give instructions in a manner inconsistent with clauses (a), (b) or (c) of the
preceding sentence.
1.2 Proxy. Each Stockholder hereby grants to, and appoints, Parent and
Robert Annunziata, Chief Executive Officer of Parent, Dan J. Cohrs, Chief
Financial Officer of Parent, and James C. Gorton, Senior Vice President and
General Counsel of Parent, in their respective capacities as officers of
Parent, and any individual who shall hereafter succeed to any such office of
Parent, and any other designee of Parent, each of them individually, its proxy
and attorney-in-fact (with full power of substitution) to execute and deliver a
written consent and to vote such Stockholder's Shares as indicated in Section
1.1. Subject to Section 10.5, such Stockholder intends this proxy to be
irrevocable and coupled with an interest and will take such further action and
execute such other instruments as may be necessary to effectuate the intent of
this proxy and hereby revokes any proxy previously granted by it with respect
to its Shares.
Each Stockholder hereby revokes any and all previous proxies with respect to
such Stockholder's Shares or any other voting securities of the Company that
relate to the approval of the Merger Agreement.
2. Representations and Warranties of the Stockholders. Each Stockholder,
severally but not jointly, makes the following representations and warranties
to the Parent:
2.1 Power; Binding Agreement. Such Stockholder has the power and
authority to enter into and perform all of its obligations under this
Agreement (including the power and authority without further action on the
part of any shareholders, members or partners thereof or any other
juridical or nonjuridical person to comply with the consent and voting
requirements of Section 1). The execution, delivery and performance of this
Agreement by such Stockholder will not violate any other agreement to which
such Stockholder is a party (including any trust agreement, voting
agreement, stockholders agreement or voting trust), except to the extent
any such violations, individually or in the aggregate, would not reasonably
be expected to have a material adverse effect on Parent or to prevent or
materially delay the consummation of the transactions contemplated by the
Merger Agreement. This Agreement has been duly and validly authorized,
executed and delivered by such Stockholder and constitutes a valid and
binding agreement of such Stockholder, enforceable against it in accordance
with its terms, except as limited by (a) bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditor's
rights generally, (b) general principles of equity, whether such
enforceability is considered in a proceeding in equity or law, and to the
discretion of the court before which any proceeding therefor may be
brought, or (c) public policy considerations or court decisions which may
limit the rights of the parties hereto for indemnification.
2.2 No Conflict. Other than filings required under the HSR Act, and the
filing of Forms 4 and Schedules 13D under the Securities and Exchange Act
of 1934, as amended, and the rules and regulations thereunder (the
"Exchange Act"), no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is required to
be made or obtained by such Stockholder for the execution of this Agreement
by such Stockholder, except for any such filings the failure of which to be
made, individually or in the aggregate, would not reasonably be expected to
have a material adverse effect on Parent or to prevent or materially delay
the consummation of the transactions contemplated hereby and filings
required in connection with the consummation of the Mergers. Neither the
execution and delivery of this Agreement by such Stockholder nor the
consummation by such Stockholder of the transactions
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contemplated hereby nor compliance by such Stockholder with any of the
provisions hereof shall (a) conflict with or result in any breach of such
Stockholder's certificate of incorporation, bylaws, operating agreement,
partnership agreement or other organizational or governing document or
agreement, as the case may be, (b) result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or
give rise to any third party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which such Stockholder is a party or by which
such Stockholder or any of the Stockholder's properties or assets may be
bound or (z) violate any order, writ, injunction, decree, judgment, order,
statute, rule or regulation applicable to such Stockholder or any of the
Stockholder's members, properties or assets, except to the extent any of
the foregoing, individually or in the aggregate, would not reasonably be
expected to have a material adverse effect on Parent or to prevent or
materially delay the consummation of the transactions contemplated by the
Merger Agreement or to prevent such Stockholder from complying with its
obligations hereunder.
2.3 Reliance. Such Stockholder understands and acknowledges that Parent
is entering into, and causing Sub to enter into, the Merger Agreement in
reliance upon such Stockholder's execution and delivery of this Agreement.
2.4 Ownership of Shares. Such Stockholder is the record owner of the
number shares of Company Common Stock set forth opposite its name on
Schedule 2.4 (with respect to each Stockholder and together with any shares
of Company Common Stock with respect to which such Stockholder shall have
or receive record ownership, its "Shares"), free and clear of any Liens
other than restrictions contained in the Amended and Restated Investors
Agreement, dated as of April 9, 1998 (the "Investors Agreement"). Except as
otherwise provided in the Investors Agreement, such Stockholder has sole
voting power, and sole power of disposition, with respect to all of such
Stockholder's Shares.
2.5 No Broker. Such Stockholder has not employed any investment banker,
broker, finder, consultant or intermediary in connection with the
transactions contemplated by this Agreement or the Merger Agreement which
would be entitled to any investment banking, brokerage, finder's or similar
fee or commission in connection with this Agreement or the transactions
contemplated by the Merger Agreement.
3. Representations and Warranties of Parent. Parent hereby represents and
warrants to each Stockholder as follows:
3.1 Power; Binding Agreement. Parent has the power and authority to
enter into and perform all of its obligations under this Agreement. The
execution, delivery and performance of this Agreement by Parent will not
violate any other agreement to which Parent is a party (including any trust
agreement, voting agreement, stockholders agreement or voting trust),
except to the extent that any such violations, individually or in the
aggregate, would not reasonably be expected to have a material adverse
effect on Parent or to prevent or materially delay the consummation of the
transactions contemplated by the Merger Agreement. This Agreement has been
duly and validly executed and delivered by Parent and constitutes a valid
and binding agreement of Parent, enforceable against Parent in accordance
with its terms.
3.2 No Conflict. Other than filings required under the HSR Act, the
filing of a Form 3 and Schedule 13D under the Exchange Act and the filing
of a registration statement under the Securities Act, no filing with, and
no permit, authorization, consent or approval of, any state or federal
public body or authority is necessary for the execution of this Agreement
by Parent and the consummation by Parent of the transactions contemplated
hereby, except in each case for such filings the failure of which to be
made, individually or in the aggregate, would not reasonably be expected to
have a material adverse effect on Parent or to prevent or materially delay
the consummation of the transactions contemplated by the Merger Agreement
and filings required in connection with the consummation of the Mergers.
Neither the execution and delivery of this Agreement by Parent nor the
consummation by Parent of the transactions
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contemplated hereby nor compliance by Parent with any of the provisions
hereof shall (x) conflict with or result in any breach of any applicable
organizational documents applicable to Parent, (y) result in a violation or
breach of, or constitute (with or without notice or lapse of time or both)
a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or
other instrument or obligation of any kind to which Parent is a party or by
which Parent or any of Parent's properties or assets may be bound or (z)
violate any order, writ, injunction, decree, judgment, order, statute, rule
or regulation applicable to Parent or any of Parent's properties or assets,
except to the extent that any of the foregoing, individually or in the
aggregate, would not reasonably be expected to have a material adverse
effect on Parent or to prevent or materially delay the consummation of the
transactions contemplated by the Merger Agreement.
4. Covenants of the Stockholders. The Stockholders, jointly but not
severally, hereby covenant and agree as follows:
4.1 Cooperation in Filing Notification under Hart-Scott-Rodino. Each of
the Stockholders agrees to use reasonable best efforts to cooperate with
Parent and each other to promptly effectuate the filing of any notification
required under the HSR Act.
4.2 Commercially Reasonable Efforts. Subject to the terms and conditions
of this Agreement, the Stockholders each agree to use all commercially
reasonable efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions provided for by this
Agreement.
4.3 No Solicitation. (a) Other than as expressly permitted under Section
4.4(b), none of the Stockholders, in its capacity as such, shall, directly
or indirectly, through any officer, director, employee, stockholder,
member, partner, financial advisor, agent or other representative
(including any investment banker, attorney or accountant retained by such
Stockholder or by any of such Stockholder's subsidiaries, affiliate or
stockholders, members or partners) (i) solicit, initiate, encourage or
facilitate (including by way of furnishing information) any inquiries or
proposals that constitute, or would reasonably be expected to lead to an
Acquisition Proposal or any Transfer (as defined in Section 4.4) of Shares
or (ii) participate or engage in negotiations or discussions concerning, or
provide any non-public information to any person relating to, or otherwise
facilitate any effort or attempt to make or implement, any Acquisition
Proposal or any Transfer of Shares. Other than as expressly permitted under
Section 4.4(b), each Stockholder, in its capacity as such, agrees that it
will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any persons (other than Parent and Sub)
conducted heretofore with respect to any Acquisition Proposal or any
Transfer of Shares. Each Stockholder agrees that it will take the necessary
steps to inform promptly the individuals or entities referred to in the
first sentence of this Section 4.3 of the obligations undertaken in this
Section 4.3.
(b) Other than as expressly permitted under Section 4.4(b), each
Stockholder, in its capacity as such, shall notify Parent immediately after
receipt by such Stockholder (or any of its stockholders, members, partners
or advisors) of any Acquisition Proposal or a proposal or offer for any
Transfer of Shares or any request for nonpublic information in connection
with an Acquisition Proposal or a proposal or offer for any Transfer of
Shares or for access to the properties, books or records of the Company by
any person or entity that informs such Stockholder that it is considering
making, or has made, an Acquisition Proposal or a proposal or offer for any
Transfer of Shares. Such notice shall be made orally and in writing and
shall indicate in reasonable detail the identity of the offeror and the
terms and conditions of such proposal, inquiry or contact.
(c) The foregoing provisions of this Section 4.3 shall not restrict any
member of a Stockholder who is also a director of the Company from taking
any actions solely in his capacity as a director.
4.4 Restriction on Transfer of Shares, Proxies and Non-Interference;
Restriction on Withdrawal. (a) No Stockholder shall, directly or indirectly:
(i) except pursuant to or as contemplated hereby by the terms of this
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Agreement or the Merger Agreement, offer for sale, sell (including short
sales), transfer, tender, pledge, encumber, assign or otherwise dispose of
(including by gift) or enter into any contract, option, derivative, hedging or
other arrangement or understanding (including any profit-sharing arrangement)
with respect to or consent to the offer for sale, sale, transfer, tender,
pledge, encumbrance, assignment or other disposition of (any of the foregoing,
a "Transfer"), any or all of such Stockholder's Shares or any interest therein;
(ii) except as contemplated hereby, grant any proxies or powers of attorney,
deposit any Shares into a voting trust or enter into any other voting
arrangement with respect to any Shares; (iii) take any action that would make
any representation or warranty of any Stockholder contained herein untrue or
incorrect or have the effect of preventing or disabling any Stockholder from
performing such Stockholder's obligations under this Agreement; or (iv) commit
or agree to take any of the foregoing actions.
(b) Notwithstanding the foregoing, CSH may Transfer up to 20% of the
Shares set forth next to its name on Schedule 2.4 to its members in
accordance with the terms of its governing operating agreement or otherwise
on a pro rata or other widely distributed basis who shall receive such
Shares free and clear of all obligations imposed on CSH hereunder and none
of the obligations hereunder shall attach to such Shares.
4.5 Transfer of Shares of Parent Common Stock. (a) None of CSH, its
Permitted Transferees (as defined below) or Richard Kleinknecht (collectively,
the "Outside Stockholders") shall directly or indirectly, Transfer any shares
of the Common Stock, par value $.01 per share, of Parent ("Parent Common
Stock") until the first anniversary of the Closing, except (i) in the case of
CSH, to Citicorp Venture Capital, Ltd. ("CVC") or another subsidiary of
Citigroup which shall have agreed by reasonably satisfactory instrument
delivered to Parent to be bound by the provisions of Sections 4.5 and 4.6
hereof (collectively, the "Permitted Transferees"), (ii) any Transfer pursuant
to Section 3(a) of the Registration Rights Agreement, or (iii) pursuant to a
tender offer, self tender offer, exchange offer or other transaction offered
generally to stockholders of Parent and approved by Parent's Board of
Directors. Each of David Walsh and Anthony Servidio, individually and for
himself, agrees that he shall not, directly or indirectly, Transfer during the
period commencing on the Closing Date and (a) ending on the first anniversary
of the Closing Date, shares of Parent Common Stock representing more than 25%
of the sum of the shares of Parent Common Stock received by him in the Merger
and shares of Parent Common Stock issuable to him pursuant to options to
acquire Parent Common Stock which have vested and are exercisable as of the
Closing ("Vested Shares"), (b) ending on the second anniversary of the Closing
Date, cumulatively, more than 62.5% of his Vested Shares, and (c) any time
after the second anniversary of the Closing Date, 100% of his Vested Shares.
(b) All certificates representing shares of Parent Common Stock issued
to any Stockholder pursuant to the Merger Agreement shall be endorsed with
a legend reading as follows until such time as the shares represented
thereby are no longer subject to the provisions hereof:
"The shares of Common Stock, par value $.01 per share, of Global
Crossing Ltd. (the "Company") represented by this certificate are
subject to a Consent and Voting Agreement dated as of February 22,
2000, and may not be sold or otherwise transferred, except in
accordance therewith. Copies of such Agreement may be obtained at the
principal executive offices of the Company."
(c) In the case of the Outside Stockholders, the legend on the
certificates representing any of the shares of Parent Common Stock shall be
removed on the first anniversary of the Closing and such legend shall be
removed from shares of Parent Common Stock Transferred by an Outside
Stockholder pursuant to the Registration Rights Agreement.
4.6 Standstill. None of CSH or its Permitted Transferees or subsidiaries
shall directly or indirectly (a) acting alone or in concert with others, seek
to effect a change in control of Parent or the business, operations or policies
of Parent; (b) initiate or propose any stockholder proposal or make, or in any
way, participate in, directly or indirectly, any "solicitation" of "proxies" to
vote or intentionally seek in an organized fashion to influence any person with
respect to the voting of, any Parent Voting Securities in a manner inconsistent
with the position of the board of directors of Parent or become "participant"
in a "solicitation" (as such terms are defined in Regulation 14A under the
Exchange Act, as in effect on the date hereof) in opposition to the
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recommendation of the majority of the directors of Parent with respect to any
matter; (c) propose or seek to effect a merger, consolidation,
recapitalization, reorganization, sale, lease, exchange or other disposition of
substantially all assets or other business combination involving, or a tender
or exchange offer for securities of, Parent or any of its subsidiaries or any
material portion of its or such subsidiary's business or assets, or any similar
transaction that has not been approved by the Board of Directors of Parent; (d)
join a partnership, limited partnership, syndicate or other group (other than a
group consisting of CSH, its Permitted Transferees and any of their
subsidiaries), or otherwise act in concert with any other person, for the
purpose of acquiring, holding, voting or disposing of Parent Voting Securities,
or, otherwise become a "person" within the meaning of Section 13(d)(3) of the
Exchange Act relating to any of the matters set forth in clauses (a), (b), (c)
or (d); or (e) request, or induce or encourage any other person to request,
that Parent amend or waive any of the provisions of this Section 4.6. The
provisions of this Section 4.6 shall cease to apply at such time after the
Merger as CSH and its affiliates collectively cease to beneficially own at
least 25% of the Parent Common Stock acquired by CSH in the Merger.
4.7 CSH Affiliates. It is expressly understood that none of the provisions
of this Agreement shall apply to Citigroup or any of its affiliates, other than
CSH and its Permitted Transferees and their respective subsidiaries.
4.8 Registration Rights. Parent shall enter into the Registration Rights
Agreement, in substantially the form of Exhibit B attached hereto
("Registration Rights Agreement"), with the Outside Stockholders immediately
prior to the Effective Time of the Mergers.
5. Further Assurances. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further action as may be reasonably
necessary to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement and the Merger
Agreement.
6. Certain Events. Except as set forth in Section 4.4, each Stockholder
agrees that this Agreement and the obligations hereunder shall attach to such
Stockholder's Shares and shall be binding upon any person or entity to which
legal or beneficial ownership of such Shares shall pass, whether by operation
of law or otherwise, including without limitation the Stockholder's
administrators, successors or receivers.
7. Stop Transfer. Each Stockholder agrees with, and covenants to, Parent
that it shall not request that the Company register the transfer (book-entry or
otherwise) of any certificate or uncertificated interest representing any of
the Shares, unless such transfer is made in compliance with this Agreement.
Such Stockholder agrees, with respect to any Shares in certificated form, that
immediately following the execution hereof, it will present to the Company, the
certificates representing the Shares for inscription by the Company of the
following legend: "The shares of Common Stock, par value $.01 per share, of IPC
Communications, Inc. (the "Company") represented by this certificate are
subject to a Consent and Voting Agreement dated as of February 22, 2000, and
may not be sold or otherwise transferred, except in accordance therewith.
Copies of such Agreement may be obtained at the principal executive offices of
the Company." Upon the transfer of any Shares pursuant to Section 4.4(b), such
legend shall be removed. Such Stockholder agrees that it will no longer hold
any Shares, whether certificated or uncertificated, in "street name" or in the
name of any nominee. Pursuant to the Merger Agreement, the Company has agreed
to notify the transfer agent for any Shares in uncertificated form of the
provisions set forth in this Section 7 and has agreed to, and such Stockholder
agrees to, provide such documentation and to do such other things as may be
required to give effect to such provisions with respect to such uncertificated
Shares. Parent will not register the transfer (book-entry or otherwise) of any
certificate or uncertificated interest representing any Stockholder's Parent
Common Stock, unless such transfer is made in compliance with this Agreement.
8. Post-Closing Covenants. Each Stockholder agrees to hold in strict
confidence all data and information relating to the business of the Company and
its subsidiaries (the "Proprietary Information") obtained in the course of its
ownership of shares or participation in the management of the Company or any of
its subsidiaries or otherwise which is either non-public, confidential or
proprietary in nature. Each Stockholder agrees that subject to any requirement
of law or tribunal order, it will keep such Proprietary Information
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confidential and will not, without the prior written consent of Parent, be
disclosed by any Stockholder to any person. This Agreement shall be inoperative
as to such portions of the Proprietary Information which (i) are or become
generally available to the public other than as a result of a disclosure by
Parent or any of its representatives, (ii) become available to any Stockholder
or one of its representatives on a nonconfidential basis from a source other
than any of Parent or any of its representatives, which has not advised such
Stockholder that it is bound by a confidentiality agreement with, or other
contractual, legal or fiduciary obligation of confidentiality to, any of Parent
or any of its subsidiaries or affiliates with respect to such portions of the
Proprietary Information, or (iii) were known by any Stockholder on a
nonconfidential basis prior to its commencement of employment with, or
ownership of, the Company or one of its subsidiaries. Each Stockholder agrees
that Parent shall be entitled to equitable relief, including injunction and
specific performance, in the event of any breach of the provisions of this
Section 8. Such remedies shall not be deemed to be the exclusive remedies for a
breach of this Section 8 by any Stockholder but shall be in addition to all
other remedies available at law or equity. It is further understood and agreed
that failure or delay by Parent in exercising any right, power or privilege
under this Section 8 shall not operate as a waiver thereof nor shall any single
or partial exercise thereof preclude and other or further exercise of any
right, power or privilege under this Agreement.
9. No Survival of Representations and Warranties. Other than as expressly
set forth herein, the representations, warranties and covenants of the parties
contained herein shall not survive the termination of this Agreement; provided,
however, that an uncured breach by a party of a representation, warranty or
covenant hereunder prior to such termination shall survive such termination.
10. Miscellaneous.
10.1 Successors and Assigns. Except as expressly provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Other than as set forth in the
immediately succeeding sentence, and except as contemplated hereby, neither
Parent nor any Stockholder may assign any of its rights, or delegate any of its
duties or obligations, hereunder without the prior written consent of Parent,
and any such purported assignment or delegation shall be void ab initio.
Notwithstanding the foregoing, Parent, its affiliates, and its successors and
assigns, may assign their rights and delegate their duties (a) to any successor
entity resulting from any liquidation, merger, consolidation, reorganization,
or transfer of all or substantially all of the assets or stock of Parent, or
(b) to any affiliate of Parent; provided, that in either case, any such
assignee shall expressly assume all of the obligations of Parent hereunder.
10.2 Notices. All notices, demands and other communications (collectively,
"Notices") given or made pursuant to this Agreement shall be in writing and
shall be deemed to have been duly given if sent by registered or certified
mail, return receipt requested, postage and fees prepaid, by overnight service
with a nationally recognized "next day" delivery company such as Federal
Express or United Parcel Service, by facsimile transmission, or otherwise
actually delivered to the following addresses:
(a) If to Parent:
Global Crossing Ltd.
360 N. Crescent Drive
Beverly Hills, CA 90210
Attention: James C. Gorton
Facsimile: 310-281-5820
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn: D. Rhett Brandon
Fax: 212-455-2502
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(b If to CSH:
Cable Systems Holding, LLC
206 East Forest Hills Drive
Phoenix, AZ 85022
Attention: Peter Woog
Fax: 602-789-8847
with copies to:
Citicorp Venture Capital, Ltd.
399 Park Avenue--14th Floor
New York, New York 10043
Facsimile No.: 212-888-2940
Attn: Richard M. Cashin, Jr.; and
Morgan, Lewis & Bockius LLP
10 Park Avenue
New York, NY 10178
Attention: Philip H. Werner
Fax: 212-309-6273; and
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Facsimile: 212-735-2000
Attention: Joseph A. Coco, Esq.; and
(c) If to any other Stockholder:
To such person(s) and address(es) set forth
under such Stockholder's signature
Any Notice shall be deemed duly given when received by the addressee
thereof. Any of the parties to this Agreement may from time to time change its
address for receiving notices by giving written notice thereof in the manner
set forth above.
10.3 Amendment: Waiver. No provision of this Agreement may be waived unless
in writing signed by all of the parties to this Agreement, and the waiver of
any one provision of this Agreement shall not be deemed to be a waiver of any
other provision. This Agreement may be amended, supplemented or otherwise
modified only by a written agreement executed by all of the parties to this
Agreement.
10.4 Enforcement; Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated by this
Agreement may be brought against any of the parties in any Federal court
located in the State of Delaware or any Delaware state court, and each of the
parties hereto hereby consents to the exclusive jurisdiction of such courts
(and of the appropriate appellate courts therefrom) in any such suit, action or
proceeding and waives any objection to venue laid therein. Process in any such
suit, action or proceeding may be served on any party anywhere in the world,
whether within or without the State of Delaware. Without limiting the
generality of the foregoing, each party hereto agrees that service of process
upon such party at the address referred to in Section 10.2 or upon the agent
appointed by the Company for service of process in Delaware, together with
written notice of such service to such party, shall be deemed effective service
of process upon such party.
10.5 Termination. This Agreement and the irrevocable proxy granted in
Section 1.2 hereof will terminate upon the termination of the Merger Agreement.
Sections 1, 2, 3, 4.1, 4.2, 4.3, 4.4, 6 and 7 shall terminate at the Effective
Time of the Mergers. With respect to the Outside Stockholders only, this
Agreement shall terminate in its entirety and the Outside Stockholders shall no
longer be deemed Stockholders hereunder upon the first anniversary of the
Closing.
B-8
<PAGE>
10.6 Capacity. No member, stockholder, director, partner, employee, officer,
representative or agent of any Stockholder (in each case, in their capacity as
such) has made any (and shall not be deemed to have made any) representations,
warranties or covenants (express or implied) under or in connection with this
Agreement.
10.7 Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
10.8 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other parties.
10.9 Entire Agreement; No Third-Party Beneficiaries. This Agreement and the
other agreements referred to herein constitute the entire agreement, and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of this Agreement. This
Agreement is not intended to confer upon any person other than the parties any
rights or remedies.
10.10 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
10.11 Headings. The section and subsection headings contained in this
Agreement are included for convenience only and form no part of the agreement
between the parties.
10.12 Expenses. Each party shall pay its own costs, expenses, including
without limitation, the fees and expenses of their respective counsel and
financial advisors.
10.13 Publicity. The initial press release relating to this Agreement shall
be a joint press release, and Parent and the Stockholders shall use reasonable
efforts to agree upon the text of any other press release before issuing any
such press release.
10.14 Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other parties to sustain damages for which they
would not have an adequate remedy at law for money damages, and therefore each
of the parties hereto agrees that in the event of any such breach the aggrieved
party or parties shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief,
without the posting of bond or other security, in addition to any other remedy
to which it or they may be entitled, at law or in equity.
B-9
<PAGE>
IN WITNESS WHEREOF, a duly authorized representative of each of the parties
hereto have executed this Agreement as of the date first above written.
Global Crossing Ltd.
/s/ Thomas J. Casey
By: _________________________________
Name: Thomas J. Casey
Title:
Cable Systems Holding, LLC
/s/ Peter A. Woog
By: _________________________________
Name: Peter A. Woog
Title: Manager
/s/ Richard Kleinknecht
By: _________________________________
Name: Richard Kleinknecht for
Richard Kleinknecht individually
and Richard Kleinknecht trustee
Richard P. Kleinknecht
15 Banbury Lane
Huntington, NY 11745
with a copy to:
White & Case
1155 Avenue of the Americas
New York, New York 10036
Attention: Edward F. Rover, Esq.
Fax: (212) 354-8113
/s/ David Walsh
By: _________________________________
Name: David Walsh
IPC Communications, Inc.
Wall Street Plaza
88 Pine Street
New York, NY 10005
Attention: David Walsh
Fax: (212) 344-5106
B-10
<PAGE>
/s/ Anthony Servidio
By: _________________________________
Name: Anthony Servidio
IPC Communications, Inc.
Wall Street Plaza
88 Pine Street
New York, NY 10005
Attention: David Walsh
Fax: (212) 344-5106
Allegra Capital Partners III, L.P.
Its General Partner:
Allegra Partners III, L.P.
/S/ Richard W. Smith
By: _________________________________
Name: Richard W. Smith
Title:
Allegra Capital Partners III,
L.P.
515 Madison Avenue
New York, NY 10022-5403
Attention: Richard W. Smith
Fax: (212) 759-2561
B-11
<PAGE>
SCHEDULE 2.4
<TABLE>
<CAPTION>
SHARES OF
COMPANY COMMON STOCK
NAME OF RECORD OWNER HELD
- ----------------------------------------------------------- --------------------
<S> <C>
Cable Systems Holding, LLC................................. 4,346,033
Richard Kleinknecht........................................ 761,904
David Walsh................................................ 271,617
Anthony Servidio........................................... 174,730
Allegra Capital Partners III, L.P. ........................ 381,904
---------
STOCKHOLDER TOTAL: ........................................ 5,936,188
</TABLE>
B-12
<PAGE>
ANNEX C-1
[LETTERHEAD OF SALOMON SMITH BARNEY INC.]
February 22, 2000
The Board of Directors
IXnet, Inc.
Wall Street Plaza
88 Pine Street
New York, NY 10005
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of IXnet, Inc. ("IXnet") of the IXnet
Exchange Ratio (defined below) set forth in the Agreement and Plan of Merger,
dated as of February 22, 2000 (the "Merger Agreement"), among Global Crossing
Ltd. ("Global Crossing"), Georgia Merger Sub Corporation, a wholly-owned
subsidiary of Global Crossing ("GC Merger Sub"), IPC Communications, Inc.
("IPC"), IPC Information Systems, Inc., a wholly owned subsidiary of IPC ("IPC
Systems"), Idaho Merger Sub Corporation, a wholly-owned subsidiary of IPC
Systems ("IPC Merger Sub"), and IXnet. As more fully described in the Merger
Agreement, (i) IPC will be merged with and into IPC Systems (the "Intercompany
Merger") pursuant to which the outstanding shares of the common stock, par
value $0.01 per share, of IPC ("IPC Common Stock") will be converted into the
right to receive shares of the common stock, par value $0.01 per share, of IPC
Systems ("IPC Systems Common Stock"), (ii) immediately subsequent to the
Intercompany Merger, GC Merger Sub will be merged with and into IPC Systems
(the "IPC Merger") pursuant to which the outstanding shares of IPC Systems
Common Stock will be converted into the right to receive shares of the common
stock, par value $0.01 per share, of Global Crossing ("Global Crossing Common
Stock") and (iii) IPC Merger Sub will be merged with and into IXnet (the "IXnet
Merger") pursuant to which each outstanding share of the common stock, par
value $0.01 per share, of IXnet ("IXnet Common Stock") will be converted into
the right to receive 1.184 shares (the "IXnet Exchange Ratio") of Global
Crossing Common Stock.
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of IXnet and certain senior officers and other representatives and
advisors of Global Crossing concerning the businesses, operations and prospects
of IXnet and Global Crossing. We examined certain publicly available business
and financial information relating to IXnet and Global Crossing as well as
certain financial forecasts and other information and data for IXnet and Global
Crossing which were provided to or otherwise discussed with us by the
managements of IXnet and Global Crossing, including information relating to
certain strategic implications and operational benefits anticipated to result
from the IXnet Merger. We reviewed the financial terms of the IXnet Merger as
set forth in the Merger Agreement in relation to, among other things: current
and historical market prices and trading volumes of IXnet Common Stock and
Global Crossing Common Stock; the historical and projected earnings and other
operating data of IXnet and Global Crossing; and the capitalization and
financial condition of IXnet and Global Crossing. We considered, to the extent
publicly available, the financial terms of certain other similar transactions
recently effected which we considered relevant in evaluating the IXnet Merger
and analyzed certain financial, stock market and other publicly available
information relating to the businesses of other companies whose operations we
considered relevant in evaluating those of IXnet and Global Crossing. We also
evaluated the pro forma financial impact of the IXnet Merger and the IPC Merger
on Global Crossing. In addition to the foregoing, we conducted such other
analyses and examinations and considered such other information and financial,
economic and market criteria as we deemed appropriate in arriving at our
opinion.
C-1-1
<PAGE>
The Board of Directors
IXnet, Inc.
February 22, 2000
Page 2
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed
by or discussed with us. With respect to financial forecasts and other
information and data provided to or otherwise reviewed by or discussed with us,
we have been advised by the managements of IXnet and Global Crossing that such
forecasts and other information and data were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of IXnet and Global Crossing as to the future financial performance
of IXnet and Global Crossing and the strategic implications and operational
benefits anticipated to result from the IXnet Merger. We have assumed, with
your consent, that the IXnet Merger will be treated as a tax-free
reorganization for federal income tax purposes. Our opinion, as set forth
herein, relates to the relative values of IXnet and Global Crossing. We are not
expressing any opinion as to what the value of the Global Crossing Common Stock
actually will be when issued pursuant to the IXnet Merger or the price at which
the Global Crossing Common Stock will trade subsequent to the IXnet Merger. We
have not made or been provided with an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of IXnet or Global Crossing
nor have we made any physical inspection of the properties or assets of IXnet
or Global Crossing. In connection with our engagement, we were not requested
to, and we did not, solicit third party indications of interest in the possible
acquisition of all or a part of IXnet, nor were we requested to consider, and
our opinion does not address, the relative merits of the IXnet Merger as
compared to any alternative business strategies that might exist for IXnet or
the effect of any other transaction in which IXnet might engage. Our opinion is
necessarily based upon information available to us, and financial, stock market
and other conditions and circumstances existing and disclosed to us, as of the
date hereof.
Salomon Smith Barney Inc. has acted as financial advisor to IXnet in
connection with the proposed IXnet Merger and will receive a fee for such
services, a significant portion of which is contingent upon the consummation of
the IXnet Merger. We have in the past provided investment banking services to
IXnet and Global Crossing unrelated to the proposed IXnet Merger, for which
services we have received compensation. In the ordinary course of our business,
we and our affiliates may actively trade or hold the securities of IXnet and
Global Crossing for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
As you are aware, an affiliate of Citigroup Inc., the parent company of Salomon
Smith Barney Inc., beneficially owns approximately 60% of the outstanding
shares of IPC, which owns approximately 73% of the outstanding shares of IXnet
Common Stock. In addition, we and our affiliates (including Citigroup Inc. and
its affiliates) may maintain relationships with IXnet, Global Crossing and
their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of IXnet in its evaluation of the
proposed IXnet Merger, and our opinion is not intended to be and does not
constitute a recommendation to any stockholder as to how such stockholder
should vote on any matters relating to the proposed IXnet Merger.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the IXnet Exchange Ratio is
fair, from a financial point of view, to the holders of IXnet Common Stock.
Very truly yours,
/s/ Salomon Smith Barney Inc.
SALOMON SMITH BARNEY INC.
C-1-2
<PAGE>
ANNEX C-2
[LETTERHEAD OF SALOMON SMITH BARNEY INC.]
February 22, 2000
The Board of Directors
IPC Communications, Inc.
Wall Street Plaza
88 Pine Street
New York, NY 10005
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of IPC Communications, Inc. ("IPC") of
the IPC Exchange Ratio (defined below) set forth in the Agreement and Plan of
Merger, dated as of February 22, 2000 (the "Merger Agreement"), among Global
Crossing Ltd. ("Global Crossing"), Georgia Merger Sub Corporation, a wholly-
owned subsidiary of Global Crossing ("GC Merger Sub"), IPC, IPC Information
Systems, Inc., a wholly-owned subsidiary of IPC ("IPC Systems"), Idaho Merger
Sub Corporation, a wholly owned subsidiary of IPC Systems ("IPC Merger Sub"),
and IXnet, Inc. ("IXnet"). As more fully described in the Merger Agreement, (i)
IPC will be merged with and into IPC Systems (the "Intercompany Merger")
pursuant to which the outstanding shares of the common stock, par value $0.01
per share, of IPC ("IPC Common Stock") will be converted into the right to
receive shares of the common stock, par value $0.01 per share, of IPC Systems
("IPC Systems Common Stock"), (ii) immediately subsequent to the Intercompany
Merger, GC Merger Sub will be merged with and into IPC Systems (the "IPC
Merger") pursuant to which each outstanding share of IPC Systems Common Stock
will be converted into the right to receive 5.417 shares (the "IPC Exchange
Ratio") of the common stock, par value $0.01 per share, of Global Crossing
("Global Crossing Common Stock") and (iii) IPC Merger Sub will be merged with
and into IXnet (the "IXnet Merger") pursuant to which the outstanding shares of
the common stock, par value of $0.01 per share, of IXnet ("IXnet Common Stock")
will be converted into the right to receive shares of Global Crossing Common
Stock.
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of IPC and certain senior officers and other representatives and
advisors of Global Crossing concerning the businesses, operations and prospects
of IPC and Global Crossing. We examined certain publicly available business and
financial information relating to IPC and Global Crossing as well as certain
financial forecasts and other information and data for IPC and Global Crossing
which were provided to or otherwise discussed with us by the managements of IPC
and Global Crossing, including information relating to certain strategic
implications and operational benefits anticipated to result from the IPC
Merger. We reviewed the financial terms of the IPC Merger as set forth in the
Merger Agreement in relation to, among other things: current and historical
market prices and trading volumes of IPC Common Stock and Global Crossing
Common Stock; the historical and projected earnings and other operating data of
IPC and Global Crossing; and the capitalization and financial condition of IPC
and Global Crossing. We considered, to the extent publicly available, the
financial terms of certain other similar transactions recently effected which
we considered relevant in evaluating the IPC Merger. We also evaluated the pro
forma financial impact of the IPC Merger and the IXnet Merger on Global
Crossing. In addition to the foregoing, we conducted such other analyses and
examinations and considered such other information and financial, economic and
market criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed
by or discussed with us. With respect to financial forecasts and other
information and data provided to or otherwise reviewed by or discussed with us,
we have been advised by the managements of IPC and Global Crossing that such
forecasts and other information and data were reasonably prepared on bases
reflecting the
C-2-1
<PAGE>
The Board of Directors
IPC Communications, Inc.
February 22, 2000
Page 2
best currently available estimates and judgments of the managements of IPC and
Global Crossing as to the future financial performance of IPC and Global
Crossing and the strategic implications and operational benefits anticipated to
result from the IPC Merger. We have assumed, with your consent, that the IPC
Merger will be treated as a tax-free reorganization for federal income tax
purposes. Our opinion, as set forth herein, relates to the relative values of
IPC and Global Crossing. We are not expressing any opinion as to what the value
of the Global Crossing Common Stock actually will be when issued pursuant to
the IPC Merger or the price at which the Global Crossing Common Stock will
trade subsequent to the IPC Merger. We have not made or been provided with an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of IPC or Global Crossing nor have we made any physical inspection
of the properties or assets of IPC or Global Crossing. In connection with our
engagement, we were not requested to, and we did not, solicit third party
indications of interest in the possible acquisition of all or a part of IPC,
nor were we requested to consider, and our opinion does not address, the
Intercompany Merger, the relative merits of the IPC Merger as compared to any
alternative business strategies that might exist for IPC or the effect of any
other transaction in which IPC might engage. Our opinion is necessarily based
upon information available to us, and financial, stock market and other
conditions and circumstances existing and disclosed to us, as of the date
hereof.
Salomon Smith Barney Inc. has acted as financial advisor to IPC in
connection with the proposed IPC Merger and will receive a fee for such
services, a significant portion of which is contingent upon the consummation of
the IPC Merger. We have in the past provided investment banking services to IPC
and Global Crossing unrelated to the proposed IPC Merger, for which services we
have received compensation. In the ordinary course of our business, we and our
affiliates may actively trade or hold the securities of IPC and Global Crossing
for our own account or for the account of our customers and, accordingly, may
at any time hold a long or short position in such securities. As you are aware,
an affiliate of Citigroup Inc., the parent company of Salomon Smith Barney
Inc., beneficially owns approximately 60% of the outstanding shares of IPC
Common Stock. In addition, we and our affiliates (including Citigroup Inc. and
its affiliates) may maintain relationships with IPC, Global Crossing and their
respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of IPC in its evaluation of the proposed
IPC Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on any
matters relating to the proposed IPC Merger.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the IPC Exchange Ratio is fair,
from a financial point of view, to the holders of IPC Common Stock.
Very truly yours,
/s/ Salomon Smith Barney Inc.
SALOMON SMITH BARNEY INC.
C-2-2
<PAGE>
ANNEX D-1
[LETTERHEAD OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION]
February 22, 2000
Board of Directors
IXnet, Inc.
Wall Street Plaza
88 Pine Street, 6th Floor
New York, NY 10005
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of IXnet, Inc. ("IXnet" or the "Company") other than
IPC Communications, Inc. ("IPC") of the consideration to be received by such
stockholders pursuant to the terms of the Agreement and Plan of Merger, dated
as of February 22, 2000 (the "Agreement"), among Global Crossing Ltd. ("Global
Crossing") Georgia Merger Sub Corporation ("IPC Merger Sub"), a wholly-owned
subsidiary of Global Crossing, IPC, IPC Information Systems, Inc. ("IPC Sub"),
a wholly-owned subsidiary of IPC, Idaho Merger Sub Corporation ("IXnet Merger
Sub"), a wholly-owned subsidiary of IPC Sub and IXnet, pursuant to which (i)
IPC will be merged (the "Intercompany Merger") with and into IPC Sub, and
immediately subsequently, IPC Merger Sub will be merged (the "IPC Merger" and,
together with the Intercompany Merger, the "IPC Mergers") with and into IPC Sub
and (ii) IXnet Merger Sub will be merged (the "IXnet Merger" and together with
the IPC Mergers, the "Mergers") with and into IXnet.
Pursuant to the Agreement, as a result of the IXnet Merger each share of
common stock, par value $0.01 per share ("Company Common Stock") of the Company
will be converted, subject to certain exceptions, into the right to receive
1.184 shares (the "Exchange Ratio") of common stock, $0.01 par value per share
("Global Crossing Common Stock") of Global Crossing.
In arriving at our opinion, we have reviewed the Agreement and the exhibits
thereto. We also have reviewed financial and other information that was
publicly available or furnished to us by the Company and Global Crossing,
including information provided during discussions with their respective
managements. Included in the information provided during discussions with the
respective managements were certain financial projections of the Company for
the period beginning October 1, 1999 and ending September 30, 2009 prepared by
the management of the Company and certain financial projections of Global
Crossing for the period beginning January 1, 2000 and ending December 31, 2004
prepared by the management of Global Crossing. In addition, we have compared
certain financial and securities data of the Company and Global Crossing with
various other companies whose securities are traded in public markets, reviewed
the historical stock prices and trading volumes of the Company Common Stock and
Global Crossing Common Stock, reviewed prices and premiums paid in certain
other business combinations and conducted such other financial studies,
analyses and investigations as we deemed appropriate for purposes of this
opinion. We were not requested to, nor did we, solicit the interest of any
other party in acquiring the Company or IPC.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to us from public sources, that was provided to us by the Company and Global
Crossing or their respective representatives, or that was otherwise reviewed by
us and have assumed that the Company is not aware of any information prepared
by it or its advisors that might be material to our opinion that has not been
made available to us. With respect to the financial projections supplied to us,
we have relied on representations that they have been reasonably prepared on
the basis reflecting the best currently available estimates and judgments of
the management of the Company and Global
<PAGE>
Crossing as to the future operating and financial performance of the Company
and Global Crossing, respectively. We have not assumed any responsibility for
making an independent evaluation of any assets or liabilities or for making any
independent verification of any of the information reviewed by us. We have
relied as to certain legal matters on advice of counsel to the Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which Global Crossing Common Stock will actually trade at any time.
Our opinion does not address the relative merits of the IXnet Merger and the
other business strategies being considered by the Company's Board of Directors,
nor does it address the Board's decision to proceed with the IXnet Merger. Our
opinion does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ has
performed investment banking and other services for the Company and Global
Crossing in the past and has been compensated for such services, including
acting as co-lead manager for the initial public offering of Company Common
Stock in August 1999 and acting as co-manager for Global Crossing's offerings
of common stock, exchangeable preferred stock and cumulative convertible
preferred stock in August 1998, December 1998 and December 1999, respectively.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Exchange Ratio is fair to holders of Company Common
Stock (other than IPC) from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
/s/ Louis P. Friedman
By: _________________________________
Louis P. Friedman
Managing Director
D-1-2
<PAGE>
ANNEX D-2
[LETTERHEAD OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION]
February 22, 2000
Board of Directors
IPC Communications, Inc.
Wall Street Plaza
88 Pine Street, 6th Floor
New York, NY 10005
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of IPC Communications, Inc. ("IPC" or the "Company")
other than Citicorp Venture Capital Ltd. and its affiliates (collectively
"CVC") of the consideration to be received by such stockholders pursuant to the
terms of the Agreement and Plan of Merger, dated as of February 22, 2000 (the
"Agreement"), among Global Crossing Ltd. ("Global Crossing") Georgia Merger Sub
Corporation ("IPC Merger Sub"), a wholly-owned subsidiary of Global Crossing,
the Company, IPC Information Systems, Inc. ("IPC Sub"), a wholly-owned
subsidiary of the Company, Idaho Merger Sub Corporation ("IXnet Merger Sub"), a
wholly-owned subsidiary of IPC Sub and IXnet, Inc. ("IXnet"), pursuant to which
(i) IPC will be merged (the "Intercompany Merger") with and into IPC Merger
Sub, and immediately subsequently, IPC Merger Sub will be merged (the "IPC
Merger" and, together with the Intercompany Merger, the "IPC Mergers") with and
into IPC Sub and (ii) IXnet Merger Sub will be merged (the "IXnet Merger" and,
together with the IPC Merger, the "Mergers") with and into IXnet.
Pursuant to the Agreement, each share of common stock, par value $0.01 per
share ("Company Common Stock") of the Company will be converted, subject to
certain exceptions, into the right to receive 5.417 shares (the "Exchange
Ratio") of common stock, $0.01 par value per share ("Global Crossing Common
Stock") of Global Crossing.
In arriving at our opinion, we have reviewed the Agreement and the exhibits
thereto. We also have reviewed financial and other information that was
publicly available or furnished to us by the Company, IXnet and Global
Crossing, including information provided during discussions with their
respective managements. Included in the information provided during discussions
with the respective managements were certain financial projections of the
Company for the period beginning October 1, 1999 and ending September 30, 2009
prepared by the management of the Company, certain financial projections of
IXnet for the period beginning October 1, 1999 and ending September 30, 2009
prepared by the management of IXnet and certain financial projections of Global
Crossing for the period beginning January 1, 2000 and ending December 31, 2004
prepared by the management of Global Crossing. In addition, we have compared
certain financial and securities data of the Company, IXnet and Global Crossing
with various other companies whose securities are traded in public markets,
reviewed the historical stock prices and trading volumes of the Company Common
Stock and Global Crossing Common Stock, reviewed prices and premiums paid in
certain other business combinations and conducted such other financial studies,
analyses and investigations as we deemed appropriate for purposes of this
opinion. We were not requested to, nor did we, solicit the interest of any
other party in acquiring the Company or IXnet.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to us from public sources, that was provided to us by the Company, IXnet and
Global Crossing or their respective representatives, or that was otherwise
reviewed by us and have assumed that the Company is not aware of any
information prepared by it or its advisors that might be material to our
opinion that has not been made available to us. With respect to the financial
projections supplied to us, we have relied on representations that they have
been reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the managements of the Company, IXnet and
<PAGE>
Global Crossing as to the future operating and financial performance of the
Company, IXnet and Global Crossing, respectively. We have not assumed any
responsibility for making an independent evaluation of any assets or
liabilities or for making any independent verification of any of the
information reviewed by us. We have relied as to certain legal matters on
advice of counsel to the Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which Global Crossing Common Stock will actually trade at any time.
Our opinion does not address the relative merits of the Mergers and the other
business strategies being considered by the Company's Board of Directors, nor
does it address the Board's decision to proceed with the Mergers. Our opinion
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed Mergers.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. DLJ has
performed investment banking and other services for IXnet and Global Crossing
in the past and has been compensated for such services, including acting as co-
lead manager for the initial public offering of IXnet common stock in August
1999 and acting as co-manager for Global Crossing's offerings of common stock,
exchangeable preferred stock and cumulative convertible preferred stock in
August 1998, December 1998 and December 1999, respectively.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Exchange Ratio is fair to holders of Company Common
Stock (other than CVC) from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
/s/ Louis P. Friedman
By: _________________________________
Louis P. Friedman
Managing Director
D-2-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The bye-laws of the Registrant provide for indemnification of the
Registrant's officers and directors against all liabilities, loss, damage or
expense incurred or suffered by such party as an officer or director of the
Registrant; provided that such indemnification shall not extend to any matter
which would render it void pursuant to the Companies Act of 1981 as in effect
from time to time in Bermuda.
The Companies Act provides that a Bermuda company may indemnify its
directors in respect of any loss arising or liability attaching to them as a
result of any negligence, default, breach of duty or breach of trust of which
they may be guilty. However, the Companies Act also provides that any
provision, whether contained in the company's bye-laws or in a contract or
arrangement between the company and the director, indemnifying a director
against any liability which would attach to him in respect of his fraud or
dishonesty will be void.
The directors and officers of the Registrant are covered by directors' and
officers' insurance policies maintained by the Registrant.
Item 21. Exhibits and Financial Statement Schedules.
(i) Exhibits. The following is a complete list of Exhibits filed as part of
this Registration Statement, which are incorporated herein:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of February 22, 2000, among the
Registrant, Georgia Merger Sub Corporation, IPC Communications, Inc.,
IPC Information Systems, Inc., Idaho Merger Sub Corporation and IXnet,
Inc. (incorporated by reference to Exhibit 2.10 to Registrant's annual
report on Form 10-K for the year ended December 31, 1999).
5.1 Opinion of Appleby, Spurling & Kempe as to the legality of the
securities being registered (to be filed by amendment).
8.1 Opinion of Appleby, Spurling & Kempe as to tax matters (to be filed by
amendment).
8.2 Opinion of Simpson Thacher & Bartlett as to tax matters (to be filed
by amendment).
10.31 Consent and Voting Agreement, dated as of February 22, 2000, among the
Registrant, Cable Systems Holding, LLC and certain stockholders of IPC
Communications, Inc. (incorporated by reference to Exhibit 2.1 to
Registrant's current report on Form 8-K filed on March 2, 2000).
23.1 Consent of Arthur Andersen (filed herewith).
23.2 Consent of PricewaterhouseCoopers LLP (filed herewith).
23.3 Consent of KPMG Audit Plc (filed herewith).
23.4 Consent of Deloitte & Touche (filed herewith).
23.5 Consent of PricewaterhouseCoopers (filed herewith).
23.6 Consent of PricewaterhouseCoopers (filed herewith).
23.7 Consent of PricewaterhouseCoopers (filed herewith).
23.8 Consent of Appleby, Spurling & Kempe (included in Exhibits 5.1 and
8.1).
23.9 Consent of Simpson Thacher & Bartlett (included in Exhibit 8.2).
24.1 Power of Attorney of the Registrant (included on page II-4 of this
Registration Statement).
99.1 Consent of Salomon Smith Barney Inc. in respect of IXnet (filed
herewith).
99.2 Consent of Salomon Smith Barney Inc. in respect of IPC (filed
herewith).
99.3 Consent of Donaldson, Lufkin & Jenrette in respect of IXnet and IPC
(filed herewith).
</TABLE>
II-1
<PAGE>
Item 22. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) (1) The undersigned Registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of
a prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c)
under the Securities Act, the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c)(1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the United States Securities and
Exchange Commission such
II-2
<PAGE>
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(e) The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Items 4,
10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, in the State of California, on April 12, 2000.
Global Crossing Ltd.
By: /s/ Leo J. Hindery, Jr.
----------------------------------
Name: Leo J. Hindery, Jr.
Title: Chief Executive Officer
POWER OF ATTORNEY
Each person whose individual signature appears below appoints each of Leo J.
Hindery, Thomas J. Casey and James C. Gorton as his true and lawful attorney-
in-fact and agent, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, and all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do
and perform each and every act and anything appropriate or necessary to be
done, as fully and for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent or his substitute or substitutes may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gary Winnick Chairman of the Board and April 12, 2000
___________________________________________ Director
Gary Winnick
/s/ Lodwrick M. Cook Co-Chairman of the Board April 12, 2000
___________________________________________ and Director
Lodwrick M. Cook
/s/ Leo J. Hindery, Jr. Chief Executive Officer April 12, 2000
___________________________________________ and Director
Leo J. Hindery, Jr.
Vice Chairman of the Board April 12, 2000
___________________________________________ and Director
Thomas J. Casey
President, Chief Operating April 12, 2000
___________________________________________ Officer and Director
David L. Lee
Senior Vice President and April 12, 2000
___________________________________________ Director
Barry Porter
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dan J. Cohrs Senior Vice President and April 12, 2000
___________________________________________ Chief Financial Officer
Dan J. Cohrs (principal financial
officer and principal
accounting officer)
/s/ Robert Annunziata Director April 12, 2000
___________________________________________
Robert Annunziata
/s/ Jay R. Bloom Director April 12, 2000
___________________________________________
Jay R. Bloom
/s/ Joseph P. Clayton Director April 12, 2000
___________________________________________
Joseph P. Clayton
/s/ William E. Conway, Jr. Director April 12, 2000
___________________________________________
William E. Conway, Jr.
/s/ Canning Fok Kin-ning Director April 12, 2000
___________________________________________
Canning Fok Kin-ning
Director April 12, 2000
___________________________________________
Eric Hippeau
Director April 12, 2000
___________________________________________
Dean C. Kehler
/s/ Geoffrey J.W. Kent Director April 12, 2000
___________________________________________
Geoffrey J.W. Kent
/s/ Douglas H. McCorkindale Director April 12, 2000
___________________________________________
Douglas H. McCorkindale
/s/ James F. McDonald Director April 12, 2000
___________________________________________
James F. McDonald
Director April 12, 2000
___________________________________________
Bruce Raben
/s/ Jack M. Scanlon Director April 12, 2000
___________________________________________
Jack M. Scanlon
/s/ Michael R. Steed Director April 12, 2000
___________________________________________
Michael R. Steed
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of February 22, 2000, among the
Registrant, Georgia Merger Sub Corporation, IPC Communications, Inc.,
IPC Information Systems, Inc., Idaho Merger Sub Corporation and IXnet,
Inc. (incorporated by reference to Exhibit 2.10 to Registrant's annual
report on Form 10-K for the year ended December 31, 1999).
5.1 Opinion of Appleby, Spurling & Kempe as to the legality of the
securities being registered (to be filed by amendment).
8.1 Opinion of Appleby, Spurling & Kempe as to tax matters (to be filed by
amendment).
8.2 Opinion of Simpson Thacher & Bartlett as to tax matters (to be filed
by amendment).
10.31 Consent and Voting Agreement, dated as of February 22, 2000, among the
Registrant, Cable Systems Holding, LLC and certain stockholders of IPC
Communications, Inc. (incorporated by reference to Exhibit 2.1 to
Registrant's current report on Form 8-K filed on March 2, 2000).
23.1 Consent of Arthur Andersen (filed herewith).
23.2 Consent of PricewaterhouseCoopers LLP (filed herewith).
23.3 Consent of KPMG Audit Plc (filed herewith).
23.4 Consent of Deloitte & Touche (filed herewith).
23.5 Consent of PricewaterhouseCoopers (filed herewith).
23.6 Consent of PricewaterhouseCoopers (filed herewith).
23.7 Consent of PricewaterhouseCoopers (filed herewith).
23.8 Consent of Appleby, Spurling & Kempe (included in Exhibits 5.1 and
8.1).
23.9 Consent of Simpson Thacher & Bartlett (included in Exhibit 8.2).
24.1 Power of Attorney of the Registrant (included on page II-4 of this
Registration Statement).
99.1 Consent of Salomon Smith Barney Inc. in respect of IXnet (filed
herewith).
99.2 Consent of Salomon Smith Barney Inc. in resect of IPC (filed
herewith).
99.3 Consent of Donaldson, Lufkin & Jenrette in respect of IXnet and IPC
(filed herewith).
</TABLE>
<PAGE>
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our
reports (and to all reference to our Firm) included in or incorporated by
reference in this Registration Statement on Form S-4.
/s/ Arthur Andersen & Co.
April 7, 2000
Hamilton, Bermuda
<PAGE>
EXHIBIT 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Global Crossing Ltd. of our report dated January 25,
1999 relating to the financial statements, which appears in Frontier
Corporation's Annual Report to Shareholders, which is incorporated by reference
in Frontier Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998; and the Form 8-K dated January 26, 1999. We also consent to
the incorporation by reference of our report dated January 25, 1999 relating to
the Financial Statement Schedule, which appears in such Annual Report on Form
10-K. We also consent to the reference to us under the headings "Experts" and
"Frontier Selected Historical Financial Information" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Rochester, New York
April 7, 2000
<PAGE>
EXHIBIT 23.3
Consent of Independent Auditors
We consent to the use of our report dated 26 May 1999 with respect to the
balance sheets of Cable & Wireless Global Marine as of 31 March 1999 and 1998
and the results of their operations and cashflows for each of the years in the
three-year period ended 31 March 1999, incorporated by reference into the
Registration Statement on Form S-4, of Global Crossing Ltd. and to the
references to our firm under the headings "Experts" and "Global Marine Systems
selected historical financial information" in the Registration Statement.
Yours faithfully
/s/ KPMG Audit Plc
KPMG Audit Plc
Ipswich, England
April 7, 2000
<PAGE>
EXHIBIT 23.4
Consent of Independent Auditors
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of our report dated 8 October 1999 (2 December 1999 as to note 5
and 17 December 1999 as to notes 29, 30, 31 and 32) on the combined balance
sheets of Racal Telecommunications Limited, Racal Telecommunications Networks
Limited, Racal Internet Services Limited and Racal Telecommunications Inc.
(collectively "Racal Telecom") as of 31 March 1999 and 1998 and the combined
profit and loss accounts and combined cash flow statements for each of the
years in the three year period ended 31 March 1999, appearing in the current
report on Form 8-K of Global Crossing Ltd. and to the references to our firm
under the headings "Experts" and "Racal Telecom selected historical financial
information" in this Registration Statement.
/s/ Deloitte & Touche
DELOITTE & TOUCHE
London
England
April 7, 2000
<PAGE>
EXHIBIT 23.5
Consent of Independent Accountants
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Global Crossing Ltd. of our report dated December 15,
1999 relating to the financial statements of HCL Holdings Limited for each of
the three years ended December 31, 1998. We also consent to the reference to us
under the heading "Experts" in such registration statement.
/s/ PricewaterhouseCoopers
PricewaterhouseCoopers
Hong Kong
April 7, 2000
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
Global Crossing Ltd. of our report dated November 30, 1999 relating to the
consolidated and combined financial statements of IXnet, Inc. which appears in
such Registration Statement. We also consent to the references to us under the
headings "Experts" and "Selected Financial Data" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
New York, NY
April 12, 2000
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-4 of Global Crossing Ltd. of our report dated November 30,
1999 relating to the consolidated financial statements and financial statement
schedule, which appears in IPC Communications, Inc.'s Annual Report on Form 10-
K for the year ended September 30, 1999. We also consent to the references to
us under the headings "Experts" and "Selected Financial Data" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
New York, NY
April 12, 2000
<PAGE>
EXHIBIT 99.1
[LETTERHEAD OF SALOMON SMITH BARNEY INC.]
Board of Directors
IXnet, Inc.
Wall Street Plaza
88 Pine Street
New York, New York 10005
Members of the Board:
We hereby consent to the inclusion of our opinion letter dated February 22,
2000 as Appendix C-1 to, and to the reference thereto under the caption
"SUMMARY--Opinions of financial advisors" and "THE MERGERS--Opinions of IXnet's
and IPC's financial advisors--Opinion of Salomon Smith Barney to the IXnet
board of directors" in, the Information Statement/Prospectus of IXnet, Inc.
("IXnet"), IPC Communications, Inc. ("IPC") and Global Crossing Ltd. ("Global
Crossing") relating to the proposed merger transactions involving IXnet, IPC
and Global Crossing, which Information Statement/Prospectus is part of the
Registration Statement on Form S-4 of Global Crossing. By giving such consent,
we do not thereby admit that we are experts with respect to any part of such
Registration Statement within the meaning of the term "expert" as used in, or
that we come within the category of persons whose consent is required under,
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
/s/ Salomon Smith Barney Inc.
By __________________________________
SALOMON SMITH BARNEY INC.
New York, New York
April 11, 2000
<PAGE>
EXHIBIT 99.2
[LETTERHEAD OF SALOMON SMITH BARNEY INC.]
Board of Directors
IPC Communications, Inc.
Wall Street Plaza
88 Pine Street
New York, New York 10005
Members of the Board:
We hereby consent to the inclusion of our opinion letter dated February 22,
2000 as Appendix C-2 to, and to the reference thereto under the caption
"SUMMARY--Opinions of financial advisors" and "THE MERGERS--Opinions of IXnet's
and IPC's financial advisors--Opinion of Salomon Smith Barney to the IPC board
of directors" in, the Information Statement/Prospectus of IPC Communications,
Inc. ("IPC"), IXnet, Inc. ("IXnet") and Global Crossing Ltd. ("Global
Crossing") relating to the proposed merger transactions involving IPC, IXnet
and Global Crossing, which Information Statement/Prospectus is part of the
Registration Statement on Form S-4 of Global Crossing. By giving such consent,
we do not thereby admit that we are experts with respect to any part of such
Registration Statement within the meaning of the term "expert" as used in, or
that we come within the category of persons whose consent is required under,
the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
/s/ Salomon Smith Barney Inc.
By
-----------------------------------
SALOMON SMITH BARNEY INC.
New York, New York
April 11, 2000
<PAGE>
EXHIBIT 99.3
[LETTERHEAD OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION]
CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
We hereby consent to the (i) inclusion of our opinion letter dated February
22, 2000 to the Board of Directors of IXnet, Inc. ("IXnet") as Annex D-1 to the
Information Statement/Prospectus of IXnet, IPC Communications, Inc. ("IPC") and
Global Crossing Ltd. ("Global Crossing") relating to the Agreement and Plan of
Merger, dated as of February 22, 2000 the ("Agreement"), among Global Crossing,
IPC, IPC Information Systems, Inc., a wholly owned subsidiary of IPC, Idaho
Merger Sub Corporation, a wholly owned subsidiary of IPC Sub and IXnet, (ii)
inclusion of our opinion letter dated February 22, 2000 to the Board of
Directors of IPC as Annex D-2 to the Information Statement/Prospectus of IXnet,
IPC and Global Crossing relating to the Agreement, and (iii) references to such
opinion letters in the sections captioned "SUMMARY--Opinions of financial
advisors", "THE MERGERS--Background of the mergers", "THE MERGERS--
Recommendation of the IPC and IXnet boards of directors; Reasons for the
mergers" and "THE MERGERS--Opinions of IXnet's and IPC's financial advisors" of
the Information Statement/Prospectus of IXnet, IPC and Global Crossing which
forms a part of this Registration Statement on Form S-4. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under, and we do not admit that we are "experts" for
purposes of, the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
/s/ Christopher H. Wofford
By: _________________________________
Name: Christopher H. Wofford
Title: Vice President
New York, New York
April 11, 2000
