IXNET INC, 10-K, 1999-12-29

IXNET INC
10-K, 1999-12-29
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For fiscal year ended September 30, 1999

Commission file number 000-26959

IXnet, Inc.
(Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S> <C>
Delaware 13-4060000
(state or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)

Wall Street Plaza
88 Pine Street
New York, New York 10005
(Address of principal executive offices) (Zip Code)
</TABLE>

Registrant's telephone number, including area code: 212-412-6400

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 Par Value
----------------------------
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No____

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant based on the closing price of the common stock on December 6, 1999
was approximately $126 million based upon the last sale price reported for such
date on the NASDAQ Stock Exchange.

The number of shares of the Registrant's Common Stock outstanding as of December
6, 1999 was 51,075,000.

Portions of the Registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on March 2, 2000, are incorporated by
reference into Part III of this Form 10-K report, which Proxy Statement is to be
filed within 120 days after the end of the Registrant's fiscal year ended
September 30, 1999.
<PAGE>

INDEX

Item 1. Business..............................................................................1
Item 2. Properties............................................................................2
Item 3. Legal Proceedings....................................................................11
Item 4. Submission of Matters to a Vote of Security Holders..................................11

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................12
Item 6. Selected Financial Data..............................................................12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.14
Item 7a. Quantitative and Qualitative Disclosures About Market Risk...........................26
Item 8. Financial Statements and Supplementary Data.........................................F-1
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.27

PART III

Item 10. Directors and Executive Officers of the Registrant...................................27
Item 11. Executive Compensation...............................................................27
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................27
Item 13. Certain Relationships and Related Transactions.......................................27

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................28

Signature............................................................................31
</TABLE>
<PAGE>

Disclosure regarding forward-looking statements

Statements contained in this Annual Report on Form 10-K that are not
historical facts are forward-looking statements within the meaning of section
21E of the Securities Exchange Act of 1934, as amended. Section 21E provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about themselves so long as they identify these
statements as forward-looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results. Investors are cautioned that forward-looking statements are
inherently uncertain and that undue reliance should not be placed on such
forward looking statements. Actual performance and results may differ
materially from that projected or suggested herein due to certain risks and
uncertainties. You can identify these statements by forward-looking words such
as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue"
or similar words. Among the factors that could cause actual results,
performance, or achievement to differ materially from any future results,
performance, or achievements expressed, described, or implied by such forward
looking statements are general economic conditions, key employee factors,
competition, potential technology changes, changes in or the lack of anticipated
changes in the regulatory environment in various countries, the ability to
secure partnership or joint venture relationships with other entities, the
ability to raise additional capital to finance expansion, the risks inherent in
new product and service introductions and the entry into new geographic markets.
For a complete discussion of these and other risk factors, refer to the "Risk
Factors" section on pages 7-15 of our August 12, 1999 prospectus.
<PAGE>

PART I

ITEM 1. BUSINESS
--------

Overview

IXnet, Inc. ("IXnet" or the "Company") is a leading provider of
communications services to the worldwide financial services community. The
Company 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 our Extranet, our 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.

We provide 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, we
aggregate, host and distribute financial oriented content, such as news,
research, analytics and market data, for information service providers, enabling
them to efficiently reach this community. Our customers receive the following
benefits by connecting to our Extranet:

. access to our high performance global network that connects approximately
500 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. We believe 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. We connect customers to our Extranet by
installing intelligent network gateways, known as customer access nodes, on our
customers' premises. Once we have installed a customer's access node at the
customer site, we refer 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 our
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.

We believe that our growing customer base of financial services firms will
attract many of their business partners to also become customers of our
Extranet. This should create a cycle that will attract new customers and fuel
growth in the number of services we provide to individual firms. We also believe
that more content providers will be attracted to our Extranet due to the
efficient and cost-effective method it offers to reach the desktops of our
significant audience of on-net financial services customers. We believe that as
we deliver the services of an increasing number of content providers over our
Extranet, additional customers will be attracted to the expanded content
offerings on our Extranet.

Our Extranet currently connects customers in financial centers in 37 countries
around the world, including New York, Chicago, Toronto, London, Frankfurt,
Paris, Zurich, Hong Kong, Tokyo, Sydney and Singapore. Our Extranet employs:

. internet protocol, a networking technology which tracks the Internet
address of nodes, routes outgoing messages, and recognizes incoming
messages; and

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. 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, we have three data centers where we provide
hosting for content providers and manage servers and other equipment for our
customers who have outsourced their network applications to us. We have
approximately 500 customers and have deployed approximately 1,300 customer
access nodes globally.

The Company 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 our
revenue is derived from our global network.

IXnet started its business in June 1995 as International Exchange Networks,
Ltd. ("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
September 30, 1999 there were 51,075,000 shares of Company common stock
outstanding, of which 43,100,000 shares were owned by IPC Information Systems,
Inc. ("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 our Extranet, our 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.

We offer many significant advantages, including:

. High performance global network. Our Extranet is a scalable network that
currently provides seamless connectivity to approximately 500 customers in
37 countries. Our Extranet was built using the latest networking
technologies and redundant fiber optic facilities, which enable us to
reliably, securely and efficiently deliver multiple services worldwide. We
employ a uniform platform throughout our Extranet consisting primarily of
Newbridge Networks and Cisco Systems networking technologies, enabling us
to provide mission-critical voice and data services over dedicated fiber
optic facilities. In addition, we deploy 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 our
Extranet through a customer access node physically located at each on-net
customer site, we are able to provide fully managed end-to-end network
services. Once a customer access node is deployed, we are able to remotely
monitor, administer and provision network connections to the customer site
and in many cases directly to the desktop. In addition, we are a single
point of responsibility for the installation, maintenance and operation of
our services and equipment. We provide technical support 24 hours per day,
seven days per week, and utilize IPC's global field service personnel to
address local network issues in many of the cities where we provide
service.

. Multiple communication services through a single pipe. By deploying
customer access nodes at our customer sites, we are 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 our Extranet
through a high capacity connection enabling customers

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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. We have established a global customer
base of approximately 500 financial services firms on our Extranet. We will
continue to penetrate our current customer base and believe that this core
group of financial services firms will attract many of their business
partners to also become customers of our Extranet.

. Singular focus on the financial services community. Our singular focus
enables us to offer services tailored to the specialized needs of our
customers. Our understanding of the trading environment and our customers'
needs has resulted in the development of unique product offerings such as
our DigiHoot(TM) Service, a specialized open voice conference system
allowing continuous voice contact between trading floors. In addition, we
believe the combination of our management team's great depth of knowledge
and experience in providing communications services to financial services
firms and our relationship with IPC, provides us 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 us with an important entree
into the financial services sector. Through our relationship with IPC, we
are able to provide turret-to-turret on-net connections using the installed
turrets within IPC customer base and integrate our customer access nodes
into IPC turret systems so that we can rapidly provision IPC customers with
on-net services. We also coordinate our 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. We
offer services at competitive prices and dedicate considerable resources to
providing the highest quality global network with well-qualified and
responsive customer service representatives. We monitor and manage our
Extranet from our network operations centers, 24 hours per day, seven days
per week. Together with IPC, we have a worldwide presence of field service
representatives and, in many cases, on-site technical support personnel. We
are also focused on offering highly customized solutions for all of our
customers' service, billing and reporting needs. In addition to our broad
portfolio of globally available services, our Extranet allows us to
implement solutions that meet the individual connectivity needs and
requirements of each customer.

. Corporate position as content neutral. We do not compete with content
providers who use our Extranet. We are focused on being an efficient and
effective distribution vehicle for the content of others. Our Extranet
serves as a content neutral delivery system to the desktops of the
financial services community. This approach allows our customers to display
content in the formats they desire.

Business Strategy

Our goal is to be the leading provider of multimedia communications services
to the financial services community. Our business strategy includes the
following elements:

. Exploit our advantage of being the first to offer a global dedicated
communications network exclusively to the financial services community. We
are the first company to offer network services through a dedicated
Extranet exclusively focused on the financial services community. We intend
to significantly leverage our position in the marketplace by aggressively
expanding our direct salesforce and investing in the IXnet brand.

. Rapidly deploy customer access nodes. Adding key firms and sites to our
Extranet will greatly increase its value by enabling us to offer greater
inter-firm connectivity. We expect that the addition of new customers to
our Extranet will also attract new content providers to our Extranet who
seek to deliver content to our expanded customer base. Similarly, we
believe that as the number of content providers whose services we deliver
over our Extranet increases, additional customers will be attracted to the
expanded content on our Extranet.

. Accelerate network expansion. We are focused on expanding the
infrastructure of our Extranet to extend our addressable market, enhance
reliability and increase cost efficiencies.

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. Aggressively add content providers to our Extranet. We intend to become the
best delivery vehicle for content providers who want to reach the financial
services community. We 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 us host their content at one of our data centers.

. Further leverage IPC's installed base. We 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 our existing customer base. We currently have a
significant established customer base encompassing many of the key global
financial services firms, but we capture only a small percentage of their
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. We plan to continuously
expand our service offerings to help further penetrate our customer base,
attract new customers and increase the value of our Extranet.

. Pursue strategic acquisitions. We intend to consider strategic acquisitions
as appropriate opportunities arise in order to expand our service
offerings, broaden the reach of our Extranet and increase our customer
base.

Services

We offer our customers a variety of specialized voice and data services over
our Extranet. The following table sets forth a brief description and the
benefits of each of our services. We are capable of providing any one of these
services either alone or in combination with one or more other services, or
collectively as part of our management of the customer's entire network.

- ---------------------------------------------------------------------------------------------------------------------------
Type of Service Description Benefits Name of Service
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Premium Dedicated voice communications lines Access to high quality voice services DigiHoot (TM)
Voice which are primarily used in conjunction without the need to build a private MetroLink (TM)
with turrets and trading applications. network.
- ---------------------------------------------------------------------------------------------------------------------------
Virtual Seamless global virtual private network Fast call connect time, industry-wide IXGlobal (TM)
Private with a single uniform technology platform abbreviated dialing and cost effective
Voice and global toll free feature. for on-net customers.
Network
- ---------------------------------------------------------------------------------------------------------------------------
Switched High quality voice communications Competitive rates and simplified IXPrime (TM)
Voice worldwide with simplified pricing. billing.
- ---------------------------------------------------------------------------------------------------------------------------
Managed High speed digital data transmission Access to high quality digital services IXLink (TM)
Bandwidth links, with end-to-end service management without the need to build a private
for connections between local area network.
networks, wide area networks and data
centers.
- ---------------------------------------------------------------------------------------------------------------------------
Outsourcing End-to-end management of a customer's Outsourcing enables customers to focus Trader Connect (TM)
entire network. on core business by placing
responsibility for network and hardware
on IXnet.
- ---------------------------------------------------------------------------------------------------------------------------
Shared Network delivery of third-party news, Efficient distribution method for Liquidity (TM)
Internet research, analytics, market data and content
Protocol other trading applications via data providers. Simplicity of multiple
center hosting and our Extranet. services
through a single network connection for
end-users.
- ---------------------------------------------------------------------------------------------------------------------------
Frame relay Transport for data applications. Includes Cost effective alternative to leased IXFrame (TM)
router deployment and management. line networks.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

We also provide the following additional services:

4
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Content Hosting. We provide 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 we provide
scales from simple co-location to fully outsourced network solutions.

Bandwidth Resale. We provide 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. We offer dedicated high-speed continuous access to
the Internet to customers. This service is provided at speeds up to 1.5Mbps.

Sales and Marketing

Our sales and marketing activities are targeted to members of the financial
services community in the key financial centers worldwide. Our 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 our sales strategy are as follows:

. Utilize a direct salesforce. We have deployed a dedicated and experienced
salesforce in many of the major cities worldwide where we have operational
points of presence. As of September 30, 1999, our salesforce consisted of
42 commissioned salespeople. Because our 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. Our sales representatives also market our services to financial
institutions at industry seminars and trade shows. Our salespeople are
familiar with the applications, requirements and technical terminology of
the financial services community as well as its unique business practices.

. Expand our salesforce. We believe that our rate of growth is directly
related to the size and productivity of our sales force. We are focused on
expanding our 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. We intend on
growing our 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. We place emphasis on
adding customers and customer access nodes in sites that we believe are
strategic in nature. Strategic sites are those with which our existing on-
net customers or potential customers are interested in communicating, such
as those with large trading or processing volume.

. Leverage the salesforces of our content providers. The salesforces of our
content providers have, in effect, become secondary salesforces for us by
selling their content delivered over our Extranet to their end-users. In
order to access this content, end-users must connect to our Extranet.

. Coordinate joint sales efforts worldwide. Our regional salesforces work
together in a cooperative and coordinated manner to create higher levels of
customer satisfaction which we believe will lead to additional business.
This approach maximizes the benefits of selling our services locally as
well as globally and confers a unified corporate level sales relationship
between our regional salesforces for our customers worldwide.

. Coordinate joint sales efforts with the IPC salesforce. Coordinating the
efforts of our salesforce with the IPC salesforce has helped to introduce
our 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 our services.

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We maintain a high profile in the financial services marketplace with targeted
marketing and public relations efforts. We place information and press releases
in many financial services industry publications such as the Security Industry
News, Wall Street and Technology and Trading Technology Week. We actively
participate 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 our representatives to
communicate our vision and capabilities directly to prospective customers.
Moreover, we are 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 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, respectively.

Customers

Our 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. We currently have approximately 500
customers and provide hosting services for over 30 content providers. Optimark
Inc. and Deutsche Bank accounted for 14% and 10%, respectively, of our
consolidated revenues for the fiscal year ended September 30, 1999, and 14% and
23%, respectively, of our consolidated revenues for the fiscal year ended
September 30, 1998. We expect these percentages to continue to decrease as
overall revenue growth increases.

Customer Service

High quality customer service and support are critical to our objective of
retaining and developing our customer base. We differentiate ourselves from many
of our competitors by customizing solutions and providing individualized support
to our customers. For example, we utilize customized billing in local currencies
and provide reports designed to address the specific needs of our customers. To
support a customer's business requirements, we make 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, we monitor and manage our Extranet from
our network operations centers, 24 hours per day, seven days per week. When
necessary, we also dispatch IPC's global field service personnel to address
certain local network issues.

Competition

Our competition varies geographically and by service offerings. We compete
with and expect continued competition from:

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. 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 us 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, 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 our
services, they also compete directly with us in the content delivery
segment of our business.

. Resellers. Resellers, such as Business Networks International Inc., Sector,
Inc. and WESTCom Corp., resell other companies' network services.

Depending on the specific competitor, we compete on the basis of many
elements, including customer service, quality, reliability, network security,
service provisioning speed, service features, functionality and cost
effectiveness.

Regulatory Environment

The telecommunications services that we provide must be structured to comply
with the laws and regulations of national, state and local government agencies
in countries we 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 our 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, our 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 our
services are provided. In addition, we are required by federal and state laws
and regulations to file tariffs listing the rates, terms and conditions of the
telecommunications services we provide. Any failure to maintain proper federal
and state tariffs or certification or any finding by the federal or state
agencies that we are not

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<PAGE>

operating under permissible terms and conditions may result in an enforcement
action or investigation, either of which could have a material adverse effect on
our business.

The Company currently holds several FCC authorizations for telecommunications
services. These authorizations permit us to acquire interests in submarine cable
and international satellite facilities previously authorized by the FCC. We 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, other than those listed on the FCC's exclusion list published
from time to time and offer switched service by the use of private lines
interconnected to the public switched telephone network for service between the
United States and a number of approved countries.

State public utility commissions exercise jurisdiction over intrastate
services which are communications that originate and terminate in the same
state. We hold a certificate of public convenience and necessity to resell forms
of telephone service within New York State and have the appropriate authority to
offer intrastate service in a number of other states.

Regulatory requirements pertinent to our operations have recently changed and
will continue to change as a result of the World Trade Organization Basic
Telecommunication Agreement, federal legislation, 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,
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 our ability to compete with other service providers. It also may
impact our ability to provide certain services, or introduce new services. The
impact on our operations of any changes in applicable regulatory requirements
cannot be predicted. As the regulatory regimes change in the United States and
elsewhere, our authorizations also may need to be adjusted.

International Regulatory Considerations

Significant liberalization of telecommunications regulation in a number of
countries has provided us with greater flexibility to obtain authorizations to
provide service. The specific licensing approach or regulation of our services
has differed from country-to-country depending on the status of deregulation and
the development of competition in each country.

Canada. We were recently granted a Class A license in Canada that allows us 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. Our subsidiary
holds both an International Facilities Based Telecommunications License and
International Simple Voice Resale licenses in the United Kingdom. The
International Facilities Based Telecommunication License entitles us to acquire
indefeasible rights of use on international satellites and submarine cable
systems, to resell international private lines, 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. Prior to January 1, 1998, a majority of the
EU, European Union, 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, we
initiated service prior to these reforms. In some cases, we 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. We and
our subsidiaries fit this definition of closed user groups in several countries.
In addition, in several EU countries, we structured our service offerings to not
require interconnection to the local public switched telephone network. Based on
closed user groups status and/or lack of interconnection to the public switched
network, we have been granted licenses in

8
<PAGE>

Belgium, Ireland and Italy to provide voice and data services to closed user
groups. Additionally, our subsidiaries are able to operate in France, Germany
and the Netherlands without the need for licenses in these countries. In these
cases, we provide 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 prior to the January 1, 1998 opening
of the Swiss telecommunications market, we, through our subsidiaries, have been
able to provide private line and virtual private network voice services and a
full range of data services in Switzerland due to our status as a closed user
groups and our lack of interconnection to the Swiss public switched telephone
network.

Japan. In January 1997, the Japanese Ministry of Post & Telephone granted our
Japanese subsidiary a Special Type II telecommunications carrier license. This
license allows us 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 our new Japanese
subsidiary a Type I telecommunications license. This allows us to own
facilities in Japan as well as to land international facilities of our own using
submarine cable systems either as original owner or purchaser of IRU's.

Hong Kong. In June 1997, our subsidiary received from the Hong Kong Government
Office of the Telecommunications Authority a Virtual Private Network ("VPN")
license for the provision of virtual private network services. This license
allows us to provide virtual private network services for customers for the
purpose of carrying out telecommunications between companies involved in the
financial services industry. This year that license was converted into a Public
Non-exclusive Telecommunications Services (PNETS) license for external
telecommunications services. Many of the restrictions imposed on the VPN
license were liberalized in the granting of the PNETS license.

Singapore. In October 1997, the Telecommunications Authority of Singapore
granted our 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. We are currently operating
under that license and have now received permission to apply for an expansion of
that license to include voice services. We also hold a license to provide
Intracompany voice and data services in Singapore.

Brazil. In April 1998, the Brazilian Agencia Nacional de Telecomunicacoes
("Anatel") granted our Brazilian subsidiary a Limited License to offer
specialized limited telecommunications services to and from Brazil. This license
allows us to provide virtual private network and private line voice and data
services to closed user groups.

Expansion Into Other Foreign Countries

We intend to expand our operations into other jurisdictions as such markets
deregulate and we are able to offer a full range of services to our 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 our entry
into such additional markets. Our 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 we are able to gain entry to such a market, no
assurances can be given that we will be able to provide a full range of services
in such market, that we will not have to significantly modify our 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 our business, results of
operations or financial condition.

In those countries where we are strictly prohibited from offering service, we
may enter into a relationship with the state-sanctioned telecommunications
monopoly so that our services can be offered in that jurisdiction. In these
situations, the local telecommunications service provider would provide the
facilities and offer local services to our 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.

9
<PAGE>
Intellectual Property

The Company relies on a combination of trade secrets, trademarks, service
marks, copyrights, licenses and other intellectual property law, as well as,
nondisclosure agreements and other protective measures to protect its
proprietary rights.

The Company has the following trademarks and service marks: IXnet (TM);
IXPrime(TM); IXGlobal(TM); Trade 24(TM); IXLink(TM); DigiHoot(TM);
MetroLink(TM); and Liquidity(TM). On July 2, 1999, the Company filed a trademark
application to register the name of the Company with the United States Patent
and Trademark Office. First action on this application is expected by March
2000. The Company reasonably believes that the application will mature to
registration, but there is no assurance until the registration is issued.

There can be no assurance that the steps taken by the Company will be adequate
to protect the Company's proprietary technology and intellectual property or
that the Company's competitors will not independently develop technologies that
are substantially equivalent or superior to the Company's technology. It may be
possible for a third party to copy or otherwise obtain and use the Company's
services or technology without authorization or to independently develop similar
technology. This could adversely affect the Company's business, financial
condition and results of operations.

Employees

As September 30, 1999, the Company and its subsidiaries employed 330 persons,
including 83 in sales and marketing, 24 in customer service and support, 56 in
finance and administration, and 167 in engineering and network operations. Under
an intercompany agreement, IPC and IXnet share certain corporate personnel
relating to accounting, executive management, legal, administrative, human
resources, information systems and other corporate functions. We believe that
our future success will depend in part on our continued ability to attract,
hire, integrate, retain and motivate highly qualified sales, technical, and
managerial personnel, and upon the continued service of our senior management
and key sales and technical personnel. None of our employees are represented by
a labor union. We have never experienced a work stoppage and believe our
relationship with our employees is good.

ITEM 2. PROPERTIES
----------

Our properties consist of a combination of real estate leases in our name and
certain real estate facilities we share with IPC, the terms of which are
governed by our inter-company agreement with IPC. See "Certain Relationships and
Related Transactions--Agreements with IPC--Inter-Company Agreement--Real
Estate." A number of our leases represent space under construction in
connection with our network buildout.

We lease directly:

. 15,500 square feet in New York City where our New York network operations
center and primary point of presence ("POP") are located, under subleases
expiring in March 2002;

. 12,771 square feet in Newark, New Jersey where our second New York area POP
is currently being built, under a lease expiring in April 2009;

. 12,000 square feet in San Francisco under a lease expiring in January 2004.

. 5,300 square feet in Chicago, Illinois where our Chicago POP is located,
under a lease expiring in June 2002;

. 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, New York,
Chicago, Los Angeles and San Jose.

10
<PAGE>

We occupy the following portions of IPC-leased space:

. 24,500 square feet in New York City where our executive and U.S. sales
headquarters is located, under leases expiring in November 2002;

. 8,400 square feet in London, England, where our European headquarters and
London network operations center are located, under leases expiring in
December 2010; and

. Various spaces, with square footage between 750 and 3,000 in Atlanta,
Georgia, Boston, Massachusetts, Chicago, Illinois, Houston, Texas, Los
Angeles, California and Toronto, Canada, where our branch sales and
operations personnel and telecommunications equipment are located.

Our use of and the costs associated with the facilities occupied under IPC
leases are outlined under certain provisions of our inter-company agreement with
IPC. Typically, charges for such facilities are allocated pro-rata, based upon
the relative percentage of space occupied by us or IPC, with company-specific
charges applied directly to the respective company.

ITEM 3. LEGAL PROCEEDINGS
-----------------

Except for claims and lawsuits arising in the normal course of business and
the license and regulatory proceedings described under "Business- Regulatory
Environment", the Company and its subsidiaries are not involved in any pending
material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------

None.

11
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
-------------------------------------------------------------
MATTERS
-------

The common stock of IXnet, Inc, has been traded on the NASDAQ National Market
(NASDAQ Symbol: EXNT) since the completion of our initial public offering
("IPO") on August 12, 1999 (Registration Statement on Form S-1 No. 333-79079).
Prior to that date, IPC owned 100% of the outstanding common stock. Since the
IPO, the price for our common stock for the fiscal year ended September 30, 1999
have ranged from a high of $24.56 to a low of $13.75.

There were 14 institutional holders of record of the Company's stock at the
close of business on December 6, 1999. This number does not include persons
whose shares are held by a bank, brokerage house or clearing company.

In connection with the IPO, IPC retained 43,100,000 restricted shares of
common stock as of September 30, 1999 and issued 500,000 restricted shares of
its common stock as part of the purchase price for a strategic agreement.

We have not paid, nor do we anticipate paying in the foreseeable future, any
cash dividends on our common stock. We intend to retain any earnings for use in
our growth and ongoing operations. If we decide to pay dividends in the future,
such dividends would be subject to certain limitations in IPC's credit agreement
and the indenture for IPC's senior discount notes.

We sold 6,500,000 common shares through our IPO on August 12, 1999. On August
30, 1999, the over-allotment option was exercised and an additional 975,000
shares were sold. Total aggregate proceeds, net of underwriting commissions of
approximately $7.6 million and offering expenses of approximately $2.5 million,
were approximately $102 million. The net offering proceeds have the following
intended uses:

. Approximately $55 million has been invested in U.S. investment grade and
government securities and approximately $35 million is held in cash
equivalent accounts. These amounts will be used for continued deployment
and expansion of our Extranet, as well as possible future acquisitions,
strategic alliances or investments in property or assets used in our
business.

. Approximately $10 million has been committed to a strategic agreement
including the license of certain software products to enhance our network
intelligence.

. Approximately $16 million has been committed to investments in IRU's and
bandwidth capacity.

. $10 million has been spent to fund investments in network
telecommunications equipment in our continuing expansion of our network and
build-out of our points of presence.

None of the payments indicated above were direct or indirect payments to
entities that were (i) directors, officers or their associates, (ii) greater
than 10% owners of any of our equity securities or (iii) our affiliates.

ITEM 6. SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA

The statement of operations and statement of cash flow data for the years
ended September 30, 1999, 1998, and 1997 and the balance sheet data as of
September 30, 1999 and 1998, have been derived from our Consolidated and
Combined Financial Statements, audited by PricewaterhouseCoopers LLP, included
elsewhere in this Annual Report 10-K filing. The statement of operations and
statement of cash flow data for the year ended September 30, 1996 and the
balance sheet data as of September 30, 1997, have been derived from our audited
consolidated financial statements which do not appear in the Annual Report on
Form 10-K. The statement of operations and statement of cash flow data for the
year ended September 30, 1995 and the balance sheet data as of September 30,
1996 and 1995 have been derived from our unaudited consolidated financial
statements which do not appear in this Annual Report on Form 10-K.

12
<PAGE>

Our results of operations for the year ended 1998 include the consolidated
results of operations of International Exchange Networks and its subsidiaries
combined with the results of operations of MXNet, Inc. ("Mxnet") from February
13, 1998. Additionally, our results of operations for the year ended September
30, 1999 include the consolidated results of operations of Saturn Global Network
Services Holdings, Ltd. ("Saturn") from December 18, 1998. See discussion in
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations".

The information contained below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our audited Consolidated and Combined Financial Statements and
the notes thereto included elsewhere in the Annual Report on Form 10-K.

<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Statement of Operations Data:
Revenue......................................... $ 73,615 $ 35,853 $ 17,838 $ 3,459 $ --
Cost of revenue (exclusive of depreciation 500
and amortization shown separately
below)......................................... 73,097 35,652 19,823 4,406 --
Sales and marketing expense..................... 13,063 8,455 4,172 1,057 --
General and administrative expense.............. 8,312 5,001 3,439 2,868 229
Depreciation and amortization................... 21,575 9,060 3,460 998 --
Special charge (1).............................. -- 1,350 -- -- --
Stock compensation charge..................... 9,079 -- -- -- --
-------- -------- -------- ------- -------
Loss from operations............................ (51,511) (23,665) (13,056) (5,870) (729)
Interest expense, net........................... (6,999) (3,527) (2,040) (247) (3)
Other income (expense), net..................... 336 26 117 -- 49
-------- -------- -------- ------- -------
Loss before provision for income taxes......... (58,174) (27,166) (14,979) (6,117) (683)
Provision for income taxes...................... 1,293 473 229 62 --
-------- -------- -------- ------- -------
Net loss....................................... $(59,467) $(27,639) $(15,208) $(6,179) $ (683)
======== ======== ======== ======= =======
Basic and diluted loss per share................ $(1.35) $(0.64) $(0.35) $(0.14) $(0.02)
======== ======== ======== ======== =======
Basic and diluted weighted average common
Shares outstanding............................. 44,085 43,100 43,100 43,100 43,100
======== ======== ======== ======= =======
</TABLE>

Year Ended September 30,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts)
Cash Flow and Other Operating Data:
Cash used in operating activities................. $(29,114) $(15,093) $(14,669) $(6,240) $ (576)
Cash used in investing activities................. (87,278) (13,772) (3,495) (4,858) --
Cash provided by financing activities............. 181,895 29,829 16,604 7,591 5,735
EBITDA (2)........................................ (20,857) (14,605) (9,596) (4,872) (729)
Capital expenditures.............................. 24,208 12,930 3,495 4,858 --
</TABLE>

<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
(In thousands)
Balance Sheet Data:
Cash and cash equivalents......................... $ 39,020 $ 1,255 $ 525 $ 1,616 $5,159
Total assets...................................... 248,038 60,332 27,646 13,703 6,431
Note payable to parent (3)........................ 52,122 43,629 20,072 7,026 1,474
Notes payable, net of current portion............. 4,854 -- -- -- --
Lease obligations, net of current portion......... 15,412 11,570 9,576 3,429 --
Total stockholder's equity (deficit).............. 122,869 (14,959) (8,581) 890 4,845
</TABLE>

13
<PAGE>

(1) Special charge represents bonuses and payments for cancellation of stock
options in connection with the IPC leveraged recapitalization. See Note 5 of
Notes to our Consolidated and Combined Financial Statements included
elsewhere in this Annual Report on Form 10-K.

(2) 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 our operating performance
or to cash flows as a measure of liquidity. We believe 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 excludes the
stock compensation charge of $9.1 million.

(3) The September 30, 1999 note payable to parent represents amounts due to IPC
and is net of the capitalization to paid-in capital of $73.0 million as of
March 31, 1999.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The following discussion and analysis should be read together with our
Consolidated and Combined Financial Statements, and related notes to these
statements appearing elsewhere in this annual report.

Overview

IXnet is a leading provider of communications services to the worldwide
financial services community. We have built and operate a global seamless
communications network connecting financial services firms and their business
partners, as well as multiple offices within the same firm. We refer to this
network as our Extranet. Through our Extranet, our 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.

In 1995, we began building our Extranet and offering voice and data
services. We funded the initial construction of our Extranet, including capital
expenditures and working capital, through inter-company investments and loans
provided by our parent, IPC. As of September 30, 1999, our Extranet was
comprised of two network operations centers, 3 data centers, approximately 70
points of presence, approximately 1,300 customer access nodes placed on customer
premises and high capacity bandwidth facilities. Our Extranet connects
approximately 500 customers in financial centers in 37 countries around the
world, including New York, Chicago, Toronto, London, Frankfurt, Paris, Zurich,
Hong Kong, Tokyo, Sydney and Singapore.

We provide 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, we
aggregate, host and distribute financially oriented content, such as news,
research, analytics and market data, for information service providers.

We have incurred operating losses, net losses and negative operating cash
flow for each month since our formation. As of September 30, 1999, we had an
accumulated deficit of approximately $109.2 million. We expect to substantially
increase our expenditures and operating expenses as we continue the buildout of
our Extranet. We expect to incur substantial operating losses, net losses, and
negative cash flow during the network buildout and as we penetrate each new
market during the foreseeable future.

On August 12, 1999, the Company completed its initial public offering
("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.

14
<PAGE>

Total proceeds received by the Company 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 our telecommunications network and for possible
acquisitions, strategic alliances, or investments in IXnet's business.

On September 24, 1999, we entered into a strategic agreement including the
licensing of certain software products to enhance the intelligence of our
network. The $20 million purchase price consists of approximately $10 million in
cash and 500,000 shares of restricted IXnet common stock valued at an average
closing price prior to the agreement date.

As of September 30, 1999, IXnet had 51,075,000 shares of common stock
outstanding, of which 43,100,000 shares are owned by IPC.

Components of Revenues

We offer a full range of services to meet the needs of our customers,
including the following voice and data communications services:

. Premium voice--dedicated private voice lines connecting financial firms
globally;
. Managed bandwidth--fully managed dedicated bandwidth facilities;
. Outsourcing--end-to-end management of a customer's entire communications
network;
. 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 our Liquidity service; and
. Frame relay--dedicated transport of facilitated data applications.

We currently derive a majority of our revenues from sales of premium voice,
managed bandwidth and outsourcing services, and to a lesser extent switched
voice, shared internet protocol and other services. Our 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.

Pricing Policies
- ----------------

Rates for our premium voice, managed bandwidth and frame relay services are
determined by geographic location and bandwidth utilization. For frame relay
service, there is frequently an additional pricing component for optional
telecommunications equipment deployed on customers' premises. 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 our 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 our 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 our Extranet.
This fee is determined by geographic location and bandwidth utilization and may
be adjusted for volume commitment and term of contract. The Company also expects
to charge sub-licensing fees in connection with the use of licensed software for
the delivery of content over our network.

15
<PAGE>

Long Term Agreements
- --------------------

The terms of our sales agreements typically range from one to five years
and are determined based on the level of service requested. Customers who
outsource their entire network needs to us tend to have longer term agreements,
up to five years. Our ability to obtain fixed term agreements from our customers
provides us with a certain level of predictability as to revenue generation. We
continue to penetrate our customer base by marketing additional services to
existing customers, adding new customer locations and renewing the term of our
existing customer agreements. We also provide services to some of our 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 our 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 our network and
resulting increases in leased circuit, maintenance, personnel, facilities, and
customer support costs. Although we expect that cost of revenue will continue to
increase as our customer base increases, we anticipate that such expenses as a
percentage of revenues will decrease over time. These expenses may be incurred
prior to the realization of anticipated revenue. We intend to lease or buy
higher capacity local and long distance circuits. As a result of these lease
agreements and purchases, we expect to realize the associated benefits of lower
unit costs as the use of our network increases. In addition, as revenues grow,
we expect 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. We
market our services to the financial services community primarily through our
direct salesforce. We intend to significantly expand our salesforce within the
U.S., Europe and the AsiaPacific region through the hiring of highly motivated
personnel who have backgrounds in network services or experience with the
specialized communication needs of the financial services community. Although we
compensate our 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. We estimate 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. We expect that sales and marketing expenses will
increase in the future as we expand our sales and marketing staffs to keep pace
with our 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. Certain accounting and management information systems functions,
human resources, legal, executive and administrative services have historically
been performed under inter-company understandings, and will in the future be
performed under an inter-company agreement with our parent, IPC. The related
costs of providing such services have been, and will continue to be, allocated
based upon the direct and indirect utilization of the specific services.
Indirect expenses were allocated based upon the relation of our headcount to the
combined headcount of us and IPC. We expect that general and administrative
expenses will increase in the future as we expand our management and
administrative staffs to keep pace with our 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, leasehold improvements and
network software, are depreciated over two to five years. The cost of
indefeasible rights of use are amortized over the leased

16
<PAGE>

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 our operations, we have undertaken a program of
developing and expanding our Extranet. We have 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 our network expense was associated with the development of our
Extranet and was only undertaken based on customer demand. Subsequent to our
initial public offering, we have 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 our points of presence will
continue to represent significant capital expenditures and are expected to be
substantially above historical levels.

Deferred Compensation
- ---------------------

During May 1999, our board of directors and our sole stockholder, IPC,
approved the IXnet, Inc. 1999 Stock Option Plan (the "Plan"), authorizing the
grant of options to purchase up to 7,053,409 shares of our 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 our 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 certain
exceptions.

In connection with this issuance of stock options, we have recorded
deferred compensation in the aggregate amount of approximately $26 million,
based upon the deemed fair market value of our common stock at the date of
grant. Approximately $9.1 million of the deferred compensation has been expensed
during the year ended September 30, 1999, with the balance being 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 deferred
compensation expense in future periods as the value of our shares changes over
the vesting period.

Acquisitions and Strategic Agreements

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, we 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, we 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 our obligation by approximately $2.0 million.

17
<PAGE>

Strategic Agreement

On September 24, 1999, the Company entered into a strategic agreement,
including the licensing of certain software products to enhance the intelligence
of our 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 our network capabilities with embedded intelligence, delivering
financial enterprise integration, subject-based addressing, trading turret
integration and application management capabilities.

Results of Operations

The following table presents the components of our results of operations data
as a percentage of our revenues:

Year Ended September 30,
-----------------------------------------
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Revenue..................................................... 100.0% 100.0% 100.0%
Cost of revenue............................................. 99.3 99.4 111.1
Sales and marketing expense................................. 17.7 23.6 23.4
General and administrative expense.......................... 11.3 14.0 19.3
Depreciation and amortization............................... 29.3 25.3 19.4
Special charge.............................................. ---- 3.8 ----
Stock Compensation Charge................................... 12.4 ---- ----
------ ------ ------
Loss from operations...................................... (70.0) (66.1) (73.2)
Interest expense, net....................................... (9.5) ( 9.8) (11.4)
Other income (expense), net................................. 0.5 0.1 0.7
------ ------ ------
Loss before provision for income taxes.................... (79.0) (75.8) (84.0)
Provision for income taxes.................................. 1.8 1.3 1.3
------ ------ ------
Net loss............................................... (80.8)% (77.1)% (85.3)%
====== ====== ======
</TABLE>

Historical Operating Trends

Operating costs are increasing in each of the periods presented but decreasing
as a percentage of revenue. We expect these costs to continue to increase in
dollars due to the continued expansion and buildout of the network but decrease
as a percentage of revenue due to the continued expected increase in revenues.

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 our 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 our 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 $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 our 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 certain 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

18
<PAGE>

was primarily due to the increase in property, plant and equipment in connection
with the expansion of our 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.

Stock compensation charge. The Company recognized approximately $9.1 million
in stock compensation expense during 1999 related to stock options issued in
connection with the initial public offering. The deferred compensation balance
in equity, $16.8 million, will be amortized over the remaining vesting period
which is approximately 45 months.

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. The Company 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 our 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
our 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 our 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 certain capital
expenditures.

19
<PAGE>

Provision for income taxes. The provision for income taxes consisted of
foreign taxes in 1998 and 1997. The Company 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.

20
<PAGE>

Quarterly Results

The following tables set forth certain unaudited quarterly financial data, and
such data expressed as a percentage of revenue, for the years ended September
30, 1999 and 1998. We believe that the unaudited financial information set forth
below has been prepared on the same basis as the audited financial information
included elsewhere in this Annual Report on Form 10-K 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>
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>
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 our operating
performance or to cash flows as a measure of liquidity. We believe 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.

Our quarterly operating results will continue to fluctuate from period to
period for the foreseeable future depending upon such factors as:

. the success of our efforts to expand our customer base, and to sell
additional services to our existing customer base,
. changes in the timing of expenditures relating to the continued
expansion of our Extranet,
. the success of our efforts to add content providers to our Extranet,
. the development of new service offerings,
. changes in pricing policies by us or our competitors,
. the growth in our salesforce, and

21
<PAGE>

. the timing of acquisitions.

In view of the significant historical growth of our operations, we believe
that period-to-period comparisons of our financial results should not be relied
upon as an indication of future performance and that we may experience
significant period-to-period fluctuations in operating results in the future. We
expect to focus in the near term on building and increasing our customer base
and increasing our Extranet utilization both through internal growth and through
acquisitions which may require us from time to time to increase our expenditures
for personnel, marketing, global network infrastructure and the development of
new services offerings.

Liquidity and Capital Resources

Since the commencement of our operations in 1995, we have relied primarily on
IPC to fund our operating cash requirements, property, plant and equipment
expenditures, debt service payments and acquisitions. We have also obtained
financing for certain of our network equipment, which is either guaranteed by
IPC and/or partially supported by letters of credit issued under IPC's credit
agreement. In addition, we obtained certain seller financing for the Saturn
acquisition, which has been guaranteed by IPC. From inception to September 30,
1999, the aggregate net amount of inter-company funding, exclusive of guarantees
and letters of credit, was approximately $125.1 million, of which $73.0 million
was contributed to equity effective March 31, 1999.

Initial Public Offering: On August 12, 1999 we completed our 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 telecommunications network and for possible acquisitions, strategic
alliances, or investments in IXnet's business.

Financing arrangements. Subject to the terms and conditions of the inter-
company agreement, IPC has agreed to continue to provide us with ongoing
financing and to obtain letters of credit on our behalf. The amount available
under the inter-company agreement will start at $6.25 million and increase 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 our obligations.

IPC has primarily two sources of funds from which it can fund our 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 us, obtain letters of credit on our behalf or provide us 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.

All borrowings under the inter-company 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
inter-company agreement will be immediately due and payable upon demand. A
change in control will occur if IPC ceases to own at least 50% of our voting
securities.

Under the inter-company 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 us 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 us.

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

22
<PAGE>

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 us under the
inter-company agreement.

We will reimburse IPC for the applicable costs, fees and charges incurred by
IPC in obtaining letters of credit or for providing guarantees to us 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 us and
IPC of certain 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 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. The 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 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 and the buildout of our points of presence are expected to be our most
significant capital expenditure items over the next 12 months. We expect to
continue to acquire high capacity bandwidth to enhance our 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. We
expect that our purchase of property and equipment will increase substantially
from historic levels and that the net proceeds from the initial public offering,
along with third party equipment financing arrangements, should be sufficient to
meet our needs for property and equipment for the next 12 months.

23
<PAGE>

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. We are currently generating operating
losses and expect to continue to do so for the foreseeable future. Under the
indenture for IPC's senior discount notes, the net proceeds from our initial
public offering is limited in its use to fund our working capital needs. We
believe that we will need additional working capital, along with the funding of
our 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 our inter-company
agreement with IPC, we are restricted from seeking additional debt or equity
financing other than debt financing from IPC for working capital and other
operating costs. Accordingly we expect to continue to rely upon IPC to fund
these requirements.

We have purchased or committed to purchase interests in or indefeasible rights
to use international cable systems on projects such as TAT12/13, TAT14, Gemini,
Southern Cross, CANTAT3, Germany-U.K.6, Japan-U.S. and NTL. Further, we expect
to continue to enter into commitments to purchase similar interests and rights
using the proceeds from our initial public offering.

Other Possible Strategic Relationships and Acquisitions

We intend to make strategic acquisitions as appropriate opportunities arise to
expand our service offerings, expand our Extranet and/or increase our customer
base. See "Overview" located in the beginning of this section.

Foreign Exchange Rate Risk

We conduct our business in more than 37 countries, and transactions from these
foreign operations are denominated in local currencies. With respect to these
foreign operations, we are exposed to foreign currency fluctuations for our net
working capital positions. Foreign currency fluctuations historically have not
had a significant impact on our revenues or operating results. We currently do
not have a foreign exchange hedging program; however, we may implement a program
to mitigate foreign currency transaction risk in the future. Although our
foreign operations are subject to economic, fiscal and monetary policy of
foreign governments, to date these factors have not had a material effect on our
results of operations or liquidity. A significant and growing portion of our
business is from our international operations, and changes in the global
economy, foreign tax laws, international business practices and currency
exchange rates could adversely affect our 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 Company's business or financial condition.

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. The Company does not currently use
derivative financial instruments.

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. We do not
anticipate that the adoption of this standard will have a material effect on our
financial position, results of operations or cash flows.

Impact of Year 2000

The Year 2000 issue is the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date using "00" as
the

24
<PAGE>

year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including among other
things, a temporary inability to process transactions, deliver products and
services to customers, send invoices, or engage in similar normal business
activities.

Our state of readiness. We have assessed and completed implementing and
validating the Year 2000 readiness of our customer access nodes, the
communications equipment in our points of presence, network management systems,
and internal accounting, billing and office systems. Certain of our customer
access nodes required hardware and software updates, which, in many cases,
necessitated one or more site visits. We have contracted with the original
equipment manufacturer of some of our customer access nodes to complete such
updates. These updates have been completed. We believe that all of the
communications equipment in our points of presence is currently Year 2000 ready.
Our network management systems have been upgraded and are Year 2000 ready. In
August 1999, we converted to our new internal accounting enterprise-wide system
which is Year 2000 ready. Our new billing system has been purchased from a
third-party source and is being tailored to our specific requirements and has
been stated to be Year 2000 ready. Our office systems, which are comprised
primarily of personal computers, file servers and routers, as well as software
applications, are Year 2000 ready.

Throughout the year we obtained Year 2000 readiness documentation from
suppliers of our domestic and international communication bandwidth. We have
evaluated the potential risk of certain suppliers that may not be Year 2000
ready. We anticipate such suppliers will be located outside of the areas where
the majority of our customers are located. We have mailed Year 2000 readiness
packages notifying all of our customers of the potential risk that suppliers
from these areas may not be Year 2000 ready. The package also contains specific
instructions to be followed in the event one of our customers does experience
service interruption.

Costs. Most of our expenses in connection with Year 2000 readiness have
related to, and are expected to continue to relate to, the operating costs
associated with time spent by employees in the evaluation process and Year 2000
readiness matters. Our costs associated with Year 2000 readiness issues,
excluding the cost of implementing our new accounting system which is being
borne by IPC, is currently anticipated to be approximately $2.3 million all of
which has been incurred or committed.

Potential risks. While we believe that we are taking the necessary steps to
identify and correct any Year 2000 problems in our systems, we may discover Year
2000 readiness problems in our systems or services that will require substantial
correction. Our failure to fix or replace our internally developed software,
third-party software, hardware or services on a timely basis could result in the
loss of revenues, increased operating costs, the loss of customers and other
business interruptions any of which could have a material adverse effect on our
business, results of operations and financial condition. Moreover, the failure
to adequately address Year 2000 readiness issues related to our services could
result in claims of mismanagement, misrepresentation or breach of contract and
related litigation, which could be costly and time-consuming to defend. We also
cannot provide assurances that third-party providers of products and services,
including telecommunications companies, and our customer base consisting
primarily of firms in the financial services industry, will be Year 2000 ready.
The failure of such entities to be Year 2000 ready could result in a systematic
failure, beyond our control. Such failures may result in prolonged
telecommunications or electrical failure, or the inability of our customers to
make payment for services rendered, which could have a material adverse effect
on our business, results of operations and financial condition.

In a SEC release earlier this year regarding Year 2000 disclosure, the SEC
stated that public companies must disclose the most reasonably likely worst case
Year 2000 scenario. Although it is not possible to assess the likelihood of any
of the following events, each must be included in a consideration of worst case
scenarios:

. widespread failure of electrical, gas, and similar suppliers serving us;

. widespread disruption of the services provided by common communications
carriers;

. disruption to the means and modes of transportation for us and our
employees, contractors, suppliers and customers;

. significant disruption to our ability to gain access to, and remain working
in, office buildings and other facilities;

25
<PAGE>

. the failure of our mission-critical computer hardware and software systems,
including both internal business systems and systems controlling
operational facilities; and

. the failure of third-party banking and finance systems.

If we cannot operate effectively after December 31, 1999, we could, among
other things, face substantial claims by customers or loss of revenue due to
service interruptions, inability to fulfill contractual obligations or bill
customers accurately and on a timely basis, and increased expenses associated
with litigation, stabilization of operations following critical system failures
and the execution of contingency plans. We could also experience an inability by
customers and others to pay us for our services on a timely basis or at all.
Under these circumstances, the adverse effects, although not quantifiable at
this time, would be material.

Contingency plans. We have completed the development of contingency
plans. The results of our enterprise-wide system conversion and responses
received from vendors and service providers have been taken into account in
determining the nature and extent of our contingency plans.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Rate Risk

As a global concern, we face exposure to adverse movements in foreign
currency exchange rates. These exposures may change over time as business
practice evolve and could have an adverse impact on our financial results. The
Company's foreign exchange rate risk exposure relates to nondollar-denominated
sales in the European and Asian marketplace, as well as foreign denominated
debt. We currently do not hedge against these currencies and could suffer
unanticipated gains or losses as a result.

Interest Rate Risk

The Company 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
with market conditions. As a result, the Company believes that the effects of
changes in interest rates are limited and would not have a material impact on
its financial condition and results of operations. The Company's marketable
securities consist of fixed income investments in the form of short-term
commercial paper. The Company continually monitors its exposure to changes in
interest rates from its marketable securities. Accordingly, the Company
believes that the effects of changes in interest rates are limited, however,
significant increases in interest rates could have a significant impact on the
financial condition or results of operations of the Company. However, it is
possible that the Company is 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 affect on financial condition and results of
operations.

26
<PAGE>

ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Accountants
---------------------------------

To the Stockholders
of IXnet, Inc.:

In our opinion, the consolidated and combined financial statements listed in
the index appearing under Item 14(a)(1) on page 28 present fairly, in all
material respects, the financial position of IXnet, Inc. and its subsidiaries at
September 30, 1999 and 1998, and the results of their operations and 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.
In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14(a)(2) on page 28 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated and combined financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits 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-1
<PAGE>

IXNET, INC.

CONSOLIDATED AND COMBINED BALANCE SHEETS

(Amounts in thousands, except per share amount)

---------------

<TABLE>
<CAPTION>
September 30,
--------------------------
1999 1998
------------ ------------

ASSETS
Current assets:
<S> <C> <C>
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
September 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-2
<PAGE>

IXNET, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

---------------

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-3
<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-4
<PAGE>
IXNET, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIT)

(In thousands)

----------------

<TABLE>
<CAPTION>
Common Stock
-------------- Paid-in Accumulated Deferred
Shares Amount Capital Deficit Compensation
------ ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1996.................. 43,100 $431 $ 7,357 $ (6,862) $ --
Paid-in capital........................ -- -- 5,535 -- --
Net loss............................... -- -- -- (15,208) --
Translation adjustment................. -- -- -- -- --
------- ---- -------- --------- ------------
Total comprehensive loss.........

Balance, September 30, 1997.................. 43,100 431 12,892 (22,070) --
Paid-in capital........................ -- -- 20,938 -- --
Net loss............................... -- -- -- (27,639) --
Translation adjustment................. -- -- -- -- --
------ ---- -------- --------- ------------
Total comprehensive loss.........

Balance, September 30, 1998.................. 43,100 431 33,830 (49,709) --
Issuance of common stock in initial
public offering, net of expenses........ 7,475 75 102,775 -- --
Issuance of common stock in connection
with strategic agreement................ 500 5 9,995 -- --
Capitalization of note payable to Parent. -- -- 73,000 -- --
Deferred Stock Option Compensation....... -- -- 26,382 -- (26,382)
Amortization of deferred compensation.... -- -- 9,079
Other deferred compensation adjustments.. -- -- (506) -- 506
Capital contribution for IPC's
utilization of tax benefits............. -- -- 3,604 -- --
Net loss............................... -- -- -- (59,467) --
Translation adjustment................. -- -- -- -- --
------ ---- -------- --------- ------------
Total comprehensive loss.........

Balance, September 30, 1999.................. 51,075 $511 $249,080 $(109,176) $(16,797)
====== ==== ======== ========= ============

<CAPTION>
Accumulated
Other
Comprehensive Comprehensive
Income (Loss) Total Loss
----------------- ---------- --------------
<S> <C> <C> <C>
Balance, September 30, 1996.................. $ (36) $ 890 $ --
Paid-in capital........................ -- 5,535 --
Net loss............................... -- (15,208) $(15,208)
Translation adjustment................. 202 202 202
------- -------- --------
Total comprehensive loss......... $(15,006)
========
Balance, September 30, 1997.................. 166 (8,581)
Paid-in capital........................ -- 20,938
Net loss............................... -- (27,639) $(27,639)
Translation adjustment................. 323 323 323
------- -------- --------
Total comprehensive loss......... $(27,316)
========
Balance, September 30, 1998.................. 489 (14,959)
Issuance of common stock in initial
public offering, net of expenses........ -- 102,850 --
Issuance of common stock in connection
with strategic agreement................ -- 10,000 --
Capitalization of note payable to Parent. -- 73,000 --
Deferred Stock Option Compensation....... -- -- --
Amortization of deferred compensation.... -- 9,079 --
Other deferred compensation adjustments -- -- --
Capital contribution for IPC's
utilization of tax benefits............. -- 3,604 --
Net loss............................... -- (59,467) (59,467)
Translation adjustment................. (1,238) (1,238) (1,238)
------- -------- --------
Total comprehensive loss......... $(60,705)
========
Balance, September 30, 1999.................. $ (749) $122,869
======= ========
</TABLE>
See Notes to Consolidated and Combined Financial Statements.

F-5
<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-6
<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-7
<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-8
<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 this 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. 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. 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-9
<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-10
<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-11
<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.

F-12
<PAGE>

IXNET, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)

---------------

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.

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>
Weighted Average
Option 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>

F-13
<PAGE>

IXNET, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)

---------------

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 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-14
<PAGE>

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>
Fiscal Capital Operating
- ------ 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-15
<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-16
<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 loc............................................................. -- -- --
Foreign................................................................... 144 115 229
------ ----- -----
-- 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 book over tax 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-17
<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):

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>

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.

44
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not Applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item is incorporated herein by reference to the
Company's definitive Proxy Statement for the Company's Annual Meeting of
Stockholders to be held on March 2, 2000.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to the
Company's definitive proxy statement for the Company's Annual Meeting of
Stockholders to be held on March 2, 2000.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated herein by reference to the
Company's definitive proxy statement for the Company's Annual Meeting of
Stockholders to be held on March 2, 2000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated herein by reference to the
Company's definitive proxy statement for the Company's Annual Meeting of
Stockholders to be held on March 2, 2000.

27
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

(1) Financial Statements Page(s)
-------

Report of Independent Accountants F-1

Consolidated and Combined Balance Sheets,
as of September 30, 1999 and 1998 F-2

Consolidated and Combined Statements of Operations,
as of September 30, 1999, 1998 and 1997 F-3

Consolidated and Combined Statements of Cash Flow,
as of September 30, 1999, 1998 and 1997 F-4

Consolidated and Combined Statements of Changes in
Stockholders (Deficit) Equity, as of September 30, 1999,
1998 and 1997 F-5

Notes to Consolidated and Combined Financial Statements F-6

(2) Financial Statement Schedules

Schedule II: Valuation and Qualifying Accounts 32

Schedules not listed have been omitted because they are not applicable or
not required or because the information required to be set forth therein is
included in the Consolidated and Combined Financial Statements.

(b) Reports on Form 8-K.

Current Report on Form 8-K, dated September 24, 1999, relating to the
Company entering into a Strategic Agreement, dated as of September
24, 1999, by and among the Company, International Exchange Networks,
Ltd. and TIBCO Finance Technology, Inc.

(c) Exhibits. The following exhibits are filed as a part of this Annual Report
on Form 10-K or are incorporated by reference to exhibits previously filed with
the Commission:

Exhibit No. Description
- ----------- -----------

1.1 Form of Underwriting Agreement among IXnet, Inc., IPC
Communications, Inc., Donaldson, Lufkin & Jenrette, Salomon
Smith Barney Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, First Union Capital Markets Corp. and DLJ Direct
Inc., filed as Exhibit 1.1 to the Company's registration
statement on Form S-1, Registration No. 333-79079, dated August
12, 1999, ("Form S-1, Registration No. 333-70979") and
incorporated herein by reference.

2.1 Agreement for the Sale/Purchase of the Issued Share Capital of
Saturn Global Network Services Holdings Limited dated August 7,
1998 (as amended on December 18, 1998) among Marshalls 106
Limited, Marshalls Finance Limited, International Exchange
Networks, Ltd. and IPC Information Systems, Inc. (incorporated
by reference to Exhibit 2.1 to Form S-1, Registration No. 333-
70979.

28
<PAGE>

2.2 Deed constituting unsecured Guaranteed Subordinated Loan Notes
2000/2002, dated December 18, 1998, made between Saturn Global
Network Services Holdings Limited, International Exchange
Networks, Ltd. and IPC Information Systems, Inc. (incorporated
by reference to Exhibit 2.1.1 to Form S-1, Registration No.
333-79079).

2.3 Deed constituting unsecured Guaranteed Subordinated Loan Note
2000/2002, dated December 18, 1998, between International
Exchange Networks Ltd. and IPC Information Systems, Inc.
(incorporated by reference to Exhibit 2.1.2 to Form S-1,
Registration No. 333-79079).

2.4 Stock Purchase Agreement, dated February 13, 1998, between IPC
Information Systems, Inc., MXNet, Inc. and National Discount
Brokers Group, Inc. (incorporated by reference to Exhibit 2.2
to Form S-1, Registration No. 333-79079).

3.1 Amended and Restated Certificate of Incorporation of IXnet,
Inc. (incorporated by reference to Exhibit 3.1 to Form S-1,
Registration No. 333-79079).

3.2 Bylaws of IXnet, Inc. (incorporated by reference to Exhibit 3.2
to Form S-1, Registration No. 333-79079).

4.1 Specimen Stock Certificate (incorporated by reference to
Exhibit 4.1 to Form S-1, Registration No. 333-79079).

10.1 Form of Inter-Company Agreement among IXnet, Inc.,
International Exchange Networks, Ltd. and IPC Information
Systems, Inc. (incorporated by reference to Exhibit 10.1 to
Form S-1, Registration No. 333-79079).

10.2 Form of Tax Sharing Agreement between IPC Communications, Inc.
and IXnet, Inc. (incorporated by reference to Exhibit 10.2 to
Form S-1, Registration No. 333-79079).

10.3 Form of Registration Rights Agreement between IPC Information
Systems, Inc. and IXnet, Inc. (incorporated by reference to
Exhibit 10.3 to Form S-1, Registration No. 333-79079).

10.4 Form of Maintenance Agreement between International Exchange
Networks, Ltd. and IPC Information Systems, Inc. (incorporated
by reference to Exhibit 10.4 to Form S-1, Registration No. 333-
79079).

10.5 Share Exchange and Termination Agreement, dated as of December
18, 1997, among International Exchange Networks, Ltd., IPC
Communications, Inc., David A. Walsh and Anthony M. Servidio
(incorporated by reference to Exhibit 10.5 to Form S-1,
Registration No. 333-79079).

10.6 Amended and Restated Employment Agreement, dated as of December
18, 1997, between David A. Walsh and International Exchange
Networks, Ltd. (incorporated by reference to Exhibit 10.6 to
Form S-1, Registration No. 333-79079).

10.7 Amendment No. 1, dated as of June 1, 1999, to the Amended and
Restated Employment Agreement between David A. Walsh and
International Exchange Networks, Ltd. (incorporated by
reference to Exhibit 10.7 to Form S-1, Registration No. 333-
79079).

10.8 Waiver letter, dated as of June 9, 1999, from David A. Walsh
regarding provisions in the Amended and Restated Employment
Agreement by and between David A. Walsh and International
Exchange Networks, Ltd. (incorporated by reference to Exhibit
10.8 to Form S-1, Registration No. 333-79079).

29
<PAGE>

10.9 Amended and Restated Employment Agreement, dated as of December
18, 1997, between International Exchange Networks, Ltd. and
Anthony M. Servidio (incorporated by reference to Exhibit 10.11
to Form S-1, Registration No. 333-79079).

10.10 Waiver letter, dated as of June 9, 1999, from Anthony Servidio
regarding provisions in the Amended and Restated Employment
Agreement between Anthony M. Servidio and International
Exchange Networks, Ltd. (incorporated by reference to Exhibit
10.12 to Form S-1, Registration No. 333-79079).

10.11 Employment Agreement, dated as of July 1, 1999, between
International Exchange Networks, Ltd. and Gerald E. Starr
(filed herewith).

10.12 Form of Employment Agreement for certain Senior Executives
(filed herewith).

10.13 IXnet, Inc. 1999 Stock Option Plan (incorporated by reference
to Exhibit 10.19 to Form S-1, Registration No. 333-79079).

10.14 IPC Information Systems, Inc. 1998 Stock Incentive Plan
(incorporated by reference to Exhibit 10.20 to Form S-1,
Registration No. 333-79079).

10.15 Indenture, dated as of April 30, 1998, between IPC Information
Systems, Inc. and the United States Trust Company of New York,
as indenture trustee (incorporated by reference to Exhibit
10.21 to Form S-1, Registration No. 333-79079).

10.16 Amended and Restated Credit Agreement, dated as of June 21,
1999, among IPC Information Systems, Inc., IPC Funding Corp.,
IPC Communications, Inc., General Electric Capital Corporation,
as collateral agent and administrative agent, Morgan Stanley
Senior Funding, Inc., as syndication agent, and the lenders and
the issuing bank named therein (incorporated by reference to
Exhibit 10.22 to Form S-1, Registration No. 333-79079).

10.17 International Purchase and Sale Agreement, dated as of July 23,
1996, between International Exchange Networks, Ltd. and
Newbridge Networks Inc. (incorporated by reference to Exhibit
10.23 to Form S-1, Registration No. 333-79079).

10.18 Strategic Agreement, dated as of September 24, 1999 among
IXnet, Inc., International Exchange Networks, Ltd. and TIBCO
Finance Technology, Inc. (incorporated by reference to Exhibit
10.24 to the Company's Report on Form 8-K, dated September 24,
1999).

21.1 Subsidiaries of IXnet, Inc. (incorporated by reference to
Exhibit 21.1 to Form S-1, Registration No. 333-79079).

27.1 Financial Data Schedule (filed only electronically with
Securities and Exchange Commission)

30
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

IXnet, Inc.

By: /s/ David A. Walsh
---------------------------------
David A. Walsh
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>

/s/ David A. Walsh Chief Executive Officer and December 29, 1999
- --------------------------------- Director (Principal executive
David A. Walsh officer)

/s/ Gerald E. Starr President and Director December 29, 1999
- ---------------------------------
Gerald E. Starr

/s/ Charles F. Auster Executive Vice President, Chief December 29, 1999
- --------------------------------- Operating Officer and
Charles F. Auster Director

/s/ James M. Demitrieus Chief Financial Officer December 29, 1999
- --------------------------------- (Principal accounting officer)
James M. Demitrieus

/s/ Richard M. Cashin, Jr. Director December 29, 1999
- ---------------------------------
Richard M. Cashin, Jr.

/s/ Douglas T. Hickey Director December 29, 1999
- ---------------------------------
Douglas T. Hickey

/s/ John T. Sharkey Director December 29, 1999
- ---------------------------------
John T. Sharkey

/s/ Douglas J. Mello Director December 29, 1999
- ---------------------------------
Douglas J. Mello

/s/ Richard W. Smith Director December 29, 1999
- ---------------------------------
Richard W. Smith

/s/ Peter A. Woog Director December 29, 1999
- ---------------------------------
Peter A. Woog
</TABLE>

31
<PAGE>

<TABLE>
<CAPTION>
-------------
Schedule II
-------------

IXnet, Inc.
Valuation and Qualifying Accounts
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ------------------------------------------------------------------------------------------------------------------------------------

Additions
-----------------------------------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses Accounts Deductions Period
------ -------- -------- ------
<S> <C> <C> <C> <C> <C>
For the Year Ended September 30, 1997:

Allowance for Doubtful Accounts............. $ --- $ 325 $ --- $ --- $ 325
================= ================= ============= ============= ===========
For the Year Ended September 30, 1998:

Allowance for Doubtful Accounts............. $ 325 $1,674 $ --- $ 1,378 $ 621
================= ================= ============= ============= ===========
For the Year Ended September 30, 1999:

Allowance for Doubtful Accounts............. $ 621 $1,693 $ --- $ 206 $2,108
================= ================= ============= ============= ===========
</TABLE>

<PAGE>

EXHIBIT 10.11

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this 1st
__day of July, 1999, (the "Effective Date") by and between Gerald E. Starr (the
"Executive") and International Exchange Networks, Ltd., a Delaware corporation
(the "Company").

BACKGROUND
WHEREAS the Executive has and is expected to continue to make a major
contribution to the growth, profitability and financial strength of the Company;
and

WHEREAS the Company desires to retain the services of the Executive, and
the Executive desires to be retained by the Company, on the terms and conditions
set forth below.

NOW, THEREFORE, intending to be legally bound, and in consideration of the
premises and the mutual promises set forth in this Agreement and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Executive agree as follows:

ARTICLE I -- DEFINITIONS

1.1 Definitions. The following terms, when used in this Agreement, shall
have the following meanings, unless the context clearly requires otherwise (such
definitions to be equally applicable to both the singular and plural of the
defined terms):

1.1.1 "Affiliate" means, (a) with respect to the Executive, any other
---------
Person directly or indirectly Controlling, Controlled by, or under common
Control with the Executive and (b) with respect to the Company, (i) any
Person which directly or indirectly beneficially owns (within the meaning
of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended) securities or other equity interests possessing more than 50% of
the aggregate voting power in the election of directors (or similar
governing body) represented by all outstanding securities of the Company or
(ii) any Person with respect to which the Company beneficially owns (within
the meaning of Rule 13d promulgated under the Securities Exchange Act of
1934, as amended) securities or other equity interests possessing more than
50% of the aggregate voting power in the election of directors (or similar
governing body) represented by, or more than 50% of the aggregate value of,
all outstanding securities or other equity interests of such Person.

1.1.2 "Base Salary" shall have the meaning set forth in section 3.1.
-----------

1.1.3 "Board" means the Board of Directors of the Company.
-----

1.1.4 "Cause" means an omission, act or action or series of
-----
omissions, acts or actions of the Executive which, in the determination of
the Board, cause(s), constitute(s) or result(s) in:

Page 1 of 15
<PAGE>

1.1.4.1 the Executive's material dishonesty including, without limitation,
theft, fraud, embezzlement, financial misrepresentation or other similar
behavior or action in his dealings with or with respect to the Company or any
Affiliate thereof or entity with which the Company or any Affiliate thereof,
shall be engaged in or be attempting to engage in commerce;

1.1.4.2 the conviction of the Executive for, or the
Executive's entry of a plea of guilty or nolo contendere to, the
commission of a felony;

1.1.4.3 the willful refusal of the Executive to follow the
lawful directives of the Board with respect to his duties
hereunder, which directives shall be consistent with his duties
and position as President of the Company, as set forth in this
Agreement, and which refusal is not cured by the Executive within
thirty (30) calendar days after written notice from the Board of
the Company to the Executive setting forth with reasonable
specificity the nature thereof; or

1.1.4.4 the material breach of any material provision of this
Agreement which is not cured by the Executive within thirty (30)
calendar days after written notice from the Board to the
Executive setting forth with reasonable specificity the nature of
such breach, unless the breach is of such nature that it cannot
be cured within such thirty (30) day period, in which case such
period will be extended by a reasonable amount of time if, and
only if (a) such breach is curable and (b) during such thirty
(30) day period the Executive commences good faith efforts which
can reasonably be expected to cure such breach as promptly as is
reasonably practicable.

1.1.5 "Change in Control" shall mean any one of the following:
-----------------

1.1.5.1 the acquisition by any person or entity, excluding, for
this purpose, International Exchange Networks, Ltd., a Delaware
corporation ("International Exchange Networks"), the Company, IPC
Information Systems, Inc., a Delaware corporation ("IPC"), IPC
Communications, Inc., a Delaware corporation ("IPCC") and
Permitted Holders (International Exchange Networks, the Company,
IPC, IPCC and any Permitted Holder, each a "Group Member") and
any employee benefit plan of International Exchange Networks, of
Beneficial Ownership of 40% or more of the combined voting power
of the then outstanding securities entitled to vote generally in
the election of directors ("Voting Securities"), of International
Exchange Networks;

1.1.5.2 the acquisition by any person or entity, excluding, for
this purpose, any Group Member and any employee benefit plan of
the Company, of Beneficial Ownership of 40% or more of the
combined voting power of the then outstanding Voting Securities
of the Company;

1.1.5.3 the acquisition by any person or entity, excluding, for
this purpose, any Group Member and any employee benefit plan of
IPC, of Beneficial Ownership of 40% or more of the combined
voting power of the then outstanding Voting Securities of IPC;

Page 2 of 15
<PAGE>

1.1.5.4 the acquisition by any person or entity, excluding, for
this purpose, any Group Member and any employee benefit plan of
IPCC, of Beneficial Ownership of 40% or more of the combined
voting power of the then outstanding Voting Securities of IPCC;
and

1.1.5.5 the approval by the stockholder or stockholders of any
of International Exchange Networks, the Company, IPC or IPCC of
(a) a reorganization, merger, consolidation or other business
combination (other than any reorganization, merger, consolidation
or other business combination with an Affiliate of the entity to
be reorganized, merged, consolidated or otherwise combined) of
International Exchange Networks, the Company, IPC or IPCC,
respectively, in each case with respect to which the stockholder
or stockholders of such entity immediately prior to consummation
of such reorganization, merger, consolidation or other business
combination do not, immediately thereafter, own more than 40% of
the combined voting power of the outstanding Voting Securities of
the surviving corporation, or (b) the sale, to a person or entity
other than a Group Member, of all or substantially all of the
assets of International Exchange Networks, the Company, IPC or
IPCC, respectively.

For purposes of this section 1.1.5:

"Affiliate" means a person or entity that directly, or
indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the person or
entity specified.

Beneficial Ownership" shall be determined within the meaning of
Rule 13d-3 promulgated under the Exchange Act.

"Permitted Holder" means Citicorp Venture Capital, Ltd.
("CVC"), its Permitted Transferees and any direct or indirect
wholly-owned subsidiary of CVC.

"Permitted Transferee" means with respect to CVC (i)
Citicorp and any direct or indirect wholly owned subsidiary of
Citicorp and any officer, director or employee of CVC, Citicorp
or any wholly owned subsidiary of Citicorp, (ii) any spouse or
lineal descent (including by adoption and stepchildren) of the
officers, directors and employees referred to in clause (i) above
and (iii) any trust, corporation or partnership of which all of
the beneficiaries, beneficial (within the meaning of Rule 13d-3
promulgated under the Exchange Act) stockholders or partners,
respectively, are persons or entities described in clauses (i) or
(ii) above.

"person" shall include persons as that term is understood under
Sections 13(d)(3) and 14(d)(2) of the Exchange Act.

"Voting Securities" shall be deemed to include all
outstanding securities of a corporation that are then
exchangeable or convertible into securities of that corporation
entitled to vote generally in the election of

Page 3 of 15
<PAGE>

directors, as if same shall have been exchanged or converted into
such voting securities.

1.1.6 "Confidential Information" means:
------------------------

1.1.6.1 proprietary information, trade secrets and know-how of
the Company and its Affiliates;

1.1.6.2 confidential information relating to the business,
operations, systems, networks, services, data bases, customer
lists, pricing policies, business plans, marketing plans, product
development plans, strategies, inventions and research of the
Company or its Affiliates; and

1.1.6.3 confidential information relating to the financial
affairs and results of operations and forecasts or projections of
the Company or its Affiliates;

provided that information shall not constitute Confidential Information if
such information: (i) is generally known by Persons other than the Company
or its Affiliates or Persons employed by, in control of or otherwise
affiliated with the Company or its Affiliates, (ii) is known by Persons
other than the Company or its Affiliates or Persons employed by, in control
of or otherwise affiliated with the Company or its Affiliates by reason of
the action of such Person or Persons other than the Executive or any Person
acting at the Executive's direction or with the Executive's consent, (iii)
was known by the Executive, by lawful means, prior to the date of the
Executive's employment with the Company or (iv) is compelled to be
disclosed by law, regulation or legal process.

1.1.7 "Control" (including the terms "Controlled by" and "under
-------
common Control with") means the possession, directly or indirectly or as a
trustee or executor, of the power to direct or cause the direction of the
management of a Person, whether through the ownership of stock, as a
trustee or executor, by contract or credit agreement or otherwise.

1.1.8 "Disability" means any physical or mental condition which
----------
renders Executive incapable of performing his essential functions and
duties hereunder as determined in good faith by the Board.

1.1.9 "Effective Date" shall have the meaning set forth in the
--------------
preamble.

1.1.10 "Employment Term" shall have the meaning set forth in
---------------
section 2.2.

1.1.11 "Good Reason" means:
-----------

1.1.11.1 the assignment to Executive, without Executive's
expressed written approval, of duties or responsibilities
materially inconsistent with the Executive's position of
President of the Company, or any material reduction in
Executive's duties, responsibilities or authority from
those in effect on the date hereof;

Page 4 of 15
<PAGE>

1.1.11.2 the Company's failure to continue in effect any
material benefit plan, program or policy in which Executive is
participating (other than any plan, program or policy which is
available to the salaried employees of the Company generally), or
the taking of any action by the Company that would adversely
affect Executive's participation in or materially reduce
Executive's benefits under any such benefit plan, program or
policy or that would deprive Executive of any material fringe
benefit enjoyed by Executive; provided, however, that no Good
Reason shall occur if the aggregate value of the benefit plans,
programs and policies in which the Executive is participating
remains substantially equivalent;

1.1.11.3 a relocation of the Executive's primary place of
employment to any location that is both (a) greater than 50 miles
away from the location at which Executive is currently working,
and (b) greater than 50 miles away from the Executor's primary
residence, except for required travel by Executive on the
Company's business to an extent substantially consistent with
Executive's past business travel obligations;

1.1.11.4 any material breach of any material provision of this
Agreement by the Company; or

1.1.11.5 the six-month anniversary of the occurrence of a Change
in Control;

which, in any case described in Section 1.1.11.1, 1.1.11.2, 1.1.11.3 or
1.1.11.4, is not cured by the Company within thirty (30) calendar days
after written notice from the Executive to the Board setting forth with
reasonable specificity the nature of such breach or event, unless the
breach or event is of such nature that it cannot be cured within such
thirty (30) day period, in which case such period will be extended by a
reasonable amount of time if, and only if (a) such breach is curable and
(b) during such thirty (30) day period the Company commences good faith
efforts which can reasonably be expected to cure such breach as promptly as
is reasonably practicable. For purposes of this Agreement, any action or
inaction described in Section 1.1.11.1, 1.1.11.2, 1.1.11.3 or 1.1.11.4
shall constitute Good Reason only if written notice thereof as contemplated
by the preceding sentence is given within 180 days after the date on which
such action or inaction first occurs (or, if later, the earliest date on
which the Executive knows or reasonably should know of such action or
inaction).

1.1.12 "Initial Term" means the first period that this Agreement
------------
is in effect, as set forth in section 2.2.

1.1.13 "Person" means an individual, corporation, partnership,
------
association, limited liability company or partnership, trust, government,
governmental agency or body, or any other group or entity, no matter how
organized and whether or not for profit.

1.1.14 "Renewal Term" shall have the meaning set forth in Section
------------
2.2.

Page 5 of 15
<PAGE>

ARTICLE II -- EMPLOYMENT AND TERM

2.1 Employment. The Company employs Executive and the Executive hereby
agrees to such employment by the Company during the Employment Term to serve as
President of the Company, with the customary duties, authorities and
responsibilities of the president of a telecommunications corporation and such
other duties, authorities and responsibilities relative to the Company or its
Affiliates that: (i) have been agreed upon by the Company and Executive or (ii)
may from time to time be delegated to Executive by the Board.

2.2 Employment Term.

2.2.1 Initial Term. The "Initial Term" of this Agreement shall
------------
commence on the Effective Date, and unless sooner terminated as provided in
Article IV, shall continue until the fourth anniversary of such date.

2.2.2 Renewal Term. The Employment Agreement shall be extended
------------
beyond the fourth anniversary of the Effective Date only by written
agreement between the Company and the Executive. For all purposes of this
Agreement, the term "Renewal Term" shall mean the period covered by any
such extension.

2.2.3 Employment Term. For all purposes of this Agreement, the term
---------------
"Employment Term" shall mean the Initial Term and all Renewal Terms. Except as
otherwise expressly provided in this Agreement, any reference in this Agreement
to the term "Remaining Unexpired Employment Term" as of any date shall mean the
period beginning on such date and ending on the earlier of (a) the last day of
the Employment Term and (b) any earlier date on which the Executive's
employment with the Company was terminated.

(i) serving as a director of or actually participating in any non-
profit or charitable organization or

(ii) making an investment in any other business, so long as the
Executive does not actively participate in another business referred
to in Section 2.3(ii) and such activity, whether described in Section
2.3(i) or 2.3(ii), does not materially interfere with the Executive's
ability to perform his duties hereunder and does not constitute a
conflict of interest with the Company in the reasonable opinion of the
Board. The Executive may serve as an executive officer of IPC
Communications, Inc., IPC

Page 6 of 15
<PAGE>

Information Systems, Inc. or any business entity Controlled by either
of them, and such service shall not be deemed a breach of this Section
2.3.

ARTICLE III -- COMPENSATION AND BENEFITS

3.1 Base Salary. During the Employment Term, as compensation for
services hereunder and in consideration for the protective covenants set forth
in Article V of this Agreement, Executive shall be paid an annual base salary of
Two Hundred Seventy-five Thousand Dollars ($275,000) or such greater amount as
may from time to time be approved by the Compensation Committee of the Board
(the "Base Salary"); provided, however, that the Base Salary may be decreased if
there are decreases in salary of equal or greater percentage amounts imposed on
all of the Company's executive employees because the Company's financial
performance dictates such decreases. Base Salary shall be paid to Executive in
accordance with the Company's normal payroll practices.

3.2 Bonus. During the Employment Term, Executive shall be eligible
to receive an annual bonus that will be determined in accordance with the bonus
program established by the Board from time to time. The Executive's target
bonus shall not be less than One Hundred Seventy-five Thousand Dollars
($175,000).

3.3 Stock Option. The Executive has been granted an option to
purchase shares of the common stock of the Company pursuant to the IXnet, Inc.
1999 Stock Option Plan (the "Stock Plan") in accordance with the terms and
conditions of the Option Grant Certificate attached to this Agreement as Exhibit
A and made a part of the Agreement.

3.4 Benefits. To the maximum extent that he is eligible under the
terms of the applicable plan or program, the Executive shall participate in any
and all plans or programs maintained by the Company for its employees and/or
senior executives generally that provide insurance, medical benefits, retirement
benefits, or similar fringe benefits. In addition, the Executive shall be
entitled to four weeks of paid vacation each calendar year of the Employment
Term, which must be taken in accordance with the Company's vacation policy then
in effect.

3.5 Indemnification and Insurance.

3.5.1 D&O Insurance. The Company shall cause the Executive to
-------------
be covered by and named as an insured under any policy or contract of
insurance obtained by it to insure its directors and officers against
personal liability for acts or omissions in connection with service as an
officer or director of the Company or service in other capacities at its
request. The coverage provided to the Executive pursuant to this section
3.5.1 shall be of the same scope and on the same terms and conditions as
the coverage (if any) provided to other officers or directors of the
Company and shall continue for so long as the Executive shall be subject to
personal liability relating to such service.

3.5.2 Indemnification. To the maximum extent permitted under
---------------
applicable law, the Company shall indemnify the Executive against and hold
him harmless from any costs, liabilities, losses and exposures to the
fullest extent and on the most favorable terms and conditions that similar
indemnification is offered to any director or officer of

Page 7 of 15
<PAGE>

the Company or any subsidiary or Affiliate thereof and shall continue for
so long as the Executive shall be subject to personal liability relating to
such service.

3.6 Expenses. The Company shall pay or reimburse the Executive for
reasonable business expenses actually incurred or paid by the Executive during
the Employment Term, in the performance of his services hereunder; provided,
however, that such expenses are consistent with the Company policy. Such payment
or reimbursement is expressly conditioned upon presentation of expense
statements or vouchers or other supporting documentation by the Executive in a
manner that is acceptable to the Company and otherwise in accordance with the
Company policy then in effect.

3.7 Deductions. The Company shall deduct from all compensation or
benefits payable pursuant to this Agreement such payroll, withholding and other
taxes as may in the reasonable opinion of the Company be required by law and any
such additional amounts requested in writing by the Executive.

3.8 Total Compensation Package for All Services. The compensation
and benefits set forth in this Article III are intended to comprise a
comprehensive compensation and benefits package for all of the Executive's
services to the Company, IPC Communications, Inc., IPC Information Systems, Inc.
and any entity Controlled by any of them. Any compensation paid or any benefit
provided by IPC Communications, Inc., IPC Information Systems, Inc. or any
entity Controlled by any of them shall be applied to offset the Company's
obligations hereunder.

ARTICLE IV -- TERMINATION

4.1 General. The Company shall have the right to terminate the
employment of the Executive at any time with or without Cause, and the Executive
shall have the right to resign at any time with or without Good Reason, but the
relative rights and obligations of the parties in the event of any such
termination or resignation shall be determined under this Agreement.

4.2 Termination Under Certain Circumstances.

4.2.1 Termination Without Severance Benefits. In the event the
--------------------------------------
Executive's employment with the Company is terminated prior to the
expiration of the Employment Term by reason of (i) the Executive's
resignation without Good Reason, (ii) the Executive's death or (iii) the
Executive's discharge by the Company for Cause, this Agreement shall
terminate including, without limitation, the Company's obligations to
provide any compensation, benefits or severance to the Executive under
Article IV of this Agreement or otherwise, other than the Standard
Termination Entitlements (as defined in section 4.4.1).

Page 8 of 15
<PAGE>

covering employees of the Company and providing an annual benefit for the
Executive at least equal to 60% of Base Salary; and (b) the date of his
death; and (c) the expiration of the Remaining Unexpired Employment Term. A
termination of employment due to Disability under this Section 4.2.2 shall
be effected by notice of termination given to the Executive by the Company
and shall take effect on the later of the effective date of termination
specified in such notice or the date on which the notice of termination is
deemed given to the Executive.

4.2.3 Termination with Severance Benefits. In the event that the
-----------------------------------
Executive's employment with the Company is terminated by the Executive
prior to the expiration of the Employment Term for Good Reason or by the
Company prior to the expiration of the Employment Term other than for Cause
or Disability, the Company shall pay the Standard Termination Entitlements
(as defined in section 4.4.1) and the Severance Benefits (as defined in
section 4.4.2); provided, however, that any payment required by this
section 4.2.3 is expressly conditioned upon:

4.2.3.1 The Executive's compliance in all material respects
with the material terms of this Agreement, including, without
limitation, the applicable provisions of Article V;

4.2.3.2 The Executive's execution of a release and waiver of
all claims and potential claims against the Company, its
Affiliates and other related parties in a form satisfactory to
the Company and that is substantially similar to the attached
form; and

4.2.3.3 The Executive's resignation from any and all positions
which he holds as an officer, director or committee member with
respect to the Company or any Affiliate thereof.

4.3 Liquidated Damages. The Company and Executive hereby stipulate
that the damages which may be incurred by the Executive as a consequence of any
such termination of employment are not capable of accurate measurement as of the
date first above written and that the liquidated damages payments provided for
in this Agreement constitute a reasonable estimate under the circumstances of,
and are in full satisfaction of, all damages sustained as a consequence of any
such termination of employment.

4.4 Standard Termination Entitlements; Severance Benefits.

4.4.1 Standard Termination Entitlements. For all purposes of
---------------------------------
this Agreement, the Executive's "Standard Termination Entitlements"
shall mean and include:

(a) the Executive's earned but unpaid compensation
(including, without limitation, salary, bonus, and all other
items which constitute wages under applicable law) as of the date
of his termination of employment. This payment shall be made at
the time and in the manner prescribed by law applicable to the
payment of wages but

Page 9 of 15
<PAGE>

in no event later than 30 days after the date of the Executive's
termination of employment.

(b) the benefits, if any, due to the Executive (and the
Executive's estate, surviving dependents or his designated
beneficiaries) under the employee benefit plans and programs and
compensation plans and programs (including stock option plans)
maintained for the benefit of the officers and employees of the
Company). The time and manner of payment or other delivery of
these benefits and the recipients of such benefits shall be
determined according to the terms and conditions of the
applicable plans and programs.

4.4.2 Severance Benefits. For all purposes of this Agreement,
------------------
the Executive's "Severance Benefits" shall mean and include:

(a) the payment of (i) the Executive's Base Salary at
the annual rate of Base Salary in effect immediately prior to his
termination of employment (without giving effect to any reduction
in Base Salary not expressly authorized by this Agreement) for a
period of twelve (12) months from the date of the Executive's
termination of employment payable in accordance with the
Company's normal payroll practices, plus (ii) the annual bonus
(if any) earned by the Executive for the fiscal year (computed as
though the Executive had remained employed through the end of
such fiscal year) multiplied by a fraction, the number of which
is the number of calendar months in the current fiscal year to
begin before the Executive's termination of employment and the
denominator of which is twelve (12), payable at the time and in
the manner specified in the applicable bonus plan. The payments
described in this section 4.4.2 (a) shall not commence until the
release referred to in section 4.3.2.2. becomes irrevocable.

(b) a lump sum payment equal to any unpaid bonuses or
other compensation earned for periods completed prior to the
Executive's termination of employment, the payment of which is
contingent on the Executive's continued employment through a date
that is after the date of his termination of employment. This
payment shall be made at the time and in the manner prescribed by
law, but in any event within five (5) business days after the
Executive's termination of employment.

Page 10 of 15
<PAGE>

of the premiums due for any health insurance continuation
coverage elected by the Executive under the Company group health
plans pursuant to the Consolidated Budget Reconciliation of 1985.

(d) (i) if termination precedes the occurrence of a
Change in Control, full vesting (but not accelerated
exercisability), as of the date of termination of employment, of
all stock options outstanding to him under the Stock Plan that
would have become vested under the applicable vesting schedules
during the one-year period beginning on the date of termination
and (ii) if termination occurs upon or after the occurrence of a
Change in Control, full vesting (but not accelerated
exercisability) as of the date of termination of employment of
all stock options then outstanding to him under the Stock Plan.

ARTICLE V -- RESTRICTIVE COVENANTS

5.1 Proprietary Information.

5.1.1 Disclosure during the Term. The Executive shall promptly
--------------------------
disclose to the Company in such form and manner as the Company may
reasonably require (a) all operations, systems, services, methods,
developments, inventions, improvements and other information or data
pertaining to the business or activities of the Company and its Affiliates
as are conceived, originated, discovered or developed by Executive (whether
or not copyrighted or patented or capable of being copyrighted or patented)
during the Employment Term (whether before or after the date hereof), and
(b) such information and data pertaining to the business, operations,
personnel, activities, financial affairs, and other information relating to
the Company and its Affiliates and their respective customers, suppliers,
employees and other persons having business dealings with the Company and
its Affiliates as may be reasonably required for the Company to operate its
business. It is understood that such information is proprietary in nature
and shall (as between the Company and Executive) be for the exclusive use
and benefit of the Company and shall be and remain the property of the
Company both during the Employment Term and thereafter. If so requested by
the Company, the Executive shall execute and deliver to the Company any
instrument as the Company may reasonably request to effectuate the
assignment of any such proprietary information to the Company. Without
limiting the generality of the foregoing, the Executive hereby releases and
waives and assigns to the Company any and all claims and rights which he
has against the Company or any Affiliate thereof or any of the technology,
"know-how," licenses or other proprietary rights or processes of the
Company or any Affiliate thereof.

5.1.2 Disclosure after the Term. In the event that the Executive
-------------------------
leaves the employ of the Company for any reason, including, without
limitation, the expiration of the Employment Term, the Executive shall
deliver to the Company (and shall not keep in his possession, recreate or
deliver to anyone other than the Company or its designee) any and all
devices, records, data, notes, reports, proposals, lists, correspondence,

Page 11 of 15
<PAGE>

specifications, drawings, blueprints, sketches, materials, equipment, other
documents or property, together with all copies thereof (in whatever medium
recorded) belonging to the Company or any Affiliate thereof or any of their
respective successors or assigns.

5.2 Non-Competition. During his employment with the Company and
continuing for two years thereafter (but only if the Executive's employment
hereunder is terminated due to the Company's discharge of the Executive for
Cause, or the Executive's voluntary resignation from his employment hereunder
without Good Reason), the Executive agrees, and shall cause each Person
Controlled by him to agree, that any such Person shall not, directly or
indirectly, through any Person Controlled by the Executive, in any form or
manner on a worldwide basis: (a) engage in any activities competitive with the
business of the Company and its Affiliates for his or their own account or for
the account of any other Person, or (b) become interested in any Person engaged
in activities competitive with the business of the Company and its Affiliates as
a partner, shareholder, member, principal, agent, employee, trustee, consultant
or in any other relationship or capacity; provided, however, that Executive may
own, directly or indirectly, solely as a passive investment, securities of any
Person if the Executive (x) is not a Person in Control of, or a member of a
group that Controls, such Person and (y) does not, directly or indirectly, own
5% or more of any voting class of securities of such Person.

5.3 Non-Solicitation. During his employment with the Company and for
a period of two years thereafter, the Executive will not, directly or
indirectly, use proprietary knowledge or information relating to the Company or
its Affiliates obtained during the course of Executive's employment with the
Company with the intention to, or which a reasonable person would construe to
(a) interfere with or disrupt any present or prospective relationship,
contractual or otherwise, between the Company or its Affiliates and any
customer, supplier, employee, consultant or other person having business
dealings with the Company or its Affiliates, or (b) employ or solicit the
employment or engagement by others of any employee or consultant of the Company
or its Affiliates who was such an employee or consultant at the time of
termination of the Executive's employment hereunder or within one year prior
thereto.

5.4 Non-Disclosure. Except with the prior written consent of the
Company in each instance or as may be reasonably necessary to perform the
Executive's services hereunder, the Executive shall not disclose, use, publish,
or in any other manner reveal, directly or indirectly, at any time during or
after his employment with the Company, any Confidential Information relating to
the Company or any Affiliate thereof acquired by him prior to, during the course
of, or incident to, his employment hereunder. In the event Executive is required
(by oral questions, interrogatories, requests for information or documents in
legal proceedings, subpoenas, civil investigative demand or similar process) to
disclose any such Confidential Information, the Executive shall provide the
Company with prompt written notice of such requirement so that the Company may
seek a protective order or other appropriate remedy and/or waive compliance with
the provisions of this Section. If, in the absence of such a protective order or
other remedy or receipt of a waiver by the Company, the Executive is nonetheless
advised by his legal counsel that he is legally compelled to disclose such
Confidential Information, the Executive may, without liability hereunder,
disclose only that portion of such Confidential Information which such counsel
advises in writing is legally required to be disclosed.

5.5 Reasonable Limitations. Executive acknoledges that given the
nature of the Company's business the covenants contained in this Article V
contain reasonable limitations as

Page 12 of 15
<PAGE>

to time, geographical area and scope of activity to be restrained, and do not
impose a greater restraint than is necessary to protect and preserve the
Company's business and to protect the Company's legitimate business interests.
If, however, this Article V is determined by any court of competent jurisdiction
or any arbitrator to be unenforceable by reason of its extending for too long a
period of time or over too large a geographic area or by reason of its being too
extensive in any other respect, or for any other reason, it will be interpreted
to extend only over the longest period of time for which it may be enforceable
and/or over the largest geographical area as to which it may be enforceable
and/or to the maximum extent in all other aspects as to which it may be
enforceable, all as determined by such court or arbitrator in such action.

5.6 Remedies for Breach. Executive acknowledges that the legal
remedies for breach of the protective covenants hereunder are inadequate and
therefore agrees that, in addition to all of the remedies available to the
Company in the event of a breach or a threatened breach of any covenant
contained in this Article V, the Company may: (i) obtain temporary, preliminary,
and permanent injunctions and any other appropriate equitable relief against any
and all such actions, (ii) cease as of the date of such breach or threatened
breach any and all further payments to Executive pursuant to this Agreement and
(iii) recover from Executive monetary damages to the Company or any Affiliate
arising from such breach or threatened breach and all costs and expenses
(including reasonable attorneys' fees) incurred by the Company or any Affiliate
in the enforcement of such protective covenants.

5.7 Affiliates of the Company. The provisions of this Article V shall
benefit the business and proprietary rights of the Company's Affiliates and
shall be enforceable against Executive by each of such Affiliates as third party
beneficiaries.

5.8 Survival of Protective Covenants. Each covenant on the part of
Executive contained in this Article V shall be construed as an agreement
independent of any other provision of this Agreement, unless otherwise indicated
herein, and shall survive the termination of Executive's employment under this
Agreement, and the existence of any claim or cause of action of Executive
against the Company, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Company of such covenant.

ARTICLE VI -- DISPUTE RESOLUTION

6.1 Arbitration. Any dispute, controversy or claim, at any time
arising from or relating to this Agreement, or the breach, termination or
invalidity thereof (other than any dispute, controversy or claim made by the
Company pursuant to Article V, which may, at the option of the Company, be
submitted to any court of competent jurisdiction) shall be referred to final and
binding arbitration by a panel of three arbitrators selected according to the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association (but not held under its auspices). In the event the
arbitrator selected by the Executive and the arbitrator selected by the Company
cannot, within thirty (30) days after the appointment of both, agree on a third
arbitrator, he or she shall be selected by a United States District Court Judge
sitting in the United States District Court for the Southern District of New
York. The place of arbitration shall be New York, NY. Any arbitral award may be
entered as a judgment in any court of competent jurisdiction.

ARTICLE VII -- GENERAL PROVISIONS

Page 13 of 15
<PAGE>

7.1 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, providing proof of delivery. All
communications hereunder shall be delivered to the respective parties at the
following addresses:

If to the Executive:

If to the Company: International Exchange Networks, Ltd.
Wall Street Plaza
88 Pine Street - 15th Floor
New York, NY 10005
Attn: Chairman of the Board
Fax No.: (212) 858-7959

with copy to: Thacher Proffitt & Wood
Two World Trade Center, 39th Floor
New York, NY 1048
Attn: Thomas N. Talley
Fax No.: (212) 432-7152

or to such other address as the party to whom notice is given may have
previously furnished to the other parties hereto in writing in the manner set
forth above.

7.2 Entire Agreement. This Agreement shall constitute the entire
agreement between the Executive and the Company with respect to the Company's
employment of the Executive and supersedes any and all prior agreements and
understandings, written or oral, with respect thereto.

7.3 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only by
(a) an instrument in writing and signed by the party against whom such amendment
or waiver is sought to be enforced, and (b) in the case of the Company, such
amendment or waiver also must be duly authorized by an appropriate resolution of
the Board.

7.4 Successors and Assigns. The Company shall have the right to
assign this Agreement. The personal services of the Executive are the subject of
this Agreement and no part of his rights or obligations hereunder may be
assigned, transferred, pledged or encumbered by the Executive. This Agreement
shall inure to the benefit of, and be binding upon (a) the parties hereto, (b)
the heirs, administrators, executors and personal representatives of the
Executive and (c) the successors and assigns of the Company as provided herein.

7.5 Governing Law. This Agreement, including the validity hereof and
the rights and obligations of the parties hereunder, and all amendments and
supplements hereof and all waivers

Page 14 of 15
<PAGE>

and consents hereunder, shall be construed in accordance with and governed by
the laws of the State of New York without giving effect to any conflicts of law
provisions or rule, that would cause the application of the laws of any other
jurisdiction.

7.6 Severability. If any provisions of this Agreement as applied to
any part or to any circumstance shall be adjudged by a court to be invalid or
unenforceable, the same shall in no way affect any other provision of this
Agreement, the application of such provision in any other circumstances or the
validity or enforceability of this Agreement.

7.7 No Conflicts. The Executive represents to the Company that the
execution, delivery and performance by the Executive of this Agreement does not
and will not conflict with or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default under any contract,
agreement or understanding, whether oral or written, to which the Executive is
or was a party or of which the Executive is or should be aware.

7.8 Survival. The rights and obligations of the Company and Executive
pursuant to Articles IV, V and VI shall survive the termination of the
Executive's employment with the Company and the expiration of the Employment
Term.

7.9 Captions. The headings and captions used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.

7.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

7.11 Non-duplication. In the event that the Executive shall perform
services for any Affiliate of the Company or any other direct or indirect
subsidiary or affiliate of the Company or any Affiliate, any compensation or
benefits provided to the Executive by such other employer shall be applied to
offset the obligations of the Company hereunder, it being intended that this
Agreement set forth the aggregate compensation and benefits payable to the
Executive for all services to the Company, its Affiliates and all of their
respective direct or indirect subsidiaries and affiliates.

IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.

Gerald E. Starr

International Exchange Networks, Ltd.

By:
Name:
Title:

Page 15 of 15

<PAGE>

EXHIBIT 10.21

FORM OF EMPLOYMENT AGREEMENT FOR SENIOR EXECUTIVES

THIS FORM OF EMPLOYMENT AGREEMENT FOR SENIOR EXECUTIVES ("Agreement")
is made and entered into this 1st __day of July, 1999, (the "Effective Date")
by and between [ ]
(the "Executive") and International Exchange Networks, Ltd., a
Delaware corporation (the "Company").

BACKGROUND

WHEREAS the Executive has and is expected to continue to make a major
contribution to the growth, profitability and financial strength of the Company;
and

WHEREAS the Company desires to retain the services of the Executive,
and the Executive desires to be retained by the Company, on the terms and
conditions set forth below.

NOW, THEREFORE, intending to be legally bound, and in consideration of
the premises and the mutual promises set forth in this Agreement and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Executive agree as follows:

ARTICLE I -- DEFINITIONS

1.1 Definitions. The following terms, when used in this Agreement, shall
have the following meanings, unless the context clearly requires otherwise
(such definitions to be equally applicable to both the singular and plural
of the defined terms):

1.1.1 "Affiliate" means, (a) with respect to the Executive, any other
---------
Person directly or indirectly Controlling, Controlled by, or under common
Control with the Executive and (b) with respect to the Company, (i) any Person
which directly or indirectly beneficially owns (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended) securities or
other equity interests possessing more than 50% of the aggregate voting power in
the election of directors (or similar governing body) represented by all
outstanding securities of the Company or (ii) any Person with respect to which
the Company beneficially owns (within the meaning of Rule 13d promulgated under
the Securities Exchange Act of 1934, as amended) securities or other equity
interests possessing more than 50% of the aggregate voting power in the election
of directors (or similar governing body) represented by, or more than 50% of the
aggregate value of, all outstanding securities or other equity interests of such
Person.

1.1.2 "Base Salary" shall have the meaning set forth in section 3.1.
-----------

1.1.3 "Board" means the Board of Directors of the Company.
-----
<PAGE>

1.1.4 "Cause" means an omission, act or action or series of omissions,
-----
acts or actions of the Executive which, in the determination of the Board,
constitute(s), cause(s) or result(s) in:

1.1.4.1 the Executive's material dishonesty including, without
limitation, theft, fraud, embezzlement, financial
misrepresentation or other similar behavior or action in his
dealings with or with respect to the Company or any Affiliate
thereof or entity with which the Company or any Affiliate
thereof, shall be engaged in or be attempting to engage in
commerce;

1.1.4.2 the conviction of the Executive for, or the Executive's
entry of a plea of guilty or nolo contendere to, the commission
of a felony;

1.1.4.3 the willful refusal of the Executive to follow the
lawful directives of the Board or the President of the Company
with respect to his duties hereunder, which directives shall be
consistent with his duties and position as an officer of the
Company, as set forth in this Agreement, and which refusal is not
cured by the Executive within thirty (30) calendar days after
written notice from the Board of the Company to the Executive
setting forth with reasonable specificity the nature thereof; or

1.1.4.4 the material breach of any provision of this Agreement
which is not cured by the Executive within thirty (30) calendar
days after written notice from the Board or the President of the
Company to the Executive setting forth with reasonable
specificity the nature of such breach.

1.1.5 "Confidential Information" means:
------------------------

1.1.5.1..proprietary information, trade secrets and know-how of
the Company and its Affiliates;

1.1.5.2 confidential information relating to the business,
operations, systems, networks, services, data bases, customer
lists, pricing policies, business plans, marketing plans, product
development plans, strategies, inventions and research of the
Company or its Affiliates; and

1.1.5.3 confidential information relating to the financial
affairs and results of operations and forecasts or projections of
the Company or its Affiliates;

provided that information shall not constitute Confidential Information if such
information: (i) is generally known by Persons other than the Company or its
Affiliates or Persons employed by, in control of or otherwise affiliated with
the Company or its Affiliates, (ii) is known by Persons other than the Company
or its Affiliates or Persons employed by, in control of or otherwise affiliated
with the Company or its Affiliates by reason of the action of such Person or
Persons other than the Executive or any Person acting at the Executive's
direction or with the Executive's consent, (iii) was known by the Executive, by
lawful means, prior to the date of the Executive's
<PAGE>

employment with the Company or (iv) is compelled to be disclosed by law,
regulation or legal process.

1.1.6 "Control" (including the terms "Controlled by" and "under common
-------
Control with") means the possession, directly or indirectly or as a trustee
or executor, of the power to direct or cause the direction of the
management of a Person, whether through the ownership of stock, as a
trustee or executor, by contract or credit agreement or otherwise.

1.1.7 "Disability" means any physical or mental condition which renders
----------
Executive incapable of performing his essential functions and duties
hereunder as determined in good faith by the Board.

1.1.8 "Effective Date" shall have the meaning set forth in the preamble.
--------------

1.1.9 "Employment Term" shall have the meaning set forth in section 2.2.
---------------

1.1.10 "Good Reason" means:
-----------

1.1.10.1 the assignment to Executive, without Executive's
expressed written approval, of duties or responsibilities
materially inconsistent with the Executive's position of ,
or any material reduction in Executive's duties, responsibilities
or authority from those in effect on the date hereof;

1.1.10.2 the Company's failure to continue in effect any
material benefit plan, program or policy in which Executive is
participating (other than any plan, program or policy which is
available to the salaried employees of the Company generally), or
the taking of any action by the Company that would adversely
affect Executive's participation in or materially reduce
Executive's benefits under any such benefit plan, program or
policy or that would deprive Executive of any material fringe
benefit enjoyed by Executive; provided, however, that no Good
Reason shall occur if the aggregate value of the benefit plans,
programs and policies in which the Executive is participating
remains substantially equivalent;

1.1.10.3 a relocation of the Executive's primary place of
employment to any location that is both (a) greater than 50 miles
away from the location at which Executive is currently working,
and (b) greater than 50 miles away from the Executor's primary
residence, except for required travel by Executive on the
Company's business to an extent substantially consistent with
Executive's past business travel obligations;

which, in any case, is not cured by the Company within thirty (30) calendar days
after written notice from the Executive to the Board setting forth with
reasonable specificity the nature of such breach. For purposes of this
Agreement, any action or inaction shall constitute Good Reason only
<PAGE>

if written notice thereof as contemplated by the preceding sentence is given
within 60 days after the date on which such action or inaction first occurs (or,
if later, the earliest date on which the Executor knows or reasonably should
know of such action or inaction).

1.1.11 "Initial Term" means the first period that this Agreement
------------
is in effect, as set forth in section 2.2.

1.1.12 "Person" means an individual, corporation, partnership,
------
association, limited liability company or partnership, trust, government,
governmental agency or body, or any other group or entity, no matter how
organized and whether or not for profit.

1.1.13 "Renewal Term" shall have the meaning set forth in
------------
Section 2.2.

ARTICLE II -- EMPLOYMENT AND TERM

2.1 Employment. The Company employs Executive and the Executive hereby
agrees to such employment by the Company during the Employment Term to serve as
____ of the Company, with the customary duties, authorities and responsibilities
of a _________ ___ of a telecommunications corporation and such other duties,
authorities and responsibilities relative to the Company or its Affiliates that:
(i) have been agreed upon by the Company and Executive or (ii) may from time to
time be delegated to Executive by the Board [or the President of the Company].

2.2 Employment Term.

2.2.2 Renewal Term. On the day after the Effective Date and on each
------------
day thereafter, the Employment Term shall be extended by one day, such that
on any date the Employment Term will expire on the fourth (4th) anniversary
of such date. These extensions shall continue in perpetuity until
discontinued by: (a) notice to the Executive given by the Company that it
has elected to discontinue the extensions; (b) notice by the Executive to
the Company that he has elected to discontinue the extensions; or (c)
termination of the Executive's employment with the Company, whether by
resignation, discharge or otherwise. On the date on which such a notice is
deemed given, or on the effective date of a termination of the Executive's
employment with the Company, the Employment Term shall be converted to a
fixed period of four (4) years ending on the fourth (4th) anniversary of
such date.

2.2.3. Employment Term. For all purposes of this Agreement, the term
---------------
"Employment Term" shall mean the Initial Term and all Renewal Terms.
Except as otherwise expressly provided in this Agreement, any reference in
this Agreement to the term "Remaining Unexpired Employment Term" as of any
date shall mean the period beginning on such date and ending on the fourth
(4th) anniversary of the earliest of (a) the
<PAGE>

date in question, (b) any earlier date on which the Executive or the
Company is deemed to have given a notice to discontinue extensions of the
Employment Term, and (c) any earlier date on which the Executive's
employment with the Company was terminated.

2.3 Full Working Time. During the Employment Term, the Executive shall
devote his ability and attention, all of his skill and experience and efforts
during normal business hours and at such other times as the performance of his
duties hereunder may reasonably require to the proper performance of his duties
hereunder and to the business and affairs of the Company. During the Employment
Term, the Executive, without the prior written approval of the Board, shall not,
either directly or indirectly, actively participate in any other business or
accept any employment or business office whatsoever, including, without
limitation, serving as a director, from any other Person; provided, however,
that the foregoing shall not preclude the Executive, subject to Article V, from:
(i) serving as a director of any non-profit or charitable organization or (ii)
making an investment in any other business, so long as in any such case, the
Executive does not actively participate in such other business or organization
and such activity does not interfere with the Executive's ability to perform his
duties hereunder and does not constitute a conflict of interest with the Company
in the reasonable opinion of the Board.

ARTICLE III -- COMPENSATION AND BENEFITS

3.1 Base Salary. During the Employment Term, as compensation for services
hereunder and in consideration for the protective covenants set forth in Article
V of this Agreement, Executive shall be paid an annual base salary of [$ ] or
such greater amount as may from time to time be approved by the Compensation
Committee of the Board (the "Base Salary"); provided, however, that the Base
Salary may be decreased if there are decreases in salary imposed on all of the
Company's executive employees because the Company's financial performance
dictates such decreases. Base Salary shall be paid to Executive in accordance
with the Company's normal payroll practices.

3.2 Bonus. During the Employment Term, Executive shall be eligible to
receive an annual bonus that will be determined in accordance with the bonus
program established by the Board from time to time.

3.3 Stock Option. The Executive shall be granted an option to purchase
shares of the common stock of the Company pursuant to the IXnet, Inc. 1999
Stock Option Plan (the "Stock Plan").

3.4 Benefits. To the maximum extent that he is eligible under the terms of
the applicable plan or program, the Executive shall participate in any and all
plans or programs maintained by the Company for its employees and/or senior
executives generally that provide insurance, medical benefits, retirement
benefits, or similar fringe benefits. In addition, the Executive shall be
entitled to [ ] weeks of paid vacation each calendar year of the Employment
Term, which must be taken in accordance with the Company's vacation policy then
in effect.
<PAGE>

3.5 Indemnification and Insurance.

3.5.1 D&O Insurance. The Company shall cause the Executive to be
-------------
covered by and named as an insured under any policy or contract of
insurance obtained by it to insure its directors and officers against
personal liability for acts or omissions in connection with service as an
officer or director of the Company or service in other capacities at its
request. The coverage provided to the Executive pursuant to this section
3.5.1 shall be of the same scope and on the same terms and conditions as
the coverage (if any) provided to other officers or directors of the
Company and shall continue for so long as the Executive shall be subject to
personal liability relating to such service.

3.5.2 Indemnification. To the maximum extent permitted under applicable
---------------
law, the Company shall indemnify the Executive against and hold him
harmless from any costs, liabilities, losses and exposures to the fullest
extent and on the most favorable terms and conditions that similar
indemnification is offered to any director or officer of the Company or any
subsidiary or Affiliate thereof and shall continue for so long as the
Executive shall be subject to personal liability relating to such service.

ARTICLE IV - TERMINATION

4.1 General. The Company shall have the right to terminate the employment
of the Executive at any time with or without Cause.

4.2 Termination Under Certain Circumstances.

Agreement or otherwise, other than the Standard Termination Entitlements
(as defined in section 4.4.1).

4.2.2 Disability. The Company may terminate the Executive's
----------
employment upon the Executive's Disability. In such event, in addition to
the Standard Termination Entitlements (as defined in section 4.4.1), the
Company shall continue to pay the Executive his Base Salary in accordance
with the Company's normal payroll practices, at the annual rate in effect
for him immediately prior to the termination of his employment, during a
period ending on the earliest of: (a) the date on which long-term
disability insurance benefits are first payable to him under any long-term
disability insurance plan covering employees of the Company; and (b) the
date of his death; and (c) the expiration of the Remaining Unexpired
Employment Term. A termination of employment due to Disability under this
Section 4.2.2 shall be effected by notice of termination given to the
Executive by the Company and shall take effect on the later of the
effective date of termination specified in such notice or the date on which
the notice of termination is deemed given to the Executive.

4.2.3.1 The Executive's compliance with the terms of this
Agreement, including, without limitation, Article V;

4.2.3.3 The Executive's resignation from any and all positions
which he holds as an officer, director or committee member with
respect to the Company or any Affiliate thereof.

4.3 Liquidated Damages. The Company and Executive hereby stipulate that
the damages which may be incurred by the Executive as a consequence of any such
termination of employment are not capable of accurate measurement as of the date
first above written and that the liquidated damages payments provided for in
this Agreement constitute a reasonable estimate under the circumstances of, and
are in full satisfaction of, all damages sustained as a consequence of any such
termination of employment.
<PAGE>

4.4 Standard Termination Entitlements; Severance Benefits.

4.4.1 Standard Termination Entitlements. For all purposes of this
---------------------------------
Agreement, the Executive's "Standard Termination Entitlements" shall mean
and include:

(a) the Executive's earned but unpaid compensation (including,
without limitation, salary and all other items which constitute wages
under applicable law) as of the date of his termination of employment.
This payment shall be made at the time and in the manner prescribed by
law applicable to the payment of wages but in no event later than 30
days after the date of the Executive's termination of employment.

(b) the benefits, if any, due to the Executive, and the
Executive's estate, surviving dependents or his designated
beneficiaries under the employee benefit plans and programs and
compensation plans and programs (including stock option plans)
maintained for the benefit of the officers and employees of the
Company). The time and manner of payment or other delivery of these
benefits and the recipients of such benefits shall be determined
according to the terms and conditions of the applicable plans and
programs.

4.4.2 Severance Benefits. For all purposes of this Agreement, the
------------------
Executive's "Severance Benefits" shall mean and include:

(a) the payment of (i) the Executive's Base Salary at the annual
rate of Base Salary in effect immediately prior to his termination of
employment (without giving effect to any reduction in Base Salary not
expressly authorized by this Agreement) for a period of twelve (12)
months from the date of the Executive's termination of employment
payable in accordance with the Company's normal payroll practices,
plus (ii) the annual bonus (if any) earned by the Executive for the
fiscal year (computed as though the Executive had remained employed
through the end of such fiscal year) multiplied by a fraction, the
number of which is the number of calendar months in the current fiscal
year to begin before the Executive's termination of employment and the
denominator of which is twelve (12), payable at the time and in the
manner specified in the applicable bonus plan. The payments described
in this section 4.4.2 (a) shall not commence until the release
referred to in section 4.3.2.2. becomes irrevocable.

(b) a lump sum payment equal to any unpaid bonuses or other
compensation earned for periods completed prior to the
<PAGE>

Executive's termination of employment, the payment of which is
contingent on the Executive's continued employment through a date that
is after the date of his termination of employment. This payment shall
be made at the time and in the manner prescribed by law, but in any
event within five (5) business days after the Executive's termination
of employment.

(c) for a period of one year after termination of employment,
direct payment by the Company to the carrier of the premiums due for
any health insurance continuation coverage elected by the Executive
under the Company group health plans pursuant to the Consolidated
Budget Reconciliation of 1985.

ARTICLE V -- RESTRICTIVE COVENANTS

5.1 Proprietary Information.

together with all copies thereof (in whatever medium recorded) belonging to
the Company or any Affiliate thereof or any of their respective successors
or assigns.

5.2 Non-Competition. During the Employment Term and any extensions thereof,
and, only if the Executive's employment hereunder is terminated due to the
Company's discharge of the Executive for Cause, or the Executive's voluntary
resignation from his employment hereunder without Good Reason, for two years
thereafter, the Executive agrees, and shall cause each Person Controlled by him
to agree, that any such Person shall not, directly or indirectly, through any
Person Controlled by the Executive, in any form or manner on a worldwide basis:
(a) engage in any activities competitive with the business of the Company and
its Affiliates for his or their own account or for the account of any other
Person, or (b) become interested in any Person engaged in activities competitive
with the business of the Company and its Affiliates as a partner, shareholder,
member, principal, agent, employee, trustee, consultant or in any other
relationship or capacity; provided, however, that Executive may own, directly or
indirectly, solely as a passive investment, securities of any Person if the
Executive (x) is not a Person in Control of, or a member of a group that
Controls, such Person and (y) does not, directly or indirectly, own 5% or more
of any voting class of securities of such Person.

5.3 Non-Solicitation. During the Employment Term, any extensions thereof
and for a period of two years thereafter, the Executive will not, directly or
indirectly, use proprietary knowledge or information relating to the Company or
its Affiliates obtained during the course of Executive's employment with the
Company with the intention to, or which a reasonable person would construe to
(a) interfere with or disrupt any present or prospective relationship,
contractual or otherwise, between the Company or its Affiliates and any
customer, supplier, employee, consultant or other person having business
dealings with the Company or its Affiliates, or (b) employ or solicit the
employment or engagement by others of any employee or consultant of the Company
or its Affiliates who was such an employee or consultant at the time of
termination of the Executive's employment hereunder or within one year prior
thereto.

5.4 Non-Disclosure. Except with the prior written consent of the Company in
each instance or as may be reasonably necessary to perform the Executive's
services hereunder, the Executive shall not disclose, use, publish, or in any
other manner reveal, directly or indirectly, at any time during or after the
Employment Term, any Confidential Information relating to the Company or any
Affiliate thereof acquired by him prior to, during the course of, or incident
to, his employment hereunder. In the event Executive is required (by oral
questions, interrogatories, requests for information or documents in legal
proceedings, subpoenas, civil investigative demand or similar process) to
disclose any such Confidential Information, the Executive shall provide the
Company with prompt written notice of such requirement so that the Company may
seek a protective order or other appropriate remedy and/or waive compliance with
the provisions of this Section. If, in the absence of such a protective order or
other remedy or receipt of a waiver by the Company, the Executive is nonetheless
advised by his legal counsel that he is legally compelled to disclose such
Confidential Information, the Executive may, without liability hereunder,
disclose only that portion of such Confidential Information which such counsel
advises in writing is legally required to be disclosed.
<PAGE>

5.5 Reasonable Limitations. Executive acknowledges that given the nature
of the Company's business the covenants contained in this Article V contain
reasonable limitations as to time, geographical area and scope of activity to be
restrained, and do not impose a greater restraint than is necessary to protect
and preserve the Company's business and to protect the Company's legitimate
business interests. If, however, this Article V is determined by any court of
competent jurisdiction or any arbitrator to be unenforceable by reason of its
extending for too long a period of time or over too large a geographic area or
by reason of its being too extensive in any other respect, or for any other
reason, it will be interpreted to extend only over the longest period of time
for which it may be enforceable and/or over the largest geographical area as to
which it may be enforceable and/or to the maximum extent in all other aspects as
to which it may be enforceable, all as determined by such court or arbitrator in
such action.

5.6 Remedies for Breach. Executive acknowledges that the legal remedies
for breach of the protective covenants hereunder are inadequate and therefore
agrees that, in addition to all of the remedies available to the Company in the
event of a breach or a threatened breach of any covenant contained in this
Article V, the Company may: (i) obtain temporary, preliminary, and permanent
injunctions and any other appropriate equitable relief against any and all such
actions, (ii) cease as of the date of such breach or threatened breach any and
all further payments to Executive pursuant to this Agreement and (iii) recover
from Executive monetary damages to the Company or any Affiliate arising from
such breach or threatened breach and all costs and expenses (including
reasonable attorneys' fees) incurred by the Company or any Affiliate in the
enforcement of such protective covenants.

5.7 Extension of Limitation Period. The parties acknowledge that if
Executive violates any of the protective covenants in this Article V and the
Company brings legal action for injunctive, damages or other relief hereunder,
the Company shall, as a result of the time involved in obtaining the relief, be
deprived of the full benefit of these protective covenants. Accordingly, the
applicable limitation period shall be deemed to have the full duration of the
period stated therein, computed from the date relief is granted, but reduced by
the time between the period when the restriction began to run and the date of
the first violation of the covenant by Executive.

5.8 Affiliates of the Company. The provisions of this Article V shall
benefit the business and proprietary rights of the Company's Affiliates and
shall be enforceable against Executive by each of such Affiliates as third party
beneficiaries.

5.9 Survival of Protective Covenants. Each covenant on the part of
Executive contained in this Article V shall be construed as an agreement
independent of any other provision of this Agreement, unless otherwise indicated
herein, and shall survive the termination of Executive's Employment under this
Agreement, and the existence of any claim or cause of action of Executive
against the Company, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Company of such covenant.

ARTICLE VI -- DISPUTE RESOLUTION

6.1 Arbitration. Any dispute, controversy or claim, at any time arising
from or relating to this Agreement, or the breach, termination or invalidity
thereof (other than any
<PAGE>

dispute, controversy or claim made by the Company pursuant to Article V, which
may, at the option of the Company, be submitted to any court of competent
jurisdiction) shall be referred to final and binding arbitration by a panel of
three arbitrators selected according to the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association (but not held under
its auspices). In the event the arbitrator selected by the Executive and the
arbitrator selected by the Company cannot, within thirty (30) days after the
appointment of both, agree on a third arbitrator, he or she shall be selected by
a United States District Court Judge sitting in the United States District Court
for the Southern District of New York. The place of arbitration shall be New
York, NY. Any arbitral award may be entered as a judgment in any court of
competent jurisdiction.

ARTICLE VII -- GENERAL PROVISIONS

If to the Executive: [ ]

[address]

with copy to: [ ]

If to the Company: IPC Information Systems, Inc.
Wall Street Plaza
88 Pine Street - 15th Floor
New York, NY 10005
Attn: Chairman of the Board
Fax No.: (212) 858-7959

with copy to: [ ]

or to such other address as the party to whom notice is given may have
previously furnished to the other parties hereto in writing in the manner set
forth above.

7.2 Entire Agreement. This Agreement shall constitute the entire agreement
between the Executive and the Company with respect to the Company's employment
of the Executive and supersedes any and all prior agreements and understandings,
written or oral, with respect thereto.
<PAGE>

7.3 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only by (a)
an instrument in writing and signed by the party against whom such amendment or
waiver is sought to be enforced, and (b) in the case of the Company, such
amendment or waiver also must be duly authorized by an appropriate resolution of
the Board.

7.4 Successors and Assigns. The Company shall have the right to assign
this Agreement. The personal services of the Executive are the subject of this
Agreement and no part of his rights or obligations hereunder may be assigned,
transferred, pledged or encumbered by the Executive. This Agreement shall inure
to the benefit of, and be binding upon (a) the parties hereto, (b) the heirs,
administrators, executors and personal representatives of the Executive and (c)
the successors and assigns of the Company as provided herein.

7.5 Governing Law. This Agreement, including the validity hereof and the
rights and obligations of the parties hereunder, and all amendments and
supplements hereof and all waivers and consents hereunder, shall be construed in
accordance with and governed by the laws of the State of New York without giving
effect to any conflicts of law provisions or rule, that would cause the
application of the laws of any other jurisdiction.

7.6 Severability. If any provisions of this Agreement as applied to any
part or to any circumstance shall be adjudged by a court to be invalid or
unenforceable, the same shall in no way affect any other provision of this
Agreement, the application of such provision in any other circumstances or the
validity or enforceability of this Agreement.

7.9 Captions. The headings and captions used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement.

7.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

Agreement set forth the aggregate compensation and benefits payable to the
Executive for all services to the Company, its Affiliates and all of their
respective direct or indirect subsidiaries and affiliates.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.

[EXECUTIVE]

IXnet, Inc.

By:

Name:

Title:

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED AND
COMBINED BALANCE SHEETS AND CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
OF THE COMPANY AS OF SEPTEMBER 30, 1999 AND THE YEAR THEN ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<CAPTION>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 39,020,000
<SECURITIES> 54,857,000
<RECEIVABLES> 19,932,000
<ALLOWANCES> (2,108,000)
<INVENTORY> 0
<CURRENT-ASSETS> 111,141,000
<PP&E> 105,144,000
<DEPRECIATION> (24,974,000)
<TOTAL-ASSETS> 248,038,000
<CURRENT-LIABILITIES> 52,781,000
<BONDS> 0
0
0
<COMMON> 511
<OTHER-SE> (122,868,489)
<TOTAL-LIABILITY-AND-EQUITY> 248,038,000
<SALES> 73,615,000
<TOTAL-REVENUES> 73,615,000
<CGS> 0
<TOTAL-COSTS> (125,126,000)
<OTHER-EXPENSES> 336,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,999,000)
<INCOME-PRETAX> (58,174,000)
<INCOME-TAX> (1,293,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (59,467,000)
<EPS-BASIC> (1.35)
<EPS-DILUTED> (1.35)

</TABLE>