<PAGE>
As Filed with the Securities and Exchange Commission on July 2, 1999
Registration No. 333-79079
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO THE
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------
IXnet, Inc.
(exact name of registrant as specified in its certificate of incorporation)
------------
<TABLE>
<S> <C> <C>
Delaware 4813 13-4060000
(IRS Employer Identification
(state or other jurisdiction (Primary Standard No.)
of incorporation or
organization) Classification Code Number)
</TABLE>
Wall Street Plaza
88 Pine Street
New York, New York 10005
(212) 412-6400
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------
David A. Walsh
Chief Executive Officer
IXnet, Inc.
Wall Street Plaza
88 Pine Street
New York, New York 10005
(212) 412-6400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------
Copies to:
<TABLE>
<S> <C>
Thomas N. Talley, Esq. Michael A. Conza, Esq.
Mark I. Sokolow, Esq. Testa, Hurwitz & Thibeault, LLP
Thacher Proffitt & Wood 125 High Street
Two World Trade Center Boston, Massachusetts 02110
New York, New York 10048 (617) 248-7000
(212) 912-7400
</TABLE>
------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by U.S. federal securities laws to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the SEC relating to these securities has been +
+declared effective by the SEC. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION - JULY 2, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
, 1999
[Logo]
IXnet
7,500,000 Shares of Common Stock
- --------------------------------------------------------------------------------
The Offering:
IXnet:
. We provide highly . We are offering to
reliable, secure the public
and fully managed 7,500,000 shares of
communications our common stock.
services to the
worldwide financial
community over our
global Extranet. . The underwriters
have an option to
purchase an
additional
. IXnet, Inc. 1,125,000 shares
88 Pine Street from us to cover
New York, New York over-allotments.
10005
(212) 412-6400
Proposed Symbol & . This is our initial
Market: public offering,
and no public
. IXNT/Nasdaq market currently
National Market exists for our
shares. We
anticipate that the
initial public
offering price will
be between $18.50 -
$21.50.
. We plan to use the
proceeds from this
offering to invest
in the expansion of
our global
Extranet. We may
also use these
proceeds for
possible future
acquisitions,
strategic alliances
or investments in
property or assets
for our business.
. Closing: , 1999.
<TABLE>
<CAPTION>
---------------------------------------------------
Per Share Total
---------------------------------------------------
<S> <C> <C>
Public offering price, estimated: $ $
Underwriting fees:
Proceeds to IXnet:
---------------------------------------------------
</TABLE>
This investment involves risk. See "Risk Factors" beginning on page .
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
Joint Book-Running Managers
Donaldson, Lufkin & Jenrette Salomon Smith Barney
--------
Merrill Lynch & Co.
First Union Capital Markets Corp.
DLJdirect Inc.
<PAGE>
[Inside front cover: A statement at the top right of the
diagram reads, "The Financial Industry Extranet." Graphic
consisting of a cloud encircling the text "IXnet Global
Extranet." Surrounding the cloud are IXnet's target customer
groups identified by text with the IXnet content center with
news, transactions, quotes and video at the bottom center of
the cloud. Starting from the top and proceeding clockwise the
customer groups are: electronic trading firms, news & research
providers, investment banks, commodities/futures trading
firms, commercial banks, inter-dealer brokers, asset
managers/hedge funds, exchanges, broker-dealers and real time
content providers]
[Inside front cover fold-out: Map of the world with the names
and location of each of the 39 cities in which IXnet has
points of presence. Lines representing the Extranet connect
the cities.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary......................................................... 1
Risk Factors............................................................... 7
Forward-Looking Statements................................................. 15
IXnet, Inc................................................................. 16
Use of Proceeds............................................................ 18
Dividend Policy............................................................ 18
Capitalization............................................................. 19
Dilution................................................................... 20
Selected Combined and Consolidated Financial Data.......................... 21
Unaudited Pro Forma Combined and Consolidated Financial Information........ 23
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 27
Business................................................................. 40
Management............................................................... 61
Principal Stockholders................................................... 71
Certain Relationships and Related Transactions........................... 73
Description of Capital Stock............................................. 78
Shares Eligible for Future Sale.......................................... 79
Underwriting............................................................. 82
Legal Matters............................................................ 84
Experts.................................................................. 84
Additional Information................................................... 84
Index to Financial Statements............................................ F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company, the common stock we are offering and the
financial statements and notes to those statements that appear elsewhere in
this prospectus. We will refer to IXnet, Inc. and its subsidiaries using
"IXnet," "we," "us" and "our." We will refer to our parent company, IPC
Information Systems, Inc., and its subsidiaries, as "IPC." IPC is the wholly-
owned subsidiary of IPC Communications, Inc., whose common stock is traded on
the American Stock Exchange under the symbol IPI.
IXnet
Our Business and Services
IXnet is a leading provider of communications services to the worldwide
financial services community. We have built and operate the IXnet Extranet, a
global seamless communications network connecting financial services firms and
their business partners, as well as multiple offices within the same firm.
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 (1) managed voice and data services, (2) virtual
private network services and (3) turnkey 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.
Our on-net customers receive the following benefits by connecting to our
Extranet:
. access to our high performance global network that connects over 480
financial services firms;
. 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 communications, interaction among
its members and timely access to industry-related information to conduct
business. As a result, highly reliable communications services are mission-
critical to this community. Based on an industry survey and our experience, we
estimate that the market for information and communications services to the
worldwide financial services community is at least $25 billion annually and is
growing by 15% per year.
We believe our Extranet provides a unique value proposition, enabling these
firms 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, or CANs, on our customers' premises. Once we have
installed a CAN at the customer site, we refer to the customer as being on-net.
1
<PAGE>
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 (1) customers
broader accessibility to directly connect to other on-net users, (2) quicker
delivery of dedicated communications links between firms, (3) greater cost-
efficiencies to end-users for on-net communications and (4) higher performance
communications among on-net customers.
We believe that our growing customer base 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 34
countries around the world, including New York, Chicago, Toronto, London,
Frankfurt, Paris, Zurich, Hong Kong, Tokyo, Sydney and Singapore. Our Extranet
uses advanced networking technologies such as IP and ATM. It is designed to
maximize performance and reliability through features such as redundant,
dedicated fiber optic facilities, strategically located network operations
centers, or NOCs, and geographically distributed physical points of presence,
or POPs. In addition, we have three data centers where we provide hosting for
content providers and manage servers and other equipment for customers who have
outsourced their network applications to us. We currently have over 480
customers including the following:
<TABLE>
<CAPTION>
Broker-Dealers/ Asset Managers/ Inter-dealer
Investment Banks Hedge Funds Brokers Trading Firms
<S> <C> <C> <C> <C>
Bankers Trust Goldman, Sachs Charles Schwab Cantor Fitzgerald AIG Trading
Barclays Bank J.P. Morgan Fidelity Management Eurobrokers Amerex Petroleum
Bear Stearns Lehman Brothers Janus Exco CHOICE! Energy LP
CIBC Oppenheimer Merrill Lynch Moore Capital Garban ED&F Mann
Chase Manhattan Bank Morgan Stanley Dean Witter Robertson Stephens Harlow Butler FIMAT USA
Citibank NationsBanc Montgomery Sanford C. Bernstein Liberty Orion Energy
Deutsche Bank NatWest Securities Schroder MW Marshalls Power Merchants
Donaldson, Lufkin PaineWebber Soros Fund Management Natsource PVM Oil
& Jenrette Prudential Securities State Street Research Prebon Yamane Sempra Energy
Dresdner Bank Salomon Smith Barney Wellington Management Tradition NorthAmerica Spectron Energy
First Union
</TABLE>
- --------------------------------------------------------------------------------
In addition to the customers listed above, we also host and deliver data
applications on behalf of over 30 content providers including First Call, News
Edge, Gov PX, IDEA and NYSE.
Our 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 . Further leverage IPC's installed
first to offer a global dedicated base
communications network exclusively
to the financial services
community . Further penetrate our existing
customer base
. Rapidly deploy CANs . Expand portfolio of focused
service offerings
. Accelerate network expansion
. Pursue strategic acquisitions
. Aggressively add content providers
to our Extranet
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered.............. 7,500,000 shares
Common stock outstanding after the 50,600,000 shares or 51,725,000 shares
offering......................... assuming the underwriters exercise their
over-allotment option in full.
Common stock to be held by IPC
immediately after this offering.. 43,100,000 shares
Use of proceeds................... We will use the proceeds from this offering
primarily to finance the continued
deployment and expansion of our Extranet.
Proceeds from the offering may also be used
for possible future acquisitions, strategic
alliances, or investments in property or
assets for our business. See "Use of
Proceeds."
Proposed Nasdaq National Market IXNT
symbol...........................
</TABLE>
------------
The shares of common stock outstanding after this offering exclude 7,053,409
shares of common stock reserved for issuance under our stock option plan, of
which 6,530,184 shares are subject to outstanding options at an exercise price
of $13.96 per share, which are not exercisable for two and a half years,
subject to certain exceptions.
------------
Our principal executive offices are located at Wall Street Plaza, 88 Pine
Street, 6th Floor, New York, New York 10005 and our telephone number is (212)
412-6400. Our e-mail address is ixnet [email protected]. Our World Wide Web
address is www.ixnet.com. Information contained in our Web site does not
constitute part of this prospectus.
The following are the trademarks and service mark of IXnet: IXPrime(TM);
IXGlobal(TM); Trade24(TM); IXLink(TM); DigiHoot(TM); MetroLink SM and
Liquidity(TM). This prospectus also refers to trademarks, trade names and
service marks of other companies. Each trademark, trade name or service mark of
any other company appearing in this prospectus belongs to its holder.
3
<PAGE>
Summary Financial and Other Data
The following summary combined and consolidated balance sheet data as of
March 31, 1999 and statement of operations and other operating data for the
years ended September 30, 1996, 1997 and 1998 and for the six months ended
March 31, 1998 and 1999 have been derived from our Combined and Consolidated
Financial Statements included elsewhere in this prospectus. The summary
unaudited pro forma combined and consolidated statement of operations and other
operating data for the year ended September 30, 1998 and for the six months
ended March 31, 1999 have been derived from the unaudited pro forma combined
and consolidated financial information included elsewhere in this prospectus.
The unaudited balance sheet data as of March 31, 1999, as adjusted, gives
effect to this offering and the estimated net proceeds as of March 31, 1999.
The unaudited results of operations for the six months ended March 31, 1999 may
not be indicative of the results to be expected for the full year.
IPC acquired MXNet Inc. in February 1998. Our subsidiary, International
Exchange Networks, Ltd., acquired Saturn Global Network Services Holdings
Limited and its subsidiaries in December 1998. In connection with this
offering, IPC contributed MXNet to International Exchange Networks, and IPC
contributed International Exchange Networks to us. The historical results of
operations for IXnet for the year ended September 30, 1998 and for the six
months ended March 31, 1999 include the consolidated results of operations of
International Exchange Networks and its subsidiaries combined with the results
of operations of MXNet from February 13, 1998. Additionally, the historical
results for the six months ended March 31, 1999 include the results of
operations of Saturn from December 18, 1998.
The pro forma information contained in the following table for the year
ended September 30, 1998, represents the historical financial statements of
IXnet giving effect to the MXNet and the Saturn acquisitions as if they
occurred on October 1, 1997 and includes adjustments for (a) the results of
operations of MXNet for the period from October 1, 1997 to the date of
acquisition, and the results of operations of Saturn for the year ended July
31, 1998, (b) amortization of the goodwill resulting from the MXNet and the
Saturn acquisitions from October 1, 1997 to the date of acquisition, (c)
interest expense related to borrowings for the Saturn acquisition, (d) the net
reduction in interest resulting from the March 31, 1999 capitalization of $73.0
million of the note payable to parent and change in the related interest rate
as if it had occurred on October 1, 1997 and (e) the tax effect of such
adjustments. See "IXnet, Inc."
The pro forma information contained in the following table for the six
months ended March 31, 1999, represents the historical financial statements of
IXnet giving effect to the Saturn acquisition as if it occurred on October 1,
1997 and includes adjustments for (a) the results of operations of Saturn for
the period from October 1, 1998 to the date of acquisition, (b) amortization of
the goodwill resulting from the Saturn acquisition from October 1, 1998 to the
date of acquisition, (c) interest expense related to borrowings for the Saturn
acquisition, (d) the net reduction in interest resulting from the March 31,
1999 capitalization of $73.0 million of the note payable to parent and change
in the related interest rate as if it had occurred on October 1, 1997 and (e)
the tax effects of such adjustments.
4
<PAGE>
The information contained in the following table should be read in
conjunction with "Selected Combined and Consolidated Financial Data," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," our Combined and Consolidated Financial Statements and
related notes, the Financial Statements of MXNet and related notes, the
Consolidated Financial Statements of Saturn and related notes, and the
unaudited pro forma combined and consolidated financial information and related
notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended September 30, Six Months Ended March 31,
--------------------------------------- -------------------------------
1996 1997 1998 1998 1998 1999 1999
------- -------- --------- --------- --------- --------- ---------
Actual Pro forma Actual Pro forma
---------------------------- --------- -------------------- ---------
(In thousands, except per share amounts and other data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $ 3,459 $ 17,838 $ 35,853 $ 62,170 $ 15,318 $ 32,611 $ 37,370
Cost of revenue
(exclusive of
depreciation and
amortization shown
separately below)...... 4,406 19,823 35,652 56,957 15,413 30,934 34,988
Sales and marketing
expense................ 1,057 4,172 8,455 8,455 3,213 4,878 4,884
General and
administrative
expense................ 2,868 3,439 5,001 11,498 2,331 2,815 4,061
Depreciation and
amortization........... 998 3,460 9,060 16,730 2,924 9,508 10,830
Special charge(1)....... -- -- 1,350 1,350 -- -- --
------- -------- --------- --------- --------- --------- ---------
Loss from operations... (5,870) (13,056) (23,665) (32,820) (8,563) (15,524) (17,393)
Interest expense, net... (247) (2,040) (3,527) (2,496) (1,521) (4,318) (2,300)
Other income (expense),
net.................... -- 117 26 26 3 (18) 5
------- -------- --------- --------- --------- --------- ---------
Loss before provision
for income taxes...... (6,117) (14,979) (27,166) (35,290) (10,081) (19,860) (19,688)
Provision for income
taxes.................. 62 229 473 563 171 257 271
------- -------- --------- --------- --------- --------- ---------
Net loss............... $(6,179) $(15,208) $ (27,639) $ (35,853) $ (10,252) $ (20,117) $ (19,959)
======= ======== ========= ========= ========= ========= =========
Basic and diluted loss
per share.............. $ (.14) $ (.35) $ (.64) $ (.83) $ (.24) $ (.47) $ (.46)
======= ======== ========= ========= ========= ========= =========
Basic and diluted
weighted average number
of common shares
outstanding............ 43,100 43,100 43,100 43,100 43,100 43,100 43,100
======= ======== ========= ========= ========= ========= =========
Cash Flow and Other
Operating Data:
Cash used in operating
activities............. $(6,240) $(14,669) $ (15,093) $ (6,166) $ (11,607)
Cash used in investing
activities............. (4,858) (3,495) (13,772) (5,680) (42,396)
Cash provided by
financing activities... 7,591 16,604 29,829 11,934 57,440
EBITDA(2)............... (4,872) (9,596) (14,605) $ (16,090) (5,639) (6,016) $ (6,563)
Capital expenditures.... 4,858 3,495 12,930 5,680 7,683
Other Data: (at period
end)
Number of POPs.......... 6 13 21 17 73
Number of CANs.......... 41 207 488 377 1,010
Number of customer
accounts(3)............ 45 131 248 178 456
</TABLE>
(footnotes on following page)
5
<PAGE>
<TABLE>
<CAPTION>
March 31, 1999
-----------------------
Actual As Adjusted(4)
-------- --------------
(In thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................... $ 4,061 $141,461
Total assets............................................ 125,444 262,844
Note payable to parent(5)............................... 25,522 25,522
Notes payable, net of current portion................... 7,031 7,031
Lease obligations, net of current portion............... 13,907 13,907
Total stockholder's equity.............................. 42,255 179,655
</TABLE>
- -------------------
(1) Special charge represents bonus payments and payments for cancellation of
IPC stock options relating to our employees in connection with the merger
of IPC and Arizona Acquisition Corp. in 1998. See Note 5 of the Notes to
our Combined and Consolidated Financial Statements, included elsewhere in
this prospectus.
(2) EBITDA represents earnings before interest, income taxes, depreciation and
amortization expenses. It is determined by deducting depreciation and
amortization expense from our loss from operations. 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.
(3) Generally, multiple contractual relationships with a single legal entity
are considered a single customer account. However, we are not always aware
of and, accordingly, do not always reflect combinations, mergers and
consolidations between our customers.
(4) Adjusted to reflect the sale of 7,500,000 shares of common stock at an
assumed initial public offering price of $20.00 per share, net of
underwriting discounts and offering expenses.
(5) The March 31, 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.
6
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information in
this prospectus before deciding to invest in shares of our common stock.
Our limited operating history and unproven demand for our Extranet services
makes evaluating our business and future prospects difficult.
We started our business in June 1995 as International Exchange Networks
Ltd., and, in connection with this offering, we were reorganized into a newly
formed Delaware corporation, IXnet, Inc., on May 4, 1999. We have only a
limited operating history on which you can evaluate our business and prospects.
The market for our Extranet services is in the early stages of development. Our
current and future competitors are likely to introduce competing services and
we cannot accurately predict the rate at which our operations will grow. In
order for our business to succeed, we must:
.accelerate our network expansion;
.expand and further penetrate our customer base;
.maintain and enhance the IXnet brand;
.successfully implement and execute our business and marketing strategy;
.continue to develop and upgrade our technology and global network
infrastructure;
.expanded our portfolio of service offerings to meet the needs of a
changing market;
.provide superior customer service;
.respond to competitive developments; and
.attract, integrate, retain and motivate qualified personnel.
We may not be successful in accomplishing any of these things, and our
failure to do so could have a material adverse effect on our business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
We have experienced significant operating losses and may not be able to achieve
profitability.
We have had net losses since we began operations and we may never become or
remain profitable or generate positive cash flow from operations. We had net
losses of $15.2 million for the year ended September 30, 1997 and $27.6 million
for the year ended September 30, 1998. Net loss for the six months ended March
31, 1999 was $20.1 million. We expect to continue to incur significant losses
and experience negative cash flow for the foreseeable future. We intend to
rapidly and substantially increase spending to expand our Extranet, but our
revenues may not increase as a result of our increased spending. If revenues
grow more slowly than we anticipate, or if operating expenses exceed our
expectations, we may not become profitable. While revenues have grown in recent
periods, this growth is attributable, in part, to the acquisitions we made, and
this growth may not continue.
IPC's control of us may conflict with your interests as a stockholder.
IPC controls and will continue to control us. IPC's interests may conflict
with your interests as a stockholder, and the price of our common stock may be
adversely affected as a result. IPC currently owns all of the issued and
outstanding shares of our common stock. At the completion of this offering, IPC
will own 43,100,000 shares or 85.2% of our common stock without giving effect
to the over-allotment option. Thus, IPC will be able to control our management
and affairs and all matters submitted to our stockholders for approval,
including the election and removal of directors, and any merger, consolidation
or sale of all or substantially all of our assets.
7
<PAGE>
IPC's debt obligations restrict our ability to raise capital. Our access
to alternative sources of capital is significantly limited. We will require
additional funds to finance the expansion and development of our business
as well as fund operating losses, but our ability to raise such funds is
significantly limited by agreements entered into by IPC which are also
binding upon us. IPC has issued debt securities to the public under an
indenture and also has a credit agreement. As a subsidiary of IPC and as a
guarantor under IPC's credit agreement, we are subject to the restrictions
and covenants under the IPC indenture and credit agreement. These
restrictions will, among other things, limit our ability to (1) incur
indebtedness, (2) pay dividends or make other distributions, (3) engage in
sale and leaseback transactions, (4) create liens, (5) sell our assets or
(6) issue, sell or repurchase our stock or other equity interests. See
"Certain Relationships and Related Transactions--Credit Agreement
Obligations."
There are restrictions on our ability to use the proceeds of this
offering. Under an inter-company agreement with IPC, we have agreed to
comply with the covenants and the other restrictions, limitations and
obligations under the IPC indenture which restricts our use of the proceeds
from this offering to fund operating losses, working capital or debt
service. See "Use of Proceeds."
We will depend on IPC for our funding needs. We depend, and after this
offering will continue to depend, on IPC to fund our operating losses,
working capital and debt service. Under the inter-company agreement, IPC
has agreed to continue to provide us with ongoing financing and to obtain
letters of credit on our behalf, from time to time, upon reasonable notice
from us. The amount available under this credit facility 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.
However, IPC may not be able to provide us with a sufficient source of
funds under its credit agreement or otherwise to fund our operating losses,
working capital needs or debt service. IPC's failure to advance funds to us
in a timely fashion could have a material adverse effect upon our growth
and results of operations, which could adversely affect the price of our
common stock. The extent of IPC's leverage and its financial condition
could have important consequences to our future operations, including but
not limited to:
. increasing our vulnerability to general adverse economic and
industry conditions;
. limiting our ability to obtain additional financing to fund future
working capital, debt service, operating losses and other general
corporate requirements;
. limiting our flexibility in reacting to changes in our business and
the industry in which we compete; and
. placing us at a competitive disadvantage compared to better
capitalized competitors.
We have agreed to remain a consolidated entity with IPC. We have agreed
with IPC that, until November 2001 at the earliest, we will not take any
action that would prohibit us and IPC from being treated as a consolidated
taxable entity for federal and state income tax purposes. As a result, we
may not issue any stock that would reduce IPC's ownership of us to below
80% until November of 2001 at the earliest. This may preclude us from
raising needed capital or pay for acquisitions with our stock and could
have a negative impact on our financial condition and results of
operations.
We will have substantial ongoing relationships with IPC. IPC has provided
and is expected to continue to provide us with many financial,
administrative and operational services and related support functions,
including field service, human resources and legal services. See "Certain
Relationships and Related Transactions." If IPC unexpectedly stops
providing these services for any reason, we could face significant
challenges and costs in assuming these services or finding an alternative
to IPC. This could impair our operations and could harm our financial
results. Our marketing and business plan also relies, in part, on taking
advantage of IPC's established presence as a supplier of telecommunications
hardware to the financial services community. If IPC ceases doing business
or changes its focus, we may have to increase marketing expenditures to
raise our market presence. Our legal counsel, Thacher Proffitt & Wood, is
also counsel to IPC. Consequently, we do not have legal representation
independent from IPC.
8
<PAGE>
We have pledged our assets to support IPC's borrowing and obligations under
its revolving credit agreement.
All of our and our subsidiaries' capital stock and real and personal
property are pledged as collateral under the credit agreement. If IPC or any
of its subsidiaries, including us, breaches the revolving credit agreement,
the lenders may pursue us for payment and take any or all of our assets,
including the stock of our operating subsidiaries, in order to satisfy IPC's
obligations. Any such actions could have a material adverse effect upon our
financial condition and results of operations. In addition, in the event of a
foreclosure on IPC's assets, the administrative agent of the lenders could
force us to register the shares of our stock held by IPC for public sale,
which could adversely affect the price of our stock.
Our directors and our executive officers may have conflicts of interest
because of their relationships with IPC.
Five of our nine directors and four of our executive officers are also
directors and/or executive officers of IPC. These directors and executive
officers will have obligations to both companies and may have conflicts of
interest with respect to matters affecting us, such as acquisitions,
financings and other corporate opportunities that may be suitable for both us
and IPC. In order for our board of directors to approve these matters, the
approval of one or more of the IPC directors will be required.
Our directors and some of our executive officers own substantial amounts of
IPC stock and options on IPC stock. Such ownership could create, or appear to
create, potential conflicts of interest when directors and officers are faced
with decisions that could have different implications for us and IPC. See
"Certain Relationships and Related Transactions" and "Principal Stockholders."
Our growth will suffer if we cannot successfully expand our Extranet.
Our growth will suffer, and we may not be able to adequately meet the
demands of existing customers or have sufficient capacity to add new
customers, if we cannot effectively expand the capacity of our Extranet. This
will require significant expenditures for hardware and software, and will also
include the opening of one additional NOC, and additional POPs, in local
markets. Although we intend to aggressively add capacity over the next two
years, at times in advance of customer demand, our efforts may not be
successful. Effective expansion will require that we:
. anticipate and prepare for future demand;
. have access to sufficient capital; and
. locate and secure satisfactory sites for the NOC and additional POPs and
implement the buildout of these sites, all of which may require
significant lead time.
Because the success of our business is dependent on the efficient and
uninterrupted operation of our Extranet, a systems failure or breach of
security could cause a significant disruption to our business.
We believe our reputation for providing reliable and efficient network
services is critical to our future success. Our Extranet and data centers are
subject to:
.damage from human error and tampering; .breaches of security;
.natural disasters; .physical break-ins;
.fire; .telecommunications failures;
.power loss; .intentional acts of vandalism; and
.capacity limitations; .software defects;
.other factors that can cause
interruptions in service or
reduced capacity for our
customers.
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<PAGE>
Although we intend to use a portion of the proceeds of this offering to enhance
the redundancy of our Extranet, it is not now, nor will it ever be, fully
redundant. Despite precautions we have taken and plan to take, the occurrence
of a natural disaster, human tampering or other unanticipated problems could
result in interruptions in the services we provide to our customers, which
could subject us to loss of business that could have a negative impact on our
financial condition and results of operations.
We may not be able to successfully manage additional growth.
Our future success will depend in large part on whether we can improve our
operational, financial and accounting systems and expand, train and manage our
employees. We have experienced rapid growth that has placed significant demands
on our managerial, operational, financial and accounting resources. We intend
to continue to expand operations and expect to dedicate a substantial portion
of our financial and managerial resources to support our expansion. We will
also have to hire and train a sufficient number of suitably skilled employees.
Competition for qualified employees, particularly those with sales, marketing
or technical expertise is intense, and there is a limited number of persons
with relevant knowledge and experience. If we fail to manage our growth
effectively, our financial condition and results of operations could be
materially and adversely affected.
Because our revenues are derived primarily from the financial services
community, an economic downturn in the financial services industry could
adversely affect our business.
Almost all of our revenues are derived from, and our future success will be
dependent upon, sales to customers in the financial services community. If the
financial services industry suffers an economic downturn or other long-term
disruption, it is likely that we would experience a decline in revenues, which
would have a material adverse effect on our financial condition and results of
operations.
We depend on a small number of key customers.
Our two largest customers are currently Deutsche Bank and Optimark. The loss
of these customers, or a substantial reduction in the amount of services we
provide to them, could have a material adverse effect on our business and
results of operations. Deutsche Bank accounted for about 23% and Optimark
accounted for about 14% of our consolidated revenues in fiscal 1998. Deutsche
Bank accounted for about 11% and Optimark accounted for about 14% of our
consolidated revenues for the six months ended March 31, 1999. These customers
do not have long-term contracts or minimum volume commitments, and,
accordingly, they may not maintain their current volume of business with us.
Our management has broad discretion in the application of proceeds and may not
effectively invest the proceeds of this offering.
While we are subject to contractual restrictions on how we may use the net
proceeds of this offering, our board of directors and management have broad
discretion over how to use the proceeds. If we fail to manage the application
of the net proceeds of this offering effectively, our business, financial
condition and results of operations could be materially and adversely affected.
See "Use of Proceeds."
Our business strategy includes acquiring other businesses, but we may not be
able to identify and properly integrate acquisitions of other companies.
As a part of our business strategy, we intend to acquire other businesses.
We expect to face competition for acquisition candidates, which may limit the
number of acquisition opportunities and may lead to higher acquisition prices.
Also, we may not be able to identify, acquire or manage additional businesses
profitably or to successfully integrate any acquired businesses with our
business. Businesses that we acquire may have liabilities that we underestimate
or do not discover during our pre-acquisition investigations. Certain
liabilities, even if we do not expressly assume them, may be imposed on us as
the successor to the business. Further, each
10
<PAGE>
acquisition involves a number of other special risks that could cause the
acquired business to fail to meet our expectations. For example:
. the acquired business may not achieve expected results;
. we may not be able to retain key personnel of the acquired business;
. we may incur substantial, unanticipated costs, delays or other
operational or financial problems when we try to integrate the business
with our own;
. the transfer of required permits, authorizations or licenses may be more
difficult, time consuming or costly than we anticipated;
. our management's attention may be diverted; or
. our management may not be able to manage the combined entity effectively
or to make acquisitions and grow our business internally at the same
time.
We cannot predict the timing, size or success of any future acquisitions or
the associated capital requirements. In addition, we may not be able to obtain
acquisition financing when required, or such financing may only be available on
terms and conditions that are unacceptable to us. If we are unable to fund our
acquisition plans, our growth could be limited.
We may not be able to attract and retain key personnel we need to succeed.
Our success depends to a significant degree upon the continued contributions
of our senior management team and technical, marketing and sales personnel.
Although our key employees, such as Messrs. David Walsh and Charles Auster,
currently have employment agreements with us, they may voluntarily terminate
their employment with us at any time. See "Management--Employment Agreements."
If we lose the services of these persons or other key personnel, or if we are
unable to attract additional qualified personnel or retain them, our results of
operations, service development efforts and ability to expand our business may
be materially and adversely affected.
We have many competitors, and we may not be able to compete effectively against
them.
We have many global and regional competitors, including national and
international carriers. Many of our current and potential competitors have
greater financial, engineering, marketing and other resources than us. The
continuing trend toward business combinations and strategic alliances in the
communications industry may create significant new competitors or strengthen
existing competitors. Competitive pressures could require us to reduce the
price of our services which could have a material adverse effect on our
business, operating results and financial condition. In addition, in many non-
U.S. markets, we face competition from dominant local providers that have long
standing relationships with our target customers. See "Business--Competition."
Our international operations make us susceptible to global economic factors,
foreign tax law issues, international business practices and currency
fluctuations.
We currently have established offices and distributors to market and sell
our services in Europe and the Asia/Pacific region. Revenue from our
international operations accounted for $15.1 million, or 46.3% of total
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<PAGE>
revenue, for the six months ended March 31, 1999. Because this period only
includes approximately three months of Saturn results of operations and due to
our anticipated international expansion, we expect the percentage of our
revenues from international operations to increase in future periods. Our
international operations may be adversely affected by one or more of the
following:
.increased cost of enforcing contractual obligations;
.unique and unanticipated telecommunications regulatory issues;
.difficulties and costs of managing our foreign operations;
.limited protection for our intellectual property rights in some countries;
.currency exchange rate fluctuations;
.political and economic instability; and
.potentially adverse tax consequences.
Our international revenues are generally denominated in local currencies.
Many of our international customers have fixed price contracts between six to
twelve months. If inflation or a fluctuation in currency exchange rates
adversely affects our revenues, it may take us several months before we can
renegotiate certain customer contracts. We do not currently engage in currency
hedging activities; however, we may implement a program to mitigate foreign
currency risk in the future.
Our success depends on keeping up with rapid technological changes in
communications and network equipment.
The networking services and communications market in which we operate is
characterized by rapid technological change. In order to provide our customers
with value-added services on a cost effective basis, we need to keep abreast of
and adopt, where prudent, new technologies. The cost of new technologies may be
substantial, and, if we decide to forego or delay adoption of new technologies,
we may be at a competitive disadvantage.
The critical nature of our Extranet may subject us to liability claims.
Because our Extranet provides critical global communications links to key
members of the worldwide financial services community, we may be subject to
liability claims if our customers believe that our services have failed to
perform as intended. The security services that we offer in connection with our
global Extranet cannot assure complete protection from computer viruses,
breaches, break-ins, natural disasters and other disruptive problems. Although
we attempt to contractually limit our liability in such instances, the
occurrence of these problems may result in claims against us and potential
liability. These claims, regardless of their ultimate outcome, could result in
costly litigation. They could also have a material adverse effect on our
business and reputation and on our ability to attract and retain customers for
our services.
Changes in United States, state or international government regulations could
adversely affect our business.
We provide telecommunication services that are subject to extensive federal
and state regulation. The interpretation and enforcement of laws and
regulations by the regulatory authorities that administer them vary and could
limit our ability to provide certain communications services. The FCC and
relevant state Public Utility Commissions exercise extensive authority to
regulate ownership of transmission facilities, provision of services and the
terms and conditions under which our communications services are provided. In
addition, we are required by federal and state law and regulations to file
tariffs listing the rates, terms and conditions of the
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<PAGE>
services we provide. Any failure to maintain proper federal or state tariffs or
certifications or any finding by federal or state agencies that we are not
operating under permissible terms and conditions may result in an enforcement
action or investigation, either of which could have a material adverse effect
on us.
Most of the existing laws and regulations for telecommunications servces in
foreign countries were recently enacted. Consequently, there is very limited
guidance on the scope of the authority provided to us in many foreign
countries. Thus, an examination of our operations by a foreign regulatory or
governmental authority could result in a determination that we are not
operating in a manner consistent with existing law, regulations or licenses
issued to us. Such a determination could limit our ability to provide certain
communications services to or from that country and could result in substantial
fines, penalties or loss of our operating authority in such jurisdiction that
may have a material adverse effect on our business, results of operations and
financial condition.
We may be liable for the material our content providers distribute over our
Extranet.
The law relating to the liability of private network operators for
information carried on or disseminated through their networks is currently
unsettled. We may become subject to legal claims relating to the content
disseminated on our Extranet. For example, lawsuits may be brought against us
claiming that material on our Extranet which one of our customers relied on was
inaccurate. Claims could also involve matters such as defamation, invasion of
privacy and copyright infringement. Content providers operating private
networks have been sued in the past, sometimes successfully, based on the
content of material. If we have to take costly measures to reduce our exposure
to these risks, or are required to defend ourselves against such claims, our
business, financial condition and results of operations may be materially and
adversely affected.
Year 2000 problems could disrupt our business, reduce our profits and lower the
value of your stock.
Some computers, software and other equipment include programming code in
which calendar year data is stored as only two digits. As a result of this
programming design, some of these systems, including our systems and those of
third parties that we rely upon, could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. These
problems are commonly referred to as the Year 2000 problem.
The Year 2000 problem may affect our business in many ways including:
. Network equipment we have installed for on-net customers. Once
installed, our equipment may interact with other products of the
customer and operate on systems not under our control. These factors
could affect the performance of our Extranet and/or related services if
a Year 2000 problem exists in our customer's information technology
infrastructure.
. Internal infrastructure. The Year 2000 problem could affect computers,
software and other equipment that we use internally as well as divert
management's attention from ordinary business activities. In addition to
computers and related systems, the operation of our office and
facilities equipment, such as fax machines, photocopiers, telephone
switches, security systems, elevators and other common devices may be
affected by the Year 2000 problem.
. Customers/suppliers/third-party relationships. The Year 2000 problem is
currently placing a strain on organizations' information technology
budgets and resources. Some organizations may lack sufficient resources
to undertake the type of integration projects required to adequately
address the Year 2000 problem. It is possible that our customers,
suppliers or other third parties that we rely upon will not resolve any
or all of their Year 2000 problems on a timely basis.
We do not believe that it is possible to determine with complete certainty
that all Year 2000 problems affecting us will be identified or corrected in a
timely manner. We are in the process of developing contingency
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<PAGE>
plans to be implemented as part of our efforts to identify and correct Year
2000 problems that may affect our services; however, these plans are not yet
finalized. If we fail to identify and correct all Year 2000 problems affecting
our internal systems, or if we are forced to implement a contingency plan, our
business, financial condition or results of operations could be materially
adversely affected.
We strongly urge you to read about our Year 2000 efforts under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Impact of Year 2000."
Our use of proprietary technology may subject us to liability claims.
We could be subject to claims that we have infringed the intellectual
property rights of others. In addition, we may be required to indemnify our
global partners and customers for similar claims made against them. Any claims
against us could require us to spend significant time and money in litigation,
pay damages, develop new intellectual property or acquire licenses to
intellectual property that is the subject of the infringement claims.
Additional licenses, if required, may be costly or may not be available on
acceptable terms. If there are, intellectual property claims made against us,
they could materially and adversely affect our business, operating results and
financial condition.
We may not be able to protect our proprietary technology.
We may not be able to adequately protect our proprietary technology, and our
competitors may independently develop technologies that are substantially
equivalent or superior to our technology. It may be possible for a third party
to copy or otherwise obtain and use our services or technology without
authorization or to independently develop similar technology. This could
adversely affect our business, financial conditions and results of operations.
Our common stock may be subject to erratic price fluctuations.
From time to time, the stock market experiences significant price and volume
fluctuations, which may affect the market price of our common stock for reasons
unrelated to our performance. Recently, such volatility has particularly
impacted the stock prices of technology companies, frequently leading to costly
securities class action litigation. The price of our common stock may be
subject to significant fluctuations in response to numerous factors, including:
.variations in our annual or quarterly financial results or those of our
competitors;
. changes by financial research analysts in their estimates of our
earnings or our failure to meet such estimates;
. conditions in the economy in general or in the financial services,
Internet, communications and other technology industries;
.announcements of key developments by competitors;
.loss of key personnel;
. unfavorable publicity affecting our industry or us;
. adverse legal events affecting us;
. IPC's financial condition or public announcements made by IPC; or
. sales of our common stock by existing stockholders, particularly if such
sales are by our directors or officers.
The absence of an active public market for our common stock may make it
difficult for you to resell your shares at or above the offering price, and the
availability of significant amounts of common stock for sale could adversely
affect its market price.
Prior to this offering, there has been no public market for our common
stock, and an active public market for our common stock may not develop. The
initial public offering price for our common stock was determined
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<PAGE>
by negotiation between us and the representatives of the underwriters, and you
may be unable to resell your shares of common stock at or above the initial
public offering price.
IPC will own in the aggregate 43,100,000 shares, or 85.2% of our common
stock after the offering, or 83.3% if the underwriters exercise the over-
allotment option in full. If IPC sells a large portion of these shares on the
open market and at one time, our market price per share would likely decline.
You should read "Shares Eligible for Future Sale" for a more detailed
discussion of when and how many shares of our common stock may be sold after
this offering.
Purchasers of our common stock will incur immediate and substantial dilution.
The initial public offering price of the common stock is substantially
higher than the pro forma net tangible book value per share of the outstanding
common stock. As a result, you will incur immediate and substantial dilution of
$17.53 per share based upon an assumed initial public offering price of $20.00
per share. In the event we issue additional shares of common stock in the
future, you may experience further dilution. Furthermore, we have issued
options to purchase 6,530,184 shares of common stock at an exercise price equal
to $13.96 per share. To the extent such options are exercised, you will
experience further dilution.
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve substantial
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. You should read statements that contain these
words carefully, because they discuss:
. our future expectations;
. projections of our future results of operations or of our financial
condition; or
. other "forward-looking" information.
We believe that it is important to communicate our future expectations to
our investors. However, there may be events in the future that we are not able
to accurately predict or control. The factors listed in "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," as well as any cautionary language in this prospectus, provide
examples of risks, uncertainties and events that may cause our actual results
to differ materially from the expectations we describe in our forward-looking
statements. Before you invest in our common stock, you should be aware that the
occurrence of the events described in "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this prospectus could have a material adverse effect on our
business, operating results and financial condition.
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IXNET, INC.
Our subsidiary, International Exchange Networks Ltd., was incorporated in
March 1993 and commenced operations in June 1995. On June 23, 1995, IPC
acquired 80% of the stock of International Exchange Networks. By acquiring
International Exchange Networks, IPC sought to position itself as the premier
company with a portfolio of services and hardware tailored to address the
unique communications needs of the financial services community.
In February 1998, IPC acquired MXNet, a provider of market data distribution
services to content providers. In April 1998, in connection with the
recapitalization of IPC, IPC acquired the remaining 20% of the outstanding
stock of International Exchange Networks.
In December 1998, International Exchange Networks acquired Saturn, a
provider of managed, premium grade voice and data communications services to
financial services firms in Europe and the Asia/Pacific region.
On May 4, 1999, in connection with this offering, IXnet, Inc., a Delaware
corporation, was incorporated, and IPC contributed (1) MXNet to International
Exchange Networks and (2) International Exchange Networks to IXnet.
As of the date of this prospectus, we are a wholly-owned subsidiary of IPC
and we own all of the outstanding shares of common stock of International
Exchange Networks and its subsidiaries, MXNet and Saturn and its subsidiaries.
After this offering, IPC is expected to own 85.2% of our common stock.
IPC
IPC was established in 1973 and for the last 26 years has manufactured
telephone equipment specifically designed to perform in the demanding
environment of the financial trading community. IPC has grown to become a
leader in providing integrated telecommunications equipment and services that
facilitate the execution of transactions by the financial trading community.
IPC completed its initial public offering in October 1994. IPC was recently
reorganized into a holding company structure and became a wholly-owned
subsidiary of IPC Communications, Inc. on May 21, 1999. IPC Communications is
publicly traded on the AMEX under the symbol IPI.
IPC's major operating units are IXnet and:
Trading Systems. IPC's Trading Systems division provides sophisticated
turrets or turret systems, which consist of desktop appliances connected with
associated switching equipment and which provide highly reliable, non-blocking
voice communications for trading operations. These systems incorporate a
proprietary design, including many features designed to increase the trader's
productivity, and provide the high degree of reliability necessary due to the
time-sensitive nature of trading activity and the high potential opportunity
cost of a service outage. IPC has placed into service more than 100,000 turrets
worldwide. IPC estimates that it has the largest installed base of turrets in
the world, including a majority of the installed base of turrets in New York
City and a significant presence in other major financial centers including
London.
Information Transport Systems. IPC's I.T.S. division provides cabling
infrastructure, design, installation and maintenance services for high speed
voice and data networks, including local area networks, or LANs, wide area
networks, or WANs, and data connectivity applications. IPC's I.T.S. engineers
design and implement intelligent network infrastructures to provide
connectivity to a wide array of customer-owned devices. The I.T.S. division's
expertise includes network design, and the installation of all available
physical transport media, including copper, fiber optic and coaxial cable.
I.T.S. services also include project management for network infrastructure
upgrades and on-site, as well as on-call, technical support worldwide.
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MXNet
Through the acquisition of MXNet, we entered the business of distributing
market data for content providers. We operate a virtual warehouse where we host
the data of various content providers and then distribute such data to end-
users on behalf of the content providers. Our Extranet serves as a content-
neutral delivery system to the desktops of the financial services community.
This approach allows our data provider customers to display content in the
formats they desire. Because we often are willing to expand our Extranet to
reach additional end-users targeted by our content provider customers, we
believe our Extranet is more attractive than existing distribution networks of
competing content providers. As of March 31, 1999, we were aggregating data
from more than 30 sources, 13 of which were acquired as part of the MXNet
acquisition.
Saturn
Saturn is a U.K. holding company that owns communication network operating
subsidiaries in the United Kingdom, the United States, Hong Kong, Australia,
Japan and Singapore. Saturn provides selling managed premium grade voice and
data communication services to the financial services community, similar to
IXnet, but focused on Europe and the Asia/Pacific region.
Our Relationship with IPC
Our relationship with IPC has provided us with a level of credibility and an
entree into the financial services sector that other emerging communications
companies in our market sector do not have. Moreover, through our relationship
with IPC, we are able to provide turret-to-turret on-net connections to the
significant installed IPC customer base and integrate our CANs into IPC turret
systems so that we can rapidly provide IPC customers with on-net services. We
also coordinate our sales and marketing effort with the IPC sales effort,
thereby offering a complete hardware and network solution for the
communications needs of financial services firms.
In connection with this offering, we have entered into agreements with IPC
to govern the various interim and ongoing relationships between us. All of the
agreements with IPC were negotiated in the context of a parent-subsidiary
relationship. Accordingly, the terms of these agreements may be more or less
favorable to us than if they had been negotiated with unaffiliated third
parties. See "Risk Factors--IPC's control of us may conflict with your
interests as a stockholder," and "--We have pledged our assets to support IPC's
borrowings and obligations under its credit agreement" and "Certain
Relationships and Related Transactions" for a more detailed description of our
relationship and inter-company agreements with IPC.
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USE OF PROCEEDS
Our net proceeds from the sale of the 7,500,000 shares of common stock we
are offering are estimated to be $137.4 million. This is based upon an assumed
public offering price of $20.00 per share and after deducting the underwriting
fees and estimated offering expenses we will pay. If the underwriters exercise
the over-allotment option in full, our net proceeds will be approximately
$158.3 million.
We expect to use the net proceeds from this offering for continued
deployment and expansion of our global Extranet, including anticipated capital
expenditures of approximately $77.7 million in the 12 months following the
offering. In addition, we may use a portion of the net proceeds from this
offering for possible future acquisitions, strategic alliances or investments
in property or assets used in our business. We currently have no commitments or
agreements to make any acquisitions. Pending use of the net proceeds of this
offering, we intend to invest the net proceeds in short term U.S. investment
grade and government securities.
Under the indenture for IPC's senior discount notes, and as agreed to by us
in our inter-company agreement with IPC, within 12 months after completion of
our initial public offering, we must either (1) invest the net proceeds from
this offering in property or assets used in our business, or invest in a
company with a business similar or related to our business, or (2) enter into
an agreement to so invest the net proceeds within 12 months after entering into
such agreement. See "Risk Factors--IPC's control of us may conflict with your
interest as a stockholder," "--Restrictions on our ability to use the proceeds
of this offering" and "Certain Relationships and Related Transactions."
DIVIDEND POLICY
We have not paid, and do not 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 contractual limitations in
the revolving credit agreement and the indenture for IPC's senior discount
notes, to which we have agreed to comply under our inter-company agreement with
IPC. See "Certain Relationships and Related Transactions--Inter-Company
Agreement."
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CAPITALIZATION
The following table sets forth IXnet's capitalization as of March 31, 1999
on an actual basis and as adjusted to reflect our sale of 7,500,000 shares of
common stock at an assumed initial public offering price of $20.00 per share.
The capitalization information set forth in the table below is qualified by and
should be read in conjunction with the more detailed Combined and Consolidated
Financial Statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
---------------------
Actual As Adjusted
-------- -----------
(In thousands)
<S> <C> <C>
Cash and cash equivalents................................ $ 4,061 $141,461
======== ========
Current portion of notes payable......................... $ 4,941 $ 4,941
Current portion of capital leases........................ 4,885 4,885
Long-term debt, excluding current portion:
Note payable to parent................................. 25,522 25,522
Lease obligations...................................... 13,907 13,907
Notes payable.......................................... 7,031 7,031
-------- --------
Total long-term debt................................. 46,460 46,460
-------- --------
Stockholder's equity:
Common stock--$0.01 par value; 100,000,000 shares
authorized, actual and as adjusted; 43,100,000 issued
and outstanding, actual; 50,600,000 issued and
outstanding, as adjusted.............................. 431 506
Paid-in capital........................................ 112,084 249,409
Accumulated deficit.................................... (69,826) (69,826)
Cumulative translation adjustment...................... (434) (434)
-------- --------
Total stockholder's equity........................... 42,255 179,655
-------- --------
Total capitalization............................... $ 98,541 $235,941
======== ========
</TABLE>
The outstanding share information is based on our shares outstanding as of
March 31, 1999, as adjusted for the stock split. This information excludes
6,530,184 shares of common stock issuable upon exercise of options issued after
March 31, 1999 at an exercise price of $13.96 per share, and 523,225 additional
shares of common stock reserved for issuance under our 1999 Stock Option Plan.
19
<PAGE>
DILUTION
Our net tangible book deficit as of March 31, 1999, was $12.5 million, or
$(0.29) deficit per share of common stock, after giving effect to the 43,100
for 1 stock split effected by way of a stock dividend on July 1, 1999. Net
tangible book deficit per share represents the amount of our total tangible
assets less total liabilities, divided by the total number of shares of common
stock outstanding. Our net tangible book value as of March 31, 1999 would have
been $124.9 million, or $2.47 per share after giving effect to the sale of
7,500,000 shares of common stock offered by us at an assumed initial public
offering price of $20.00 per share, after deducting the underwriting discounts
and commissions and other estimated offering expenses. This represents an
immediate increase in net tangible book value of $2.76 per share to existing
stockholders and an immediate dilution of $17.53 per share to new investors
purchasing shares of common stock in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................. $20.00
Net tangible book deficit per share as of March 31, 1999...... $(0.29)
Increase in net tangible book value per share attributable to
new stockholders............................................. 2.76
------
Net tangible book value per share after offering................ 2.47
------
Dilution per share to new stockholders.......................... $17.53
======
</TABLE>
The following table summarizes, as of March 31, 1999, the difference between
the existing stockholder and new stockholders with respect to the number of
shares of common stock purchased, the total consideration paid and the average
price paid per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -------------------- Average Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Existing stockholder..... 43,100,000 85.2% $ 90,000,000 37.5% $ 2.09
New stockholders......... 7,500,000 14.8 150,000,000 62.5 20.00
---------- ----- ------------ -----
Total................ 50,600,000 100.0% 240,000,000 100.0%
========== ===== ============ =====
</TABLE>
The foregoing discussion excludes any shares to be issued in connection with
the over-allotment option and excludes any shares of common stock issuable upon
the exercise of options. As of March 31, 1999, no options were outstanding. As
of the date hereof, options to purchase 6,530,184 shares of common stock with
an exercise price of $13.96 per share were outstanding.
20
<PAGE>
SELECTED COMBINED AND CONSOLIDATED FINANCIAL DATA
The statement of operations data for the years ended September 30, 1996,
1997 and 1998 and the balance sheet data as of September 30, 1997 and 1998 have
been derived from our Combined and Consolidated Financial Statements, audited
by PricewaterhouseCoopers LLP, included elsewhere in this prospectus. The
statement of operations data for the year ended September 30, 1995 and the
balance sheet data as of September 30, 1995 and 1996 have been derived from our
consolidated unaudited financial statements which do not appear in this
prospectus. The statement of operations data for the six months ended March 31,
1998 and 1999 and the balance sheet data as of March 31, 1999 have been derived
from our unaudited Combined and Consolidated Financial Statements. The
unaudited combined and consolidated interim financial statements for all
periods have been prepared on the same basis as the audited Combined and
Consolidated Financial Statements, and in our opinion reflect all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of such data.
Our results of operations for the year ended September 30, 1998 and for the
six months ended March 31, 1999 include the consolidated results of operations
of International Exchange Networks and its subsidiaries combined with the
results of operations of MXNet from February 13, 1998. Additionally, our
results of operations for the six months ended March 31, 1999 include the
consolidated results of operations of Saturn from December 18, 1998.
The information contained in the following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," our Combined and Consolidated Financial Statements
and related notes, the Financial Statements of MXNet and related notes, and the
Consolidated Financial Statements of Saturn and related notes, included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
----------------------------------- ------------------
1995 1996 1997 1998 1998 1999
------ ------- -------- -------- -------- --------
(In thousands, except per share amounts and other
data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................ $ -- $ 3,459 $ 17,838 $ 35,853 $ 15,318 $ 32,611
Cost of revenue
(exclusive of
depreciation and
amortization shown
separately below)..... 500 4,406 19,823 35,652 15,413 30,934
Sales and marketing
expense............... -- 1,057 4,172 8,455 3,213 4,878
General and
administrative
expense............... 229 2,868 3,439 5,001 2,331 2,815
Depreciation and
amortization.......... -- 998 3,460 9,060 2,924 9,508
Special charge (1)..... -- -- -- 1,350 -- --
------ ------- -------- -------- -------- --------
Loss from operations... (729) (5,870) (13,056) (23,665) (8,563) (15,524)
Interest expense, net.. (3) (247) (2,040) (3,527) (1,521) (4,318)
Other income (expense),
net................... 49 -- 117 26 3 (18)
------ ------- -------- -------- -------- --------
Loss before provision
for income taxes...... (683) (6,117) (14,979) (27,166) (10,081) (19,860)
Provision for income
taxes................. -- 62 229 473 171 257
------ ------- -------- -------- -------- --------
Net loss............... $ (683) $(6,179) $(15,208) $(27,639) $(10,252) $(20,117)
====== ======= ======== ======== ======== ========
Basic and diluted loss
per share............. $ (.02) $ (.14) $ (.35) $ (.64) $ (.24) $ (.47)
====== ======= ======== ======== ======== ========
Basic and diluted
weighted average
common shares
outstanding........... 43,100 43,100 43,100 43,100 43,100 43,100
====== ======= ======== ======== ======== ========
Cash Flow and Other
Operating Data:
Cash used in operating
activities............ $(576) $(6,240) $(14,669) $(15,093) $ (6,166) $(11,607)
Cash used in investing
activities............ -- (4,858) (3,495) (13,772) (5,680) (42,396)
Cash provided by
financing activities.. 5,735 7,591 16,604 29,829 11,934 57,440
EBITDA (2)............. (729) (4,872) (9,596) (14,605) (5,639) (6,016)
Capital expenditures... -- 4,858 3,495 12,930 5,680 7,683
Other Data (at period
end):
Number of POPs......... 2 6 13 21 17 73
Number of CANs......... -- 41 207 488 377 1,010
Number of customer
accounts (3).......... -- 45 131 248 178 456
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
September 30, March 31,
----------------------------- ---------
1995 1996 1997 1998 1999
------ ------ ------ ------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............ $5,159 $1,616 $ 525 $ 1,255 $ 4,061
Total assets......................... 6,431 13,703 27,646 60,332 125,444
Note payable to parent (4)........... 1,474 7,026 20,072 43,629 25,522
Notes payable, net of current
portion............................. -- -- -- -- 7,031
Lease obligations, net of current
portion............................. -- 3,429 9,576 11,570 13,907
Total stockholder's equity
(deficit)........................... 4,845 890 (8,581) (14,959) 42,255
</TABLE>
- ---------------------
(1) Special charge represents bonus payments and payments for cancellation of
stock options to our employees in connection with the merger of IPC and
Arizona Acquisition Corp. in the year ended September 30, 1998. See Note 5
of Notes to our Combined and Consolidated Financial Statements included
elsewhere in this prospectus.
(2) EBITDA represents earnings before interest, income taxes, depreciation and
amortization expenses. It is determined by deducting depreciation and
amortization expense from our loss from operations. 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.
(3) Generally, multiple contractual relationships with a single legal entity
are considered a single customer account. However, we are not always aware
of and, accordingly, do not always reflect combinations, mergers and
consolidations between our customers.
(4) The March 31, 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.
22
<PAGE>
UNAUDITED PRO FORMA COMBINED AND CONSOLIDATED
FINANCIAL INFORMATION
The following unaudited pro forma combined and consolidated financial
information is based on our historical Combined and Consolidated Financial
Statements and gives effect to the MXNet acquisition on February 13, 1998 and
the Saturn acquisition on December 18, 1998.
Our historical results of operations for the year ended September 30, 1998
and for the six months ended March 31, 1999 include the consolidated results of
operations of International Exchange Networks and its subsidiaries combined
with the results of operations of MXNet from February 13, 1998. Additionally,
our historical results for the six months ended March 31, 1999 include the
results of operations of Saturn from December 18, 1998. Earnings per share
reflects our common stock as if it had been outstanding for the periods
presented.
The unaudited pro forma combined and consolidated statement of operations
for the year ended September 30, 1998 gives effect to the MXNet and Saturn
acquisitions as if they had occurred on October 1, 1997. The pro forma results
of operations for the year ended September 30, 1998 include the historical
results of Saturn for the year ended July 31, 1998. The unaudited pro forma
combined and consolidated statement of operations for the six months ended
March 31, 1999 gives effect to the Saturn acquisition as if it had occurred on
October 1, 1997. As the MXNet and Saturn acquisitions are included in the
historical balance sheet as of March 31, 1999, contained elsewhere in this
prospectus, no pro forma balance sheet has been provided.
The unaudited pro forma combined and consolidated financial information and
accompanying notes should be read in conjunction with the historical financial
statements of IXnet, MXNet and Saturn, and related notes, included elsewhere in
this prospectus. The unaudited pro forma combined and consolidated financial
information does not purport to represent what our results of operations would
have been had the MXNet and Saturn acquisitions occurred on such dates or to
project our results of operations or financial position for any future period
or date.
23
<PAGE>
IXnet, Inc.
UNAUDITED PRO FORMA COMBINED AND
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended September 30, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Saturn MXNet
-------- ------------
Year October 1,
ended 1997 to
July 31, February 13, Pro forma
Historical 1998 1998 adjustments Pro forma
---------- -------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenue................. $ 35,853 $25,784 $ 533 $ 62,170
Cost of revenue
(exclusive of
depreciation and
amortization shown
separately below)...... 35,652 21,305 -- 56,957
Sales and marketing
expense................ 8,455 -- -- 8,455
General and
administrative
expense................ 5,001 5,753 744 11,498
Depreciation and
amortization........... 9,060 1,479 384 $ 908 (a) 16,730
4,899 (b)
Special charge.......... 1,350 -- -- -- 1,350
-------- ------- ----- ------- --------
Loss from operations.. (23,665) (2,753) (595) (5,807) (32,820)
Interest (expense)
income, net............ (3,527) 13 -- (4,249)(c) (2,496)
5,267 (f)
Other income, net....... 26 -- -- -- 26
-------- ------- ----- ------- --------
Loss before provision
for income taxes..... (27,166) (2,740) (595) (4,789) (35,290)
Provision (benefit) for
income taxes........... 473 (16) -- 106 (e) 563
-------- ------- ----- ------- --------
Net loss.............. $(27,639) $(2,724) $(595) $(4,895) $(35,853)
======== ======= ===== ======= ========
Basic and diluted loss
per share.............. $ (0.64) $ (0.83)
======== ========
Basic and diluted
weighted average number
of shares outstanding.. 43,100 43,100
======== ========
</TABLE>
See notes to unaudited pro forma combined and consolidated financial
information.
24
<PAGE>
IXnet, Inc.
UNAUDITED PRO FORMA COMBINED AND
CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended March 31, 1999
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Saturn
--------------------
October 1, 1998 Pro forma
Historical to December 18, 1998 adjustments Pro forma
---------- -------------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue................. $ 32,611 $4,759 $ 37,370
Cost of revenue
(exclusive of
depreciation and
amortization shown
separately below)...... 30,934 4,054 34,988
Sales and marketing
expense................ 4,878 6 4,884
General and
administrative
expense................ 2,815 1,246 4,061
Depreciation and
amortization........... 9,508 257 $ 1,065 (b) 10,830
-------- ------ ------- --------
Loss from operations.. (15,524) (804) (1,065) (17,393)
Interest expense, net... (4,318) (1) (2,300)
(840)(d)
2,859 (f)
Other (expense) income,
net.................... (18) 23 5
-------- ------ ------- --------
(Loss) income before
provision for income
taxes................ (19,860) (782) 954 (19,688)
Provision (benefit) for
income taxes........... 257 (92) 106 (e) 271
-------- ------ ------- --------
Net (loss) income..... $(20,117) $ (690) $ 848 $(19,959)
======== ====== ======= ========
Basic and diluted loss
per share.............. $ (0.47) $ (0.46)
======== ========
Basic and diluted
weighted average number
of shares outstanding.. 43,100 43,100
======== ========
</TABLE>
See notes to unaudited pro forma combined and consolidated financial
information.
25
<PAGE>
IXnet, Inc.
NOTES TO UNAUDITED PRO FORMA COMBINED AND CONSOLIDATED
FINANCIAL INFORMATION
Year Ended September 30, 1998 and
Six Months Ended March 31, 1999
(a) Reflects the amortization of goodwill for the MXNet Acquisition using a
2.25 year life from October 1, 1997 to the date of the MXNet acquisition,
assuming the acquisition occurred on October 1, 1997.
(b) Reflects the amortization of goodwill for the Saturn Acquisition using a
ten-year life for the year ended September 30, 1998 and from October 1,
1998 to the date of the Saturn acquisition, assuming the acquisition
occurred on October 1, 1997.
(c) Represents interest expense for the year ended September 30, 1998 on
borrowings to finance the Saturn acquisition, assuming the acquisition
occurred on October 1, 1997.
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Note payable to IPC in the amount of $35.7 million
bearing interest at a U.S. bank prime rate plus 1/4 of
one percent, estimated at 8.75%......................... $ 3,121
Marshalls Note, a $7.5 million promissory note issued by
us and guaranteed by IPC bearing interest at the U.K.
Base Rate, as defined, plus three percent, estimated at
9.25%, compounded monthly, payable over three years..... 785
Saturn Note payable to Marshalls in the amount of $5.0
million payable in monthly installments over two years
bearing interest at 9.25%............................... 343
-------
Total.................................................. $ 4,249
=======
</TABLE>
(d) Represents interest expense from October 1, 1998 to the date of the
acquisition on borrowings to finance the Saturn acquisition, assuming the
acquisition occurred on October 1, 1997.
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Note payable to IPC......................................... $ 678
Marshalls Note.............................................. 117
Saturn Note................................................. 45
-----
Total..................................................... $ 840
=====
</TABLE>
(e) Reflects the tax effect of the pro forma adjustments impacting foreign
operations at the foreign statutory tax rate. All pro forma adjustments
impacting domestic operations increase the net operating loss carryforward
deferred tax asset and corresponding valuation allowance and result in a
net effect of zero.
(f) Reflects the reduction of interest expense in connection with the March 31,
1999 capitalization of $73.0 million of note payable to parent, to paid-in
capital as if it occurred on October 1, 1997, net of the increase in
interest expense resulting from the change in the inter-company borrowing
rate to a U.S. bank prime rate plus two percent.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read together with our
Combined and Consolidated Financial Statements, the Financial Statements of
MXNet and the Consolidated Financial Statements of Saturn and related notes to
these statements appearing elsewhere in this prospectus.
Overview
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 March 31, 1999, our Extranet was comprised
of two NOCs, three data centers, 73 POPs, more than 1,000 CANs placed on
customer premises and high capacity bandwidth facilities. Our Extranet connects
over 480 customers in financial centers in 34 countries around the world,
including New York, Chicago, Toronto, London, Frankfurt, Paris, Zurich, Hong
Kong, Tokyo, Sydney and Singapore.
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 IP--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 IP and other services. Our services are billed on a monthly basis
in advance, 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, and may be adjusted for customer volume commitment,
term of contract and whether the call is to an on-net customer.
27
<PAGE>
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 other components of pricing shared IP may include the following charges
paid by content providers: (1) an access fee to connect to our Extranet, (2) a
fee to deliver service to end-users and (3) 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 the Extranet. This fee is determined by geographic
location and bandwidth utilization and may be adjusted for volume commitment
and term of contract.
Long term agreements
The terms of our 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
existing agreements with our current customers. Revenues for the six months
ended March 31, 1999 generated from our installed customer base at September
30, 1997 increased in excess of 20% as compared to the same period for the
prior year. This growth includes the impact of lost customer revenue from this
customer base and excludes revenue from customers added after September 30,
1997. 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, and personnel and related operating expenses associated with network
operations, customer support and field service support. Depreciation and
amortization related to the cost of our NOCs, POPs, CANs, and indefeasible
rights to use cable and fiber optic lines, or IRUs, 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 and expect to realize the associated benefits
of lower unit costs as our network utilization 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 Asia/Pacific region over the next 12 to 18 months 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 sales force employees,
in part, on a commission basis, hiring, training, integrating and retaining
these new hires nevertheless requires substantial expenditures in advance of
any increased revenues that may arise from the sales effort 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.
28
<PAGE>
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 IPC. See "Risk Factors--IPC's
control of us may conflict with your interests as a stockholder" and "Certain
Relationships and Related Transactions--Agreements with IPC--Inter-Company
Agreement." 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. The costs related to
such allocation represented 18.2%, 24.8%, 30.6%, and 34.1% of general and
administrative expenses for the three years ended September 30, 1996, 1997 and
1998 and six months ended March 31, 1999, respectively. 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, plant and equipment and goodwill over their expected useful lives.
Property, plant and equipment, excluding IRUs and leasehold improvements, are
depreciated over five years. The cost of IRUs are amortized over the leased
term, generally 20 to 25 years, leasehold improvements are amortized over the
contract life of the lease term, generally five years, and goodwill is
amortized over periods ranging from 2.25 to ten 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, CANs,
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 only
undertaken if there existed customer demand. Under this success-based network
deployment model, we limited the investment in our Extranet to additional
customer demand and resulting revenues. Recently, we have begun to make greater
network investments in certain strategic areas in anticipation of increased
customer demand. Investment in CANs and network capacity through acquisitions
of IRUs and the buildout of our POPs will continue to represent our most
significant capital expenditures over the next 12 months and are expected to
increase substantially from historical levels.
Depending on the services required by the customer, a CAN typically costs
between $2,000 and $50,000 and may consist of one or more of the following:
. router--a device which connects networks and supports multiple
protocols;
. multiplexer--electronic equipment which allows two or more signals to
pass over one communications lines;
. channel bank--a device which facilitates many slow speed voice or data
connections onto one high-speed link;
. digital line interface card or DLIC--a card with the capacity to
interface digital lines installed into turret systems.
Deferred Compensation
During May 1999, our Board of Directors and our sole shareholder, IPC,
approved the IXnet, Inc. 1999 Stock Option 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
29
<PAGE>
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. All such options become exercisable, to the extent then vested, 30
months from the date of grant.
In connection with this issuance of stock options, we will record deferred
compensation in the aggregate amount of approximately $26 million, based upon
the deemed fair market value for accounting purposes of our common stock at the
date of grant. Approximately $8.0 million of the deferred compensation will be
expensed in our June 30, 1999 quarter, with the balance being amortized over
the vesting period of the options. In addition, certain of these options will
be treated as variable options for accounting purposes and may result in
additional deferred compensation expense in future periods as the value of our
shares change over the vesting period.
Acquisitions
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 on May
12, 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 has been settled on June 8, 1999 resulting in
the note by approximately $1.9 million.
Results of Operations
The following table presents the components of our results of operations
data as a percentage of our revenues:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended September 30, March 31,
----------------------------- -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue........... 127.4 111.1 99.4 100.6 94.9
Sales and marketing
expense.................. 30.6 23.4 23.6 21.0 15.0
General and administrative
expense.................. 82.9 19.3 14.0 15.2 8.6
Depreciation and
amortization............. 28.9 19.4 25.3 19.1 29.2
Special charge............ -- -- 3.8 -- --
-------- ------- ------- -------- --------
Loss from operations.... (169.7) (73.2) (66.0) (55.9) (47.6)
Interest expense, net..... (7.1) (11.4) (9.8) (9.9) (13.2)
Other income (expense),
net...................... -- 0.7 0.1 0.0 (0.1)
-------- ------- ------- -------- --------
Loss before provision
for income taxes....... (176.8) (84.0) (75.8) (65.8) (60.9)
Provision for income
taxes.................... 1.8 1.3 1.3 1.1 0.8
-------- ------- ------- -------- --------
Net loss................ (178.6)% (85.3)% (77.1)% (66.9)% (61.7)%
======== ======= ======= ======== ========
</TABLE>
30
<PAGE>
Historical Operating Trends
Cost of revenue as a percentage of revenue has declined over the periods
reported. This cost has decreased as a result of improved utilization of our
Extranet as well as more favorable unit pricing from carriers.
Sales and marketing expense as a percentage of revenue has declined over
the periods reported. This expense has decreased as a result of higher
incremental revenue generation per sales representative.
General and administrative expense as a percentage of revenue has declined
over the periods reported. This expense has decreased as a result of increased
leverage of fixed administrative charges.
Depreciation and amortization as a percentage of revenue has increased over
the periods reported. This expense has increased as a result of increased
amortization of goodwill associated with the MXNet and Saturn acquisitions and
increase in fixed assets associated with the expansion of our Extranet.
Comparison of the six months ended March 31, 1999 to the six months ended
March 31, 1998
Revenue. Revenue was $32.6 million for the six months ended March 31, 1999,
an increase of $17.3 million, or 112.9%, from $15.3 million for the six months
ended March 31, 1998. Of this increase, $10.8 million related to revenues from
Saturn, which we acquired in December 1998, and MXNet, which we acquired in
February 1998. The balance of the increase was primarily due to increased
revenue from the growth in our customer base of 62.4%, from 178 customers at
March 31, 1998 to 289 customers at March 31, 1999, excluding the 167 customers
of Saturn, and, to a lesser extent, from growth in revenue from our March 1998
customer base.
Cost of revenue. Cost of revenue was $30.9 million for the six months ended
March 31, 1999, an increase of $15.5 million, or 100.7%, from $15.4 million
for the six months ended March 31, 1998. The increase was primarily due to
increased leased circuit costs and, to a lesser extent, the increase in
operations personnel from 85 at March 31, 1998 to 125 at March 31, 1999.
Leased circuit costs were $22.2 million for the six months ended March 31,
1999, an increase of $11.3 million, or 103.7%, from $10.9 million for the six
months ended March 31, 1998. This increase was due to the expansion of our
customer base as well as increased penetration of existing customer accounts.
Sales and marketing expense. Sales and marketing expense was $4.9 million
for the six months ended March 31, 1999, an increase of $1.7 million, or
51.8%, from $3.2 million for the six months ended March 31, 1998. This
increase was primarily due to a $1.4 million increase in costs associated with
the growth in our salesforce and related support personnel, through both
internal growth and the Saturn and MXNet acquisitions. Provisions for bad
debts for the six months ended March 31, 1999 was $0.5 million, or 1.6% of
revenue, as compared to $0.4 million, or 2.5% of revenue, for the six months
ended March 31, 1998. The decrease in the rate of the provision for bad debt
was primarily due to controls implemented in the fourth quarter of 1998 to
minimize bad debt expense in future periods.
General and administrative expense. General and administrative expense was
$2.8 million for the six months ended March 31, 1999, an increase of $0.5
million, or 20.8%, from $2.3 million for the six months ended March 31, 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 $9.5
million for the six months ended March 31, 1999, an increase of $6.6 million,
or 225.2%, from $2.9 million for the six months ended March 31, 1998. This
increase was primarily due to the increase in property, plant and equipment in
connection with the expansion of our Extranet and the $3.1 million of
amortization of goodwill associated with the Saturn and MXNet acquisitions.
The six months ended March 31, 1999 included only one full fiscal quarter of
amortization of goodwill related to the Saturn acquisition.
31
<PAGE>
Interest expense, net. Interest expense, net was $4.3 million for the six
months ended March 31, 1999, an increase of $2.8 million, or 183.9%, from $1.5
million for the six months ended March 31, 1998. This increase was primarily
due to higher average borrowings from IPC during the six months ended March 31,
1999 as compared to the 1998 period 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 capital expenditures. As a result of the
$73.0 million contribution to paid-in capital of the then outstanding $98.5
million note payable to IPC as of March 31, 1999, interest expense is expected
to decrease. As of March 31, 1999, the outstanding balance on the note payable
to IPC was $25.5 million.
Provision for income taxes. The provision for income taxes consisted of
foreign taxes. As of September 30, 1998, and March 31, 1999, we had federal net
operating loss carryforwards of approximately $50.0 million and $65.0 million,
respectively. These net operating loss carryforwards may be carried forward in
varying amounts until 2013. In accordance with generally accepted accounting
principles, we have provided a valuation allowance for the net deferred tax
asset resulting from these carryforwards, since it is more likely than not we
would not realize these benefits on a stand alone basis. However, under our tax
sharing arrangement with IPC, we will be reimbursed by IPC to the extent that
IPC receives a tax benefit related to the inclusion of our tax losses in the
consolidated federal income tax return of IPC. Since we currently can not
derive this tax benefit on a stand alone basis, these benefits are treated by
us as a contribution to paid-in capital.
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 $18.0 million, or 101.0% 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 of 89.3%, to 248 customers at September 30,
1998 from 131 customers at September 30, 1997. 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 the customers on our
Extranet. The largest component of cost of revenue, leased circuit costs, was
$24.8 million for the year ended September 30, 1998, an increase of $10.9
million, or 78.7%, from $13.9 million for the year ended September 30, 1997.
This increase was due to the expansion of our customer base as well as
increased penetration of existing customer accounts.
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 to 70 at September
30, 1998 from 32 at September 30, 1997. The balance of the increase resulted
from an increase in the provision for bad debts to $1.7 million for the year
ended September 30, 1998, as compared to $0.3 million for the year ended
September 30, 1997. $1.0 million of this increase was due to write-offs
relating to three customers that ceased doing business. Due to controls
implemented in the fourth quarter of fiscal 1998 we expect bad debts as a
percentage of revenue to decrease.
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
32
<PAGE>
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 by way of
merger with Arizona Acquisition Corp. In connection with the recapitalization,
certain of our employees received bonuses of $0.5 million and payments of $0.9
million in consideration of the cancellation of their IPC stock options. See
Note 5 of the Notes to our Combined and Consolidated Financial Statements
included elsewhere in this prospectus.
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.
Provision for income taxes. The provision for income taxes consisted of
foreign taxes.
Comparison of the year ended September 30, 1997 to the year ended September
30, 1996
Revenue. Revenue was $17.8 million for the year ended September 30, 1997, an
increase of $14.4 million, or 415.7%, from $3.5 million for the year ended
September 30, 1996. The increase was primarily due to the growth in the
customer base of 191.1%, to 131 customers at September 30, 1997 from 45
customers at September 30, 1996, as well as increased penetration of existing
customer accounts.
Cost of revenue. Cost of revenue was $19.8 million for the year ended
September 30, 1997, an increase of $15.4 million, or 349.9%, from $4.4 million
for the year ended September 30, 1996. The increase was primarily due to costs
associated with expanding and maintaining our Extranet. The largest component
of cost of revenue was leased circuit costs, which was $13.9 million for the
year ended September 30, 1997, an increase of $11.4 million, or 456.0%, from
$2.5 million for the year ended September 30, 1996. This increase was due to
the expansion of our customer base as well as increased penetration of existing
customer accounts.
Sales and marketing expense. Sales and marketing expense was $4.2 million
for the year ended September 30, 1997, an increase of $3.1 million, or 294.7%,
from $1.1 million for the year ended September 30, 1996. This increase was
primarily due to salaries and related costs associated with the increased
number of personnel to 32 at September 30, 1997 from 20 at September 30, 1996.
General and administrative expense. General and administrative expense was
$3.4 million for the year ended September 30, 1997, an increase of $0.6
million, or 19.9%, from $2.9 million for the year ended September 30, 1996.
This increase was primarily due to professional fees associated with
establishing our presence in foreign countries.
Depreciation and amortization. Depreciation and amortization was $3.5
million for the year ended September 30, 1997, an increase of $2.5, or 246.7%,
million from $1.0 million for the year ended September 30, 1996. This increase
was primarily due to the increase in property, plant and equipment.
Interest expense, net. Interest expense, net was $2.0 million for the year
ended September 30, 1997, an increase of $1.8 million from $0.2 million for the
year ended September 30, 1996. The increase was primarily due to higher average
borrowings from IPC to fund operations and capital expenditures, as well as,
increased capital lease obligations.
Provision for income taxes. The provision for income taxes consisted of
foreign taxes.
33
<PAGE>
Quarterly Results
The following tables set forth certain unaudited quarterly financial data,
and such data expressed as a percentage of revenue, for the six quarters ended
March 31, 1999. 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 prospectus 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
---------------------------------------------------------
1997 1998 1999
------- ------------------------------------- -------
Dec 31 Mar 31 June 30 Sep 30 Dec 31 Mar 31
------- ------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $ 7,390 $ 7,928 $ 9,917 $10,618 $12,752 $19,859
Cost of revenue
(exclusive of
depreciation and
amortization shown
separately below)...... 7,770 7,643 9,439 10,800 12,458 18,476
Sales and marketing
expense................ 1,352 1,861 2,247 2,995 2,092 2,786
General and
administrative
expense................ 762 1,569 1,472 1,198 1,215 1,600
Depreciation and
amortization........... 1,289 1,635 2,692 3,444 3,922 5,586
Special charge.......... -- -- 1,350 -- -- --
------- ------- ------- ------- ------- -------
Loss from operations.... $(3,783) $(4,780) $(7,283) $(7,819) $(6,935) $(8,589)
======= ======= ======= ======= ======= =======
EBITDA(1)............. $(2,494) $(3,145) $(4,591) $(4,375) $(3,013) $(3,003)
<CAPTION>
Quarter Ended
---------------------------------------------------------
1997 1998 1999
------- ------------------------------------- -------
Dec 31 Mar 31 June 30 Sep 30 Dec 31 Mar 31
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenue................. 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue
(exclusive of
depreciation and
amortization shown
separately below)...... 105.1 96.4 95.2 101.7 97.7 93.0
Sales and marketing
expense................ 18.3 23.5 22.7 28.2 16.4 14.0
General and
administrative
expense................ 10.3 19.8 14.8 11.3 9.5 8.1
Depreciation and
amortization........... 17.4 20.6 27.2 32.4 30.8 28.1
Special charge.......... -- -- 13.6 -- -- --
------- ------- ------- ------- ------- -------
Loss from operations.... (51.2)% (60.3)% (73.4)% (73.6)% (54.4)% (43.2)%
======= ======= ======= ======= ======= =======
EBITDA(1)............. (33.8)% (39.7)% (46.3)% (41.2)% (23.6)% (15.1)%
</TABLE>
- ---------------------
(1) EBITDA represents earnings before interest, income taxes, depreciation and
amortization expenses. It is determined by deducting depreciation and
amortization expense from our loss from operations. 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.
Our quarterly operating results have fluctuated and 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 and 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
. the timing of acquisitions.
34
<PAGE>
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. For information regarding our source of
funds, see "Certain Relationships and Related Transactions--Agreements with
IPC--Inter-Company Agreement."
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 March 31,
1999, the aggregate net amount of inter-company funding, exclusive of
guarantees and letters of credit, was approximately $98.5 million, of which
$73.0 million was contributed to equity.
Financing arrangements. Under the inter-company agreement, IPC has agreed to
continue to provide us with ongoing financing and to obtain letters of credit
on our behalf, from time to time, upon reasonable notice from us. The amount
available under this credit facility 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 credit facility will become
immediately due and payable. In addition, IPC, in its sole discretion, will
continue to provide guarantees of our obligations.
IPC has 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. The credit facility is
administered by General Electric Capital Corporation on behalf of the lenders.
However, IPC will not make loans to us, obtain letters of credit on our behalf
or provide us with guarantees if, our request for a loan, issuance of a letter
of credit or guarantee (1) is prohibited under IPC's credit agreement, (2)
would result in a default or event of default under the credit facility or (3)
would result in a default or event of default under the indenture for IPC's
senior discount notes. Upon (1) an event of default under IPC's credit
agreement or (2) a change in control, all amounts owing under the inter-company
agreement will be immediately due and payable upon demand. A change in control
will occur if (a) IPC ceases to own at least 50% of our voting securities and
(b) our stockholders approve a recapitalization, reorganization or spin-off, if
the transaction would result in a change in the holders of at least 40% of our
voting securities.
Under the facility made available to us by IPC, any 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
(1) the rate of interest announced publicly by Citibank, N.A. at its head
office in New York as its base rate of and (2) 1/2 of 1% per annum above the
federal funds rate, as defined in the agreement. 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 inter-company agreement provides that any letters of credit or
guarantees provided by IPC and with respect to which IPC is liable under its
credit agreement or otherwise which are outstanding on July 1, 1999 shall
continue in full force and effect at no cost to us on their same terms and
conditions until their expiration.
35
<PAGE>
The inter-company agreement also provides for the allocation between us and
IPC of certain allowances provided for in IPC's credit facility, which include
sales of assets, investments and debt that may be incurred.
After July 1, 1999, we will reimburse IPC for the applicable fees, costs and
charges incurred by IPC in obtaining letters of credit or providing guarantees
to us. All other costs under IPC's credit agreement will continue to be borne
by IPC.
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, 1998, 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 $11.6 million
for the six months ended March 31, 1999, as compared to $6.2 million for the
six months ended March 31, 1998.
Cash used in investing activities was $42.4 million, and $5.7 million for
the six months ended March 31, 1999 and 1998, respectively. The largest
components of cash used in investing activities during the six months ended
March 31, 1999 resulted from $34.7 million used for the Saturn Acquisition and
$7.7 million used for expenditures for property, plant and equipment, which
consisted primarily of network equipment. Investments in our network and
facilities during the year ended September 30, 1998 resulted in total additions
to fixed assets of $22.9 million. Of this amount, $6.4 million was financed
under vendor or other financing arrangements, $3.6 million related to IRU
facilities acquired under an installment purchase contract due within one year,
and $12.9 million was expended in cash. 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. For the year ended September
30, 1996, total additions to fixed assets were $9.5 million, of which $4.6
million was financed and $4.9 million expended in cash. We intend to continue
to invest in the expansion of our Extranet and future acquisitions.
Cash provided by financing activities was $57.4 million for the six months
ended March 31, 1999 as compared to $11.9 million for the six months ended
March 31, 1998. The increase was primarily due to $35.7 million in borrowings
from IPC, which we used to finance the Saturn acquisition.
Commitments, Capital Expenditures and Future Financing Requirements
As of March 31, 1999, we had capital lease commitments to certain
telecommunications vendors totaling $18.8 million payable in various years
through 2003 of which $4.9 million were due within one year. Additionally, as
of March 31, 1999, we were obligated to make future minimum lease payments for
property, leased circuits, IRUs and equipment of $41.3 million under non-
cancellable operating leases expiring in various years through 2009.
Capital expenditures were $7.7 million for the six months ended March 31,
1999. In addition, we had notes in the aggregate amount of $12.0 million
outstanding as of March 31, 1999 to the former shareholders of Saturn, of which
$4.9 million is due within one year.
Installation of CANs, acquisition of IRUs and the buildout of our POPs will
continue 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
POPs. We expect that our purchase of property, plant and equipment will
increase substantially from historic levels and that the approximately $137.4
million in net proceeds from this offering, along with third party equipment
financing arrangements, will be sufficient to meet our needs for property,
plant and equipment for at least the next 12 months. See "Use of Proceeds."
36
<PAGE>
As of March 31, 1999, we had available cash of $4.1 million. 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 this offering may not be used 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 IRUs and payments on the notes to Saturn. See
"Business--The IXnet Extranet" for a discussion of our plans to purchase fiber
optic facilities and IRUs. Under the revolving 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 will continue to rely upon IPC to fund
these requirements.
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 "Risk Factors--Risks related to our acquisition strategy and
acquisition financing."
Foreign Exchange Rate Risk
We conduct our business in more than 34 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 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. See "Risk Factors--Our international
operations make us more susceptible to global economic factors, foreign tax
law, issues, international business practices and currency fluctuations."
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. Our international operations are transacted
primarily using British pound sterling as the functional currency. Since its
adoption, the Euro has not had a material adverse effect on our business or
financial condition.
Effects of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. This
standard is effective for our year ending September 30, 1999. Financial
statement disclosures for prior periods are required to be restated. We are in
the process of evaluating the disclosure requirements. The adoption of SFAS No.
131 will have no impact on our financial position, results of operations or
cash flows.
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. This standard is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. We do 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.
37
<PAGE>
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 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 are in the process of
implementing and validating the Year 2000 readiness of our CANs, the
communications equipment in our POPs, Network Management Systems, and internal
accounting, billing and office systems. Certain of our CANs require hardware
and software updates, which, in many cases, necessitate one or more site
visits. We have contracted with the original equipment manufacturer of some of
our CANs to complete such updates by July 1999. We believe that substantially
all of the communications equipment in our POPs are currently Year 2000 ready.
Our Network Management Systems have been upgraded and are Year 2000 ready. In
July 1999, we will begin the conversion to our new internal accounting
enterprise-wide system, currently in use at most of our parent company
locations. Such system is Year 2000 ready and we anticipate completion by
August 1999. Our new billing system, which should be operational by August
1999, 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 expected to be Year 2000 ready.
We are currently in the process of obtaining Year 2000 readiness
documentation from suppliers of our domestic and international communication
bandwidth. By July 1999, we plan on having an evaluation of the potential risk
associated with those 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. If we determine that certain carriers pose a threat to
our Extranet, we will notify our customers in advance that it may be necessary
to discontinue service to that region in order to maintain the integrity of our
Extranet.
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 our parent company, is currently anticipated to be less than $2.0
million of which approximately $900,000 has been incurred to date and $900,000
has been 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 assure you 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 addition, under the IPC credit agreement, we are subject to a covenant that
we will be Year 2000 compliant by August 31, 1999. Failure of either IPC or us
to reach Year 2000 compliance by such date will result in a breach of such
agreement.
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<PAGE>
In a recent SEC release 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;
. 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.
We urge you to read "Risk Factors--Year 2000 problems could disrupt our
business, reduce our profits and could lower the value of your stock."
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 are engaged in an ongoing Year 2000 readiness
assessment and are in the process of developing contingency plans. The results
of our enterprise-wide system conversion and responses received from vendors
and service providers will be taken into account in determining the nature and
extent of such contingency plans.
39
<PAGE>
BUSINESS
IXnet is a leading provider of communications services to the worldwide
financial services community. We have built and operate the IXnet Extranet
connecting financial services firms and their business partners as well as
multiple offices within the same firm on a 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 on-net customers receive
the following benefits by connecting to our Extranet:
. access to our high performance global network that connects over 480
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
members and timely access to industry-related information to conduct its
business. As a result, highly reliable communications services are mission-
critical to this community. We believe our Extranet provides a unique value
proposition, enabling these firms to reliably communicate in any manner 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 CANs, on our customers' premises. Once
we have installed a CAN 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 inter-firm
communications; and
. higher performance communications between on-net customers.
We believe that our current 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 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.
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Our Extranet connects customers in financial centers in 34 countries around
the world, including New York, Chicago, Toronto, London, Frankfurt, Paris,
Zurich, Hong Kong, Tokyo, Sydney and Singapore. Our Extranet employs (1)
Internet protocol, or IP, a networking technology which tracks the Internet
address of nodes, routes outgoing messages, and recognizes incoming messages,
and (2) asynchronous transfer mode, or ATM, 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 NOCs and geographically distributed
physical POPs. In addition, we have three data centers where we host
information from our content providers and co-locate servers of our customers
who have outsourced their network applications to us. As of March 31, 1999, we
had over 480 customers and had deployed approximately 1,000 CANs globally.
Financial Services Community
Members of the financial services community 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. Members of this community rely upon communications, to
conduct their business and demand uniform, highly reliable and secure
communications services, including access to real-time financial industry
information in a highly efficient and cost effective manner. Further, many of
the financial institutions operate globally and require these communications
services to be provided on a worldwide basis. Additionally, most members of the
financial services community interact to a great extent with many other
members. The exchange of information, such as pricing, indications of interest,
market data, news, research and confirmation of trades, characterizes the
interdependent relationships among the various members.
Communication Trends in the Financial Services Community
The financial services community represents a large, quickly growing market,
spending significant amounts of money on technology and communications each
year. The Wall Street Telecommunications Association membership survey
estimated that its 170 members had combined 1997 budgets in excess of $17
billion for information and communications services. This represents only a
portion of the total communications services market for the financial services
community as this association includes only those firms doing business in New
York. Based on this survey and our experience in the industry, we estimate that
the market for information and communications services to the worldwide
financial services industry is at least $25 billion annually and that this
market is currently growing by an average of more than 15% per year.
The growing demand for information and communications services is being
driven by a number of factors, including continued industry globalization,
expansion of emerging markets and increasing volume of market transactions. The
increase in market transactions is largely a result of the growth of electronic
trading, new trading markets arising from the deregulation of industries such
as the United States energy market, the lengthening of the trading day and
increased cross border flow of capital.
Movement towards outsourcing of private communications networks. Over the
past decade, many financial services firms committed vast resources to building
private networks to meet their exacting global communications requirements.
However, many of those firms, as well as many new financial services firms, are
moving away from relying on private networks because of, in part, the capital
and personnel costs of maintaining and operating these networks, the limited
usefulness of intra-firm only solutions and the difficulty and cost of
incorporating technological innovations. Accordingly, firms are increasingly
looking to fully managed services and/or outsourced networks to address their
communications needs.
Proliferation of content providers and a growing need for a content neutral
delivery mechanism. The financial services community relies heavily on its
ability to gain access to electronically disseminated data such as market
quotes, news and trade confirmations, as well as research and other analytical
tools and applications to increase the utility of information, expedite
business decisions and obtain access to electronic trading. Over the last
several years, the number of firms providing data to the financial services
community has grown
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dramatically in response to the rapid growth in the size of the financial
services community and the growth in the volume of market transactions. More
than 1,400 firms currently provide content to the financial services community,
and the number of such firms continues to increase.
Most content providers do not own the networks that deliver their data
because they do not want to incur the high capital and personnel costs
necessary to build such networks as well as the ongoing cost of operating and
maintaining the network. Such firms are often left to rely on one of the few
large content providers who own their own networks to deliver their content.
This arrangement is not ideal for such firms because (1) such large firms are
often their competitors, (2) the means of delivery established by such large
content providers is optimized for their data and not that of other content
providers, often causing other content providers' data to be displayed in a
less effective manner, (3) content providers may have limited opportunities to
brand their products and receive market recognition and (4) distribution is
limited to the clients of such large content providers. For these reasons, many
content providers are seeking alternatives to efficiently and effectively
deliver their content over a content neutral delivery mechanism.
Current Communications Environment in the Financial Services Community
The financial services community currently has the following limited
alternatives to address its unique communications requirements:
. building private networks;
. utilizing the common carriers' public networks; or
. utilizing the public Internet.
However, these alternatives do not provide a complete and efficient means of
handling the exacting global communications needs of the financial services
community.
Building a private network often requires the commitment of substantial
development time, capital and personnel as well as ongoing operating and
maintenance costs. Additionally, integrating a private network with separate
public and other private infrastructures and transmission protocols is often
difficult and hampers the flow of inter-firm information that is critical to
the financial services community.
Broad-based common carriers' public networks do not offer the performance,
quality, services, reliability, speed or single point of responsibility that
are available through a dedicated private network. Public networks consist of
numerous non-homogeneous systems and services offered by a multiplicity of
local providers in different national markets. Presently, a large portion of
international communications, including services marketed by some of the
largest telecommunications carriers, are typically conducted through disparate
public networks and service organizations. For example, an international data
or voice connection may be routed through a local exchange carrier, a domestic
international carrier, a foreign international carrier and a foreign local
exchange carrier. Problems related to determining why a network has failed and
which carrier is responsible for reestablishing a communication connection may
be more difficult to resolve on these public networks. In contrast, a dedicated
private network offers end-to-end network monitoring and a single point of
contact for all matters of accountability.
Although the Internet has become a mainstream vehicle for communications and
on-line consumer trading, it is not well suited for critical financial services
applications. The drawbacks of the Internet include the lack of reliability,
limited security and the absence of a single governing authority and contact
point for all matters of accountability.
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The IXnet Solution
We have built and operate the IXnet network, a global Extranet that
connects financial services firms and their business partners, as well as
multiple offices within the same firm on a high performance network. 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.
The following graphic depicts the fully managed end-to-end service of our
Extranet:
[Graphic consisting of two boxes each containing a turret and CAN, each
containing symbols and the text "customer premises" connected by a horizontal
line. Segments of the line are denoted, from left to right, "local exchange
carrier", "international carrier", "international carrier" and "local exchange
carrier". Also connecting the two customer sites is a second line which peaks
above the horizontal line. At the peak of the second line is the text "IXnet
End-to-End Network Management".]
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We offer many significant advantages over our competition, including:
. High performance global network. Our Extranet is a scalable network that
currently provides seamless connectivity to over 480 customers in 34
countries. Our Extranet was built using the latest networking
technologies and redundant fiber optic facilities, which enables 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
ATM switches in the backbone to support high bandwidth multimedia
applications in combination with IP switches for specialized data
delivery. In contrast, many of our competitors have legacy networks
optimized for voice telephony and low speed data services and cannot
easily adapt their network architecture to accommodate the current
diverse and mission-critical communications requirements of the evolving
financial services community.
. Fully managed end-to-end network services. By connecting customers to
our Extranet through a CAN physically located at each on-net customer
site, we are able to provide fully managed end-to-end network services.
Once a CAN 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. As a result, customers that connect to our Extranet enjoy the
benefits of a seamless private network without having to coordinate
service offerings among multiple local and long haul carriers and their
respective customer service organizations.
. Multiple communication services through a single pipe. By deploying CANs
at our customer sites, we are able to provide bundled services over a
single, high capacity network connection. CANs 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. CANs typically connect to
our Extranet through a high capacity connection enabling customers to
cost-effectively provision multiple voice and data services as opposed
to ordering single, low capacity circuits from a local carrier. In
addition, because the CAN is a scaleable platform, we can rapidly deploy
new services such as video delivery to the desktop over our current
infrastructure. We believe that we are one of the only companies focused
on the financial services community that globally delivers such a broad
base of voice and data services through a single network connection.
. Critical mass of on-net customers. We have established a customer base
of over 480 of the world's top financial services firms on our Extranet.
We have just begun 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. This
should create a cycle that will further fuel growth in the number of our
customers and penetration of our current customer base. We also believe
that as we continue to penetrate our customer base with more services
and attract other large financial services firms to our Extranet, it
will become increasingly difficult for competitors to establish
themselves in our market sector.
. Singular focus on the financial services community. Our singular focus
enables us to offer services tailored to the specialized needs of our
customers. Unlike many of our competitors who offer services to a broad
base of customers with wide ranging communications requirements, our
approach is to focus only on the exacting requirements of the financial
services community. For example, our understanding of the trading
environment and our customers' needs led us to develop our DigiHoot
Service, a specialized open voice conference system allowing continuous
voice contact between trading floors. In addition, 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 advantages over our
competitors.
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. 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 has provided us with a level of
credibility and an entree into the financial services sector, which
other emerging communications companies in our market sector do not
have. Moreover, through our relationship with IPC, we are able to (1)
provide turret-to-turret on-net connections among the significant
installed IPC customer base and (2) integrate our CANs 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 cost 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 NOCs, 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. Our billing system also allows us to
generate customized reports for customers. This customization approach
differentiates us from our competition, which are large organizations
with standard products, prices and support and who are not generally
known for flexibility and customization. This approach also
differentiates us from our many other competitors, who offer low prices
with limited quality, availability, service offerings and customer
support.
. Corporate position as content neutral. Unlike the few large content
providers who have their own networks and carry the content of their
competitors to the desktop, we are not in competition with content
providers who use our Extranet. We are focused on being an efficient and
effective distribution vehicle for the content of others, not on being a
content provider ourselves. 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. Because we often are willing to expand our Extranet to
reach additional end-users targeted by our content provider customers,
we believe our Extranet is more attractive than existing distribution
networks of competing content providers.
Our 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 first mover advantage. 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
first mover position by aggressively expanding our direct salesforce and
investing in the IXnet brand. In addition, we will continue to invest in
our Extranet to expand its capacity and reach in order to offer a
greater array of bandwidth intensive services to our customer base. We
believe that the high concentration of communications traffic among a
relatively defined number of financial services members should enable us
to achieve sufficient customer concentration that will make us the
preferred service provider to the financial services community.
. Rapidly deploy CANs. Adding key firms and sites to our Extranet will
greatly increase its value by enabling us to offer greater inter-firm
connectivity. This should enable us to attract larger numbers of
potential customers, which, in turn, will further increase the value of
our Extranet. 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.
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. Accelerate network expansion. We are focused on expanding the
infrastructure of our Extranet to extend our addressable market, enhance
reliability and increase cost efficiencies. We currently plan to begin
construction of a new NOC in the Asia/Pacific region in 1999 to expand
our regional presence. We also intend to build physical POPs in certain
cities in which we do not yet have a presence to expand the reach of our
Extranet and in those cities where we do have a presence to meet
customer demand and provide redundancy. This will allow us to reach more
potential customers and increase the value of our Extranet to current
customers. In order to maintain our superior quality and highly reliable
services, we intend to acquire more bandwidth through leases and IRU
agreements from multiple vendors to increase the Extranet's redundancy,
capacity and capability.
. 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. We also believe that our core customer base will
attract content providers who want to reach the largest financial
services firms in a highly efficient manner.
. Further leverage IPC's installed base. We will continue to leverage our
parent company'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.
In addition, during the next six months, we intend to take advantage of
our exclusive arrangement with IPC under our inter-company agreement and
begin buying and integrating DLICs, a specific type of CAN with voice
service capabilities, in each new IPC turret system sold. This will
enable us to rapidly provision services to on-net IPC customers.
. 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. We will seek to further
penetrate our customer base by aggressively marketing additional
services to our existing customers that we can rapidly provision through
our installed CANs and expanding our selling efforts to IPC's
significant customer base. 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.
Within the next 12 months, we plan to offer real-time collaborative
capability including video streaming applications delivered directly to
the desktop to support analyst presentations and electronic roadshows.
We are also planning to offer user initiated service provisioning, which
will allow our on-net customers to remotely provision additional
services.
. Pursue strategic acquisitions. We intend to make strategic acquisitions
as appropriate opportunities arise in order to expand our service
offerings, broaden the reach of our Extranet and increase our customer
base.
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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 branded 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.
<TABLE>
<CAPTION>
Branded
Service Description Benefits Services
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Premium voice Dedicated voice Access to high quality voice DigiHoot
communications lines services without the need to MetroLink
which are primarily used build a private network.
in conjunction with
turrets and trading
applications.
- ---------------------------------------------------------------------------------------------------
Virtual private voice Seamless global virtual Fast call connect time, industry- IXGlobal
network private network with a wide abbreviated dialing and cost Trade24
single uniform effective for on-net customers.
technology platform and
global toll free
feature.
- ---------------------------------------------------------------------------------------------------
Switched voice High quality voice Competitive rates and simplified IXPrime
communications worldwide billing.
with simplified pricing.
- ---------------------------------------------------------------------------------------------------
Managed bandwidth Fractional digital Access to high quality digital IXLink
lines, referred to as T- services without the need to
1/E-1, with end-to-end build a private network.
service management for
connections between
LANs, WANs and data
centers.
- ---------------------------------------------------------------------------------------------------
Outsourcing End-to-end management of Outsourcing enables customers to Trader Connect
a customer's entire focus on core business by placing
network. responsibility for network and
hardware on IXnet.
- ---------------------------------------------------------------------------------------------------
Shared IP Network delivery of Efficient distribution method for Liquidity
third-party news, content providers. Simplicity of
research, analytics, multiple services through a
market data and other single network connection for
trading applications via end-users.
data center hosting and
our Extranet.
- ---------------------------------------------------------------------------------------------------
Frame relay Transport for data Cost effective alternative to IXFrame
applications. Includes leased line networks.
router deployment and
management.
</TABLE>
Our branded services are described below.
DigiHoot. Our DigiHoot hoot & holler networks are specialized open line
voice conference systems utilized by trading firms to allow continuous voice
contact between various trading floors. Our DigiHoot service is a desktop to
desktop managed solution delivered over the Extranet combined with IPC's
Tradenet turret systems, known as Tradenet MX turret systems, and speaker
systems. We support DigiHoot globally with 24-hour network management and
customer support including remote diagnostics. DigiHoot service can be rapidly
provisioned and reconfigured to meet our customers' demands for a flexible
trading environment.
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MetroLink. MetroLink is a digital private line service that connects IPC's
Tradenet MX customers within a metropolitan area. We serve as a single source
provider of hardware and connectivity from turret to turret. Compared to the
analog connections typically available in the market, MetroLink provides faster
circuit provisioning, end-to-end managed digital connectivity, reduced
installation cost and rapid circuit reconfigurations at a competitive price.
Metrolink is currently offered in the New York metropolitan area and we intend
to offer Metrolink within the next 12 months within other metropolitan areas.
We also intend to provide this service between customers in different cities.
IXGlobal. IXGlobal, our on-net switched voice service, provides a seamless
international virtual private voice network service to the financial services
community over a uniform switching platform. Because we provide end-to-end
connectivity among all our on-net customers, we are able to offer the same high
performance characteristics presently available only on dedicated private
networks. Features of IXGlobal include: preferential and competitive pricing
for on-net calls, fast call completion and advanced features such as caller
name and ID, abbreviated dialing plans and customized billing formats.
Trade24. Trade24 is a service that allows our customers to offer their
customers 24 hours per day, seven days per week global toll free access.
Trade24 routes calls to an active trading floor regardless of the time of day,
day of week or holiday schedule. Call routing can be managed rapidly and
remotely to accommodate business requirements or unexpected situations such as
weather conditions or disaster recovery.
IXPrime. IXPrime is our off-network switched voice service. Features of
IXPrime include switched or dedicated originating access and flat rate pricing
for calls.
IXLink. IXLink provides a premium end-to-end managed digital service for
voice and/or data transmission with bandwidth available from 64Kbps to 768Kbps.
IXLink's features include end-to-end circuits which eliminate the need for
multiple vendors, bandwidth on demand, simplified billing from a single
worldwide service provider and shorter provisioning intervals.
TraderConnect. TraderConnect service is provided in connection with the IPC
Trading Systems division for a fully integrated solution. As part of this
service, Tradenet MX turret systems are located in our POPs. TraderConnect
enables a customer to utilize the features of the turret system remotely and
also access our various network services.
Liquidity. Liquidity is a turnkey managed data network service based on IP
technology. Liquidity provides, over a single network connection, secure and
reliable delivery of time-sensitive financial information and applications,
such as market data, access to institutional electronic trading systems and
routing of messages such as FIX used in the electronic trading process.
Standard Liquidity features include a customer-site router and network
connection which is supplied, owned and managed by us, as well as network
performance guarantees and several levels of optional content data center
hosting including complete outsourcing.
IXFrame. IXFrame is a managed data network service using frame relay as its
underlying technology and including managed customer-site routers.
We also provide the following services:
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.
Outsourcing. We provide end-to-end management of a customer's network
including network services and hardware. We take complete responsibility for
building, operating and maintaining the network, enabling our customers to
focus on their core business and avoid the cost of maintaining a network. In
addition, as the hardware often resides on our premises, our outsourcing
customers are not required to dedicate space and facilities for network
equipment.
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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.
The IXnet Extranet
Overview
We have created a global Extranet built specifically to meet the stringent
communications requirements of the financial services community. Our Extranet
provides highly reliable and secure communications and minimizes the likelihood
of any single point of failure.
Our Extranet is built upon the following strategic principles:
. Establish a uniform network equipment platform using best of breed
vendors. We have selected and deployed a uniform equipment platform
throughout our Extranet. Our strategy ensures that our services are
available with the same features and functionality globally. We utilize
hardware, software and facilities vendors who are known for their high
quality products and technologies and have achieved broad acceptance.
Some of our vendors include Cisco Systems Inc., Newbridge Networks
Corporation and Nortel Networks Corporation. These vendors have
facilitated our deployment of the advanced technologies such as IP and
ATM.
. Deploy CANs on customer premises. Our strategy is to place CANs on
customer premises and to link those CANs to our POPs through high
capacity facilities. These CANs enable us to manage the network end-to-
end on a full time basis and rapidly provision services.
. Primarily utilize a success-based network deployment model. The
scalability of our network enables us to enter each new market with a
small POP and build to a larger presence as our business grows.
Similarly, at most new customer sites, we deploy a CAN on a customer's
premises and augment the CAN to accommodate increasing demand for
additional services.
. Utilize multiple carriers to ensure diverse network routing. We use
multiple carriers to obtain our local access, domestic and international
long haul backbone facilities. Diverse routing among several carriers
ensures maximum availability and reliability of our Extranet.
. Reduce network costs by purchasing segments on fiber optic
facilities. Due to the growing supply of international bandwidth, the
cost of bandwidth has declined significantly. We have and will continue
to aggressively take advantage of this positive development to reduce
our bandwidth costs, which are a significant portion of our capital
expenditure plan and expense structure. Currently, a majority of our
capacity is leased. We intend to purchase bandwidth as and when
purchasing would be advantageous and more cost effective than leasing
bandwith. We have purchased and are committed to purchase IRUs on
numerous international cable systems in the Atlantic, the Pacific and
intra-Europe, which has enabled us to increase our bulk bandwidth in a
highly cost effective manner.
Global Network Infrastructure
We have deployed our global network infrastructure to 39 financial centers
worldwide. The Extranet consists of IXnet-owned switches, NOCs, POPs, data
centers and CANs, and primarily leased fiber optic facilities.
Our Extranet utilizes a uniform equipment platform based on Newbridge
network management technology, and augmented with Nortel Networks switches for
enhanced voice services and Cisco routers for enhanced data
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services. Newbridge network access nodes and network management software are
located at our POPs, while CANs are directly installed at the customers'
premises. The Newbridge platform provides advanced global network management
which allows for rapid provisioning and end-to-end network diagnostics from our
NOCs to our customers' premises. We own two Nortel Networks digital switches
located in New York and London that allow for universal availability of
services, rapid provisioning of services, short call setup times and a single
network management and control system. We have deployed Cisco products for
various network functions including core routing, distribution routing and
customer premises routing. The advanced features and built-in scalability of
the Cisco routers enable us to offer high quality and globally advanced data
services such as Liquidity and IXFrame.
The infrastructure of our Extranet includes the following components:
. Network operations centers. We have deployed NOCs in the financial
districts of New York and London, each of which serves as a control
center of our Extranet. Each NOC is staffed 24 hours per day, seven days
per week, and houses the specialized equipment necessary for managing
the Extranet. The NOCs contain workstation-based software systems
utilizing state of the art graphical user interfaces to provide a global
view of our Extranet, including all CANs worldwide. This network
management system allows for the display of alarms for all network
faults, testing of the network for adverse conditions, re-routing of
traffic to other equipment or facilities, and remote maintenance for
certain network faults. While the New York NOC concentrates on the
Americas and Asia, it also acts as the overall NOC for our entire
Extranet. The London NOC services Europe but also acts as a backup
system for the New York NOC and is capable of supporting the entire
Extranet if required. We currently plan to begin construction within the
next 12 months of a new NOC in the Asia/Pacific region in order to
expand our presence.
. Points of presence. We have 73 POPs in 39 financial centers worldwide.
POPs house the network transmission equipment required to provide all
IXnet services to the financial community. A POP enables us to bring our
broad portfolio of services through the local high speed access facility
in a prompt and cost effective manner. These POPs are built to high
standards with highly reliable power supply systems, backup power
capability, separate humidity control and air conditioning, raised
equipment flooring, static electricity control and security, fire and
other control systems. POPs are either located in facilities owned and
operated by us or are co-located in other facilities through
arrangements with other carriers. Equipment in the POPs may include:
. Newbridge products for global transmission bandwidth management as
well as ATM switching;
. Nortel Networks and other voice switches; and
. Various other equipment, such as Stratum 1 clocking, echo
cancellers, compression equipment, digital cross connection systems,
test equipment and patch panels.
The following is a list of cities in which our 73 POPs are currently
located. And, if more than one, the number of POPs:
<TABLE>
<CAPTION>
Americas Europe Asia/Pacific
-------- ------ ------------
<S> <C> <C> <C>
Atlanta Amsterdam Luxembourg Adelaide
Boston Athens Madrid Auckland
Chicago (3) Brussels Milan (3) Brisbane
Houston Budapest (2) Paris (2) Hong Kong (4)
Los Angeles (3) Copenhagen (2) Rotterdam Melbourne (3)
New York (3) Dublin Stockholm Perth
San Francisco Frankfurt (4) Vienna Philippines
San Jose Geneva (2) Warsaw Singapore (3)
Toronto (2) Helsinki Zurich (2) Sydney (6)
London (4) Tokyo (3)
Wellington
</TABLE>
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In cities with developing demand for our services, such as in emerging and
secondary markets, we service our customers as off-network customers through
our relationships with carriers who have established a presence in such
locations until there is sufficient demand, at which point we would build a
POP at that location. As of March 31, 1999, we were providing service in over
250 off-net cities. Over the next 12 months, we intend to build POPs in a
number of these cities in order to expand our network footprint, and to build
additional POPs in those cities where we already have a presence in order to
meet customer demand and provide redundancy. New POPs will only be built after
careful consideration of the size of the market opportunity, customer demand,
the regulatory environment and the competitive situation as well as the costs
to enter and support the market. Emerging financial markets may be a large
growth opportunity in the coming years and will be closely monitored.
Some of the other markets where we are considering building POPs over the
next several years include:
.Sao Paolo (Brazil);
.Montreal (Canada);
.Denver, Stamford, Miami (U.S.);
.Shanghai (China);
.Kuala Lumpur (Malaysia);
.Seoul (S. Korea);
.Johannesburg (S. Africa);
.Prague (Czech Republic); and
.Moscow (Russia).
. Data centers. Our POPs in New York, London and Jersey City, New Jersey
also house Liquidity content centers. These data centers enable us to
host and distribute the content of various content providers. Equipment
in the data centers includes:
.Extreme Networks--layer 3 switches;
.Bay Networks--distribution routers; and
.Cisco Systems--inter-data center and dial backup routers.
Additional data centers will be built to complement existing or new POPs
based on demand.
. Customer access nodes. A key differentiator of our Extranet is our
deployment of CANs on customer premises. CANs vary in size and
complexity based on customer needs and requirements, but may include one
or more of a Newbridge multiplexer, a Cisco router or a DLIC, which is a
device that connects the customer's turret directly to our network for
voice circuits. All CANs can be controlled by us remotely, enabling us
to fully manage the network end-to-end and to rapidly provision
services. In addition, CANs are scalable to allow for future growth as a
customer's requirements expand. CANs are connected to our closest POP by
fiber optic facilities utilizing diverse redundant local facilities
where possible.
. Backbone facilities. In connecting POP to POP, we have both leased and
purchased various T-1/E-1/DS-3 long haul facilities worldwide. We lease
fiber optic facilities from major international facilities-based
carriers such as MCI WorldCom Inc., Frontier/GlobalCenter, Williams
Communications Group, Inc., Sprint Communications Company, L.P., Cable &
Wireless plc, Singapore Telecommunications Limited, Hongkong Telecom,
France Telecom, British Telecommunications plc, Teleglobe Inc, Sprint
Canada Inc., Bell Canada, Swisscom, Telstra Corporation Limited, Hermes
and Deutsche Telekom AG. In addition, we are focused on buying IRUs. In
addition, we have purchased or committed to purchase IRUs on projects
such as: TAT12/13, TAT 14, Gemini, Southern Cross, CANTAT 3, Germany-
U.K. 6, Japan-U.S. and NTL. We expect to further expand our Extranet in
this manner to support growth as well as to improve cost efficiencies.
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. Local loop facilities. We utilize many local facilities-based carriers
to connect our POPs and CANs. For example, in the New York area, we have
contracted with major local providers such as Bell Atlantic Corporation,
MCI WorldCom Inc. and AT&T Corp. to provide diversely routed, fiber
optic facilities from our POP to the customers' premises. Where
possible, we utilize carriers that employ fiber optic ring protection
for reliability and disaster recovery.
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 POPs. As of March 31, 1999, our salesforce consisted of
28 commissioned salespeople: 16 of whom were in the Americas, seven of
whom were in Europe and five of whom were in the Asia/Pacific region.
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.
We have developed programs to attract and train high quality, motivated
sales representatives who, in addition to having strong financial
services industry backgrounds, technical skills and knowledge of
industry applications, have consultative sales experience. These
programs include competitive compensation plans including stock option
pools, technical sales training and consultative selling technique
training. Sales representatives from our United States and
international operations jointly attend training programs in order to
ensure an integrated sales approach domestically and internationally.
. Expand our salesforce. We believe that our rate of growth is directly
related to the size and productivity of our sales force. As a result we
are focused on expanding our salesforce over the next 12 to 18 months
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 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 CANs 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, if they are not connected already. These secondary salesforces
have been able to significantly grow the number of on-net user sites on
the 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
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globally and confers a unified corporate level sales relationship
between our regional salesforces for our customers worldwide.
. Coordinate joint sales efforts with 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.
We maintain a high profile in the financial services marketplace with
targeted marketing and public relations efforts. We place our company
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."
Customers
Our customers are members of the financial services community. The
following is a representative list of customers from whom we generated at
least $25,000 in revenues during the six months ended March 31, 1999. Deutsche
Bank and Optimark Inc. accounted for 23% and 14%, respectively, of our
consolidated revenues for the fiscal year ended September 30, 1998, and 11%
and 14%, respectively, of our consolidated revenues for the six months ended
March 31, 1999.
<TABLE>
<S> <C> <C>
ABN Amro Incorporated Fuji Securities Incorporated Moore Capital
AIG Trading Corporation Futuresource/Bridge, L.L.C. Morgan Stanley Dean Witter & Co.
American Express
International Garban Broking Services Ltd. M. W. Marshall & Company Limited
Australia and New Zealand
Banking Group Generic Trading Inc. National Australia Bank Limited
BancBoston Robertson Stephens
Inc. GFI Ltd NationsBanc Montgomery Securities LLC
Bank of Montreal GNI Limited NatSource Inc.
The Bank of Nova Scotia Goldman, Sachs & Co. NatWest Securities Corp.
Bankers Trust Company Greenwich Capital Corp. Nesbitt Burns Inc.
Banque Paribas Gruntal & Co., L.L.C. Optimark Inc.
Barclays Bank PLC Hambrecht & Quist LLC OTA Limited Partnership
Bayerische Vereinsbank
Aktiengesellschaft Harlow Butler U.K. Ltd. Paloma Partners L.L.C.
Bear, Stearns & Co. Inc. Herzog Heine Geduld, Inc. PaineWebber Group Inc.
BT Alex. Brown Incorporated Hilliard Farber & Co. Inc. Power Merchants Group
Cantor Fitzgerald, L.P. HSBC Bank USA Prebon Yamane (USA) Inc.
Carr Futures Inc. ING Baring Furman Selz LLC Prudential Securities Incorporated
The Chase Manhattan Bank Intercapital Government Securities, Inc. RBC Dominion Securities Inc.
CHOICE! Energy LP ITG Inc. Rabobank International Ltd.
CIBC Oppenheimer Corp. Janus Distributors, Inc. Republic National Bank of New York
Citibank, N.A. J B Were & Son Inc. Reuters Holdings Plc
Commerzbank
Aktiengesellschaft Jefferies International Ltd. Salomon Smith Barney Inc.
Credit Agricole Indosuez J.P. Morgan & Co. Incorporated Sanford C. Bernstein & Co. Inc.
Credit Suisse First Boston,
Inc. Lazard Freres & Co. LLC SBC Warburg Dillon Read LLC
Dawnay Day & Co. Ltd. Lehman Brothers Inc. Schroder & Co. Inc.
D.E. Shaw & Co. Ltd. Liberty Eurasia Ltd. SG Cowen Securities Corporation
Deutsche Bank Long Term Capital Company Societe Generale
Donaldson, Lufkin & Jenrette Lloyd's Bank Soros Fund Management Company
Dresdner Bank AG Martin Brokers (U.K.) PLC Standard Bank London Ltd.
ED&F Mann International Meitan Traditional Co., Ltd. Standard Chartered Bank
Eurobrokers AS Merrill Lynch & Co., Inc. The Toronto Dominion Bank
Fiduciary Trust Co. Mitsui Trust & Banking Co., Ltd. Tradition North America Inc.
FIMAT USA, Inc. Moneyline Corporation Union Bank of Switzerland
First Union Corporation Moody's Investors Service, Inc. Westpac Banking Corporation
</TABLE>
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The following is a representative list of our content provider customers:
A-T Financial Information NewsEdge Corporation
DataView Corporation NYSE
Generic Trading PC Trader
Gov PX Sagemaker
IDEA TCAM (Technologies Inc.)
Market News Service International Townsend Analytics
MoneyLine Corporation WavePhore
Moody's Investors Services Wireless Financial Service
Neonet
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 NOCs, 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.
In addition to person-to-person customer service, we are developing other
methods of customer support through our Internet web site. We plan to include
various types of reporting, customer communication and billing, and we may
include payment and customer initiated order entry.
Case Studies
The following examples illustrate how three of our customers are using our
services and capabilities described in this prospectus to meet their
significant business needs:
Deutsche Bank. In 1995, Deutsche Bank sought to build a network to
interconnect its trading desks on a global basis, allowing traders to be in
constant voice contact with each other. These hoot & holler networks would
effectively create a virtual trading environment within Deutsche Bank. We
brought a worldwide outsourced solution to Deutsche Bank, providing both
network and hardware with local support for over 4,000 traders in more than 20
countries.
We deployed the initial hoot & holler networks for Deutsche Bank in late
1995 and early 1996. Since then, Deutsche Bank has added other voice and data
services in numerous locations throughout the world. Our relationship with
Deutsche Bank exemplifies the global reach and enhanced services that we offer
our customers.
Optimark. Optimark Technologies Inc. has developed a new electronic
securities trading computer-based matching system designed to anonymously match
buyers and sellers.
Optimark Technologies needed a vast communications network to interconnect
its customers (over 200 major asset managers/funds nationwide), its data center
in Toronto, Canada and its various partners including the Pacific Stock
Exchange in California and Securities Industry Automation Corporation in New
York. Optimark Technologies sought to outsource its entire network to one
network provider, and to that end, evaluated IXnet and a number of other
companies. Optimark Technologies selected IXnet in June 1997 for numerous
reasons. The most critical was our understanding of the trading environment and
our willingness to manage all aspects of hardware and network deployment, the
Extranet's flexibility, our senior management's
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commitment to the project and devoting the necessary technical and other
personnel necessary to design their trading system. To date, we have deployed
this network, including customer premises electronics of servers and routers to
more than 200 Optimark Technologies customers nationwide.
The Optimark Technologies relationship demonstrates the attractiveness of
our service offerings to companies seeking to deliver information or
applications to the financial services community. Optimark Technologies is
continuing to grow substantially by adding additional asset managers, exchanges
and partners as well as increasing its network requirements to its existing
locations.
MoneyLine. MoneyLine Corporation aggregates real-time market data, news,
commentary, historical prices, analytics and interactive applications from the
world's financial markets and delivers such information and applications to its
customers' desktops in a cost effective manner.
As a relatively new company, MoneyLine did not have a network to deliver its
information to potential customers, nor did it have the internal expertise to
establish such a network. Accordingly, MoneyLine sought a turnkey network
solution for the distribution of its information. Through our Extranet, we were
able to offer and rapidly deploy a highly reliable, secure, and fully
outsourced and managed network solution capable of delivering MoneyLine's
content to the desktops of MoneyLine's target market.
MoneyLine is able to direct its financial and technical resources toward
developing its application and building its business rather than developing and
maintaining a communications network. Today MoneyLine and IXnet are
implementing service to firms nationwide.
Competition
Our competition varies geographically and by service offerings. Currently,
while no one company dominates the voice and data communications market for the
financial services industry, many companies compete with us in individual
service categories and on a regional basis. We compete with and expect
continued competition from:
. Large interexchange carriers and partnerships. Many of the large
carriers, such as MCI WorldCom Inc., Cable & Wireless plc, Global One
and the AT&T Corp./British Telecommunications plc venture are expanding
their capabilities to support high-speed, end-to-end communications
services. These large carriers compete with us in the areas of switched
voice, outsourcing, premium voice and frame relay. Increasingly, their
bundled services include high-speed local access combined with
metropolitan and wide area networks services and we expect them to offer
combined data, voice and video services over these networks in the
future. These carriers have greater financial, marketing and
technological resources, have already deployed large scale networks,
have large numbers of existing customers and enjoy strong brand
recognition, and, as a result, are significant competitors.
. Specific product competitors and other communications companies. Several
companies, such as EQUANT N.V., Infonet Services Corporation, GAINS 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, premium voice and outsourcing.
These companies have significant experience in offering tailored
services and sell themselves as experts in such services and related
technology. We believe that they have the financial capability and
technical expertise to expand their existing networks and service
offerings to become more competitive.
. 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. These common carriers compete with us in
the areas of switched voice and managed
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bandwidth services and have marketing, financial and technical resources
substantially greater than ours. Common carriers are expanding the
capabilities of their network services and may be able to offer bundled
services that would be competitive with us if they receive regulatory
approval.
. 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. Further, these companies have
substantial resources and brand recognition.
. Resellers. Resellers, such as Business Networks International Inc.,
Sector, Inc. and WESTCom Corp., resell other companies' network services
and do not focus on building or managing their own networks. They
principally compete on price and do not focus on network quality,
features or functionality.
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 PUCs 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 PUCs. 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 PUCs 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 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.
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We and Saturn currently hold 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 PUCs 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 PUCs. 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 (with standard conditions) 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 IFBTL 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 ISVR 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
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telecommunications market. These regulatory reforms have been implemented over
the last year. 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. CUGs are communities of interest that are common among a
company and its subsidiaries or group of companies. The EU definition of CUGs
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 CUGs 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 CUG status and/or lack of interconnection to the public
switched network, we have been granted licenses in Belgium, Ireland and Italy
to provide voice and data services to CUGs. 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 CUG and our
lack of interconnection to the Swiss public switched telephone network.
Japan. On January 27, 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.
Hong Kong. On June 10, 1997, our subsidiary received from the Hong Kong
Government Office of the Telecommunications Authority a Public Non-Exclusive
Telecommunications Service, 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.
Singapore. On October 21, 1997, the Telecommunications Authority of
Singapore granted our Singapore subsidiary a license to operate a network in
Singapore for CUGs 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.
Brazil. On April 28, 1998, Anatel, the Brazilian Agencia Nacional de
Telecomunicacoes, granted our Brazilian subsidiary a Brazilian Limited Service
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 CUGs. Since the issuance of the Limited Service
License, Anatel has notified us that we must satisfy certain technical
requirements or face loss of our license. We are in the process of satisfying
these requirements.
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
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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.
Employees
As of May 31, 1999, IXnet and its subsidiaries employed 252 persons,
including 56 in sales and marketing, 27 in customer service and support, 18 in
finance and administration, 18 in engineering and 123 in network operations. 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.
Properties
Our properties consist of a combination of real estate leases in our name
and certain real estate facilities we share with IPC, which will be governed by
our inter-company agreement with IPC. See "Certain Relationships and Related
Transactions--Real Estate."
We lease directly:
. 14,000 square feet in New York City where our New York NOC and primary
POP are located, under subleases expiring in March 2002;
. 9,400 square feet in Newark, New Jersey where our second New York area
POP is currently being built, under a lease expiring in April 2009;
. 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; 1,900
square feet in Hong Kong; 1,340 square feet in Singapore; and 1,330
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.
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 NOC are located, under leases expiring in December 2010; and
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. Various spaces, with square footage between 750 and 3,000 in Atlanta,
Georgia, Boston, Massachusetts, Chicago, Illinois, Houston, Texas, Los
Angeles and San Francisco, 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.
Legal Proceedings
Neither we nor any of our subsidiaries are involved in any material pending
legal proceedings.
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MANAGEMENT
Directors and Executive Officers
The following table shows information about our executive officers and
directors, including their ages as of March 31, 1999. Each person holds the
same positions with both IXnet, Inc. and International Exchange Networks, Ltd.
Each director began service as a director of International Exchange Networks as
indicated in such director's biography and began service as a director of IXnet
upon its formation in May 1999.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Richard W. Smith 46 Chairman of the Board
(1)(2).................
David A. Walsh.......... 37 Chief Executive Officer and Director
Gerald E. Starr......... 45 President and Director
Charles F. Auster....... 47 Executive Vice President, Chief Operating Officer
and Director
Brian L. Reach (3)...... 44 Chief Financial Officer
James M. Demitrieus 51 Executive Vice President
(3)....................
Anthony M. Servidio..... 53 Senior Vice President, Sales
William E. Walsh........ 32 Senior Vice President, Corporate Operations
Robert D. Woog.......... 52 Senior Vice President, Network Development
John M. Faccibene....... 53 Managing Director, Americas
Peter Hase.............. 41 Managing Director, Europe
Drew Kelton............. 40 Managing Director, Asia Pacific
Paul Pluschkell......... 34 Vice President, Liquidity Group
Richard M. Cashin, Jr. 46 Director
(2)....................
Douglas T. Hickey 43 Director
(1)(2).................
Douglas J. Mello ....... 56 Director
John T. Sharkey ........ 62 Director
Peter A. Woog (1)....... 56 Director
</TABLE>
- ---------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Mr. James M. Demitrieus will assume the position of Chief Financial Officer
on July 15, 1999.
Richard W. Smith has served as our Chairman of the Board and a director
since May 1999. He has served as a general partner of the general partners of
Allegra Capital Partners III, L.P. since May 1995, of Lawrence, Tyrrell, Ortale
& Smith, L.P. since December 1985, and of Lawrence, Tyrrell, Ortale & Smith II,
L.P. since July 1990. He is also a director of IPC, as well as several private
companies. He has participated in the private equity industry since 1979 and
was formerly employed by Citicorp Venture Capital, Ltd.
David A. Walsh founded our company in May 1993. Mr. Walsh has served as our
Chief Executive Officer since April 1998 and as a director since May 1993. From
June 1993 to May 1999, he served as our President. Mr. Walsh has also served as
an Executive Vice President and director of IPC since May 1998. Mr. Walsh also
co-founded Voyager Networks in 1993 and served as its Chief Executive Officer
and President until June 1995, when International Exchange Networks, Ltd.
commenced operations. Voyager Networks was a New York City based Internet and
data communications company which was acquired by GlobalCenter and then sold to
Frontier Corporation in February 1998. Prior to June 1993, Mr. Walsh held
various technology related positions in the financial community, including at
the New York Commodities Exchanges (NYCE, CSCE, NYMEX, COMEX), Garban/Garvin
Guybutler, an interdealer broker of government bonds, and Drexel Burnham
Lambert Trading Corporation.
Gerald E. Starr has served as our President and a director since May 1999.
Mr. Starr has served as President and Chief Executive Officer and a director of
IPC since December 1998. From January 1997 to December 1998, he was IPC's
Executive Vice President, Turret Systems and from February 1996 to January
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1997, he was IPC's Vice President of Manufacturing and Engineering. Since April
1995, he has also served as President of IPC Bridge, Inc., a wholly-owned
subsidiary of IPC, which acquired the assets of Bridge Electronics, Inc. in
April 1995. Mr. Starr founded Bridge Electronics, Inc. in 1987 and built it
into a leading provider of digital open line speaker systems to the foreign
exchange trading industry. Mr. Starr was the President and a director of Bridge
Electronics, Inc. from its founding until it ended its operations in April
1995. Previously, Mr. Starr founded Turret Equipment Corporation in 1980 and
sold it to Tie Communications in 1984, where he remained until 1990.
Charles F. Auster has served as our Executive Vice President and Chief
Operating Officer and has been a director since May 1998. Mr. Auster was a
founding beneficial stockholder of IXnet, and from February 1994 to June 1995,
Mr. Auster served as our Executive Vice President of Finance and Operations and
a director. From December 1995 until he negotiated the sale of Voyager
Networks, Inc. to GlobalCenter, in February 1998, he served as its President
and Chief Executive Officer and as one of its directors. From September 1991 to
March 1993, he served as Executive Vice President and a director of Ameritrade,
Inc., a Washington-based trade and investment banking firm. Mr. Auster is a
director of American Utilicraft, a design and manufacturing aircraft company,
Lucent Digital Video, an internal venture of Lucent Corp., and several
charitable organizations. Mr. Auster is a member of the District of Columbia
Bar and the Virginia Bar.
Brian L. Reach has served as our Chief Financial Officer since May 1997. Mr.
Reach has also served as Chief Financial Officer of IPC since May 1997, as Vice
President of IPC since November 1997 and as a director of IPC since December
1998. Prior to joining IPC, Mr. Reach was employed by the Celadon Group Inc.,
an international transportation company, as its Chief Financial Officer from
November 1993 to April 1996, and its Vice President--Special Projects from
April 1996 to April 1997. From September 1990 through November 1993, he served
as Chief Financial Officer of Cantel Industries, Inc., an international
distributor of medical and scientific products and ergonomic seating. Mr. Reach
is a Certified Public Accountant.
James M. Demitrieus will become our Chief Financial Officer on July 15,
1999. Mr. Demitrieus negotiated the acquisition of Ecoban Finance Limited by SK
Global America, Inc. in September 1990, and served as its President and Chief
Executive Officer from its acquisition to June 1999. From September 1993 to
June 1998, Mr. Demitrieus served as the President and Chief Executive Officer
of SK Global America, Inc., and from September 1990 to September 1993, he
served as its Executive Vice President and Chief Financial Officer.
Anthony M. Servidio was a founding stockholder of our company and has served
as our Senior Vice President, Sales since June 1995. From February 1990 to June
1995, Mr. Servidio served as Vice President of Sales of WorldCom's Banking and
Finance team. From June 1985 to February 1990, Mr. Servidio served as Vice
President, Sales with TRT/FTC Communications, a full service telecommunications
carrier. From July 1965 to June 1985, Mr. Servidio held various sales
responsibilities with RCA Global Communication, a larger inter-exchange
carrier, including Vice President of the Banking and Finance Division.
William E. Walsh has served as our Senior Vice President, Corporate
Operations since March 1999 and our Vice President of Marketing from October
1995 to March 1999. From August 1990 through October 1995, Mr. Walsh served as
Director of Marketing, Director of New Business Development, National Business
Manager, and Product Manager with Kirschner Medical Corporation, a medical
device manufacturer with global sales and operations. His responsibilities
included marketing, product management and developing new business. From July
1988 through August 1990, he held product management positions with Thackray
Reconstructive Systems and Osteonics Corporation.
Robert D. Woog has served as our Senior Vice President, Network Development
since April 1997 and our Vice President of Global Operations from July 1995 to
April 1997. Mr. Woog also served as a director from May 1998 to May 1999. From
April 1988 to July 1995, Mr. Woog served as Vice President of Trading Systems
for Positron Industries, a trading turret manufacturer. He was responsible for
sales, installation, service and maintenance of all turret products. From June
1986 to December 1987, Mr. Woog was Director of Quality
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Assurance for Communications Techniques, Inc., a telecommunications equipment
manufacturer. He also served as Executive Vice President of Digital Transervice
Corporation from 1985 to 1986. Mr. Woog held various positions with AT&T Long
Lines from 1968 to 1985. Mr. Woog also served as Assistant Director General for
the Telecommunications Company of Iran from 1975 to 1978.
John M. Faccibene has served as our Managing Director, Americas since March
1999 and our Vice President of Network Implementation from December 1998 to
March 1999. From September 1997 until December 1998, Mr. Faccibene was an
executive director at CIBC Oppenheimer, Corp., an investment banking firm,
where he was responsible for all technology, management and expenses for
communications/market data services and trading floors. From June 1988 until
August 1997, he was a senior vice president of Garban plc, an interdealer
broker of government bonds, where he was also responsible for communications
and trading floors. Mr. Faccibene is a director of Avesta Technology, a
software start-up company, Timestep, a software security company, and Netrix, a
network hardware company. He also served as a director of several financial and
telecommunications industry organizations, including the Security Industry
Association, the Wall Street Telecommunications Executive Committee and NYNEX
Executive Forum.
Peter Hase has served as our Managing Director, Europe since December 1998.
Prior to joining us, Mr. Hase was the Business Development Manager, Europe of
Saturn Global Network Services from November 1993 until we acquired it in
December 1998. His responsibilities included all network development activities
throughout the European Region, which included 13 countries. Mr. Hase also
served as a director of Saturn Global Network Services from 1997 until it was
acquired.
Drew Kelton has served as our Managing Director, Asia Pacific since December
1998. Prior to joining us, Mr. Kelton was a founder and the Managing Director
of Saturn Global Network Services from September 1992 until we acquired it in
December 1998. His responsibilities included sales and operations in the Asia
Pacific area.
Paul Pluschkell has served as our Vice President, Liquidity Group since
February 1998. From March 1997 until IPC acquired MXNet in February 1998, Mr.
Pluschkell served as President and Chief Executive Officer of MXNet. From
August 1995 to February 1997, Mr. Pluschkell was the Sales Manager of Open
Systems and IMS Technical Manager for the Northeast Region of Reuters America,
a provider of news and information. From August 1994 to August 1995, Mr.
Pluschkell served as the Chief Information Officer of Rumson Capital
Management, LLP, an asset management group. Prior to working at Rumson Capital
Management, LLP, he held various positions with Reuters.
Richard M. Cashin, Jr. has served as a director since April 1998. Mr. Cashin
has been employed by Citicorp Venture Capital, Ltd. since September 1980, and
has been President since December 1994. Mr. Cashin is a director of IPC, as
well as Cable Systems International, Inc., Delco Remy International, Inc.,
Delta Terminal Services, Inc., Euromax International plc, Fairchild
Semiconductor Corporation, FFC Holding, Inc., Gerber Childrenswear Inc., Hoover
Group, Lifestyle Furnishings International, Ltd., MSX International, Inc.,
Thermal Engineering International Corporation and Titan Wheel International,
Inc.
Douglas T. Hickey has served as a director since May 1999. Mr. Hickey has
served as President and Chief Executive Officer and a director of Critical Path
Inc. since October 1998. From February 1998 to October 1998, Mr. Hickey served
as Executive Vice President of Frontier Corporation, a telecommunications
company, and as President of Frontier GlobalCenter. From July 1996 to February
1998, Mr. Hickey served as President and Chief Executive Officer of
GlobalCenter, Inc., a web hosting company. In February 1998, GlobalCenter was
acquired by Frontier. From December 1994 to July 1996, Mr. Hickey was President
of Internet services at MFS Communications, a provider of high-speed fiber-
optic services. From September 1990 to November 1994, Mr. Hickey was general
manager of North American sales and field operations at Ardis, a Motorola
company.
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Douglas J. Mello has served as a director since May 1999. Mr. Mello was
employed by Bell Atlantic, and its predecessor corporations, from 1965 to
March 1999. He served as President, Large Business Sales--North of Bell
Atlantic from August 1997 to March 1999. From March 1996 to August 1997, he
was NYNEX Vice
President--Business Marketing & Sales, responsible for all business customers
in the New York and New England areas. From January 1994 to March 1996, he
served as Vice President--Sales for NYNEX Corporation. Prior to 1994, Mr.
Mello was the Group Vice President--Manhattan Market Area for New York
Telephone, were he was responsible for the provisioning of telecommunications
technology from 1985 to 1991, Mr. Mello was President of Business Information
Systems Corp. Mr. Mello is a director of Telexis Co. and Netrix Corporation.
John T. Sharkey has served as a director since May 1999. Mr. Sharkey served
in various positions with MCI WorldCom, including Vice President, from June
1986 to April 1999. He was responsible for assisting in the design and
implementation of their corporate large account program. From May 1984 to June
1986, he was Regional Director of Major Accounts at Southern New England
Telephone. From December 1982 to March 1984, Mr. Sharkey was Vice President of
National Accounts with Optimum System, Inc., a Silicon Valley start up voice-
messaging company. Prior to December 1982, Mr. Sharkey held positions with
General Electric Company and ROLM Corporation. Mr. Sharkey is a director of
Mutual of America Institutional Funds and several charitable organizations.
Peter A. Woog has served as a director since May 1999. Mr. Woog has served
as President and Chief Executive Officer for Cable Systems International since
October 1995. From May 1989 to October 1995, Mr. Woog was AT&T's Copper Cable
Products Vice President, responsible for the copper cable products business
unit. Mr. Woog also serves as President and Chief Executive Officer and a
director of Cable Systems Holding Company. Mr. Woog is chairman of the board
of directors of IPC and is a director of Arizona Association of Industries and
The Samaritan Health Systems.
Under the terms of the Amended and Restated Investor Agreement, dated as of
April 9, 1998, by and among IPC, Cable Systems Holding, LLC, Cable Systems
International, Inc., Allegra Capital Partners III, L.P., Richard P.
Kleinknecht, David A. Walsh, Anthony M. Servidio and Charles F. Auster, IPC
agreed to vote for David A. Walsh to be on the board of directors for as long
as we remain a wholly owned subsidiary of IPC. After this offering we will no
longer be wholly owned by IPC. Under the terms of their employment agreements,
we have agreed that Messrs. David A. Walsh and Charles F. Auster would serve
as directors.
David A. Walsh and William E. Walsh are brothers. Peter A. Woog and Robert
D. Woog are brothers.
Information About Our Board of Directors
Composition. Our certificate of incorporation sets the size of our board of
directors at between three and eleven members, and our by-laws empower the
board of directors to decide how many directors we will have within that
range. Following this offering, our board of directors will consist of nine
members. Each director shall be elected at the annual meeting of stockholders,
and shall hold office until such director's successor is elected and qualified
or until such director's earlier resignation or removal.
Director Compensation. In the past, we have not paid our directors any
compensation for their service as directors. We will pay each of our non-
employee directors a retainer of $20,000 for each fiscal year in which they
served as a director. We will only pay this retainer to our non-employee
directors who attended at least 75% of the total number of meetings of the
board of directors held in that fiscal year. We have also granted options to
purchase 79,351 shares of our common stock to each of our non-employee
directors under our 1999 Stock Option Plan. For additional information about
the 1999 Stock Option Plan, please refer to the discussion under the caption
"Executive Compensation--IXnet Stock Option Plan." For the purposes of
director compensation, Messrs. Douglas T. Hickey, Douglas J. Mello, John T.
Sharkey, Richard W. Smith, Richard M. Cashin and Robert D. Woog, are
considered non-employee directors. Mr. Richard W. Smith has elected not to
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receive the cash retainer. We do not pay additional compensation for service
as a member or as the chairman of a board committee.
Committees. Historically, our board of directors has not used a committee
structure in managing our affairs. However, it has now established standing
audit and compensation committees. Among other functions, the audit committee
will:
. make recommendations to the board of directors regarding the selection
of independent auditors;
. review the results and scope of the audit and other services provided by
our independent auditors;
. review our financial statements; and
. review and evaluate our internal control functions.
The compensation committee will establish a compensation philosophy to be
applied in making compensation decisions for our executive officers, set
executive officer salaries and administer our executive officer bonus plans as
well our 1999 Stock Option Plan.
Compensation Committee Interlocks and Insider Participation
Prior to May 1998, our board was responsible for establishing executive
officer compensation. However, in practice S. Terry Clontz, the then serving
Chief Executive Officer, and Brian L. Reach, the Chief Financial Officer, were
responsible for establishing executive officer compensation. The compensation
of Messrs. S. Terry Clontz and Brian L. Reach was set by the compensation
committee of IPC and by employment agreement. Beginning in May 1998, David A.
Walsh, in consultation with the compensation committee of IPC, determined the
compensation of our executive officers, other than Mr. Anthony M. Servidio.
Messrs. David A. Walsh's and Anthony M. Servidio's compensation was set by the
compensation committee of IPC and by their employment agreements.
From October 1, 1997 to May 22, 1998, our board consisted of Messrs. David
A. Walsh, Anthony M. Servidio, Richard Kleinknecht, Peter Kleinknecht and
Russell Kleinknecht. From May 22, 1998 to September 30, 1998, our board
consisted of Messrs. David A. Walsh, Charles F. Auster, S. Terry Clontz and
Robert D. Woog.
Messrs. David A. Walsh, Anthony M. Servidio, Charles F. Auster and S. Terry
Clontz served as executive officers during these periods. During our fiscal
year ended September 30, 1998, none of our executive officers served as a
director or member of the compensation committee or equivalent body of another
entity, except IPC, of which any of our directors was an executive officer.
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Executive Compensation
The following table provides information about the compensation earned by
our Chief Executive Officer during the year ended September 30, 1998, and by
the four other most highly compensated persons serving as our executive
officers at September 30, 1998. The table also provides information about an
additional executive officer who would be included in the table if his salary
for the period employed was annualized. We refer to these six executive
officers as our named executive officers.
The table includes, under the column captioned Salary, any pre-tax deferrals
made under the IPC 401(k) plan with respect to the year ended September 30,
1998. The column captioned Securities Underlying Options Granted reflects
options granted under the IPC Information Systems, Inc. 1998 Stock Incentive
Plan with an exercise price or $10.50 per share to purchase shares of IPC
Communications common stock.
The column captioned Other Annual Compensation does not include certain
perquisites and other personal benefits, securities or property where the
aggregate value does not exceed the lesser of $50,000 or 10% of the officer's
salary and bonus.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
------------------------------ ------------
Securities
Underlying
Fiscal Other Annual Options All Other
Name and Principal Position Year Salary Bonus(1) Compensation Granted Compensation
- --------------------------- ------ -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
David A. Walsh........... 1998 $199,423 $281,250 $44,745(2) 184,704 $195,000(3)
Chief Executive Officer 1997 190,000 -- -- -- --
1996 190,000 128,938 -- -- --
Brian L. Reach........... 1998 186,153 370,000 8,400(2) 92,352 4,800(3)
Chief Financial
Officer(4) 1997 58,462 23,100 2,000(2) -- 2,000(3)
1996 -- -- -- -- --
Anthony M. Servidio(5)... 1998 190,000 195,833 44,745(2) -- 136,252(3)
Senior Vice President,
Sales
Robert D. Woog(5)........ 1998 138,918 202,500 -- 46,176 66,168(3)
Senior Vice President,
Network Development
William E. Walsh(5)...... 1998 122,393 56,875 -- 46,176 64,227(3)
Senior Vice President,
Corporate Operations
Charles F. Auster(5)(6).. 1998 75,000 48,750 -- 92,352 37,687(3)
Chief Operating Officer
and
Executive Vice President
</TABLE>
- ---------------------
(1) The cash bonus payments shown in the table for the year ended September 30,
1998 with respect to all of the named executive officers include (a) except
for Mr. Anthony M. Servidio, cash bonus payments awarded to them under the
IPC Information Systems Management Performance Plan and (b) cash payments
made in connection with the successful completion of IPC's recapitalization
transaction to Messrs. David A. Walsh, Anthony M. Servidio and Robert D.
Woog of $150,000 each, Mr. Brian L. Reach of $60,000 and Mr. William E.
Walsh of $10,000 and (c) in connection with IPC's recapitalization
transaction, Mr. Brian L. Reach received a payment of $204,000 in lieu of a
stock option grant by IPC. The cash payments made to Mr. Anthony M.
Servidio also include the minimum guaranteed commission payments required
to be made to him pursuant to his Amended and Restated Employment Agreement
dated December 18, 1997.
(2) Includes $44,745 paid by us on behalf of Messrs. David A. Walsh and Anthony
M. Servidio for legal fees incurred by them in connection with the
negotiation of their Amended and Restated Employment Agreements with us and
with respect to other company related matters. These amounts also include a
tax gross-up payment made by us to each officer in respect of the payment
of these legal fees. With respect to Mr. Brian L. Reach, consists of
payments for automobile allowance.
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(3) Includes (i) cash payments made pursuant to IPC's recapitalization
transaction to settle outstanding stock option grants made under the IPC
Information Systems, Inc. 1994 Stock Option Plan in the following amounts:
for Mr. David A. Walsh, $195,000; for Mr. Anthony M. Servidio, $130,000;
for Mr. Robert D. Woog, $62,000 and Mr. William E. Walsh, $62,000; (ii)
amounts paid by IXnet as matching and/or profit sharing contributions to
the 401(k) Plan; (iii) a $1,500 cash payment made to Mr. Anthony M.
Servidio for a successful employee referral and (iv) a consulting fee
totaling $37,687 paid to Mr. Charles F. Auster.
(4) The compensation reported for Mr. Brian L. Reach includes compensation for
services to IPC. For the years ended September 30, 1998 and 1997, 20% and
12%, respectively, of Mr. Brian L. Reach's compensation was allocated to us
for services he performed as our chief financial officer. His compensation
is charged to us pursuant to the allocation of indirect general and
administrative expenses by IPC, and may not reflect the actual portion of
his time spent acting as our Chief Financial Officer. Mr. Brian L. Reach's
compensation for the year ended September 30, 1997, reflects a partial year
because he joined IPC and us during that year. Mr. Reach will serve as
chief financial officer until July 15, 1999 at which time Mr. James M.
Demitrieus will become the chief financial officer.
(5) Compensation for the years ended September 30, 1996 and 1997 for the named
executive officers is not shown here, because it has not previously been
disclosed in filings with the SEC.
(6) Mr. Charles F. Auster became an executive officer in May 1998. His
compensation, including a pro-rated bonus, reflects the period from May
until September 1998. For the year ended September 30, 1998, Mr. Charles F.
Auster's compensation, on an annualized basis, would have been $210,000
plus a bonus equal to an additional 50% of his salary.
Employment Agreements
The following describes the terms of our employment agreement, with our
executive officers.
Employment Agreement with David A. Walsh. International Exchange Networks is
a party to an amended and restated employment agreement dated as of December
18, 1997, and amended on June 1, 1999, with David A. Walsh pursuant to which he
serves as Chief Executive Officer and a director of IXnet. This agreement has a
five-year term and provides for Mr. Walsh to receive a minimum annual base
salary of $225,000 and a discretionary cash bonus with a target of no less than
$175,000 each year. Mr. Walsh also receives medical, insurance, retirement and
other types of fringe benefits and perquisites that are commensurate with his
position with us. Under his employment agreement, Mr. Walsh was granted an
option to purchase 1,763,352 shares of our common stock, on May 4, 1999. In the
event that Mr. Walsh terminates his employment with us prior to the expiration
of the term for good reason, or if we terminate his employment other than for
just cause, we would be required to pay him an amount equal to the product of
the greater of three or the number of years remaining in the term and the sum
of Mr. Walsh's then-current base salary and bonus.
Employment Agreement with Charles F. Auster. International Exchange Networks
is a party to an amended employment agreement dated as of June 1, 1999, and
amended on June 1, 1999 with Charles F. Auster pursuant to which he serves as
Executive Vice President, Chief Operating Officer and a director. This
agreement has a rolling four year term that converts to a fixed four year term
if either party notifies the other of an election to discontinue the
extensions, or upon the termination of Mr. Auster's employment. Mr. Auster is
paid a base salary of $210,000 and is eligible for an annual discretionary
bonus, as determined by the Board. In the event that Mr. Auster terminates his
employment with us prior to the expiration of the term for good reason, or if
we terminate his employment other than for just cause, we would be required to
pay him an amount equal to one year's salary and a bonus in an amount equal to
50% of his then-current base salary.
Employment Agreement with James M. Demitrieus. International Exchange
Networks is a party to an employment agreement dated as of July 1, 1999 with
James M. Demitrieus pursuant to which he serves as an Executive Vice President
and shall serve as our Chief Financial Officer as of July 15, 1999. This
agreement has a rolling four year term that converts to a fixed four year term
if either party notifies the other of an election to discontinue the
extensions, or upon the termination of Mr. Demitrieus's employment. Under the
employment agreement, Mr. Demitrieus is entitled to receive an annual base
salary of $200,000 and an annual bonus with a
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target of 50% of his base salary. In the event that Mr. Demitrieus terminates
his employment with us prior to the expiration of the term for good reason, or
if we terminate his employment other than for just cause, we would be required
to pay him an amount equal to one year's salary and a prorated bonus for the
portion of the calendar year that he worked at the time of the termination.
Employment Agreement with Anthony M. Servidio. International Exchange
Networks is a party to an amended and restated employment agreement dated as of
December 18, 1997 with Anthony M. Servidio under which he serves as Senior Vice
President, Sales. Mr. Servidio's employment agreement has a five-year term. Mr.
Servidio is entitled to receive a minimum annual base salary of $190,000 and a
commission-based bonus with a guaranteed minimum draw of $110,000 annually. In
the event that Mr. Servidio terminates his employment with us prior to the
expiration of the term for good reason, or if we terminate his employment other
than for just cause, we would be required to pay him an amount equal to three
year's salary and bonus.
Employment Agreement with William E. Walsh. International Exchange Networks
is a party to an employment agreement dated as of June 1, 1999 with William E.
Walsh pursuant to which Mr. Walsh serves as Senior Vice President, Corporate
Operations. Mr. Walsh's employment agreement has a rolling four year term that
converts to a fixed four year term if either party notifies the other of an
election to discontinue the extensions, or upon the termination of Mr. Walsh's
employment. Under the employment agreement, Mr. Walsh is entitled to receive an
annual base salary of $150,000 and is eligible to receive an annual bonus with
a target of 50% of his base salary. In the event that Mr. Walsh terminates his
employment with us prior to the expiration of the term for good reason, or if
we terminate his employment other than for just cause, we would be required to
pay him an amount equal to one year's salary and a prorated bonus for the
portion of the calendar year that he worked at the time of the termination.
Employment Agreement with John M. Faccibene. International Exchange Networks
is a party to an employment agreement dated as of June 1, 1999 with John
Faccibene pursuant to which he serves as Managing Director, Americas. This
agreement has a rolling four year term that converts to a fixed four year term
if either party notifies the other of an election to discontinue the
extensions, or upon the termination of Mr. Faccibene's employment. Under the
employment agreement, Mr. Faccibene is entitled to receive an annual base
salary of $144,000 and an annual bonus with a target of 50% of his base salary.
In the event that Mr. Faccibene terminates his employment with us prior to the
expiration of the term for good reason, or if we terminate his employment other
than for just cause, we would be required to pay him an amount equal to one
year's salary and a prorated bonus for the portion of the calendar year that he
worked at the time of the termination.
Employment Agreement with Peter Hase. Saturn Global Network Services (UK)
Ltd., a wholly owned indirect subsidiary of International Exchange Networks is
a party to an employment agreement dated as of August 6, 1998 with Peter Hase
pursuant to which he serves as Regional Director, Europe. Mr. Hase's employment
agreement has an initial term of two years and is automatically renewable for
successive one-year terms, unless either party notifies the other of an
election to terminate 90 days prior to any scheduled renewal. Mr. Hase is paid
a base salary of Sterling 90,000 and is eligible for an annual discretionary
bonus with a target of 40% of his base salary. In the event that Mr. Hase
terminates his employment with us prior to the expiration of the term for good
reason, or if we terminate his employment other than for just cause, we would
be required to pay him an amount equal to the greater of one year's salary or
his salary for the remainder of the term, in addition to any bonus that he
would have received had such termination not occurred.
Employment Agreement with Drew Kelton. Saturn Global Network Services Pty
Ltd., a wholly owned indirect subsidiary of International Exchange Networks, is
a party to an employment agreement dated as of August 6, 1998 with Drew Kelton
pursuant to which he serves as Regional Director, AsiaPacific. Mr. Kelton's
employment agreement has an initial term of two years and is automatically
renewable for successive one-year terms, unless either party notifies the other
of an election to terminate 90 days prior to any scheduled renewal. Mr. Kelton
is paid a base salary of $185,000 Australian, and is eligible for an annual
discretionary bonus with a target of 40% of his base salary. In the event that
Mr. Kelton terminates his employment with us prior to the
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expiration of the term for good reason, or if we terminate his employment other
than for just cause, we would be required to pay him an amount equal to the
greater of one year's salary or his salary for the remainder of the term, in
addition to any bonus that we would have received had such termination not
occurred.
Employment Agreement with Paul Pluschkell. International Exchange Networks
is a party to an employment agreement dated as of June 1, 1999 with Paul
Pluschkell pursuant to which he serves as an executive officer. This agreement
has a rolling four year term that converts to a fixed four year term if either
party notifies the other of an election to discontinue the extensions, or upon
the termination of Mr. Pluschkell's employment. Under the employment agreement,
Mr. Pluschkell is entitled to receive an annual base salary of $150,000 and an
annual bonus in an amount to be determined by the Board, provided, however,
that in no event will the sum of the base salary and annual bonus for any
calendar year be less than $240,000. In the event that Mr. Pluschkell
terminates his employment with us prior to the expiration of the term for good
reason, or if we terminate his employment other than for just cause, we would
be required to pay him an amount equal to one year's salary and a prorated
bonus for the portion of the calendar year that he worked at the time of the
termination.
Our employment agreements with each of our executive officers also provide
each of them with continued benefit coverage in the event that we terminate
their employment without cause during the term of the agreement, or if one of
them terminates his employment for good reason. The agreements also contain
provisions preventing such officer from competing with us or soliciting our
employees during and, for specific periods, after the term of employment.
Stock Option Grants
IPC Stock Option Plan. The following table shows information about options
granted during the year ended September 30, 1998 to our named executive
officers under the IPC Information Systems, Inc. 1998 Stock Incentive Plan. All
of the options granted during the year ended September 30, 1998 were options to
purchase common stock of IPC and were granted under this plan. All of these
options have a ten-year term, and are fully vested and exercisable at the fair
market value of the IPC Communications common stock on the date of grant.
Option Grants in Year Ended September 30, 1998
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Share Price Appreciation
Individual Grants for Option Term(1)
---------------------------------------------- ---------------------------
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base
Options Employees in Price Expiration 5% 10%
Name Granted Fiscal Year(2) ($/Share) Date ($) ($)
---- ---------- -------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
David A. Walsh.......... 184,704 16.7 10.50 4/30/08 1,219,673 3,090,891
Brian L. Reach.......... 92,352 8.3 10.50 4/30/08 609,837 1,545,446
Anthony M. Servidio..... -- -- -- -- -- --
Robert D. Woog.......... 46,176 4.2 10.50 4/30/08 304,918 772,723
William E. Walsh........ 46,176 4.2 10.50 4/30/08 304,918 772,723
Charles F. Auster....... 92,352 8.3 10.50 4/30/08 609,837 1,545,446
</TABLE>
- ---------------------
(1) Represents the potential value of options granted at assumed 5% and 10%
rates of compounded annual stock appreciation for ten years from the date
the options were granted.
(2) These percentages represent the percent of total options granted to our
employees and employees of IPC.
Prior to the consummation of the IPC recapitalization transaction on April
30, 1998, our executive officers participated in the IPC 1994 Stock Option
Plan. As of the recapitalization, each option outstanding under that plan was
cancelled in consideration of a cash payment equal to the product of (1) the
excess, if any, of $10.50
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over the per share exercise price of such option and (2) the number of shares
of IPC common stock subject to such option. The following table shows
information about options granted to our named executive officers under this
plan which were canceled and for which cash payments were made:
Aggregated Option Exercises in Year Ended
September 30, 1998 and Year-End Option Values
<TABLE>
<CAPTION>
Former Option Plan Stock Incentive Plan
-------------------------------- ---------------------------------------------------
Number of Securities
Options Underlying Unexercised Value of Unexercised In-
Canceled Value Options at Fiscal the-Money Options
under Former Realized on Year-End (#) at Fiscal Year-End ($)
Name Option Plan (#) Cancellation ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------ --------------- ---------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
David A. Walsh.......... 30,000 195,000 0/184,704 0/0
Brian L. Reach.......... 0 0 0/92,352 0/0
Anthony M. Servidio..... 20,000 130,000 0/0 0/0
Robert D. Woog.......... 13,000 62,000 0/46,176 0/0
William E. Walsh........ 13,000 62,000 0/46,176 0/0
Charles F. Auster....... 0 0 0/92,352 0/0
</TABLE>
- ---------------------
Except for such deemed exercises resulting in cash-out payments, no named
executive officer exercised any stock options during the year ended September
30, 1998.
IXnet Stock Option Plan. We have adopted the IXnet 1999 Stock Option Plan
for our employees, officers, directors and consultants and for the employees,
officers, directors and consultants of our parent and subsidiary companies. We
have reserved 7,053,409 authorized but unissued shares of our common stock for
issuance on exercise of stock options granted under this plan. As of July 1,
1999, we have granted options to purchase 6,530,184 shares of our common stock
to the following individuals and groups:
<TABLE>
<CAPTION>
Name Number of Shares
<S> <C>
David A. Walsh................................................. 1,763,352
Brian L. Reach................................................. 60,836
Anthony M. Servidio............................................ 103,450
Robert D. Woog................................................. 103,450
William E. Walsh............................................... 243,343
Charles F. Auster.............................................. 290,953
All executive officers as group (12 persons)................... 4,180,911
All non-employee directors (6 persons)......................... 476,106
All others (120 persons)....................................... 1,873,167
</TABLE>
All of these options are incentive stock options for federal income tax
purposes up to applicable limits, have a term of 10 years and are subject to
earlier expiration upon the option holder's termination of employment. The
options have an exercise price of $13.96 per share. Mr. David A. Walsh's
options were 100% vested when granted. All other options vest at the rate of
25% on the first anniversary of the grant date and an additional 2 1/12% per
month for the next 36 months. However, in the event of a change in control, 50%
of those options not yet vested shall become vested immediately. In the case of
each of our executive officers, these option shares fully vest if they are
discharged without cause or resign with good reason following a change of
control. Options may not be exercised for 2 1/2 years after the date of grant,
unless, prior to that date, we stop filing consolidated income tax returns with
IPC or our compensation committee allows the exercise.
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PRINCIPAL STOCKHOLDERS
The following table shows certain information with respect to the beneficial
ownership, as of May 1, 1999, of:
. our common stock by each person who we know beneficially owns more than
5% of our outstanding common stock;
. the common stock of IPC Communications, by each of our directors and our
named executive officers; and
. the common stock of IPC Communications, by all of our directors and
executive officers as a group.
Except as otherwise noted, the persons named in the table have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where
applicable. Share ownership includes shares issuable upon exercise of
outstanding options that are exercisable within 60 days of May 1, 1999 as
described in the footnotes below. Percentage of ownership is calculated under
SEC Rule 13d-3(d)(1). The calculation of the percentage of beneficial ownership
of our common stock does not include shares to be issued if the underwriter's
over-allotment option is exercised. Unless otherwise indicated, the address for
each stockholder listed below is c/o IXnet, Inc., 88 Pine Street, New York, New
York 10005.
<TABLE>
<CAPTION>
Percentage of Class
Number of Beneficially Owned(9)
Shares -------------------------
Beneficially Before After
Beneficial Owner Securities Owned Owned Offering Offering
- ------------------------ ------------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Five Percent
Stockholder:
IPC Information Systems,
Inc. (1)............... IXnet common stock 43,100,000 100.0% 85.2%
Directors and Executive
Officers:
Richard W. Smith........ IPC common stock 381,904(2) 4.7 4.7
David A. Walsh.......... IPC common stock 400,622(3) 4.9 4.9
Gerald E. Starr......... IPC common stock 69,264(4) * *
Charles F. Auster....... IPC common stock 92,880(5) 1.1 1.1
Brian L. Reach.......... IPC common stock 73,264 * *
James M. Demitrieus..... IPC common stock -- -- --
Anthony M. Servidio..... IPC common stock 174,730 2.2 2.2
William E. Walsh........ IPC common stock 34,832(6) * *
Robert D. Woog.......... IPC common stock 34,632(7) * *
Richard M. Cashin, Jr... IPC common stock -- -- --
Douglas T. Hickey....... IPC common stock -- -- --
Douglas J. Mello........ IPC common stock 500 * *
John T. Sharkey......... IPC common stock -- -- --
Peter A. Woog........... IPC common stock 4,000(8) * *
All executive officers
and directors
as a group (18 per-
sons).................. IPC common stock 1,266,628 15.0 15.0
</TABLE>
- ---------------------
* Indicates beneficial ownership of less than one percent of the outstanding
shares of common stock of IPC Communications.
(1) Based on amendment No. 4 to its Schedule 13D, filed April 15, 1999, Cable
Systems Holding, LLC beneficially owns 4,829,584 shares. Based on amendment
No. 1 to their jointly filed Schedule 13G, filed on May 7, 1999, Chesapeake
Partners Management Co., Inc., Chesapeake Partners Limited Partnership and
Chesapeake Partners Institutional Fund Limited Partnership own 939,400,
896,000 and 31,400 shares, respectively. As a result of their beneficial
ownership of IPC Communications common stock, these persons may be deemed
to beneficially own more than 5% of our common stock. Cable Systems
Holding, LLC, Cable Systems International, Inc., Allegra Capital Partners
III, L.P., Richard
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Kleinknecht, David A. Walsh, Anthony Servidio and Charles F. Auster are
parties to the Investors Agreement, which contains provisions concerning the
voting and transfer of shares of common stock of IPC Communications. Under
applicable SEC rules, this group of investors may be deemed to beneficially
own more than 5% of our common stock as a result of the group's deemed
beneficial ownership of more than 50% of the common stock of IPC
Communications. Citicorp Venture Capital, Ltd, David Kirby and John O'Mara,
members of Cable Systems Holding, LLC, are entitled to exercise joint
decision making authority over the shares of common stock of IPC
Communications held by Cable Systems Holding, and thus may also be deemed to
beneficially own more than 5% of our common stock.
(2) Consists of 381,904 shares beneficially owned by Allegra Capital Partners
III, L.P. Does not include 6,051,628 shares of common stock of IPC
Communications owned by other signatories of the Investors Agreement.
(3) Includes 138,528 shares issuable upon exercise of options that are
exercisable within 60 days after May 1, 1999. Does not include 6,171,438
shares owned by other signatories of the Investors Agreement.
(4) Includes 69,264 shares issuable upon exercise of options that are
exercisable within 60 days after May 1, 1999.
(5) Includes 3,000 shares jointly owned by Mr. Charles F. Auster and his spouse
and 300 shares owned by his minor children. Also includes 69,264 shares
issuable upon exercise of options that are exercisable within 60 days after
May 1, 1999. Does not include 6,413,216 shares owned by other signatories
of the Investors Agreement.
(6) Includes 34,632 shares issuable upon exercise of options that are
exercisable within 60 days after May 1, 1999.
(7) Consists of 34,632 shares issuable upon exercise of options that are
exercisable within 60 days after May 1, 1999.
(8) Does not include 4,829,584 shares owned by Cable Systems Holding, LLC, of
which Mr. Robert D. Woog is a member.
(9) For IPC common stock, based on 8,076,188 shares of IPC Communications
common stock outstanding as reported in the proxy statement for the annual
meeting of stockholders of IPC Communications as filed with the SEC on June
4, 1999, plus in the case of each individual the number of shares issuable
upon exercise of options that are exercisable by the individual within 60
days after May 1, 1999.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Agreements with IPC
Effective upon the closing of this offering, we and IPC will be subject to
an inter-company agreement, a registration rights agreement, a tax-sharing
agreement, a maintenance agreement and a services agreement with IPC. The
inter-company agreement contains provisions relating to the separation of our
business operations from IPC, as well as provisions governing the various
interim and ongoing relationships between us and IPC. The registration rights
agreement provides IPC with certain registration rights relating to the shares
of our common stock which it holds. The tax-sharing agreement contains
provisions relating to the allocation of tax liability and tax benefits between
us and our domestic subsidiaries and IPC and its other domestic subsidiaries.
The maintenance agreement provides for the continuation by IPC of its
performance of installation, maintenance and staging and integration services.
Under the services agreement, we will continue to provide IPC with dedicated
voice service and its frame relay network.
We have set forth below a summary description of the agreements between us
and IPC. The descriptions of these agreements, do not purport to be complete
and are qualified in their entirety by reference to the full text of the
agreements, which, except for the services agreement, have been filed as
exhibits to the registration statement of which this prospectus is a part.
Inter-Company Agreement
Corporate support services. The inter-company agreement describes certain
corporate support services that IPC will provide to us. These include cash
management, accounting, executive management, legal, administrative, human
resources, information systems and insurance. To the extent assets are used by
IPC in providing these services, the services are directly or solely
attributable to us or are allowable based on an objective measure (e.g. square
foot, revenue, etc.), such costs shall be allocated to us by IPC. We shall
reimburse IPC for all other cost, other than insurance, incurred by IPC in
providing these services on a quarterly basis, based on the number of employees
employed by us in relation to the number of employees employed by both IPC and
us. Based on a similar per person allocation, $534,000, $853,000 and $1.5
million, for the years ended September 30, 1996, 1997 and 1998, respectively,
were allocated to us as general and administrative expenses by IPC. With
respect to insurance, we will reimburse IPC for the insurance premiums paid or
incurred by IPC and covering risks applicable to us and our subsidiaries, and,
if such cost cannot be determined by IPC, as determined by the underwriter of
the relevant insurance policy.
Financing arrangements. Under the inter-company agreement, IPC has agreed to
continue to provide us with ongoing financing and to obtain letters of credit
on our behalf, from time to time, upon reasonable notice from us. The amount
available under this credit facility will start at $6.25 million and increase
by that amount quarterly thereafter, up to the 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 credit facility will become
immediately due and payable. For a detailed description of the financing
arrangements see "Management Discussion and Analysis--Liquidity and Capital
Resources--Financing Arrangements."
Indenture obligations. In connection with its recapitalization transaction
on April 30, 1998, IPC issued and sold $247.4 million in principal amount of 10
7/8% senior discount notes due 2008 under an indenture. The indenture contains
certain restrictive financial and operating covenants that limit the discretion
of the management of IPC and its restricted subsidiaries, which includes all of
IPC's material subsidiaries, including IXnet. Pursuant to the inter-company
agreement, we will agree to be bound by the covenants and other restrictions,
limitations and other obligations of the indenture. A copy of the indenture is
filed as an exhibit to the registration statement of which this prospectus is a
part. The following is a summary of certain provisions of the indenture:
The notes are general unsecured senior obligations of IPC and rank on parity
with all other senior unsecured indebtedness of IPC.
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<PAGE>
The financial and operating covenants include the following:
. a limitation on incurring any indebtedness unless IPC and its restricted
subsidiaries, as a group, would not exceed a specified ratio of
indebtedness to earnings;
. a limitation on making any restricted payment, as defined in the
indenture, including payment of dividends, prepayment of subordinated
indebtedness and the repurchase of capital stock;
. a limitation on the ability of IPC to sell or to permit any subsidiary
to issue or sell capital stock of a subsidiary, unless the proceeds are
used for permitted capital expenditures;
. a limitation on entering into agreements or arrangements that could
limit any restricted subsidiary's ability to pay dividends or make other
payments or transfers to IPC;
. a limitation on making guarantees or entering into transactions with
affiliates;
. a limitation on incurring certain indebtedness secured by liens without
equally and ratably securing the notes;
. a limitation on entering into sale-leaseback transactions; and
. a limitation on selling non-current assets.
In addition, the indenture limits the ability of IPC to merge with, or to
transfer all or substantially all of its assets to, another person. The notes
provide for acceleration upon events of default.
Credit agreement obligations. In connection with its recapitalization
transaction, entered into April 30, 1998, IPC entered into a five-year
revolving credit agreement with a syndicate of lenders (with General Electric
Capital Corporation as administrative agent and collateral agent to such
lenders). The revolving credit agreement, as amended on June 21, 1999 provides
access to a working capital facility of up to $45 million, based on borrowing
base availability, and a $20 million term loan. The obligations under the
revolving credit agreement are secured senior obligations of IPC and its
material subsidiaries. We are a guarantor under the revolving credit agreement
and have agreed to be bound by its covenants and other restrictions,
limitations and obligations. A copy of the revolving credit agreement is filed
as an exhibit to the registration statement of which this prospectus is a part.
The following summary of certain provisions of the revolving credit agreement
does not purport to be complete and is qualified in its entirety by reference
to the full text of the revolving credit agreement.
The revolving credit agreement contains certain restrictive financial and
operating covenants that limit the discretion of the management of IPC and its
subsidiaries, including the following:
. a limitation on incurring indebtedness;
. a limitation on paying dividends, prepaying subordinated indebtedness,
repurchasing capital stock or making other restricted payments, as
defined in the agreement;
. a limitation on selling or issuing capital stock of a subsidiary, other
than the issuance of common stock in this offering and under the 1999
Stock Option Plan;
. a limitation on transactions with affiliates;
. a limitation on investing in non-subsidiary companies or entities;
. a limitation on selling or otherwise disposing of assets, other than in
the ordinary course of business; and
. a limitation on merging or consolidating with any other entity or making
large capital expenditures.
In addition, the revolving credit agreement requires IPC and its
subsidiaries to provide financial information to the lenders, maintain
specified financial ratios relating to earnings and interest coverage and
maintain a first priority security interest, in favor of the lenders, over all
of its pledged collateral. Accordingly,
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all of our and our subsidiaries' capital stock and real and personal property
are pledged as collateral under IPC's revolving credit agreement to support the
borrowings of IPC.
The lenders under the credit agreement have the right to demand that we
register those shares of our common stock for public sale that are held by IPC,
if we or IPC default under the terms of the agreement and they foreclose on
those shares. The revolving credit agreement provides for acceleration upon
events of default.
Real Estate. Under the inter-company agreement, we have agreed with IPC
regarding assignments or subleases of certain leases and the allocation of
costs incurred for our occupancy of portions of IPC-leased office facilities.
With respect to our largest occupied space, 88 Pine Street, New York, NY,
where our executive and sales offices are located, IPC has agreed, subject to
the consent of its landlord, to assign the lease, currently in the name of an
IPC subsidiary and covering the 6th floor and certain other space in that
building that we occupy, to us.
Our London, England, executive, sales and network operations center occupies
two floors of a building under long-term lease to IPC. We will, in the future,
explore a formal sub-lease arrangement, if practicable. Until such time, and
also with respect to our occupancy of portions of IPC-leased branch office
facilities, all costs incurred by IPC for such space, for its maintenance and
electric and other utility costs, telephone system usage, etc., will be charged
to us as incurred for actual discernable costs and otherwise allocated between
the companies based upon the square footage occupied by each of us.
Transfer of Internet Address. We use the Internet for both our internal
needs and to provide service to our customers. Currently, we use IP address
space previously assigned to IPC. Under the inter-company agreement, we and IPC
will request that the American Registry for Internet Numbers, the entity which
assigns IP address space to end-users, transfer to us the block of IP
addresses, previously assigned to IPC. We, in turn, will transfer to IPC the
smaller block of IP addresses that we own. Our exchange of IP addresses with
IPC will allow us to more fully utilize these resources. ARIN's guidelines
provide for the transfer of IP address space as a result of mergers,
acquisitions, reorganizations and other corporate organizational changes.
Product Distribution. IPC has granted to us distribution rights for sales by
us of some of its products in connection with sales of our services.
Deconsolidation. Under the inter-company agreement, we are prohibited, prior
to the later to occur of (1) November, 2001 and (2) the termination of the IPC
credit agreement from taking any action or permitting any action to be taken
including the issuance of our common stock, that would result in the
deconsolidation for United States federal income tax purposes of us and IPC.
Services Agreement
We will continue to provide IPC with the IXPrime dedicated voice service and
its frame relay network at rates specified in the services agreement. We
provide 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 $18,000, $165,000 and $170,000 for the years ended
September 30, 1996, 1997 and 1998, respectively.
Maintenance Agreement
Under the maintenance agreement, IPC will continue to provide us with
installation services, which include circuit testing and acceptance, line
installations and DLIC installations at the rates specified therein. IPC will
also continue to provide us with maintenance services, which include circuit
transmission testing, equipment replacement and DLIC support, at the response
times and at the rates specified in the maintenance
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agreement. IPC will also continue to provide us with staging and integration
services, which are utilized for large scale projects requiring customer
premises equipment, and include, staging facilities, engineers and technicians
to order, accept and assemble customer configurations at the rates specified in
the maintenance agreement. The maintenance agreement also provides for our
purchase from IPC of new, used and refurbished turret systems at the purchase
prices specified therein.
Registration Rights Agreement
After the closing of this offering, IPC will own 85.2% of our outstanding
shares of common stock or 83.3% if the underwriters exercise their over-
allotment option in full. IPC may not freely sell such shares to the public
without registration under the Securities Act. See "Shares Eligible for Future
Sale--General." The registration rights agreement with IPC will provide it with
certain registration rights relating to the shares of our common stock which it
holds. These registration rights become effective after 180 days following the
closing of this offering.
IPC may request up to two registrations, each, a demand registration, under
the Securities Act of all or any portion of our shares covered by the
registration rights agreement, and we will be obligated to register such shares
as requested by IPC.
IPC will designate certain terms of each offering effected pursuant to a
demand registration, which may take any form, including an underwritten public
offering or a shelf registration. If a demand registration will be an
underwritten offering, IPC may select the investment banker(s) and manager(s),
subject to our reasonable objection, as well as any financial printer,
solicitation and/or exchange agent and counsel for the offering. We may select
our own outside counsel and independent auditors.
We would only be obligated to register shares as a result of a demand
registration if the reasonably anticipated aggregate public offering price was
at least $ million.
We are not required to undertake a demand registration within 120 days of
the effective date of a previous demand registration, other than a demand
registration that was effected as a shelf registration. Also, we have the right
to postpone the filing or effectiveness of any demand registration for up to
120 days if, in the reasonable judgment of our board of directors, such
registration would reasonably be expected to have a material adverse effect on
any existing proposal or plans by our company to engage in certain material
transactions; provided, however, that we may exercise this right only once in
any 12-month period.
The registration rights agreement also provides for certain piggyback
registration rights for IPC. Whenever we propose to register any of our
securities under the Securities Act for ourselves or others, we shall provide
prompt notice to IPC and include in such registration all shares of our stock
which IPC requests to be included, subject to customary cutback and holdback
provisions, each, a piggyback registration.
The registration rights agreement contains indemnification and contribution
provisions by us for the benefit of IPC and by IPC for the benefit of us and
any underwriters with respect to information provided by IPC.
IPC may transfer shares covered by the registration rights agreement, and
the holders with a minimum amount of such transferred shares will be entitled
to the benefits of, and the obligations under, the registration rights
agreement. Such transferees will be entitled to the rights available to IPC
described above; provided, however, that the holder or holders of a majority of
the shares covered by the registration rights agreement will be entitled to
exercise certain of such rights.
The registration rights will remain in effect with respect to any shares of
our common stock for a period of five years from the closing of this offering,
or until:
. such shares have been sold under an effective registration statement
under the Securities Act;
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<PAGE>
. such shares have been sold to the public under Rule 144 under the
Securities Act, or any successor provision;
. such shares have been otherwise transferred and the new certificates
replacing them do not bear a legend restricting further transfer without
registration under the Securities Act or any similar state law;
. such shares have ceased to be outstanding; or
. in the case of shares held by a transferee of IPC that is not our
affiliate, when such shares become eligible for sale under Rule 144(k)
under the Securities Act, or any successor provision.
In addition, under the terms of IPC's credit agreement, the lenders have a
right to cause us to register our common stock for public sale. See "--Credit
Agreement Obligations."
Compensation for Use of Tax Losses and Tax-Sharing Agreement
We and IPC Communications and our respective United States subsidiaries
will continue to be members of an affiliated group of corporations that file
United States federal income tax returns on a consolidated basis.
We and our domestic subsidiaries and IPC Communications and its other domestic
subsidiaries have entered into a tax-sharing agreement under which the tax
liability will be allocated between us and IPC Communications in accordance
with our respective tax liability computed as though we, on the one hand, and
IPC Communications and its other domestic subsidiaries, on the other hand,
filed separate returns. Under the tax-sharing agreement, we or IPC
Communications may be required to pay compensation to the other for our or IPC
Communication's tax losses which reduced the combined tax liability. The tax-
sharing agreement will provide for similar arrangements with respect to state,
local and foreign taxation.
IPC's Acquisition of IXnet
In June 1995, IPC invested $5.5 million in return for shares of our common
stock, which, following such issuance of shares, was equal to 80% of our
outstanding stock. Under installment and share purchase agreements and as part
of the acquisition of our stock by IPC, we purchased all of the common stock
held by three of our five stockholders, including those of Robert Mazer and
Charles Auster's spouse, for cash and other deferred consideration. The
deferred consideration may be due upon a change of control or, if none occurs
prior to the year 2000, in the year 2000. Payment is based upon a valuation
formula. Following IPC's investment, David Walsh, our Chief Executive Officer,
and Anthony Servidio, our Senior Vice President, Sales, retained ownership of
20% of our outstanding stock subject to an agreement which allowed IPC, or
Messrs. Walsh or Servidio, to force a sale of the shares held by Messrs. Walsh
and Servidio to IPC upon a change in control or in the year 2000. The
installment and share purchase agreements with Robert Mazer and a third party
remain outstanding. Based upon data as of March 31, 1999, we believe that any
obligation under the initial acquisition agreement is not material. Mr. Mazer
is a partner of the law firm of Vinson and Elkins, Washington D.C. and is our
counsel for regulatory matters.
In connection with IPC's recapitalization transaction, we, IPC and Messrs.
Walsh and Servidio entered into a share exchange and termination agreement,
dated as of December 18, 1997, whereby Messrs. Walsh and Servidio agreed to
exchange their shares of IXnet common stock for 304,762 and 203,174 shares of
IPC common stock, respectively. Ten percent of the shares were to be paid upon
receipt by IPC of a release of any obligation it may have had under the
installment share purchase agreements. The retained shares were forfeited to
IPC on June 18, 1998. On April 30, 1998, under the terms of a stock transfer
agreement, Mr. Auster and his spouse released us and IPC from any obligation
to make a future payment to them under the installment share purchase
agreement in exchange for 20,316 shares of IPC common stock, transferred to
them by Messrs. Walsh and Servidio.
Employment Agreements and Compensation
We are party to employment agreements with a number of our executive
officers that provide for, among other terms, specified salaries and severance
arrangements. See "Management--Employment Agreements."
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<PAGE>
As part of the general support services provided by IPC, IPC compensated Mr.
Reach, who is serving as our Chief Financial Officer until July 15, 1999, and
allocated a portion of this total compensation to us for services he performed
as our chief financial officer. For the years ended September 30, 1998 and
1997, 20% and 12%, respectively, of Mr. Reach's compensation was allocated to
us as indirect general and administrative expenses by IPC. On a going forward
basis, a certain percentage of Messrs. Reach's and Starr's compensation will be
paid by each of IXnet and IPC, as determined from time to time; however, both
historically, for Mr. Reach, and in the future, the allocation of compensation
obligations between us and IPC may not reflect the actual portion of Messrs.
Reach's and Starr's time spent acting as an officer of IXnet or IPC. Each of
our other executive officers is compensated directly by IXnet, however, some of
our executive officers have received options under the IPC Communications 1999
Stock Incentive Plan, See "--Ownership of Stock by our Directors and some of
our Executive Officers."
Ownership of IPC Stock by Our Directors and Some of Our Executive Officers
Our directors and some of our executive officers own substantial amounts of
IPC stock and options to purchase IPC stock. The stock options were granted to
certain executive officers as compensation under the IPC 1998 Stock Incentive
Plan or the IPC Communications 1999 Stock Incentive Plan. See "Principal
Stockholders." Such ownership could create, or appear to create, potential
conflicts of interest when directors and officers are faced with decisions that
could have different implications for us and IPC.
Payments under the IPC Information Systems, Inc. 1994 Stock Option Plan.
Some of our directors and officers participated in the IPC Information
Systems, Inc. 1994 Stock Option Plan prior to the cancellation of those options
on April 30, 1998. In connection with the cancellation of those options, Mr.
David A. Walsh received $195,000, Mr. Anthony M. Servidio received $130,000,
Mr. Robert D. Woog received $62,000 and Mr. William E. Walsh received $62,000.
Guarantees
IPC provides various forms of credit enhancement to us. These include
letters of credit, unconditional guarantees of equipment acquisitions and
financings and trade payables. We have guaranteed IPC borrowings under its
revolving credit agreement and we have pledged our assets to secure such
guarantee.
IPC's Contribution of Capital to IXnet
Since 1995, IPC has provided us with approximately $100 million to fund our
operations. Following the $73 million capital contribution from IPC, in March
1999, we remained indebted to them for approximately $25 million.
IPC's Contribution of MXNet to IXnet
On February 13, 1998, IPC acquired all of the issued and outstanding common
stock of MXNet and paid $6.7 million in the form of a promissory note. IPC
contributed the shares of MXNet to us on May 12, 1999.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common stock,
$0.01 par value per share. There were 43,100,000 shares of our common stock
outstanding immediately prior to the offering, held of record by one
stockholder. We have reserved for issuance 7,053,409 shares under the 1999
Stock Option Plan.
The following summary of our capital stock and certain provisions of our
certificate of incorporation and bylaws is qualified in its entirety by the
provisions of the certificate of incorporation and bylaws, which are included
as exhibits to the registration statement of which this prospectus is a part.
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<PAGE>
Common Stock
Holders of our common stock are entitled to one vote per share on all
matters submitted to a vote of stockholders, including the election of
directors. They are also entitled to receive any dividends that are declared by
our board of directors out of funds legally available. See "Dividend Policy."
In the event of our liquidation, dissolution or winding up, holders of our
common stock are entitled to share ratably in all assets remaining after we pay
our liabilities. Holders of our common stock have no preemptive or other
subscription rights and no rights to convert their common stock into any other
securities, and there are no redemption or sinking fund provisions with respect
to such shares.
Registration Rights
We have entered into an agreement with IPC to provide it with registration
rights relating to the shares of our common stock which it holds. We granted
the lenders under the revolving credit agreement registration rights which they
may exercise if we or IPC default under the terms of the revolving credit
agreement and the lenders foreclose on the shares of our stock owned by IPC.
See "Certain Relationships and Related Transactions--Agreements with IPC--
Registration Rights Agreement," and for more information regarding the
revolving credit agreement see "Certain Relationships and Related
Transactions--Agreements with IPC--Inter-Company Agreement--Credit Agreement
Obligations."
Delaware Anti-Takeover Law and Certain Charter Provisions
We elected not to be subject to Section 203 of the Delaware General
Corporation Law. Section 203 prohibits a publicly held Delaware corporation
from engaging in a business combination transaction with any interested
stockholder for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. For purposes of this section, a
business combination includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
interested stockholder is a person who, together with affiliates and
associates, owns, or within three years, did own, 15% or more of a
corporation's voting stock. If we were governed by Section 203, the statute
could prohibit or delay the accomplishment of mergers or other takeover or
change in control attempts with respect to us and, accordingly, could
discourage attempts to acquire us.
Transfer Agent and Registrar
ChaseMellon Shareholder Services, L.L.C., New York, New York has agreed to
be the transfer agent and registrar for our common stock.
SHARES ELIGIBLE FOR FUTURE SALE
General
After this offering, we will have 50,600,000 shares of common stock
outstanding. If the underwriters exercise the over-allotment option in full, we
will have 51,725,000 shares of common stock outstanding. All of the shares of
our common stock sold in this offering will be freely tradable without
restriction under the Securities Act unless such shares are acquired by an
affiliate of IXnet as that term is defined in Rule 144 promulgated under the
Securities Act, which shares will remain subject to the resale limitations of
Rule 144.
The 43,100,000 shares of our common stock that IPC will continue to hold
after this offering constitute restricted securities within the meaning of Rule
144. IPC may sell these shares in the open market after this offering, subject
to the applicable requirements of Rule 144 and certain contractual lockup
provisions, both of which are described below.
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<PAGE>
Rule 144
Generally, Rule 144 provides that a person who has beneficially owned
restricted shares for at least one year will be entitled to sell on the open
market in brokers' transactions within any three month period a number of
shares that does not exceed the greater of:
. 1% of the then outstanding shares of common stock; and
. the average weekly trading volume in the common stock on the open market
during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain post-sale notice
requirements and the availability of current public information about us.
Under Rule 144(k), a stockholder who is not currently, and who has not been
for at least three months before the sale, an affiliate of ours who owns
restricted shares that have been outstanding for at least two years may resell
those restricted shares without compliance with the above requirements. The
one- and two-year holding periods described above do not begin to run until the
full purchase price is paid by the person acquiring the restricted shares from
us or an affiliate of ours.
If an affiliate currently owns shares of our common stock or otherwise
acquires shares of our common stock, the shares held by such person may only be
sold under Rule 144 in brokers' transactions and subject to the volume
limitations described above without regard to duration held. Shares properly
sold in reliance upon Rule 144 to persons who are not affiliates are thereafter
freely tradable without restriction unless subsequently acquired by an
affiliate.
Sales of substantial amounts of our common stock in the open market, or the
availability of such shares for sale, could adversely affect the price of our
common stock. Any shares distributed by IPC will be eligible for immediate
resale in the public market without restrictions by persons other than our
affiliates.
Rule 701
In general, under Rule 701 as promulgated under the Securities Act, any of
our employees, consultants or advisors who purchase shares from us in
connection with a compensatory stock or option plan or other written agreement
outstanding prior to the date of this prospectus, is eligible to resell such
shares 90 days after the effective date of the registration statement in
reliance on Rule 144, but without compliance with certain restrictions,
including the holding period, contained in Rule 144. We have granted options to
purchase 6,530,184 shares of our common stock. These options may not be
exercised for 2 1/2 years after the date of grant, subject to certain
exceptions. See "Management--Stock Option Grants--IXnet Stock Option Plan."
Registration Rights
Under the registration rights agreement, IPC and its transferees will be
entitled to certain registration rights with respect to the shares our of
common stock that IPC owns. See "Certain Relationships and Related
Transactions--Registration Rights Agreement." The lenders under the revolving
credit agreement are also entitled to certain registration rights. See "Certain
Relationships and Related Transactions--Inter-Company Agreements--Credit
Agreement Obligations." After a sale of these shares under any such
registration, the registered shares will become freely tradable without
restriction under the Securities Act subject to restrictions imposed by lock-up
agreements described below. Any such sale of our common stock could have a
material adverse effect on the trading price of our common stock.
Lock-Up Agreements
IPC, the executive officers and directors of IXnet and IPC, and certain
stockholders of IPC Communications have signed lock-up agreements under which
they agree to be restricted from the transfer or sale of any IXnet or IPC
common stock for a period of 180 days from the date of this prospectus, without
prior
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written consent of Donaldson, Lufkin & Jenrette Securities Corporation, which
consent may be granted at any time, or from time to time, without notice. See
"Underwriting."
Prior to the offering, there has been no market for our common stock. No
predictions can be made of the effect, if any, that market sales of shares of
common stock or the availability of such shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of significant
amounts of our common stock could adversely affect the prevailing market price
of the common stock, as well as impair our ability to raise capital through the
issuance of additional equity securities.
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UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
dated 1999, the underwriters named below, who are represented by Donaldson,
Lufkin & Jenrette Securities Corporation, or DLJ, Salomon Smith Barney Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, First Union Capital Markets
Corp. and DLJdirect Inc., have severally agreed to purchase the number of
shares of our common stock shown opposite their names below.
<TABLE>
<CAPTION>
Number of
Underwriters: Shares
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..................
Salomon Smith Barney Inc.............................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................................
First Union Capital Markets Corp.....................................
DLJdirect Inc........................................................
---
Total..............................................................
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares included in this
offering are subject to approval of certain legal matters by their counsel and
to certain other conditions. The underwriters are obligated to purchase and
accept delivery of all the shares (other than those covered by the over-
allotment option described below) if they purchase any of the shares.
The underwriters initially propose to offer some of our shares directly to
the public at the public offering price shown on the cover page of this
prospectus and some of the shares to dealers at the public offering price less
a concession not in excess of $ per share. The underwriters may allow, and
such dealers may re-allow, a concession not in excess of $ per share on
sales to other dealers. After the initial offering of the shares to the public,
the representatives may change the public offering price and such concessions.
The underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The following table shows the underwriting fees we will pay to the
underwriters in connection with this offering. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares of common stock.
<TABLE>
<CAPTION>
No Exercise Full Exercise
<S> <C> <C>
Per Share........................................
Total............................................
</TABLE>
We will pay the offering expenses, estimated to be $2.1 million.
We have granted to the underwriters an option, exercisable for 30 days from
the date of the underwriting agreement, to purchase up to 1,125,000 additional
shares at the public offering price less the underwriting fees. The underwriter
may exercise such option solely to cover over-allotments, if any, made in
connection with this offering. To the extent that the underwriters exercise
such option, each underwriter will become obligated, subject to certain
conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.
IXnet and IPC have agreed to indemnify the underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments that the underwriters may be required to
make in respect of any of those liabilities.
IXnet, IPC, the executive officers and directors of IXnet and IPC, and
certain stockholders of IPC Communications have agreed that, for a period of
180 days from the date of this prospectus, they will not, without the prior
written consent of DLJ:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of,
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directly or indirectly, any shares of IXnet or IPC Communications common
stock or any securities convertible into or exercisable or exchangeable
for such common stock or
. enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any such
common stock
(regardless of whether any of the transactions described in clause (1) or (2)
is to be settled by the delivery of IXnet or IPC Communications common stock,
or such securities, in cash or otherwise). In addition, during such period,
IXnet and IPC have agreed not to file any registration statement with respect
to, and each of its executive officers, directors and certain stockholders
have agreed not to make any demand for, or exercise any right with respect to,
the registration of any shares of IXnet or IPC Communications common stock or
any securities convertible into or exercisable or exchangeable for IXnet or
IPC Communications common stock without the prior written consent of DLJ.
The representatives may, from time to time, engage in transactions with and
perform services for IXnet in the ordinary course of this business.
Prior to the offering, there has been no established trading market for our
common stock. The initial public offering price for the common stock offered
here will be determined by negotiation among IXnet and the representatives.
The factors to be considered in determining the initial public offering price
include the history of and the prospects for the industry in which IXnet's
past and present operations, historical results of operations, and prospects
for future earnings, the recent market prices of securities of generally
comparable companies and the general condition of the securities markets at
the time of the offering.
Application has been made to list the common stock on the Nasdaq National
Market.
Other than in the United States, no action has been taken by IXnet or the
underwriters that would permit a public offering of the shares of common stock
included in this offering in any jurisdiction where action for that purpose is
required. The shares included in this offering may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisement in connection with the offer and sale of any such shares be
distributed or published in any jurisdiction, except under circumstances that
will result in compliance with the applicable rule and regulations of such
jurisdiction. Persons who receive this prospectus are advised to inform
themselves about and to observe any restrictions relating to the offering of
the common stock and the distribution of this prospectus. This prospectus is
not an offer to sell or solicitation of an offer to buy any shares of common
stock included in this offering in any jurisdiction where that would not be
permitted or legal.
In connection with this offering, certain underwriters may engage in
transaction that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the underwriters may overallot this offering,
creating a syndicate short position. In addition, the underwriters may bid for
and purchase shares of common stock in the open market to cover syndicate
short positions or to stabilize the price of the common stock. These
activities may stabilize or maintain the market price of the common stock
above independent market levels. The underwriters are not required to engage
in these activities and may end any of these activities at any time.
Under Rule 2720 of the Conduct Rules of the NASD, Salomon Smith Barney may
be deemed to have a conflict of interest with us by virtue of the fact that
its affiliates may be deemed to beneficially own greater than 10% of our
outstanding common stock by virtue of their ownership of common stock of IPC
Communications. In such a situation, the NASD requires that, among other
things, the price can be no higher than that recommended by a "qualified
independent underwriter" meeting certain standards. In accordance with this
requirement, DLJ has agreed to act as a qualified independent underwriter in
the offering and will recommend a maximum offering price for the shares of our
common stock in compliance with the requirements of Rule 2720. In connection
with its role as a qualified independent underwriter, DLJ is performing due
diligence investigations and is reviewing and participating in the preparation
of this prospectus and the registration statement of which this prospectus
forms a part. We have agreed to pay $5,000 to DLJ as a fee for its services as
a qualified independent underwriter.
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LEGAL MATTERS
Our counsel, Thacher Proffitt & Wood, New York, New York, will pass upon the
validity of the common stock offered by this prospectus. Our special counsel,
Vinson & Elkins L.L.P., Washington, D.C., will pass upon certain regulatory
matters. Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts, will pass upon
certain legal matters related to this offering for the underwriters.
EXPERTS
The combined and consolidated financial statements of IXnet as of September
30, 1997 and 1998 and for the years ended September 30, 1996, 1997 and 1998 and
the financial statements of MXNet as of and for the year ended May 31, 1997,
included in this Prospectus, have been so included in reliance on the reports
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The consolidated financial statements of Saturn as of April 30, 1997 and
1998 and for the years ended April 30, 1996, 1997 and 1998, included in this
Prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We filed with the SEC a registration statement on Form S-1 under the
Securities Act of 1933, as amended, with respect to the shares of common stock
offered hereby. This prospectus does not contain all of the information set
forth in the registration statement and the exhibits and schedule filed
therewith. For further information with respect to IXnet and the common stock
offered hereby, reference is made to the registration statement and the
exhibits and schedules filed therewith. Statements contained in this prospectus
regarding the contents of any contract or any other document to which reference
is made are not necessarily complete, and, in each instance, reference is made
to a copy of such contract or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference.
You may inspect a copy of the registration statement and exhibits and
schedule filed therewith without charge:
. At the Public Reference Room of the Commission, Room 1024--Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
. At the public reference facilities as the Commission's regional offices
located at Seven World Trade Center, 13th Floor, New York, New York
10048 or Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661;
. By writing to the Commission, Public Reference Section, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549;
. At the offices of The Nasdaq Stock Market, Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006; or
. From the Internet site maintained by the Commission at
http://www.sec.gov, which contains reports, proxy and information
statements and other information regarding issuers that file
electronically with the Commission.
Some locations may charge prescribed or other fees for copies.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Combined and Consolidated Financial Statements for IXnet, Inc.
Report of Independent Accountants...................................... F-2
Combined and Consolidated Balance Sheets at September 30, 1997 and 1998
and March 31, 1999 (unaudited)........................................ F-3
Combined and Consolidated Statements of Operations for the Years Ended
September 30, 1996, 1997 and 1998 and for the Six Months Ended March
31, 1998 and 1999 (unaudited)......................................... F-4
Combined and Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1997 and 1998 and for the Six Months Ended March
31, 1998 and 1999 (unaudited)......................................... F-5
Combined and Consolidated Statements of Changes in Stockholder's
(Deficit) Equity for the Years Ended September 30, 1996, 1997 and 1998
and for the Six Months Ended March 31, 1999 (unaudited)............... F-6
Notes to Combined and Consolidated Financial Statements................ F-7
Consolidated Financial Statements for Saturn Global Network Services
Holdings Limited
Condensed Consolidated Balance Sheets at April 30, 1998 and October 31,
1998 (unaudited)...................................................... F-22
Condensed Consolidated Statements of Operations for the Six Months
Ended October 31, 1997 and 1998 (unaudited)........................... F-23
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended October 31, 1997 and 1998 (unaudited)........................... F-24
Notes to Condensed Consolidated Financial Statements (unaudited)....... F-25
Report of Independent Accountants...................................... F-28
Consolidated Statements of Operations for the Years Ended April 30,
1996, 1997, and 1998.................................................. F-29
Consolidated Balance Sheets at April 30, 1997 and 1998................. F-30
Consolidated Statements of Cash Flows for the Years Ended April 30,
1996, 1997 and 1998................................................... F-31
Notes to Consolidated Financial Statements............................. F-32
Financial Statements for MXNet Inc.
Report of Independent Accountants...................................... F-45
Balance Sheets as of May 31, 1997 and November 30, 1997 (unaudited).... F-46
Statements of Operations for the Year Ended May 31, 1997 and for the
Six Months Ended November 30, 1996 and 1997 (unaudited)............... F-47
Statements of Cash Flows for the Year Ended May 31, 1997 and for the
Six Months Ended November 30, 1996 and 1997 (unaudited)............... F-48
Statement of Stockholder's Deficit for the Year Ended May 31, 1997..... F-49
Notes to Financial Statements.......................................... F-50
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Stockholder of
IXnet, Inc.:
In our opinion, the accompanying combined and consolidated balance sheets and
the related combined and consolidated statements of operations, cash flows and
changes in stockholder's (deficit) equity present fairly, in all material
respects, the financial position of IXnet, Inc. (the "Company") at September
30, 1997 and 1998, and the results of its operations and cash flows for the
years ended September 30, 1996, 1997, and 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards, 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 provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
May 14, 1999, except as to the second paragraph of Note 1 which is as of July
1, 1999
F-2
<PAGE>
IXNET, INC.
COMBINED AND CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share amount)
---------------------
<TABLE>
<CAPTION>
September 30,
------------------ March 31,
1997 1998 1999
-------- -------- ----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 525 $ 1,255 $ 4,061
Trade receivables, less allowance for
doubtful accounts of $325, $621 and $1,046,
respectively................................ 4,997 9,844 14,814
Prepaid expenses and other current assets.... 2,581 2,707 2,966
-------- -------- --------
Total current assets....................... 8,103 13,806 21,841
Property, plant and equipment, net............. 18,581 36,351 47,595
Goodwill, net.................................. 860 9,023 54,761
Other assets................................... 102 1,152 1,247
-------- -------- --------
Total assets............................... $ 27,646 $ 60,332 $125,444
======== ======== ========
LIABILITIES AND STOCKHOLDER'S (DEFICIT) EQUITY
Current liabilities:
Accounts payable............................. $ 512 $7,028 $ 8,010
Accrued liabilities.......................... 3,344 9,007 18,893
Current portion of capital leases............ 2,723 4,057 4,885
Current portion of notes payable............. -- -- 4,941
-------- -------- --------
Total current liabilities.................. 6,579 20,092 36,729
Note payable to parent......................... 20,072 43,629 25,522
Lease obligations, net of current portion...... 9,576 11,570 13,907
Notes payable, net of current portion.......... -- -- 7,031
-------- -------- --------
Total liabilities.......................... 36,227 75,291 83,189
-------- -------- --------
Commitments and contingencies
Stockholder's (deficit) equity:
Common stock--$0.01 par value, authorized
100,000,000 shares; 43,100,000 shares issued
and outstanding............................. 431 431 431
Paid-in capital.............................. 12,892 33,830 112,084
Accumulated deficit.......................... (22,070) (49,709) (69,826)
Cumulative translation adjustment............ 166 489 (434)
-------- -------- --------
Total stockholder's (deficit) equity....... (8,581) (14,959) 42,255
-------- -------- --------
Total liabilities and stockholder's
(deficit) equity.......................... $ 27,646 $ 60,332 $125,444
======== ======== ========
</TABLE>
See Notes to Combined and Consolidated Financial Statements.
F-3
<PAGE>
IXNET, INC.
COMBINED AND CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
---------------------
<TABLE>
<CAPTION>
Six months ended
Year ended September 30, March 31,
--------------------------- ------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue....................... $ 3,459 $ 17,838 $ 35,853 $ 15,318 $ 32,611
Cost of revenue (exclusive of
depreciation and amortization
shown separately below)...... 4,406 19,823 35,652 15,413 30,934
Sales and marketing expense... 1,057 4,172 8,455 3,213 4,878
General and administrative
expense...................... 2,868 3,439 5,001 2,331 2,815
Depreciation and
amortization................. 998 3,460 9,060 2,924 9,508
Special charge................ -- -- 1,350 -- --
------- -------- -------- -------- --------
Loss from operations...... (5,870) (13,056) (23,665) (8,563) (15,524)
Interest expense, net......... (247) (2,040) (3,527) (1,521) (4,318)
Other income (expense), net... -- 117 26 3 (18)
------- -------- -------- -------- --------
Loss before provision for
income taxes............. (6,117) (14,979) (27,166) (10,081) (19,860)
Provision for income taxes.... 62 229 473 171 257
------- -------- -------- -------- --------
Net loss.................. $(6,179) $(15,208) $(27,639) $(10,252) $(20,117)
======= ======== ======== ======== ========
Basic and diluted loss per
share........................ $ (0.14) $ (0.35) $ (0.64) $ (0.24) $ (0.47)
======= ======== ======== ======== ========
Basic and diluted weighted
average number of shares
outstanding.................. 43,100 43,100 43,100 43,100 43,100
======= ======== ======== ======== ========
</TABLE>
See Notes to Combined and Consolidated Financial Statements.
F-4
<PAGE>
IXNET, INC.
COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
---------------------
<TABLE>
<CAPTION>
Year ended Six months ended
September 30, March 31,
--------------------------- ------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss..................... $(6,179) $(15,208) $(27,639) $(10,252) $(20,117)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization.............. 817 3,279 6,865 2,508 6,226
Amortization of goodwill... 181 181 2,195 416 3,282
Provision for doubtful
accounts.................. -- 325 1,674 378 529
Changes in operating assets
and liabilities:
Trade receivables........ (2,162) (3,178) (5,957) (2,370) (2,016)
Prepaid expenses and
other current assets.... (188) (2,435) 38 432 616
Other assets............. (16) (36) (173) (139) 85
Accounts payable......... 584 (108) 2,217 172 (1,653)
Accrued liabilities...... 723 2,511 5,687 2,689 1,441
------- -------- -------- -------- --------
Net cash used in
operating activities.... (6,240) (14,669) (15,093) (6,166) (11,607)
------- -------- -------- -------- --------
Cash flows from investing
activities:
Capital expenditures......... (4,858) (3,495) (12,930) (5,680) (7,683)
Acquisition of Saturn Global
Network Holdings Services
Limited, net of cash
acquired.................... -- -- -- -- (34,713)
Other........................ -- -- (842) -- --
------- -------- -------- -------- --------
Net cash used in investing
activities................ (4,858) (3,495) (13,772) (5,680) (42,396)
------- -------- -------- -------- --------
Cash flows from financing
activities:
Financings from parent,
net......................... 5,552 12,887 23,476 9,333 54,893
Paid-in capital.............. 2,260 5,535 9,478 3,977 5,254
Principal payments on
capital leases.............. (221) (1,818) (3,125) (1,376) (2,152)
Repayment of notes payable... -- -- -- -- (555)
------- -------- -------- -------- --------
Net cash provided by
financing activities...... 7,591 16,604 29,829 11,934 57,440
------- -------- -------- -------- --------
Effect of exchange rate
changes on cash.............. (36) 469 (234) (156) (631)
------- -------- -------- -------- --------
Net (decrease) increase in
cash......................... (3,543) (1,091) 730 (68) 2,806
Cash and cash equivalents,
beginning of period.......... 5,159 1,616 525 525 1,255
------- -------- -------- -------- --------
Cash and cash equivalents, end
of period.................... $ 1,616 $ 525 $ 1,255 $ 457 $ 4,061
======= ======== ======== ======== ========
Cash paid during the period
for-
Interest..................... $ 352 $ 2,040 $ 3,527 $ 1,521 $ 4,318
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 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...................... 4,633 9,685 6,414 3,489 5,345
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 Combined and Consolidated Financial Statements.
F-5
<PAGE>
IXNET, INC.
COMBINED AND CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S (DEFICIT)
EQUITY
(In thousands)
---------------------
<TABLE>
<CAPTION>
Common Stock Cumulative
------------- Paid-in Accumulated translation Comprehensive
Shares Amount capital deficit adjustment Total loss
------ ------ -------- ----------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30,
1995................... 43,100 $431 $ 5,097 $ (683) $ -- $ 4,845
Paid-in capital........ -- -- 2,260 -- -- 2,260
Net loss............... -- -- -- (6,179) -- (6,179) $ (6,179)
Translation
adjustment............ -- -- -- -- (36) (36) (36)
------ ---- -------- -------- ----- ------- --------
Total comprehensive
loss................ $ (6,215)
========
Balance, September 30,
1996................... 43,100 431 7,357 (6,862) (36) 890
Paid-in capital........ -- -- 5,535 -- -- 5,535
Net loss............... -- -- -- (15,208) -- (15,208) $(15,208)
Translation
adjustment............ -- -- -- -- 202 202 202
------ ---- -------- -------- ----- ------- --------
Total comprehensive
loss................ $(15,006)
========
Balance, September 30,
1997................... 43,100 431 12,892 (22,070) 166 (8,581)
Paid-in capital........ -- -- 20,938 -- -- 20,938
Net loss............... -- -- -- (27,639) -- (27,639) $(27,639)
Translation
adjustment............ -- -- -- -- 323 323 323
------ ---- -------- -------- ----- ------- --------
Total comprehensive
loss................ $(27,316)
========
Balance, September 30,
1998................... 43,100 431 33,830 (49,709) 489 (14,959)
Paid-in capital
(unaudited)........... -- -- 78,254 -- -- 78,254
Net loss (unaudited)... -- -- -- (20,117) -- (20,117) $(20,117)
Translation adjustment
(unaudited)........... -- -- -- -- (923) (923) (923)
------ ---- -------- -------- ----- ------- --------
Total comprehensive
loss (unaudited).... $(21,040)
========
Balance, March 31, 1999
(unaudited)............ 43,100 $431 $112,084 $(69,826) $(434) $42,255
====== ==== ======== ======== ===== =======
</TABLE>
See Notes to Combined and Consolidated Financial Statements.
F-6
<PAGE>
IXNET, INC.
NOTES TO COMBINED AND CONSOLIDATED 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.
In connection with an anticipated public offering of the businesses
comprising IXnet, the Company 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) authorized, and 1,000 shares issued
and outstanding. Effective July 1, 1999 the Company amended its charter 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. Historical share and per share data
reflects the stock split for all periods presented.
On May 12, 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) 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, IEXN capitalized to paid-in capital $73.0 million of its then outstanding
note payable to IPC.
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) authorized and 100 shares issued and
outstanding. On February 13, 1998, IPC acquired the outstanding common stock of
MXNet which was contributed to IEXN on May 12, 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.
The Company is currently incurring operating losses, which are expected to
continue into the foreseeable future. In addition, as the business grows,
additional working capital may be required along with the funding of the
Company's capital requirements. IPC has committed to fund such
F-7
<PAGE>
IXNET, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
requirements from its cash flows and its Revolving Credit Facility (see Note 9)
through June 30, 2001 in the form of additional notes.
The combined and consolidated financial statements may not be representative
of the financial position, results of operations, changes in stockholder's
(deficit) equity and cash flows of the Company under future operating
agreements with IPC.
2. Summary of Significant Accounting Policies:
Principles of Combination and Consolidation
The financial statements as of September 30, 1997 and for the years ended
September 30, 1996 and 1997, include the historical financial information of
IEXN and its consolidated subsidiaries. The financial statements as of
September 30, 1998 and March 31, 1999, and for the year ended September 30,
1998 and for the six months ended March 31, 1998 and 1999, 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.
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.
Revenue Recognition
Revenue is recognized as services are provided. Installation revenue is
deferred and recognized ratably over the average contract term.
Property, Plant and Equipment
Property, plant 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, while on-going maintenance is expensed
as incurred.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
the identifiable net assets acquired in acquisitions accounted for as purchase
acquisitions. Goodwill is amortized on a straight-line basis over the periods
benefited. The Company reviews for the impairment of goodwill when events and
circumstances indicate the carrying amount of an asset may not be recoverable,
F-8
<PAGE>
IXNET, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
based on estimated undiscounted future cash flows compared with the carrying
value of goodwill. Goodwill includes the push down of amounts recorded in
connection with IPC's acquisitions of IEXN and MXNet.
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 has been reimbursed
currently 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.
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
stockholder's (deficit) equity.
Unaudited Interim Financial Statements
In the opinion of management, the accompanying unaudited interim financial
statements include all necessary adjustments for a fair presentation of the
financial position of the Company as of March 31, 1999, and the results of its
operations and its cash flows for the six months ended March 31, 1998 and 1999,
in conformity with generally accepted accounting principles applied on a
consistent
F-9
<PAGE>
IXNET, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
basis. The results of operations for the six months ended March 31, 1998 and
1999 are not necessarily indicative of the results to be expected for the full
year.
Earnings Per Share
Basic and diluted loss per share is computed by dividing net loss by the
weighted average number of common shares outstanding during each period.
Effects of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The
disclosures prescribed by SFAS No. 131 will be effective for the Company's year
ending September 30, 1999. Financial statement disclosures for prior periods
are required to be restated. The Company is in the process of evaluating the
disclosure requirements. The adoption of SFAS No. 131 will have no impact on
the Company's financial position, results of operations or cash flows.
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. This standard is effective for
all fiscal quarters of fiscal years beginning after June 15, 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. 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.
3. 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. For the Company,
comprehensive loss includes net loss and foreign currency translation
adjustments.
F-10
<PAGE>
IXNET, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
The Company's total comprehensive loss for the six months ended March 31,
1998 and 1999 was as follows (in thousands):
<TABLE>
<CAPTION>
Six months ended
March 31,
------------------
1998 1999
-------- --------
(unaudited)
<S> <C> <C>
Net loss................................................ $(10,252) $(20,117)
Translation adjustment.................................. 163 (923)
-------- --------
Total comprehensive loss................................ $(10,089) $(21,040)
======== ========
</TABLE>
4. Acquisitions:
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 of which $860,000 and $679,000 remains
at September 30, 1997 and 1998, respectively. Under the initial acquisition
agreement, the Company is obligated to pay additional consideration to former
shareholders using a formula based upon operating results of IPC and IXnet and
IPC's market capitalization through the second, third or fourth quarters of
fiscal 2000. Based upon data as of March 31, 1999, the Company's obligation
calculated under this agreement is not material. On April 30, 1998, IPC
acquired the remaining 20% interest in IEXN held by two management shareholders
in exchange for 457,140 shares of IPC common stock, valued at $4.8 million
based upon the IPC closing share price on that date. The acquisition of the
remaining interest was accounted for using the purchase method of accounting
and resulted in $4.8 million of goodwill of which $4.4 million remains at
September 30, 1998. 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 of which $4.0 million remains at September
30, 1998.
In conjunction with the MXNet acquisition, the fair value of MXNet's assets,
net of cash acquired, of $1.8 million and liabilities assumed of $731,000 were
excluded from the 1998 combined and consolidated statement of cash flows.
F-11
<PAGE>
IXNET, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
The following unaudited pro forma statement of operations data for the years
ended September 30, 1997 and 1998, gives effect to the acquisition of MXNet as
if it had occurred on October 1, 1996 and 1997, respectively (in thousands):
<TABLE>
<CAPTION>
Year ended
September 30,
------------------
1997 1998
-------- --------
<S> <C> <C>
Revenue................................................. $ 18,663 $ 36,386
Loss before provision for income taxes.................. $(18,804) $(28,669)
</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").
Saturn, a UK holding company, owns telecommunication network operating
subsidiaries in the United Kingdom, USA, Hong Kong, Australia, Japan and
Singapore. It had an established business of selling managed premium grade
voice and data communication services to the financial community, similar to
IXnet, but focused in Europe and the Asia/Pacific region. The acquisition was
accounted for using the purchase method of accounting and resulted in $49.2
million of goodwill.
The following unaudited pro forma statement of operations data for the six
months ended March 31, 1998 and 1999 gives effect to the Saturn acquisition as
if it had occurred on October 1, 1997 and 1998, respectively (in thousands):
<TABLE>
<CAPTION>
Six months ended
March 31,
------------------
1998 1999
-------- --------
(unaudited)
<S> <C> <C>
Revenue................................................. $ 27,977 $ 37,370
Loss before provision for income taxes.................. $(15,414) $(22,547)
</TABLE>
F-12
<PAGE>
IXNET, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
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 U.S. bank prime rate plus one
quarter of one percent. The pro forma financial information presented above is
not necessarily indicative of the operating results which would have been
achieved had the Saturn acquisition occurred on October 1, 1997 or 1998, or of
the results to be achieved thereafter.
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
($475,000) and the cancellation of IPC stock options ($875,000) related to its
employees.
6. Property, Plant and Equipment:
Property, plant and equipment is comprised of the following (in thousands):
<TABLE>
<CAPTION>
September 30, March 31,
--------------- -----------
Useful Lives 1997 1998 1999
------------ ------- ------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Network equipment..................... 2 to 5 years $ 3,871 $15,893 $25,150
Network equipment under capital
leases............................... 5 years 14,303 20,717 26,062
Indefeasible rights of use............ IRU term 434 4,448 4,658
Machinery and equipment............... 5 years 1,331 3,321 4,627
Furniture and fixtures................ 5 years 389 550 760
Leasehold improvements................ Lease term 1,592 2,127 2,349
------- ------- -------
Total depreciable property, plant
and equipment...................... 21,920 47,056 63,606
Less accumulated depreciation and
amortization....................... 3,864 10,719 16,567
------- ------- -------
18,056 36,337 47,039
Construction in progress............ 525 14 556
------- ------- -------
$18,581 $36,351 $47,595
======= ======= =======
</TABLE>
Included in accumulated depreciation and amortization at September 30, 1997
and 1998, and March 31, 1999 was $2.4 million, $5.8 million, and $8.2 million,
respectively, representing accumulated depreciation of network equipment under
capital leases.
F-13
<PAGE>
IXNET, INC.
NOTES TO COMBINED AND CONSOLIDATED 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 up to 15% of their annual compensation. The Company
was charged $16,000, $48,000 and $103,000 in connection with IPC's
contributions to the plan on behalf of the Company's employees for the years
ended September 30, 1996, 1997 and 1998, respectively.
IPC's Stock Option and Incentive Plans
Under IPC's 1994 Stock Option and Incentive Plan and 1998 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, 1996, 1997 and 1998 and for the years then ended is
presented below.
<TABLE>
<CAPTION>
Weighted
Average
Option Exercise
Shares Price
-------- --------
<S> <C> <C>
Beginning balance (1994 Option Plan)...................... 133,000 $ 7.14
Options granted......................................... 102,000 $ 9.02
Options forfeited....................................... (4,000) $ 9.50
-------- ------
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
======== ======
</TABLE>
There were 77,000 and 53,445 options exercisable at September 30, 1996 and
1997, respectively. No options were exercisable at September 30, 1998.
The weighted average fair value per share of options granted was $4.28,
$3.31 and $4.10 for the years ended September 30, 1996, 1997 and 1998,
respectively.
F-14
<PAGE>
IXNET, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
The weighted average contractual life of stock options outstanding at
September 30, 1998 was 9.7 years.
In connection with the Merger, IPC terminated the 1994 Option Plan and
replaced it with the 1998 Option Plan. Under the 1998 Option Plan, employees
generally vest in stock options over a five-year period, subject to certain
accelerated vesting provisions based on IPC common stock achieving specified
fair market levels for specified periods.
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 either stock option plan. The Company has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation". However, in connection with the 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 IPC's 1994 and 1998 Option Plans been determined
based on the fair value at the grant date for awards in the years ended
September 30, 1996, 1997, and 1998, consistent with the provisions of SFAS No.
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,
---------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Net loss--as reported.......................... $(6,179) $(15,208) $(27,639)
Net loss--pro forma............................ $(6,250) $(15,859) $(28,114)
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes Option-Pricing Model with the following weighted
average assumptions used for grants: zero dividend yield and expected
volatility of 50% for the years ended September 30, 1996, 1997 and 1998;
weighted average risk-free interest rate of 6.45%, 6.01% and 5.61% for the
years ended September 30, 1996, 1997 and 1998, respectively; and expected lives
of 4 years for the years ended September 30, 1996 and 1997 and 3 years for the
year ended September 30, 1998.
IXnet 1999 Stock Option Plan
During May 1999, IXnet's Board of Directors and IXnet's sole shareholder,
IPC, approved the IXnet, Inc. 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. All such options become
exercisable, to the extent then vested, 30 months from the date of grant.
F-15
<PAGE>
IXNET, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
8. Supplemental Financial Data:
Prepaid expenses and other current assets include the following (in
thousands):
<TABLE>
<CAPTION>
September 30,
-------------
1997 1998
------ ------
<S> <C> <C>
Value added tax recoverable................................... $1,802 $1,211
Prepaid telecommunication transport lines and circuits........ 598 376
Deposits...................................................... -- 750
Other......................................................... 181 370
------ ------
$2,581 $2,707
====== ======
</TABLE>
Accounts payable include the following (in thousands):
<TABLE>
<CAPTION>
September
30,
-----------
1997 1998
---- ------
<S> <C> <C>
Installment purchase of IRU..................................... $-- $3,600
Trade accounts payable.......................................... 512 3,428
---- ------
$512 $7,028
==== ======
</TABLE>
Accrued liabilities include the following (in thousands):
<TABLE>
<CAPTION>
September 30, March 31,
------------- -----------
1997 1998 1999
------ ------ -----------
(unaudited)
<S> <C> <C> <C>
Carrier costs...................................... $1,323 $3,815 $10,849
Compensation and benefits.......................... 591 2,206 2,178
Deferred revenue................................... 535 615 935
Other.............................................. 895 2,371 4,931
------ ------ -------
$3,344 $9,007 $18,893
====== ====== =======
</TABLE>
9. IPC's Revolving Credit Facility:
All of the Company's capital stock and real and personal property (including
tangible and intangible property), are pledged as collateral under IPC's
revolving credit agreement and the Company and its subsidiaries are guarantors.
In April 1998, IPC entered into a five-year $55.0 million senior
collateralized revolving credit agreement, as amended, the Revolving Credit
Facility, with Morgan Stanley Senior Funding, Inc., as syndication agent,
General Electric Capital Corporation, as Administration Agent, and other lender
parties, to be used for working capital and other general corporate purposes.
The Revolving Credit Facility is subject to borrowing base limitations based
upon eligible accounts receivable and inventory. At September 30, 1998, the
borrowing base under the Revolving Credit Facility
F-16
<PAGE>
IXNET, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
approximated $33.6 million of which $29.6 million was available to be borrowed.
The Revolving Credit Facility provides a $10.0 million sublimit for the
issuance of letters of credit, of which $4.0 million was outstanding as of
September 30, 1998. As of March 31, 1999, the borrowing base was $26.6 million
of which $1.7 million was available to be borrowed.
The Revolving Credit Facility contains various covenants and conditions,
including restrictions on (i) asset dispositions, (ii) mergers and
acquisitions, (iii) capital expenditures, (iv) restricted payments, (v) the
incurrence of indebtedness, (vi) loans and investments, (vii) liens, (viii)
certain transactions with affiliates, and (ix) issuance of equity, and (x)
requires maintenance of various financial ratios.
10. Commitments and Contingencies:
Operating Leases
The Company has entered into various operating leases for real estate,
equipment, and telecommunication transport lines and circuits.
Future minimum lease payments required under noncancellable operating leases
at September 30, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal
------
<S> <C>
1999................................................................. $ 8,344
2000................................................................. 6,510
2001................................................................. 4,904
2002................................................................. 2,294
2003................................................................. 1,858
Thereafter........................................................... 2,511
-------
$26,421
=======
</TABLE>
Expenses under operating leases were $756,000, $8.3 million and $13.3
million for the years ended September 30, 1996, 1997 and 1998, respectively.
Indefeasible Rights of Use
In June 1998, IEXN entered into a 25 year IRU agreement for participation in
an international submarine cable system. The purchase price of this IRU was
$4.0 million with $400,000 paid during the year ended September 30, 1998, and
the remainder due in equal monthly installments of $300,000 commencing in
October 1998. As of September 30, 1998, $3.6 million was outstanding. In
addition, the agreement provides for the payment of annual operation and
maintenance charges.
Capital Leases
The Company has entered into capital lease agreements for certain network
equipment.
F-17
<PAGE>
IXNET, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
Future minimum lease payments required under noncancellable capital leases
at September 30, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal
------
<S> <C>
1999................................................................ $ 5,258
2000................................................................ 4,892
2001................................................................ 4,678
2002................................................................ 2,670
2003................................................................ 1,126
-------
18,624
Less, amounts representing interest................................. 2,997
-------
Net present value of minimum lease payments under capital leases.... $15,627
=======
</TABLE>
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 $3.6 million at September 30, 1998.
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 $534,000, $853,000 and $1.5 million for the years
ended September 30, 1996, 1997 and 1998, respectively. Management believes
these allocations are reasonable. Amounts due to IPC for these expenses are
included in note payable to parent.
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 $91,000, $1.1 million and $2.2 million for the years ended September 30,
1996, 1997 and 1998, was charged based on a U.S. bank prime rate plus one
quarter of one 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, 1996, 1997 and 1998 were $29,000, $250,000 and $325,000, 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 $18,000, $165,000, and $170,000 for the
years ended September 30, 1996, 1997, and 1998, respectively.
F-18
<PAGE>
IXNET, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
12. Income Taxes:
Pre tax earnings consisted of the following (in thousands):
<TABLE>
<CAPTION>
Year ended September 30,
---------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
United States................................... $(6,263) $(15,425) $(28,218)
Foreign......................................... 146 446 1,052
------- -------- --------
Total pretax earnings........................... $(6,117) $(14,979) $(27,166)
======= ======== ========
The provision for income taxes consisted of the following (in thousands):
<CAPTION>
Year ended September 30,
---------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Current:
Federal....................................... $ -- $ -- $ --
State and local............................... -- -- --
Foreign....................................... -- -- 358
------- -------- --------
$ -- $ -- $ 358
======= ======== ========
Deferred:
Federal....................................... $ -- $ -- $ --
State and local............................... -- -- --
Foreign....................................... 62 229 115
------- -------- --------
62 229 115
------- -------- --------
Income tax provision............................ $ 62 $ 229 $ 473
======= ======== ========
</TABLE>
The components of net deferred tax liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------------------------
1997 1998
--------------------------------- -----------------------------------
United States United States
---------------- -----------------
Federal State Foreign Total Federal State Foreign Total
------- ------- ------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Amortization of
intangibles........... $ -- $ -- $ -- $ -- $ 481 $ 80 $ -- $ 561
Accounts receivable.... 114 19 -- 133 217 36 -- 253
Accrued expenses....... 30 5 -- 35 477 80 -- 557
Net operating loss..... 8,034 1,344 58 9,436 17,512 2,927 -- 20,439
------- ------- ----- ------- -------- ------- ----- --------
Total deferred tax
assets.............. 8,178 1,368 58 9,604 18,687 3,123 -- 21,810
Deferred tax
liabilities:
Amortization of
intangibles........... 23 4 -- 27 -- -- -- --
Excess book over tax
depreciation.......... 473 79 349 901 1,402 234 406 2,042
------- ------- ----- ------- -------- ------- ----- --------
Net deferred tax
(liability) asset..... 7,682 1,285 (291) 8,676 17,285 2,889 (406) 19,768
Less valuation
allowance........... (7,682) (1,285) -- (8,967) (17,285) (2,889) -- (20,174)
------- ------- ----- ------- -------- ------- ----- --------
Net deferred tax
liability........... $ -- $ -- $(291) $ (291) $ -- $ -- $(406) $ (406)
======= ======= ===== ======= ======== ======= ===== ========
</TABLE>
F-19
<PAGE>
IXNET, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
--------------------
IEXN and MXNet are 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 in respect of these benefits have been
recorded as capital contributions. Such income tax benefits will be recognized
in the future 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,
---------------------
1996 1997 1998
----- ----- -----
<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...................... 40.9 41.3 41.2
Other.............................................. 1.0 1.1 1.4
----- ----- -----
1.0 % 1.5 % 1.7 %
===== ===== =====
</TABLE>
13. Geographic Information:
The Company operates principally in one industry which involves the
operation of an international voice and data network providing a variety of
dedicated private line, managed data and switched voice services, which has
been specifically designed to meet the specialized telecommunications
requirements of the financial trading community.
Information about the Company's operations by geographic area is as follows
(in thousands):
<TABLE>
<CAPTION>
Year ended September 30,
---------------------------
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Revenue:
United States................................. $ 683 $ 7,733 $ 21,261
United Kingdom................................ 2,776 9,736 12,632
Other......................................... -- 369 1,960
------- -------- --------
$ 3,459 $ 17,838 $ 35,853
======= ======== ========
Operating loss:
United States................................. $(6,040) $(13,648) $(25,272)
Foreign....................................... 170 592 1,607
------- -------- --------
$(5,870) $(13,056) $(23,665)
======= ======== ========
</TABLE>
F-20
<PAGE>
IXNET, INC.
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
<TABLE>
<CAPTION>
September 30,
---------------
1997 1998
------- -------
<S> <C> <C>
Assets:
United States.............................................. $16,488 $45,362
United Kingdom............................................. 8,737 8,339
Other...................................................... 2,421 6,631
------- -------
$27,646 $60,332
======= =======
</TABLE>
For the years ended September 30, 1996 and 1997, 68% and 45%, respectively,
of total revenue was from one customer. For the year ended September 30, 1998,
two customers accounted for 37% (23% and 14%, respectively) of total revenue.
For the six months ended March 31, 1999, two customers accounted for 25% (14%
and 11%, respectively) of total revenue.
14. Subsequent Events (unaudited)
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 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 as defined at IPC's option. Both the
Working Capital Facility and the Term Loan mature on April 30, 2003.
On June 29, 1999, IPC and International Exchange Networks, Ltd. entered into
an inter-company agreement which, contingent upon the closing of the IXnet
initial public offering, 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. Such amount would be limited
to $6.25 million per quarter, commencing July 1, 1999 and continuing through
the quarter ending June 30, 2001. Outstanding notes payable on June 21, 1999
and additional amounts borrowed under the agreement bear interest at LIBOR plus
2%. Any and all amounts advanced by IPC to IXnet which are outstanding on June
30, 2001 shall be immediately due and payable.
In connection with the issuance of stock options under the IXnet 1999 Stock
Option Plan, the Company will record deferred compensation in the aggregate
amount of approximately $26.0 million, based upon the deemed fair market value
for accounting purposes of IXnet's common stock at the date of grant.
Approximately $8.0 million of the deferred compensation will be expensed in
IXnet's June 30, 1999 quarter, with the balance being amortized over the
remaining vesting period of the options. In addition, certain of these options
will be treated as variable options for accounting purposes and may result in
additional deferred compensation expense in future periods.
F-21
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(U.S. dollars in thousands)
---------------------
<TABLE>
<CAPTION>
April 30, October 31,
1998 1998
--------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 323 $ 1,136
Accounts receivable.................................... 3,688 3,581
Prepayment............................................. 248 116
Sales taxes recoverable................................ 72 30
------ -------
Total current assets................................. 4,331 4,863
------ -------
Non-current assets:
Property and equipment, net............................ 4,936 5,226
Other assets........................................... 20 --
------ -------
Total non-current assets............................. 4,956 5,226
------ -------
Total Assets............................................. $9,287 $10,089
====== =======
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities:
Related party payables................................. $5,261 $ 5,651
Current portion of long term debt...................... 88 177
Accounts payable....................................... 4,912 3,016
Accrued liabilities.................................... 3,120 6,636
Taxation liabilities................................... 86 36
------ -------
Total current liabilities............................ 13,467 15,516
------ -------
Non-current liabilities:
Long term debt......................................... 190 325
Deferred taxation...................................... 44 25
------ -------
Total non-current liabilities........................ 234 350
------ -------
Commitments and contingencies
Shareholder's deficit
Common shares (par value Pound Sterling 1; authorized
500,000 shares; issued and outstanding 483,100
shares)............................................... 784 784
Accumulated deficit.................................... (6,618) (8,165)
Contributed capital.................................... 1,041 1,236
Cumulative foreign currency translation adjustments.... 379 368
------ -------
Total shareholder's deficit.......................... (4,414) (5,777)
------ -------
Total Liabilities and Shareholder's Deficit.............. $9,287 $10,089
====== =======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
F-22
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(U.S. dollars in thousands)
---------------------
<TABLE>
<CAPTION>
Six Months
Ended
October 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Revenue...................................................... $12,457 $13,966
Cost of products and services................................ 10,564 12,074
------- -------
Gross profit................................................. 1,893 1,892
Selling, general and administrative.......................... 2,936 3,492
------- -------
Operating loss............................................... (1,043) (1,600)
Interest income.............................................. 11 7
Interest expense............................................. -- (19)
------- -------
Loss before income taxes..................................... (1,032) (1,612)
Income tax provision (benefit)............................... 91 (65)
------- -------
Net loss..................................................... $(1,123) $(1,547)
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
F-23
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(U.S. dollars in thousands)
---------------------
<TABLE>
<CAPTION>
Six Months
Ended
October 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Cash flows provided by operating activities:
Net loss..................................................... $(1,123) $(1,547)
Adjustments to reconcile net loss to operating cash flow:
Depreciation and amortization.............................. 610 792
Changes in other assets and liabilities:
Accounts receivable...................................... (13) 107
Prepayment and other current assets...................... 74 175
Accounts payable......................................... (1,366) (1,896)
Accrued liabilities and other liabilities................ 2,828 3,467
------- -------
Net cash flows provided by operating activities........ 1,010 1,098
------- -------
Cash flows used in investing activities:
Purchase of property and equipment......................... (1,002) (1,082)
------- -------
Net cash flows used in investing activities............ (1,002) (1,082)
------- -------
Cash flows provided by financing activities:
(Repayment of) proceeds from Marshalls funding............. (158) 389
Contributed capital........................................ 186 195
Net long term borrowing.................................... -- 224
------- -------
Net cash flows provided by financing activities........ 28 808
------- -------
Effect of exchange rate changes.............................. 423 (11)
------- -------
Increase in cash and cash equivalents........................ 459 813
Cash and cash equivalents at beginning of period............. 309 323
------- -------
Cash and cash equivalents at end of period................... $ 768 $ 1,136
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
F-24
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
---------------------
1. Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all necessary adjustments (consisting
of normal recurring accruals and appropriate intercompany elimination
adjustments) for a fair presentation of the financial position of Saturn Global
Network Services Holdings Limited ("Saturn") as of October 31, 1998, and the
results of its operations and its cash flows for the six months ended October
31, 1998 and 1997, in conformity with United States generally accepted
accounting principles for interim financial information applied on a consistent
basis. The results of operations for the six months ended October 31, 1998 and
1997 are not necessarily indicative of the results to be expected for the full
year. These financial statements should be read in conjunction with Saturn's
audited financial statements for the fiscal year ended April 30, 1998.
2. Effect 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. This standard is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. Saturn does
not currently use derivative financial instruments.
In March 1998, the American Institute of Certified Public Accountants issued
SOP 98-1, "Accounting for the Cost of Computer Software Developed or Obtained
for Internal Use." SOP98-1 is effective for financial statements for years
beginning after December 15, 1998. Saturn does not anticipate the adoption of
this standard to have a material effect on its financial position, results of
operations or cash flows.
3. Comprehensive Income
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. For Saturn,
comprehensive income includes net income and foreign currency translation
adjustments.
Total comprehensive loss, net of taxes, was $801,000 and $1.6 million for
the six months ended October 31, 1997 and 1998, respectively.
4. Major Suppliers and Customers
Saturn is dependent on a limited number of suppliers of equipment for its
telecommunication network. Certain key items of equipment, including routers
and data switches are purchased from a single source due to technology,
availability, price, quality and other considerations. In the event that a
supply of key single-sourced equipment was suddenly delayed or curtailed
Saturn's ability to develop the common network could be adversely affected in
the short term. Saturn attempts to mitigate this risk by working closely with
key suppliers.
F-25
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
5. Segmental Information
Saturn has adopted SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information" which affects the way Saturn reports certain
information about its operating segments.
Factors management use to identify the Group reportable segments
The Group is managed on a regional basis. Management considers each region
to be a separate reportable segment. The regions are managed separately because
each segment requires different product and marketing strategies and operates
under different regulatory environments.
Measurement of segment profit (loss) and segment assets
The accounting policies adopted by each segment are the same as those
described in the summary of significant accounting policies. Saturn's
management evaluates performance based on profit (loss) from operations before
interest, exchange differences and income taxes.
Segmental analysis
Summarized financial information concerning the Group's reportable segments
is shown in the following table. The Corporate column includes corporate
related items and income and expense not allocated to reportable segments and
is included to reconcile segmental data to total company data.
The following table presents revenue by geographical region based on billing
location and long-lived assets by geographical region based on the location of
the assets.
Segmental analysis for the six months ended October 31, 1997 and 1998:
<TABLE>
<CAPTION>
Europe Australia USA Asia Corporate Total
------ --------- ------ ------ --------- -------
(U.S. Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
1997
- ----
Revenues from customers.. $2,127 $7,690 $1,266 $1,374 $ -- $12,457
Depreciation and
amortization............ 140 458 54 44 -- 696
Operating profit (loss).. (28) 171 32 (89) (1,129) (1,043)
Total segment assets..... 2,677 3,882 1,032 767 -- 8,358
Capital expenditures..... 1,796 462 431 226 -- 2,915
<CAPTION>
Europe Australia USA Asia Corporate Total
------ --------- ------ ------ --------- -------
(U.S. Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
1998
- ----
Revenues from customers.. $5,013 $4,840 $1,510 $2,603 $ -- $13,966
Depreciation and
amortization............ 338 363 72 95 -- 868
Operating profit (loss).. (203) 55 (496) (278) (678) (1,600)
Total segment assets..... 4,105 2,965 1,409 1,610 -- 10,089
Capital expenditures..... 427 440 24 232 -- 1,123
</TABLE>
F-26
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
6. Subsequent Events
(a) Sale of Saturn
On December 18, 1998, Marshalls Finance Limited ("Marshalls"), the parent
company, completed the sale of the Company to International Exchange Networks
Limited, a subsidiary of IPC Information Systems, Inc.
(b) Commercial Disputes
Since the sale of Saturn by Marshalls, certain claims have been made by
suppliers of telecommunications circuits in relation to alleged payables under
commercial arrangements. These claims are being vigorously contested and are in
the process of negotiation; costs relating to these claims will be recorded on
an actual or estimated basis in Saturn's financial statements for the current
financial year. The directors believe that the maximum payment that could arise
as a result of claims currently in negotiation is approximately $220,000. Had
this amount been recorded as an expense in the year in which the related
services were allegedly received, cost of sales would have increased for the
six month periods ended October 31, 1997 and 1998 by $88,000 and $75,000,
respectively.
(c) Amounts Payable to Marshalls
At April 30, 1998, Saturn owed Marshalls $5.3 million which had increased to
$5.7 million at the date of disposal of Saturn by Marshalls.
Since the disposal of Saturn by Marshalls:
(1) An amount of $730,000 was paid on Saturn's behalf by IEXN in
consideration for the agreement by Saturn to reassign this payable amount
to IEXN.
(2) An amount of approximately $5 million was converted into a loan note
repayable by Saturn to Marshalls in 24 equal monthly installments of
$222,000, an effective rate of interest of 9.25%.
F-27
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
Report of Independent Accountants
To the Shareholders of Saturn Global Network Services Holdings Limited:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of Saturn Global Network Services
Holdings Limited and its subsidiaries at April 30, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended April 30, 1998, in conformity with generally accepted
accounting principles in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards in the United Kingdom, which are
substantially consistent with those of the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, 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
London, United Kingdom
May 11, 1999
F-28
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------
<TABLE>
<CAPTION>
Years Ended April 30,
-------------------------
1996 1997 1998
------- ------- -------
(U.S. Dollars in
thousands)
<S> <C> <C> <C>
Revenue:
Revenue--Marshalls................................ $10,706 $ 9,347 $ 7,648
Revenue--Other.................................... 7,598 13,039 17,468
------- ------- -------
18,304 22,386 25,116
Cost of products and services....................... 17,302 20,322 22,063
------- ------- -------
Gross profit........................................ 1,002 2,064 3,053
Selling and marketing............................... 504 858 982
General and administrative.......................... 782 2,474 4,177
------- ------- -------
Operating loss...................................... (284) (1,268) (2,106)
Interest income..................................... 32 34 22
Interest expense.................................... -- -- (2)
------- ------- -------
Loss before income taxes............................ (252) (1,234) (2,086)
Income taxes........................................ 56 (32) (110)
------- ------- -------
Net loss............................................ $ (196) $(1,266) $(2,196)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
---------------------
<TABLE>
<CAPTION>
April 30,
----------------------------
1997 1998
------------- -------------
(U.S. Dollars in thousands)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents....................... $ 309 $ 323
Accounts receivable--British Telecommunications
plc............................................ -- 282
- --Marshalls...................................... 1,466 1,709
- --Others......................................... 1,307 1,697
Prepayment--British Telecommunications plc...... 124 --
- --Others......................................... 364 248
Sales and other taxes recoverable............... 10 72
------------- -------------
Total current assets........................ 3,580 4,331
------------- -------------
Non-current assets
Property and equipment net...................... 3,989 4,936
Deferred taxation............................... -- 20
------------- -------------
Total non-current assets.................... 3,989 4,956
------------- -------------
Total assets................................ $ 7,569 $ 9,287
============= =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Related party payables (refer Note 11).......... $ 6,558 $ 5,261
Current portion of long term debt............... -- 88
Accounts payable--British Telecommunications
plc............................................ 92 815
- --Others......................................... 2,055 4,097
Accrued liabilities--British Telecommunications
plc............................................ -- 97
- --Others......................................... 1,259 1,427
Deferred revenue................................ 1,209 1,337
Employee liabilities............................ 223 243
Taxation liabilities............................ 27 86
Other liabilities............................... 24 16
------------- -------------
Total current liabilities................... 11,447 13,467
------------- -------------
Non-current liabilities
Long term debt.................................. -- 190
Deferred taxation............................... -- 44
------------- -------------
Total non-current liabilities............... -- 234
------------- -------------
Commitments and Contingencies (refer Note 10)
Shareholder's Deficit
Common shares (par value (Pounds)1; authorized
500,000 shares; issued and outstanding 100 at
April 30, 1997, and 483,100 at April 30,
1998).......................................... -- 784
Accumulated deficit............................. (4,422) (6,618)
Contributed Capital............................. 657 1,041
Cumulative foreign currency translation
adjustments.................................... (113) 379
Divisional deficit.............................. -- --
------------- -------------
Total shareholder's deficit................. (3,878) (4,414)
------------- -------------
Total Liabilities and Shareholder's
Deficit.................................... $ 7,569 $ 9,287
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------
<TABLE>
<CAPTION>
Years Ended April 30,
-------------------------
1996 1997 1998
------- ------- -------
(U.S. Dollars in
thousands)
<S> <C> <C> <C>
Cash flows used in operating activities:
Net loss.......................................... $ (196) $(1,266) $(2,196)
Adjustments to reconcile net loss to operating
cash flow:
Loss on sale of equipment....................... -- -- 6
Depreciation and amortisation................... 678 1,059 1,392
Deferred Taxation............................... -- -- 24
Changes in other assets and liabilities
Accounts receivable--Marshalls................ -- 1,742 (2,791)
--British Telecommunications plc.............. -- -- (292)
--Others...................................... 914 (742) (961)
Prepayment--British Telecommunications plc.... 174 141 92
--Others...................................... (113) (128) 61
Sales and other taxes recoverable............. 4 37 (67)
Accounts payable--British Telecommunications
plc.......................................... -- 93 735
--Others...................................... (3,716) 1,897 2,344
Accrued liabilities--British
Telecommunications plc....................... -- -- 95
--Others...................................... 2,150 (1,026) 256
Deferred revenue.............................. -- 1,216 274
Employee liabilities.......................... 88 133 44
Taxation liabilities.......................... (11) 27 54
Other liabilities............................. -- 27 (8)
------- ------- -------
Net cash flows (used)/provided by operating
activities.................................. (28) 3,210 (938)
------- ------- -------
Cash flows used in investing activities:
Purchase of property and equipment................ (1,236) (2,119) (2,456)
Proceeds from disposal and retirement of
equipment........................................ -- 4 6
------- ------- -------
Net cash flows used in investing activities.. (1,236) (2,115) (2,450)
------- ------- -------
Cash flows provided by financing activities:
Proceeds from Marshalls funding................... 1,521 (645) 2,925
Repayment of long term borrowing.................. -- -- (14)
------- ------- -------
Net cash provided/(used) by financing
activities.................................. 1,521 (645) 2,911
------- ------- -------
Effect of exchange rate changes.................... 42 (745) 491
Increase/(decrease) in cash and cash equivalents... 299 (295) 14
Cash and cash equivalents at beginning of year..... 305 604 309
------- ------- -------
Cash and cash equivalents at end of year........... $ 604 $ 309 $ 323
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes.................................... $ 6 $ 1 $ 26
Interest........................................ $ -- $ -- $ 2
Non-cash investing and financing activities:
Property acquired under capital leases.......... $ -- $ -- $ 292
Intercompany balance settled by issuance of
common stock................................... $ -- $ -- $ 784
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------------
1. Principal Activities
Saturn Global Network Services Holdings Limited ("SGNS Limited") was
restructured in 1997 as the holding company for the Saturn Global Network
Services ("SGN") group of companies. Prior to the formation of SGNS Limited,
the SGN group of companies were wholly owned subsidiaries of the Marshalls
Finance Limited Group ("Marshalls" or "parent company"). SGN is a provider of
international managed services for end to end non switched voice, data and
video telecommunications. The extensive international network currently
comprises points of presence in over 30 countries, with a worldwide network
management center in the United Kingdom.
2. Significant Accounting Policies
The financial statements of the Company have been prepared under generally
accepted accounting principles in the United States. The accounting policies
are stated below.
Basis of Presentation
The origins of the Company began in Australia in August 1992 with the first
SGN company, SGN Pty Limited, a subsidiary of M W Marshall Pty ("MWM") to
leverage MWM's experience in addressing complex telecommunication networking
needs within the financial services sector. In order to separately identify its
telecommunication line of business from its finance activities, in May 1997
Marshalls established a fully recognizable group structure for SGN under the
holding company, SGNS Limited in a transaction which represented a
reorganization of companies under common control.
Marshalls provides the Company with general and administrative services
including legal, finance and other services. These expenses are allocated to
the Company based on incremental costs. Management believe these costs
allocations were made on a reasonable basis.
The consolidated financial statements for the 1996 and 1997 fiscal years
include the accounts of the SGN group of companies. The consolidated financial
statements for the 1998 fiscal year include the accounts of the company and its
wholly-owned subsidiaries (the "Group") and reflect the results of operations
for the Group from May 1, 1997. All significant inter-company accounts and
transactions have been eliminated.
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 at the
balance sheet date and the reported amounts of revenues and expenses in the
reporting period. Actual results may differ from the estimates used in the
financial statements.
F-32
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
Translation of Foreign Currencies
The functional currency is the currency of the country in which the
operations are conducted. Assets and liabilities are translated at the exchange
rate in effect at the balance sheet date. Revenues and expenses are translated
at the average rates that prevailed during the period. The resultant net
translation gains and losses are reported as foreign currency translation
adjustments in shareholder's deficit.
Other transactions denominated in foreign currency are translated at the
rate prevailing at the time of the transaction. Monetary assets and liabilities
denominated in foreign currencies have been translated at rates in effect at
the balance sheet date. Gains and losses resulting from transactions in other
than the functional currency are reflected in the net loss.
Income taxes
The provision for income taxes has been prepared on a separate return basis
as Saturn and its subsidiaries are separately taxed entities. Income taxes are
accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax
credit carry forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in future years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. A valuation allowance
is recorded to reduce the deferred tax asset if it is more likely than not that
some portion of the asset will not be realised.
Cash and cash equivalents
Cash and cash equivalents are defined as highly liquid investments with
original maturities of 90 days or less.
Property and Equipment
Property and equipment are stated at historical cost less depreciation
calculated on a straight-line basis over the expected useful lives of the
relevant assets. Major renewals and improvements are capitalised while
maintenance and repairs are expensed when incurred. The cost and related
accumulated depreciation applicable to assets retired are removed from the
accounts and the gain or loss on disposition is recognized in income.
F-33
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
Depreciation is calculated with reference to expected useful lives, which
are generally as follows:
<TABLE>
<S> <C>
Leased buildings............................................... 2 to 10 years
Network assets................................................. 3 to 5 years
Office equipment and furniture................................. 3 to 5 years
Computer equipment and software applications................... 3 to 5 years
</TABLE>
SGNS Limited evaluates the carrying value of fixed assets not held for sale
by considering the future undiscounted cash flow expected to arise from the use
of that asset. At the time such evaluations indicate that future cash flows are
insufficient to recover the carrying value of such assets the assets are
adjusted to their fair value.
Revenue Recognition
Communications revenues are recognized when services are rendered in
accordance with usage of SGNS Limited's network. Certain network services are
billed in advance in accordance with the contractual agreement and related
revenues are initially deferred and recognized as services are provided.
Employee Benefits
The Group operates defined contribution pension plans. Such plans vary
according to the customary plan prevailing in the country concerned and the
contributions to the schemes are charged in results of operations.
Financial Instruments
SGNS Limited does not use derivative financial instruments for the purpose
of hedging currency risk and managing interest rate exposures which exist as
part of ongoing business operations. As a policy, SGNS Limited does not engage
in speculative or leveraged transactions, nor does SGNS Limited hold or issue
financial instruments for trading purposes.
Dividends
Dividends paid are recognized when declared by the Supervisory Board.
Dividends are payable in Pounds Sterling. No dividends have been paid to date.
Recent Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which requires that all elements of changes in equity arising from
events and transactions with non-owner
F-34
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
sources are reported with equal prominence within the financial statements. The
Company will adopt SFAS No. 130 in the financial year ending April 30, 1999, as
it is effective for years beginning after December 15, 1997.
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. This standard is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. SGNS Limited
does not currently use derivative financial instruments.
In March 1998, the American Institute of Certified Public Accountants issued
SOP 98-1, "Accounting for the Cost of Computer Software Developed or Obtained
for Internal Use." SOP 98-1 is effective for financial statements for 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.
3. Income taxes
Income tax expense consists of:
<TABLE>
<CAPTION>
Years Ended
April 30,
----------------
1996 1997 1998
---- ---- -----
(U.S. Dollars
in thousands)
<S> <C> <C> <C>
Currently payable
United Kingdom............................................ $51 $(31) $ (23)
International............................................. 5 (1) (63)
--- ---- -----
Total currently receivable/(payable)...................... 56 (32) (86)
--- ---- -----
Deferred
United Kingdom............................................ -- -- (24)
International............................................. -- -- --
--- ---- -----
Total deferred............................................ -- -- (24)
--- ---- -----
Total Benefit/(Provision) for Income Taxes................ $56 $(32) $(110)
=== ==== =====
</TABLE>
A reconciliation between income tax credit/(expense) at the mainstream
corporation tax rate of 33% for the years ended April 30, 1996 and 1997, and
31% for the year ended April 30, 1998 to the Group's effective tax rate is as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
% % %
<S> <C> <C> <C>
UK Statutory tax rate...................................... 33 33 31
Differences in tax rates................................... 9 4 5
Deferred tax valuation allowance adjustments............... 21 (42) (20)
Permanent differences...................................... (35) 5 (14)
Other Differences.......................................... (6) (3) (7)
--- --- ---
Effective tax credit/(expense)............................. 22 (3) (5)
=== === ===
</TABLE>
F-35
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
The tax effects of the temporary differences and carry forwards that give
rise to significant portions of deferred tax assets and liabilities at April
30, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
April 30,
--------------
1997 1998
----- -------
(U.S. Dollars
in thousands)
<S> <C> <C>
Deferred tax assets:
Operating losses carried forward............................ $ 747 $ 960
Other temporary differences................................. 121 345
----- -------
Total deferred tax asset.................................. 868 1,305
Less: valuation allowances.................................. (868) (1,285)
----- -------
-- 20
===== =======
Deferred tax liabilities:
Temporary differences on property and equipment............. -- (24)
Other temporary differences................................. -- (20)
----- -------
Total deferred tax liability.............................. -- (44)
----- -------
Net deferred tax liability.................................. $ -- $ (24)
===== =======
</TABLE>
Estimated net operating loss carry forwards at April 30, 1997 and 1998 and
their expiration dates are shown below.
<TABLE>
<CAPTION>
1997 1998
----------------------- -----------------------
Net Net
Expiration Operating Expiration Operating
Country of tax jurisdiction Dates loss Dates loss
- --------------------------- ------------- --------- ------------- ---------
(U.S. Dollars in thousands)
<S> <C> <C> <C> <C>
Australia...................... No expiration $1,570 No expiration $2,140
Hong Kong...................... No expiration 166 No expiration 166
30 April 2002
to 30 April
Japan.......................... 30 April 2002 293 2003 300
Singapore...................... No expiration 14 No expiration 29
------ ------
$2,043 $2,635
====== ======
</TABLE>
F-36
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
4. Accounts Receivable--Others
Accounts receivable--others consist of the following:
<TABLE>
<CAPTION>
At April 30,
--------------
1997 1998
------ ------
(U.S. Dollars
in thousands)
<S> <C> <C>
Accounts receivable--others.................................. $1,309 $1,630
Less: allowance for doubtful accounts........................ (16) (50)
------ ------
1,293 1,580
Other receivables............................................ 14 117
------ ------
$1,307 $1,697
====== ======
</TABLE>
5. Property and Equipment
Property and equipment, which is stated at cost, consists of the following:
<TABLE>
<CAPTION>
At April 30,
----------------
1997 1998
------- -------
(U.S. Dollars
in thousands)
<S> <C> <C>
Leased land and buildings.................................. $ 65 $ 132
Network assets............................................. 5,777 7,067
Computer equipment and software applications............... 241 217
Office equipment and furniture............................. 112 199
------- -------
6,195 7,615
Less: accumulated depreciation............................. (2,206) (2,679)
------- -------
Property and equipment, net................................ $ 3,989 $ 4,936
======= =======
</TABLE>
Total depreciation and amortisation expense for the years ended April 30,
1997 and 1998 amounted to $1.1 million and $1.4 million, respectively.
Accumulated depreciation pertaining to leased assets for the years ended April
30, 1997 and 1998 amounted to $nil and $14,000, respectively.
F-37
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
6. Capital Lease Commitments
SGNS Limited leases certain telecommunications equipment under long-term
capital leases.
Future minimum lease payments for assets held under capital lease
arrangements at April 30, 1998 are as follows:
<TABLE>
<CAPTION>
(U.S. Dollars in thousands)
---------------------------
<S> <C>
1999.................................................................. $113
2000.................................................................. 113
2001.................................................................. 98
----
Total minimum lease payments.......................................... 324
Less: amount representing interest.................................... (46)
----
Present value of minimum lease payments............................... 278
Less capital lease obligations included in current portion of long-
term debt............................................................ (88)
----
Long term capital lease obligations................................... $190
====
</TABLE>
7. Financial Instruments
Fair Value of Financial Instruments
The carrying amount of accounts receivable and accounts payable,
approximates fair value due to the short-term maturity of these instruments.
SGNS Limited invests its excess cash in deposits with major banks throughout
the world. SGNS Limited has a policy of making investments only with commercial
banks that have at least an A (or equivalent) credit rating.
Concentration of Credit Risk
Concentration of credit risk with respect to trade receivables is limited
due to the large number of customers comprising SGN Limited's customer base.
Ongoing credit evaluations of customers' financial conditions are performed and
generally, no collateral is required. The company maintains reserves for
potential credit losses and such losses in the aggregate have not exceeded
management's expectations.
F-38
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
8. Statement of Shareholder's Equity
<TABLE>
<CAPTION>
Common Stock Cumulative
-------------- foreign
Number currency Total
of Contributed Accumulated translation Divisional shareholder's
Shares Amount Capital deficit adjustment deficit deficit
------- ------ ----------- ----------- ----------- ---------- -------------
(U.S. Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 1, 1995.. -- $ -- $ -- $ -- $ -- $(2,210) $(2,210)
Net loss................ -- -- -- -- -- (196) (196)
Foreign currency
translation
adjustment............. -- -- -- -- -- (153) (153)
Shareholder
contribution........... -- -- -- -- -- 284 284
------- ----- ------ ------- ----- ------- -------
Balance at April 30,
1996................... -- -- -- -- -- (2,275) (2,275)
Net loss................ -- -- -- (1,266) -- -- (1,266)
Foreign currency
translation
adjustment............. -- -- -- -- 25 -- 25
Effect of reorganization
(i).................... 100 -- 284 (3,156) (138) 2,275 (735)
Shareholder
contribution........... -- -- 373 -- -- -- 373
------- ----- ------ ------- ----- ------- -------
Balance at April 30,
1997................... 100 -- 657 (4,422) (113) -- (3,878)
New issue............... 483,000 784 -- -- -- -- 784
Net loss................ -- -- (2,196) -- -- (2,196)
Foreign currency
translation
adjustment............. -- -- -- -- 492 -- 492
Shareholder
contribution........... -- -- 384 -- -- -- 384
------- ----- ------ ------- ----- ------- -------
Balance at April
30,1998................ 483,100 $ 784 $1,041 $(6,618) $ 379 -- $(4,414)
======= ===== ====== ======= ===== ======= =======
</TABLE>
- ---------------------
(i) Refer to Note 2: Basis of Presentation
Authorised Share Capital
There is only one class of share--Ordinary Shares of (Pounds)1 each. The
rights attaching to these shares are set out in the Articles of Association and
The Companies (Tables A to F) Regulations 1985.
There are no unusual or special rights conferred upon the shares. The only
rights ascribed to the shares are those exercisable under UK Company Law.
Foreign Currency Translation Adjustment
The equity account includes the results of translating all balance sheet
assets and liabilities at current exchange rates. Income statement items are
translated at the average exchange rate for the
F-39
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
period. The foreign currency translation adjustment is $(153,000), $25,000 and
$492,000 for the years ended April 30, 1996, 1997 and 1998, respectively.
Net currency transaction loss/(gain) included in net loss for the years
ended April 30, 1996, 1997 and 1998 were $(682,000), $447,000 and $1.0 million
respectively.
9. Employee Benefits
Defined contribution plans
The Group sponsors various defined contribution schemes that cover the
majority of world-wide employees. The percentage contribution rate varies
according to seniority, age, length of service and local country standards.
Total Group contributions charged to income for defined contribution plans for
the years ended April 30, 1996, 1997 and 1998 were $15,000, $34,000 and
$68,000, respectively.
10. Commitments and Contingent Liabilities
Rentals for office space and commitments under supplier contracts amounted
to approximately $15.9 million, $18.2 million and $19.9 million in the years
ended April 30, 1996, 1997 and 1998 respectively.
At April 30, 1998 the approximate future minimum lease payments under non-
cancellable operating leases that have initial or remaining non-cancellable
lease terms in excess of one year were as follows:
<TABLE>
<CAPTION>
(U.S. Dollars in thousands)
---------------------------
<S> <C>
1999................................................................. $4,224
2000................................................................. 431
------
$4,655
======
</TABLE>
There are no material contingent liabilities that have not been provided for
in these financial statements.
11. Related Party Transactions
In the normal course of business, SGNS Limited engaged in several
transactions with Marshalls. SGNS Limited received revenues of $10.7 million,
$9.3 million and $7.7 million from Marshalls for providing network services for
the years ended April 30, 1996, 1997 and 1998. Trade receivables from Marshalls
in respect of these services at April 30, 1996, 1997 and 1998 were $1.4
million, $1.5 million and $1.7 million, respectively.
F-40
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
SGNS Limited occupies certain office space where the lessee is Marshalls.
SGNS Limited reimbursed Marshalls rent expense of $39,000, $126,000 and
$151,000 for the years ended April 30, 1996, 1997 and 1998, respectively. Had
SGNS Limited sub-leased the office space as an unaffiliated entity, management
estimates that additional rent expense would have been $210,000, $227,000 and
$229,000 for the years ended April 30, 1996, 1997 and 1998, respectively, which
has been reflected in these accounts. In respect of office space under a non-
cancellable sub-lease with a Marshalls Group related entity, SGNS Limited
reimbursed charges of $102,000 for the year ended April 30, 1998 and under the
terms of the lease there is no renewal option.
As disclosed in Note 2, Marshalls provides SGNS Limited with general and
administrative services including legal, finance and other services. These
expenses are allocated to the Company based on incremental costs. Management
believes these cost allocations were made on a reasonable basis. For the years
ended April 30, 1996, 1997 and 1998 the costs amounted to $74,000, $146,000 and
$225,000, respectively.
In 1995, SGNS Limited received an advance from Marshalls in the form of a
non-interest bearing loan. The loan has no formal repayment term.
Details of amounts outstanding under the loan, and the net trading balance
with Marshalls are shown below:
<TABLE>
<CAPTION>
Non interest Net trading
bearing loan balance Total
------------ ----------- ------
(U.S. dollars in thousands)
<S> <C> <C> <C>
Balance at April 30, 1996..................... $5,157 $ 780 $5,937
Repayment of funds advanced................. (645) -- (645)
Amounts invoiced to Marshalls companies..... -- (9,347) (9,347)
Settlements/other transactions.............. -- 10,245 10,245
Effect of exchange rate changes............. 368 -- 368
------ ------- ------
Balance at April 30, 1997..................... 4,880 1,678 6,558
Additional funds advanced................... 2,925 -- 2,925
Capitalisation of new issue of common
stock...................................... (784) -- (784)
Amounts invoiced to Marshalls companies..... -- (7,648) (7,648)
Settlements/other transactions.............. -- 4,473 4,473
Effect of exchange rate changes............. 49 (312) (263)
------ ------- ------
Balance at April 30, 1998..................... $7,070 $(1,809) $5,261
====== ======= ======
Average quarterly inter-company balance
during year April 30, 1998................. $6,217 $ (416) $5,801
====== ======= ======
</TABLE>
During the period covered by these financial statements, substantially all
of SGNS Limited's assets were pledged as collateral under certain financing
agreements entered into by Marshalls. These
F-41
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
financing agreements limited SGNS Limited from incurring additional
indebtedness and liens on assets. SGNS Limited was released from these
obligations on December 18, 1998.
British Telecommunications, plc ("BT") had until December 18,1998, an
indirect interest in SGNS Limited through its 30.7% shareholding interest in
Marshalls. In 1996, 1997 and 1998, SGNS Limited received revenues of $nil, $nil
and $645,000, respectively, from BT for providing network management services
to its customers. In addition the cost of services provided by BT for network
services to the company was $2.9 million, $2.8 million and $2.6 million for the
years ended April 30, 1996, 1997 and 1998, respectively. In the normal course
of business, SGNS Limited leases circuits under non-cancellable operating
leases from BT. The future rental payments of approximately $729,000 under the
leases are included in the table of future minimum lease payments (see Note
10).
12. Segmental Information
SGNS Limited has adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information", which affects the way SGNS Limited reports
certain information about its operating segments.
Factors management use to identify the Group reportable segments
The Group is managed on a regional basis. Management considers each region
to be a separate reportable segment. The regions are managed separately because
each segment requires different product and marketing strategies and operates
under different regulatory environments.
Measurement of segment profit (loss) and segment assets
The accounting policies adopted by each segment are the same as those
described in the summary of significant accounting policies. Saturn's
management evaluates performance based on profit (loss) from operations before
interest, exchange differences and income taxes.
Segmental analysis
Summarised financial information concerning the Group's reportable segments
is shown in the following table. The Corporate column includes corporate
related items and income and expense not allocated to reportable segments and
is included to reconcile segmental data to total company data.
F-42
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
The following table presents revenue by geographical region based on billing
location and long-lived assets by geographical region based on the location of
the assets.
Segmental analysis for the year ended April 30, 1996
<TABLE>
<CAPTION>
Europe Australia USA Asia Corporate Total
------ --------- ------ ------ --------- -------
(U.S. Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues from customers.. $ -- $17,546 $ 758 $ -- $ -- $18,304
Depreciation and
amortization............ 17 625 36 -- -- 678
Operating profit (loss).. (89) 43 (206) (52) 20 (284)
Total segment assets..... 114 6,180 257 60 -- 6,611
Capital expenditures..... 40 995 184 17 -- 1,236
Segmental analysis for the year ended April 30, 1997
<CAPTION>
Europe Australia USA Asia Corporate Total
------ --------- ------ ------ --------- -------
(U.S. Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues from customers.. $ -- $20,972 $1,706 $ (292) $ -- $22,386
Depreciation and
amortization............ 34 923 86 16 -- 1,059
Operating profit (loss).. 57 363 (76) (409) (1,203) (1,268)
Total segment assets..... 116 6,279 632 542 -- 7,569
Capital expenditures..... 51 1,743 117 208 -- 2,119
Segmental analysis for the year ended April 30, 1998
<CAPTION>
Europe Australia USA Asia Corporate Total
------ --------- ------ ------ --------- -------
(U.S. Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues from customers.. $9,309 $10,026 $2,717 $3,064 $ -- $25,116
Depreciation and
amortization............ 332 806 123 117 14 1,392
Operating profit (loss).. 296 167 26 (162) (2,433) (2,106)
Total segment assets..... 3,452 3,269 1,113 1,413 40 9,287
Capital expenditures..... 726 707 537 483 3 2,456
</TABLE>
13. Major Suppliers and Customers
SGNS Limited is substantially dependent on a limited number of suppliers of
equipment for its telecommunication network. Certain key items of equipment,
including routers and data switches are purchased from a single source due to
technology, availability, price, quality and other considerations. In the event
that a supply of key single-sourced equipment was suddenly delayed or curtailed
SGNS Limited's ability to develop its common network could be adversely
affected in the short term. SGNS Limited attempts to mitigate this risk by
working closely with key suppliers.
The Company is also substantially dependent on sales to Marshalls, in the
years ended April 30, 1996, 1997 and 1998, approximately 58%, 42% and 30%,
respectively, of total revenues were generated from sales to Marshalls.
F-43
<PAGE>
SATURN GLOBAL NETWORK SERVICES HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
---------------------
14. Subsequent events
(a) Sale of SGNS Limited
On December 18, 1998 Marshalls Finance Limited, the parent company,
completed the sale of SGNS Limited to International Exchange Networks Limited,
a subsidiary of IPC Information Systems Inc.
(b) Commercial disputes
Since the sale of the company by Marshalls certain claims have been made by
suppliers of telecommunications circuits in relation to amounts allegedly
payable under commercial arrangements. These claims are being vigorously
contested and are in the process of negotiation; costs relating to these claims
will be recorded on an actual or estimated basis in SGNS Limited's financial
statements for the current financial year. The directors believe that the
maximum payment that could arise as a result of claims currently in negotiation
is approximately $220,000. Had this amount been recorded as an expense in the
year in which the related services were allegedly received, cost of sales would
have increased in the year ended April 30, 1997 by $45,000 and in the year
ended April 30, 1998 by $175,000.
(c) Amounts payable to Marshalls
At April 30, 1998, the company owed Marshalls $5.3 million, and this amount
increased to $5.7 million at the date of disposal of the company by Marshalls.
Since the disposal of the company by Marshalls;
(1) An amount of $730,000 was paid on the company's behalf by iXnet in
consideration for the agreement by the company to reassign this payable
amount to iXnet.
(2) An amount of $5.0 million was converted into a Loan Note repayable
by SGNS Limited to Marshalls in 24 equal monthly instalments of $222,000,
an effective rate of interest of 9.25%.
F-44
<PAGE>
Report of Independent Accountants
To the Stockholder of
MXNet Inc.:
In our opinion, the accompanying balance sheet and the related statements of
operations, cash flows and stockholder's deficit present fairly, in all
material respects, the financial position of MXNet Inc. (the "Company") at May
31, 1997, and the results of its operations and cash flows for the year then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards, 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 audit provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
April 15, 1999
F-45
<PAGE>
MXNET INC.
BALANCE SHEETS
(Dollar amounts in thousands, except per share amounts)
---------------------
<TABLE>
<CAPTION>
May 31, 1997 November 30, 1997
------------ -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash.......................................... $ 275 $ 137
Accounts receivable........................... -- 180
Rebilled expenses............................. 35 147
Prepaid expenses.............................. 55 50
Officer loan receivable....................... -- 60
------- -------
Total current assets........................ 365 574
Fixed assets, net............................... 1,323 1,604
Other assets.................................... 10 10
------- -------
Total assets................................ $ 1,698 $ 2,188
======= =======
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable and accrued expenses......... $ 106 $ 185
Due to affiliates, net........................ 2,380 3,200
------- -------
Total current liabilities................... 2,486 3,385
------- -------
Commitments and contingencies
Stockholder's deficit:
Common stock, par value $.01, 3,000 shares
authorized, 100 shares issued and
outstanding.................................. -- --
Contributed capital........................... 450 685
Accumulated deficit........................... (1,238) (1,882)
------- -------
Total stockholder's deficit................. (788) (1,197)
------- -------
Total liabilities and stockholder's
deficit.................................... $ 1,698 $ 2,188
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
MXNET INC.
STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share amounts)
---------------------
<TABLE>
<CAPTION>
Six
Year Ended Months Ended
May 31, November 30,
1997 1996 1997
---------- ------ ------
(unaudited)
<S> <C> <C> <C>
Revenues:
Web site design and consulting.................... $ 347 $ 116 $ 153
Subscription and royalties........................ 8 -- 433
------- ------ ------
Total revenues.................................. 355 116 586
------- ------ ------
Operating expenses:
Payroll and related costs......................... 808 354 534
Selling, general and administrative............... 448 159 390
Depreciation and amortization..................... 318 81 306
------- ------ ------
Total operating expenses........................ 1,574 594 1,230
------- ------ ------
Net loss........................................ $(1,219) $ (478) $ (644)
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
MXNET INC.
STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
---------------------
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
May 31, November 30,
1997 1996 1997
---------- ------- -----
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(1,219) $ (478) $(644)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 318 81 306
Changes in operating assets and liabilities:
Accounts receivable........................... -- -- (180)
Rebilled expenses............................. (35) -- (112)
Prepaid expenses.............................. (54) 1 5
Other assets.................................. (10) (13) --
Accounts payable and accrued expenses......... 102 54 79
------- ------- -----
Net cash used in operating activities...... (898) (355) (546)
------- ------- -----
Cash flows from investing activities:
Purchase of fixed assets.......................... (1,641) (1,099) (587)
------- ------- -----
Net cash used in investing activities...... (1,641) (1,099) (587)
------- ------- -----
Cash flows from financing activities:
Due to affiliates................................. 2,372 1,319 820
Contributed capital............................... 442 167 235
Loan to officer................................... -- -- (60)
------- ------- -----
Net cash provided by financing activities.. 2,814 1,486 995
------- ------- -----
Net increase (decrease) in cash for the
period.................................... 275 32 (138)
Cash, beginning of period........................... -- -- 275
------- ------- -----
Cash, end of period................................. $ 275 $ 32 $ 137
======= ======= =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
MXNET INC.
STATEMENT OF STOCKHOLDER'S DEFICIT
(Dollar amounts in thousands, except share amounts)
---------------------
<TABLE>
<CAPTION>
Common Stock
------------- Contributed Accumulated
Shares Amount Capital Deficit Total
------ ------ ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Balance at June 1, 1996......... 100 $-- $ 8 $ (19) $ (11)
Contributed capital............. -- -- 442 -- 442
Net loss........................ -- -- -- (1,219) (1,219)
--- ---- ---- ------- -------
Balance at May 31, 1997......... 100 $-- $450 $(1,238) $ (788)
=== ==== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
MXNET INC.
NOTES TO FINANCIAL STATEMENTS
---------------------
1. Organization and Basis of Presentation:
MXNet Inc. was incorporated in the State of New Jersey on May 24, 1996, as a
wholly-owned subsidiary of the Sherwood Group, Inc. ("SGI") which is a wholly-
owned subsidiary of National Discount Brokers Group, Inc. ("NDB") under the
name Market Distribution Concepts, Inc., which was subsequently changed to
MXNet Inc. MXNet is engaged in the business of the delivery of certain licensed
information through its network as well as design and consultation work
associated with the development and maintenance of a web site for NDB.
The financial statements include certain corporate expenses (see Note 4)
incurred by SGI that have been charged to MXNet on a direct or allocated basis.
Management believes these allocations are reasonable. The financial statements
may not necessarily reflect the results of operations, financial position,
changes in stockholder's deficit and cash flows of MXNet had it been a
separate, stand-alone entity during the periods presented.
As discussed in Note 8, all of the outstanding shares of MXNet were acquired
by IPC Information Systems, Inc. in February 1998. The accompanying financial
statements do not reflect any adjustments in connection with the sale.
2. Significant Accounting Policies:
Revenue Recognition
MXNet's revenue has been derived primarily from consulting fees earned in
connection with web site design and subscription and royalty fees earned in
connection with the delivery of licensed information on MXNet's network.
Revenue from consulting and design work is recognized as services are provided.
Royalty and subscription revenue are recognized monthly based on contractual
royalty fees per number of subscribers.
Fixed Assets
Computer equipment and furniture and fixtures are depreciated using the
straight-line method over their estimated useful lives ranging from two to
three years. The cost of additions and betterments are capitalized, and repairs
and maintenance costs are charged to selling, general and administrative
expense in the period incurred. Leasehold improvements are amortized over the
shorter of their useful life or the lease term.
Cash
MXNet maintains its cash balance in a high-credit quality financial
institution.
F-50
<PAGE>
MXNET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
---------------------
Rebilled Expenses
Rebilled expenses represent expenses incurred by MXNet on behalf of its
customers that are subsequently reimbursed by customers. Rebilled expenses are
excluded from the statements of operations.
Concentration of Credit Risk
For the year ended May 31, 1997 and the six months ended November 30, 1996
(unaudited), revenue earned from NDB accounted for all of MXNet's revenue (see
Note 4). For the six months ended November 30, 1997, revenue earned from NDB
accounted for approximately 26% (unaudited) of MXNet's revenue and one
unrelated customer accounted for approximately 74% (unaudited) of MXNet's
revenue.
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 amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting periods. Actual results could differ from those estimates.
Significant estimates made by MXNet include the useful lives and recoverability
of fixed assets.
Income Taxes
MXNet 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.
MXNet is included in the consolidated federal income tax return of NDB and
computes its federal income tax provision on a separate return basis.
Unaudited Interim Financial Statements
In the opinion of management, the accompanying unaudited interim financial
statements include all necessary adjustments for a fair presentation of the
financial position of MXNet as of November 30, 1997, and the results of its
operations and its cash flows for the six months ended November 30, 1996 and
1997, in conformity with generally accepted accounting principles
F-51
<PAGE>
MXNET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
---------------------
applied on a consistent basis. The results of operations for the six months
ended November 30, 1996 and 1997 are not necessarily indicative of the results
to be expected for the full year.
3. Fixed Assets:
Fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
May 31, 1997 November 30, 1997
------------ -----------------
(unaudited)
<S> <C> <C>
Computer equipment.......................... $1,434 $2,007
Furniture, fixtures and leasehold
improvements............................... 207 221
------ ------
1,641 2,228
Less, accumulated depreciation and
amortization............................... 318 624
------ ------
$1,323 $1,604
====== ======
</TABLE>
4. Related-Party Transactions:
In addition to the revenue earned from NDB, discussed in Note 1, SGI has
funded the operations of MXNet through cash advances made to MXNet. Beginning
in September 1996, in connection with certain administrative duties performed
by SGI, including accounting, human resources and other functions, MXNet was
charged approximately $13,000 per month or approximately $120,000 during the
year ended May 31, 1997. For the six months ended November 30, 1996 and 1997,
such charges amounted to approximately $40,000 (unaudited) and $80,000
(unaudited), respectively. These expenses were allocated to MXNet based on its
direct and indirect utilization of specific services. Management believes these
cost allocations were made on a reasonable basis.
5. Commitments:
Leases
MXNet leases office space in Jersey City, New Jersey, under a non-cancelable
operating lease expiring in July 1999. Future minimum lease payments under this
lease at May 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998.................................................................. $ 70
1999.................................................................. 70
2000.................................................................. 12
----
$152
====
</TABLE>
Rent expense was approximately $64,000 for the year ended May 31, 1997.
F-52
<PAGE>
MXNET, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
---------------------
6. Employee Savings Plan:
MXNet's employees are covered by a savings plan administered by SGI of MXNet
that qualifies as a deferred salary arrangement under Section 401(k) of the
Internal Revenue Code (the Savings Plan). Under the Savings Plan, participating
employees may defer a portion of their pretax earnings up to the Internal
Revenue Service's annual contribution. For the year ended May 31, 1997, the
Company contributed approximately $2,000 to the Savings Plan.
7. Income Taxes:
The components of net deferred tax assets, consist of the following at May
31, 1997 (in thousands):
<TABLE>
<S> <C>
Operating loss carryforwards.......................................... $ 450
Depreciation and amortization......................................... (51)
-----
Net deferred tax asset................................................ 399
Less, valuation allowance............................................. (399)
-----
Net deferred tax asset.............................................. $ --
=====
</TABLE>
The valuation allowance increased $391,000 during the year ended May 31,
1997 in conjunction with the increase in the net deferred tax asset resulting
from MXNet's continuing operating losses.
MXNet is included in NDB's consolidated income tax returns and the benefits
of its net operating losses have been realized on such returns. Amounts
received from NDB in respect of these benefits, $442,000 and $235,000 for the
year ended May 31, 1997 and for the six months ended November 30, 1997,
respectively, have been recorded as a capital contribution. Such income tax
benefits will be recognized in the future to the extent they would be realized
on a separate return basis. As a result, MXNet has no provision/benefit for
income taxes.
8. Subsequent Event:
In February 1998, MXNet was acquired by IPC Information Systems, Inc. for
$6.7 million. In connection with the sale of MXNet, the amounts due to
affiliates were settled.
F-53
<PAGE>
[Graphic: A statement at the top of the diagram reads, "Access to High
Quality Communications Services and Multiple Trading Partners Through a Single
High Speed Connection." Below this statement there is a diagram of a cloud
representing the IXnet Global Extranet. Extending downward from the cloud is a
representation of a high speed customer site connection with associated
individual service type with their commerical names. The connection illustrates
various IXnet services (DigiHoot, MetroLink, IXPrime IXGlobal, IXLink,
Liquidity and IXFrame) that we deliver to the customer site. The diagram of the
customer site includes representations of various customer access codes, CANs.
These include a bandwidth manager, a router, and a DLIC. In addition, there are
representations of various customer owned equipment in a Data Center including
a turret system and a PBX. Shown from the customer owned equipment are
connections to a customer desktop including a turret, workstation and handset.
Services are shown as they flow from the Extranet, down the high speed
connection and through a CAN or CANs to an end-user device on the customer's
desktop or on his corporate wide area network. These include: DigiHoot--Hoot &
Holler, MetroLink--Dedicated Voice Lines, IXPrime--Switched Voice, IXGlobal--
Voice GUPN, IXLink--Managed Bandwidth, Liquidity--Electronic Trading/Market
Data Delivery and IXFrame--Managed Frame Relay.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[IXnet LOGO]
Shares of Common Stock
----------------
PROSPECTUS
----------------
Donaldson, Lufkin & Jenrette
Salomon Smith Barney
Merrill Lynch & Co.
First Union Capital Markets Corp.
DLJdirect Inc.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor
any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of the company
have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all dealers that
effect transactions in these shares of common stock may be required to deliver
a prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter in this offering and when selling
previously unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
IXnet will pay all of the expenses incurred in connection with the offering
described in this registration statement. Such expenses, other than
underwriting commissions and discounts, are estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee(1)......... $ 41,700
National Association of Securities Dealers filing fee(1)....... 19,044
Nasdaq National Market listing fee(1).......................... 72,875
Legal fees and expenses........................................ 900,000
Blue Sky fees and expenses..................................... 15,000
Accounting fees and expenses................................... 650,000
Transfer agent's fees and expenses............................. 20,000
Printing and engraving fees.................................... 200,000
Miscellaneous.................................................. 181,471
----------
Total........................................................ $2,100,000
==========
</TABLE>
- ---------------------
* To be filed by amendment.
<TABLE>
<S> <C>
---
</TABLE>
(1) Actual expenses based upon the registration and sale of 8,625,000 shares at
$20.00 per share. All other expenses are estimated.
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law ("DGCL"), inter alia,
empowers a Delaware corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding (other than an action by or in the right of the
corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interest of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Similar indemnity is authorized for such person against expenses (including
attorneys' fees) actually and reasonably incurred in connection with the
defense or settlement of any such threatened, pending or completed action or
suit if such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and provided
further that (unless a court of competent jurisdiction otherwise provides) such
person shall not have been adjudged liable to the corporation. Any such
indemnification may be made only as authorized in each specific case upon a
determination by the stockholders or disinterested directors or by independent
legal counsel in a written opinion that indemnification is proper because the
indemnitee has met the applicable standard of conduct.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against him, and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
Section 6 of IXnet's Certificate of Incorporation provides that a director
shall not be personally liable to IXnet or its shareholders for damages for
breach of his fiduciary duty as a director, except to the extent such exemption
from liability or limitation thereof is expressly prohibited by the DGCL.
Article IV, Section 1 of IXnet's By-laws requires IXnet, among other things, to
indemnify to the fullest extent permitted by the DGCL,
II-1
<PAGE>
any person who is or was or has agreed to become a director or officer of
IXnet, who was or is made a party to, or is threatened to be made a party to,
or is otherwise involved in, any threatened, pending or completed action, suit
or proceeding, including actions or suits by or in the right of IXnet, by
reason of such agreement or service or the fact that such person is, was or has
agreed to serve as a director, officer, employee or agent of another
corporation or organization at the request of IXnet.
Article IV, Section 5 of IXnet's By-laws also empowers IXnet to purchase and
maintain insurance to protect itself and its directors and officers, and those
who were or have agreed to become directors or officers, against any liability,
regardless of whether or not IXnet would have the power to indemnify those
persons against such liability under the law. IXnet intends to purchase
directors' and officers' liability insurance policies which insure its
directors and officers and the directors and officers of its subsidiaries in
certain instances as soon as practicable.
Item 15. Recent Sales of Unregistered Securities.
Since its date of incorporation, IXnet has had only one transaction in which
it issued or sold its securities. IXnet issued 1,000 shares of its common
stock, par value $.01 per share, in May 1999, to IPC Information Systems, Inc.
in exchange for all of the stock of International Exchange Networks, Ltd. IPC
is currently the sole holder of the outstanding stock of IXnet. The transaction
was intended to be exempt from the registration requirements of the Securities
Act of 1933, as amended, by virtue of Section 4(2) thereunder because the
securities were not offered to the public. No underwriters were involved in
connection with the sale of these securities. International Exchange Networks,
Ltd. has not issued or sold any of its securities within the three years
preceding the filing of this registration statement.
Item 16. Exhibits and Financial Statement Schedules.
The exhibits filed as a part of this Registration Statement are as follows:
(a) List of Exhibits. (Filed herewith unless otherwise noted.)
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement, by and among IXnet, Inc., IPC
Communications, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Smith Barney Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, First Union Capital Markets Corp. and
DLJ Direct Inc.
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 Exchanges
Networks, Ltd. and IPC Information Systems, Inc. (1)
2.1.1 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.*
2.1.2 Deed constituting unsecured Guaranteed Subordinated Loan Note
2000/2002, dated December 18, 1998, made between International
Exchange Networks Ltd. and IPC Information Systems, Inc.*
2.2 Stock Purchase Agreement, dated February 13, 1998, by and between
IPC, MXNet and National Discount Brokers Group, Inc.*
3.1 Amended and Restated Certificate of Incorporation of IXnet, Inc.
3.2 Bylaws of IXnet, Inc.
4.1 Specimen Stock Certificate.
5.1 Opinion of Thacher Proffitt & Wood regarding legality of shares.
10.1 Form of Inter-Company Agreement among IXnet, Inc., International
Exchange Networks, Ltd. and IPC Information Systems, Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.2 Form of Tax Sharing Agreement by and between IPC Communications,
Inc. and IXnet, Inc.
10.3 Form of Registration Rights Agreement by and between IPC
Information Systems, Inc. and IXnet, Inc.
10.4 Form of Maintenance Agreement by and between International
Exchange Networks, Ltd. and IPC Information Systems, Inc.
10.5 Share Exchange and Termination Agreement, dated as of December 18,
1997, by and among International Exchange Networks, Ltd., IPC
Communications, Inc., David A. Walsh and Anthony M. Servidio. (2)
10.6 Amended and Restated Employment Agreement, dated as of December
18, 1997, by and between David A. Walsh and International Exchange
Networks, Ltd. (2)
10.7 Amendment No. 1, dated as of June 1, 1999, to the Amended and
Restated Employment Agreement by and between David A. Walsh and
International Exchange Networks, Ltd. .
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.
10.9 Employment Agreement, dated as of May 1, 1998, by and between
Charles F. Auster and International Exchange Networks, Ltd.
10.10 Amendment No. 1, dated as of June 1, 1999, to the Employment
Agreement by and between Charles F. Auster and International
Exchange Networks, Ltd.
10.11 Amended and Restated Employment Agreement, dated as of December
18, 1997, by and between International Exchange Networks, Ltd. and
Anthony M. Servidio. (2)
10.12 Waiver letter, dated as of June 9, 1999, from Anthony Servidio
regarding provisions in the Amended and Restated Employment
Agreement by and between Anthony M. Servidio and International
Exchange Networks, Ltd.
10.13 Employment Agreement, dated as of June 1, 1999, by and between
William E. Walsh and International Exchange Networks, Ltd.
10.14 Employment Agreement, dated as of June 1, 1999, by and between
John M. Faccibene and International Exchange Networks, Ltd.
10.15 Employment Agreement, dated as of June 1, 1999, by and between
Paul Pluschkell and International Exchange Networks, Ltd.
10.16 Employment Agreement, dated as of August 6, 1998, by and between
Peter Hase and Saturn Global Network Services (UK) Limited.
10.17 Employment Agreement, dated as of August 6, 1998, by and between
Drew Kelton and Saturn Global Network Services Pty Ltd.
10.18 Employment Agreement, dated as of July 1, 1999, by and between
James M. Demitrieus and International Exchange Networks, Ltd.
10.19 IXnet, Inc. 1999 Stock Option Plan.**
10.20 IPC Information Systems, Inc. 1998 Stock Incentive Plan. (3)
10.21 Indenture, dated as of April 30, 1998, between IPC Information
Systems, Inc. and the United States Trust Company of New York, as
indenture trustee. (4)
10.22 Amended and Restated Credit Agreement, dated as of June 21, 1999,
by and 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. (5)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.23 International Purchase and Sale Agreement, date as of July 23,
1996, by and between International Exchange Networks, Ltd. and
Newbridge Networks Inc.
21.1 Subsidiaries of IXnet, Inc.*
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of PricewaterhouseCoopers.
23.3 Consent of Thacher Proffitt & Wood (included in Exhibit 5.1).
24.1 Power of Attorney. (6)
27.1 Financial Data Schedule for year ended September 30, 1996.*
27.2 Financial Data Schedule for year ended September 30, 1997.*
27.3 Financial Data Schedule for year ended September 30, 1998.*
27.4 Financial Data Schedule for six months ended March 31, 1999.*
</TABLE>
- ---------------------
* Previously filed on May 21, 1999.
** To be filed by amendment.
(1) Previously filed as an exhibit to IPC Information Systems' Report on Form
8-K, filed January 4, 1999, and incorporated herein by reference.
(2) Previously filed as an exhibit to IPC Information Systems' Report on Form
8-K, filed December 24, 1997, and incorporated herein by reference.
(3) Previously filed as an exhibit to IPC Information Systems' Registration
Statement on Form S-4, filed February 13, 1998, and incorporated herein by
reference.
(4) Previously filed as an exhibit to IPC Information Systems' Report on Form
8-K, filed May 15, 1998, and incorporated herein by reference.
(5) Previously filed as an exhibit to IPC Communication's Report on Form 8-K,
filed July 1, 1999, and incorporated herein by reference.
(6) Executed powers of attorney for Messrs. Walsh, Starr, Auster, Reach,
Sharkey, Mello and Smith were previously filed on May 21, 1999. Executed
powers of attorney for Messrs. Cashin, Hickey and Woog are included herein
at Exhibit 24.1.
(b) Financial Statement Schedules.
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X or the information has been provided in the Combined
and Consolidated Financial Statements or the Notes thereto.
Item 17. Undertakings.
IXnet hereby undertakes:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by IXnet pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To provide to the underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriters to permit
prompt delivery to each purchaser.
Insofar as indemnification by IXnet for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of IXnet pursuant to the foregoing provisions, or otherwise, IXnet has
been advised that in the opinion of the Securities and Exchange Commission such
II-4
<PAGE>
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by IXnet of expenses incurred
or paid by a director, officer or controlling person of IXnet in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, IXnet will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, IXnet has duly
caused this Amendment No. 1 to Registration Statement No. 333-79079 to be
signed on its behalf by the undersigned, thereunto duly authorized, in New
York, New York, on July 2, 1999.
IXnet, Inc.
/s/ David A. Walsh
By:
----------------------------------
David A. Walsh
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement No. 333-79079 has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ David A. Walsh Chief Executive Officer July 2, 1999
______________________________________ and Director (Principal
David A. Walsh executive officer)
* President and Director July 2, 1999
______________________________________
Gerald E. Starr
* Executive Vice President, July 2, 1999
______________________________________ Chief Operating Officer
Charles F. Auster and Director
* Chief Financial Officer July 2, 1999
______________________________________ (Principal accounting
Brian L. Reach officer)
* Director July 2, 1999
______________________________________
Richard M. Cashin, Jr.
* Director July 2, 1999
______________________________________
Douglas T. Hickey
* Director July 2, 1999
______________________________________
John T. Sharkey
* Director July 2, 1999
______________________________________
Douglas J. Mello
* Director July 2, 1999
______________________________________
Richard W. Smith
* Director July 2, 1999
______________________________________
Peter A. Woog
</TABLE>
* By /s/ David A. Walsh (David A. Walsh) as attorney-in-fact pursuant to
powers of attorney filed on May 21, 1999 and herewith as Exhibit 24.1.
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement, by and among IXnet, Inc., IPC
Communications, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Smith Barney Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, First Union Capital Markets Corp. and
DLJ Direct Inc.
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 Exchanges
Networks, Ltd. and IPC Information Systems, Inc. (1)
2.1.1 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.*
2.1.2 Deed constituting unsecured Guaranteed Subordinated Loan Note
2000/2002, dated December 18, 1998, made between International
Exchange Networks Ltd. and IPC Information Systems, Inc.*
2.2 Stock Purchase Agreement, dated February 13, 1998, by and between
IPC, MXNet and National Discount Brokers Group, Inc.*
3.1 Amended and Restated Certificate of Incorporation of IXnet, Inc.
3.2 Bylaws of IXnet, Inc.
4.1 Specimen Stock Certificate.
5.1 Opinion of Thacher Proffitt & Wood regarding legality of shares.
10.1 Form of Inter-Company Agreement among IXnet, Inc., International
Exchange Networks, Ltd. and IPC Information Systems, Inc.
10.2 Form of Tax Sharing Agreement by and between IPC Communications,
Inc. and IXnet, Inc.
10.3 Form of Registration Rights Agreement by and between IPC
Information Systems, Inc. and IXnet, Inc.
10.4 Form of Maintenance Agreement by and between International
Exchange Networks, Ltd. and IPC Information Systems, Inc.
10.5 Share Exchange and Termination Agreement, dated as of December 18,
1997, by and among International Exchange Networks, Ltd., IPC
Communications, Inc., David A. Walsh and Anthony M. Servidio. (2)
10.6 Amended and Restated Employment Agreement, dated as of December
18, 1997, by and between David A. Walsh and International Exchange
Networks, Ltd. (2)
10.7 Amendment No. 1, dated as of June 1, 1999, to the Amended and
Restated Employment Agreement by and between David A. Walsh and
International Exchange Networks, Ltd. .
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.
10.9 Employment Agreement, dated as of May 1, 1998, by and between
Charles F. Auster and International Exchange Networks, Ltd.
10.10 Amendment No. 1, dated as of June 1, 1999, to the Employment
Agreement by and between Charles F. Auster and International
Exchange Networks, Ltd.
10.11 Amended and Restated Employment Agreement, dated as of December
18, 1997, by and between International Exchange Networks, Ltd. and
Anthony M. Servidio. (2)
10.12 Waiver letter, dated as of June 9, 1999, from Anthony Servidio
regarding provisions in the Amended and Restated Employment
Agreement by and between Anthony M. Servidio and International
Exchange Networks, Ltd.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.13 Employment Agreement, dated as of June 1, 1999, by and between
William E. Walsh and International Exchange Networks, Ltd.
10.14 Employment Agreement, dated as of June 1, 1999, by and between
John M. Faccibene and International Exchange Networks, Ltd.
10.15 Employment Agreement, dated as of June 1, 1999, by and between
Paul Pluschkell and International Exchange Networks, Ltd.
10.16 Employment Agreement, dated as of August 6, 1998, by and between
Peter Hase and Saturn Global Network Services (UK) Limited.
10.17 Employment Agreement, dated as of August 6, 1998, by and between
Drew Kelton and Saturn Global Network Services Pty Ltd.
10.18 Employment Agreement, dated as of July 1, 1999, by and between
James M. Demitrieus and International Exchange Networks, Ltd.
10.19 IXnet, Inc. 1999 Stock Option Plan.**
10.20 IPC Information Systems, Inc. 1998 Stock Incentive Plan. (3)
10.21 Indenture, dated as of April 30, 1998, between IPC Information
Systems, Inc. and the United States Trust Company of New York, as
indenture trustee. (4)
10.22 Amended and Restated Credit Agreement, dated as of June 21, 1999,
by and 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. (5)
10.23 International Purchase and Sale Agreement, date as of July 23,
1996, by and between International Exchange Networks, Ltd. and
Newbridge Networks Inc.
21.1 Subsidiaries of IXnet, Inc.*
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of PricewaterhouseCoopers.
23.3 Consent of Thacher Proffitt & Wood (included in Exhibit 5.1).
24.1 Power of Attorney. (6)
27.1 Financial Data Schedule for year ended September 30, 1996.*
27.2 Financial Data Schedule for year ended September 30, 1997.*
27.3 Financial Data Schedule for year ended September 30, 1998.*
27.4 Financial Data Schedule for six months ended March 31, 1999.*
</TABLE>
- ---------------------
* Previously filed on May 21, 1999.
** To be filed by amendment.
(1) Previously filed as an exhibit to IPC Information Systems' Report on Form
8-K, filed January 4, 1999, and incorporated herein by reference.
(2) Previously filed as an exhibit to IPC Information Systems' Report on Form
8-K, filed December 24, 1997, and incorporated herein by reference.
(3) Previously filed as an exhibit to IPC Information Systems' Registration
Statement on Form S-4, filed February 13, 1998, and incorporated herein by
reference.
(4) Previously filed as an exhibit to IPC Information Systems' Report on Form
8-K, filed May 15, 1998, and incorporated herein by reference.
(5) Previously filed as an exhibit to IPC Communication's Report on Form 8-K,
filed July 1, 1999, and incorporated herein by reference.
(6) Executed powers of attorney for Messrs. Walsh, Starr, Auster, Reach,
Sharkey, Mello and Smith were previously filed on May 21, 1999. Executed
powers of attorney for Messrs. Cashin, Hickey and Woog are included herein
at Exhibit 24.1.
<PAGE>
EXHIBIT 1.1
__________ Shares
IXNET, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
__________, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON SMITH BARNEY INC.
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
FIRST UNION CAPITAL MARKETS CORP.
DLJDIRECT INC.
As representatives of the
several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
IXnet, Inc., a Delaware corporation (the "Company"), proposes to issue and
sell ____________ shares of its common stock, par value $0.01 per share (the
"Firm Shares"); to the several underwriters named in Schedule I hereto (the
"Underwriters"). The Company also proposes to issue and sell to the several
Underwriters not more than an additional _______ shares of its common stock, par
value $0.01 per share, (the "Additional Shares") if requested by the
Underwriters as provided in Section 2 hereof. The Firm Shares and the Additional
Shares are hereinafter referred to collectively as the "Shares". The
1
<PAGE>
shares of common stock of the Company to be outstanding after giving effect to
the sales contemplated hereby are hereinafter referred to as the "Common Stock".
Section 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-1, including a
prospectus, relating to the Shares. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is hereinafter referred to as the "Registration Statement";
and the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "Prospectus". If the Company has filed or is
required pursuant to the terms hereof to file a registration statement pursuant
to Rule 462(b) under the Act registering additional shares of Common Stock (a
"Rule 462(b) Registration Statement"), then, unless otherwise specified, any
reference herein to the term "Registration Statement" shall be deemed to include
such Rule 462(b) Registration Statement.
Section 2. Agreements to Sell and Purchase and Lock-Up Agreements. On the
basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, the Company agrees to issue and sell, and
each Underwriter agrees, severally and not jointly, to purchase from the Company
at a price per Share of $______ (the "Purchase Price") the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to an aggregate of _______ Additional
Shares from the Company at the Purchase Price. Additional Shares may be
purchased solely for the purpose of covering over-allotments made in connection
with the offering of the Firm Shares. The Underwriters may exercise their right
to purchase Additional Shares in whole or in part from time to time by giving
written notice thereof to the Company within 30 days after the date of this
Agreement. You shall give any such notice on behalf of the Underwriters and such
notice shall specify the aggregate number of Additional Shares to be purchased
pursuant to such exercise and the date for payment and delivery thereof, which
date shall be a business day (i) no earlier than two business days after such
notice has been given (and, in any event, no earlier than the Closing Date (as
hereinafter defined)) and (ii) no later than ten business days after such notice
has been given. If any Additional Shares are to be purchased, each
2
<PAGE>
Underwriter, severally and not jointly, agrees to purchase from the Company the
number of Additional Shares (subject to such adjustments to eliminate fractional
shares as you may determine) which bears the same proportion to the total number
of Additional Shares to be purchased from the Company as the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I bears to
the total number of Firm Shares.
The Company and IPC Communications, Inc., a Delaware corporation ("IPC")
hereby agree not to (i) offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or (ii) enter into any swap
or other arrangement that transfers all or a portion of the economic
consequences associated with the ownership of any Common Stock (regardless of
whether any of the transactions described in clause (i) or (ii) is to be settled
by the delivery of Common Stock, or such other securities, in cash or
otherwise), except to the Underwriters pursuant to this Agreement, for a period
of 180 days after the date of the Prospectus without the prior written consent
of Donaldson, Lufkin & Jenrette Securities Corporation, provided, however, the
Company and IPC may pledge shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock to secure the indenture and
credit facility each as described in the Prospectus. Notwithstanding the
foregoing, during such period (i) the Company may grant stock options pursuant
to the Company's existing stock option plan and (ii) the Company may issue
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof. The Company and IPC
also agree not to file any registration statement with respect to any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock for a period of 180 days after the date of the Prospectus
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation, except for any registration statement on Form S-8 (or any successor
form). The Company shall, prior to or concurrently with the execution of this
Agreement, deliver an agreement executed by (i) each of the directors and
officers of the Company, (ii) each of the directors and officers of IPC and
(iii) each stockholder listed on Annex I hereto to the effect that such person
will not, during the period commencing on the date such person signs such
agreement and ending 180 days after the date of the Prospectus, without the
prior written consent of Donaldson, Lufkin & Jenrette Corporation, (A) engage in
any of the transactions described in the first sentence of this paragraph or (B)
make any demand for, or exercise any right with respect to, the registration of
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock.
3
<PAGE>
The Company hereby confirms its engagement of Donaldson, Lufkin & Jenrette
Securities Corporation as, and Donaldson, Lufkin & Jenrette Securities
Corporation hereby confirms its agreement with the Company to render services
as, a "qualified independent underwriter", within the meaning of Section (b)(15)
of Rule 2720 of the National Association of Securities Dealers, Inc. with
respect to the offering and sale of the Shares. Donaldson, Lufkin & Jenrette
Securities Corporation, solely in its capacity as the qualified independent
underwriter and not otherwise, is referred to herein as the "QIU". As
compensation for the services of the QIU hereunder, the Company agrees to pay
the QIU $5,000 on the Closing Date. The price at which the Shares will be sold
to the public shall not be higher than the maximum price recommended by the QIU.
Section 3. Terms of Public Offering. The Company is advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
Section 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation
shall request no later than two business days prior to the Closing Date or the
applicable Option Closing Date (as defined below), as the case may be. The
Company shall deliver the Shares to Donaldson, Lufkin & Jenrette Securities
Corporation through the facilities of The Depository Trust Company ("DTC"), for
the respective accounts of the several Underwriters, against payment to the
Company of the Purchase Price therefore by wire transfer of Federal or other
funds immediately available in New York City. The certificates representing the
Shares shall be made available for inspection not later than 9:30 A.M., New York
City time, on the business day prior to the Closing Date or the applicable
Option Closing Date (as defined below), as the case may be, at the office of DTC
or its designated custodian (the "Designated Office"). The time and date of
delivery and payment for the Firm Shares shall be 10:00 A.M., New York City
time, on ________ 1999 or such other time on the same or such other date as
Donaldson, Lufkin & Jenrette Securities Corporation and the Company shall agree
in writing. The time and date of delivery for the Firm Shares are hereinafter
referred to as the "Closing Date". The time and date of delivery and payment
for any Additional Shares to be purchased by the Underwriters shall be 10:00
A.M., New York City time, on the date specified in the applicable exercise
notice given by you pursuant to Section 2 or such other time on the same or such
other date as Donaldson, Lufkin & Jenrette Securities Corporation and the
Company shall agree in writing. The time and date of delivery for the Option
Shares are hereinafter referred to as an "Option Closing Date".
4
<PAGE>
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 9 of this Agreement
shall be delivered at the offices of Testa, Hurwitz & Thibeault, LLP, 125 High
Street, Boston, MA 02110, Attn: Michael A. Conza, Esq., and the Shares shall be
delivered at the Designated Office, all on the Closing Date or such Option
Closing Date, as the case may be.
Section 5. Agreements of the Company and IPC. The Company agrees with you
and IPC agrees with you to cause the Company:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop
order suspending the effectiveness of the Registration Statement, the Company
will use reasonable best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time.
(b) To furnish to you five signed copies of the Registration Statement as
first filed with the Commission and of each amendment to it, including all
exhibits, and to furnish to you and each Underwriter designated by you such
number of conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the Commission
within the applicable period specified in Rule 424(b) under the Act; during the
period specified in Section 5(d) below, not to file any further amendment to the
Registration Statement and not to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to which you
shall reasonably object after being so advised; and, during such period, to
prepare
5
<PAGE>
and file with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or amendment or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business day
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall
occur or condition shall exist as a result of which, in the opinion of counsel
for the Underwriters, it becomes necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the circumstances when
the Prospectus is delivered to a purchaser, not misleading, or if, in the
opinion of counsel for the Underwriters, it is necessary to amend or supplement
the Prospectus to comply with applicable law, forthwith to prepare and file with
the Commission an appropriate amendment or supplement to the Prospectus so that
the statements in the Prospectus, as so amended or supplemented, will not in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter or
dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such registration or qualification in effect so
long as required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided, however, that the Company shall
not be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Prospectus, the Registration
Statement, any preliminary prospectus or the offering or sale of the Shares, in
any jurisdiction in which it is not now so subject.
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(g) To mail and make generally available to its stockholders an earnings
statement covering the twelve-month period ending __________, 2000 within forty-
five (45) days of such date that shall satisfy the provisions of Section 11(a)
of the Act, and to advise you in writing when such statement has been so made
available.
(h) During the period of three years after the date of this Agreement,
to furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company and its subsidiaries as you may reasonably
request.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this Agreement,
including: (i) the fees, disbursements and expenses of the Company's counsel
and the Company's accountants in connection with the registration and delivery
of the Shares under the Act and all other fees and expenses in connection with
the preparation, printing, filing and distribution of the Registration Statement
(including financial statements and exhibits), any preliminary prospectus, the
Prospectus and all amendments and supplements to any of the foregoing, including
the mailing and delivering of copies thereof to the Underwriters and dealers in
the quantities specified herein, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) all costs of printing or producing this
Agreement and any other agreements or documents in connection with the offering,
purchase, sale or delivery of the Shares, (iv) all expenses in connection with
the registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states and all costs of printing or
producing any Preliminary and Supplemental Blue Sky Memoranda in connection
therewith (including the filing fees and reasonable fees and disbursements of
counsel for the Underwriters in connection with such registration or
qualification and memoranda relating thereto), (v) the filing fees and
disbursements of counsel for the Underwriters in connection with the review and
clearance of the offering of the Shares by the National Association of
Securities Dealers, Inc., (vi) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating to the
Common Stock and all costs and expenses incident to the listing of the Shares on
the Nasdaq National Market, (vii) the cost of printing certificates representing
the Shares, (viii) the costs and charges of any transfer agent, registrar and/or
depositary, (ix) the fees and expenses of the QIU (including the fees and
disbursements of counsel to the QIU), and (x) all other costs and expenses
incident to the performance of the obligations of the Company hereunder for
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which provision is not otherwise made in this Section.
(j) To use reasonable best efforts to list for quotation the Shares on the
Nasdaq National Market and to maintain the listing of the Shares on the Nasdaq
National Market, the New York Stock Exchange or the American Stock Exchange for
a period of three years after the date of this Agreement.
(k) To use reasonable best efforts to do and perform all things required
or necessary to be done and performed under this Agreement by the Company prior
to the Closing Date or any Option Closing Date, as the case may be, and to
satisfy all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so covered
in compliance with Rule 462(b) by 5:30 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
(m) To not accelerate the vesting of any outstanding stock option, amend
Section 5(d) of the Company's Stock Option Plan or provide, pursuant to Section
5(d) of the Company's Stock Option Plan, that outstanding option are exercisable
prior to the date 180 days after the date of this Agreement without the written
consent of Donaldson Lufkin & Jenrette Securities Corporation.
Section 6. Representations and Warranties of the Company and IPC. The
Company and IPC, jointly and severally, represent and warrant to each
Underwriter that:
(a) The Registration Statement has become effective (other than any Rule
462(b) Registration Statement to be filed by the Company after the effectiveness
of this Agreement); any Rule 462(b) Registration Statement filed after the
effectiveness of this Agreement will become effective no later than 5:30 P.M.,
New York City time, on the date of this Agreement; and no stop order suspending
the effectiveness of the Registration Statement is in effect, and no proceedings
for such purpose are pending before or threatened by the Commission.
(b)(i) The Registration Statement (other than any Rule 462(b) Registration
Statement to be filed by the Company after the effectiveness of this Agreement),
when it became effective, did not contain and, as amended, if applicable, will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not
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misleading, (ii) the Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement) and the Prospectus comply and, as amended or supplemented, if
applicable, will comply in all material respects with the Act, (iii) if the
Company is required to file a Rule 462(b) Registration Statement after the
effectiveness of this Agreement, such Rule 462(b) Registration Statement and any
amendments thereto, when they become effective (A) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(B) will comply in all material respects with the Act and (iv) the Prospectus
does not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or omissions
in the Registration Statement or the Prospectus based upon information relating
to any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in any
preliminary prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(d) Each of the Company and its subsidiaries has been duly incorporated,
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to carry
on its business as described in the Prospectus and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, prospects, financial condition, results
of operations or equity value of the Company and its subsidiaries, taken as a
whole (a "Material Adverse Effect").
(e) There are no outstanding subscriptions, rights, warrants, options,
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calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any of its subsidiaries relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the Company
or any of its subsidiaries, except as otherwise disclosed in the Registration
Statement.
(f) All the outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar rights; and the Shares have been duly
authorized and, when issued and delivered to the Underwriters against payment
therefor as provided by this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature, except as
disclosed in the Prospectus.
(h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(i) Neither the Company nor any of its subsidiaries (A) is in violation
of its respective charter or by-laws or (B) in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument to which the Company
or any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective property is bound, except in the case of this
clause (B) for any defaults which, singly or in the aggregate, would not have a
Material Adverse Effect or impair the power, authority or ability of the Company
to consummate the transactions contemplated by this Agreement.
(j) The execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
(A) the charter or by-laws of the Company or any of its subsidiaries or (B) any
indenture, loan agreement, mortgage, lease or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the Company
or any of
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its subsidiaries or their respective property is bound, (iii) violate or
conflict with any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having jurisdiction over
the Company, any of its subsidiaries or their respective property or (iv) result
in the suspension, termination or revocation of any Authorization (as defined
below) of the Company or any of its subsidiaries or any other impairment of the
rights of the holder of any such Authorization, except in the case of clauses
(ii)(B), (iii) and (iv) for any such conflicts, defaults, violations,
suspensions, terminations and revocations which would not, singly or in the
aggregate, have a Material Adverse Effect or impair the power, authority or
ability of the Company to consummate the transactions contemplated by this
Agreement.
(k) There are no legal or governmental proceedings pending or,
threatened to which the Company or any of its subsidiaries is or could
reasonably be expected to be a party or to which any of their respective
property is or could reasonably be expected to be subject that are required to
be described in the Registration Statement or the Prospectus and are not so
described; nor are there any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are not
so described or filed as required.
(l) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act, or the rules and regulations promulgated
thereunder or any provisions of the Communication Act of 1934, as amended,
including the Telecommunications Act of 1996 (the "Communications Act"), or
other foreign, federal, state or local law or regulations relating to
telecommunications, except for such violations which, singly or in the
aggregate, would not have a Material Adverse Effect.
(m) Each of the Company and its subsidiaries has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each, an
"Authorization") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a Material Adverse Effect. Each such
Authorization is valid and in full force and effect and each of the Company and
its subsidiaries is
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in compliance with all the terms and conditions thereof and with the rules and
regulations of the authorities and governing bodies having jurisdiction with
respect thereto; and no event has occurred (including, without limitation, the
receipt of any notice from any authority or governing body) which allows or,
after notice or lapse of time or both, would allow, revocation, suspension or
termination of any such Authorization or results or, after notice or lapse of
time or both, would result in any other impairment of the rights of the holder
of any such Authorization; and such Authorizations contain no restrictions that
are burdensome to the Company or any of its subsidiaries; except where such
failure to be valid and in full force and effect or to be in compliance, the
occurrence of any such event or the presence of any such restriction would not,
singly or in the aggregate, have a Material Adverse Effect.
(n) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any Authorization, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a Material Adverse Effect.
(o) This Agreement has been duly authorized, executed and delivered
by the Company.
(p) PricewaterhouseCoopers LLP are independent public accountants
with respect to the Company and its subsidiaries as required by the Act.
(q)(i) The consolidated financial statements included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), together with related schedules and notes, present fairly the
consolidated financial position, results of operations and changes in financial
position of the Company and its subsidiaries on the basis stated therein at the
respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; the supporting schedules, if any,
included in the Registration Statement present fairly in accordance with
generally accepted accounting principles the information required to be stated
therein; and the other financial and statistical information and data set forth
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) are, in all material respects, accurately presented and
prepared on a basis consistent with such financial statements and the books and
records of the Company.
(ii) The financial statements of each of MXNet Inc. and Saturn
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Global Networks Holdings Limited and its respective subsidiaries included in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto), together with related schedules and notes, present fairly the
consolidated financial position, results of operations and changes in financial
position of such entity and its respective subsidiaries on the basis stated
therein at the respective dates or for the respective periods to which they
apply; and such statements and related schedules and notes have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein.
(iii) The supporting schedules, if any, included in the Registration
Statement present fairly in accordance with generally accepted accounting
principles the information required to be stated therein.
(iv) The unaudited pro forma combined financial statements of the
Company and its subsidiaries and the related notes thereto set forth in the
Registration Statement and the Prospectus (and any supplement or amendment
thereto) have been prepared on a basis consistent with the historical financial
statements and the books and records of the Company and its subsidiaries, give
effect to the assumptions used in the preparation thereof described in the
Registration Statement and such assumptions are reasonable and the adjustments
used therein are appropriate to give effect to the transactions and
circumstances referred to therein, and present fairly the transactions
contemplated by the Registration Statement and the Prospectus. Such unaudited
pro forma combined financial statements have been prepared in accordance with
the applicable requirements of Rule 11-02 of Regulation S-X promulgated by the
Commission. The other pro forma financial and statistical information and data
set forth in the Registration Statement and the Prospectus (and any supplement
or amendment thereto) are, in all material respects, accurately presented and
prepared on a basis consistent with the unaudited pro forma combined financial
statements.
(r) The Company is not and, after giving effect to the offering and sale of
the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(s) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement, except as disclosed in the
Prospectus.
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(t) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or any of its subsidiaries
and (iii) neither the Company nor any of its subsidiaries has incurred any
material liability or obligation, direct or contingent.
(u) Each certificate signed by any officer of the Company and delivered to
the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
(v) The execution, delivery and performance of the Inter-Company Agreement
by and between IPC Information Systems, Inc. and International Exchange Network
Ltd. (the "Inter-Company Agreement"), the Tax Sharing Agreement by and between
IPC and the Company (the "Tax Sharing Agreement"), the Registration Rights
Agreement by and between IPC Information Systems, Inc. and the Company (the
"Registration Rights Agreement"), the Maintenance Agreement by and between IPC
Information Systems, Inc. and International Exchange Network Ltd. the
"Maintenance Agreement") and the Service Agreement by and between IPC
Information Systems, Inc. and International Exchange Network Ltd. (the "Service
Agreement"), by the Company, the compliance by the Company with all the
provisions thereof and the consummation of the transactions contemplated thereby
will not (i) require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency, (ii)(A) conflict
with or constitute a breach of any of the terms or provisions of, or a default
under, the charter or by-laws of the Company or any of its subsidiaries or (B)
any indenture, loan agreement, mortgage, lease or other agreement or instrument
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or their respective property is bound, (iii)
violate or conflict with any applicable law or any rule, regulation, judgment,
order or decree of any court or any governmental body or agency having
jurisdiction over the Company, any of its subsidiaries or their respective
property or (iv) result in the suspension, termination or revocation of any
Authorization (as defined below) of the Company or any of its subsidiaries or
any other impairment of the rights of the holder of any such Authorization,
except in the case of clauses (ii)(B), (iii) and
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(iv) for any such conflicts, defaults, violations, suspensions, terminations and
revocations which would not, singly or in the aggregate, have a Material Adverse
Effect or impair the power, authority or ability of the Company to consummate
the transactions contemplated by this Agreement.
(w) The Inter-Company Agreement, the Tax Sharing Agreement, the
Registration Rights Agreement, the Maintenance Agreement and the Service
Agreement have been duly authorized, executed and delivered by the Company.
(x) All requisite corporate action has been taken by the Company and IPC
to transfer all of the outstanding stock of MXNet, Inc., a New Jersey
corporation, to International Exchange Networks Ltd.
(y) All requisite corporate action has been taken by the Company and IPC
to transfer the business of the Company, as described in the Prospectus, to the
Company.
(z) The Company has commenced efforts to ensure that the information
technology systems and non-information technology systems used by the Company
and its subsidiaries will function properly beyond 1999. The Company has made
inquiries to its key third-party vendors and providers as to the status of their
Year 2000 efforts. As of the date hereof, except as described in the Prospectus,
the Company has not uncovered any problems that are reasonably likely to
adversely affect the operation of its services or that could disrupt or harm the
day-to-day functioning of the business or operations of Company.
SECTION 6A. Representations and Warranties of IPC. IPC represents and warrants
to each Underwriter that:
(a) IPC has been duly incorporated, is validly existing as a corporation
in good standing under the laws of its jurisdiction of incorporation and has the
corporate power and authority to carry on its business as described in the
Prospectus and to own, lease and operate its properties, and is duly qualified
and is in good standing as a foreign corporation authorized to do business in
each jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure to be
so qualified would not have a material adverse effect on the business,
prospects, financial condition or results of operations of IPC and its
subsidiaries, taken as a whole.
(b) IPC is not in violation of (A) its charter or by-laws or (B) in
default in the performance of any obligation, agreement, covenant or condition
contained in any indenture, loan agreement, mortgage, lease or other agreement
or instrument to which IPC or any of its subsidiaries is a party or by which IPC
or any of its subsidiaries or their respective property is bound, except in the
case of
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this clause (B) for nay defaults which, singly or in the aggregate, would not
have a Material Adverse Effect or impair the power, authority or ability of the
Company to consummate the transactions contemplated by this Agreement.
(c) The execution, delivery and performance of this Agreement by IPC, the
compliance by IPC with all the provisions hereof and the consummation of the
transactions contemplated hereby will not (i) require any consent, approval,
authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the securities
or Blue Sky laws of the various states), (ii) conflict with or constitute a
breach of any of the terms or provisions of, or a default under, (A) the charter
or by-laws of IPC or (B) any indenture, loan agreement, mortgage, lease or other
agreement or instrument to which IPC or any of its subsidiaries is a party or by
which IPC or any of its subsidiaries or their respective property is bound,
(iii) violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency having
jurisdiction over IPC, any of its subsidiaries or their respective property or
(iv) result in the suspension, termination or revocation of any Authorization of
IPC or any other impairment of the rights of the holder of any such
Authorization, except in the case of clauses (ii)(B), (iii) and (iv) for any
such conflicts, defaults, violations, suspensions, terminations and revocations
which would not, singly or in the aggregate, have a Material Adverse Effect or
impair the power, authority or ability of the Company to consummate the
transactions contemplated by this Agreement.
(d) This Agreement has been duly authorized, executed and delivered by
IPC.
(e) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of IPC and its subsidiaries,
taken as a whole, (ii) there has not been any material adverse change or any
development involving a prospective material adverse change in the capital stock
or in the long-term debt of IPC or any of its subsidiaries and (iii) neither IPC
nor any of its subsidiaries has incurred any material liability or obligation,
direct or contingent.
(f) The execution, delivery and performance of Inter-Company Agreement,
the Tax Sharing Agreement, the Registration Rights Agreement, the Maintenance
Agreement and the Service Agreement by IPC, the compliance by IPC with all the
provisions thereof and the consummation of the transactions contemplated thereby
will not (i) require any consent, approval, authorization or
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other order of, or qualification with, any court or governmental body or agency,
(ii) conflict with or constitute a breach of any of the terms or provisions of,
or a default under (A) the charter or by-laws of IPC or (B) any of its
subsidiaries or any indenture, loan agreement, mortgage, lease or other
agreement or instrument to which IPC or any of its subsidiaries is a party or by
which IPC or any of its subsidiaries or their respective property is bound,
(iii) violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency having
jurisdiction over IPC, any of its subsidiaries or their respective property or
(iv) result in the suspension, termination or revocation of any Authorization
(as defined below) of IPC or any of its subsidiaries or any other impairment of
the rights of the holder of any such Authorization, except in the case of
clauses (ii)(B), (iii) and (iv) for any such conflicts, defaults, violations,
suspensions, terminations and revocations which would not, singly or in the
aggregate, have a Material Adverse Effect or impair the power, authority or
ability of the Company to consummate the transactions contemplated by this
Agreement.
(g) The Inter-Company Agreement, the Tax Sharing Agreement, the
Registration Rights Agreement, the Maintenance Agreement and the Service
Agreement have been duly authorized, executed and delivered by IPC.
(h) All requisite corporate action has been taken by IPC to transfer all
of the outstanding stock of MXNet Inc., a New Jersey corporation, to
International Exchange Networks Ltd.
(i) IPC's most recent Annual Report on Form 10-K and any subsequent
reports filed pursuant to the Exchange Act compiled as of the date thereof in
all material respects with the Exchange Act and the rules and regulations
thereunder.
(j) All requisite corporate action has been taken by the Company and IPC
to transfer the business of the Company, as described in the Prospectus, to the
Company.
Section 7. Indemnification. (a) The Company and IPC jointly and severally
agree to indemnify and hold harmless each Underwriter, its directors, its
officers and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), from and against any and all losses,
claims, damages, liabilities and judgments (including, without limitation, any
legal or other expenses incurred in connection with investigating or defending
any matter, including any action, that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue
17
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statement of a material fact contained in the Registration Statement (or any
amendment thereto), the Prospectus (or any amendment or supplement thereto) or
any preliminary prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein; provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter (or any person controlling such underwriters)
who failed to deliver a Prospectus (as then amended or supplemented, provided by
the Company to the several Underwriters in the requisite quantity and on a
timely basis to permit proper delivery on or prior to the Closing Date) to the
person asserting any losses, claims, damages and liabilities and judgments
caused by any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such material
misstatement or omission or alleged material misstatement or omission was cured
in such Prospectus and such Prospectus was required by law to be delivered at or
prior to the written confirmation of sale to such person.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement, IPC and each person, if any, who controls the Company or IPC within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the
same extent as the foregoing indemnity from the Company to such Underwriter but
only with reference to information relating to such Underwriter furnished in
writing to the Company by such Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 7(a) and 7(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 7(c), but may employ
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separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the indemnified
party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Donaldson, Lufkin & Jenrette Securities Corporation in
the case of parties indemnified pursuant to Section 7(a), and by the Company or
IPC, as the case may be, in the case of parties indemnified pursuant to Section
7(b). The indemnifying party shall indemnify and hold harmless the indemnified
party from and against any and all losses, claims, damages, liabilities and
judgments by reason of any settlement of any action (i) effected with its
written consent or (ii) effected without its written consent if the settlement
is entered into more than twenty (20) business days after the indemnifying party
shall have received a written request from the indemnified party for
reimbursement for the fees and expenses of counsel (in any case where such fees
and expenses are at the expense of the indemnifying party) and, prior to the
date of such settlement, the indemnifying party shall have failed to comply with
such reimbursement request. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement or compromise
of, or consent to the entry of judgment with respect to, any pending or
threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from
all liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
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(d) To the extent the indemnification provided for in this Section 7 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause 7(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 7(d)(i) above but also the
relative fault of the Company on the one hand and the Underwriters on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (after deducting
underwriting discounts and commissions, but before deducting expenses) received
by the Company, and the total underwriting discounts and commissions received by
the Underwriters, bear to the total price to the public of the Shares, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault of the Company on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, IPC and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required
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to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 7(d) are
several in proportion to the respective number of Shares purchased by each of
the Underwriters hereunder and not joint.
(e) The remedies provided for in this Section 7 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
SECTION 8. Indemnification of QIU. (a) The Company agrees to indemnify
and hold harmless the QIU, its directors, its officers and each person, if any,
who controls the QIU within the meaning of Section 15 of the Act or Section 20
of the Exchange Act, from and against any and all losses, claims, damages,
liabilities and judgments (including, without limitation, any legal or other
expenses incurred in connection with investigating or defending any matter,
including any action, that could give rise to any such losses, claims, damages,
liabilities or judgments) related to, based upon or arising out of (i) any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus, or any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii) the
QIU's activities as QIU under its engagement pursuant to Section 2 hereof,
except in the case of this clause (ii) insofar as any such losses, claims,
damages, liabilities or judgments are found in a final judgment by a court of
competent jurisdiction, not subject to further appeal, to have resulted solely
from the willful misconduct or gross negligence of the QIU.
(b) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 8(a) (the "QIU Indemnified
Party"), the QIU Indemnified Party shall promptly notify the Company in writing
and the Company shall assume the defense of such action, including the
employment of counsel reasonably satisfactory to the QIU Indemnified Party and
the payment of all fees and expenses of such counsel, as incurred. Any QIU
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the QIU Indemnified Party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the Company, (ii) the Company shall have failed to assume the defense of such
action or employ counsel reasonably satisfactory to the QIU
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Indemnified Party or (iii) the named parties to any such action (including any
impleaded parties) include both the QIU Indemnified Party and the Company, and
the QIU Indemnified Party shall have been advised by such counsel that there may
be one or more legal defenses available to it which are different from or
additional to those available to the Company (in which case the Company shall
not have the right to assume the defense of such action on behalf of the QIU
Indemnified Party). In any such case, the Company shall not, in connection with
any one action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the fees and expenses of more than one separate firm of attorneys
(in addition to any local counsel) for all QIU Indemnified Parties, which firm
shall be designated by the QIU, and all such fees and expenses shall be
reimbursed as they are incurred. The Company shall indemnify and hold harmless
the QIU Indemnified Party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if the
settlement is entered into more than twenty business days after the Company
shall have received a written request from the QIU Indemnified Party for
reimbursement for the fees and expenses of counsel (in any case where such fees
and expenses are at the expense of the Company) and, prior to the date of such
settlement, the Company shall have failed to comply with such reimbursement
request. The Company shall not, without the prior written consent of the QIU
Indemnified Party, effect any settlement or compromise of, or consent to the
entry of judgment with respect to, any pending or threatened action in respect
of which the QIU Indemnified Party is or could have been a party and indemnity
or contribution may be or could have been sought hereunder by the QIU
Indemnified Party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the QIU Indemnified Party from all liability on
claims that are or could have been the subject matter of such action and (ii)
does not include a statement as to or an admission of fault, culpability or a
failure to act, by or on behalf of the QIU Indemnified Party.
(c) To the extent the indemnification provided for in this Section 8 is
unavailable to a QIU Indemnified Party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then the Company,
in lieu of indemnifying such QIU Indemnified Party, shall contribute to the
amount paid or payable by such QIU Indemnified Party as a result of such losses,
claims, damages, liabilities and judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the QIU on the other hand from the offering of the Shares or (ii) if
the allocation provided by clause 8(c)(i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause 8(c)(i) above but also the relative fault of the
Company on the one hand and the QIU on
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the other hand in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the Company
on the one hand and the QIU on the other hand shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company as set forth in the table on the cover page of
the Prospectus, and the fee received by the QIU pursuant to Section 2 hereof,
bear to the sum of such total net proceeds and such fee. The relative fault of
the Company on the one hand and the QIU on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the QIU and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission and whether the QIU's activities as QIU under
its engagement pursuant to Section 2 hereof involved any willful misconduct or
gross negligence on the part of the QIU.
The Company and the QIU agree that it would not be just and equitable if
contribution pursuant to this Section 8(c) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by a QIU Indemnified Party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such QIU Indemnified Party
in connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. In no event shall any QIU Indemnified Party be required to contribute
in the aggregate an amount exceeding the fee received by Donaldson, Lufkin &
Jenrette Securities Corporation pursuant to Section 2 hereof. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(d) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
QIU Indemnified Party at law or in equity.
Section 9. Conditions of Underwriters' Obligations'. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company and IPC
contained in this Agreement shall be true and correct on the Closing Date with
the
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same force and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 5:30 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by David A. Walsh and _______________, in their capacities
as the Chief Executive Officer and Chief Financial Officer of the Company,
respectively, confirming the matters set forth in Sections 6(t), 9(a) and 9(b)
and that the Company has complied with all of the agreements and satisfied all
of the conditions herein contained and required to be complied with or satisfied
by the Company on or prior to the Closing Date.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of IPC or the Company and its subsidiaries,
taken as a whole, (ii) there shall not have been any change or any development
involving a prospective change in the capital stock of IPC or the Company or any
of the Company's subsidiaries and (iii) neither IPC nor the Company nor any of
its subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 9(d)(i),
9(d)(ii) or 9(d)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(e) You shall have received on the Closing Date an opinion (satisfactory
to you and counsel for the Underwriters), dated the Closing Date, of Thacher
Proffitt & Wood, counsel for the Company, to the effect that:
(i) each of IPC, the Company and its significant subsidiaries has
been duly incorporated, is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation and has the
corporate power and authority to carry on its business as described in the
Prospectus and to own, lease and operate its properties;
(ii) each of IPC, the Company and its significant subsidiaries is
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<PAGE>
duly qualified and is in good standing as a foreign corporation authorized
to do business in each jurisdiction in which the nature of its business or
its ownership or leasing of property requires such qualification, except
where the failure to be so qualified would not have a Material Adverse
Effect;
(iii) all the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and, to such counsel's
knowledge, are fully paid and non-assessable and, none of such shares are
subject to any preemptive or similar rights pursuant to any statute, the
Company's certificate of incorporation or, to such counsel's knowledge, any
contract;
(iv) the Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor as provided by this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar
rights pursuant to any statute, the Company's certificate of incorporation
or, to such counsel's knowledge any contract;
(v) all of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and, to
such counsel's knowledge, are fully paid and non-assessable, and are owned
by the Company, directly or indirectly through one or more subsidiaries
free and clear of any security interest, claim, lien, encumbrance or
adverse interest of any nature, except as disclosed in the Prospectus;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company and IPC;
(vii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(viii) the Registration Statement has become effective under the Act
and to such counsel's knowledge no stop order suspending its effectiveness
has been issued and no proceedings for that purpose are pending before or
contemplated by the Commission;
(ix) the statements under the captions "Certain Relationships and
Related Transactions", "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources",
"Management-Employment Agreements", "Management-IXnet Stock Option Plan",
"Description of Capital Stock" and
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<PAGE>
"Underwriting" in the Prospectus and Items 14 and 15 of Part II of the
Registration Statement, insofar as such statements constitute a summary of
the legal matters, documents or proceedings referred to therein, fairly
present the information called for with respect to such legal matters,
documents and proceedings;
(x) to the best of such counsel's knowledge, (A) neither IPC nor
the Company nor any of its significant subsidiaries is in violation of its
respective charter or by-laws and (B) neither IPC nor the Company nor any
of its subsidiaries is in default in the performance of any obligation,
agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument filed as an
exhibit to the Registration Statement, except for defaults that would not,
singly or in the aggregate, have a material adverse effect;
(xi) the execution, delivery and performance of this Agreement by
the Company, the compliance by the Company with all the provisions hereof
and the consummation of the transactions contemplated hereby will not (A)
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such
as may be required under the securities or Blue Sky laws of the various
states), (B) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company or
any of its significant subsidiaries or any indenture, loan agreement,
mortgage, lease or other agreement or instrument to which the Company or
any of its significant subsidiaries is a party or by which the Company or
any of its significant subsidiaries or their respective property is bound,
(C) violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency
having jurisdiction over the Company, any of its significant subsidiaries
or their respective property or (D) result in the suspension, termination
or revocation of any Authorization of the Company or any of its
subsidiaries or any other impairment of the rights of the holder of any
such Authorization, except in the case of clauses (A), (B), (C) and (D) for
any such conflicts, defaults, violations, suspensions, terminations and
revocations which would not, singly or in the aggregate, have a Material
Adverse Effect or impair the power, authority or ability of the Company to
consummate the transactions contemplated by this Agreement;
(xii) to such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened to which the Company or any
of its subsidiaries is or could be a party or to which any of their
respective property is or could be subject that are required to be
described
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in the Registration Statement or the Prospectus and are not so described,
or of any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement that are not so
described or filed as required;
(xiii) to such counsel's knowledge, neither the Company nor any of
its subsidiaries has violated any Environmental Law, any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any
provisions of the Foreign Corrupt Practices Act, or the rules and
regulations promulgated thereunder, except for such violations which,
singly or in the aggregate, would not have a material adverse effect on the
business, prospects, financial condition or results of operation of the
Company and its subsidiaries, taken as a whole;
(xiv) to such counsel's knowledge, the Company and each of its
significant subsidiaries has such Authorizations of, and has made all
filings with and notices to, all governmental or regulatory authorities and
self-regulatory organizations and all courts and other tribunals as are
necessary to own, lease, license and operate its respective properties and
to conduct its business, except where the failure to have any such
Authorization or to make any such filing or notice would not, singly or in
the aggregate, have a Material Adverse Effect each such Authorization is
valid and in full force and effect and each of the Company and its
subsidiaries is in compliance with all the terms and conditions thereof and
with the rules and regulations of the authorities and governing bodies
having jurisdiction with respect thereto; and no event has occurred
(including, without limitation, the receipt of any notice from any
authority or governing body) which allows or, after notice or lapse of time
or both, would allow, revocation, suspension or termination of any such
Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its significant subsidiaries; except
where such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a Material Adverse
Effect;
(xv) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended;
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<PAGE>
(xvi) to the best of such counsel's knowledge there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company or to require the Company to include such securities with the
Shares registered pursuant to the Registration Statement, except as
described in the Prospectus; and
(xvii) (A) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial statements and
other financial data included therein as to which no opinion need be
expressed) comply as to form with the Act, (B) such counsel has no reason
to believe that at the time the Registration Statement became effective or
on the date of this Agreement, the Registration Statement and the
prospectus included therein (except for the financial statements and other
financial data as to which such counsel need not express any belief)
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading and (C) such counsel has no reason to
believe that the Prospectus, as amended or supplemented, if applicable
(except for the financial statements and other financial data, as
aforesaid) contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(xviii) the Inter-Company Agreement, the Tax Sharing Agreement, the
Registration Rights Agreement, the Maintenance Agreement and the Service
Agreement have been duly authorized, executed and delivered by the Company
and IPC.
The opinion of Thacher Proffitt and Wood described in Section 9(e) above
shall be rendered to you at the request of the Company and shall so state
therein. For purposes of this opinion, significant subsidiary shall mean a
significant subsidiary as defined by Rule 1-02 of Regulation S-X.
(f) The opinion of Vinson & Elkins.
(g) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Testa, Hurwitz & Thibeault, LLP, counsel for the Underwriters,
as to the matters referred to in Sections 9(e)(iv), 9(e)(vi), 9(e)(ix) (but only
with respect to the statements under the caption "Description of Capital Stock"
and "Underwriting") and 9(e)(xvii).
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In giving such opinions with respect to the matters covered by Section
9(e)(xvii) Thacher Proffitt and Wood and Testa, Hurwitz & Thibeault, LLP may
state that their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any amendments or
supplements thereto and review and discussion of the contents thereof, but are
without independent check or verification except as specified.
(h) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from PricewaterhouseCoopers LLP,
independent public accountants, containing the information and statements of the
type ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(i) The Company shall have delivered to you the agreements specified in
Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
(j) The Shares shall have been duly listed for quotation on the Nasdaq
National Market.
(k) The Company shall not have failed on or prior to the Closing Date to
perform or comply with any of the agreements herein contained and required to be
performed or complied with by the Company on or prior to the Closing Date.
(l) Consent of GE Capital, pursuant to the credit facility, to the sale
of the Shares.
(m) the Inter-Company Agreement, the Tax Sharing Agreement, the
Registration Rights Agreement, the Maintenance Agreement and the Service
Agreement shall have been duly authorized, executed and delivered by the parties
thereto.
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
Section 10. Effectiveness of Agreement and Termination. This
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Agreement shall become effective upon the execution and delivery of this
Agreement by the parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Company if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each non-
defaulting Underwriter shall be obligated severally, in the proportion which the
number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Firm Shares or Additional
Shares, as the case may be, which any Underwriter has agreed to purchase
pursuant to Section 2 hereof be increased pursuant to this Section 10 by an
amount in excess of one-ninth of such number of
30
<PAGE>
Firm Shares or Additional Shares, as the case may be, without the written
consent of such Underwriter. If on the Closing Date any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased by all
Underwriters and arrangements satisfactory to you and the Company for purchase
of such Firm Shares are not made within 48 hours after such default, this
Agreement will terminate without liability on the part of any non-defaulting
Underwriter and the Company. In any such case which does not result in
termination of this Agreement, either you or the Company shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. If, on an
Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased on such date, the non-defaulting
Underwriters shall have the option to (i) terminate their obligation hereunder
to purchase such Additional Shares or (ii) purchase not less than the number of
Additional Shares that such non-defaulting Underwriters would have been
obligated to purchase on such date in the absence of such default. Any action
taken under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any default of any such Underwriter under this
Agreement.
Section 11. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to IXnet,
Inc., 88 Pine Street, New York, NY 10005 (ii) if to IPC, to IPC Communications,
Inc., 88 Pine Street, New York, NY 10005, Attention:__________, with a copy to
Thacher Proffitt & Wood, Two World Trade Center, New York 10048, Attention:
Thomas N. Talley, Esq., and (iii) if to any Underwriter or to you, to you c/o
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York,
New York 10172, Attention: Syndicate Department, or in any case to such other
address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company and the several Underwriters set
forth in or made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive delivery of and payment for the Shares,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, the officers or directors of any
Underwriter, any person controlling any Underwriter, any QIU Indemnified Party,
the Company, the officers or directors of the Company or any person controlling
the Company, (ii) acceptance of the Shares and payment for them hereunder and
(iii) termination
31
<PAGE>
of this Agreement.
If for any reason the Shares are not delivered by or on behalf of the
Company as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10), the Company agrees to reimburse the several
Underwriters for all out-of-pocket expenses (including the reasonable fees and
disbursements of counsel) incurred by them. Notwithstanding any termination of
this Agreement, the Company shall be liable for all expenses which it has agreed
to pay pursuant to Section 5(i) hereof. The Company also agrees to reimburse
the several Underwriters, their directors and officers, any persons controlling
any of the Underwriters and the QIU Indemnified Parties for any and all fees and
expenses (including, without limitation, the fees disbursements of counsel)
incurred by them in connection with enforcing their rights hereunder (including,
without limitation, pursuant to Section 7 hereof).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, IPC, the Underwriters,
the Underwriters' directors and officers, any controlling persons referred to
herein, the QIU Indemnified Parties, the Company's directors and the Company's
officers who sign the Registration Statement and their respective successors and
assigns, all as and to the extent provided in this Agreement, and no other
person shall acquire or have any right under or by virtue of this Agreement.
The term "successors and assigns" shall not include a purchaser of any of the
Shares from any of the several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
32
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
IXNET, INC.
By:_____________________________________
David A. Walsh
Chief Executive Officer
IPC COMMUNICATIONS, INC.
By:_____________________________________
Gerald E. Starr
President and Chief Executive Officer
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON SMITH BARNEY INC.
MERRILL LYNCH, PIERCE
FENNER & SMITH INCORPORATED
FIRST UNION CAPITAL MARKETS CORP.
DLJDIRECT, INC.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: ________________________________
__________________________________
33
<PAGE>
SCHEDULE I
----------
Underwriters Number of Firm Shares
to be Purchased
Donaldson, Lufkin & Jenrette Securities
Corporation
Salomon Smith Barney Inc.
Merrill Lynch, Pierce
Fenner & Smith Incorporated
First Union Capital Markets Corp.
DLJdirect Inc.
Total
<PAGE>
Annex I
2
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
IXNET, INC.
Section 1. Name. The name of the corporation is IXnet, Inc. (the
----
"Corporation").
Section 2. Registered Office and Agent. The address of the Corporation's
---------------------------
registered office in the State of Delaware is Corporation Trust Center, 1209
Orange Street in the City of Wilmington, County of New Castle. The name of the
Corporation's registered agent at such address is The Corporation Trust Company.
Section 3. Purpose. The nature of the business and purpose or purposes to
-------
be conducted or promoted by the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
Section 4. Authorized Stock. The total number of shares of stock which the
----------------
Corporation shall have authority to issue is one hundred million (100,000,000),
all of which shares shall be common stock, par value one cent ($0.01) per share
(the "Common Stock").
Section 5. Board of Directors.
------------------
(a) Number of Directors. The total number of directors which shall
-------------------
constitute the whole board of directors shall be determined in accordance
with the By-laws of the Corporation, but shall not be less than three (3)
nor more than eleven (11).
(b) Written Ballot. Unless and to the extent that the By-laws so
--------------
provide, elections of directors need not be by written ballot.
<PAGE>
-2-
Section 6. Limitation of Director Liability.
--------------------------------
(a) Limitation. A director of the Corporation shall not be
----------
personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except to the extent
such exemption from liability or limitation thereof is expressly prohibited
by the General Corporation Law of the State of Delaware as the same exists
or may hereafter be amended.
(b) No Retroactive Changes. Any amendment, termination or repeal of
----------------------
this Section 6 or any provisions hereof shall not adversely affect or
diminish in any way any right or protection of a director of the
Corporation existing with respect to any act or omission occurring prior to
the time of the final adoption of such amendment, termination or repeal.
(c) Amendment of this Section. In addition to any requirements of
-------------------------
law or of any other provisions of this Certificate of Incorporation, the
affirmative vote of the holders of not less than seventy percent (70%) of
the total number of votes eligible to be cast by the holders of all
outstanding shares of Common Stock entitled to vote thereon shall be
required to amend, alter, rescind or repeal any provision of this Section
6.
Section 7. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
(S)291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
(S)279 of Title 8 of the Delaware Code order a meeting of the creditors or class
of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourths in value of the
creditors or class of creditors, and/or of the stockholders
<PAGE>
-3-
or class of stockholders of this Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of this Corporation as
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders, of
this Corporation, as the case may be, and also on this Corporation.
Section 8. Business Combinations with Interested Stockholders. The
--------------------------------------------------
Corporation expressly elects not to be governed by Section 203 of the General
Corporation Law of the State of Delaware.
Section 9. Amendments.
----------
(a) Amendments of Certificate of Incorporation. In addition to any
------------------------------------------
affirmative vote required by applicable law, any alteration, amendment,
repeal or rescission (collectively, any "Change") of any provision of this
Certificate of Incorporation must be approved by the Board of Directors and
by the affirmative vote of the holders of a majority (or such greater
proportion as may otherwise be required pursuant to any specific provision
of this Certificate of Incorporation) of the total votes eligible to be
cast by the holders of all outstanding shares of Common Stock entitled to
vote thereon. Except as may otherwise be provided in this Certificate of
Incorporation, the Corporation reserves the right at any time, and from
time to time, to amend, alter, change or repeal any provision contained in
this Certificate of Incorporation and to add or insert herein any other
provisions authorized by the laws of the State of Delaware at the time in
force, in the manner now or hereafter prescribed by law, and all rights,
preferences and privileges of any nature conferred upon stockholders,
directors or any other persons whomsoever by and pursuant to this
Certificate of Incorporation in its present form or as hereafter amended
are granted subject to the rights reserved in this Section 9(a).
<PAGE>
-4-
(b) Amendments of By-laws. In furtherance and not in limitation of
---------------------
the powers conferred by statute, the Board of Directors of the Corporation
is expressly authorized to make, alter, amend, rescind or repeal from time
to time any of the By-laws of the Corporation in accordance with the terms
thereof; provided, however, that any By-Law made by the Board of Directors
may be altered, amended, rescinded or repealed in accordance with the terms
thereof by the holders of a majority of the shares of Common Stock entitled
to vote thereon at any annual meeting or at any special meeting called for
that purpose. Notwithstanding the foregoing, any provision of the By-laws
that contains a supermajority voting requirement shall only be altered,
amended, rescinded or repealed by a vote of the Board of Directors or
holders of shares of Common Stock entitled to vote thereon that is not less
than the supermajority specified in such provision.
<PAGE>
-5-
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation,
having been duly adopted and declared advisable by the board of directors of the
Corporation at a telephonic meeting held on June 30, 1999, at which a quorum
was present and acting throughout, in accordance with Sections 242 and 245 of
the Delaware General Corporation Law ("DGCL"), and approved and adopted by
written consent of the sole shareholder, in lieu of a meeting, in accordance
with Section 228 of the DGCL, has been duly executed by the Chief Executive
Officer this 1st day of July, 1999.
IXNET, INC.
By: /s/ David A. Walsh
-------------------------------------------
David A. Walsh, Chief Executive Officer
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
IXNET, INC.
ARTICLE I
Stockholders
------------
SECTION 1. Annual Meeting. The annual meeting of the stockholders of
--------------
the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of such
other business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the
----------------
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors or the Chairman
of the Board. Any special meeting of the stockholders shall be held on such
date, at such time and at such place within or without the State of Delaware as
the Board of Directors or the officer calling the meeting may designate. At a
special meeting of the stockholders, no business shall be transacted and no
corporate action shall be taken other than that stated in the notice of the
meeting.
<PAGE>
SECTION 3. Notice of Meetings. Except as otherwise provided in these
------------------
By-Laws or by law, a written notice of each meeting of the stockholders shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of the Corporation entitled to vote at such
meeting at such stockholder's address as it appears on the records of the
Corporation. The notice shall state the place, date and hour of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called.
SECTION 4. Quorum. At any meeting of the stockholders, the holders of
------
a majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that, at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these By-Laws.
SECTION 5. Adjourned Meetings. Whether or not a quorum shall be
------------------
present in person or represented at any meeting of the stockholders, the holders
of a majority in number of the shares of stock of the Corporation present in
person or represented by proxy and entitled to vote at such meeting may adjourn
from time to time; provided, however, that if the holders of any class of
2
<PAGE>
stock of the Corporation are entitled to vote separately as a class upon any
matter at such meeting, any adjournment of the meeting in respect of action by
such class upon such matter shall be determined by the holders of a majority of
the shares of such class present in person or represented by proxy and entitled
to vote at such meeting. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. Organization. The Chairman of the Board, or, in the
------------
absence of the Chairman of the Board, the Chief Executive Officer, or, in the
absence of the Chairman of the Board and the Chief Executive Officer, the
President, or, in the absence of the Chairman of the Board, the Chief Executive
Officer and the President, the Executive Vice President or Vice President who is
most senior in tenure shall call all meetings of the stockholders to order, and
shall act as Chairman of such meetings. In the absence of the Chairman of the
Board, the Chief Executive Officer, the President and all of the Executive Vice
Presidents and Vice Presidents, the holders of a majority in number of the
shares of stock of the Corporation present in person or represented by proxy and
entitled to vote at such meeting shall elect a Chairman.
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but, in the absence of the Secretary, the Chairman
may appoint any person to act as Secretary of the meeting. It shall be the duty
of the Secretary to prepare and make, at least ten days
3
<PAGE>
before every meeting of stockholders, a complete list of stockholders entitled
to vote at such meeting, arranged in alphabetical order and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting or, if not so specified, at the place where the meeting is to be held,
for the ten days next preceding the meeting, to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, and shall be produced and kept at the time and place of the meeting
during the whole time thereof and subject to the inspection of any stockholder
who may be present.
SECTION 7. Voting. Except as otherwise provided in or pursuant to
------
the Certificate of Incorporation or by law, each stockholder shall be entitled
to one vote for each share of the capital stock of the Corporation registered in
the name of such stockholder upon the books of the Corporation. Each
stockholder entitled to vote at a meeting of stockholders or to express consent
or dissent to corporate action in writing without a meeting may authorize
another person or persons to act for him or her by proxy, but no such proxy
shall be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. Except as otherwise provided by law or by the
Certificate of Incorporation, Directors shall be elected by a plurality of the
votes cast at a meeting of stockholders by the stockholders entitled to vote in
the election and, whenever any corporate action, other than the election of
Directors is to be taken, it shall be authorized by a majority of the votes cast
at a meeting of stockholders by the stockholders entitled to vote thereon except
as otherwise provided by the General Corporation Law of the State of Delaware or
other statute.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such
4
<PAGE>
other corporation is held, directly or indirectly, by the Corporation, shall
neither be entitled to vote nor be counted for quorum purposes.
SECTION 8. Inspectors. In advance of any meeting of stockholders,
----------
the Board of Directors shall appoint one or more persons, other than officers,
Directors or nominees for office, as inspectors of election to act at such
meeting or any adjournment thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. Such appoint
ment shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the meeting shall make such appointment at the
meeting. If any persons appointed as inspector or alternate fail to appear or
fail or refuse to act at the meeting, the vacancy so created may be filled by
appointment by the Board of Directors in advance of the meeting or at the
meeting by the chairman of the meeting. The duties of the inspectors of
election shall include determining the number of shares outstanding and the
voting power of each, the shares represented at the meeting, the validity and
effect of proxies and ballots, counting all votes and ballots and retaining for
a reasonable period a record of the disposition of any challenges made to any
determinations by the inspectors, and certifying their determination of the
number of shares represented at the meeting, and their count of all votes and
ballots.
SECTION 9. Consent of Stockholders in Lieu of Meeting. Any action
------------------------------------------
required to be taken at any annual or special meeting of stockholders of the
Corporation, or any action which may be taken at any annual or special meeting
of the stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted and shall be delivered to the Corporation by
5
<PAGE>
delivery either to its registered office in Delaware, to its principal place of
business, or to an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be made by hand or by
certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the date
the earliest dated consent is delivered to the Corporation, a written consent or
consents signed by a sufficient number of holders to take action are delivered
to the Corporation in the manner prescribed in the first paragraph of this
Section.
ARTICLE II
Board of Directors
------------------
SECTION 1. Number and Term of Office. The business and affairs of the
-------------------------
Corporation shall be managed by or under the direction of a Board of Directors,
none of whom need be stockholders of the Corporation. The total number of
Directors constituting the whole Board of Directors shall be fixed from time to
time by resolution passed by a majority of the Board of Directors. Each Director
shall, except as hereinafter otherwise provided for filling vacancies, be
elected at the annual meeting of stockholders, and shall hold office until such
Director's successor is elected and qualified or until such Director's earlier
resignation or removal.
SECTION 2. Removal, Vacancies and Additional Directors. The
-------------------------------------------
stockholders may, at any special meeting the notice of which shall state that it
is called for that purpose, remove, with or without cause, any Director and fill
the vacancy; provided that, whenever any Director shall have
6
<PAGE>
been elected by the holders of any class of stock of the Corporation voting
separately as a class under the provisions of the Certificate of Incorporation,
such Director may be removed and the vacancy filled only by the holders of that
class of stock voting separately as a class. Vacancies caused by any such
removal and not filled by the stockholders at the meeting at which such removal
shall have been made, or any vacancy caused by the death or resignation of any
Director or for any other reason, and any newly created directorship resulting
from any increase in the authorized number of Directors, may be filled by the
affirmative vote of a majority of the Directors then in office, although less
than a quorum, and any Director so elected to fill any such vacancy or newly
created directorship shall hold office until such Director's successor is
elected and qualified or until such Director's earlier resignation or removal.
SECTION 3. Place of Meeting. The Board of Directors may hold its
----------------
meetings in such place or places in the State of Delaware or outside the State
of Delaware as the Board of Directors from time to time shall determine.
SECTION 4. First Meeting. The first meeting of each newly elected
-------------
Board of Directors shall be held immediately after the annual meeting of
stockholders and no notice of such meeting shall be necessary to the newly
elected Directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of a failure of the Directors to meet at such
time, the meeting may be held at such time and place as shall be specified in a
notice given as hereinafter provided for special meetings of the Board of
Directors, or as shall be specified in a written waiver signed by all of the
Directors.
7
<PAGE>
SECTION 5. Regular Meetings. Regular meetings of the Board of
----------------
Directors shall be held at such times and places as the Board of Directors from
time to time shall determine. No further notice shall be required for any
regular meeting of the Board of Directors.
SECTION 6. Special Meetings. Special meetings of the Board of
----------------
Directors shall be held whenever called by direction of the Chairman of the
Board or by any two of the Directors then in office.
Notice of the day, hour and place of holding of each special meeting
shall be given by mailing the same at least two days before the meeting or by
causing the same to be transmitted by facsimile, telegram or telephone at least
one day before the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these By-Laws
may be transacted at any special meeting, and an amendment of these By-Laws may
be acted upon if the notice of the meeting shall have stated that the amendment
of these By-Laws is one of the purposes of the meeting. At any meeting at which
every Director shall be present, even though without any notice, any business
may be transacted, including the amendment of these By-Laws.
SECTION 7. Quorum. Subject to the provisions of Section 2 of this
------
Article II, a majority of the members of the Board of Directors in office (but
in no case less than one-third of the total number of Directors nor less than
two Directors) shall constitute a quorum for the transaction of business and the
vote of the majority of the Directors present at any meeting of the Board of
Directors at which a quorum is present shall be the act of the Board of
Directors. If at any meeting of the Board of Directors there is less than a
quorum present, a majority of those present may adjourn the meeting from time to
time.
8
<PAGE>
SECTION 8. Organization. The Chairman of the Board shall preside at
------------
all meetings of the Board of Directors. In the absence of the Chairman of the
Board, a Chairman shall be elected from the Directors present. The Secretary of
the Corporation shall act as Secretary of all meetings of the Directors; but, in
the absence of the Secretary, the Chairman may appoint any person to act as
Secretary of the meeting.
SECTION 9. Committees. The Board of Directors may designate one or
----------
more committees, each committee to consist of one or more of the Directors of
the Corporation. The Board of Directors may designate one or more Directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and the affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it; but no such committee shall have the power or authority in
reference to approving or adopting, or recommending to the stockholders, any
action or matter expressly required by law to be submitted to stockholders for
approval, or adopting, amending or repealing these By-laws.
SECTION 10. Conference Telephone Meetings. Unless otherwise restricted
-----------------------------
by the Certificate of Incorporation or by these By-Laws, the members of the
Board of Directors or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors or such committee, as the
case may be, by means of conference telephone or similar
9
<PAGE>
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting.
SECTION 11. Consent of Directors or Committee in Lieu of Meeting.
----------------------------------------------------
Unless otherwise restricted by the Certificate of Incorporation or by these By-
Laws, any action required or permitted to be taken at any meeting of the Board
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board of Directors or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee, as the case may be.
ARTICLE III
Officers
--------
SECTION 1. Officers. The officers of the Corporation shall be a
--------
Chairman of the Board, Chief Executive Officer, a President, one or more Vice
Presidents, a Secretary and a Treasurer, and such additional officers, if any,
as shall be elected by the Board of Directors pursuant to the provisions of
Section 7 of this Article III. The Chairman of the Board, the Chief Executive
Officer, the President, one or more Vice Presidents, the Secretary and the
Treasurer shall be elected by the Board of Directors at its first meeting after
each annual meeting of the stockholders. The failure to hold such election
shall not of itself terminate the term of office of any officer. All officers
shall hold office at the pleasure of the Board of Directors. Any officer may
resign at any time upon written notice to the Corporation. Officers may, but
need not, be Directors. Any number of offices may be held by the same person.
10
<PAGE>
All officers, agents and employees shall be subject to removal, with
or without cause, at any time by the Board of Directors. The removal of an
officer without cause shall be without prejudice to such officer's contract
rights, if any. The election or appointment of an officer shall not of itself
create contract rights. All agents and employees other than officers elected by
the Board of Directors shall also be subject to removal, with or without cause,
at any time by the officers appointing them.
Any vacancy caused by the death, resignation or removal of any
officer, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these By-Laws, the officers shall have such
authority and shall perform such duties as from time to time may be determined
by the Board of Directors.
SECTION 2. Powers and Duties of the Chairman of the Board. The
----------------------------------------------
Chairman of the Board shall preside at all meetings of the stockholders and at
all meetings of the Board of Directors and shall have such other powers and
perform such other duties as may from time to time be assigned by these By-Laws
or by the Board of Directors.
SECTION 3. Powers and Duties of the Chief Executive Officer. The
------------------------------------------------
Chief Executive Officer shall be the chief executive officer of the Corporation,
have general charge and control of all the Corporation's business and affairs
and, subject to the control of the Board of Directors, shall have all powers and
shall perform all duties incident to the office of Chief Executive Officer. In
the absence of the Chairman of the Board, the Chief Executive Officer shall
preside at
11
<PAGE>
all meetings of the stockholders and at all meetings of the Board of Directors.
In addition, the Chief Executive Officer shall have such other powers and
perform such other duties as may from time to time be assigned by these By-Laws
or by the Board of Directors.
SECTION 4. Powers and Duties of the President. The President shall,
----------------------------------
subject to the control of the Board of Directors, have all powers and shall
perform all duties incident to the office of President. In the absence of the
Chairman of the Board and the Chief Executive Officer, the President shall
preside at all meetings of the stockholders and at all meetings of the Board of
Directors. In the absence of the Chief Executive Officer, the President shall be
the chief executive officer of the Corporation, have general charge and control
of all the Corporation's business and affairs and shall have such other powers
and perform such other duties as may from time to time be assigned by these By-
Laws or by the Board of Directors.
SECTION 5. Powers and Duties of the Vice Presidents. Each Vice
----------------------------------------
President shall have all powers and shall perform all duties incident to the
office of Vice President and shall have such other powers and perform such other
duties as may from time to time be assigned by these By-Laws or by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President.
SECTION 6. Powers and Duties of the Secretary. The Secretary shall
----------------------------------
keep the minutes of all meetings of the Board of Directors and the minutes of
all meetings of the stockholders in books provided for that purpose. The
Secretary shall attend to the giving or serving of all notices of the
Corporation; shall have custody of the corporate seal of the Corporation and
shall affix the same to such documents and other papers as the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President shall authorize and direct; shall have charge of the stock
12
<PAGE>
certificate books, transfer books and stock ledgers and such other books and
papers as the Board of Directors, the Chairman of the Board, the Chief Executive
Officer or the President shall direct, all of which shall at all reasonable
times be open to the examination of any Director, upon application, at the
office of the Corporation during business hours. The Secretary shall have all
powers and shall perform all duties incident to the office of Secretary and
shall also have such other powers and shall perform such other duties as may
from time to time be assigned by these By-Laws or by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer or the President.
SECTION 7. Powers and Duties of the Treasurer. The Treasurer shall
----------------------------------
have custody of, and when proper shall pay out, disburse or otherwise dispose
of, all funds and securities of the Corporation. The Treasurer may endorse on
behalf of the Corporation for collection checks, notes and other obligations and
shall deposit the same to the credit of the Corporation in such bank or banks or
depository or depositories as the Board of Directors may designate; shall sign
all receipts and vouchers for payments made to the Corporation; shall enter or
cause to be entered regularly in the books of the Corporation kept for the
purpose full and accurate accounts of all moneys received or paid or otherwise
disposed of and whenever required by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer or the President shall render statements of
such accounts. The Treasurer shall, at all reasonable times, exhibit the books
and accounts to any Director of the Corporation upon application at the office
of the Corporation during business hours; and shall have all powers and shall
perform all duties incident of the office of Treasurer and shall also have such
other powers and shall perform such other duties as may from time to time be
assigned by these By-Laws or by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer or the President.
13
<PAGE>
SECTION 8. Additional Officers. The Board of Directors may from time
-------------------
to time elect such other officers (who may but need not be Directors), including
a Chief Financial Officer, Assistant Treasurers and Assistant Secretaries, as
the Board of Directors may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned by
the Board of Directors, the Chairman of the Board, the Chief Executive Officer
or the President.
The Board of Directors may from time to time by resolution delegate to
any Assistant Treasurer or Assistant Treasurers any of the powers or duties
herein assigned to the Treasurer; and may similarly delegate to any Assistant
Secretary or Assistant Secretaries any of the powers or duties herein assigned
to the Secretary.
SECTION 9. Giving of Bond by Officers. All officers of the
--------------------------
Corporation, if required to do so by the Board of Directors, shall furnish bonds
to the Corporation for the faithful performance of their duties, with such
penalties and with such conditions and security as the Board of Directors shall
require.
SECTION 10. Voting Upon Stocks. Unless otherwise ordered by the Board
------------------
of Directors, the Chairman of the Board, the Chief Executive Officer, the
President or any Executive Vice President or Vice President shall have full
power and authority on behalf of the Corporation to attend and to act and to
vote, or in the name of the Corporation to execute proxies to vote, at any
meeting of stockholders of any corporation in which the Corporation may hold
stock, and at any such meeting shall possess and may exercise, in person or by
proxy, any and all rights, powers and privileges incident to the ownership of
such stock. The Board of Directors may from time to time, by resolution, confer
like powers upon any other person or persons.
14
<PAGE>
SECTION 11. Compensation of Officers. The officers of the Corporation
------------------------
shall be entitled to receive such compensation for their services as shall from
time to time be determined by the Board of Directors.
ARTICLE IV
Indemnification of Directors and Officers
-----------------------------------------
SECTION 1. Right to Indemnification. Each person who was or is made a
------------------------
party or is threatened to be made a party to or is otherwise involved in any
threatened or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter, a "Proceeding"), by reason of the
fact that he or she is or was a director or officer of the Corporation or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation or of a partnership, joint venture, trust or
other enterprise (hereinafter, an "Indemnitee"), whether the basis of such
Proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
employee or agent shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such Indemnitee in connection
therewith and such indemnification shall continue as to an Indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the Indemnitee's heirs, executors and administrators; provided,
however, that, except as provided in Section 3 of this Article IV with respect
to Proceedings to enforce rights to indemnification, the
15
<PAGE>
Corporation shall indemnify any such Indemnitee in connection with a Proceeding
(or part thereof) initiated by such Indemnitee only if such Proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
SECTION 2. Right to Advancement of Expenses. The right to
--------------------------------
indemnification conferred in Section 1 of this Article IV shall include the
right to be paid by the Corporation the expenses incurred in defending any
Proceeding for which such right to indemnification is applicable in advance of
its final disposition (hereinafter, an "Advancement of Expenses"); provided,
however, that, if the General Corporation Law of the State of Delaware requires,
an Advancement of Expenses incurred by an Indemnitee in such person's capacity
as a director or officer (and not in any other capacity in which service was or
is rendered by such Indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter, an "Undertaking"), by or on behalf of such Indemnitee,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal (hereinafter, a
"Final Adjudication") that such Indemnitee is not entitled to be indemnified for
such expenses under this Section or otherwise.
SECTION 3. Right of Indemnitee to Bring Suit. The rights to
---------------------------------
indemnification and to the advancement of expenses conferred in Section 1 or 2
of this Article IV shall be contract rights. If a claim under Section 1 or 2 of
this Article IV is not paid in full by the Corporation within sixty days after a
written claim has been received by the Corporation, except in the case of a
claim for an Advancement of Expenses) in which case the applicable period shall
be twenty days, the Indemnitee may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim. If successful in whole
or in part in any such suit, or in a suit brought by the Corporation to recover
an Advancement of Expenses pursuant to the terms of an Undertaking, the
Indemnitee shall
16
<PAGE>
be entitled to be paid also the expense of prosecuting or defending such suit.
In (i) any suit brought by the Indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the Indemnitee to enforce a right to an
Advancement of Expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an Advancement of Expenses pursuant to the terms of an
Undertaking the Corporation shall be entitled to recover such expenses upon a
Final Adjudication that, the Indemnitee has not met any applicable standard for
indemnification set forth in the General Corporation Law of the State of
Delaware. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
Indemnitee is proper in the circumstances because the Indemnitee has met the
applicable standard of conduct set forth in the General Corporation Law of the
State of Delaware, nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) that the
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that the Indemnitee has not met the applicable standard of conduct
or, in the case of such a suit brought by the Indemnitee, be a defense to such
suit. In any suit brought by the Indemnitee to enforce a right to
indemnification or to an Advancement of Expenses hereunder, or by the
Corporation to recover an Advancement of Expenses pursuant to the terms of an
Undertaking, the burden of proving that the Indemnitee is not entitled to be
indemnified, or to such Advancement of Expenses, under this Section or otherwise
shall be on the Corporation.
SECTION 4. Non-Exclusivity of Rights. The rights to indemnification
-------------------------
and to the Advancement of Expenses conferred in this Article IV shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the Corporation's certificate of incorporation, bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
17
<PAGE>
SECTION 5. Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of the State of Delaware.
SECTION 6. Indemnification of Employees and Agents of the
----------------------------------------------
Corporation. The Corporation may, to the extent authorized from time to time by
- -----------
the Board of Directors, grant rights to indemnification, and to the Advancement
of Expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article IV with respect to the indemnification and
Advancement of Expenses of directors and officers of the Corporation.
ARTICLE V
General Provisions
------------------
SECTION 1. Certificates For Shares of Stock. The certificates for
--------------------------------
shares of stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by the Chairman of the Board, the
Chief Executive Officer, the President or a Vice President and by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall
not be valid unless so signed.
In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
18
<PAGE>
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates had not ceased
to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered
as the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and canceled.
SECTION 2. Lost, Stolen or Destroyed Certificates. The Board of
--------------------------------------
Directors may issue a new certificate of stock or uncertificated shares in place
of any certificate therefore issued by it, alleged to have been lost, stolen or
destroyed, and the Board of Directors may require the owner of the lost, stolen,
or destroyed certificate, or such owners legal representative to give a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of a new certificate or uncertificated shares therefor.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation
------------------
shall be transferred on the books of the Corporation by the holder thereof, in
person or by such holder's attorney duly authorized in writing, upon surrender
and cancellation of certificates for the number of shares of stock to be
transferred, except as provided in Section 2 of this Article V.
19
<PAGE>
SECTION 4. Regulations. The Board of Directors shall have power and
-----------
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. Record Date. In order that the Corporation may determine
-----------
the stockholders entitled to notice of or to vote at any meeting of
stockholders, or to receive payment of any dividend or other distribution or
allotment of any rights or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date on which the resolution fixing the record date is adopted and
which record date shall not be more than sixty (60) nor less than ten (10) days
before the date of any meeting of stockholders, nor more than sixty (60) days
prior to the time for such other action as hereinbefore described; provided,
however, that if no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held, and, for
determining stockholders entitled to receive payment of any dividend or other
distribution or allotment of rights or to exercise any rights of change,
conversion or exchange of stock or for any other purpose, the record date shall
be at the close of business on the day on which the Board of Directors adopts a
resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
20
<PAGE>
In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall be not more than ten (10) days after the date upon which
the resolution fixing the record date is adopted. If no record date has been
fixed by the Board of Directors and no prior action by the Board of Directors is
required by the General Corporation Law of the State of Delaware, the record
date shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation in the
manner prescribed by Article I, Section 9 hereof. If no record date has been
fixed by the Board of Directors and prior action by the Board of Directors is
required by the General Corporation Law of the State of Delaware with respect to
the proposed action by written consent of the stockholders, the record date for
determining stockholders entitled to consent to corporate action in writing
shall be at the close of business on the day on which the Board of Directors
adopts the resolution taking such prior action.
SECTION 6. Dividends. Subject to the provisions of the Certificate of
---------
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
21
<PAGE>
SECTION 7. Corporate Seal. The Board of Directors shall provide a
--------------
suitable seal, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary. A duplicate of the seal may be kept and be
used by any officer of the Corporation designated by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer or the President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation shall be
-----------
such fiscal year as the Board of Directors from time to time by resolution shall
determine. The initial fiscal year shall end September 30, 1999.
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of exchange,
------------------
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or persons as the Board of Directors
from time to time may designate.
SECTION 2. Contracts. Except as otherwise provided in these By-Laws
---------
or by law or as otherwise directed by the Board of Directors, the Chairman of
the Board, the Chief Executive Officer, the President or any Executive Vice
President or Vice President shall be authorized to
22
<PAGE>
execute and deliver, in the name and on behalf of the Corporation, all
agreements, bonds, contracts, deeds, mortgages, and other instruments, either
for the Corporation's own account or in a fiduciary or other capacity, and the
seal of the Corporation, if appropriate, shall be affixed thereto by any of such
officers or the Secretary or an Assistant Secretary. The Board of Directors, the
Chairman of the Board, the Chief Executive Officer, the President or any
Executive Vice President or Vice President designated by the Board of Directors
may authorize any other officer, employee or agent to execute and deliver, in
the name and on behalf of the Corporation, agreements, bonds, contracts, deeds,
mortgages, and other instruments, either for the Corporation's own account or in
a fiduciary or other capacity, and, if appropriate, to affix the seal of the
Corporation thereto. The grant of such authority by the Board of Directors or
any such officer may be general or confined to specific instances.
SECTION 3. Waivers of Notice. Whenever any notice whatever is
-----------------
required to be given by law, by the Certificate of Incorporation or by these By-
Laws to any person or persons, a waiver thereof in writing, signed by the person
or persons entitled to the notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
SECTION 4. Offices Outside of Delaware. Except as otherwise required
---------------------------
by the laws of the State of Delaware, the Corporation may have an office or
offices and keep its books, documents and papers outside of the State of
Delaware at such place or places as from time to time may be determined by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer or
the President.
23
<PAGE>
ARTICLE VII
Amendments
----------
These By-Laws and any amendment thereof may be altered, amended or
repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the affirmative vote of a majority of all of the
members of the Board of Directors, provided in the case of any special meeting
at which all of the members of the Board of Directors are not present, that the
notice of such meeting shall have stated that the amendment of these By-Laws was
one of the purposes of the meeting; but these By-Laws and any amendment thereof
may be altered, amended or repealed or new By-Laws may be adopted by the holders
of a majority of the total outstanding stock of the Corporation entitled to vote
at any annual meeting or at any special meeting, provided, in the case of any
special meeting, that notice of such proposed alteration, amendment, repeal or
adoption is included in the notice of the meeting.
24
<PAGE>
EXHIBIT 4.1
Incorporated under the laws of the State of Delaware
IXnet, Inc.
Total Authorized Issue
2,000 Shares $0.01 Par Value
Common Stock
This is to Certify that
is the registered holder of
fully paid and non-assessable shares of the Common Stock, $.01 par value, of
IXnet, Inc. transferable on the books of the Corporation by the holder hereof in
person or by duly authorized Attorney upon surrender of this Certificate
properly endorsed. The Corporation will furnish without charge to each
stockholder who so requests a statement of the powers, designations, preferences
and relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar.
Witness, the seal of the Corporation and the signatures of its duly authorized
officers.
Dated
David A. Walsh John McSherry
Chief Executive Officer Secretary
<PAGE>
The following abbreviations when used in the inscription on the face of
this Certific
ate shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT . . . . . .Custodian . . . . .
TEN ENT - as tenants by the entities Cust (Minor)
JT TEN - as joint tenants with under Uniform Gifts to Minors Act. . . . . . . .
right of survivorship (State)
and not as tenants in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received
________________________________________________________________________ hereby
sell(s), assign(s) and transfer(s) unto _______________________________________
_________________________________ shares represented by she within Certificate,
and do hereby irrevocably constitute and appoint ______________________________
Attorney to transfer the said Shares on the books of she within named
Corporation with full power of substitution in the premises.
Date: _______________________________________ _____________________________
In presence of Signature _____________________________________
________________________________________________
Signature ______________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the face
of the Certificate in every particular without
alteration or enlargement or any change
whatsoever.
<PAGE>
EXHIBIT 5.1
E-Mail: [email protected]
July 2, 1999
IXnet, Inc.
Wall Street Plaza
88 Pine Street
New York, New York 10005
Re: Registration Statement
on Form S-1 (No. 333-79079)
---------------------------
Ladies and Gentlemen:
We have acted as counsel to IXnet, Inc., a Delaware corporation
("IXnet"), in connection with the preparation and filing by IXnet with the
Securities and Exchange Commission (the "Commission") of a registration
statement on Form S-1 (the "Registration Statement") relating to the
registration under the Securities Act of 1933, as amended (the "Act"), of an
aggregate of 8,625,000 shares of IXnet's common stock, par value $.01 per share
(the "Shares"). In rendering the opinion set forth below, we do not express any
opinion concerning law other than the federal law of the United States and the
corporate law of the State of Delaware.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records and other instruments,
and have examined such matters of law, as we have deemed necessary or advisable
for purposes of rendering the opinion set forth below. We have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures, the legal capacity of natural persons and the conformity to the
originals of all documents submitted to us as copies. In making our examination
of any documents, we have assumed that all parties, other than IXnet, had the
corporate power and authority to enter into and perform all obligations
thereunder, and, as to such parties, we have also assumed the due authorization
by all requisite action, the due execution and delivery of such documents and
the validity and binding effect and enforceability thereof.
<PAGE>
Based on the foregoing, we are of the opinion that, upon effectiveness
of the Registration Statement and the issuance and sale of the Shares as
described in the Registration Statement, the Shares will be validly issued,
fully paid and non-assessable.
In rendering the opinion set forth above, we have not passed upon and do
not purport to pass upon the application of "doing business" or securities or
"blue-sky" laws of any jurisdiction (except federal securities laws).
This opinion is given solely for the benefit of IXnet and investors who
purchase Shares pursuant to the Registration Statement and may not be relied
upon by any other person or entity, nor quoted in whole or in part, or otherwise
referred to in any document without our express written consent.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the prospectus that is part of such Registration Statement. In
giving this consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission.
Very truly yours,
THACHER PROFFITT & WOOD
By: /s/ THOMAS N. TALLEY
Thomas N. Talley
<PAGE>
EXHIBIT 10.1
INTER-COMPANY AGREEMENT
AMONG
IPC INFORMATION SYSTEMS, INC.,
IXNET, INC.
AND
INTERNATIONAL EXCHANGE NETWORKS, LTD.
DATED AS OF JULY __, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
<S> <C>
Section 1.1 Definitions............................................................................1
-----------
ARTICLE II
FINANCING ARRANGEMENTS BETWEEN IPC AND IXNET
Section 2.1 Provision of Facilities by IPC.........................................................4
------------------------------
Section 2.2 Intercompany Loans, Letters of Credit and Guarantees Existing on
-----------------------------------------------------------------
July 1,1999............................................................................6
ARTICLE III
CORPORATE SUPPORT SERVICES
Section 3.1 Provision of Corporate Support Services................................................7
---------------------------------------
Section 3.2 Allocation of Cost of Services.........................................................7
------------------------------
ARTICLE IV
REAL ESTATE
Section 4.1 Assignment and Sublease of Leases; Sharing of Office Space.............................7
----------------------------------------------------------
ARTICLE V
INTERNET PROTOCOL ADDRESS SPACE
Section 5.1 Transfer of IP Address Space...........................................................8
----------------------------
ARTICLE VI
LICENSING RIGHTS
Section 6.1 Exclusive Right to License World Turret(TM)...............................................8
---------------------------------------
ARTICLE VII
IPC BOOTH AT THE SIA SHOW
Section 7.1 IXnet's Obligation to Share Costs of the IPC Booth.....................................8
--------------------------------------------------
Section 7.2 IXnet's Right of First Refusal.........................................................8
------------------------------
</TABLE>
ARTICLE VIII
DECONSOLIDATION
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 8.1 No Action by IXnet to Deconsolidate....................................................9
-----------------------------------
ARTICLE IX
ASSIGNMENT OF IPC'S RIGHTS
Section 9.1 Assignment of IPC's Rights in Claims Against IXnet Employees...........................9
------------------------------------------------------------
ARTICLE X
COMPLIANCE WITH INDENTURE
Section 10.1 IXnet's Agreement to Comply with the Indenture.........................................9
----------------------------------------------
ARTICLE XI
MISCELLANEOUS
Section 11.1 General Interpretative Principles......................................................9
---------------------------------
Section 11.2 Amendments............................................................................10
----------
Section 11.3 Successors and Assigns................................................................10
----------------------
Section 11.4 Severability..........................................................................10
------------
Section 11.5 Notices...............................................................................10
-------
Section 11.6 Governing Law.........................................................................11
-------------
Section 11.7 Counterparts..........................................................................11
------------
</TABLE>
-ii-
<PAGE>
INTER-COMPANY AGREEMENT
INTER-COMPANY AGREEMENT dated as of July __, 1999 (the "Agreement") among
IXNET, INC., a Delaware corporation ("IXnet Holdings"), INTERNATIONAL EXCHANGE
NETWORKS, LTD., a Delaware corporation and a wholly owned Subsidiary of IXnet
Holdings ("IXnet"), on behalf of itself and its Subsidiaries, and IPC
INFORMATION SYSTEMS, INC., a Delaware corporation ("IPC"), on behalf of itself
and its Subsidiaries.
PRELIMINARY STATEMENTS
IXnet Holdings intends to sell to the public, pursuant to an initial public
offering (the "IPO"), not more than 20% of the IXnet Holdings Common Stock.
Immediately following the consummation of the IPO, IPC will own not less
than 80% of the outstanding shares of IXnet Holdings Common Stock.
It is the intention of the parties hereto that this Agreement shall govern
certain matters relating to the ongoing relationship between IXnet Holdings,
IXnet and its Subsidiaries, on the one hand, and IPC and its Subsidiaries (other
than IXnet Holdings, IXnet and its Subsidiaries), on the other hand, after the
consummation of the IPO.
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. The following terms, when used in this
-----------
Agreement, shall have the meanings set forth in this Section 1.1; provided,
however, that, capitalized terms used and not otherwise defined in this
Agreement shall have the meanings ascribed thereto in the Credit Agreement.
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person. For purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as applied to any Person, means the possession, directly or indirectly,
of the power to vote a majority of the securities having voting power for the
election of directors (or other Persons acting in similar capacities) of such
Person or otherwise to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities or
by contract or otherwise.
"Agreement" has the meaning ascribed thereto in the preamble hereto, as
such agreement is amended, supplemented or otherwise modified from time to time
in accordance with its terms.
<PAGE>
"Base Rate" has the meaning ascribed thereto in the Credit Agreement.
"Business Day" means any day other than a Saturday, Sunday or other day on
which banking institutions in New York are authorized or required by law to be
closed.
"Change in Control" shall mean the consummation of any transaction pursuant
to which IPC ceases to beneficially own (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 50% of the voting power of all
outstanding securities of IXnet Holdings (or of any entity that is a successor
to all or substantially all IXnet Holdings' business) entitled to vote generally
in the election of directors.
"Credit Agreement" means the Amended and Restated Credit Agreement dated as
of June 21, 1999 (originally dated April 30, 1998), as the same may be further
amended and restated, amended, supplemented or otherwise modified from time to
time, by and among IPC, as Parent Borrower, IPC Funding Corp., as Sub Borrower,
IPC Communications, as a Loan Party, the Lenders named therein, the Issuing Bank
named therein, Morgan Stanley Senior Funding, Inc., as Syndication Agent and
General Electric Capital Corporation, as Administrative Agent and Collateral
Agent.
"Dollars" and "$" mean the lawful money of the United States.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time consistently applied.
"Governmental Body" means any government or political subdivision thereof,
whether foreign or domestic, federal, state, provincial, county, local,
municipal or regional, or any other governmental entity, any agency, authority,
department, division or instrumentality of any such government, political
subdivision, or other governmental entity, any court, arbitral tribunal or
arbitrator, and any non-governmental regulating body, to the extent that the
rules, regulations or orders of such body have the force of law.
"Indenture" means the Indenture dated as of April 30, 1998 between IPC and
United States Trust Company of New York relating to the Senior Notes, as amended
by the First Supplemental Indenture dated as of September 30, 1998, as the same
may be further amended, supplemented or otherwise modified from time to time.
"IPC" has the meaning ascribed thereto in the preamble.
"IPC Booth" means the booth showing the product lines of IXnet and IPC
jointly maintained by them at the SIA show.
"IPC Communications" means IPC Communications, Inc., a Delaware
corporation.
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<PAGE>
"IPC Entities" means IPC and all Persons that constitute Subsidiaries of
IPC from time to time (excluding IXnet Holdings and the IXnet Entities).
"IPO" has the meaning ascribed thereto in the preamble.
"IPO Registration Statement" means the registration statement on Form S-1,
Registration No. 333-79079, filed by IXnet Holdings with the SEC in connection
with the IPO of the IXnet Holdings Common Stock, together with all amendments
and supplements thereto.
"IXnet Common Stock" means the common stock, $.01 par value per share, of
IXnet Holdings.
"IXnet Entities" means IXnet and all Persons that constitute Subsidiaries
of IXnet from time to time.
"IXnet Holdings" has the meaning ascribed thereto in the preamble.
"Person" means an individual, a partnership, a limited liability company,
an association, a joint venture, a corporation, a trust, an estate, a joint
stock company, an unincorporated organization or other entity or a Governmental
Body.
"SEC" means the Securities and Exchange Commission.
"Senior Notes" means IPC's 10/7/8/% Senior Discount Notes due 2008.
"Services" shall have the meaning set forth in Section 3.1.
"SIA Show" means the annual trade show of the Securities Industry
Association.
"Subsidiary" means, with respect to any Person, any other Person which is
directly or indirectly controlled by such Person. For purposes of this
definition, "control," as applied to any Person, means the possession, directly
or indirectly, of the power to vote a majority of the securities having voting
power for the election of directors (or other Persons acting in similar
capacities) of such Person or otherwise to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
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<PAGE>
ARTICLE II
FINANCING ARRANGEMENTS BETWEEN IPC AND IXNET
Section 2.1 Provision of Facilities by IPC.
------------------------------
(1) Commencing July 1, 1999 until June 30, 2001, subject to
the conditions set forth herein, IPC shall provide the IXnet Entities with the
following:
(i) the right to borrow from IPC pursuant to intercompany loans
from IPC to IXnet, (ii) the right to have IPC obtain letters of credit from the
Issuing Bank under the Credit Agreement in favor of third Persons for the
benefit of IXnet, and (iii) the ability to obtain guarantees from IPC of IXnet's
obligations to third Persons; provided, that
(A) the maximum principal amount of intercompany loans under clause
(i), plus the maximum stated amount of letters of credit under clause (ii) shall
not in the aggregate exceed $50 million at any time outstanding (with the total
stated amount of letters of credit at any time comprising no more than $7.5
million);
(B) such intercompany loans under clause (i) shall constitute Pledged
Debt under the Credit Agreement;
(C) the total stated amount of letters of credit under clause (ii) and
the total amount of obligations guaranteed under clause (iii) shall [each be
treated as intercompany loans and shall] constitute Pledged Debt under the
Credit Agreement;
(D) to the extent it has not done so, the applicable IXnet Entity
agrees in writing to be bound by the terms of this Agreement;
(E) such intercompany loans under clause (i), letters of credit under
clause (ii) and guarantees under clause (iii) are permitted under clause (B) of
Section 5.02(b)(ii) of the Credit Agreement and the other provisions of the
Credit Agreement;
(F) both before and after giving effect to any such loan under clause
(i), letter of credit under clause (ii) or guarantee under clause (iii), no
Default or Event of Default shall have occurred and be continuing under the
Credit Agreement and;
(G) both before and after giving effect to any such loan under clause
(i), letter of credit under clause (ii) or guarantee under clause (iii), no
Event of Default (as defined in the Indenture) under the Indenture shall have
occurred and be continuing.
All indebtedness for intercompany loans under clause (i) of Section 2.1(a),
letters of credit under clause (ii) of Section 2.1(a) and guarantees under
clause (iii) of Section 2.1(a) shall be evidenced as set forth on Exhibit A.
Any and all amounts loaned by IPC to IXnet which are
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<PAGE>
outstanding on June 30, 2001 shall be immediately due and payable.
Notwithstanding the foregoing or any other provision in this Agreement to the
contrary, any and all amounts owing by IXnet to IPC hereunder (whether in
respect of intercompany loans, letters of credit, guarantees or otherwise) shall
be immediately due and payable upon demand at any time following (i) the
occurrence and during the continuance of an Event of Default under the Credit
Agreement or (ii) a Change in Control. Any and all amounts due and payable
hereunder shall be paid in cash or, with IPC's permission, in the case of
outstanding letters of credit under clause (ii) above or guarantees under clause
(iii) above, cash collateralized in an amount equal to 105% of the underlying
obligations pursuant to cash collateral arrangements and documents satisfactory
to IPC and the Agent under the Credit Agreement.
(2) The maximum principal amount of intercompany loans available under
clause (i) of Section 2.1(a) and the maximum stated amount of letters of credit
available under clause (ii) of Section 2.1(a) shall initially be $6,250,000 and
shall increase by such amount each quarter thereafter commencing on October 1,
1999.
(3) IXnet shall give IPC four Business Days' (in the case of
intercompany loans under clause (i) of Section 2.1(a)) and six Business Days'
(in the case of letters of credit or guarantees under clauses (ii) or (iii),
respectively, of Section 2.1(a)) prior notice by telephone or in person,
confirmed immediately in writing (which may include facsimile or electronic
transmission), which notice shall specify (i) the date of the proposed
intercompany loan or, the issuance of letter of credit or the guarantee, as the
case may be, (ii) the amount of the intercompany loan, letter of credit or
guarantee, as the case may be, such amount to be in an aggregate amount of at
least $500,000 or an integral multiple of $100,000 in excess thereof, and (iii)
in the case of letters of credit, the name and address of the beneficiary and
the expiration date of each such letter of credit. IXnet shall provide IPC with
such other documentation related to the issuance of the letter of credit or
guarantee, as the case may be, as may be required by IPC.
(4) Guarantees of IXnet's obligations under clause (iii) of Section
2.1(a) may be made by IPC from time to time in its sole discretion.
(5) IXnet shall use the proceeds of intercompany loans made under
clause (i) of Section 2.1(a) (i) for working capital, (ii) operating expenses
and (iii) principal and interest payments on indebtedness.
(6) For use of the facilities made available under Section 2.1(a),
IXnet shall pay IPC as follows:
(i) With respect to intercompany loans made under clause (i) of
Section 2.1(a), interest on the unpaid principal amount of each
loan from the date of such loan at a rate per annum equal to 2%
above the Base Rate shall be payable on the first day of each
fiscal quarter commencing October 1, 1999. To the extent that
interest payments shall not be made timely, then the amount of
such interest shall be added to the principal amount outstanding.
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<PAGE>
(ii) After July 1, 1999, for letters of credit made available
under clause (ii) of Section 2.1 (a) and guarantees made
available under clause (iii) of Section 2.1(a), the applicable
costs, fees and charges incurred by IPC in connection with
obtaining letters of credit and providing guarantees for the
benefit of IXnet shall be payable upon demand by IPC.
(7) IXnet acknowledges that as a Subsidiary of IPC, as well as a
Domestic Guarantor, it is bound by the terms and restrictions contained in the
Credit Agreement and other Loan Documents, including the negative covenants
applicable to IPC and its Subsidiaries (including IXnet and its Subsidiaries)
and other limitations contained therein. IXnet's maximum share of the
allowances set forth in the Sections of the Credit Agreement specified below
shall be as follows:
(1) Section 5.02(b)(iii)(B) - $ 15,000,000;
(2) Section 5.02(b)(iii)(C) - $ 2,500,000;
(3) Section 5.02(b)(iii)(D) - $ 30,000,000;
(4) Section 5.02(b)(iii)(G) - $ 15,000,000;
(5) Section 5.02(c) - [ ];
(6) Section 5.02(e)(iii) - $ 5,000,000;
(7) Section 5.02(e)(iv) - $ 5,000,000;
(8) Section 5.02(f)(i) - $ 0;
(9) Section 5.02(f)(ii) - $ 1,000,000;
(10) Section 5.02(f)(vii) - $ 0;
(11) Section 5.02(f)(viii) - (Pounds)30,000,000;
and
(12) Section 5.02(r) - $ 0.
(8) All other costs under the Credit Agreement shall continue to be
borne by IPC.
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<PAGE>
Section 2.2 Intercompany Loans, Letters of Credit and Guarantees Existing on
----------------------------------------------------------------
July 1,1999.
- -----------
(1) Any and all amounts loaned by IPC to IXnet prior to July 1, 1999
which remain outstanding on such date shall, beginning on such date, bear
interest at the rate set forth in Section 2.1(f)(i) above, which intercompany
loans shall not reduce the amount available under the facilities made available
under Section 2.1(a).
(2) Any and all letters of credit and guarantees which are outstanding
on July 1, 1999 shall continue in full force and effect at no cost to IXnet on
their same terms and conditions until their expiration without extension, which
letters of credit and guarantees shall not reduce the amount available under the
facilities made available under Section 2.1(a).
ARTICLE III
CORPORATE SUPPORT SERVICES
Section 3.1 Provision of Corporate Support Services.
---------------------------------------
Until June 30, 2001, to the extent requested by IXnet, IPC shall continue
to provide the IXnet Entities with such of its corporate support services as it
may from time to time possess, including cash management, accounting, legal,
administrative/facilities management, human resources (including medical
insurance, 401(k) plan and other employee benefits), information systems and
insurance (collectively, the "Services"). IXnet shall provide IPC with 60
days' prior written notice in the event that it no longer requires IPC to
provide any or all of the Services.
Section 3.2 Allocation of Cost of Services.
------------------------------
To the extent costs incurred by IPC in providing the Services are directly
or solely attributable to an IXnet Entity or are clearly allocable based upon an
objective measure (e.g., square footage, revenue, etc.), such costs shall be
directly allocated to IXnet by IPC. All other costs incurred by IPC in
providing the Services shall be reimbursed to IPC by IXnet at the end of each
fiscal quarter for a fraction of the total costs to IPC of maintaining the
Services for the IPC Entities and the IXnet Entities, the numerator of which
fraction shall equal the average number of employees of the IXnet Entities
during the applicable fiscal quarter (or, if less than a fiscal quarter, the
applicable portion thereof) and the denominator of which shall equal the average
number of employees of the IPC Entities and the IXnet Entities during the
applicable fiscal quarter (or, if less than a fiscal quarter, the applicable
portion thereof); provided, however, that with respect to an employee who is
employed by both an IPC Entity and an IXnet Entity, such calculation shall be
based on the average amount of time such employee works for such IPC Entity and
IXnet Entity. Notwithstanding the foregoing, at the end of each fiscal
quarter, IXnet shall promptly reimburse IPC for the insurance premiums paid or
incurred by IPC and covering risks applicable to the IXnet Entities, or to the
extent the same cannot be determined by IPC, as determined by the underwriter of
the relevant insurance policy.
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<PAGE>
ARTICLE IV
REAL ESTATE
Section 4.1 Assignment and Sublease of Leases; Sharing of Office Space.
----------------------------------------------------------
To the extent permissible under the leases listed on Schedule A attached hereto
(the "Leases"), IPC and IXnet shall each use its respective reasonable efforts
to effect the sublease or assignment, or to obtain the necessary consents
allowing such sublease or assignment, from IPC to IXnet of all or the portion of
the space covered by such Leases and which is occupied or used by any of the
IXnet Entities.
With respect to the locations of IPC offices listed on Schedule A (the
"Offices") and any or all of the Leases, IXnet shall reimburse IPC for all costs
(including utilities and maintenance) incurred by IPC for the space covered by
such Offices and Leases which is occupied or used by any of the IXnet Entities.
Such costs shall be allocated based on usage by such IXnet Entities or, if not
discernable by IPC, by the relative number of square feet which is occupied by
the IPC Entities and the IXnet Entities, respectively.
ARTICLE V
INTERNET PROTOCOL ADDRESS SPACE
Section 5.1 Transfer of IP Address Space. IPC shall submit a request
----------------------------
with the American Registry for Internet Numbers ("ARIN") requesting a transfer
to IXnet of the block of Internet Protocol ("IP") addresses owned by IPC,
previously known as a "Class B" license (the "Class B License"). In
consideration of such submission and transfer, IXnet will transfer to IPC the
block of IP addresses owned by IXnet, previously known as a "Class C" license.
IPC and IXnet shall take all reasonable actions that may be required in order to
effect the transfer of the Class B License, including responding to any inquires
made by ARIN and providing any additional information requested by ARIN.
ARTICLE VI
LICENSING RIGHTS
Section 6.1 Exclusive Right to License World Turret (TM). For a term of
--------------------------------------------
[5] years, IPC hereby grants to IXnet an exclusive right to license and
sublicense IPC's World Turret (TM) (or a similar replacement or successor
thereof), its IP-based remote turret, solely (i) with respect to IXnet
TraderConnect customers for access to trading applications via the Internet or
the IXnet Extranet, (ii) as an application service provider via the Internet or
the IXnet Extranet or (iii) for the purpose of disaster recovery or enhanced
product offerings. During such period, IPC shall not license or sublicense IPC's
World Turret (TM) (or a similar replacement or successor thereto) to any
competitor of IXnet for incorporation of such product within a central-office
based trading turret marketing application or to any application service
provider for use in a service bureau model.
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<PAGE>
ARTICLE VII
IPC BOOTH AT THE SIA SHOW
Section 7.1 IXnet's Obligation to Share Costs of the IPC Booth.
--------------------------------------------------
For a term equal to the lesser of (i) three (3) years and (ii) such time as
IPC determines not to maintain the IPC Booth at the SIA Show, IXnet shall have
the right to occupy, at its discretion, up to 25% of the IPC Booth (or such
other percentage as IPC and IXnet may agree upon from time to time). IXnet
shall be responsible for its proportionate share (based on the percentage of the
IPC Booth IXnet elects to occupy) of the basic charges related to the IPC Booth.
Section 7.2 IXnet's Right of First Refusal.
------------------------------
In the event that IPC determines not to maintain the IPC Booth at the SIA
Show, IPC shall notify IXnet at least 30 days prior to the date IPC must give
notice to the Securities Industry Association that it does not intend to
maintain the IPC Booth at the next SIA Show, and, to the extent permitted by the
Securities Industry Association, IXnet shall have the right to establish its own
booth at the SIA Show in the same location that the IPC Booth had been
previously.
ARTICLE VIII
DECONSOLIDATION
Section 8.1 No Action by IXnet to Deconsolidate. Neither IXnet Holdings
-----------------------------------
nor IXnet shall take any action, or permit any action to be taken by its
Subsidiaries (including the issuance of IXnet Holdings Common Stock), prior to
the later to occur of (i) November 1, 2001 and (ii) the termination of the
Credit Agreement, that would result in its not being included in the United
States consolidated federal income tax return of IPC Communications.
ARTICLE IX
ASSIGNMENT OF IPC'S RIGHTS
Section 9.1 Assignment of IPC's Rights in Claims Against IXnet
--------------------------------------------------
Employees. IPC hereby assigns to IXnet all of IPC's rights and interests in
- ---------
claims which IPC may have against employees of IXnet, including claims relating
to patent, copyright, trademark and trade secret rights.
ARTICLE X
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<PAGE>
COMPLIANCE WITH INDENTURE
Section 10.1 IXnet's Agreement to Comply with the Indenture. IXnet
----------------------------------------------
shall, and shall cause each of its Subsidiaries to, comply with the covenants
and the other restrictions, limitations and obligations under the Indenture
which pertain to IXnet and/or its Subsidiaries.
ARTICLE XI
MISCELLANEOUS
Section 11.1 General Interpretative Principles. For purposes of this
---------------------------------
Agreement, except as otherwise expressly provided or unless the context
otherwise requires:
(1) the terms defined in this Agreement include the plural as well as
the singular, and the use of any gender herein shall be deemed to include the
other gender;
(2) accounting terms not otherwise defined herein have the meanings
given to them in accordance with GAAP;
(3) references herein to "articles," "sections," "subsections" and
other subdivisions without reference to a document are to designated articles,
sections, subsections and other subdivisions of this Agreement;
(4) a reference to a subsection without further reference to a section
is a reference to such subsection as contained in the same section in which the
reference appears, and this rule shall also apply to paragraphs and other
subdivisions;
(5) the words "herein," "hereof," "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
provision;
(6) the term "include" or "including" shall mean without limitation by
reason of enumeration;
(7) the headings in this Agreement are solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement;
(8) any reference to any federal, state, local, or foreign statute or
law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context otherwise requires; and
(9) the parties have participated jointly in the negotiation and
drafting of this Agreement, and, in the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of
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<PAGE>
proof shall arise favoring or disfavoring either party by virtue of the
authorship of any of the provisions of this Agreement.
Section 11.2 Amendments. No amendment or waiver of any provision of this
----------
Agreement shall in any way be effective unless the same shall be in writing and
signed by each of the parties hereto.
Section 11.3 Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of the parties hereto and their respective
successors and assigns of IPC. This Agreement may not be assigned in whole or
in part by any of the IXnet Entities.
Section 11.4 Severability. If any provision of this Agreement or the
------------
application of any such provision to any party or circumstance shall be
determined by any court of competent jurisdiction or duly authorized arbitration
tribunal to be invalid, illegal or unenforceable to any extent, the remainder of
such provision and of this Agreement or the application of such provision to
such party or circumstances, other than those to which it is so determined to be
invalid, illegal or unenforceable, shall remain in full force and effect to the
fullest extent permitted by law and shall not be affected thereby, unless such a
construction would be unreasonable.
Section 11.5 Notices. All notices, consents, deliveries, demands,
-------
requests, approvals and other communications which are required or may be given
hereunder shall be in writing and will be deemed to have been duly given if
personally delivered (including courier service), facsimiled or transmitted
electronically or mailed certified first class mail, postage prepaid, addressed
as follows:
(a) if to IXnet and IXnet Holdings, to:
International Exchange Networks, Ltd.
Wall Street Plaza
88 Pine Street
New York, NY 10005
Telephone: (212) 412-6400
Facsimile: (212) 858-6970
Attention: Chief Executive Officer
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<PAGE>
(b) if to IPC, to:
IPC Information Systems, Inc.
Wall Street Plaza
88 Pine Street
New York, NY 10005
Telephone: (212) 825-9060
Facsimile: (212) 509-7888
Attention: Chief Executive Officer
Section 11.6 Governing Law. This Agreement will be governed by, and
-------------
construed in accordance with, the laws of the State of New York, without giving
effect to the choice of law provisions or its conflicts of law rules.
Section 11.7 Counterparts. This Agreement may be executed in one or
------------
more counterparts, each of which will be deemed an original instrument, but all
of which together will constitute one and the same agreement, and will become
binding when one or more counterparts have been executed and delivered by each
of the parties hereto.
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<PAGE>
IN WITNESS HEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.
INTERNATIONAL EXCHANGE NETWORKS, LTD.
By:
------------------------------------
Name:
Title:
IPC INFORMATION SYSTEMS, INC.
By:
------------------------------------
Name:
Title:
IXNET, INC.
By:
------------------------------------
Name:
Title:
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<PAGE>
EXHIBIT 10.2
TAX SHARING AGREEMENT
---------------------
This Tax Sharing Agreement (the "Agreement") is made and entered into
as of the day of , 1999, by and between IPC Communications,
Inc., a Delaware corporation ("IPC"), and IXnet, Inc., a Delaware corporation
("IXnet").
____________________________
IPC is the common parent of an affiliated group of corporations within
the meaning of Section 1504(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and IXnet and the IXnet Subsidiaries (as hereinafter defined) are
members of said affiliated group; and
The parties hereto wish to provide for the allocation between them and
their respective subsidiary groups (as hereinafter defined) of income tax
liability for their current and future Taxable Years (as hereinafter defined)
and certain related matters;
_____________________________
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants herein contained, the parties hereto agree as follows:
1. DEFINITIONS
(1) Terms used in this Agreement shall have the meanings ascribed to
them in, and shall be interpreted in accordance with, the relevant provisions of
the Code and the regulations and rulings issued thereunder, as from time to time
in effect.
(2) For purposes of this Agreement, the terms set forth below shall be
defined as follows:
1. IPC Group -- IPC, the corporations that comprise the IXnet Group
and all other corporations (whether now existing or hereafter formed or
acquired) that at the time join Parent (as hereinafter defined) in filing a
consolidated federal income tax return.
2. IPC Group Actual Tax Liability -- The consolidated federal income
tax liability reported on the IPC Group's consolidated federal income tax return
filed for any Post-1998 Taxable Year.
3. IPC Subsidiary Group -- IPC, and all other corporations (whether
now existing or hereafter formed or acquired) that at the time join Parent in
filing a consolidated federal income tax return, other than members of the IXnet
Group.
4. IPC Subsidiary Group Actual Tax Liability -- The portion of the
consolidated federal income tax liability reported on the IPC Group's
consolidated federal income tax return filed
<PAGE>
for any Post-1998 Taxable Year and allocable to the IPC Subsidiary Group under
Treas. Reg. Section 1.1552-1(a)(1).
5. IPC Subsidiary Group Hypothetical Tax Liability -- The
hypothetical consolidated federal income tax liability of the IPC Subsidiary
Group, determined, by Parent in its sole reasonable discretion, at the end of
each Post-1998 Taxable Year, computed as if the IPC Subsidiary Group had filed
its own consolidated federal income tax return for such Taxable Year and all
prior Post-1998 Taxable Years and all Pre-1999 Taxable years, but subject to the
modifications specified in Treas. Reg. Section 1.1552-1(a)(2)(ii); provided,
--------
that (i) such liability shall be computed using the highest marginal corporate
tax rate in effect for such Taxable Year, and (ii) if for any such Taxable Year
a Tax (as hereinafter defined) would be imposed on the IPC Subsidiary Group
pursuant to Section 55 of the Code, the IPC Subsidiary Group Hypothetical Tax
Liability shall be increased by the amount of Tax that would be imposed under
such section, computed using the alternative minimum tax rate set forth in
Section 55(b)(1) of the Code and taking into account items specified in Section
55(b)(2) of the Code attributable to the IPC Subsidiary Group. In determining
the IPC Subsidiary Group Hypothetical Tax Liability, the same elections and
methods of accounting and computation shall be used as are used in the
determination of the IPC Group Actual Tax Liability.
6. IXnet Group -- IXnet, the IXnet Subsidiaries and any other
corporation (whether now existing or hereafter formed or acquired) that would be
included in the affiliated group of corporations (as defined in Section 1504(a)
of the Code) of which IXnet would be the common parent but for the inclusion of
IXnet and the IXnet Subsidiaries in the IPC Group.
7. IXnet Group Actual Tax Liability -- The portion of the
consolidated federal income tax liability reported on the IPC Group's
consolidated federal income tax return filed for any Post-1998 Taxable Year and
allocable to the IXnet Group under Treas. Reg. Section 1.1552-1(a)(1).
8. IXnet Group Estimated Tax Liability -- IXnet Group's Hypothetical
Tax Liability, determined through the end of each period for which estimated
federal income tax payments on a consolidated basis are due. The IXnet Group
Estimated Tax Liability shall be determined each taxable year by Parent in its
sole reasonable discretion, in accordance with the principles of subparagraph
1(b)(5).
9. IXnet Group Hypothetical Tax Liability -- The hypothetical
consolidated federal income tax liability of the IXnet Group, determined, by
Parent in its sole reasonable discretion, at the end of each Post-1998 Taxable
Year, computed as if the IXnet Group had filed its own consolidated federal
income tax return for such Taxable Year and all prior Post-1998 Taxable Years
and all Pre-1999 Taxable years, but subject to the modifications specified in
Treas. Reg. Section 1.1552-1(a)(2)(ii); provided, that (i) such liability may be
--------
reduced by any loss, deduction or credit from a Pre-1999 Taxable Year that under
applicable principles of tax law is permitted to be carried forward to and
utilized in such Post-1998 Taxable Year (had the IXnet Group filed a
consolidated federal income tax return separate from the IPC Group) only to the
extent that such loss, deduction or credit was not utilized in computing the IPC
Group Actual Tax Liability for a Pre-1999 Taxable Year or for the IPC Group
taxable year ending September 30, 1999, (ii) such liability shall be computed
using the highest marginal corporate tax rate in effect for such Taxable Year,
and
2
<PAGE>
(iii) if for any such Taxable Year a Tax (as hereinafter defined) would be
imposed on the IXnet Group pursuant to Section 55 of the Code, the IXnet Group
Hypothetical Tax Liability shall be increased by the amount of Tax that would be
imposed under such section, computed using the alternative minimum tax rate set
forth in Section 55(b)(1) of the Code and taking into account items specified in
Section 55(b)(2) of the Code attributable to the IXnet Group. In determining
the IXnet Group Hypothetical Tax Liability, the same elections and methods of
accounting and computation shall be used as are used in the determination of the
IPC Group Actual Tax Liability.
10. IXnet Subsidiaries (and each, an IXnet Subsidiary) -- The
corporations listed in Schedule A hereto, and any other corporation that would
be included in the affiliated group of corporations, as defined in section
1504(a) of the Code, of which IXnet would be the common parent but for its
inclusion in the IPC Group.
11. Parent -- IPC or any successor common parent corporation of the
IPC Group.
12. Post-1998 Taxable Year -- A taxable year of the IPC Group that
begins on or after October 1, 1998 and for which any member of the IXnet Group
is included in the IPC Group for all or part of such taxable year.
13. Pre-1999 Taxable Year -- A taxable year of the IPC Group for
which any member of the IXnet Group was included in the IPC Group for all or
part of such taxable year, and which is not a Post-1998 Taxable Year.
14. Tax -- regular corporate income tax or corporate alternative
minimum tax, together with any and all interest, additions to tax, fines and
penalties payable with respect thereto.
2. FILING OF CONSOLIDATED RETURNS
AND PAYMENTS OF TAX
------------------------------------------
Parent shall, on a timely basis, file or cause to be filed
consolidated federal income tax returns and estimated tax returns for the IPC
Group for each Post-1998 Taxable Year and shall pay in full any Tax shown due on
such returns. Parent, in its sole discretion, shall make all elections relating
to the filing of such returns, and shall compute the consolidated federal income
tax liability of the IPC Group. Each member of the IXnet Group shall execute
such consents and other documents as are necessary in connection therewith.
3. ALLOCATION OF CONSOLIDATED
FEDERAL INCOME TAX LIABILITY
----------------------------
If a consolidated federal income tax return is filed by Parent on
behalf of the IPC Group for any Post-1998 Taxable Year:
(1) Except as otherwise provided in paragraphs 3(b) and 3(c), IXnet
shall pay to Parent an amount equal to the IXnet Group Hypothetical Tax
Liability for such Post-1998 Taxable Year. Not later than fifteen (15) days
prior to the day the IPC Group's consolidated federal income tax return is
required to be filed in respect of such Post-1998 Taxable Year (taking account
of any
3
<PAGE>
extensions thereof), Parent shall provide IXnet a schedule that sets forth in
reasonable detail the calculation of the IXnet Group Hypothetical Tax Liability
for such Post-1998 Taxable Year. The amount required to be paid by IXnet to
Parent pursuant to this paragraph 3(a) for such Post-1998 Taxable Year shall be
paid not later than five (5) days prior to the date on which the IPC Group's
consolidated federal income tax return is required to be filed for such Post-
1998 Taxable Year (taking account of any extension thereof).
(2) If the IPC Group is required to make payments of estimated federal
income tax, then, no later than 5 days from the date the IPC Group would be
required to make such payments, IXnet shall make estimated payments to Parent in
an amount equal to the IXnet Group Estimated Tax Liability (reduced by all prior
payments required to be made by IXnet under this paragraph 3(b) with respect to
the same Post-1998 Taxable Year). Any payment for a Post-1998 Taxable Year made
by IXnet to Parent pursuant to this paragraph 3(b) shall be applied to reduce
the amount, if any, owing by IXnet to Parent for such Post-1998 Taxable Year
pursuant to paragraph 3(a). Any excess of the aggregate of payments made
pursuant to this paragraph 3(b) during a Post-1998 Taxable Year over the
payment, if any, owing by IXnet to Parent for such Post-1998 Taxable Year
pursuant to paragraph 3(a) shall be repaid to IXnet by Parent: (i) to the extent
such excess (or part thereof) represents all or a part of a tax refund to be
received by the IPC Group, not later than five (5) days after the receipt of
such refund; (ii) to the extent such excess (or part thereof) represents all or
part of a credit against the IPC Group's estimated Tax for a succeeding Post-
1998 Taxable Year, not later than five (5) days after an Estimated Payment
against which such excess is credited otherwise is to be paid by Parent; or
(iii) to the extent clauses (i) and (ii) do not apply to such excess (or a
portion thereof), not later than the date on which the IPC Group's consolidated
federal income tax return is required to be filed (taking into account any
extension thereof).
(3) The amounts payable to Parent under this paragraph 3 shall offset,
and shall be offset by, the amounts payable by Parent to IXnet under paragraph
4.
4. TAX SAVINGS
-----------
(1) If a consolidated federal income tax return is filed by Parent on
behalf of the IPC Group for any Post-1998 Taxable Year, and if for any such
year, as a result of any loss, deduction or credit of the IXnet Group, the IPC
Subsidiary Group Actual Tax Liability is less than the IPC Subsidiary Group
Hypothetical Tax Liability, Parent shall pay to IXnet an amount equal to 100% of
the excess of the IPC Subsidiary Group Hypothetical Tax Liability for such Post-
1998 Taxable Year over the IPC Subsidiary Group Actual Tax Liability for such
year.
(2) Parent shall provide IXnet a schedule that sets forth in
reasonable detail the calculation of the IPC Subsidiary Group Group Hypothetical
Tax Liability, the IPC Subsidiary Group Actual Tax Liability, the IXnet Group
Hypothetical Tax Liability and the IXnet Group Actual Tax Liability, for such
Post-1998 Taxable Year.
(3) The amounts payable to IXnet under this paragraph 4 shall offset,
and shall be offset by, the amounts payable by IXnet to Parent under paragraph 3
(including any amount so payable with respect to estimated federal income tax).
Any amount payable under this paragraph 4 shall be paid within 5 days of the
filing of the federal income tax return for such year.
4
<PAGE>
5. CHANGES IN TAX LIABILITY
------------------------
(1) If any IPC Group consolidated federal income tax return for a
Post-1998 Taxable Year is changed or otherwise adjusted (including, without
limitation, by reason of (i) a "determination" within the meaning of Section
1313(a) of the Code, (ii) the IPC Group's filing an amended federal income tax
return, or (iii) any of the events specified in Section 6213(b) or (d) of the
Code), then the amount of the payments required under paragraphs 3 and 4 shall
be recomputed to reflect such changes or adjustments, and IXnet shall pay to
Parent, or Parent shall pay to IXnet, as the case may be, without interest, the
difference between the amount as so recomputed and the amounts previously paid.
Such payment shall be made no later than (i) five (5) days before the due date
for any additional payment of Tax by the IPC Group, (ii) five (5) days after the
receipt of a refund or (iii) five (5) days after the determination becomes
final, the filing of an amended return or the occurrence of any event giving
rise to the recomputation. The parties recognize that such recomputed liability
or refund for a Post-1998 Taxable Year may not be or reflect the final Tax
liability for such year, and that the amount of Tax liability may be recomputed
under this paragraph more than once.
(2) Payments made pursuant to subparagraph (a) shall include an
allocable portion of any interest paid or credited by the Internal Revenue
Service, provided, such interest shall not be treated as an item of income of
--------
IXnet or a IXnet Subsidiary). Parent, in its sole reasonable discretion, shall
determine the amount of any allocable portion of interest under this
subparagraph 5(b).
6. ALLOCATION OF STATE, LOCAL AND
FOREIGN INCOME TAX LIABILITY
-----------------------------------
For purposes of state, local and foreign consolidated, combined and
unitary income Taxes, principles analogous to those in Sections 3, 4 and 5 shall
be used to determine the liability therefor and the payments to be made.
7. INDEMNIFICATION
---------------
The IPC Group shall indemnify and hold the IXnet Group harmless
against each and every liability for Tax of the IPC Group, and the IXnet Group
shall indemnify and hold the IPC Group harmless against each and every liability
for Tax of IXnet Group, under Treasury Regulation 1.1502-6 or any similar law,
rule or regulation administered by any federal, state, local or foreign tax
authority.
8. TERMINATION OF AFFILIATION
--------------------------
(1) The parties recognize that at some future date IXnet and/or any
IXnet Subsidiary may cease to be included in the IPC Group but continue to be a
corporation subject to federal income tax ("Former Member"). In such event,
Parent and the Former Member shall consult and shall furnish each other with
information required to prepare accurately (i) the consolidated federal income
tax return of the IPC Group for the last taxable year in which the Former Member
5
<PAGE>
was included in the IPC Group, and (ii) the federal income tax returns for all
taxable years thereafter of the Former Member and the Parent, respectively, in
which the tax liability of either may be affected by their former affiliation
(including, for example, the apportionment of any consolidated net operating
loss or capital loss or investment or foreign tax credit to the Former Member),
and (iii) any other consolidated federal income tax return of the IPC Group for
a taxable year in which the Former Member was included in the IPC Group,
including information necessary to make the final determination of any tax
liability payable with respect to such return, to the extent such determination
is based on the operations of the Former Member.
(2) In connection with any audit by any taxing authority for any
period ending on or prior to the date on which the Former Member is no longer
required to join with Parent in filing a consolidated federal income tax return
(the "Deconsolidation Date"), the Former Member will make available to Parent
and its representatives such records and documents in its possession as may be
requested by such taxing authority or reasonably requested by Parent to defend
against such audit. IXnet and the IXnet Subsidiaries will cause their respective
employees to (i) cooperate with and assist such taxing authority as required by
such taxing authority in the completion of such audit, and (ii) cooperate with
and assist tax personnel and tax counsel of Parent, as may be reasonably
requested by Parent in the conduct of all tax audits of tax returns, including a
claim for refund or amended return for any period ending on or prior to the
Deconsolidation Date to the extent that such audit may involve the operations of
the IXnet Group. Parent shall have the sole right to represent the interests of
the Former Member in any tax audit or administrative or court proceeding
relating to taxable periods of the Former Member which end on or before the
Deconsolidation Date, including the sole right to enter into a settlement of
such audit or proceeding on behalf of the Former Member. A Former Member shall
forward to Parent any notice it receives of any tax audit for any period ending
on or prior to the Deconsolidation Date.
(3) Parent upon request will furnish to IXnet a complete and accurate
statement of the information which pertains to the IXnet Group which is included
in any consolidated federal income tax return filed by the IPC Group which
includes the IXnet Group with respect to any period or portion of any period
prior to the Deconsolidation Date, presented in a pro forma separate return
--- -----
format.
(4) IXnet agrees that it will, or will cause any IXnet Subsidiary to,
elect or exercise any option then available to it under the Code to forego the
carryback of any net operating loss, net capital loss, or other tax benefit
arising in a taxable year beginning after the Deconsolidation Date to a taxable
year of the IPC Group ending on or prior to the Deconsolidation Date. If the
Code requires such item first to be carried back (and such item cannot, by the
making of an election or otherwise, be carried forward without first being
carried back), then the Former Member may file an application for a carryback
adjustment of the Tax for a taxable year in which the Former Member was included
in the IPC Group and a consolidated federal income tax return was filed and
shall be entitled to that portion of the actual refund that is attributable to
the Former Member under the consolidated return regulations; provided, that the
--------
Former Member shall not be entitled to all or a portion of such refund to the
extent the items giving rise to such carryback have been previously utilized to
reduce the IXnet Group Hypothetical Tax Liability or such IXnet Subsidiary's
Hypothetical Tax Liability or previously gave rise to a payment to IXnet or such
IXnet Subsidiary under paragraphs 4 or 5.
6
<PAGE>
(5) Payments that would have been required under paragraphs 3, 4, 5
and 6 to or by a Former Member, were the Former Member still a member of the IPC
Group, and with respect to taxable years for which the Former Member was a
member of the IPC Group, shall be made in accordance with principles analogous
to those set forth in such paragraph(s) and at the time(s) set forth therein.
(6) The procedures provided in this paragraph 7 shall also be
followed, to the extent applicable, with respect to any state and local
consolidated, combined and unitary income Taxes.
9. RESOLUTION OF DISPUTES
----------------------
Any dispute between or among the parties with respect to this
Agreement shall be resolved by a nationally recognized public accounting firm or
a nationally recognized law firm, which accounting firm or law firm shall be
reasonably satisfactory to the disputing parties, and whose fees and expenses
shall be shared equally by the disputing parties. Such determination shall be
binding and conclusive on the disputing parties for the purposes hereof.
10. TERM
----
This Agreement shall be effective as of October 1, 1998, shall remain
in effect for each taxable year ending thereafter during which any member of the
IXnet Group is included in a consolidated federal income tax return filed by
Parent, and shall terminate at the close of the last of such taxable years;
provided, that the provisions of paragraphs 7 and 8 shall survive such
- --------
termination and provided further, that the provisions of paragraphs 3, 4, 5, and
----------------
6 shall survive thirty (30) days after the expiration of the statute of
limitations on assessment of Tax for the last taxable year in which IXnet or an
IXnet Subsidiary, as the case may be, was a member of the IPC Group.
11. MISCELLANEOUS
-------------
(1) The Agreement constitutes the entire agreement of the parties
concerning the subject matter hereof and supersedes all other agreements,
whether or not written, in respect of any Tax between or among any member or
members of the IPC Group and any member or members of the IXnet Group. All such
agreements are hereby canceled and any rights or obligations existing thereunder
are hereby fully and finally settled without any payment by any party thereto.
This Agreement may not be amended except by an agreement in writing, signed by
the parties thereto.
(2) This Agreement has been made in and shall be construed in
accordance with the laws of the State of New York, without regard to conflicts
of law.
(3) This Agreement shall be binding upon and inure to the benefit of
each party hereto and its respective successors and assigns.
7
<PAGE>
(4) All notices and other communications hereunder shall be in
writing and shall be delivered by hand or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses and shall
be deemed given on the date on which such notice is received:
if to IPC
IPC Information Systems, Inc.
Wall Street Plaza
88 Pine Street
New York, NY 10005
Attention: President
if to IXnet
IXnet, Inc.
Wall Street Plaza
88 Pine Street
New York, NY 10005
Attention: President
(5) This Agreement may be executed simultaneously 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.
(6) The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not constitute a part hereof.
(7) If any term or provision of this Agreement or the application
thereof to any person or circumstance shall be invalid or unenforceable, to any
extent, the remainder of this Agreement, or the application of such term or
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and be enforced to the fullest extent
permitted by law.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
IPC Communications, Inc.
By:-------------------------------
Name:
Title:
IXnet, Inc.
By:-------------------------------
Name:
Title:
9
<PAGE>
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
BETWEEN
IPC INFORMATION SYSTEMS, INC.
AND
IXNET, INC.
DATED AS OF _______________ __, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
PRELIMINARY STATEMENTS........................................................................................-iii-
Section 1. Effectiveness of Agreement; Term..........................................-iii-
--------------------------------
1.1 Effective Date............................................................-iii-
--------------
1.2 Shares Covered............................................................-iii-
--------------
Section 2. Demand Registration.........................................................-2-
-------------------
2.1 Notice......................................................................-2-
------
2.2 Registration Expenses.......................................................-3-
---------------------
2.3 Selection of Professionals..................................................-3-
--------------------------
2.4 Third Person Shares.........................................................-3-
-------------------
2.5 Permitted Transferees.......................................................-3-
---------------------
2.6 Shelf Registration..........................................................-4-
------------------
2.7 SEC Form....................................................................-4-
--------
2.8 Other Registration Rights...................................................-4-
-------------------------
Section 3. Piggyback Registrations.....................................................-4-
-----------------------
3.1 Notice and Registration.....................................................-4-
-----------------------
3.2 Selection of Professionals..................................................-5-
--------------------------
3.3 Registration Expenses.......................................................-5-
---------------------
Section 4. Registration Procedures.....................................................-6-
-----------------------
4.1 Registration and Qualification..............................................-6-
------------------------------
4.2 Underwriting................................................................-8-
------------
4.3 Blackout Periods for Shelf Registrations....................................-8-
----------------------------------------
4.4 Listing.....................................................................-9-
-------
4.5 Holdback Agreements.........................................................-9-
-------------------
Section 5. Preparation; Reasonable Investigation......................................-10-
-------------------------------------
Section 6. Indemnification and Contribution...........................................-10-
--------------------------------
Section 7. Benefits and Termination of Registration Rights............................-12-
-----------------------------------------------
Section 8. Registration Expenses......................................................-12-
---------------------
Section 9. Miscellaneous..............................................................-13-
-------------
9.1 No Inconsistent Agreements.................................................-13-
--------------------------
9.2 Complete Agreement.........................................................-13-
-----------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
9.3 Authority..................................................................-13-
---------
9.4 Assignment.................................................................-13-
----------
9.5 Governing Law..............................................................-13-
-------------
9.6 Notices....................................................................-13-
-------
9.7 Severability...............................................................-14-
------------
9.8 Remedies...................................................................-15-
--------
9.9 Waivers....................................................................-15-
-------
9.10 Amendment and Modification.................................................-15-
--------------------------
9.11 General Interpretative Principles..........................................-15-
---------------------------------
9.12 Counterparts...............................................................-16-
------------
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made and
entered into as of ________ __, 1999, between IPC Information Systems, Inc., a
Delaware corporation ("IPC"), and IXnet, Inc., a Delaware corporation and a
wholly owned subsidiary of IPC (the "Company").
PRELIMINARY STATEMENTS
1. IPC currently owns all of the issued and outstanding shares of the
Company's common stock (the "Common Stock").
2. The Company is offering and selling to the public shares of its
Common Stock (the "IPO") by means of a Registration Statement on Form S-1 (File
No. 333-79079) initially filed with the Securities and Exchange Commission (the
"SEC") on May 21, 1999 (the "Registration Statement").
3. Immediately following the consummation of the IPO, IPC will own
approximately _____% of the outstanding shares of Common Stock (or approximately
______% if the underwriters exercise their over-allotment option in full in
accordance with the underwriting agreement relating to the IPO).
4. IPC and the Company desire to make certain arrangements to provide
IPC with registration rights with respect to shares of Common Stock it holds
after the consummation of the IPO.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereby agree as follows:
Section 1. Effectiveness of Agreement; Term.
--------------------------------
1.1 Effective Date. This Agreement shall become effective 180
--------------
days after the closing of the IPO (the "Effective Date").
1.2 Shares Covered. This Agreement covers those shares of
--------------
Common Stock that are held by IPC upon the effective date of the
Registration Statement and continue to be held by IPC as of the
Effective Date (subject to the provisions of Section 7, the "Shares").
The "Shares" shall include any securities issued or issuable with
respect to the Shares by way of a stock dividend or a stock split or in
connection with a combination of shares,
<PAGE>
recapitalization, merger, consolidation or other reorganization. The
"Shares" shall not include any shares of Common Stock acquired by IPC
after the closing of the IPO.
IPC and any Permitted Transferees (as defined in Section 2.5) are each
referred to herein as a "Holder" and collectively as the "Holders," and the
Holders of Shares proposed to be included in any registration under this
Agreement are each referred to herein as a "Selling Holder" and collectively as
the "Selling Holders."
Section 2. Demand Registration.
-------------------
2.1 Notice. Upon the terms and subject to the conditions set
------
forth herein, upon written notice of any Holder holding at least 25% of
the Shares requesting that the Company effect the registration under
the Securities Act of 1933, as amended (the "Securities Act"), of any
or all of the Shares held by it, which notice shall specify the
intended method or methods of disposition of such Shares (which methods
may include, without limitation, a Shelf Registration (as such term is
defined in Section 2.6)) the Company will promptly give written notice
of the proposed registration to all other Holders and will use its
reasonable efforts to effect (at the earliest reasonable date) the
registration under the Securities Act of such Shares (and the Shares of
any other Holders joining in such request as are specified in a written
notice received by the Company within 20 days after receipt of the
Company's written notice of the proposed registration) for disposition
in accordance with the intended method or methods of disposition stated
in such request (each registration request pursuant to this Section 2.1
is sometimes referred to herein as a "Demand Registration"); provided,
however, that:
(1) the Company shall not be obligated to effect a
registration with respect to Shares pursuant to this Section 2
within 120 days after the effective date of a previous
registration, other than a Shelf Registration, effected with
respect to Shares pursuant to this Section 2;
(2) if, while a registration request is pending pursuant to
this Section 2, the Company determines in the good faith judgment
of the board of directors of the Company that such registration
would reasonably be expected to have a material adverse effect on
any existing proposal or plans by the Company or any of its
subsidiaries to engage in any material acquisition, merger,
consolidation, tender offer, other business combination,
reorganization, securities offering or other material
transaction, the Company may postpone for up to 120 days the
filing or effectiveness of such registration; provided, however,
that the Company may delay a Demand Registration hereunder only
once in any 12 month period;
(3) the Company shall not be obligated to register such
Shares unless the number of the Shares requested pursuant to this
Section 2 shall have an aggregate expected offering price of at
least $________ million; and
-2-
<PAGE>
(4) if a Demand Registration is an underwritten offering and
the managing underwriters advise the Company in writing that in
their opinion the number of Shares requested to be included in
such offering exceeds the number of Shares which can be sold in
an orderly manner in such offering within a price range
acceptable to the Holders of a majority of the Shares initially
requesting such registration or without materially adversely
affecting the market for the Common Stock, the Company shall
include in such registration the number of Shares requested to be
included therein which in the opinion of such underwriters can be
sold in an orderly manner within the price range of such offering
and without materially adversely affecting the market for the
Common Stock, pro rata among the respective Holders thereof on
the basis of the amount of Shares owned by each Holder requesting
inclusion of Shares in such registration; and
(5) the Holders may request no more than two Demand
Registrations during the term of this Agreement.
2.2 Registration Expenses. All Registration Expenses (as
---------------------
defined in Section 8) for any registration requested pursuant to this
Section 2 (including any registration that is delayed or withdrawn)
shall be paid by the Company.
2.3 Selection of Professionals. The Holders of a majority of
--------------------------
the Shares included in any Demand Registration shall have the right to
select the investment banker(s) and manager(s) to administer the
offering; provided, however, that if such Holders select an investment
banker or manager that was not one of the managers of the IPO, such
investment banker or manager shall not administer such offering if the
Company reasonably objects thereto. The Holders of a majority of the
Shares included in any Demand Registration shall have the right to
select the financial printer, the solicitation and/or exchange agent
(if any) and one counsel for the Selling Holders. The Company shall
select its own outside counsel and independent auditors.
2.4 Third Person Shares. The Company shall have the right to
-------------------
cause the registration of securities for sale for the account of any
Person (as defined in Section 6(e) below) (including the Company) other
than the Selling Holders (the "Third Person Shares") in any
registration of the Shares requested pursuant to this Section 2 so long
as the Third Person Shares are disposed of in accordance with the
intended method or methods of disposition requested pursuant to this
Section 2.
If a Demand Registration in which the Company proposes to include
Third Person Shares is an underwritten offering and the managing
underwriters advise the Company in writing that in their opinion the
number of Shares and Third Person Shares requested to be included in
such offering exceeds the number of Shares and Third Person Shares
which can be sold in an orderly manner in such offering within a price
range acceptable to the Holders of a majority of the Shares initially
requesting such registration or without materially adversely affecting
the market for the Common Stock, the Company shall not include in such
-3-
<PAGE>
registration any Third Person Shares unless all of the Shares
initially requested to be included therein are so included.
2.5 Permitted Transferees. As used in this Agreement,
---------------------
"Permitted Transferee" shall mean any transferee of Shares [from IPC],
whether direct or indirect, designated by IPC (or a subsequent Holder)
in a written notice delivered to the Company as provided for in Section
9.7. Any Permitted Transferee of the Shares shall be subject to, and
bound by, all of the terms and conditions herein applicable to Holders.
The notice required by this Section 2.5 shall be signed by both the
transferring Holder and the Permitted Transferee so designated and
shall include an undertaking by the Permitted Transferee to comply with
the terms and conditions of this Agreement applicable to Holders.
2.6 Shelf Registration. With respect to any Demand
------------------
Registration, the requesting Holders may request the Company to effect
a registration of the Shares under a registration statement pursuant to
Rule 415 under the Securities Act (or any successor rule) (a "Shelf
Registration").
2.7 SEC Form. The Company shall use its reasonable efforts to
--------
cause Demand Registrations to be registered on Form S-3 (or any
successor form), and if the Company is not then eligible under the
Securities Act to use Form S-3, Demand Registrations shall be
registered on Form S-1 (or any successor form). The Company shall use
its reasonable efforts to become eligible to use Form S-3 and, after
becoming eligible to use Form S-3, shall use its reasonable efforts to
remain so eligible.
2.8 Other Registration Rights. The Company shall not grant to
-------------------------
any Person the right to request the Company to register any equity
securities of the Company, or any securities convertible or
exchangeable into or exercisable for such securities, unless such
rights are consistent with the rights granted under this Agreement.
Section 3. Piggyback Registrations.
-----------------------
3.1 Notice and Registration. If the Company proposes to
-----------------------
register any of its securities for public sale under the Securities Act
(whether proposed to be offered for sale by the Company or any other
Person), on a form and in a manner which would permit registration of
the Shares for sale to the public under the Securities Act (a
"Piggyback Registration"), it will give prompt written notice to the
Holders of its intention to do so, and upon the written request of any
or all of the Holders delivered to the Company within 20 days after the
giving of any such notice (which request shall specify the Shares
intended to be disposed of by such Holders), the Company shall use its
reasonable efforts to effect, in connection with the registration of
such other securities, the registration under the Securities Act of all
of the Shares which the Company has been so requested to register by
such Holders (which shall then become Selling Holders), to the extent
required to permit the disposition (in accordance with the same method
of disposition as the Company proposes to use to dispose of the other
securities) of the Shares to be so registered; provided, however, that:
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<PAGE>
(1) if, at any time after giving such written notice of its
intention to register any of its other securities and prior to
the effective date of the registration statement filed in
connection with such registration, the Company shall determine
for any reason not to register such other securities, the Company
may, at its election, give written notice of such determination
to the Selling Holders (or, if prior to delivery of the Holders'
written request described above in this Section 3.1, the
Holders), and thereupon the Company shall be relieved of its
obligation to register such Shares in connection with the
registration of such other securities (but not from its
obligation to pay Registration Expenses to the extent incurred in
connection therewith as provided in Section 3.3), without
prejudice, however, to the rights (if any) of any Selling Holders
immediately to request (subject to the terms and conditions of
Section 2) that such registration be effected as a registration
under Section 2;
(2) the Company shall not be required to effect any
registration of the Shares under this Section 3 incidental to the
registration of any of its securities in connection with mergers,
acquisitions, exchange offers, subscription offers, dividend
reinvestment plans or stock option or other employee benefit
plans of the Company;
(3) if a Piggyback Registration is an underwritten primary
registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion
the number of securities requested to be included in such
registration exceeds the number which can be sold in such
offering without materially adversely affecting the marketability
of the offering or the market for the Common Stock, the Company
shall include in such registration (i) first, the securities the
Company proposes to sell, (ii) second, the Shares requested to be
included in such registration, pro rata among the Holders of such
Shares on the basis of the number of Shares owned by each such
Holder, and (iii) third, any other securities requested to be
included in such registration; and
(4) if a Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Company's securities
entitled to demand registration thereof and the managing
underwriters advise the Company in writing that in their opinion
the number of securities requested to be included in such
registration exceeds the number which can be sold in such
offering without materially adversely affecting the marketability
of the offering or the market for the Common Stock, the Company
shall include in such registration (i) first, the securities
requested to be included therein by the holders demanding such
registration and the Shares requested to be included in such
registration by the Holders, pro rata among all of the holders of
all such securities (and Shares) on the basis of the number of
securities (and Shares) owned by each such holder, and (ii)
second, any other securities requested to be included in such
registration.
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<PAGE>
No registration of the Shares effected under this Section 3
shall relieve the Company of its obligation to effect a registration of
Shares pursuant to Section 2.
3.2 Selection of Professionals. If any Piggyback Registration
--------------------------
is an underwritten offering, the Company shall have the sole right to
select the investment banker(s) or manager(s) to administer the
offering. The Holders of a majority of the Shares included in any
Piggyback Registration shall have the right to select one counsel for
the Selling Holders. The Company shall select its own outside counsel
and independent auditors.
3.3 Registration Expenses. The Company will pay all of the
---------------------
Registration Expenses in connection with any registration pursuant to
this Section 3.
Section 4. Registration Procedures.
-----------------------
4.1 Registration and Qualification. If and whenever the
------------------------------
Company is required to use its reasonable efforts to effect the
registration of any of the Shares under the Securities Act as provided
in Sections 2 and 3, including an underwritten offering pursuant to a
Shelf Registration, the Company will as promptly as is practicable:
(1) prepare and file with the SEC a registration statement
with respect to such Shares and use its reasonable efforts to
cause such registration statement to become effective (provided
that before filing a registration statement or prospectus or any
amendments or supplement thereto, the Company shall furnish to
the counsel selected by the Holders of a majority of the Shares
covered by such registration statement copies of all such
documents proposed to be filed (which documents shall be subject
to the review and comment of such counsel);
(2) except in the case of a Shelf Registration, prepare and
file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act
with respect to the disposition of all of the Shares until the
earlier of (i) such time as all of such Shares have been disposed
of in accordance with the intended methods of disposition set
forth in such registration statement and (ii) the expiration of
three months after such registration statement becomes effective;
(3) in the case of a Shelf Registration, prepare and file
with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective and to
comply with the provisions of the Securities Act with respect to
the disposition of all Shares subject thereto for a period ending
on the earlier of (i) nine months after the effective date of
such registration statement and (ii) the date on which all the
Shares subject thereto have been sold pursuant to such
registration statement (the "Shelf Effective Period");
-6-
<PAGE>
(4) furnish to the Selling Holders and to any underwriter of
such Shares such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in
each case including all exhibits), such number of copies of the
prospectus included in such registration statement (including
each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, such
documents incorporated by reference in such registration
statement or prospectus and such other documents as the Selling
Holders or such underwriter may reasonably request;
(5) use its reasonable efforts to register or qualify all of
the Shares covered by such registration statement under such
other securities or blue sky laws of such jurisdictions as the
Selling Holders or any underwriter of such Shares shall
reasonably request, and do any and all other acts and things
which may be necessary or advisable to enable the Selling Holders
or any underwriter to consummate the disposition in such
jurisdictions of the Shares covered by such registration
statement, except that the Company shall not for any such purpose
be required to qualify generally to do business as a foreign
corporation in any jurisdiction where it is not so qualified, or
to subject itself to taxation in any such jurisdiction, or to
consent to general service of process in any such jurisdiction;
(6) (i) furnish to the Selling Holders, addressed to them,
an opinion of counsel for the Company and (ii) use its reasonable
efforts to furnish to the Selling Holders, addressed to them, a
"cold comfort" letter signed by the independent public
accountants who have certified the Company's financial statements
included in such registration statement, covering substantially
the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such
accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in
opinions of issuer's counsel and in accountants' letters
delivered to underwriters in underwritten public offerings of
securities and such other matters as the Selling Holders may
reasonably request, in each case, in form and substance and as of
the dates reasonably satisfactory to the Selling Holders;
(7) immediately notify the Selling Holders, at any time when
a prospectus relating to a registration pursuant to Section 2 or
3 is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus
included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under
which they were made, not misleading, and at the request of the
Selling Holders prepare and furnish to the Selling Holders a
reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Shares, such prospectus shall
not include an untrue statement of a material fact or omit to
state a material fact required to be stated
-7-
<PAGE>
therein or necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading.
(8) permit any Selling Holder, which Selling Holder, in its
sole and exclusive judgment, might be deemed to be an underwriter
or a controlling person of the Company, to participate in the
preparation of such registration or comparable statement and to
require the insertion therein of material, furnished to the
Company in writing, which in the reasonable judgment of such
Holder and its counsel should be included;
(9) make available members of management of the Company, as
selected by the Holders of a majority of the Shares included in
such registration, for assistance in the selling effort relating
to the Shares covered by such registration, including, but not
limited to, the participation of such members of the Company's
management in road show presentations.
(10) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of
any order suspending or preventing the use of any related
prospectus or suspending the qualification of any securities
included in such registration statement for sale in any
jurisdiction, the Company shall use it reasonable efforts
promptly to obtain the withdrawal of such order; and
(11) use its reasonable efforts to cause Shares covered by
such registration statement to be registered with or approved by
such other government agencies or authorities as may be necessary
to enable the sellers thereof to consummate the disposition of
such Shares.
The Company may require the Selling Holders to furnish the Company with
such information regarding the Selling Holders and the distribution of
such Shares as the Company may from time to time reasonably request in
writing and as shall be required by law, the SEC or any securities
exchange on which any shares of Common Stock are then listed for
trading in connection with any registration.
4.2 Underwriting. If requested by the underwriters for any
------------
underwritten offering in connection with a registration requested
hereunder (including any registration under Section 3 which involves,
in whole or in part, an underwritten offering), the Company will enter
into an underwriting agreement with such underwriters for such
offering, such agreement to contain such representations and warranties
by the Company and such other terms and provisions as are customarily
contained in underwriting agreements with respect to secondary
distributions, including, without limitation, indemnities and
contribution to the effect and to the extent provided in Section 6 and
the provision of opinions of counsel and accountants' letters to the
effect and to the extent provided in Section 4.1(g). The Company may
require that the Shares requested to be registered pursuant to Section
3 be included in such underwriting on the same terms and conditions as
shall be applicable to the other securities being sold through
underwriters under such registration; provided, however, that
-8-
<PAGE>
no Selling Holder that holds less than 50% of the then outstanding
shares of the Common Stock shall be required to make any
representations or warranties to the Company or the underwriters (other
than representations and warranties regarding such Holder and such
Holder's intended method of distribution) or to undertake any
indemnification obligations to the Company or the underwriters with
respect thereto, except as otherwise provided in Section 6 hereof. The
Selling Holders shall be parties to any such underwriting agreement,
and the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters
shall also be made to and for the benefit of such Selling Holders.
4.3 Blackout Periods for Shelf Registrations.
----------------------------------------
(1) At any time when a Shelf Registration effected pursuant
to Section 2 relating to the Shares is effective, upon written
notice from the Company to the Selling Holders that the Company
determines in the good faith judgment of the board of directors
of the Company that the Selling Holders' sale of the Shares
pursuant to the Shelf Registration would require disclosure of
material information which the Company has a bona fide business
purpose for preserving as confidential and the disclosure of
which would have a material adverse effect on the Company or the
Company is unable to comply with SEC requirements (an
"Information Blackout"), the Selling Holders shall suspend sales
of the Shares pursuant to such Shelf Registration until the
earlier of (i) the date upon which such material information is
disclosed to the public or ceases to be material, (ii) 90 days
after the board of directors of the Company makes such good faith
determination and (iii) such time as the Company notifies the
Selling Holders that sales pursuant to such Shelf Registration
may be resumed (the number of days from such suspension of sales
of the Selling Holders until the day when such sales may be
resumed hereunder is hereinafter called a "Sales Blackout
Period").
(2) If there is an Information Blackout and the Selling
Holders do not notify the Company in writing of their desire to
cancel such Shelf Registration, the period set forth in Section
4.1(c)(i) shall be extended for a number of days equal to the
number of days in the Sales Blackout Period.
4.4 Listing. In connection with the registration of any
-------
offering of the Shares pursuant to this Agreement, the Company shall
use its reasonable efforts to effect the listing of such Shares on any
securities exchange on which any shares of the Common Stock are then
listed or otherwise facilitate the public trading of such Shares.
4.5 Holdback Agreements.
-------------------
(1) The Company shall not effect any public sale or
distribution of its equity securities, or any securities convertible
into or exchangeable or exercisable for such securities, during the
seven days prior to and during the 90-day period beginning on the
effective date of any registration statement in connection with a
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<PAGE>
Demand Registration (other than a Shelf Registration) or a
Piggyback Registration, except pursuant to registrations on
Form S-8 or any successor form, S-4 or any successor form or
unless the underwriters managing any such public offering
otherwise agree.
(2) If the Holders of Shares notify the Company in
writing that they intend to effect an underwritten sale of
Shares registered pursuant to a Shelf Registration pursuant
to Section 2 hereof, the Company shall not effect any public
sale or distribution of its equity securities, or any
securities convertible into or exchangeable or exercisable
for its equity securities, during the 90-day period
beginning on the date such notice is received, except
pursuant to registrations on Form S-8 or any successor form,
S-4 or any successor form or unless the underwriters
managing any such public offering otherwise agree.
(3) If the Company completes an underwritten
registration with respect to any of its securities (whether
offered for sale by the Company or any other Person) on a
form and in a manner that would have permitted registration
of the Shares, then, except pursuant to such registration,
the Holders shall not effect any public sales or
distributions of equity securities of the Company, or any
securities convertible into or exchangeable or exercisable
for such securities, until the termination of the holdback
period required from the Company by any underwriters in
connection with such previous registration, but in no event
more than 180 days from the effective date of such
registration.
Section 5. Preparation; Reasonable Investigation. In connection with
-------------------------------------
the preparation and filing of each registration statement registering the Shares
under the Securities Act and each sale of the Shares thereunder, the Company
will give the Selling Holders and the underwritters, if any, and their
respective counsel and accountants, access to its financial and other records,
pertinent corporate documents and properties of the Company and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of the Selling Holders and such underwriters
or their respective counsel, to conduct a reasonable investigation within the
meaning of the Securities Act.
Section 6. Indemnification and Contribution.
--------------------------------
(1) In the event of any registration of any of the
Shares hereunder, unless otherwise agreed to by the managing
underwriter of an underwritten offering, the Company will
enter into customary indemnification arrangements to
indemnify and hold harmless each of the Selling Holders,
each of their respective directors and officers, each Person
who participates as an underwriter in the offering or sale
of such securities, each officer and director of each
underwriter, and each Person, if any, who controls each such
Selling Holder or any such underwriter within the meaning of
the Securities Act (collectively, the "Covered Persons")
against any losses, claims, damages,
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<PAGE>
liabilities and expenses, joint or several, to which such
Person may be subject under the Securities Act or otherwise
insofar as such losses, claims, damages, liabilities or
expenses (or actions or proceedings in respect thereof)
arise out of are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in
any related registration statement filed under the
Securities Act, any preliminary prospectus or final
prospectus included therein, or any amendment or supplement
thereto, or any document incorporated by reference therein,
or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Company
will reimburse each such Covered Person, as incurred, for
any legal or any other expenses reasonably incurred by such
Covered Person in connection with investigating or defending
any such loss, claim, liability, action or proceeding;
provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such
preliminary prospectus or final prospectus, amendment or
supplement in reliance upon and in conformity with written
information furnished to the Company by such Selling Holder
or such underwriter specifically for use in the preparation
thereof. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf
of any such Covered Person and shall survive the transfer of
such securities by the Selling Holders. The Company also
shall agree to provide for contribution as shall reasonably
be requested by the Selling Holders or any underwriters in
circumstances where such indemnity is held unenforceable.
(2) Each of the Selling Holders, by virtue of
exercising its respective registration rights hereunder,
agrees and undertakes to enter into customary
indemnification arrangements to indemnify and hold harmless
(in the same manner and to the same extent as set forth in
clause (a) of this Section 6) the Company, its directors and
officers, each Person who participates as an underwriter in
the offering or sale of such securities, each officer and
director of each underwriter, and each Person, if any, who
controls the Company or any such underwriter within the
meaning of the Securities Act, with respect to any statement
in, or omission from, such registration statement, any
preliminary prospectus or final prospectus included therein,
or any amendment or supplement thereto, if such statement or
omission is contained in written information furnished by
such Selling Holder to the Company specifically for
inclusion in such registration statement or prospectus;
provided, however, that the obligation to indemnify shall be
individual, not joint and several, for each Selling Holder
and shall be limited to the net amount of proceeds received
by such Selling Holder from the sale of Shares pursuant to
such registration statement. Such indemnity shall remain in
full force and effect regardless of any investigation made
by or on behalf of the Company or any such director, officer
or Person and shall survive the transfer of the registered
securities by the Selling Holders.
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<PAGE>
(3) Any Person entitled to indemnification hereunder
shall (i) give prompt written notice to the indemnifying
party of any claim with respect to which it seeks
indemnification (provided, however, that the failure to give
prompt notice shall not impair any Person's rights to
indemnification hereunder to the extent such failure has not
prejudiced the indemnifying party) and (ii) unless in such
indemnified party's reasonable judgment a conflict of
interest between such indemnified and indemnifying parties
may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party. If
such defense is assumed, the indemnifying party shall not be
subject to any liability for any settlement made by the
indemnified party without its consent (but such consent
shall not be unreasonably withheld). An indemnifying party
who is not entitled to, or elects not to, assume the defense
of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such
claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties
with respect to such claim.
(4) Indemnification and contribution similar to that
specified in the preceding subdivisions of this Section 6
(with appropriate modifications) shall be given by the
Company and the Selling Holders with respect to any required
registration or other qualification of such Shares under any
federal or state law or regulation of governmental authority
other than the Securities Act.
(5) "Person" means an individual, a partnership, a
corporation, a limited liability company, an association, a
joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity, or
any department, agency or political subdivision thereof.
Section 7. Benefits and Termination of Registration Rights. The Holders
-----------------------------------------------
may exercise the registration rights granted hereunder in such manner and
proportions as they shall agree among themselves. The registration rights
hereunder shall remain in effect with respect to all Shares for a period of five
(5) years from the date of the closing of the IPO; provided, however, they shall
cease to apply to any particular Shares and such securities shall cease to be
Shares hereunder when: (a) a registration statement with respect to the sale of
such Shares shall have become effective under the Securities Act and such Shares
shall have been disposed of in accordance with such registration statement; (b)
such Shares shall have been sold to the public pursuant to Rule 144 under the
Securities Act (or any successor provision); (c) such Shares shall have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent public distribution of them shall not require registration or
qualification of them under the Securities Act or any similar state law then in
force; (d) such Shares shall have ceased to be outstanding or (e) when such
Shares become eligible for sale pursuant to Rule 144(k) under the Securities Act
(or any successor provision).
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<PAGE>
Section 8. Registration Expenses. As used in this Agreement, the term
---------------------
"Registration Expenses" means all expenses incident to the Company's performance
of or compliance with the registration requirements set forth in this Agreement
including, without limitation, the following: (a) all registration and filing
fees; (b) the fees, disbursements and expenses of the Company's counsel and
accountants in connection with the registration of the Shares to be disposed of
under the Securities Act; (c) the fees, disbursements and expenses of one
counsel for the Selling Holders in connection with the registration of the
Shares to be disposed of under the Securities Act; (d) all expenses in
connection with the preparation, printing and filing of the registration
statement, any preliminary prospectus or final prospectus, any other offering
document and amendments and supplements thereto and the mailing and delivering
of copies thereof to the underwriters and dealers; (e) the cost of printing and
producing any agreements among underwriters, underwriting agreements, and blue
sky or legal investment memoranda, any selling agreements and any amendments
thereto or other documents in connection with the offering, sale or delivery of
the Shares to be disposed of; (f) all expenses in connection with the
qualification of the Shares to be disposed of for offering and sale under state
securities laws, including the fees and disbursements of counsel for the
underwriters in connection with such qualification and in connection with any
blue sky and legal investment surveys; (g) the filing fees incident to securing
any required review by the Nasdaq National Market and any securities exchange on
which the Common Stock is then traded or listed of the terms of the sale of the
Shares to be disposed of and the trading or listing of all such Shares on the
Nasdaq National Market and each such exchange; (h) the costs of preparing stock
certificates; (i) the costs and charges of the Company's transfer agent and
registrar; and (j) the fees and disbursements of any custodians, solicitation
agents, information agents and/or exchange agents. Registration Expenses shall
not include underwriting discounts and underwriters' commissions attributable to
the Shares being registered for sale on behalf of the Selling Holders, which
shall be paid by the Selling Holders.
Section 9. Miscellaneous.
-------------
9.1 No Inconsistent Agreements. The Company shall not on or
--------------------------
after the date of this Agreement enter into any agreement with respect
to its securities that violates or subordinates the rights expressly
granted to the Holders in this Agreement. The Company shall not take
any action, or permit any change to occur, with respect to its
securities which would adversely affect the ability of the Holders of
Shares to include such Shares in a registration undertaken pursuant to
this Agreement; except, however, to the extent a conflict exists with
the [ ] between IPC and [ ], the terms of the latter agreement
shall prevail.
9.2 Complete Agreement. Except as otherwise set forth in this
------------------
Agreement, this Agreement shall constitute the entire agreement between
the parties hereto with respect to the subject matter hereof and shall
supersede all prior agreements and understandings, whether written or
oral, between the parties with respect to such subject matter.
9.3 Authority. Each of the parties hereto represents to the
---------
other that (i) it has the corporate power and authority to execute,
deliver and perform this Agreement, (ii) the execution, delivery and
performance of this Agreement by it have been duly authorized by all
necessary corporate action, (iii) it has duly and validly executed and
delivered this
-13-
<PAGE>
Agreement, and (iv) this Agreement is a legal, valid and binding
obligation, enforceable against it in accordance with its terms subject
to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally and general
equity principles.
9.4 Assignment. This Agreement shall be binding on and inure
----------
to the benefit of and be enforceable by the parties hereto and, with
respect to the Company, its respective successors and assigns, and any
Permitted Transferees.
9.5 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York without
giving effect to any choice or conflict of law provisions thereof,
except, however, the General Corporation Law of the State of Delaware
shall apply to matters governed exclusively thereby.
9.6 Notices. All notices, requests, demands and other
-------
communications under this Agreement shall be in writing and shall be
deemed to have been duly given: (i) on the date of service if served
personally on the party to whom notice is to be given; (ii) on the day
of transmission if sent via facsimile transmission to the facsimile
number given below, and telephonic confirmation of receipt is obtained
promptly after completion of transmission; (iii) on the day after
delivery to Federal Express or similar overnight courier or the Express
Mail service maintained by the United States Postal Service; or (iv) on
the fifth day after mailing, if mailed to the party to whom notice is
to be given, by first class mail, registered or certified, postage
prepaid and properly addressed, to the party as follows:
If to IPC:
IPC Information Systems, Inc.
Wall Street Plaza
88 Pine Street
New York, New York 10005
Attn: Gerald E. Starr, President and Chief Executive Officer
Telephone: (212) 825-9060
Facsimile: (212) 509-7888
If to any other Holder, the address indicated for such Holder in the
Company's stock transfer records with a copy, so long as IPC owns any
Shares, to:
IPC Information Systems, Inc.
Wall Street Plaza
88 Pine Street
New York, New York 10005
Attn: Gerald E. Starr, President and Chief Executive Officer
Telephone: (212) 825-9060
Facsimile: (212) 509-7888
If to the Company:
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<PAGE>
IXnet, Inc.
Wall Street Plaza
88 Pine Street
New York, New York 10005
Attn: David A. Walsh, Chief Executive Officer
Telephone: (212) 412-6400
Facsimile: (212) 858-6970
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attn: Thomas N. Talley, Esq.
Telephone: (212) 912-7400
Facsimile: (212) 912-7751
Any party may change its address for the purpose of this Section 9.7 by
giving the other party written notice of its new address in the manner
set forth above.
9.7 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.
Any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
9.8 Remedies. Each of IPC and the Company shall be entitled to
--------
enforce its rights under this Agreement specifically, to recover
damages and costs (including reasonable attorneys' fees and costs)
caused by any breach of any provision of this Agreement and to exercise
all other rights existing in its favor. Each of IPC and the Company
acknowledges and agrees that under certain circumstances the breach by
IPC or any of its affiliates or the Company or any of its affiliates of
a term or provision of this Agreement will materially and irreparably
harm the other party, that money damages will accordingly not be an
adequate remedy for such breach and that the non-defaulting party, in
its sole discretion and in addition to its rights under this Agreement
and any other remedies it may have at law or in equity, may apply to
any court of law or equity of competent jurisdiction (without posting
any bond or deposit) for specific performance and/or other injunctive
relief in order to enforce or prevent any breach of the provisions of
this Agreement.
9.9 Waivers. The observance of any term of this Agreement may
-------
be waived (either generally or in a particular instance and either
retroactively or prospectively) by the party entitled to enforce such
term, but such waiver shall be effective only if it is in writing
signed by the Company and the Holders of a majority of the Shares.
Unless otherwise
-15-
<PAGE>
expressly provided in this Agreement, no delay or omission on the part
of any party in exercising any right or privilege under this Agreement
shall operate as a waiver thereof, nor shall any waiver on the part of
any party of any right or privilege under this Agreement operate as a
waiver of any other right or privilege under this Agreement nor shall
any single or partial exercise of any right or privilege preclude any
other or further exercise thereof or the exercise of any other right or
privilege under this Agreement. No failure by either party to take any
action or assert any right or privilege hereunder shall be deemed to be
a waiver of such right or privilege in the event of the continuation or
repetition of the circumstances giving rise to such right unless
expressly waived in writing by the party against whom the existence of
such waiver is asserted.
9.10 Amendment and Modification. Amendments of, or
--------------------------
modifications to, this Agreement may only be made if such amendments or
modifications, as the case may be, are approved by [a majority of] the
Company's independent directors and the Holders of at least a majority
of the Shares and are evidenced by a written agreement signed by the
Company and such Holders. [(subject to compliance with Section 144 of
the Delaware General Corporation Law)]
9.11 General Interpretative Principles. For purposes of this
---------------------------------
Agreement, except as otherwise expressly provided or unless the context
otherwise requires:
(1) the terms defined in this Agreement include the
plural as well as the singular, and the use of any gender
herein shall be deemed to include the other gender;
(2) accounting terms not otherwise defined herein have
the meanings given to them in accordance with United States
generally accepted accounting principles consistently
applied;
(3) references herein to "articles," "sections,"
"subsections" and other subdivisions without reference to a
document are to designated articles, sections, subsections
and other subdivisions of this Agreement;
(4) a reference to a subsection without further
reference to a section is a reference to such subsection as
contained in the same section in which the reference
appears, and this rule shall also apply to paragraphs and
other subdivisions;
(5) the words "herein," "hereof," "hereunder" and other
words of similar import refer to this Agreement as a whole
and not to any particular provision;
(6) the term "include" or "including" shall mean
without limitation by reason of enumeration;
-16-
<PAGE>
(7) the headings in this Agreement are solely for
convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement;
(8) any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all
rules and regulations promulgated thereunder, unless the
context otherwise requires; and
(9) the Parties have participated jointly in the
negotiation and drafting of this Agreement, and, in the
event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof
shall arise favoring or disfavoring either Party by virtue
of the authorship of any of the provisions of this
Agreement.
9.12 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. This
Agreement may be executed by facsimile signature.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date and year first written above.
IPC INFORMATION SYSTEMS, INC.
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
IXNET, INC.
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
<PAGE>
EXHIBIT 10.4
Reference # ___________
MAINTENANCE AGREEMENT
---------------------
AGREEMENT made and entered into this 1st day of July 1999 between IPC
Information Systems, Inc. and International Exchange Networks, Ltd.
("Subscriber"), concerning IPC Information Systems, Inc.'s service and
maintenance of the equipment described in Addendum A ("Equipment"), located at
88 Pine Street, New York, NY 10005 in accordance with the following terms and
conditions:
1. MAINTENANCE SERVICES: IPC Information Systems, Inc. shall for a
period of five years from the date hereof have the sole and exclusive right and
obligation to service and maintain the Equipment viz, keep the Equipment in good
order and repair and furnish all material and labor necessary for that purpose,
replace any part of the Equipment which may prove to be defective, and otherwise
keep the Equipment in proper condition for use, excluding, however, service and
maintenance of "tie lines" or any other equipment which is the property or
responsibility of the telephone system having jurisdiction thereover under
separate agreement with Subscriber, or under law. As used herein the term
"service and maintenance" specifically excludes the installation, removal,
renovation, or change in the Equipment, in any other equipment, or the repair
of, or service or maintenance to, the Equipment, necessitated by casualty or the
willful or negligent acts of Subscriber, its agents, servants, or employees. If
IPC Information Systems, Inc.'s services are required for such non-included
services, the same shall be subject of a separate agreement for which IPC
Information Systems, Inc. shall have a right of first refusal.
2. PAYMENT TERMS: Payment terms are described in Addendum A. All
payments due to IPC Information Systems, Inc. hereunder shall be subject to all
applicable federal, state and local taxes.
3. RENEWAL: This agreement is renewalable under the terms and conditions
described in Addendum (N/A).
4. SUSPENSION OF OBLIGATIONS OF IPC INFORMATION SYSTEMS, INC.: In the
event IPC Information Systems, Inc. is prevented from performing this agreement
by circumstances beyond its control, including without limitation, labor
disturbances, strikes, lockouts, fire, explosion, water, flood, acts of God, war
or other hostilities, civic commotion, governmental acts, orders or regulations,
inability or difficulty in obtaining parts, supplies, or Labor, or refusal of
Subscriber's landlord or any public utility or telephone company to cooperate
with IPC Information Systems, Inc.'s obligations under this agreement shall be
suspended during the period of such disability without liability to Subscriber.
5. ACCESS TO EQUIPMENT: Subscriber agrees to make the Equipment
available to IPC Information Systems, Inc.'s duly authorized representatives
during regular business hours, and shall furnish such representatives with all
information requested regarding the Equipment.
<PAGE>
6. LIMITATION OF LIABILITY: IPC INFORMATION SYSTEMS, INC. SHALL NOT BE
LIABLE FOR ANY SPECIAL OR CONSEQUENTIAL DAMAGES FOR LOSS, DAMAGES, OR EXPENSES
DIRECTLY OR INDIRECTLY ARISING FROM SUBSCRIBER'S USE OF THE EQUIPMENT, OR
ARISING FROM SUBSCRIBER'S INABILITY TO USE THE EQUIPMENT EITHER SEPARATELY OR IN
COMBINATION WITH OTHER EQUIPMENT, OR ARISING FROM ANY OTHER CAUSE.
7. ADDITIONAL CHARGES: Extension bridges, removals, renovation, moves,
additions, and any other changes in the Equipment shall be undertaken
exclusively by IPC Information Systems, Inc., its agents, servants, and
employees. Charges for labor, parts, and materials relating thereto shall be at
IPC Information Systems, Inc.'s rates then prevailing and shall be paid for in
addition to any sums due under any other paragraph of this agreement.
8. PARTIAL INVALIDITY: In the event that any provision hereof is held to
be illegal, invalid or unenforceable, such provisions shall be deemed to be
separate from all of the other provisions hereof and all of such other
provisions shall remain in full force and effect as if such illegal, invalid or
unenforceable provisions were not a part hereof.
9. REMEDIES: Subscriber shall pay IPC Information Systems, Inc. all
costs and expenses, (including reasonable attorney's fees to the extent
permitted by law) incurred by IPC Information Systems, Inc. in enforcing the
provisions hereof or in exercising any of the rights and remedies hereunder.
10. ENTIRE AGREEMENT: This agreement supersedes all proposals,
negotiations, prior agreements and understandings, and constitutes the entire
maintenance agreement between IPC Information Systems, Inc. and Subscriber with
respect to the Equipment covered by this agreement. No representation or
statement not expressed herein shall be binding upon IPC Information Systems,
Inc. and this agreement may be changed or amended only by an instrument in
writing signed by both parties.
<PAGE>
11. Delinquent payments shall bear interest at the rate of 2% per month.
IXNET IPC INFORMATION SYSTEMS, INC.
- ----------------------------- -----------------------------
(Subscriber)
88 Pine Street 88 Pine Street
- ----------------------------- -----------------------------
(Address) (Address)
New York, NY 10005 New York, NY 10005
- ----------------------------- -----------------------------
(City, State, Zip) (City, State, Zip)
By By
- ----------------------------- -----------------------------
(Authorized Signature) (Authorized Signature)
-----------------------------
(Print Name) (Print Name)
-----------------------------
(Title) (Title)
<PAGE>
EXHIBIT 10.7
AMENDMENT NO. 1
TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Agreement (referred to as "Amendment No. 1") is an amendment to
the Amended and Restated Employment Agreement dated as of the 18/th/ day of
December 1997 by and among David Walsh (the "Executive") and International
Exchange Networks, Ltd., a Delaware corporation (the "Company") and is made and
entered into as of June 1, 1999 between the Company and the Executive.
Introductory Statement
The Company and the Executive are parties to an Amended and Restated
Employment Agreement dated as of the 18/th/ day of December 1997 (the "Existing
Agreement"). Section 11.3 of the Existing Agreement provides that any term of
the Existing Agreement may be made only by an instrument in writing and signed
by the party against whom enforcement is sought and, in the case of the Company,
authorized by resolution of its Board of Directors. The Company and the
Executive wish to amend the Existing Agreement as set forth in this Amendment
No. 1, and the Company has authorized this Amendment No. 1 by resolution of its
Board of Directors.
In consideration of the premises, the Company and the Executive hereby
agree that the Existing Agreement shall be amended in the following respects,
and, as amended hereby, shall continue in full force and effect:
1. Section 4.3(b) of the Existing Agreement shall be amended to read in its
entirety as follows:
(b) If, prior to the second anniversary of the Closings, (i)
IPC distributes the common stock of the Company that it holds to
the stockholders of IPC, or (ii) there is an initial public
offering or private offering of the Company's common stock (other
than a private sale of control of the Company to single person or
group of persons not involving a public offering), then,
effective upon such distribution or public offering, the Company
shall grant to the Executive an option to purchase 3% of the
shares of Company common stock then outstanding (determined on a
fully diluted basis after giving effect to such distribution or
offering), provided that the Executive is an employee of the
Company on the date of such grant, or prior thereto, terminated
employment under circumstances described in Section 5.2(b). The
terms of such option shall provide that, at the earliest
practicable time following the time that the Company becomes
subject to the reporting requirements pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934, the Company shall
take such action as may be necessary so that the shares acquired
upon exercise of the option may be resold without restriction,
other than securities law restrictions imposed by reason of the
Executive's status as an "affiliate" within the meaning of the
Securities Act of 1933. The exercise price of such option shall
be not more than the fair market value of the Company common
stock at the date of grant. In addition, the Company shall grant
options with respect to an additional 2% of the shares of Company
Page 1 of 2
<PAGE>
common stock then outstanding, which options shall be granted to
such employees of the Company and in such amounts and on such
terms as shall be determined by the Company in consultation with
the Executive. Such options granted to the Executive shall be
fully vested when granted and shall be evidenced by, and become
exercisable at the time and subject to the terms and conditions
established by, the Stock Option Certificate attached hereto as
Exhibit B. The Executive's execution of the Option Certificate
attached hereto as Exhibit B shall be deemed to be an
acknowledgment by the Executive that the Company has granted all
options to all persons as required by this Section 4.3(b).
IN WITNESS WHEREOF, the Executive has hereunto set his hand, and the
Company has caused this Amendment No. 1 to be executed in its name by an officer
thereunto duly authorized, all as of the day and year first above written.
/s/ David A. Walsh
______________________________
David Walsh
INTERNATIONAL EXCHANGE
NETWORKS, LTD.
/s/ Charles F. Auster
By ___________________________
Name: Charles F. Auster
Title: Executive Vice President
and Chief Operating Officer
Page 2 of 2
<PAGE>
EXHIBIT 10.8
DAVID WALSH
4 Hampshire Circle
Bronxville, New York 10708
June 9, 1999
International Exchange Networks, Ltd.
c/o IPC Information Systems, Inc.
Wall Street Plaza
88 Pine Street
New York, New York 10004
Attention: Chairman of the Board
---------------------
Gentlemen:
Reference is made to that certain Amended and Restated Employment
Agreement between me and International Exchange Networks, Ltd. dated as of the
18/th/ day of December 1997 (the "Employment Agreement"). I hereby waive
enforcement of the provisions of section 3.1 of the Employment Agreement to the
extent that such provisions call for me to have a title and position, prior to
June 9, 1999, other than Chief Executive Officer, and agree that section 3.1 of
the Employment Agreement shall be enforced as if the words "Chairman of the
Board" were followed by the phrase "(after June 8, 2000)".
This letter is intended to be a "waiver" of the provisions of
section 3.1 of the Employment Agreement to the extent described in the preceding
paragraph and an amendment of section 3.1 of the Employment Agreement,
enforceable against me, all as contemplated by section 11.3 of the Employment
Agreement.
Very truly yours,
/s/ David Walsh
David Walsh
Accepted and Agreed to:
INTERNATIONAL EXCHANGE NETWORKS, LTD.
By /s/ Charles F. Auster
---------------------
Name: Charles F. Auster
Title: Executive Vice President and
Chief Operating Officer
Dated: June 9, 1999
------------
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, dated as of the 1st day of May, 1998 (the
"Agreement"), by and among Charles Auster (the "Executive") and International
Exchange Networks, Ltd., a Delaware corporation (the "Company").
WHEREAS, effective as of the closings (the "Closings") of the transactions
(which Closings occurred on April 30, 1998) contemplated by each of (a) the
Amended and Restated Agreement and Plan of Merger, dated as of December 18, 1997
("Merger Agreement"), between Arizona Acquisition Corp. and IPC Information
Systems, Inc., a Delaware corporation ("IPC") and (b) the Share Exchange and
Termination Agreement, dated as of December 18, 1997, among the Company and
other parties named therein, the Company became a wholly-owned subsidiary of
IPC; and
WHEREAS, from and after the date hereof, the Executive is expected to make
a major contribution to the growth, profitability and financial strength of the
Company; and
WHEREAS, the Company desire 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, in consideration of the premises and the mutual promises
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Certain Definitions. The following terms, when used in this
-------------------
Agreement, shall have the following meanings (such definitions to be equally
applicable to both singular and plural terms of the terms defined):
"Affiliate" means, with respect to any Person directly or indirectly
Controlling, Controlled by, or under common Control with such Person.
"Cause" means an omission, act or action or series of omissions, acts
or actions of the Executive which, in the reasonable determination of the Board
of Directors of the Company (the "Board"), constitute(s), cause(s) or result(s)
in: (a) the Executive's material dishonesty including, without limitation,
theft, fraud, embezzlement, material financial misrepresentation or other
similar behavior or action in his dealings with or with respect to the Company
or any Subsidiary or Affiliate thereof or entity with which the Company, a
Subsidiary or Affiliate thereof, shall be engaged in or be attempting to engage
in commerce, (b) 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, (c) 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 position as an officer of the Company as set forth in Section 3.2 hereof,
which refusal is not cured by the Executive within 30 calendar days after
written notice from the Board to the Executive setting forth with reasonable
specificity the nature thereof, or (d) the material breach of any provision of
this Agreement which is not cured by the Executive within 30 calendar days after
written notice from the Board to the Executive setting forth with reasonable
specificity the nature of such breach.
"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
<PAGE>
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.
"Disability" means the inability of the Executive to perform his
duties and obligations for the Company as required by this Agreement, because of
a disability which is not of an apparently temporary nature, which results from
mental or bodily injury, sickness or disease or any combination thereof, and
which has lasted a period of more than 180 consecutive days or more than 180
days within any period of 365 consecutive days.
"Good Reason" shall mean a material breach by the Company of any
provision of this Agreement or any other agreement between the Executive and the
Company or any of its Affiliates (but only if such material breach is as to the
Executive) which, in any case, is not cured by the Company within 30 calendar
days after written notice from the Executive to the board setting forth with
reasonable specificity the nature of such breach.
"Person" means an individual, corporation, partnership, limited
liability company, limited partnership, association, trust, unincorporated
organization or other entity or group (as defined in Section 13(d)(3) of the
Securities and Exchange Act of 1934, as amended).
"Subsidiary" means, with respect to any Person, any entity which
securities or other ownership interests having ordinary voting power to elect a
majority of the Board of Directors or other persons performing similar functions
are at the time directly or indirectly owned by such Person.
2. Employment; Term. The Company agrees to employ the Executive, and the
----------------
Executive hereby agrees to accept such employment by the Company, on the terms
and conditions set forth herein. The parties hereto agree that such employment
shall not be on an "at-will" basis, but shall be governed by the terms and
conditions of this Agreement during the Term (as defined herein) of this
Agreement. Unless sooner terminated in the manner hereinafter provided, the term
of this Agreement shall commence on the date of this Agreement and shall expire
on May 31, 2003 (the "Initial Term"); provided, however, that this Agreement
-------- -------
shall automatically be extended by one day each day, unless either party shall
notify the other that the Agreement shall not be so extended, in which event the
expiration date shall be fixed at the fourth (4/th/) anniversary of the date of
such notice (the Initial Term, plus any extensions thereof, hereinafter referred
to as the "Term").
3. Duties.
------
3.1 Office; Board Membership. During the Term, the Executive shall
------------------------
serve as Executive Vice President and Chief Operating Officer of the company,
reporting only to the Company's Chief Executive Officer and the Board. In
addition, during the Term, the Executive shall serve as a member of the Board.
3.2 Duties. The Executive shall have such duties and responsibilities
------
as determined by the Chief Executive Officer or the Board consistent with his
positions as Executive Vice President and Chief Operating Officer.
-2-
<PAGE>
3.3 Full working Time. During the Term, the Executive shall devote
-----------------
his full working time and his best efforts, and apply all of his skill and
experience, to the proper performance of his duties hereunder and to the
business and affairs of the Company. During the 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 but not limited to serving as a director) from any
other Person (but the foregoing shall not preclude the Executive, subject to
Section 7 hereof, from (i) serving as a director of any nonprofit or charitable
organization, (ii) serving as a member of the board of directors of American
Utilicraft Corporation, (iii) continuing to serve as an outside director of, as
well future board service on, any affiliate of Lucent Technologies, or (iv)
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
or any of its Affiliates in the reasonable opinion of the Board).
4. Salary and Benefits.
-------------------
4.1 Base Salary. The Company shall pay the Executive during the Term
-----------
a base salary at an annual rate of $210,000 per annum, payable in accordance
with the standard payroll practices of the Company ("Base Salary"). It is
understood that the Base Salary shall be the Executive's minimum annual
compensation during the Term. The Base Salary shall be reviewed annually by the
Board, or the Compensation Committee of the Board, and may be increased (but not
decreased) at its discretion.
4.2 Bonus. For each fiscal year of the Company ending during the
-----
Tem, the Company may pay to the Executive a bonus based upon the achievement of
performance criteria established by the Company (a "Bonus"). With respect to
each such fiscal year, the parties hereto agree that the Executive's target
bonus opportunity shall be 50% of Base Salary.
4.3 Stock Option. Upon commencement of the employment Term, the
------------
Executive shall be granted an option to purchase shares of the common stock of
IPC (the "Option") pursuant to the IPC Information Systems, Inc. Stock Option
Plan. The terms of the Option shall be set forth on the Option Grant Certificate
(the "Certificate") attached on Exhibit A hereto, which Certificate is hereby
incorporated by reference into this Agreement.
4.4 Benefits. The Executive shall participate, to the maximum extent
--------
that he is eligible therefor, in any and all plans or programs which may be
maintained by the Company for its employees and/or senior executives generally
providing insurance, medical benefits, retirement benefits, or other like fringe
benefits. The Company shall provide the Executive with a customary level of
Directors and Officers insurance during the Term, to the extent that such policy
is reasonably available to the Company from time to time.
4.5 Vacation. The Executive shall be entitled to three (3) weeks
--------
annual paid vacation each year of the Term to be taken in accordance with the
Company' vacation policy.
4.6 Expenses. The Company shall pay or reimburse the Executive for
--------
reasonable business expenses actually incurred or paid by the Executive during
the Term, in the performance
-3-
<PAGE>
of his services hereunder; provided that such expenses are consistent with the
Company policy. Such payment or reimbursement shall be made upon presentation of
expense statements or vouchers or other supporting information acceptable to the
Company and otherwise in accordance with the Company policy then in effect.
4.7 Deductions. The Company shall deduct from all compensation
----------
payable hereunder such payroll, withholding and other taxes as may be required
by law.
5. Termination.
-----------
5.1 General. The Company shall have the right to terminate the
-------
employment of Executive at any time with or without Cause.
5.2 Termination Under Certain Circumstances. (a) In the event
---------------------------------------
Executive's employment with the Company is terminated prior to the expiration of
the Term by reason of (i) the Executive's resignation without Good Reason, (ii)
death, (iii) Disability or (iv) 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 Section 4 hereof or otherwise.
(b) In the event that the Executive's employment with the Company is
terminated by the Executive prior to the expiration of the Term for Good Reason,
or by the Company prior to the expiration of the Term other than by reason of
(i) the Executive's resignation, (ii) death, (iii) Disability or (iv) the
Executive's discharge by the Company for Cause, subject to the Executive's
compliance with Sections 6, 7 and 8, the Company shall (i) pay the Executive in
one lump sum his Base Salary for one year (the "Severance Period"), and (ii) pay
to the Executive as a Bonus for the year in which such termination occurred, in
lieu of any Bonus that otherwise would have been payable during the Severance
Period had such termination of employment not occurred, 50% of the Executive's
then-current Base Salary.
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 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,
without any requirement of proof of actual damage and without regard to the
Executive's efforts, if any, to mitigate damages. The Company and the Executive
further agree that the Company may condition the payments (if any) due this
Section on the receipt of 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 Subsidiary or Affiliate thereof.
6. Proprietary Information.
-----------------------
6.1 Disclosure to the Company. 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
-4-
<PAGE>
pertaining to the business or activities of the Company and its Subsidiaries and
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 Term of his employment with either IPC or the Company
(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 Subsidiaries and
Affiliates and their respective customers, suppliers, employees and other
persons having business dealings with the Company and its Subsidiaries and
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 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 any of the Company or any Subsidiary or
Affiliate thereof or any of the technology, "knowhow," licenses or other
proprietary rights or processes of the Company or any Subsidiary or Affiliate
thereof.
6.2 Post-Employment. In the event that the Executive leaves the
---------------
employ of the Company for any reason, including without limitation, the
expiration of the Term, the Executive shall deliver to the Company (and shall
not keep in his possession, recreate or deliver to anyone other than the Company
any and all devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, together with all copies thereof (in
whatever medium recorded) belonging to the Company or Affiliate thereof or any
of their respective successors or assigns.
7. Non-Competition and Non-Solicitation.
------------------------------------
7.1 Non-Competition. During the period of the Executive's employment
---------------
hereunder, 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 the
shorter of (i) one year thereafter, or (ii) the remainder of the then-current
Term (the period described in clause (ii) to be determined without regard to
such termination), the Executive agrees, and shall cause each of his respective
Affiliates to agree, that any such Person shall not, directly or indirectly,
through any Person Controlled by such Executive, in any form or manner on a
worldwide basis: (a) engage in any activities competitive in any material
respect with the business of the Company and its Subsidiaries and Affiliates
("Business") 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
in any material respect with the Business 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 or any
of his Affiliates, as the case may be (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.
7.2 Non-Solicitation. During the period of the Executive's
----------------
employment hereunder and for a period of one year thereafter, the Executive will
not, directly or indirectly, use proprietary
-5-
<PAGE>
knowledge or information relating to the Company or its Subsidiaries or
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 Subsidiaries or Affiliates and any
customer, supplier, employee, consultant or other person having business
dealings with the Company or its Subsidiaries or Affiliates, or (b) employ or
solicit the employment or engagement by others of any employee or consultant of
the Company or its Subsidiaries or 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.
7.3 Scope. The Executive agrees that the provisions of this Section 7
-----
are necessary to protect the interests of the Company or its Subsidiaries or
Affiliates and are reasonable and valid in geographical and temporal scope and
in all other respects. If any court determines that the provisions of this
Section 7 or any part thereof are unenforceable because of the duration or
geographical scope of such provision, such court will have the power to reduce
the duration or scope of such provision, as the case may be, and, in its reduced
form, such provision will be enforceable.
8. Nondisclosure. 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, sue, publish, or in any
other manner reveal, directly or indirectly, at any time during or after the
Term, any Confidential Information relating to the Company or any Subsidiary or
Affiliate thereof acquired by him prior to, during the course of, or incident
to, his employment hereunder. "Confidential Information" shall mean (a)
proprietary information, trade secrets and know-how of the Company and its
Affiliates in which one may obtain a legally protected interest, (b)
confidential information relating to the business, operations, systems,
networks, services, pricing policies, marketing plans, product development plans
and inventions and research of the Company or its Affiliates, and (c)
confidential information relating to the financial affairs and results of
operations and forecasts or projections of the Company and its Affiliates;
provided that not information shall constitute Confidential Information if it
(1) is generally known by persons other than the Company or its Affiliates, or
(2) is known by persons other that the Company or its Affiliates by reason of
the action of persons other than the Executive or any person acting at the
Executive's direction or with the Executive's consent, or (3) was known by the
Executive, by lawful means, prior to the date of the commencement of the
Executive's consultation with the Company, or (4) is compelled to be disclosed
by law or legal process. 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 is legally
required to be disclosed.
9. Remedies for Certain Breaches. If the Executive commits a breach, or
-----------------------------
threatens to commit a breach, of any of the provisions of Sections 6, 7 and/or 8
hereof, the Company shall have the following rights and remedies, each of which
rights and remedies shall be independent of the
-6-
<PAGE>
others, and shall be severally enforceable, and all of which rights and remedies
shall be in addition to, and not in lieu of, any other rights and remedies
available under law or in equity to the Company, the right and remedy to have
the provisions of Sections 6, 7 and/or 8 enforced by any court of competent
jurisdiction by injunction, restraining order, specific performance or other
equitable relief in favor of the Company, it being acknowledged and agreed that
any breach or threatened breach of Sections 6, 7, and/or 8 hereof by the
Executive will cause irreparable injury to the Company and that money damages
will not provide an adequate remedy to the Company.
10. Arbitration. Any dispute, controversy or claim, at any time arising
-----------
out of this or relating to this Agreement, or the breach, termination or
invalidity thereof (other than any dispute, controversy or claim pursuant to
Sections 6, 7, 8 and/or 9 hereof, which may, at the option of the Company, be
submitted to any court having jurisdiction), shall be referred to final and
binding arbitration by a panel of three arbitrators selected according to the
Commercial Arbitration Rules 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 30 days after the
appointment of both, agree on a third arbitrator, he or she shall be selected by
the Chief Judge of the Federal District Court of 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.
11. Miscellaneous.
-------------
11.1 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, and with respect to the Executive, at the most recent
address set forth on the books and records of the Company as the Executive's
principal residence, as such address may change from time to time during the
Term:
If to the Executive: Charles Auster
copy to Law Offices of Stephen P. Goldman
2013 "O" Street, N.W.
Washington, D.C. 20036-5911
Telecopier No.: (202) 293-2556
Attn: Stephen P. Goldman, Esq.
If to the Company
or the Board: International Exchange Networks, Ltd.
c/o IPC Information Systems, Inc.
Wall Street Plaza
88 Pine Street - 15/th/ Floor
New York, NY 10005
Telecopier No.: (212) 858-7959
Attn: General Counsel
-7-
<PAGE>
copy to: Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Telecopier No.: (212) 309-6273
Attn: Philip H. Werner, Esq.
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.
11.2 Entire Agreement. This Agreement shall constitute the entire
----------------
agreement between the Executive and the Company with respect to the Company'
employment of the Executive and supersedes any and all prior agreements and
understandings, written or oral, with respect thereto.
11.3 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.
11.4 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.
11.5 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.
11.6 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.
11.7 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.
11.8 Survival. The rights and obligations of the Company and Executive
--------
pursuant to Sections 5, 6, 7, 8, 9, 10 and this Section 11 shall survive the
termination of the Executive's employment with the Company and the expiration of
the Term.
-8-
<PAGE>
11.9 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.
11.10 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EXECUTIVE:
/s/ Charles Auster
----------------------------
Name: Charles Auster
INTERNATIONAL EXCHANGE NETWORKS, LTD.
/s/ Daniel Uteusky
By:_________________________
Name: Daniel Uteusky
Title: General Counsel
and Secretary
Solely as to Section 4.3 hereof, agreed to and accepted by:
IPC INFORMATION SYSTEMS, INC.
/s/ S.T. Clontz
By:_________________________
Name: S.T. Clontz
Title: President and Chief
Executive Officer
-9-
<PAGE>
EXHIBIT A - Part 1 of 2
-----------------------
IPC INFORMATION SYSTEMS, INC.
STOCK OPTION PLAN
Incentive Stock Option Grant Certificate
This Grant Certificate evidences the grant of an incentive stock option pursuant
to the provisions of the Stock Option Plan (the "Plan") of IPC Information
Systems, Inc. (the "Company") to the individual whose name appears below (the
"Grantee"), covering the specific number of shares of Common Stock of the
Company ("Stock") set forth below, pursuant to the provisions of the Plan and on
the following express terms and conditions:
1. Name of Grantee:
Charles Auster
2. Number of shares of Stock of the Company which are subject to this option:
23,805 shares
3. Exercise price of shares subject to this option:
$21 per share
4. Date of grant of this option:
April 30, 1998
5. Vesting:
See Section 5(c) of the Plan.
6. Termination date of this option:
See Section 5(d) of the Plan.
7. Type of Option:
Incentive Stock Option
The Grantee hereby acknowledge receipt of a copy of the Plan as presently in
effect. The text and all of the terms and provisions of the Plan are
incorporated herein by reference, and this options is subject to these terms and
provisions in all respects. At any time when the Grantee wishes to exercise this
option, in whole or in part, the Grantee shall submit to the Company a written
notice of exercise, specifying the exercise date and the number of shares to be
exercised. Upon exercise, the Grantee shall remit to the Company the exercise
price, plus an amount sufficient to satisfy any withholding tax obligation of
the Company that arises in connection with such exercise.
IPC INFORMATION SYSTEMS INC. AGREED TO AND ACCEPTED BY:
By:__________________________ _________________________________
Charles Auster
<PAGE>
EXHIBIT A - Part 2 of 2
-----------------------
IPC INFORMATION SYSTEMS, INC.
STOCK OPTION PLAN
Nonqualified Stock Option Grant Certificate
This Grant Certificate evidences the grant of a nonqualified option pursuant to
the provisions of the Stock Option Plan (the "Plan") of IPC Information Systems,
Inc. (the "Company") to the individual whose name appears below (the "Grantee"),
covering the specific number of Common Stock of the Company ("Stock") set forth
below, pursuant to the provisions of the Plan and on the following express terms
and conditions:
1. Name of Grantee:
Charles Auster
2. Number of shares of Stock of the Company which are subject to this option:
22,371 shares
3. Exercise price of shares subject to this option:
$21 per share
4. Date of grant of this option:
April 30, 1998
5. Vesting:
See Section 5(c) of the Plan.
6. Termination date of this option:
See Section 5(d) of the Plan.
7. Type of Option:
Nonqualified Stock Option
The Grantee hereby acknowledges receipt of a copy of the Plan as presently in
effect. The text and all of the terms and provisions of the Plan are
incorporated herein by reference, and this option is subject to these terms and
provisions in all respects. At any time when the Grantee wishes to exercise this
option, in whole or in part, the Grantee shall submit to the Company a written
notice of exercise, specifying the exercise date and the number of shares to be
exercised. Upon exercise, the Grantee shall remit to the Company the exercise
price, plus an amount sufficient to satisfy any withholding tax obligation of
the Company that arises in connection with such exercise.
IPC INFORMATION SYSTEMS INC. AGREED TO AND ACCEPTED BY:
By:_________________________ _________________________
Charles Auster
<PAGE>
EXHIBIT 10.10
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Agreement (referred to as "Amendment No. 1") is an amendment to
the Employment Agreement dated as of the 1st day of May 1998 by and among
Charles Auster (the "Executive") and International Exchange Networks, Ltd., a
Delaware corporation (the "Company") and is made and entered into as of June 1,
1999 between the Company and the Executive.
Introductory Statement
The Company and the Executive are parties to an Employment Agreement dated
as of the 1st day of May 1998 (the "Existing Agreement"). Section 11.3 of the
Existing Agreement provides that any term of the Existing Agreement may be made
only by an instrument in writing and signed by the party against whom
enforcement is sought and, in the case of the Company, authorized by resolution
of its Board of Directors. The Company and the Executive wish to amend the
Existing Agreement as set forth in this Amendment No.1, and the Company has
authorized this Amendment No.1 by resolution of its Board of Directors.
In consideration of the premises, the Company and the Executive hereby
agree that the Existing Agreement shall be amended in the following respects,
and, as amended hereby, shall continue in full force and effect:
1. Section 2 of the Existing Agreement shall be amended to read in its
entirety as follows:
2. Employment; Term. The Company agrees to employ the Executive, and
----------------
the Executive hereby agrees to accept such employment by the Company, on
the terms and conditions set forth herein. The parties hereto agree that
such employment shall not be on an "at-will" basis, but shall be governed
by the terms and conditions of this Agreement during the Term (as defined
herein) of this Agreement. Unless sooner terminated in the manner
hereinafter provided, the term of this Agreement shall commence on the date
of this Agreement and shall expire on May 31, 2003 (the "Initial Term");
Provided, however, that this Agreement shall automatically be extended by
-------- -------
one day each day, unless either party shall notify the other that the
Agreement shall not be so extended, in which event the expiration date
shall be fixed at the fourth (4th) anniversary of the date of such notice
(the Initial Term, plus any extensions thereof, hereinafter referred to as
the "Term").
2. Section 4.1 of the Existing Agreement shall be amended to read in its
entirety as follows:
4.1 Base Salary. The Company shall pay the Executive during the
-----------
Term a base salary at an annual rate of $210,000 per annum, payable in
accordance with the standard payroll practices of the Company ("Base
Salary"). It is understood that the Base Salary shall be the Executive's
minimum annual compensation during
Page 1 of 2
<PAGE>
the Term. The Base Salary shall be reviewed annually by the Board, or the
Compensation Committee of the Board, and may be increased (but not
decreased) at its discretion.
3. Section 5.2(b) of the Existing Agreement shall be amended to read in its
entirety as follows:
(b) In the Event that the Executive's employment with the
Company is terminated by the Executive prior to the expiration of the Term
for Good Reason, or by the Company prior to the expiration of the Term
other than by reason of (i) the Executive's resignation, (ii) death, (iii)
Disability or (iv) the Executive's discharge by the Company for Cause,
subject to the Executive's compliance with Sections 6, 7 and 8, the Company
shall (i) pay the Executive in one lump sum his Base Salary for one year
(the "Severance Period"), and (ii) pay to the Executive as a Bonus for the
year in which such termination occurred, in lieu of any Bonus that
otherwise would have been payable during the Severance Period had such
termination of employment not occurred, 50% of the Executive's then-current
Base Salary.
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 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, without any requirement of proof of actual
damage and without regard to the Executive's efforts, if any, to mitigate
damages. The Company and the Executive further agree that the Company may
condition the payments (if any) due this Section on the receipt of 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
Subsidiary or Affiliate thereof.
IN WITNESS WHEREOF, the Executive has hereunto set his hand, and the
Company has caused this Amendment No. 1 to be executed in its name by an officer
thereunto duly authorized, all as of the day and year first above written.
/s/ Charles F. Auster
___________________________________
Charles F. Auster
INTERNATIONAL EXCHANGE
NETWORKS, LTD.
/s/ David A. Walsh
By ________________________________
Name: David A. Walsh
Title: Chief Executive Officer
Page 2 of 2
<PAGE>
EXHIBIT 10.12
Anthony Servidio
3 Hampshire Circle
Bronxville, New York 10708
June 9, 1999
International Exchange Networks, Ltd.
c/o IPC Information Systems, Inc.
Wall Street Plaza
88 Pine Street
New York, New York 10004
Attention: Chairman of the Board
---------------------
Gentlemen:
Reference is made to that certain Amended and Restated Employment
Agreement between me and International Exchange Networks, Ltd. dated as of the
18/th/ day of December 1997 (the "Employment Agreement"). I hereby waive
enforcement of the provisions of section 3.1 of the Employment Agreement to the
extent that such provisions call for me to have a title and position other than
Senior Vice President, Sales and agree that section 3.1 of the Employment
Agreement shall be enforced as if the words "Executive Vice President" were
replaced by the words "Senior Vice President, Sales" therein.
This letter is intended to be a "waiver" of the provisions of
section 3.1 of the Employment Agreement to the extent described in the preceding
paragraph and an amendment of section 3.1 of the Employment Agreement,
enforceable against me, all as contemplated by section 11.3 of the Employment
Agreement.
Very truly yours,
/s/ Anthony Servidio
Anthony Servidio
Accepted and Agreed to:
INTERNATIONAL EXCHANGE NETWORKS, LTD.
By /s/ Charles F. Auster
-------------------------------------
Name: Charles F. Auster
Title: Executive Vice President and
Chief Operating Officer
Dated: June 9, 1999
----------------------------------
<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this 1/st/
day of June, 1999, (the "Effective Date") by and between William Walsh (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, constitute(s), cause(s) or result(s) in:
<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 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 employment with the Company or (iv) is compelled to be
disclosed by law, regulation or legal process.
<PAGE>
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 Senior
Vice President -- Corporate Operations, 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 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).
<PAGE>
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
Senior Vice President --Corporate Operations of the Company, reporting to the
Executive Vice President and Chief Operating Officer of the Company, with the
customary duties, authorities and responsibilities of a senior vice poresident
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. 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 (4/th/)
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 (4/th/)
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
(4/th/) anniversary of the earliest of (a) the 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.
<PAGE>
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 $150,000
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 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 be 50% of his Base Salary.
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 3 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
<PAGE>
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.
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.
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.
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).
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;
<PAGE>
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 4.2.2 is expressly conditioned upon:
4.2.3.1 The Executive's compliance with the terms of this
Agreement, including, without limitation, 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 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.
<PAGE>
(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.
(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.
<PAGE>
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,
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 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
<PAGE>
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.
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
<PAGE>
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 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
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
<PAGE>
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: William E. Walsh
If to the Company: International Exchange Networks, Ltd.
c/o 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: Thacher Proffitt & Wood
Two World Trade Center, 39/th/ 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 and consents hereunder, shall be construed in
accordance with and governed by the laws of the State of
<PAGE>
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.
7.1 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.
7.1 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
/s/ William Walsh
--------------------------------------------
William Walsh
INTERNATIONAL EXCHANGE NETWORKS, LTD.
By: /s/ Charles F. Auster
----------------------------------------
Name: Charles F. Auster
Title: Executive Vice President and
Chief Executive Operating Officer
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this 1/st/
day of June, 1999, (the "Effective Date") by and between John Faccibene (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, constitute(s), cause(s) or result(s) in:
<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 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 employment with the Company or (iv) is compelled to be
disclosed by law, regulation or legal process.
<PAGE>
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
Managing Director, Americas, 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 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).
<PAGE>
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
Managing Director, Americas, of the Company, reporting to the Executive Vice
President and Chief Operating Officer of the Company, with the customary duties,
authorities and responsibilities of a managing director 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. 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 (4/th/)
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 (4/th/)
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
(4/th/) anniversary of the earliest of (a) the 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.
<PAGE>
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 $144,000
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 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 be 50% of his Base Salary.
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 3 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
<PAGE>
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.
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.
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.
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).
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;
<PAGE>
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 4.2.2 is expressly conditioned upon:
4.2.3.1 The Executive's compliance with the terms of this
Agreement, including, without limitation, 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 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.
<PAGE>
(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 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.
(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.
<PAGE>
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,
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 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
<PAGE>
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.
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
<PAGE>
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 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
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
<PAGE>
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: John Faccibene
If to the Company: International Exchange Networks, Ltd.
c/o 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: Thacher Proffitt & Wood
Two World Trade Center, 39/th/ 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 and consents hereunder, shall be construed in
accordance with and governed by the laws of the State of
<PAGE>
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.
/s/ John Faccibene
--------------------------
John Faccibene
INTERNATIONAL EXCHANGE NETWORKS, LTD.
By: /s/ Charles F. Auster
---------------------
Name: Charles F. Auster
Title: Executive Vice President
and Chief Operating Officer
<PAGE>
EXHIBIT 10.15
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
This Executive Employment Agreement (the "Agreement") is entered into
---------
as of June 1, 1999, by and between Mr. Paul Pluschkell (the "Executive"),
---------
International Exchange Networks, Ltd., a Delaware corporation (including its
successors and assigns, the "Company").
RECITALS
A. Executive has served as an executive officer of the Company.
B. The Company and the Executive desire to provide for Executive's
employment with the Company upon and subject to the terms and conditions set
forth in this Agreement.
AGREEMENT
Therefore, in consideration of the mutual covenants contained herein,
the Company and the Executive, intending to be legally bound, hereby agree as
follows:
1. Definitions. The following terms, as used, herein, have the following
-----------
meanings:
"Affiliate" means, with respect to any Person, any entity directly or
---------
indirectly Controlling, Controlled by or under common Control with such Person.
"Board" means the Board of Directors of the Company.
-----
"Cause" shall mean repeated and gross negligence in fulfillment of, or
-----
repeated failure of the Executive to fulfill his material obligations under this
Agreement, in either event after due written notice thereof, or serious willful
misconduct by the Executive in respect of his obligations hereunder, after due
written notice thereof and a reasonable opportunity to cure, if curable. Cause
should not include, without limitation, (a) refusal by the Executive of an
assignment not consistent with the status, titles and reporting requirements set
forth herein or contemplated hereby, or (b) bad judgment or negligence of the
Executive, or (c) any act or omission (other than one constituting a material
breach of trust committed in willful or reckless disregard of the interests of
the Company and undertaken for personal gain) in respect of which a
determination could properly have been made by the Board that the Executive met
the applicable standard of conduct prescribed for indemnification or
reimbursement under the by-laws of the Company or the laws of the State of New
York, in each case in effect at the time of such act or omission, or (d) any act
or omission with respect to which notice of termination is given ore than twelve
(12) months after the earliest date on which any non-employee director of the
Company who was not a party to such act or omission knew or should have known of
such act or omission.
For purposes of this subparagraph, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action or
omission was in the best interests.
<PAGE>
"Control" (including with correlative meanings, the terms
-------
"Controlling," "Controlled by" and "under common Control with"), as used with
----------- ------------- ------------ ----
respect to any entity, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction or the management and policies of such
entity, whether through the ownership of voting securities or by contract or
otherwise.
"Good Reason" shall mean:
-----------
(A) The assignment by the Company to the Executive of duties
without the Executive's express written consent, which (i) are materially
different or require travel significantly more time-consuming or extensive than
the Executive's duties or business travel obligations on the date of the
Agreement, or (ii) result, in either a significant reduction in the Executive's
authority and responsibility as a senior corporate executive when compared to
the highest level of authority and responsibility assigned to the Executive at
the date of the Agreement, or, (iii) without the Executive's express written
consent, the removal of the Executive from, or any failure to reappoint or
reelect the Executive to, the title specified in this Agreement;
(B) A reduction by the Company of the Executive's Base Salary,
or the failure to pay the performance bonus as provided in Section 5 of the
Agreement;
(C) The failure to pay the Executive the periodic payment when
due as provided in Section 6 of the Agreement;
(D) The failure by the Company to continue to provide the
Executive with substantially the same welfare benefits (which for purposes of
this Agreement shall mean benefits under all welfare plans as that term is
defined in Section 3(1) of the Employee Retirement Income Security Act of 1974,
as amended), and perquisites, including participation on a comparable basis in
the Parent's, stock options plan and other plans in which executives of the
Company of comparable title and salary participate; or
(E) Relocation of the Executive more than 45 miles from New York
City.
"Person" means an individual, corporation, partnership, association,
------
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality therefor
"Reorganization Event" means any reorganization or business
--------------------
combination or transfer transaction (including a merger, asset or stock sale)
involving the Company or any successor in interest thereto.
2. Employment. Subject to Section 13 hereof, the Executive will serve as
----------
an executive officer of the Company faithfully and to the best of his ability
for the Employment Term specified in Section 3 hereof. The Executive shall
devote all of his business time, energy and skill to such employment. The
Executive will report to the Chief Executive Officer or Chief Operating Officer
or a designated executive of the Company and will render such services
consistent with his role and
2
<PAGE>
title as an executive officer of the Company may from time to time direct. The
Executive agrees that he shall not carry on outside work of any nature
(including, without limitation consulting work or directorships) without the
Company's prior written consent, provided, that the Executive may carry on
--------
charitable or civic activities that do not interfere with the performance of his
responsibilities hereunder.
3. Term. The Company agrees to employ the Executive, and the
----
Executive hereby agrees to accept such employment by the Company, on the terms
and conditions set forth herein. The parties hereto agree that such employment
shall not be on an "at-will" basis, but shall be governed by the terms and
conditions of this Agreement during the Term (as defined herein) of this
Agreement. Unless sooner terminated in the manner hereinafter provided, the
term of this Agreement shall commence on the date of this Agreement and shall
expire on May 31, 2003 (the "Initial Term"); provided, however, that this
------------ -------- -------
Agreement shall automatically be extended by one day each day, unless either
party shall notify the other that the Agreement shall not be so extended, in
which event the expiration date shall be fixed at the fourth (4/th/) anniversary
of the date of such notice (the Initial Term, plus any extensions thereof,
hereinafter referred to as the "Employment Term").
---------------
4. Salary. As compensation for the services rendered by the Executive
------
under this Agreement, the Company shall pay to the Executive a base salary equal
to $150,000 per year (the "Base Salary"), payable to the Executive in accordance
-----------
with Parent's payroll practices in effect from time to time during the
Employment Term.
5. Performance Bonus. The Executive shall be entitled to receive a bonus
-----------------
each year. The actual amount of bonus payable, if any, shall be determined based
upon the achievement of certain performance objectives established by the Board
for the Executive after consulting with the Executive. The performance
objectives for each year will be determined annually, or as soon thereafter as
practicable, subject to adjustment from time to time during such year to the
extent the Company reasonably determines, after consultation with the Executive,
that such adjustment is necessary to reflect a development concerning the
Company's business, corporate or divisional structure or applicable accounting
principles. The performance objectives will be determined by the Company in
consultation with the Executive and are subject to the approval of the Board,
which approval shall be in the Board's sole discretion. In no event will the
Base Salary plus the annual bonus for a calendar year be less than $240,000.
6. Periodic Payments. In addition to any amounts payable to the Executive
-----------------
pursuant to Sections 4 or 5 hereof and as additional consideration for the
agreements and covenants of the Executive hereunder, the Executive shall be
entitled to receive $208,000 in cash on February 13, 2000 provided that, except
as provided in Section 9 the Executive remains employed by the Company through
the date of each such payment and has, through each such payment date,
continuously complied with the provisions of this Agreement (as it may be
amended from time to time in the future).
7. Benefits. The Executive shall be entitled to participate in the
--------
Parent's employee benefit packages, as in effect from time to time during the
Employment Term.
3
<PAGE>
8. Termination.
-----------
(a) Either the Company or the Executive may terminate this Agreement
and the Executive's employment with the Company at any time, with or without
Cause or Good Reason, in its or his sole discretion, upon, in the case of
termination by the Executive, six months' prior written notice to the Company of
termination or upon, in the case of termination by the Company, thirty (30)
days' prior written notice to the Executive of termination.
(b) Without limiting the foregoing Section 7(a), (i) the Executive
may terminate his employment with the Company at any time for Good Reason, or
(ii) the Company may terminate his employment at any time for Cause.
(c) For purposes of this Agreement "Termination Date" shall mean (i)
----------------
if this Agreement is terminated on account of death, the date of death; (ii) if
this Agreement is terminated for Disability (as defined below), the date on
which a notice of termination due to Disability is delivered to the Executive
(or such later date as may be set forth in such notice); (iii) if this Agreement
is terminated by the Company, the date-on which a notice of termination is
delivered to the Executive (or such later date as may be set forth in such
notice); (iv) if the Agreement is terminated by the Executive, the earlier of
(x) the date on which the Executive delivers the notice of termination (or such
later date as may be set forth in such notice) to the Company and (y) the date
he ceases work; or (v) if this Agreement expires by its terms, on the last day
of the term of this Agreement.
9. Severance Pay.
-------------
(a) If (i) the Company terminates the employment of the Executive
without Cause, or (ii) the Executive terminates his employment for Good Reason,
the Executive shall be entitled to receive, (A) the lesser of one year's Base
Salary or the Base Salary for the remaining Employment Term, plus (B) any
remaining amounts that the Executive would have been entitled to receive
pursuant to Section 6 hereof if he had remained an employee of the Company, (C)
any remaining unpaid balance on the Loan (collectively, "Severance Pay"). Any
-------------
Severance Pay shall be paid in accordance with the Company's regular payroll
schedule as in effect from time to time. Notwithstanding the foregoing, (x) the
Company shall not be required to pay any Severance Pay for any period following
the Termination Date if the Executive violates the provisions of Sections 10
through 13 of this Agreement before or during the period in which the Executive
is otherwise entitled to receive such Severance Pay and (y) the Executive shall
not be entitled to any Severance Pay unless and until the Executive shall have
executed and delivered to the Company a limited general release, in form and
substance satisfactory to the Company (the "Release"), in respect of any claims
-------
the Executive may have against the Company, its Affiliates, directors, officers
and stockholders, except pursuant to the Agreement or vested rights under
employee benefit plans of the Company or the Parent.
(b) If (i) the Executive voluntarily terminates his employment other
than for Good Reason, or (ii) the Executive is terminated by the Company for
Cause, then the Executive shall
4
<PAGE>
be entitled to receive Base Salary (excluding any accrued vacation) through the
Termination Date only, and no other amounts shall be payable.
(c) If the Executive's employment is terminated due to death or
Disability, the Executive shall be entitled to receive Base Salary and accrued
vacation through the Termination Date only and the then unpaid payments under
Section 6, and no other amounts shall be payable.
"Disability" shall mean that the Executive is unable to render
----------
services of the character previously performed in the ordinary course and that
such inability continues for a period of at least three (3) consecutive months
(or for shorter periods totaling more than four (4) months during any period of
twelve (12) consecutive months). Termination resulting from Disability may only
be effected after at least thirty (30) days written notice by the Company of its
intention to terminate the Executive's employment.
(d) In addition to the provisions of Section 9(a) and 9(b) hereof, to
the extent COBRA shall be applicable to the Company, the Executive shall be
entitled to continuation of group health plan benefits for such period as may
then be required by law if the Executive satisfies all applicable conditions to
the receipt of such continuation of benefits, including any required elections
or payments.
(e) The Executive acknowledges that, upon termination of his
employment, he is entitled to no other compensation, severance or other benefits
other than those specifically set forth in this Agreement.
(f) The provisions of this Section 9 are intended to be and are
exclusive and in lieu of any other rights or remedies to which the Executive or
the Company may otherwise be entitled, either at law, tort or contract, in
equity, or under this Agreement, as a result of any termination of the
Executive's employment. The Executive shall be entitled to no benefits,
compensation or other payments or rights upon termination of employment other
than those benefits expressly set forth in this Section 9.
10. Confidential Information.
------------------------
(a) The Executive acknowledges that the Confidential Information (as
defined below) relating to the business of the Company or any of its Affiliates
which the Executive has obtained or will obtain during the course of his
association with the Company and his performance under this Agreement are the
property of the Company or such Affiliate, as the case may be. The Executive
agrees that he will not disclose or use at any time, either during or after the
Employment Term, any Confidential Information, other than in the ordinary course
of business and pursuant to Company policy, without the written consent of the
Board. The Executive agrees to deliver to the Company at the end of the
Employment Term, or at any other time that the Company may request, all
memoranda, notes, plans, records, diskettes, tapes and other storage media,
documentation and other materials (and copies thereof) containing Confidential
Information relating to the business of the Company, no matter where such
material is located and no matter what form the material may be in, which the
Executive may then possess or have under his control. If requested by the
Company,
5
<PAGE>
the Executive shall provide to the Company written confirmation that all such
materials have been delivered to the Company or have been destroyed. The
Executive shall take all appropriate steps to safeguard Confidential Information
and to protect it against disclosure, misuse, espionage, loss and theft.
(b) "Confidential Information" shall mean trade secrets, confidential
------------------------
or proprietary information and all other knowledge, know-how, information,
documents or materials owned, developed or possessed by the Company or any of
its Affiliates, whether in tangible or intangible form, pertaining to the
business of the Company or any of its Affiliates or any customer, known or
intended to be known only to employees of the Company or other Persons in a
confidential relationship with the Company or any of its Affiliates or the
confidentiality of which the Company or such Affiliate takes reasonable measures
to protect, including, but not limited to, research and development operations,
systems, data bases, computer programs and software, designs, models, operating
procedures, knowledge of the organization, products (including prices, costs,
sales or content), processes, techniques, machinery, contracts, financial
information or measures, business methods, future business plans, customers
(including identities of customers and prospective customers, identities of
individual contracts at business entities which are customers or prospective
customers, preferences, businesses or habits), business relationships, and other
information owned, developed or possessed by the Company; provided, however,
that Confidential Information shall not include information that shall become
generally known to the public without violation of this Section 10.
11. Ownership. The Executive acknowledges that all developments,
---------
including, without limitation, inventions, patentable or otherwise, discoveries,
improvements, patents, trade secrets, designs, works, reports, computer
software, flow charts and diagrams, procedures, data, documentation and writings
and applications thereof relating to the past, present or future business of the
Company that, alone or jointly with others, the Executive may have discovered,
conceived, created, made, developed, reduced to practice or acquired, from the
inception of the Company to the present, or may, from the date of this Agreement
through the termination of his employment with the Company, discover, conceive,
create, make, develop, reduce to practice or acquire in the course of his
employment with the Company (collectively, the "Developments") are works made
------------
for hire and shall remain the sole and exclusive property of the Company and the
Executive hereby assigns to the Company all of his right, title and interest in
and to all such Developments. The Executive agrees to promptly and fully
disclose all future Developments to the Company and, at any time upon request
and at the expense of the Company, execute, acknowledge and deliver to the
Company all instruments that the Company shall prepare, give evidence, and take
all other actions that are necessary or desirable in the reasonable opinion of
the Company to enable the Company to file and prosecute applications for and to
acquire, maintain and enforce all letters patent, trademark registrations or
copyrights covering the Developments in all countries in which the same are
deemed necessary by the Company. All memoranda, notes, lists, drawings, records,
files, computer tapes, programs, software, source and programming narratives and
other documentation (and all copies thereof) made or compiled by the Executive
or made available to the Executive concerning the Developments or otherwise
concerning the past, present or planned business of the Company shall be the
property of the Company and shall be delivered to the Company promptly upon the
termination of the Executive's employment with the Company.
6
<PAGE>
12. No Conflicts.
------------
(a) The Executive agrees that he will not enter into any agreement,
arrangement or understanding, whether written or oral, with any supplier,
contractor, distributor, wholesaler, sales representative, representative group
or customer, relating to the business of the Company, without the express
written consent of the Board.
(b) As long as the Executive is employed by the Company, the
Executive agrees that he will not, except with the express written consent of
the Board, become engaged in, render services for, or permit his name to be used
in connection with, any business other than the business of the Company or any
of its Affiliates.
13. Non-competition Agreement.
-------------------------
(a) The Executive acknowledges that his services are of a special,
unique and extraordinary value to the Company and that he has access to the
Company's trade secrets, Confidential Information and strategic plans of the
most valuable nature. Accordingly, the Executive agrees that in the event (i) he
terminates his employment other than for Good Reason, or (ii) his employment is
terminated for Cause, for the period of two (2) years following the Termination
Date, the Executive shall not directly or indirectly own, manage, control,
participate in, consult with, render services for, or in any manner engage in
any business competing with the businesses of the Company as such businesses
exist or are in process of development on the Termination Date (collectively,
the "Prohibited Activities"). In the event that (i) the Executive terminates his
---------------------
employment for Good Reason, (ii) the Executive's employment is terminated other
than for Cause, or (iii) this Agreement expires by its terms, the Executive
agrees to refrain from engaging in Prohibited Activities for a period of one (1)
year following the Termination Date. Nothing herein shall prohibit the Executive
from being a passive owner of not more than 1% of the outstanding stock of any
class of a corporation which is publicly traded, so long as the Executive has no
active participation in the business of such corporation.
(b) In addition, for a period of two (2) years commencing on any
Termination Date, the Executive shall not (i) induce or attempt to induce any
employee of the Company or any of its Affiliates to leave the employ of the
Company or such Affiliate, or in any way interfere with the relationship between
the Company or any of its Affiliates and any employee thereof, (ii) hire
directly or through another entity any person who was an employee of the Company
or any of its Affiliates at any time during the six month period preceding the
final date of the Employment Period (iii) approach any such employee for any of
the foregoing purposes, (iv) induce or attempt to induce any customer, supplier,
licensee or other business relation of the Company or any of its Affiliates to
cease doing business with the Company or any of its Affiliates, as the case may
be, or in any way interfere with the relationship between any such customer,
supplier, licensee or business relation and the Company or any of its
Affiliates, or (v) authorize or assist in the taking of any of the foregoing
actions by any third party.
7
<PAGE>
(c) The Executive acknowledges that the Company is capable of serving
customers throughout the United States and the world. The Executive agrees that
these restrictions on competition and solicitation shall be deemed to be a
series of separate covenants not-to-compete and a series of separate non-
solicitation covenants for each month within the specified periods, separate
covenants not-to-compete and non-solicitation covenants for each state within
the United States, and each county within each such state and each country in
the world, and separate covenants not-to-compete for each area of competition.
If any court of competent jurisdiction shall determine any of the foregoing
covenants to be unenforceable with respect to the term thereof or the scope of
the subject matter or geography covered thereby, such remaining covenants shall
nonetheless be enforceable by such court against such other party or parties or
upon such shorter term or within such lesser scope as may be determined by the
court to be enforceable. If the scope of any restriction contained in this
Section 13 is too broad to permit enforcement of such restriction to its full
extent, then such restriction shall be enforced to the maximum extent permitted
by law, and the Executive hereby consents and agrees that such scope may be
judicially modified accordingly in any proceeding brought to enforce such
restriction. The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions hereof and this Agreement
shall be construed in all respects as if such invalid or unenforceable
provisions were omitted.
(d) Because the Executive's services are unique and because the
Executive has access to Confidential Information and strategic plans of the
Company of the most valuable nature, the parties agree that, the covenants
contained in this Section 13 are necessary to protect the value of the business
of the Company and that a breach of any such covenant would result in
irreparable and continuing damage for which there would be no adequate remedy at
law. The parties agree therefore that in the event of a breach or threatened
breach of this Agreement, the Company may, in addition to other rights and
remedies existing in their favor, apply to any court of competent jurisdiction
for specific performance and/or injunctive or other relief in order to enforce,
or prevent any violations of, the provisions hereof.
(e) The Executive understands that the provisions of Section 13 may
limit his ability to earn a livelihood in a business similar to the business of
the Company, but nevertheless believes that he will receive sufficiently high
remuneration and other benefits hereunder to justify the restrictions contained
in such provisions which, given his education, skills, abilities and financial
resources, he does not believe would prevent him from earning a living. In
addition, the Executive acknowledges that the covenants contained in this
Section 13 are made in connection with and as separate consideration for, the
execution of the Acquisition Agreement pursuant to which the Parent acquired the
Company.
14. Reorganization Event. In the event of any Reorganization Event, this
--------------------
Agreement will remain in effect, and the successor to or assignee of the Company
shall be entitled to all of the Company's rights, and subject to all of the
Company's obligations, set forth in this Agreement.
15. Miscellaneous Provisions.
------------------------
(a) Employment Taxes. All payments made by the Company to the
----------------
Executive pursuant to this Agreement will be subject to withholding of
applicable federal, state and local taxes.
8
<PAGE>
(b) Notices. All notices, requests and other communications to any
-------
party hereunder shall be in writing (including facsimile transmission or similar
writing) and shall be delivered (a) if to the Executive, at his home address
which he most recently communicated to the Company in writing, or (b) if to the
Company, Wall Street Plaza, 88 Pine Street, 15/th/ Floor, New York, New York
Attention: Chairman of the Board, facsimile (212) 858-7959 with a copy to
Thacher Proffitt & Wood, 2 World Trade Center, New York, New York 10048,
Attention: Thomas N. Talley, Esq., facsimile (212) 912-7751, or such other
address as it may hereafter specify for such purposes. Each such notice,
request or other communication shall be effective (i) if delivered by telecopy,
when such telecopy is transmitted to the telecopier number specified in this
Section 16(b) and transmission of the appropriate number of pages is confirmed,
or (ii) if delivered by any other means, when received at the address specified
above.
(c) Notice of Termination. Any termination by the Company or the
---------------------
Executive shall be communicated by a written notice of termination to the other
party hereto delivered in accordance with Section 15(b) hereof. Such notice
shall indicate the specific termination provision in this Agreement relied upon.
(d) Assignment. The Executive shall not have the right to assign
----------
this Agreement (it being understood that this is a personal service contract
requiring the services of the Executive personally) or any of his rights or
obligations hereunder, including any subcontracting of obligations hereunder,
without the prior written consent of the Company. The Company shall not have the
right to assign this Agreement or any of its rights or obligations hereunder
without the prior written consent of the Executive, except to a Person
purchasing or otherwise succeeding to substantially all of the business of the
Company to which this Agreement relates or (ii) pursuant to Section 14 hereof.
(e) Waiver. No provision of this Agreement shall be modified, waived
------
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Executive and by an officer of the Company (other than
the Executive) specifically authorized to do so by the Board. No waiver by
either party of any breach of, or of compliance with, any condition or provision
of this Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another time.
(f) Entire Agreement. This Agreement shall supersede any and all
----------------
prior agreements (including, without limitation Executive's employment agreement
with National Discount Brokers, Inc. dated May 6, 1996 and the Executive's
employment agreement with MXNet, Inc. and IPC Information Systems, Inc. dated
February 13, 1998), representations or understandings (whether oral or written
and whether express or implied) between the parties with respect to the subject
matter hereof. IPC Information Systems, Inc. shall be a third-party beneficiary
of this Agreement for purposes of enforcing this section 15(f).
(g) Severability. The invalidity or unenforceability of any provision
------------
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
9
<PAGE>
(h) Survival of Obligations. The obligations of the Executive under
-----------------------
Section 10, Section 11 and Section 13, of the Company under Section 9 and of
both parties under Section 14 and this Section 15(h) shall survive the
termination for any reason of this Agreement, whether such termination is
effected by the Company, by the Executive, upon the expiration of the Employment
Term or otherwise.
(i) Arbitration. Any dispute or controversy arising under or in
-----------
connection with this Agreement shall be settled exclusively by arbitration in
New York, NY, in accordance with the "complex" rules of commercial arbitration
of the American Arbitration Association (the "AAA") then in effect (except that,
notwithstanding such rules, there shall be only one arbitrator who shall be
mutually satisfactory to the parties hereto, provided that if the parties fail
--------
to agree upon an arbitrator within 30 days of either party requesting in writing
to arbitrate, the then President of the AAA, or any officer of the AAA
designated by him, shall select such arbitrator and such decision shall be
binding upon the parties hereto). Judgment may be entered on the arbitrator's
award in any court having jurisdiction. No party shall be entitled to seek or be
awarded punitive damages.
(j) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York.
(k) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
10
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
COMPANY INTERNATIONAL EXCHANGE
NETWORKS, LTD
By:/s/ Charles F. Auster
------------------------------
Title: Executive Vice President and
Chief Operating Officer
--------------------------
EXECUTIVE: /s/ Paul Pluschkell
---------------------------------
Paul Pluschkell
11
<PAGE>
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, dated as of the 6th day of August, 1998 (the
"Agreement"), by and between Peter Hase (the "Executive") and Saturn Global
Network Services (UK) Limited, a company incorporated in England with
registered number 3333840 whose registered office is at Lloyds Chambers, 1
Portsoken Street, London E1 8DF (the "Company").
WHEREAS, upon the completion (the "Completion") of the transactions
contemplated by (a) the Agreement for Sale/Purchase of Saturn Global Network
Services Holdings Limited (the "Company"), dated as of the date hereof (the
"S&P Agreement"), among Marshalls 106 Limited (the "Vendor"), Marshalls Finance
Limited (the "Vendor Guarantor"), International Exchange Networks, Ltd. (the
"Purchaser") and IPC Information Systems, Inc. (the "Purchaser Guarantor"), the
Company will become a wholly-owned indirect subsidiary of the Purchaser;
WHEREAS, after the Completion, the Executive is expected to make a major
contribution to the growth, profitability and financial strength of the Company;
WHEREAS, effective upon the Completion, 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, in consideration of the premises and the mutual promises
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Certain Definitions. The following terms, when used in this
-------------------
Agreement, shall have the following meanings (such definitions to be equally
applicable to both singular and plural terms of the terms defined):
"Affiliate" means, with respect to any Person, any other Person directly
or indirectly Controlling, Controlled by, or under common Control with such
Person.
"Cause" means an omission, act or action or series of omissions, acts or
actions of the Executive which, in the determination of the Board of Directors
of the Company (the "Board"), constitute(s), cause(s) or result(s) in: (a) the
Executive's material dishonesty including, without limitation, theft, fraud,
embezzlement, material financial misrepresentation or other similar behavior or
action in his dealings with or with respect to the Company or any Subsidiary or
Affiliate thereof or entity with which the Company, a Subsidiary or Affiliate
thereof, shall be engaged in or be attempting to engage in commerce, (b) 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, (c) 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 position as an
officer of
<PAGE>
the Company as set forth in Section 3.2 hereof, which refusal is not cured by
the Executive within 30 calendar days after written notice from the Board to the
Executive setting forth with reasonable specificity the nature thereof, or (d)
the material breach of any provision of this Agreement which is not cured by the
Executive within 30 calendar days after written notice from the Board to the
Executive setting forth with reasonable specificity the nature of such breach.
"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.
"Disability" means the inability of the Executive to perform his duties
and obligations for the Company as required by this Agreement, because of a
disability which is not of an apparently temporary nature, which results from
mental or bodily injury, sickness or disease or any combination thereof, and
which has lasted a period of more than 180 consecutive days or more than 180
days within any period of 365 consecutive days.
"Good Reason" shall mean a material breach by the Company of any
provision of this Agreement or any other agreement between the Executive and the
Company or any of its Affiliates (but only if such material breach is as to the
Executive) which, in any case, is not cured by the Company within 30 calendar
days after written notice from the Executive to the Board setting forth with
reasonable specificity the nature of such breach.
"Person" means an individual, corporation, partnership, limited
liability company, limited partnership, association, trust, unincorporated
organization or other entity or group (as defined in Section 13(d)(3) of the
Securities and Exchange Act of 1934, as amended, of the United States of
America).
"Subsidiary" means, with respect to any Person, any entity whose
securities or other ownership interests have ordinary voting power to elect a
majority of the entity's Board of Directors or other persons performing similar
functions with respect to the entity are at the time directly or indirectly
owned by such Person.
2. Employment Term. The Company agrees to employ the Executive and the
---------------
Executive hereby agrees to accept such employment by the Company, on the terms
and conditions set forth herein. The parties hereto agree that such employment
shall not be on an "at-will" basis, but shall be governed by the terms and
conditions of this Agreement during the Term (as defined herein) of this
Agreement. Unless sooner terminated in the manner hereinafter provided, the term
of this Agreement shall commence on the date of the Completion and shall expire
on the second anniversary thereof (the "Initial Term"); provided, however, that
-------- -------
this Agreement shall automatically be extended for successive one year terms,
unless either party shall notify the other at least 90 days prior to the
scheduled expiration of this Agreement that the Agreement shall not be so
extended (the Initial Term, plus any extensions thereof, hereinafter referred to
as the "Term"). Notwithstanding the foregoing, in the event that Completion
shall
2
<PAGE>
not occur prior to the expiration date of the S&P Agreement due to any cause,
this Agreement shall be null and void and of no force and effect.
3. Duties.
------
3.1 Office. During the Term, the Executive shall serve as Regional
------
Director - Europe of the Company, reporting to the Purchaser's Board of
Directors (the "Board") or a designee thereof.
3.2 Duties. The Executive shall have such duties and responsibilities
------
as determined by the Board, consistent with his positions as Regional Director -
Europe.
3.3 Full Working Time. During the Term, the Executive shall devote his
-----------------
full working time and his best efforts, and apply all of his skill and
experience, to the proper performance of his duties hereunder and to the
business and affairs of the Company. During the 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 but not limited to serving as a director) from any
other Person (but the foregoing shall not preclude the Executive, subject to
Section 7 hereof, from making any 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 consitute a
conflict of interest with the Company or any of its Affiliates in the reasonable
opinion of the Board).
4. Salary and Benefits.
-------------------
4.1 Base Salary. The Company shall pay the Executive during the Term a
-----------
base salary at an annual rate of Ninety Thousand Pounds Sterling
((pounds)90,000) per annum, payable in accordance with the standard payroll
practices of the Company ("Base Salary"). It is understood that the Base Salary
shall be the Executive's minimum annual compensation during the Term.
4.2 Bonus. For each fiscal year of the Company ending during the Term,
-----
the Company may pay to the Executive a bonus based upon the achievement of
performance criteria established by the Company (a "Bonus"), which Bonus shall
be pro rated with respect to partial years occurring during the Term. With
respect to each such fiscal year, the parties hereto agree that the Executive's
target bonus opportunity shall be 40% of Base Salary.
4.3 Long Term Incentive. Within one year after the date of this
-------------------
Agreement, the Purchaser shall adopt a long term incentive plan providing
performance-based compensation in the form of stock options or otherwise
("Purchaser Plan") and, pursuant to the Purchaser Plan, shall provide for the
Executive's participation in the Purchaser Plan. Such participation shall be
comparable in terms and conditions to those applicable to other similarly
situated employees of the Purchaser or its subsidiaries, as applicable. If, by
the first anniversary of Completion, the Purchaser
3
<PAGE>
fails to provide for such participation and the Executive remains employed
hereunder on such date, the Company shall pay to the Executive the sum of US One
Hundred Thousand Dollars (US$100,000) in lieu of the obligations of the Company
under the preceding two sentences. Notwithstanding such payment, if the
Executive shall, at any time during the sixty-day period beginning on the first
anniversary of Completion, resign from employment with the Company, the
Executive shall receive a written release from the restrictions of Section 7.1
of this Agreement. Such payment and release shall, to the maximum extent
permitted by law, constitute full settlement of any obligation of the Company,
the Purchaser and/or the Purchaser Guarantor to the Executive under this
Agreement. Notwithstanding the foregoing, if the Executive continues in the
employment of the Company and the Purchaser thereafter, in its sole discretion,
elects to establish the Purchaser Plan, the Executive shall be entitled to
participation in the Purchaser Plan on a basis which shall be comparable in
terms and conditions to those applicable to other similarly situated employees
of the Purchaser or its subsidiaries, as applicable.
4.4 Benefits. The Executive shall participate, to the maximum extent
--------
that he is eligible therefor, in any and all plans or programs which may be
maintained by the Company for its employees and/or senior executives generally
providing insurance, medical benefits, retirement benefits, or other like
fringe benefits.
4.5 Vacation. The Executive shall be entitled to three (3) weeks annual
--------
paid vacation each year of the Term to be taken in accordance with the Company's
vacation policy. Such annual paid vacation time shall be in addition to legal
holidays but shall be applied as an offset to any legally mandated paid vacation
time.
4.6 Expenses. The Company shall pay or reimburse the Executive for
--------
reasonable business expenses actually incurred or paid by the Executive during
the Term, in the performance of his services hereunder; provided that such
expenses are consistent with the Company policy. Such payment or reimbursement
shall be made upon presentation of expense statements or vouchers or other
supporting information acceptable to the Company and otherwise in accordance
with the Company policy then in effect.
4.7 Deductions. The Company shall deduct from all compensation payable
----------
hereunder such payroll, withholding and other taxes as may be required by law.
5. Termination.
-----------
5.1 General. The Company shall have the right to terminate the
-------
employment of Executive at any time with or without Cause.
5.2 Termination Under Certain Circumstances.
---------------------------------------
(a) In the event Executive's employment with the Company is
terminated prior to the expiration of the Term by reason of (i) the Executive's
resignation without Good Reason, (ii) death, (iii) Disability or (iv) the
Executive's discharge by the Company for Cause, this Agreement (including,
without limitation, the Company's obligations to provide any
4
<PAGE>
compensation benefits or severance to the Executive under Section 4 hereof or
otherwise, but not including any statutory accrued rights) shall terminate.
(b) In the event that the Executive's employment with the Company is
terminated by the Executive prior to the expiration of the Term for Good Reason,
or by the Company prior to the expiration of the Term other than by reason of
the causes specified in Section 5.2(a)(i) thought (iv), or if the Company shall
exercise its right pursuant to Section 2 not to extend this Agreement beyond the
expiration of the Initial Term, subject to the Executive's compliance with
Sections 6, 7 and 8, the Company shall continue to pay the Executive his Base
Salary for the greater of the remainder of the Term (without regard to renewals)
or one year (the "Severance Period"), and shall pay to the Executive any Bonus
that otherwise would have been paid during the Severance Period had such
termination of employment not occurred.
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 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,
without any requirement of proof of actual damage and without regard to the
Executive's efforts, if any, to mitigate damages. In the event that Executive is
entitled to any legally mandated severance or similar benefits payable by the
Company, the payments required hereunder during the Severance Period shall be
applied to offset such mandated benefits to the maximum extent permitted by law.
The Company and the Executive further agree that the Company may condition the
payments (if any) due under this Section on the receipt of 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 Subsidiary or Affiliate
thereof.
6. Proprietary Information.
-----------------------
6.1 Disclosure to the Company. 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 Subsidiaries and 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
Term of his employment with the Company (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 Subsidiaries and Affiliates and their respective
customers, suppliers, employees and other persons having business dealings with
the Company and its Subsidiaries and 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 Term and thereafter. If so requested by
the Company, the Executive shall execute and deliver to the Company any
5
<PAGE>
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 any of the Company or
any Subsidiary or Affiliate thereof or any of the the technology, "know-how,"
licenses or other proprietary rights or processes of the Company or any
Subsidiary or Affiliate thereof.
6.2 Post-Employment. In the event that the Executive leaves the
---------------
employ of the Company for any reason, including, without limitation, the
expiration of the Term, the Executive shall deliver to the Company (and shall
not keep in his possession, recreate or deliver to anyone other than the
Company) any and all devices, records, data, notes, reports, proposals, lists,
correspondence, 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 Subsidiary or
Affiliate thereof or any other their respective successors or assigns.
7. Non-Competition and Non-Solicitation.
------------------------------------
7.1 Non-Competition. During the Term and for a period of one year
---------------
thereafter, the Executive agrees, and shall cause each of his respective
Affiliates to agree, that any such Person shall not, directly or indirectly,
through any Person Controlled by such Executive, in any form or manner on a
worldwide basis: (a) engage in any activities competitive in any material
respect with the business of the Company and its Subsidiaries and Affiliates
("Business") 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 in any material respect with the Business 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 or any of his Affiliates, as the case may be (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.
7.2 Non-Solicitation. During the Term and for a period of one year
----------------
thereafter, the Executive will not, directly or indirectly, use proprietary
knowledge or information relating to the Company or its Subsidiaries or
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 Subsidiaries or Affiliates and any
customer, supplier, employee, consultant or other person having business
dealings with the Company or its Subsidiaries or Affiliates, or (b) employ or
solicit the employment or engagement by others of any employee or consultant of
the Company or its Subsidiaries or 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, or (c) solicit orders or service contracts from
or otherwise seek to establish a vendor/customer relationship with present or
prospective
6
<PAGE>
customer of the Company or any of its subsidiaries.
7.3 Scope. The Executive agrees that the provisions of this
-----
Section 7 are necessary to protect the interests of the Company or its
Subsidiaries or Affiliates and are reasonable and valid in geographical and
temporal scope and in all other respects. If any court determines that the
provision of this Section 7 or any part thereof are unenforceable because of the
duration or geographical scope of such provision, such court will have the power
to reduce the duration or scope of such provision, as the case may be, and, in
its reduced form such provision will be enforceable.
8. Nondisclosure. 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
Term, any Confidential Information relating to the Company or any Subsidiary or
Affiliate thereof acquired by him prior to, during the course of, or incident
to, his employment hereunder. "Confidential Information" shall mean (a)
proprietary information, trade secrets and know-how of the Company and its
Affiliates in which one may obtain a legally protected interest, (b)
confidential information relating to the business, operations, systems,
networks, services, pricing policies, marketing plans, product development plans
and inventions and research of the Company or its Affiliates, and (c)
confidential information relating to the financial affairs and results of
operations and forecasts or projections of the Company and its Affiliates;
provided that information shall not constitute Confidential Information if it
(1) is generally known by persons other than the Company or its Affiliates, or
(2) is known by persons other than the Company or its Affiliates by reason of
the action of persons other than the Executive or any person acting at the
Executive's direction or with the Executive's consent, or (3) is compelled to be
disclosed by law or legal process. 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 the portion of such confidential information which such counsel
advises is legally required to be disclosed.
9. Remedies for Certain Breaches. If the Executive commits a breach,
-----------------------------
or threatens to commit a breach, of any of the provisions of Sections 6, 7
and/or 8 hereof, the Company shall have the right and remedy to have the
provisions of Sections 6, 7 and/or 8 enforced by any court of competent
jurisdiction by injunction, restraining order, specific performance or other
equitable relief in favor of the Company, it being acknowledged and agreed that
any breach or threatened breach of Sections 6, 7 and/or 8 hereof by the
Executive will cause irreparable injury to the Company and that money damages
will not provide an adequate remedy
7
<PAGE>
to the Company. Each of such rights and remedies shall be independent of the
others and shall be severally enforceable, and all of such rights and remedies
shall be in addition to, and not in lieu of, any other rights and remedies
available under law or in equity to the Company.
10. Arbitration. Any dispute, controversy or claim, at any time arising
-----------
out of this or relating to this Agreement, or the breach, termination or
invalidity thereof (other than any dispute, controversy or claim pursuant to
Sections 6, 7, 8 and/or 9 hereof, which may, at the option of the Company, be
submitted to any court having jurisdiction), shall be referred to final and
binding arbitration by a panel of three arbitrators selected according to the
Commercial Arbitration Rules 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 30 days after the
appointment of both, agree on a third arbitrator, he or she shall be selected by
the Chief Judge of the Federal District Court of 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.
11. Miscellaneous.
-------------
11.1 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 facsimile, 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 to the
following addresses:
If to the Executive: Peter Hase
If to the Company: Saturn Global Network Services (UK) Limited
c/o IXnet (UK) Limited
67/73 Worship Street
London EC2A 2DU
copy to: International Exchange Networks, Ltd.
c/o IPC Information Systems, Inc.
Wall Street Plaza
88 Pine Street - 15th Floor
New York, NY 10005
Facsimile No.: (212) 858-7959
Attn.: General Counsel
8
<PAGE>
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.
11.2 Entire Agreement. This Agreement shall constitute the entire
----------------
agreement between the Executive and the Company with respect to the Company
employment of the Executive and supersedes any and all prior agreements and
understandings, written or oral, with respect thereto.
11.3 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.
11.4 Successors and Assigns. The Company shall have the right to cause
----------------------
the Executive to perform any or all of the services required of him under this
Agreement to any one or more if its Subsidiaries and Affiliates. 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.
11.5 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 Sate 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.
11.6 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 provison in any other circumstances or the
validity or enforceability of this Agreement.
11.7 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.
11.8 Survival. The rights and obligations of the Company and Executive
--------
pursuant to Sections 6, 7, 8, 9, 10 and this Section 11 shall survive the
termination of the Executive's employment with the Company and the expiration of
the Term.
9
<PAGE>
11.9 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.
11.10 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.
11.11 Other Terms and Conditions. The parties stipulate that the general
--------------------------
form of this Agreement is being used to enter into contracts of employment with
a number of employees of the Company working in different offices and in
different countries. The Company may, by Appendix to this Agreement, prescribe
terms and conditions specifically applicable to the Executive and necessary or
appropriate to reflect the laws, custom and practice in the jurisdiction in
which the Executive is principally engaged. Any such Appendix shall make
specific reference to this Agreement, when signed by the parties, such Appendix
shall constitute a part of this Agreement and the provisions thereof shall, to
the extent inconsistent with the other provisions hereof, supersede such other
provisions. The Company may also, by memorandum, notice, policy or procedures
manual or other written instrument, prescribe additional terms and conditions of
general application to employees working the office where the Executive is
principally engaged. All such other terms and conditions (including but not
limited to any authority of the Company unilaterally to amend any or all of
them) shall, to the extent not inconsistent with the express provisions of this
Agreement (including any Appendix), be applicable to the Executive as if set
forth in their entirety herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EXECUTIVE:
By:
----------------------------------
Name:
SATURN GLOBAL NETWORK SERVICES
(UK) LIMITED
By:
----------------------------------
Name:
Title:
10
<PAGE>
SATURN GLOBAL NETWORK SERVICES (UK) LIMITED
EMPLOYMENT AGREEMENT
LOCAL APPENDIX -- UNITED KINGDOM
This is an Appendix (the "Appendix") dated as of August __, 1998 to the
Employment Agreement dated as of the __ day of August, 1998 by and between Peter
Haase and Saturn Global Network Services (UK) Limited, a company incorporated in
England with registered number 3333840 whose registered office is a Lloyds
Chambers, 1 Portsoken Street, London E1 8DF (the "Base Agreement").
The following provisions shall be incorporated into the Base Agreement
with the force and effect prescribed for provisions set forth in an Appendix
pursuant to section 11.11 of the Base Agreement:
1. Definitions
1.1 The definition of "Cause" should contain the following amendments:
1.1.1 delete "or nolo contendere" and "felony" in the 8th line;
1.1.2 replace "felony" with "criminal offence punishable with 6 months'
or more imprisonment."
1.2 The defined term "Disability" should be replaced by "Incapacity"; in the
2nd line of the definition, replace "a disability" with "incapacity";
and, at the end of the definition, add "provided that no disability
within the meaning of the Disability Discrimination Act 1995 will be an
Incapacity".
2. Employment Term
2.1 Add, at the end of Section 2: "On or at any time after serving or
receiving notice not to extend this Agreement, the Company is entitled
to pay the Executive an amount equal to his base salary for greater of
one (1) year or the unexpired portion of the Term in lieu of notice and
in extinction of all and any claims which the Executive may have against
the Company or any Subsidiary or Affiliate in respect of the termination
of this Agreement."
3. Salary and Benefits
31. In the second line of Section 4.1, ad "which will accrue from day to day
and be" after "per annum". After the word "payable", insert "in equal
monthly installments in arrears on or about the last working day of each
month".
-1-
<PAGE>
3.2 Delete Section 4.3.
3.3 In Section 4.5, add "In addition to English public holidays" after
"vacation" on line 2.
3.4 In Section 4.7, replace "The Company shall" with ""The Executive agrees
that the Company is entitled to"; and add "and any other amounts which
the Executive owes to the Company" at the end of the Section.
4. Termination
4.1 In Sections 5.2(a), replace "Disability" with "Incapacity".
5. Proprietary Information
5.1 In Section 6.1, after "in such form and manner as the Company may
reasonably require" add: "which shall include, but not limited to,
disclosure of all and any drawings and models so that the Company can
determine whether or not, applying the provisions of section 39 of the
Patents Act 1997, it is the property of the Company".
5.2 At the end of Section 6.1, add: "In relation to each and every copyright
work, invention, improvement, discovery or design which relates, either
directly or indirectly to the business of the Company (a "Company Work")
which the Executive (jointly or alone) originates, conceives, writes or
makes at any time during the Term, he hereby:
5.2.1 assigns to the Company by way of future assignment all
copyright, design right, patents and other proprietary rights
(if any) throughout the world in such Company Work;
5.2.2 irrevocably and unconditionally waives in favour of the Company
any and all moral rights conferred on him by Chapter IV of Part
I of the Copyright Designs and Patents Act 1998 in relation to
any such Company Works;
5.2.3 acknowledges that, for the purposes of the proviso to Section
2(1) of the Registered Designs Act 1949 (as amended by the
Copyright Designs and Patents Act 1998), the covenants on the
part of him and the Company will be treated as good
consideration and, for the purposes of that Act, the Company
will be the proprietor of any design which forms part of the
Company Works.
6. Non-Competition and Non-Solicitation
Section 7 of the Employment Agreement shall be read and construed as if:
-2-
<PAGE>
6.1 Section 7.1 applied during the Term and for a period of 6 months
thereafter;
6.2 The words "on a world-wide basis" in Section 7.1 were replaced with
"within England and any other country in which the Company or any
Subsidiary or Affiliate of the Company carries on or intends to carry on
any Business as at the termination of the Executive's employment."
6.3 The term "Business" in clause 7.1 and 7.2 were restricted only to those
commercial activities carried on or to be carried on by the Company or
any Subsidiary or Affiliate of the Company at the date of the
termination of the Executive's employment in which the Executive worked
to a material extent or about which the Executive knew Confidential
Information (in either case) at any time during the final two years of
his employment";
6.4 Clause 7.2 applied during the Term and for a period of 12 months
thereafter;
6.5 The terms "customer" "supplier" and "other person" in clause 7.2(a)
referred only to those customers, suppliers or other persons with whom
the Executive dealt personally, who, at the termination of the
Executive's employment are negotiating with the Company or any
Subsidiary or Affiliate of the Company for Business or with whom the
Company or any Subsidiary or Affiliate of the Company has conducted any
Business at any time during the final two years of the Executive's
employment under the Employment Agreement".
6.6 The terms "employee" and "consultant" in clauses 7.2(a) and (b) referred
only to those persons who are, at any time during the period of two
years prior to the termination of the Executive's employment, employed
or engaged by the Company or any Subsidiary or Affiliate of the Company
in a senior management, senior technical or senior sales position and
who, by reason of such position, possess any Confidential Information or
are likely to be able to solicit the custom of any customer, supplier or
other person or to induce any customer, supplier or other person to
cease dealing with the Company or any Subsidiary or Affiliate of the
Company, were such persons to accept employment or engagement in a
business which is similar to or in competition with any Business".
-3-
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed this
Appendix with the intent that, on and after the date of this Appendix, it shall
have the force and effect prescribed under section 11.11 of the Base Agreement.
EXECUTIVE:
-----------------------------
Name:
SATURN GLOBAL NETWORK
SERVICES (UK) LIMITED:
By:
-----------------------------
Name:
Title:
-4-
<PAGE>
Exhibit 10.17
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT, dated as of the 6th day of August, 1998 (the
"Agreement"), by and between Drew Kelton (the "Executive") and Saturn Global
Network Services Pty Ltd., a company incorporated in Australia with registered
number 056 783 852 whose registered office is at Level 6, 83 Clarence Street,
Sydney, NSW 2000, Australia ("the Company").
WHEREAS, upon the completion (the "Completion") of the transactions
contemplated by (a) the Agreement for Sale/Purchase of Saturn Global Network
Services Holdings Limited (the "Company"), dated as of the date hereof (the
"S&P Agreement"), among Marshalls 106 Limited (the "Vendor"), Marshalls Finance
Limited (the "Vendor Guarantor"), International Exchange Networks, Ltd. (the
"Purchaser") and IPC Information Systems, Inc. (the "Purchaser Guarantor"), the
Company will become a wholly-owned indirect subsidiary of the Purchaser;
WHEREAS, after the Completion, the Executive is expected to make a major
contribution to the growth, profitability and financial strength of the Company;
WHEREAS, effective upon the Completion, 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, in consideration of the premises and the mutual promises
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Certain Definitions. The following terms, when used in this
-------------------
Agreement, shall have the following meanings (such definitions to be equally
applicable to both singular and plural terms of the terms defined):
"Affiliate" means, with respect to any Person, any other Person directly
or indirectly Controlling, Controlled by, or under common Control with such
Person.
"Cause" means an omission, act or action or series of omissions, acts or
actions of the Executive which, in the determination of the Board of Directors
of the Company (the "Board"), constitute(s), cause(s) or result(s) in: (a) the
Executive's material dishonesty including, without limitation, theft, fraud,
embezzlement, material financial misrepresentation or other similar behavior or
action in his dealings with or with respect to the Company or any Subsidiary or
Affiliate thereof or entity with which the Company, a Subsidiary or Affiliate
thereof, shall be engaged in or be attempting to engage in commerce, (b) 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, (c) 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 position as an
officer of
<PAGE>
the Company as set forth in Section 3.2 hereof, which refusal is not cured by
the Executive within 30 calendar days after written notice from the Board to the
Executive setting forth with reasonable specificity the nature thereof, or (d)
the material breach of any provision of this Agreement which is not cured by the
Executive within 30 calendar days after written notice from the Board to the
Executive setting forth with reasonable specificity the nature of such breach.
"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.
"Disability" means the inability of the Executive to perform his duties
and obligations for the Company as required by this Agreement, because of a
disability which is not of an apparently temporary nature, which results from
mental or bodily injury, sickness or disease or any combination thereof, and
which has lasted a period of more than 180 consecutive days or more than 180
days within any period of 365 consecutive days.
"Good Reason" shall mean a material breach by the Company of any
provision of this Agreement or any other agreement between the Executive and the
Company or any of its Affiliates (but only if such material breach is as to the
Executive) which, in any case, is not cured by the Company within 30 calendar
days after written notice from the Executive to the Board setting forth with
reasonable specificity the nature of such breach.
"Person" means an individual, corporation, partnership, limited
liability company, limited partnership, association, trust, unincorporated
organization or other entity or group (as defined in Section 13(d)(3) of the
Securities and Exchange Act of 1934, as amended, of the United States of
America).
"Subsidiary" means, with respect to any Person, any entity whose
securities or other ownership interests having ordinary voting power to elect a
majority of the entity's Board of Directors or other persons performing similar
functions with respect to the entity are at the time directly or indirectly
owned by such Person.
2. Employment; Term. The Company agrees to employ the Executive and
----------------
the Executive hereby agrees to accept such employment by the Company, on the
terms and conditions set forth herein. The parties hereto agree that such
employment shall not be on an "at-will" basis, but shall be governed by the
terms and conditions of this Agreement during the Term (as defined herein) of
this Agreement. Unless sooner terminated in the manner hereinafter provided, the
term of this Agreement shall commence on the date of the Completion and shall
expire on the second anniversary thereof (the "Initial Term"); provided,
--------
however, that this Agreement shall automatically be extended for successive one
- -------
year terms, unless either party shall notify the other at least 90 days prior to
the scheduled expiration of this Agreement that the Agreement shall not be so
extended (the Initial Term, plus any extensions thereof, hereinafter referred to
as the "Term"). Notwithstanding the foregoing, in the event that Completion
shall
2
<PAGE>
not occur prior to the expiration date of the S&P Agreement due to any cause,
this Agreement shall be null and void and of no force and effect.
3. Duties.
------
3.1 Office. During the Term, the Executive shall serve as Regional
------
Director, AustralAsia of the Company, reporting to the Purchaser's Board of
Directors (the "Board") or a designee thereof.
3.2 Duties. The Executive shall have such duties and responsibilities
------
as determined by the Board, consistent with his positions as Regional Director,
AustralAsia.
3.3 Full Working Time. During the Term, the Executive shall devote his
-----------------
full working time and his best efforts, and apply all of his skill and
experience, to the proper performance of his duties hereunder and to the
business and affairs of the Company. During the 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 but not limited to serving as a director) from any
other Person (but the foregoing shall not preclude the Executive, subject to
Section 7 hereof, from 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 consitute a
conflict of interest with the Company or any of its Affiliates in the reasonable
opinion of the Board).
4. Salary and Benefits.
-------------------
4.1 Base Salary. The Company shall pay the Executive during the Term a
-----------
base salary at an annual rate of One Hundred Eighty Five Thousand Australian
Dollars (A$185,000) per annum, payable in accordance with the standard payroll
practices of the Company ("Base Salary"). It is understood that the Base Salary
shall be the Executive's minimum annual compensation during the Term.
4.2 Bonus. For each fiscal year of the Company ending during the Term,
-----
the Company may pay to the Executive a bonus based upon the achievement of
performance criteria established by the Company (a "Bonus"), which Bonus shall
be pro rated with respect to partial years occurring during the Term. With
respect to each such fiscal year, the parties hereto agree that the Executive's
target bonus opportunity shall be 40% of Base Salary.
4.3 Long Term Incentive. Within one year after the date of this
-------------------
Agreement, the Purchaser shall adopt a long term incentive plan providing
performance-based compensation in the form of stock options or otherwise
("Purchaser Plan") and, pursuant to the Purchaser Plan, shall provide for the
Executive's participation in the Purchaser Plan. Such participation shall be
comparable in terms and conditions to those applicable to other similarly
situated employees of the Purchaser or its subsidiaries, as applicable. If, by
the first anniversary of Completion, the Purchaser
3
<PAGE>
fails to provide for such participation and the Executive remains employed
hereunder on such date, the Company shall pay to the Executive the sum of US One
Hundred Thousand Dollars (US$100,000) in lieu of the obligations of the Company
under the preceding two sentences. Notwithstanding such payment, if the
Executive shall, at any time during the sixty-day period beginning on the first
anniversary of Completion, resign from employment with the Company, the
Executive shall receive a written release from the restrictions of Section 7.1
of this Agreement. Such payment and release shall, to the maximum extent
permitted by law, constitute full settlement of any obligation of the Company,
the Purchaser and/or the Purchaser Guarantor to the Executive under this
Agreement. Notwithstanding the foregoing, if the Executive continues in the
employment of the Company and the Purchaser thereafter, in its sole discretion,
elects to establish the Purchaser Plan, the Executive shall be entitled to
participation in the Purchaser Plan on a basis which shall be comparable in
terms and conditions to those applicable to other similarly situated employees
of the Purchaser or its subsidiaries, as applicable.
4.4 Benefits. The Executive shall participate, to the maximum extent
--------
that he is eligible therefor, in any and all plans or programs which may be
maintained by the Company for its employees and/or senior executives generally
providing insurance, medical benefits, retirement benefits, or other like
fringe benefits. The Executive also shall receive an automobile allowance in the
amount of A$1,500 per month.
4.5 Vacation. The Executive shall be entitled to three (3) weeks annual
--------
paid vacation each year of the Term to be taken in accordance with the Company's
vacation policy. Such annual paid vacation time shall be in addition to legal
holidays but shall be applied as an offset to any legally mandated paid vacation
time.
4.6 Expenses. The Company shall pay or reimburse the Executive for
--------
reasonable business expenses actually incurred or paid by the Executive during
the Term, in the performance of his services hereunder; provided that such
expenses are consistent with the Company policy. Such payment or reimbursement
shall be made upon presentation of expense statements or vouchers or other
supporting information acceptable to the Company and otherwise in accordance
with the Company policy then in effect.
4.7 Deductions. The Company shall deduct from all compensation payable
----------
hereunder such payroll, withholding and other taxes as may be required by law.
5. Termination.
-----------
5.1 General. The Company shall have the right to terminate the
-------
employment of Executive at any time with or without Cause.
5.2 Termination Under Certain Circumstances.
---------------------------------------
(a) In the event Executive's employment with the Company is
terminated prior to the expiration of the Term by reason of (i) the Executive's
resignation without Good Reason, (ii) death, (iii) Disability or (iv) the
Executive's discharge by the Company for Cause,
4
<PAGE>
this Agreement (including, without limitation, the Company's obligations to
provide any compensation, benefits or severance to the Executive under Section 4
hereof or otherwise, but not including any statutory accrued rights) shall
terminate.
(b) In the event that the Executive's employment with the Company is
terminated by the Executive prior to the expiration of the Term for Good Reason,
or by the Company prior to the expiration of the Term other than by reason of
the causes specified in Section 5.2(a)(i) through (iv), or if the Company shall
exercise its right pursuant to Section 2 not to extend this Agreement beyond the
expiration of the Initial Term, subject to the Executive's compliance with
Sections 6, 7 and 8, the Company shall continue to pay the Executive his Base
Salary for the greater of the remainder of the Term (without regard to renewals)
or one year (the "Severance Period"), and shall pay to the Executive any Bonus
that otherwise would have been paid during the Severance Period had such
termination of employment not occurred.
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 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,
without any requirement of proof of actual damage and without regard to the
Executive's efforts, if any, to mitigate damages. In the event that Executive is
entitled to any legally mandated severance or similar benefits payable by the
Company, the payments required hereunder during the Severance Period shall be
applied to offset such mandated benefits to the maximum extent permitted by law.
The Company and the Executive further agree that the Company may condition the
payments (if any) due under this Section on the receipt of 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 Subsidiary or Affiliate
thereof.
6. Proprietary Information.
-----------------------
6.1 Disclosure to the Company. 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 Subsidiaries and 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
Term of his employment with the Company (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 Subsidiaries and Affiliates and their respective
customers, suppliers, employees and other persons having business dealings with
the Company and its Subsidiaries and 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 Term and thereafter. If so
5
<PAGE>
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 any of
the Company or any Subsidiary or Affiliate thereof or any of the technology,
"know-how," licenses or other proprietary rights or processes of the Company or
any Subsidiary or Affiliate thereof.
6.2 Post-Employment. In the event that the Executive leaves the
---------------
employ of the Company for any reason, including, without limitation, the
expiration of the Term, the Executive shall deliver to the Company (and shall
not keep in his possession, recreate or deliver to anyone other than the
Company) any and all devices, records, data, notes, reports, proposals, lists,
correspondence, 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 Subsidiary or
Affiliate thereof or any of their respective successors or assigns.
7. Non-Competition and Non-Solicitation.
------------------------------------
7.1 Non-Competition. During the Term and for a period of one year
---------------
thereafter, the Executive agrees, and shall cause each of his respective
Affiliates to agree, that any such Person shall not, directly or indirectly,
through any Person Controlled by such Executive, in any form or manner on a
worldwide basis: (a) engage in any activities competitive in any material
respect with the business of the Company and its Subsidiaries and Affiliates
("Business") 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 in any material respect with the Business 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 or any of his Affiliates, as the case may be (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.
7.2 Non-Solicitation. During the Term and for a period of one year
----------------
thereafter, the Executive will not, directly or indirectly, use proprietary
knowledge or information relating to the Company or its Subsidiaries or
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 Subsidiaries or Affiliates and any
customer, supplier, employee, consultant or other person having business
dealings with the Company or its Subsidiaries or Affiliates, or (b) employ or
solicit the employment or engagement by others of any employee or consultant of
the Company or its Subsidiaries or 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, or (c) solicit orders or service contracts
6
<PAGE>
from or otherwise seek to establish a vendor/customer relationship with present
or prospective customer of the Company or any of its Subsidiaries.
7.3 Scope. The Executive agrees that the provisions of this
-----
Section 7 are necessary to protect the interests of the Company or its
Subsidiaries or Affiliates and are reasonable and valid in geographical and
temporal scope and in all other respects. If any court determines that the
provision of this Section 7 or any part thereof are unenforceable because of the
duration or geographical scope of such provision, such court will have the power
to reduce the duration or scope of such provision, as the case may be, and, in
its reduced form such provision will be enforceable.
8. Nondisclosure. 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
Term, any Confidential Information relating to the Company or any Subsidiary or
Affiliate thereof acquired by him prior to, during the course of, or incident
to, his employment hereunder. "Confidential Information" shall mean (a)
proprietary information, trade secrets and know-how of the Company and its
Affiliates in which one may obtain a legally protected interest, (b)
confidential information relating to the business, operations, systems,
networks, services, pricing policies, marketing plans, product development plans
and inventions and research of the Company or its Affiliates, and (c)
confidential information relating to the financial affairs and results of
operations and forecasts or projections of the Company and its Affiliates;
provided that information shall not constitute Confidential Information if it
(1) is generally known by persons other than the Company or its Affiliates, or
(2) is known by persons other than the Company or its Affiliates by reason of
the action of persons other than the Executive or any person acting at the
Executive's direction or with the Executive's consent, or (3) is compelled to be
disclosed by law or legal process. 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 the portion of such confidential information which such counsel
advises is legally required to be disclosed.
9. Remedies for Certain Breaches. If the Executive commits a breach,
-----------------------------
or threatens to commit a breach, of any of the provisions of Sections 6, 7
and/or 8 hereof, the Company shall have the right and remedy to have the
provisions of Sections 6, 7 and/or 8 enforced by any court of competent
jurisdiction by injunction, restraining order, specific performance or other
equitable relief in favor of the Company, it being acknowledged and agreed that
any breach or threatened breach of Sections 6, 7 and/or 8 hereof by the
Executive will cause
7
<PAGE>
irreparable injury to the Company and that money damages will not provide an
adequate remedy to the Company. Each of such rights and remedies shall be
independent of the others and shall be severally enforceable, and all of such
rights and remedies shall be in addition to, and not in lieu of, any other
rights and remedies available under law or in equity to the Company.
10. Arbitration. Any dispute, controversy or claim, at any time arising
-----------
out of this or relating to this Agreement, or the breach, termination or
invalidity thereof (other than any dispute, controversy or claim pursuant to
Sections 6, 7, 8 and/or 9 hereof, which may, at the option of the Company, be
submitted to any court having jurisdiction), shall be referred to final and
binding arbitration by a panel of three arbitrators selected according to the
Commercial Arbitration Rules 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 30 days after the
appointment of both, agree on a third arbitrator, he or she shall be selected by
the Chief Judge of the Federal District Court of 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.
11. Miscellaneous.
-------------
11.1 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 facsimile, 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 to the
following addresses:
If to the Executive: Drew Kelton
If to the Company: Saturn Global Network Services Pty Ltd.
c/o International Exchange Networks, Ltd.
Wall Street Plaza, 88 Pine Street - 6th Floor
New York, NY 10005
copy to: International Exchange Networks, Ltd.
c/o IPC Information Systems, Inc.
Wall Street Plaza
88 Pine Street - 15th Floor
New York, NY 10005
Facsimile No.: (212) 858-7959
Attn.: General Counsel
8
<PAGE>
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.
11.2 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.
11.3 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.
11.4 Successors and Assigns. The Company shall have the right to cause
----------------------
the Executive to perform any or all of the services required of him under this
Agreement to any one or more if its Subsidiaries and Affiliates. 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.
11.5 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 Sate 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.
11.6 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 provison in any other circumstances or the
validity or enforceability of this Agreement.
11.7 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.
11.8 Survival. The rights and obligations of the Company and Executive
--------
pursuant to Sections 6, 7, 8, 9, 10 and this Section 11 shall survive the
termination of the Executive's employment with the Company and the expiration of
the Term.
9
<PAGE>
11.9 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.
11.10 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.
11.11 Other Terms and Conditions. The parties stipulate that the general
--------------------------
form of this Agreement is being used to enter into contracts of employment with
a number of employees of the Company working in different offices and in
different countries. The Company may, by Appendix to this Agreement, prescribe
terms and conditions specifically applicable to the Executive and necessary or
appropriate to reflect the laws, custom and practice in the jurisdiction in
which the Executive is principally engaged. Any such Appendix shall make
specific reference to this Agreement, when signed by the parties, such Appendix
shall constitute a part of this Agreement and the provisions thereof shall, to
the extent inconsistent with the other provisions hereof, supersede such other
provisions. The Company may also, by memorandum, notice, policy or procedures
manual or other written instrument, prescribe additional terms and conditions of
general application to employees working the office where the Executive is
principally engaged. All such other terms and conditions (including but not
limited to any authority of the Company unilaterally to amend any or all of
them) shall, to the extent not inconsistent with the express provisions of this
Agreement (including any Appendix), be applicable to the Executive as if set
forth in their entirety herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EXECUTIVE:
By: /s/ Drew Kelton
----------------------------------
Name: Drew Kelton
SATURN GLOBAL NETWORK SERVICES PTY LTD.
By: /s/ Michael Voyias
----------------------------------
Name: Michael Voyias
Title: Company Secretary
10
<PAGE>
SATURN GLOBAL NETWORK SERVICES PTY LTD.
EMPLOYMENT AGREEMENT
LOCAL APPENDIX -- AUSTRALIA
This is an Appendix (the "Appendix") dated as of August 6th, 1998 to the
Employment Agreement dated as of the 6th day of August, 1998 by and between
Drew Kelton and Saturn Global Network Services Pty Ltd., a company incorporated
in Australia with registered number 056 783 852 whose registered office is at
Level 6, 83 Clarence Street, Sydney, NSW 2000, Australia (the "Base Agreement").
The following provisions shall be incorporated into the Base Agreement
with the force and effect prescribed for provisions set forth in an Appendix
pursuant to section 11.11 of the Base Agreement:
1. CONFIDENTIAL INFORMATION
1.1 In this Agreement, "Confidential Information" means the following,
whether or not in material form:
(a) all confidential information (including but not limited to trade
secretes and confidential know-how) of the Company or a related
corporation within the meaning of the Corporations Law; and
(b) all other confidential information and know-how of which the
Executive becomes aware (both before and after the day this
Agreement is signed) or generates in the course of, or in
connection with the Executive's employment with the Company.
1.2 The Executive:
(a) may use Confidential Information solely for the purpose of this
Agreement; and
(b) must keep confidential all Confidential Information.
1.3 The Executive may disclose Confidential Information to persons who:
(a) have a need to know (and only to the extent that each has a need
to know); and
(b) have been directed by the Executive to keep Confidential
Information confidential.
1.4 The Executive's obligations of confidentiality do not extend to
information that (whether before or after the date of this Agreement is
signed):
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<PAGE>
(a) is public knowledge (otherwise than as a result of a breach of
this Agreement); or
(b) is required by law to be disclosed.
2. DUTY OF FIDELITY AND RESTRAINT
2.1 Nothing in this Agreement will be construed to limit the Executive's
fiduciary duties or duty of fidelity to the Company.
2.2 In consideration of the employment of the Executive and other valuable
consideration whether directly or indirectly received by the Executive
from the Company and to reasonably protect the goodwill and the business
of the Company the Executive agrees with the Company that:
(a) during the Restraint Period specified in paragraph (b) and
within the Restraint Area specified in paragraph (c) the
Executive will not, without the prior written consent of the
Company, whether directly or indirectly:
(i) carry on or be financially or otherwise interested,
engaged or concerned, in any capacity whatsoever, with
any business within the Restraint Area, which is or is
likely to be during the Restraint Period, in competition
to any material extent with the business of the Company;
(ii) canvass, solicit, induce or encourage any person, who
was an employee or agent of the Company at any time
during the Executive's term of employment under this
Agreement, to leave the employment or agency of the
Company;
(iii) canvass, solicit or accept any approach from any person,
who was at any time during the Executive's term of
employment under this Agreement, a client or customer of
the Company with a view to obtaining the custom of that
person;
(iv) interfere in any way with the relationship between the
Company and its clients, customers, employees or
suppliers; or
(v) carry on either alone or in partnership and whether as
principal, agent, manager or servant, or be concerned
with or interested in or be a shareholder in or
officer, agent, independent contractor or employee of,
any firm or company which carries on the business of
providing telecommunications network services.
Restraint Period
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<PAGE>
(b) The Restraint Period is:
(i) during the Executive's term of employment under this
Agreement;
(ii) during the period of two years from the date of
termination of this Agreement unless that period is in
the circumstances found to be too long to be enforceable
at law or in equity, in which case;
(iii) during the period of one year from the date of
termination of this Agreement unless that period is in
the circumstances found to be too long to be enforceable
at law or in equity, in which case;
(iv) during the period of six months from the date of
termination of this Agreement unless that period is in
the circumstances found to be too long to be enforceable
at law or in equity, in which case;
(v) during the period of three months from the date of
termination of this Agreement unless that period is in
the circumstances found to be too long to be enforceable
at law or in equity, in which case;
(vi) during the period of one month from the date of
termination of this Agreement.
Restraint Area
(c) The Restraint Area is:
(i) Any continent on which the Company provides or markets
telecommunications network services at the date of
termination of this Agreement unless that area is in the
circumstances found to be too large to be enforceable in
law or equity, in which case;
(ii) Australia unless that area is in the circumstances found
to be too large to be enforceable in law or equity, in
which case;
(iii) New South Wales unless that area is in the circumstances
found to be too large to be enforceable in law or
equity, in which case;
(iv) Victoria unless that area is in the circumstances found
to be too large to be enforceable in law or equity, in
which case;
(v) South Australia unless that area is in the
circumstances found to be too large to be enforceable
in law or equity, in which case;
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<PAGE>
(vi) Western Australia unless that area is in the
circumstances found to be too large to be enforceable in
law or equity, in which case;
(vii) Queensland unless that area is in the circumstances
found to be too large to be enforceable in law or
equity, in which case;
(viii) Tasmania unless that area is in the circumstances found
to be too large to be enforceable in law or equity, in
which case;
(ix) Australian Capital Territory unless that area is in the
circumstances found to be too large to be enforceable in
law or equity, in which case;
(x) Northern Territory unless that area is in the
circumstances found to be too large to be enforceable in
law or equity, in which case;
(xi) the _____________ Metropolitan Area unless that area is
in the circumstances found to be too large to be
enforceable in law or equity, in which case;
(xii) within 50 kilometres of the _________________ GPO unless
that area is in the circumstances found to be too large
to be enforceable in law or equity, in which case;
(xiv) within 15 kilometre radius of the Company's premises at
_________________.
(d) The Executive and the Company agree that the words in this sub-
clause `carry on or be financially or otherwise interested or
engaged in or concerned with' will all be given the widest
possible interpretation and shall include, without derogation
from their generality, management without salary, advising or
influencing a competitive business on a continuing basis
whether for direct remuneration or benefit or otherwise, and
establishing or being interested in or influencing such a
competitive business through any association or arrangement with
any person, relative, nominee or trust in or over which any
interest or influence (absolute or partial) is held.
2.3 The Executive:
(a) acknowledges that each restriction specified in sub-clause
2.29(a) ("Restriction") is in the circumstances reasonable and
necessary to protect the goodwill of the Company; and
(b) acknowledges that if any person for any reason alleges that any
Restriction is unenforceable at law or in equity the rules of
construction specified in sub-clause 2.4 will apply.
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<PAGE>
2.4 The Executive and the Company agree that if:
(a) a court of competent jurisdiction finds that any of the
provisions of sub-clause 2.2(a) (`unenforceable Provision') is
not enforceable at law or in equity; and
(b) the Unenforceable Provision would be enforceable if:
(i) one or more of the Restrictions were deleted; or
(ii) one or more of the alternate periods of the Restraint
Period or alternative areas of the Restraint Area were
deleted;
the Unenforceable Provision must be made Unenforceable making those
deletions.
3. INTELLECTUAL PROPERTY
3.1 The Executive will immediately disclose to the Company any discovery,
invention, literary, artistic or musical work; or other material
protected by copyright and any circuit layout design, trade mark, plant
variety rights or secret process or improvement in procedure made,
developed or discovered by the Executive during the Engagement in
connection with or in any way affecting or relating to the business of
the Company or capable of being used or adopted for use with that
business or in connection with that business and any copyright, design,
patent rights and proprietary and other rights attaching to any of them
whether or not capable of registration or in existence at the date of
this Agreement or subsequently created (`Intellectual Property Rights').
3.2 The Executive covenants that the Intellectual Property Rights will
belong to and be the absolute property of the Company and hereby assigns
all right, title and interest in the Intellectual Property Rights to the
Company.
3.3 The Executive, if and whenever required by the Company (whether during
or after the termination of this Agreement, must at the expense of the
Company apply or join in applying with the Company (at the discretion of
the Company) for letters patent or other protection in Australia or in
any other part of the world for any Intellectual Property Rights and
execute all instruments and do all things necessary for vesting the
letters patent or other similar protection when obtained and all right
and title to and interest in them (including all patent rights and
proprietary rights) in the Company absolutely and as sole beneficial
owner or such other person as the Company may require.
3.4 The Executive irrevocably appoints the Company to be the Executive's
attorney to execute on the Executive's behalf any instrument, and do any
act or thing for he purpose of giving to the Company or its nominee the
full benefit of the provisions of this clause.
3.5 The Executive will not make any unauthorized use or disclosure of the
Intellectual
-5-
<PAGE>
Property Rights or do any other act which may prejudice or harm the
Intellectual Property Rights.
3.6 The provisions of this clause will continue to apply after the
termination of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Appendix with the intent that, on and after the date of this Appendix, it shall
have the force and effect prescribed under section 11.11 of the Base Agreement.
EXECUTIVE:
/s/ Drew Kelton
-----------------------------
Name: Drew Kelton
SATURN GLOBAL NETWORK
SERVCES PTY LTD.:
By: /s/ Michael Voyas
-----------------------------
Name: Michael Voyas
Title: Company Secretary
-6-
<PAGE>
EXHIBIT 10.18
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this 1/st/
day of July, 1999, (the "Effective Date") by and between James M. Demitrieus
(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, constitute(s), cause(s) or result(s) in:
<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 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 employment with the Company or (iv) is compelled to be
disclosed by law, regulation or legal process.
<PAGE>
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
Executive Vice President and Chief Financial Officer, 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 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).
<PAGE>
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
Executive Vice President and Chief Financial Officer of the Company, reporting
to the Chief Operating Officer of the Company, with the customary duties,
authorities and responsibilities of a chief financial officer 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. 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 (4/th/)
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 (4/th/)
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
(4/th/) anniversary of the earliest of (a) the 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.
<PAGE>
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
dutie s 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 $200,000
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 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 be 50% of his Base Salary. The Board, in its discretion, may award
a higher bonus for any year for performance that exceeds target levels.
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 3 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. The Executive shall be eligible for reimbursement for the costs of
membership in social and/or business clubs and other executive perquisites on
terms and conditions no less favorable than those offered to any other Executive
President or more senior officer of the Company.
<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.
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.
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.
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>
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 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 4.2.2 is expressly conditioned upon:
4.2.3.1 The Executive's compliance with the terms of this
Agreement, including, without limitation, 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:
<PAGE>
(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 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>
(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.
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,
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 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
<PAGE>
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.
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
<PAGE>
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 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
<PAGE>
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
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: James M. Demitrieus
If to the Company: International Exchange Networks, Ltd.
c/o 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: Thacher Proffitt & Wood
Two World Trade Center, 39/th/ 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
<PAGE>
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.
7.7 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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
/s/ James M. Demitrieus
--------------------------
James M. Demitrieus
IXnet, Inc.
By: /s/ Charles F. Auster
---------------------------
Name: Charles F. Auster
Title: Executive Vice President and
Chief Operating Officer
<PAGE>
EXHIBIT 10.23
INTERNATIONAL PURCHASE AND LICENSE AGREEMENT
This Product Sales Agreement (the "Agreement") is made effective this
--------
day of 1996, by and between:
--------
NEWBRIDGE NETWORKS INC., a corporation organized and existing under the laws of
the State of Delaware (hereinafter called "Newbridge"), with its principal
office at 593 Herndon Parkway, Herndon, Virginia 22070, and
International Exchange Networks, Ltd., a corporation organized and existing
- -------------------------------------
under the laws of the State of Delaware, with its principal office at Wall
--------
Street Plaza, 88 Pine St., 15th Floor, New York, New York, 10005, by and on
behalf of itself and its affiliates listed on Exhibit A (hereinafter
collectively called "Customer"). For purposes hereof, affiliates shall be
defined as entities which control, are controlled by or are under common control
with International Exchange Networks, Ltd.
WHEREAS, Newbridge desires to sell hardware and license software products
(hereinafter "Products") to Customer and perform the related installation and
support services (hereinafter "Services") ordered by Customer; and
WHEREAS, Customer desires to purchase and/or license Products for its own use in
accordance with the terms of this Agreement;
NOW THEREFORE, in consideration of the mutual premises and agreements
hereinafter contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do
mutually covenant and agree as follows:
1. TERM
This Agreement shall remain in effect for an initial period of two (2) years
from its effective date, unless otherwise terminated pursuant to Article
___________ herein. Thereafter, it shall remain in effect for successive one (1)
year terms, as established by written acknowledgments exchanged by the parties
prior to the end of each successive one (1) year term, unless terminated by
either party upon at least ninety (90) days prior written notice.
Notwithstanding the expiration or termination of this Agreement, Article 8,
(Warranties), Article 11, (Patent, Copyright and Trade Secret Infringement), and
Article 17 (Confidentiality), shall survive such termination or expiration.
2. GOVERNING TERMS AND CONDITIONS OF SALE, LICENSE AND SERVICES
1. The terms and conditions of this Agreement constitute the exclusive and
binding agreement between the parties concerning the purchase of the
Products, the licensing of the software, and the performance of services
ordered from Newbridge. The goods and/or services set forth on Customer's
purchase order shall be supplied subject only to these terms and
conditions, or such amended terms and conditions as the parties may
mutually agree upon in writing,
<PAGE>
notwithstanding any contrary terms contained in any purchase order issued
by Customer and accepted by Newbridge.
2. All software provided pursuant to this Agreement shall be licensed to
Customer subject to the terms set forth in the "shrink-wrap" license packed
with the Product or, as applicable, the terms of Newbridge's End User
Software License. The terms of said Newbridge End User Software License
are set forth in Exhibit B herein and are hereby incorporated into this
Agreement by reference.
3. Unless the parties have executed an appropriate maintenance or service
agreement, all such work not covered by the Warranty or other terms of this
Agreement shall be performed at, and in accordance with, Newbridge's then
current time, expense and materials rates, terms and policies. Such current
rates, terms and policies, may be subject to change, unless a formal
Newbridge quotation is requested and provided for specific work and such
work is scheduled within the term of the quotation's validity. Copies of
current applicable rates, terms and policies will be provided upon request.
4. If Customer orders installation services from Newbridge, Newbridge will
perform the same in a good and workmanlike manner, in accordance with all
applicable codes and regulations and according to a mutually agreeable
installation schedule. Installation shall include the performance of
Newbridge's standard suite of on-site tests to ensure performance of the
Product in accordance with its applicable specifications and documentation.
3. ACCEPTANCE OF ORDERS BY NEWBRIDGE
1. All Purchase Orders must originate from Customer's US corporate office as
listed above and must be sent to Newbridge's regional office location
specified below. Newbridge reserves the right to reject orders from
Customer for reasonable cause, subject to the terms and conditions of this
Agreement. All orders are conditioned upon the execution and delivery of a
Guaranty of the payment obligations due under this Agreement by IPC
Information Systems, Inc. and are subject to acceptance by Newbridge's
regional office in Herndon, Virginia. Within five (5) business days after
receipt of the written order from Customer at Newbridge's Herndon, Virginia
office, Newbridge shall notify Customer of acceptance or rejection of the
order, and if rejected, the reasons therefor. The ordering address is as
follows:
Newbridge Networks Inc.
593 Herndon Parkway
Herndon, VA 22070
TEL: 703-834-3600
2. It is expressly agreed that all orders received from Customer under this
Agreement for subsequent delivery of the Products outside of the United
States will be subject to all applicable export/import laws and regulations
imposed or administered by the US Department of Commerce (or other
appropriate Governmental Agency) and/or the Country
<PAGE>
of final destination, including but not limited to the export/import of
technical data, equipment, software and know how. In addition to the above
laws, certain Countries, including but not limited to, Brazil, Peru, China,
Korea and/or the former Soviet Union, impose separate local import
requirements and all orders which require shipment of the products to such
Countries must be approved in advance by Newbridge.
3. Customer may purchase Products and Services hereunder by means of written
purchase orders referencing this Agreement. Purchase orders may also be
placed by facsimile, followed by a written original document within five
(5) working days. Stenographic, typographical and clerical errors are
subject to correction within a reasonable period of time. This Agreement
does not constitute a purchase order.
4. PRICING / PAYMENT
1. Pricing for the Products shall be in accordance with the price list set
forth in Exhibit C. Customer acknowledges that the purchase price will be
determined by the ultimate Regional location in which the Products will be
installed, (i. e. orders for Products to be installed in the Asia Pacific
Region will be based on the Asia Pacific Price list).
2. Payment terms for all Products shall be Net Thirty (30) days from receipt
of invoice, which date shall not precede the latter of the date requested
for receipt or the date of actual receipt of the Product unless Customer
and Newbridge otherwise agree in writing.
3. Installation charges, if applicable, are invoiced after completion of
Newbridge's installation activities. Payment terms for all installation
charges shall be Net Thirty (30) days from the date of completion of
installation.
4. All prices quoted are payable in US funds and shall be exclusive of taxes
(including without limitation any added value, use, sales, or similar
tax).Customer shall pay any and all such taxes, except for taxes imposed on
Newbridge's income, and shall hold Newbridge harmless therefrom, provided
that if Newbridge, at its sole discretion, chooses to make any such
payment, Customer shall reimburse Newbridge in full. All transactions
pursuant to this Agreement shall be considered taxable unless Customer
provides Newbridge with appropriate verification of exemption. All prices
quoted shall likewise be exclusive of any import duties or any other
charges imposed by the country of final destination upon shipments from
Newbridge to Customer.
5. Prices quoted are for Product only and do not confer upon Customer any
rights to Newbridge's technical data or proprietary information of any
kind, except as specifically set forth in such applicable software license
agreements as may be executed between the parties. Prices quoted do not
contemplate packaging other than Newbridge's normal commercial packaging
unless expressly agreed to in writing by Newbridge.
5. SHIPPING AND RISK OF LOSS
<PAGE>
1. To US Locations
All US orders shall be shipped F.O.B. Origin; transportation charges shall
be at the expense of Customer, and separately billed. Newbridge reserves
the right to select the means of transportation and routing unless
otherwise advised. Title to the hardware Products and risk of loss for all
Products shall pass to the Customer upon delivery by Newbridge to the
carrier.
2. To Non-US Locations
Delivery of the Products hereunder will be FCA, Newbridge shipping point
(in accordance with INCOTERMS, 1990) with freight and insurance charges (if
insurance is separately obtained by Newbridge through the carrier) prepaid
by Newbridge and added to the invoice. Title to the hardware Products and
risk of loss for all Products shall pass to the Customer upon delivery by
Newbridge to the carrier. Customer will be responsible for payment of
duties, taxes (including any VAT) and other official charges payable on
importation as well as the costs and risks of carrying out customs
formalities, including the completion of all necessary import licenses and
any risks and costs which may arise if any customs formalities, for any
reason, are not, or cannot be completed.
6. TERMINATION
1. The occurrence of any of the following acts or events shall constitute a
material breach of this Agreement and shall be cause for the affected party
to terminate this Agreement or any purchase order issued in accordance
herewith:
(1) Newbridge fails to ship or install the Product within thirty (30) days
of the scheduled shipment date, unless delayed by reason of Force
Majeure.
(2) Either party fails to substantially perform any of its other material
obligations under this Agreement and does not cure such failure within
thirty (30) days of written notice of the same. If the party whose
breach has been claimed fails to cure such breach within the allotted
time, the other party may terminate any undelivered purchase order
issued or accepted hereunder, or this entire Agreement, without
further delay. In the event of such termination by Customer, Customer
shall be obligated to pay only the contract price for conforming
Product delivered prior to the effective date of termination.
(3) Either party becomes insolvent, admits in writing its inability to pay
its debts as they mature, files an involuntary petition of bankruptcy,
makes an assignment for the benefit of creditors or has petition under
any bankruptcy laws filed against it and such petition is not
dismissed within thirty (30) days.
(4) Customer assigns this Agreement or any purchase order hereunder
without prior written consent of Newbridge, which consent shall not be
unreasonably withheld.
<PAGE>
2. Customer may terminate this Agreement and/or any purchase order issued
hereunder for any reason of its own convenience upon no less than thirty
(30) days prior written notification to Newbridge. Customer's maximum
liability to Newbridge for such termination shall be:
(1) Any unpaid balance for conforming Product ordered by Customer and
delivered to Customer prior to Newbridge's receipt of the termination
notice.
(2) A restocking charge not to exceed twenty percent (20%) of the purchase
price of the terminated order, excluding software and services.
(3) Any direct costs Newbridge may have incurred in the course of
fulfilling Customer's requirements for a specific purchase
order(including but not limited to the ordering of third-party
equipment and services). Such costs will be reimbursed provided they
are reasonable and are submitted to Customer within thirty (30) days
after receipt of the purchase order cancellation.
7. FORCE MAJEURE
Except for the payment of funds, neither Newbridge nor Customer shall be liable
for any failure or delay in performing its obligations hereunder during any
period in which such performance is prevented or delayed by causes beyond its
reasonable control, including without limitation, flood, war, embargo, strike or
other labor dispute, riot, or the intervention of any government authority.
8. WARRANTIES
8.1 HARDWARE PRODUCT WARRANTY
1. Newbridge warrants the following with respect to the Hardware Product:
(1) that the Hardware Product is free from defects in material and
workmanship;
(2) that upon payment in full all Hardware Product shall be delivered
free and clear of liens, claims or encumbrances of any kind.
2. (1) For Products purchased and installed in the United States, the above
warranties shall extend to the Customer for the 3624 and 3630 series
Hardware Product for a period of sixty (60) months from the date of
shipment; the above warranties shall extend to the Customer for all other
Hardware Product for a period of fourteen (14) months from the date of
shipment.
(2). For Products installed outside of the United States, the above
warranties shall extend to the Customer for all Hardware Products for a
period of fourteen (14) months from the date of shipment.
<PAGE>
3. With respect to products sold but not manufactured by Newbridge, Newbridge
will assign to Customer all warranties allowed by the manufacturer.
4. If Newbridge installs the Hardware Product in the United States, Newbridge
will warrant the installation against defects in material and workmanship
for a period of sixty (60) days from the date of installation and provide
all parts and on-site labor (including transportation costs of Newbridge's
technician(s)) necessary to restore the Hardware Product to proper
operating condition at no charge to Customer. The warranty period for
repair parts and labor and for replaced Hardware Product shall be the
remainder of the original warranty period for the repaired or replaced item
or ninety (90) days, whichever is greater.
5. Except as specifically provided under section D above, Newbridge's
liability under warranty shall be limited to either repair or replacement
of the defective Product in accordance with Article 9 below. Newbridge
shall incur no obligation under this warranty if (i) the allegedly
defective Product is returned to Newbridge more than thirty (30) days after
the expiration of the applicable warranty period, or if (ii) Newbridge's
verifiable tests disclose that the alleged defect is not due to defects in
material or workmanship.
8.2 LIMITED SOFTWARE WARRANTIES
Newbridge warrants for a period of 90 days from the date of shipment that the
Licensed Software as originally shipped to Customer, when used in accordance
with the user manual supplied with the Licensed Software, will operate
substantially in accordance with applicable functional descriptions set forth in
such manual. Newbridge's sole liability and Customer's sole remedy pursuant to
this warranty shall be Newbridge's good faith efforts to rectify the
nonconformity or, if after repeated efforts Newbridge is unable to rectify the
non-conformity, Newbridge shall accept return of the Licensed Software and shall
refund to Customer all amounts paid to Newbridge in respect thereof. This
warranty is available only once in respect of any Licensed Software, and is not
renewed by the payment of fees for additional equivalent nodes or other
increased or enhanced use.
8.3 REPAIR SERVICE AND MAINTENANCE WARRANTY
The maintenance and repair services provided under this agreement shall be
performed in a workmanlike manner, using qualified maintenance technicians,
familiar with the product and its operation and, upon timely payment in full, no
liens or encumbrances shall accrue from the performance of the maintenance or
repair services provided hereunder. In the event that, within ninety (90) days
from the provision of any service hereunder, the maintenance material or
services provided are found not to conform to any Newbridge specification,
Newbridge will correct or replace the defective maintenance material or repair
service provided hereunder at no charge to the Customer.
8.4 WARRANTY LIMITATIONS AND EXCLUSIVITY
THE WARRANTIES SET FORTH ABOVE FOR THE PRODUCTS AND SERVICES PROVIDED HEREUNDER
ARE COMPLETE AND ARE IN LIEU OF ALL OTHER
<PAGE>
WARRANTIES, CONDITIONS OR REPRESENTATIONS, EXPRESS OR IMPLIED, BY STATUTE,
USAGE, CUSTOM OF THE TRADE OR OTHERWISE. NOTWITHSTANDING ANY OTHER OR PRIOR
STATEMENT, WRITTEN OR ORAL, NEWBRIDGE MAKES NO OTHER WARRANTIES REGARDING THE
QUALITY OF ITS PRODUCT(S) OR THE MATERIALS AND SERVICES CONTEMPLATED HEREUNDER.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, NEWBRIDGE EXPRESSLY DISCLAIMS
WARRANTIES OR REPRESENTATIONS OF WORKMANSHIP, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, DURABILITY, THAT A LICENSED PROGRAM WILL MEET ALL OF
CUSTOMER'S NEEDS OR THAT THE OPERATION OF THE LICENSED SOFTWARE WILL BE ERROR
FREE.
8.5 NO HIGH RISK USE
Customer acknowledges and agrees that the Products supplied under this contract
are intended for standard commercial uses and are not specifically designed,
manufactured or intended for use or resale in critical applications or hazardous
environments, requiring fail-safe performance and in which the failure of
Products could lead directly to death, personal injury, or severe physical or
environmental damage (including, without limitation, the operation or on-line
control of nuclear facilities, aircraft navigation or communication systems, air
traffic control systems, direct life support machines, or weapons systems). Such
undertakings are considered "High Risk Activities". Suitability of Products for
use in one or more High Risk Activities would require additional appropriate
development and design engineering by Newbridge including but not limited to the
addition of appropriate redundancy and/or contingency procedures. Newbridge and
its suppliers explicitly disclaim any express or implied warranty of fitness for
High Risk Activities and customer hereby agrees to release and hold Newbridge
harmless from liability resulting out of or in connection with implementation of
these Products in High Risk Activities.
9. REPAIR AND RETURN PROCEDURES
Newbridge will process requests for the repair of Product according to the
following policy:
1. No Product shall be returned without prior Newbridge authorization.
Customer shall provide Newbridge's Service Representatives with all
necessary information to allow processing of the return and issuance of a
Return Authorization (RA) number.
2. Damaged, inoperative or malfunctioning Products must be returned by
Customer in static protective material, securely packaged to prevent damage
in transit with the RA Number written on the outside of the package, and
shipped prepaid to:
In the United States:
Newbridge Networks Inc.
810 Commerce Park Dr.
Ogdensburg, NY 13669
Attn.: Repair Services
Phone: (315) 393-9981
<PAGE>
In Europe:
Newbridge Networks Limited
Coldra Woods
Chepstow Road
Newport, Gwent
United Kingdom, NP6 lJB
Attention: NTAC
In Canada, the Asia Pacific Region and the former Soviet Union:
Newbridge Networks Corporation
P. O. Box 13600
600 March Road
Kanata, Ontario
Canada K2K2E6
3. Newbridge will either repair or, at its option, replace defective Product
under warranty within fifteen (15) working days of receipt. Newbridge will
return repaired Product via surface freight at Newbridge's expense. The
cost of expedited freight, if provided, shall be at Customer's expense.
4. Product found to be operable after testing (e.g. no trouble found "NTF"),
according to Newbridge's current manufacturing standards, shall be subject
to Newbridge's then-current handling charge. (Current charges for NTF both
in and out of warranty are $100.00.)
5. Repairable out-of-warranty Product will be repaired at Newbridge's then-
current repair charges within fifteen (15) working days of receipt of the
Product and Customer's applicable purchase order or other written
authorization to repair.
6. When used and handled in accordance with the manufacturer's instructions
the Hardware Product (including any laser device) is safe in normal use and
transportation. Newbridge is available to answer inquiries regarding the
proper use, recycling or disposal of any product or component.
10. DAMAGES AND LIABILITY
EXCEPT FOR PERSONAL INJURY OR TANGIBLE PROPERTY DAMAGES WHICH DIRECTLY RESULTS
FROM THE NEGLIGENT OR INTENTIONALLY WRONGFUL ACTS OR OMISSIONS OF EITHER PARTY;
(A) UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE FOR INCIDENTAL,
CONSEQUENTIAL, INDIRECT, SPECIAL OR PUNITIVE DAMAGES OF ANY KIND (INCLUDING
WITHOUT LIMITATION LOSS OF PROFITS OR DAMAGE TO BUSINESS OR BUSINESS RELATIONS),
HOWEVER CAUSED, ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR
ANY ORDER FOR PRODUCT ARISING HEREUNDER OR THE PURCHASE OR USE OF PRODUCT OR
SERVICES FURNISHED BY
<PAGE>
NEWBRIDGE TO CUSTOMER; and (B) WITH THE EXCEPTION OF DAMAGES FOR THE BREACH OF
OBLIGATIONS FOR WILLFUL MISUSE OR MISAPPROPRIATION OF SOFTWARE AND/OR
CONFIDENTIAL OR PROPRIETARY INFORMATION IN NO EVENT WILL EITHER PARTY'S TOTAL
LIABILITY, IN DAMAGES OR OTHERWISE, EXCEED THE AMOUNTS ACTUALLY PAID OR OWED FOR
THE PARTICULAR SERVICE OR UNIT OF PRODUCT WHICH IS THE SUBJECT OF A CLAIM OR
DISPUTE. NO ACTION, REGARDLESS OF FORM, ARISING OUT OF OR IN ANY WAY CONNECTED
WITH THE PRODUCT OR SERVICES FURNISHED BY NEWBRIDGE MAY BE BROUGHT BY CUSTOMER
MORE THAN TWO (2) YEARS AFTER THE CAUSE OF ACTION HAS ACCRUED OR SUCH SHORTER
STATUTORY PERIOD AS MAY BE APPLICABLE.
11. PATENT, COPYRIGHT AND TRADE SECRET INFRINGEMENT
1. Newbridge shall defend, indemnify and hold harmless Customer from any
suitor claim which is brought against Customer alleging the use of any
Newbridge Manufactured Products, in accordance with its intended purpose
and Newbridge specifications, to be an infringement of any patent,
copyright or trade secret and New bridge shall pay all reasonable legal
costs and expenses incurred by Customer in conjunction with such an action
and shall satisfy any final judgment against Customer provided, Customer
notifies Newbridge promptly upon discovery of the existence or imminent
pendancy of any such claim, that Newbridge shall have sole control of the
defense or settlement of such actions, and that Customer provides such
assistance and cooperation to Newbridge as is reasonably requested. The
foregoing shall not include, and further Customer shall provide like
defense and protection to Newbridge for, any alleged infringement which
results from the use of Newbridge Products in combination with any item or
process not supplied by Newbridge or officially approved by Newbridge for
use with the Newbridge Products. For purposes herein, "Newbridge
Manufactured Products" excludes third party products identified in Exhibit
C as "OEM" products.
2. In the event Customer is enjoined from its use of Newbridge's Product due
to a proceeding based upon infringement of any patent, copyright or trade
secret, Newbridge shall, at its option:
(1) promptly render the Product non-infringing functionally equivalent,
and capable of providing services as intended, or
(2) procure for Customer the right to continue using the Product, or
(3) replace the Product with a non-infringing functionally equivalent
version, or
(4) remove the Product and refund the purchase price, any applicable
license fees, and transportation costs thereof, less a monthly usage
fee equal to one sixtieth (1/60) of the purchase price for each month
that Customer enjoyed beneficial use of the Product.
<PAGE>
3. The foregoing constitutes the entire liability of Newbridge to Customer
with respect to the infringement of patents, copyrights, and trade secrets
for Product purchased or licensed pursuant to this Agreement.
12. TRAINING
Training, customized to Customer's requirements, will be provided at Newbridge's
then-prevailing rates and at Newbridge's training facility. Any costs for
transportation, lodging, meals and associated expenses of Customer's trainees'
shall be borne by Customer. At Customer's request, Newbridge shall provide price
quotations for customized on-site training at Customer's facility.
13. PUBLICITY
Neither party will use the name of the other in any advertising, press release,
or similar public statement without the prior written consent of the other,
which consent shall not be unreasonably delayed or withheld.
14. CUSTOMER'S PROTECTION-SITE WORK
Newbridge shall take such steps as may be reasonably necessary to prevent
personal injury or property damage and shall indemnify and hold Customer
harmless from any loss, claim for personal injury (including death) or property
damage to the extent any such claim directly results from the negligent or
willful acts or omissions of Newbridge, or its employees or agents or
contractors during any work hereunder that may be performed at any of Customer's
sites including Customer's end user sites. Newbridge shall maintain mutually
agreeable levels of insurance against general liability and property damage and
such levels of Workman's Compensation or similar insurance as may be required by
applicable statute and shall provide a Certificate of Insurance thereof to
Customer.
15. END USE AGREEMENT
The parties acknowledge that products and services ordered or delivered pursuant
to this Agreement are for final end use by Customer and are not sold for
distribution and/or resale to third parties. Customer certifies that, unless
otherwise negotiated, no resale or redistribution of Newbridge products is
intended or contemplated prior to end use of products by the Customer.
16. THIRD PARTY SOFTWARE
The Products herein may include software and documentation that are owned by
third parties and distributed by Newbridge under license from the owner.
Newbridge represents that it has: (i) a valid license to use the third party
software; (ii) no knowledge of any adverse claim of infringement relating to the
third party software; and (iii) the right and authority to grant a valid
sublicense to Customer to use such third party software as provided for in this
Agreement.
17. CONFIDENTIALITY
<PAGE>
1. Either party may disclose to the other confidential and proprietary
information concerning its inventions, know-how and trade secrets as may be
necessary to further the performance of this Agreement ("Confidential
Information"). Confidential Information will only be used by the receiving
party, its Affiliates and its and their respective employees,
representatives and/or agents (collectively "Receiving Party") or its
employees having a need to know such information for the purposes set forth
in this Agreement. Written information intended to be treated as
confidential shall be marked"confidential" or "proprietary". Oral and or
intangible information, subject to this Agreement shall be so identified
prior to disclosure and summarized in written form and appropriately
labeled as proprietary or confidential within fifteen (15) days of
disclosure. All such Confidential Information, disclosed hereunder whether
knowingly or otherwise shall remain the sole property of the party
disclosing the same, and the Receiving Party shall have no interest in or
rights with respect thereto except as set forth herein.
2. Each Receiving Party who obtains access to Confidential Information of the
other agrees to maintain all such Confidential Information in strict
confidence and to use at least the same measures to protect such
Confidential Information as it uses to protect its own Confidential
Information, and further agrees to take all reasonable precautions to
prevent any unauthorized disclosure of such information during the Term of
this Agreement any extensions, and for three (3) years thereafter.
3. The obligation to protect Confidential Information as set forth in this
Agreement shall not apply to any Confidential Information that:
(1) was already known to the Receiving Party at the time of disclosure
under this Agreement;
(2) was known or was generally available to the public at the time of
disclosure hereunder;
(3) becomes known or generally available to the public (other than by act
of the Receiving Party) subsequent to its disclosure hereunder;
(4) is disclosed or made available in writing to the Receiving Party by a
third party having an apparent bona fide right to do so;
(5) is independently developed by the Receiving Party without the use of
the proprietary information; or
(6) is required by law to be released.
4. All Confidential Information provided by disclosing party to the Receiving
Party is expressly provided for the purpose of this Agreement only and
cannot be used for any other purpose, and must be returned to disclosing
party or destroyed upon termination of this Agreement. All copying of any
documentation provided by the disclosing party to the Receiving Party must
include copyright notices.
18. AFFILIATES
<PAGE>
Exhibit A provides a list of International Exchange Networks, Ltd.'s affiliates.
International Exchange Networks, Ltd. may amend Exhibit A from time to time as
needed. Such affiliates listed in Exhibit A shall have the right to order
Products subject to the provisions of Article 3(A) herein. International
Exchange Networks, Ltd. represents and warrants that is has the authority to
execute this Agreement on behalf of its affiliates listed on Exhibit A and that
such affiliates will be bound by the terms and conditions of this Agreement.
19. DISPUTES RESOLUTION PROCEDURE
1. The parties will attempt in good faith to resolve any controversy or claim
arising out of or relating to this Agreement or any amendments thereto
("Claim") promptly by negotiation between senior executives of the parties
who have authority to settle the Claim. The disputing party ("Claimant")
shall give the other party written notice of the Claim and its request for
negotiation ("Notice"). Within ten (10) days after receipt of the Notice,
the receiving party shall submit to the other a written response. The
Notice and the response shall include (a) a statement of each party's
position and a brief summary of the evidence and arguments supporting its
position, and (b) the name and title of the executive who will represent
that party. The executives shall meet at a mutually acceptable time and
place within thirty (30) days from the date of the Notice and thereafter as
they reasonably deem necessary to exchange relevant information and to
attempt to resolve the Claim.
2. If the Claim has not been resolved within forty five (45) days of the
Notice, or if the party receiving the Notice will not meet within thirty
days of the Notice, either party may initiate mediation of the Claim in
accordance with the Center for Public Resources Model ADR Procedures and
Practices or such other procedures mutually agreed upon by the parties. The
mediation proceeding shall be conducted before a mediator from the Center
for Dispute Settlement in Washington, D.C. who is mutually acceptable to
the parties. The mediator's compensation and expenses shall be shared
equally by the parties. The parties agree that the mediation shall take
place in Baltimore, Maryland unless the parties mutually agree to hold the
mediation in another location. If the matter is not resolved within sixty
(60) days of the initiation of such mediation procedure, either party is
free to commence legal action in accordance with this Agreement.
20. GENERAL PROVISIONS
1. This Agreement shall be interpreted and governed exclusively by the laws of
the Commonwealth of Virginia and the United States of America, excluding
conflict of law rules and principles. Any action or proceeding for relief
initiated by the parties shall be filed in the United States District Court
for the District of Maryland in Baltimore, Maryland, and if that court does
not have jurisdiction, in the courts of the State of Maryland in the City
of Baltimore, provided that the foregoing submissions to jurisdiction shall
not limit the availability of any other forum with respect to any suit in
rem or otherwise for the enforcement of any judgment. Newbridge and
Customer, to the extent permitted by law irrevocably; (1) waive and agree
not to assert by way of motion, as a defense or otherwise, any right, claim
or power under the doctrine of forum non conveniens to transfer any such
<PAGE>
action filed by any party to any other court; (2) waive the right to object
that such courts lack personal jurisdiction over the parties or that venue
is not proper in said court(s); and (3) waive any right to a jury trial
with respect to such action or proceeding.
2. The provisions Of this Agreement shall be deemed severable. If any
provision of this Agreement shall be held unenforceable by any court of
competent jurisdiction, the remaining provisions shall remain in full force
and effect.
3. This Agreement shall not be amended or modified except by a writing duly
executed by the authorized representatives of Newbridge and Customer. No
course of dealing or usage of trade by or between the parties shall be
deemed to cause or constitute any amendment or modification of the terms
hereof.
4. All headings and captions employed herein are for convenience and ease of
reference only and are not to be considered in the construction or
interpretation of any provision of this Agreement. Any notice required to
be sent or given to Newbridge or Customer shall be sent via US mail or
overnight carrier to the address shown below; notices may be sent via
facsimile if followed by an original copy, sent via US mail or overnight
carrier.
5. Any notice required to be sent or given to Newbridge or Customer shall be
sent via US mail or overnight carrier to the address shown below; notices
may be sent via facsimile if followed by an original copy, sent via US mail
or overnight carrier.
To Newbridge: Newbridge Networks Inc.
593 Herndon Parkway
Herndon, VA 22070-5421
Attention: Contracts and Administration
To Customer: International Exchange Networks Ltd.
Wall Street Plaza, 88 Pine St. 15 Floor
New York, New York 1005
Attention: Contracts Manager
6. Any consent by either party to, or waiver of any breach by the other,
whether express or implied, shall not constitute a consent to, or waiver of
any other, different or subsequent breach.
7. Newbridge, and Customer agree to cooperate fully and in good faith in order
to achieve the purposes of this Agreement. If a problem should arise, the
parties shall immediately discuss the issue, ascertain the facts, and work
together to arrive at an equitable and mutually acceptable solution.
8. This Agreement may not be assigned by either party without the prior
written consent of the other.
<PAGE>
9. This Agreement, together with its Exhibits, constitutes the entire
agreement between Newbridge, and Customer with respect to its subject
matter; all prior agreements, representations, statements, negotiations or
undertakings, whether oral or written, are specifically superseded hereby.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives identified below.
NEWBRIDGE NETWORKS INC. INTERNATIONAL EXCHANGE NETWORKS, LTD.
By:____________________________ By:______________________________
Name:__________________________ Name:____________________________
Title:_________________________ Title:___________________________
Date:__________________________ Date:____________________________
<PAGE>
Exhibit B
END USER SOFTWARE LICENSE
1. LICENSE
1.1 All software provided to Customer shall be licensed subject to the terms
and conditions of this Agreement and, as applicable, the terms set forth in
Newbridge's or the third party "shrink-wrapped" license packed with the
software. Newbridge grants to Customer and Customer accepts a non-exclusive,
non-transferable license to use any software and related documentation provided
by Newbridge pursuant to this Agreement ("Licensed Software") for Customer's own
internal use, solely in conjunction with hardware supplied or approved by
Newbridge. In case of equipment failure, Customer may use the Licensed Software
on a back-up system, but only for such limited time as is reasonably required to
rectify the failure.
1.2 Customer acknowledges that Newbridge may have encoded within the Licensed
Software an "application key", establishing the usage and functionality (e.g.,
the number of equivalent nodes and workstations or other features) of the
software as it has been licensed to the Customer. The usage or functionality of
such Licensed Software may be expanded only upon payment to Newbridge of an
applicable upgrade fee. The above referenced application key shall be conveyed
to Customer upon installation of the Licensed Software or upgrade.
2. PROTECTION AND SECURITY OF LICENSED SOFTWARE
2.1 Customer acknowledges and agrees that the Licensed Software contains
proprietary and confidential information of Newbridge and its third party
suppliers and agrees to keep such information confidential. Customer agrees not
to allow access to the Licensed Software except by its employees having a need
for such access, in keeping with its intended use as set forth herein. Such
employees shall have been advised of the confidential and proprietary nature of
information contained in the Licensed Software and shall have agreed to protect
same.
2.2 All right, title and interest in and to the Licensed Software, other than
that expressly granted to Customer herein, shall remain vested in Newbridge or
its third party suppliers. Customer shall not, and shall not permit others to:
copy, translate, modify, create derivative works from, reverse engineer,
decompile, encumber or otherwise use the Licensed Software, except as is
specifically authorized under this Agreement. All appropriate copyright and
other proprietary notices and legends shall be retained on all Licensed Software
supplied by Newbridge, and Customer shall maintain and reproduce such notices on
any full or partial copies made.
3. TERM
3.1 The license shall become effective upon delivery of the Licensed Software
to Customer.
3.2 Newbridge may terminate this Agreement and/or any license issued hereunder:
(a) upon written notice to Customer if any amount payable to Newbridge is not
paid within thirty (30) days
<PAGE>
of the date on which payment is due; (b) if Customer becomes bankrupt, makes an
assignment for the benefit of its creditors, or if its assets vest or become
subject to the rights of any trustee, receiver or other administrator; (c) if
bankruptcy, reorganization or insolvency proceedings are instituted against
Customer and not dismissed within 15 days; or (d) if Customer breaches a
material provision of this Agreement and such breach cannot be rectified or is
not rectified within 30 days of receipt of written notice of the breach from
Newbridge.
3.3 Upon termination of any license, Customer shall return or destroy all
copies of the respective Licensed Software. All obligations of Customer arising
prior to termination, and those obligations relating to confidentiality and non-
use, shall survive termination of this Agreement or of the license.
4. SUPPORT AND UPGRADES
Customer shall receive software support and upgrades for the Licensed Software
only to the extent provided for in the applicable Newbridge software support
program then currently in effect, and upon payment of any applicable fees.
5. CHARGES
Upon shipment of the Licensed Software, Newbridge will invoice Customer for all
fees, and any taxes, duties and other charges. Customer will be invoiced for any
increased usage and functionality upon issuance by Newbridge of a new software
application key. All amounts shall be due and payable within thirty (30) days of
receipt of invoice. Interest may, at Newbridge's discretion, be charged on the
balance of any overdue amount at a level not to exceed the lesser of 1 1/2 per
month (19.6% per annum) or highest rate allowed by law.
6. WARRANTIES
6.1 Newbridge warrants for a period of 90 days from the date of shipment that
the Licensed Software as originally shipped to Customer, when used in accordance
with the user manual supplied with the Licensed Software, will operate
substantially in accordance with applicable functional descriptions set forth in
such manual. Newbridge's sole liability and Customer's sole remedy pursuant to
this warranty shall be Newbridge's good faith efforts to rectify the
nonconformity or, if after repeated efforts Newbridge is unable to rectify the
non-conformity, Newbridge shall accept return of the Licensed Software and shall
refund to Customer all amounts paid to Newbridge in respect thereof. This
warranty is available only once in respect of any Licensed Software, and is not
renewed by the payment of fees for additional equivalent nodes or other
increased or enhanced use.
6.2 NEWBRIDGE EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, WHETHER EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTIES OR REPRESENTATIONS OF
WORKMANSHIP, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, DURABILITY, OR
THAT THE OPERATION OF THE LICENSED SOFTWARE WILL BE ERROR FREE.
<PAGE>
6.3 Customer acknowledges and agrees that the Licensed Software supplied under
this contract are intended for standard commercial uses and are not specifically
designed, manufactured or intended for use or resale in critical applications or
hazardous environments requiring fail-safe performance and in which the failure
of Licensed Software could lead directly to death, personal injury, or severe
physical or environmental damage (including, without limitation, the operation
or on-line control of nuclear facilities, aircraft navigation or communication
systems, air traffic control, direct life support machines, or weapons systems).
Such undertakings are considered High Risk Activities". Suitability of Licensed
Software for use in one or more High Risk Activities would require additional
appropriate development and design engineering by Newbridge including but not
limited to the addition of appropriate redundancy and/or contingency procedures.
Newbridge and its suppliers explicitly disclaim any express or implied warranty
of fitness for High Risk Activities and customer hereby agrees to release and
hold Newbridge harmless from liability resulting out of or in connection with
implementation of these Licensed Software in High Risk Activities.
7. LIMITATION OF LIABILITY
The respective liabilities of the parties with respect to Licensed Software
shall be as described in Article 10 of the International Purchase and License
Agreement herein.
8. GENERAL
8.1 Under no circumstances shall either party be liable to the other for any
failure to perform its obligations (other than the payment of any monies owing)
where such failure results from causes beyond that party's reasonable control.
8.2 This Agreement constitutes the entire agreement between Newbridge and
Customer with respect to the subject matter referenced and supersedes all prior
oral and written communications. No alteration or amendment to this Agreement
shall be valid unless the same shall be in writing and signed by authorized
representatives of both parties.
8.3 If any provision of this Agreement is held to be invalid, illegal or
unenforceable, it shall be deemed severed and the remaining provisions shall
continue in full force and effect.
8.4 The Licensed Software may contain freeware or shareware obtained by
Newbridge from one or more third party source(s). No license fee has been paid
by Newbridge for the inclusion of any such freeware or shareware, and no license
fee is charged to Customer for its use. CUSTOMER ACKNOWLEDGES AND AGREES THAT
THE THIRD PARTY SOURCE(S) PROVIDE(S) NO WARRANTIES AND SHALL HAVE NO LIABILITY
WHATSOEVER IN RESPECT OF CUSTOMER'S POSSESSION AND/OR USE OF THE FREEWARE OR
SHAREWARE.
8.5 Newbridge shall have the right, at its own expense and upon reasonable
written notice to Customer, to periodically inspect Customer's promises and such
documents as it may reasonably require, for the exclusive purpose of verifying
Customer's compliance with its obligations under this Agreement.
<PAGE>
8.6 Any notice provided hereunder shall be sent to the party's respective
address listed above, or to any other such address as may be specified from time
to time. Notices shall be deemed to have been received five days after deposit
with a post office when sent by registered or certified mail, postage prepaid
and receipt requested.
8.7 If the Licensed Software is being acquired by or on behalf of any unit or
agency of the United States Government, the following provision shall apply: If
the Licensed Software is supplied to the Department of Defense, it shall be
classified as "Commercial Computer Software" and the United States Government is
acquiring only the rights specified in this License Agreement as defined in
DFARS 227.7202-1 (a) and 227.7203-3(a). If the Licensed Software is supplied to
any other unit or agency of the United States Government, rights will be defined
in Clause 52.227-19(c)(2) of the FAR, or if acquired by NASA, Clause 18-52.227-
86(d) of the NASA Supplement to the FAR.
8.8 Newbridge acknowledges that Customer and/or Customer's affiliates shall be
entitled to use the Licensed Program with the appropriate hardware outside of
the United States, in accordance with the provisions of section 1.1 of this
Exhibit B. Customer will indemnify Newbridge from and against all costs, losses,
and damages that arise as a result of willfull or negligent misuse of the
Licensed Programs outside of the United States in violation of this Agreement,
including without limitation those from a willful breach of the provisions of
Section 2 hereof, Protection and Security requirements of the Licensed Programs
while such Licensed Programs are in use outside the United States. In
particular, without limiting the generality of the foregoing, Customer hereby
agrees that it will not directly or indirectly, export, re-export or transship
the Licensed Programs or such other information, media or products in violation
of or otherwise in contravention of the export laws, rules and regulations of
the United States or any Country where Newbridge provides written approval to
use the Licensed Programs.
8.9 No term or provision of this Agreement shall be deemed waived and no breach
excused unless such waiver or consent is in writing and signed by the party
claimed to have provided such waiver or consent. No waiver by either party of
any right, failure to perform or of any breach by the other party hereunder,
shall be deemed to be a waiver of any other right hereunder or of any other
breach or failure by such other party, whether of a similar nature or otherwise.
8.10 This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Virginia. The application of the United Nations
Convention on Contracts for the International Sale of Goods is hereby expressly
excluded.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our reports dated May 14, 1999, except as to the second paragraph of Note 1
which is as of July 1, 1999, relating to the combined and consolidated
financial statements of IXnet, Inc. and April 15, 1999 relating to the
financial statements of MXNet Inc., which appear in such Registration
Statement. We also consent to the references to us under the headings "Experts"
and "Selected Combined and Consolidated Financial Data" in such Registration
Statement.
PricewaterhouseCoopers LLP
New York, New York
July 2, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated May 11, 1999 relating to the consolidated financial statements
of Saturn Global Network Services Holdings Limited, which appears in such
Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
PricewaterhouseCoopers
London, United Kingdom
July 1, 1999
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David A. Walsh and Charles F. Auster, and each of
them, as the true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Form S-1 Registration Statement and any and
all amendments thereto, including post effective amendments, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the U.S. Securities and Exchange Commission, granting unto said attorney-
in-fact and agent full power and authority to do and perform each and every act
and thing requisite and necessary to be done as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Richard M. Cashin, Jr. Director July 2, 1999
- ----------------------------
Richard M. Cashin, Jr.
/s/ Douglas T. Hickey Director July 2, 1999
- ----------------------------
Douglas T. Hickey
/s/ Peter A. Woog Director July 2, 1999
- ----------------------------
Peter A. Woog
</TABLE>
