Buyout !!!
Tuesday January 30, 11:07 am Eastern Time
Press Release
Orchestream Holdings plc to Acquire CrossKeys Systems
Corporation for Approximately Can$54.1 Million --24.7 Million
Pounds--
Deal strengthens Orchestream's position as leader in activation and measurement of
advanced IP services
LONDON & OTTAWA--(BUSINESS WIRE)--Jan. 30, 2001-- Orchestream (LSE: OCH) and CrossKeys
(TSE/NASDAQ: CKY/CKEY) today announce that they have entered into a Merger Agreement, under which Orchestream,
the leader in IP service activation software, will acquire CrossKeys, a leader in software for performance management and
reporting. The consideration for the purchase of CrossKeys Common Shares and interests in Common Shares is to be satisfied
by the issue of Orchestream Ordinary Shares and a cash payment for options as described under Principle Terms of the Merger
Agreement, below and values CrossKeys at approximately Can$54.1 million ((pound)24.7 million) on a fully diluted basis.
Under the terms of the Merger Agreement each outstanding CrossKeys Common Share will be exchanged for 0.453
Orchestream Ordinary Shares. Based on a twenty day weighted average closing price of 270.5p for each Orchestream Ordinary
Share, the Agreement values each CrossKeys Common Share at Can$2.68, and represents a premium of approximately 42 per
cent over the twenty day weighted average closing price on the Toronto Stock Exchange of Can$1.89 for each CrossKeys
Common Share. The Merger Agreement has the unanimous recommendation of the Boards of Orchestream, who have been
advised by UBS Warburg, and CrossKeys, who have been advised by CIBC World Markets. In addition, certain major
shareholders of CrossKeys, including Dr. Terence Matthews and certain of his associates, and Alcatel, representing
approximately 36 per cent of the issued share capital of CrossKeys and 29 per cent of the eligible votes, have agreed to
irrevocably vote their shares in favour of the Merger at the pending shareholders meeting of CrossKeys that will be called to
approve the Merger.
The Merger of CrossKeys and Orchestream will enable the combined company to expand its product offering to bring an
advanced software platform to telecom carriers and service providers that is capable of defining, activating, monitoring and
reporting services on Internet Protocol networks. Bringing these two technologies together helps to address one of the
fundamental challenges service providers face in simplifying purchasing and integration of the many discrete software
components that comprise Operations Support Systems (OSS).
``After a period of major infrastructure investment, service providers are looking to generate revenue from their networks,''
said Ashley Ward, CEO of Orchestream. ``To do this, they need software that harnesses the capability of their network to meet
the demands of their customers. The proposed acquisition provides Orchestream with carrier class technology that will enable
us to be first to bring to market a software platform that defines and activates services on IP networks and monitors their
performance, enabling sophisticated Service Level Agreements (''SLAs``) to be implemented. This gives the service provider
two means of achieving customer satisfaction: a way of activating services and a means of proving that these services have been
delivered.''
Orchestream and CrossKeys expect that in addition to the clear technology benefits this deal brings to customers, it will also
result in a significant acceleration of Orchestream's plans for developing its global presence. CrossKeys has an experienced sales
force with Tier 1 customers in North America and Europe, including WorldCom, Verizon, Bell Canada and BT and a
development team that has experience in scalable, carrier class technology. Orchestream attaches the utmost importance to
the retention of key individuals and intends to ensure that such CrossKeys employees will remain with the combined business
and share in the expected success of the enlarged group.
``Orchestream and CrossKeys first became aware of the synergy of our products and complementary nature of our market focus
when we began an integration project in early 2000,'' said Ian McLaren, CEO of CrossKeys. ``We quickly became aware of the
additional benefits one another's software could add to a customer offering, and began to explore ways of integrating more
formally. We have enjoyed a marketing relationship for some time, and this Merger is a natural progression of our teams
working together. This is a positive step forward toward providing what our customers have been asking for - integrated OSS
software platforms.''
The Merger Agreement, which will be effected by means of a Plan of Arrangement is subject to approval by CrossKeys
shareholders, Canadian court approval and certain regulatory approvals.
About CrossKeys
CrossKeys is an independent software vendor focused on performance management of heterogeneous networks. CrossKeys
develops, designs, manufactures, markets and supports software that enables monitoring and reporting of Service Level
Agreements on a number of domain technologies, including IP, Frame Relay, ATM and TDM. CrossKeys has over 200
customers worldwide that include WorldCom, Verizon, Bell Canada and BT.
CrossKeys' network of partnerships contribute to bringing its carrier class software solutions to market through direct and
indirect sales channels. CrossKeys Sales channels include leading network equipment manufacturers such as Alcatel, Ericsson
and Marconi. In addition, the company has cross-marketing partnerships with a number of other Independent Software
Vendors.
CrossKeys is headquartered in Ottawa, Ontario and delivers its products, services and support through its offices in Canada, the
U.S. and England, amongst others. For the fiscal year ended 31 May 2000, approximately 63 per cent of CrossKeys revenues
were generated in North and South America, approximately 33 per cent in Europe, Middle East and Africa, with the balance
from the Asia Pacific region.
In the financial year ended 31 May 2000, CrossKeys generated revenues of Can$45.1 million, a loss before interest, taxes and
amortization of Can$10.1 million and losses before tax of Can$14.4 million. At 31 May 2000, CrossKeys had net assets of
Can$57.5 million.
Since then, CrossKeys has announced two sets of quarterly results and for the two fiscal quarters ended 3 December 2000,
CrossKeys generated revenues of Can$17.7 million, a loss before interest, taxes and amortization of Can$21.0 million and losses
before tax of Can$25.5 million. As at 3 December 2000, CrossKeys had net assets of Can$34.2 million. Currently CrossKeys
employs 250 people worldwide.
About Orchestream
Orchestream software sits at the core of the IP-OSS network management software suite and integrates with billing, fault
management and performance measurement software. Orchestream's software supports new and emerging applications and
services such as IP virtual private networks (IP-VPNs), assured performance of key business applications, as well as video
conferencing and voice applications.
Orchestream's software is designed to enable flow-through provisioning of IP networks to deliver advanced value-added
services. Furthermore, Orchestream's software can give service providers the power to automate the process of configuring
networks to deliver services. This automation means that a vast service provider network can be configured, for example to
create an IP-VPN with thousands of sites, in just minutes. The benefit to the service provider of being able to do this is not only
in delivering services to its customers, but in doing so in a cost and time-efficient manner, saving on management and
manpower resources.
Orchestream has offices in the UK, US, Germany and France and employs 136 staff worldwide and has reseller representation
across North America and Europe, providing 24/7 customer support in both regions. Orchestream works with global systems
integrators, such as Cap Gemini Ernst & Young to integrate its software into service provider networks. Orchestream's
customers are global service providers, such as Energis, Interoute, NTT, Sunrise (a Tele Danmark company), FirstMark and
Inter Digital Networks (IDN), and managed network service providers, such as Siemens Network Services.
Orchestream listed on the London Stock Exchange in June 2000 and on 4 December 2000 reported its results for the nine
months ended 30 September 2000. For that nine month period Orchestream generated revenues of (pound)1.63 million
(Can$3.56 million) and reported operating losses of (pound)9.8 million (Can$21.4 million) and losses before tax of (pound)8.6
million (Can$18.8 million). As at 30 September 2000 Orchestream had net assets of (pound)66.5 million (Can$145.4 million)
(including cash at bank and in hand of (pound)61.2 million (Can$133.8 million)).
Orchestream is due to announce its full year results for the financial year ended 31 December 2000 in early March 2001 when it
will provide a detailed update regarding current trading and customer and partner development.
PRINCIPAL TERMS OF THE MERGER AGREEMENT
The Merger Agreement provides that the consideration for the Merger will be on the following basis:
For every CrossKeys Common Share 0.453 Orchestream Ordinary Shares
The expected number of Orchestream Ordinary Shares to be issued by Orchestream based on the above exchange ratio is 8.7
million (representing approximately 7.1 per cent of the current issued Ordinary Share capital of Orchestream).
The total consideration also includes a cash payment of Can$2.8 million ((pound)1.3 million) by Orchestream in relation to
options for CrossKeys Common Shares which are exercisable at a price less than Can$2.71.
The Merger is to be effected by means of a Plan of Arrangement under the Canada Business Corporations Act.
Application will be made to the UK Listing Authority that the Orchestream Ordinary Shares to be issued pursuant to this
transaction (``New Orchestream Ordinary Shares'') be admitted to the Official List. The New Orchestream Ordinary Shares
will be issued credited as fully paid and will rank in all respects pari passu with the existing Orchestream Ordinary Shares on the
day that they are issued. The New Orchestream Ordinary Shares may be held in either certificated or uncertificated form.
MAJOR SHAREHOLDERS
Orchestream has entered into arrangements with Dr. Terence Matthews, Chairman of CrossKeys, certain of his associates and
Alcatel Canada, whereby these shareholders have agreed to vote their approximately 36 per cent shareholding in the issued
share capital of CrossKeys and 29 per cent of the eligible votes in favour of the Merger and against any action which would
impede the Merger.
The above shareholders have also given undertakings in relation to the New Orchestream Ordinary Shares which they will
receive pursuant to the Merger Agreement and have agreed not to sell, transfer or otherwise dispose of, or enter into a
transaction or a series of transactions that have substantially the same economic effect as a sale of any such New Orchestream
Ordinary Shares for three months after the completion of the Acquisition.
OTHER TERMS AND CONDITIONS OF THE MERGER
Pending the implementation of the Merger, CrossKeys is under an obligation, amongst other things, to continue to conduct its
business in the ordinary course.
The Merger Agreement is subject to certain conditions precedent. These include, amongst other things, the approval of
CrossKeys shareholders to implement the Merger, required regulatory approval and Canadian Court approval. Orchestream
does not require shareholder approval of the Acquisition; however, Orchestream does not currently have sufficient authority to
allot shares in accordance with Section 80 of the Companies Act 1985 and is required to obtain shareholder approval of the
allotment of New Orchestream Ordinary Shares pursuant to the Acquisition at its next Annual General Meeting, notice of
which will be sent to Orchestream's shareholders shortly.
The Merger Agreement contains customary provisions prohibiting CrossKeys from soliciting competing offers or proposals.
The Plan of Arrangement requires the approval of CrossKeys shareholders at a general meeting. Further details of the Plan
and the CrossKeys General Meeting will be contained in a management information circular which will be sent to CrossKeys
shareholders as soon as is practicable.
The Acquisition is expected to be completed by the end of the first quarter of this year.
This announcement assumes an exchange rate of(pound)1 = Can$2.1868.
A conference call has been arranged for 4:00pm GMT (11:00am EST) today:
Dial-in-number: +44 1296 480100
Access code: C541580
UBS Warburg Limited, a wholly owned subsidiary of UBS AG, and which is regulated in the United Kingdom by the Securities
and Futures Authority Limited, is acting for Orchestream and no-one else in connection with the Acquisition and will not be
responsible to anyone other than Orchestream for providing the protections afforded to customers of UBS Warburg Limited or
for providing advice in relation to the matters referred to in this announcement.
Contact:
Orchestream
Ashley Ward or Richard Moore
+44 20 7348 1500
or
CrossKeys
Ian McLaren or David Greenwood
+1 613 591 1600
or
UBS Warburg (UK)
David Dwek or Hugh Morgan
+44 20 7567 8000
or
UBS Warburg (Canada)
James Kofman or David Bain
+1 416 350 2201
or
Hogarth Partnership Limited
James Longfield or Nick Lockwood
+44 20 73579477
or
CIBC World Markets
Andrew Muirhead
+1 416 594 7000 |
