Free Declaration - District Court of Delaware - Delaware

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Exhibit 12

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Court File No. 02-CL-4528

ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST

IN TBE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT,
R.S.C 1 8 . c C-36, AlHEIUDED 95 AS

IN THE MATTER OF A PLAN OF COMPROMISEOR ARRANGEMENT OF TELEGLOBEJNC. AND THE APPLICANTS SET OUT IN SCEfEDULE "A"
ELEVENTH REPORT OF TIiE MONITOR DATED SEPTEMBER 19,2002

O May 15,2002, Teleglobekc. and certain of its subsidiaries (colIectively the "Applicant" or n
*TelegJoben)filed for and obtained protection from their creditors under the Companies'
CreditorsArrangement Act R.S.C. I985 c. C-36, as amended ('%CAN. The t m s of this

proceeding are governed by an order of this Court dated M y 15.2002 (the "Initial Order"). a

Pursuant to the Initial Order, Ernst & Young Inc. ('EYI")was appointed monitor (the
"Monitoi') of the Applicant during these CCAA proceedings.
As discussed in the Monitor's previous Reports. Tekglobe is implementing a strategy to: 1)

Preserve and unlock the value of the profitable C r Telecom Business;2) Proceed with an oe orderly disposition of those assets that were not part of the Core Telecom Business (the "Redundant Assets") anand;3) Migrate, in a responsible manner, the customers associated with
that noncore business off the Globesystem network. The primary focus of the Applicant and
the Monitor has been to pursue a sale of the Core Telecom B s n s . 'Ihe necessity for uies

pursuing a sale of the Core Telecom Business on an expedited basis and the status of the
initiatives of the Monitor and the Applicant in this regard have been discussed in the

Monitor's previous Reports.
Teteglobe h .and certain of its subsidiaries and affiliates (the "SeIJersW) c have, subject to Court

approvat, entered into an agreement (the "Purchase Agreement") to seU the Core Telecom

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Business to TLGB Acquisition I L (the "Purchaser"),a Delaware limited liability company ;C
controlled by affiliates of Cerberus Capital Management, LP.and TenX Capital Partners, LLC. The Monitor is providing the Eleventh Report (the "Eleventh Report")in support of a motion to: 1)approve the Purchase Agreement, Interim Management Agreement (the "IMA") and telated documents that encompass the agreement between the S d e r s and the Purchaser, and 2) Seek an extension to the Stay of Proceedings to allow sufficient time for the approval of the

Purchase Agreement, IMA and related agreements to be heard in the applicable courts in
Canada and the United States. The Eleventh Report addresses:
t3
P

Terms of Reference Core Telecom Business; Marketing of the Core Telecom Business;

Page 3
3

5
12

U
C l

Summary of the Purchase Agreement
Summary of the Interim Management Agreement;
Approach to Sell Purchased Assets Outside North America; Election to Hold an Auction; Bellcontract; Notices and Timeline to Approve the Purchase Agreement Alternatives to a Sale of the Core Tela;om Business; Extension of the Stay of Proceedings in Canada; and Monitor's Analysis and Recommendation.
Purchase Agreement

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27
28
28
30

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0
0

0
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O

31

32
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Appendices
1
2

Interim Management Agreement
Escrow Agreement

3
4 5

Purchase Agreement CommitmentLetter

Interim Management Agreement Commitment btter UK Pllrchase Agreement UK Interim Management Agreement
Revised DIP Budget to November 30,2002

6

7
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Appendices 1to 7 attached to this Report represent the principal business agreements relating
to the sale to the Purchaser. A copy of all of the scheduIes to the Purchase Agreement are not attached to this Report. Copies of the full set of schedules and appendices to the Purchase Agreement and related documents are available from Teleglobe's Canadian counsel, Ogilvy Renault, or its U.S. Counsel, Jones, Day, Reavis & Pogue. Capitalized terms not &fined in this Report are defined in the Purchase Agreement, IMA.
Initial Order or the previous Reports issued by the Monitor.

AH references to dollars in this

repoa are in United States currency unless otherwise noted. TERMS OF REFERENCE
In developing this Report, the Monitor has relied upon unaudited financial information prepared by
Teleglobe's management, company records, and discussions with management of the Applicant. The Monitor has not performed an audit or other verification of such information. An examination of the financial forecast as outlined in the Canadian Institute of Chartered Accountants ("CICA") Handbook has not been performed Future oriented financia1 information and estimates on timelines relied upon in this Report are based on assumptions regarding future events and actual results achieved will vary fmm this information and the variations may be material.
This Report provides a summary of the principal business terms of the Purchase Agreement,

the IMA and related documents. The reader is cautioned that this Report does not purport to
provide a detailed explanation of the terms of the furchase Agreement, the IMA or other

agreements relating to the proposed transaction and reference should be made to the relevant agreements and schedules attached to this R p r . eot

CORE TELECOM BUSINESS
The Core Telecom Business is the N r h American muted international long distance voice ot

and data telecommunications services business operated by the Applicant and certain of its
subsidiaries. By September 30,2002. the Applicant estimates that it will have substantially completed the migration of non-core customers off of its network and the restruc~ng its of telecommunicationsnetwork such that the only remaining operating business of TelegIobe
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will be the Core Telecom Business. The Core Telecom Business represents a wholesale

international voice telecommunicationsservices business and data services business operating on the same associated circuits. The CoreTelecom Business is forecast to have annualized gross voice revenue of approximately $700 million and net voice revenue' of approximately

$150 million. Data revenue is forecast to be approximately $150 million. Approximately
65% of the revenue of te Core Telecom Business is earned in Canada, 25% in the United h
States and the remaining 10%intern at ion all^,

The principal assets comprising the Core T e l m m Business include:
Q

Approximately 280 active commwcial bilaterd and intexconnection ageements
between the Sellers and international PTl? carriers globally;

0

Approximately 66 operating site.,including 8 switch sites located in Canada, the United States and the United Kingdom;

U
0
0

North American based terresbial and sarelIite landing stations; Network operating centres and information technology centres in Mane,
k g a l entities in Australia, Hong Kong and Spain; and

R

Approximately 550 employees, 80%of whom are located in Canada.

The executive earnresponsible for the operation and strategic decisions related to the Core

Telecom Business is located in Montreal, Canada. As the Core Telecom Business is, in many respects, a ''tradiig" business4, the net working capital of this business representing outstanding exchange o minutes o voice or data traffic i f f s

an important part of its value. Included in the working capital are the ~eeivables payables and

Uaited Kingdom, Spain, Hong Kmg and AuslraIia. "PostTclephom & Telegraph"or "PTT" i a tnm Uat refas to traditicd govenrment owned or controlled s monopoliesthat p r o m local o immational te-cations r services in a given country. Prim t o deregulationof the telecommun-ns industry, Teleglobe was, far example, Caoada's PTF for internatiwal long distance and AT&T was the PTT for tbe United Stem

' Gross voice reveuue lexr outpayments relating to terminationof -c

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associated with the bilaterai and interconnection agreements between the Sellers and P'IT

cm'ers, customer accounts receivable and other working capital directly associated with the
operation of the Core Telecom Business*assets. Included in the working capital is approximately $70 million of certain pre-filings liabilities affected by the stay of proceedings that may be required to be paid in order to cure monetary defauIrs outstanding as at &y 15,
2002 to facilitate the assignment of conuacu that are critical to tbe Core Telecom B s n s uies

(the "Cure Amounts"). Management estimates that the net working capital, mcluding Cure
Amounts, as at July 31.2002~ was approximately negative $26 million7. While the

calculation of the working capital as at August 30.2M)2 is not yet available, Management estimates that based on cash flow trends and known set&ments of w d n g capital amounts in August it will be approximately negative $7 million by the end of August 2002. Management believes that based on forecast eamings and cash flow, the working capital will improve subsequent to the end of August and will be approximately $0 by the end of September 2002.

MARKE"rING OF TBE CORE TELECOM BUSINESS
The Monitor's Second ~eport'addressed the necessity of proaxding with a sales process in respect of the Core Telecom Business. As was outlined at that time, both the Monitor and the Applicant believed that the Core Telecom Business represented the most valuable asset of Telegiobe. It was beIieved that it was unlikely that the value of this business wwld appreciate
in a protmcted restructuring proceeding9. Furthennore, with some restructuring, the Core
Teiecom Business would likely be a profitable business w t strategic value to a number of ih

prospective purchasers. The Monitor. Teleglobe and its advisors indicated that Teleglobe

he wholesale voice business, which by volumc, reprcscnts the most significantportion of theCoreTelecom
3 is a business of exchanging voice traffic between major telecomnumicatiom c h r s around tfie world Jiabilitiest h t wcre outstancljngon the dart that Tdeglobt filed for court pro-on under tbe CCAAand

pu August 2002. kl in Calcuhed in acmrdance with thc Base Lint Financial Statement Mtthodology which is a schedule to the PurthaseAgramcat ' ~ a u d 3,2002. This Repor( was filed wilh the Ontario Superior Cowt of Justice and the U S Bankruptcy Jlmt .. Cowi incontech with he approval of thc sales pmctss in bornj~lrisdi~tions. he reasw~ outlined in the Smnd Report kctuded tbe following:The tdeco~ununications industry is aanmcly price sensitive nnd competitiie. The critical mature of t&xmnmnications sexvices is not oonducive t o maintaining atstomas in an uncertain environment. There is tangible evidcnce from a number of major

'Afta taking into comidaationh w n nomurring settlements with PTT eaniers and otheradjustmem

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must act promptly to maintain and realize the going concern value of this business as the liquidation value of this business was, due to the nature of the assets and industry conditions,

Likely to be materially less than going concern values.

Thc Core T l c m Business is a global business operating in over 2 0 countries around the eeo 0 world. Due to the interconnected and interdependent nature of its network infrastructurein
Canada, the United States and the United Kingdom. Teleglobe proceeded to obtain the approval and support for a "global" sales process for the business as a whole in each of these
cwnm'es.

Apmval of tfie Marketing Process On June 4,2002 this Corn made an order (the 'Transaction Process Order"), which, inter
alia, authorized the Monitor and the Applicant to implement the transaction process outlined

in the Monitor's S c n Report and the bid procedures attached to the Transaction h c e s s eod
Order. On June 18,2002, the U S Banhptcy Court approved a transaction process (the ..
"U.S. Transaction Process Order") that is, in all material respects, the same as the T a s c i n rnato

Process Order (the bidding procedures approved pursuant to the Transaction Process Order

and the U.S.Transaction Process Order are referred to as the "Approved Bidding Procedures1*). While there are certain timing and notice requirements under the U S ..
Transaction Process Order that differ from the Transaction Process Order, the approval of a consistent sales process in bathjurisdictions allowed the sale of the Care Telecom Business to

be pursued in a coordinated manner that is conducive to maximizing the value of the business

as a whole and for stakeholdersin ail jurisdictions.
Governance of the market in^ Process Prior to the June 4,2002 Court hearing to approve the Transaction Process,the major creditor

groups in this proceeding raised a number of concerns regarding the potential for conflicts of
inerest tbat may adversely affect the vansaction process. For example, BCE is the CCAA
Lender, a significant prepetition creditor and shareholder o Teleglobe. BCE controls Bell f
restnrcavlngs in Be telemmmunimtiws industry that retaining r c v m in any type ofprotracted restructuring with anunttrlilin outcome is extrcmcty dificdt.

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Canada and Bdl Nexxia (collectively "Bell"). Bell is Teleglobe's largest customer representing greater than 20% of its revenue. As of the Iune 4,2002 hearing, Bell was also a prospective purchaser for the Core Telecom Business. In addition, several of the senior

eeo executives of the Core T l c m Business were seconded from Bell and have continuing
contractual relationships with Bell. The Applicant and the Monitor recognized these issues and several measures were taken to mitigate the risk that these potential conflicts of interest,
real or perceived. would adversely affect the transaction process.

The T a s c i n Process O d e r provided that the Monitor, as an independent Court appointed rnato
officer,was authorized and directed to conduct, supervise and direct the Transadon Process

and matters related thereto. The Court ordered that the power and authority granted to the
Monitor pursuant to the Transaction Process Order was paramount to the power and authority

of Teleglobe Ine. with respect to these matters. Consequently, the Monitor had authority over
the conduct and direction of the Transaction Pmcess.

As was discussed in the previous Reports, Beli is an important customer of the Core Telecom

Business and its contract is one of the most valuable assets of this business. Bell was also a
potential purchaser of the Core Telecom Business. The Monitor took a number of steps

during the sales process to ensure an "even playing field" was maintained for all potential purchasers and that this potential conflict of interest did not adversely affect the transaction process: 1) Specific confidentiality undextakings were put in place between Teleglobe, the Monitor and the CCAA Lender to ensure that any information that the CCAA Lender received regarding the transaction process would not be available to or disclosed to Bell without the consent of the oni it or''; 2) Bell was formally requested not to speak to any prospective purchaser of the Core Telecom Business without the express consent of the Monitor and its participation in such meetings; 3) No meetings or discussions between pmpective purchasers
and Bell were permitted by the Monitor prior to the submission of bids"; 4) All prospective

purchasers were provided with clear guidance regarding the basis upon which they should value the Bell contract in preparing their bids, 5) Specific confidentiality undertakings w r ee

put in place to ensure that those employees of the Core Telecom Business who were seconded
"NO such mnsent bas been provided.

" This comment a p p k both to the July 15,2002 and August 12,2002 deadlines for bids discussed below.
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fmm Bell were not drcl a a e of the resalts of the Transaction Process or the negotiations iety w r

of agreements. The Monitor believes that the steps taken have resulted in a fair and competi rive sales process.
the outcome of which has not been influenced by the potential for co&icts of interest due to

the various relationships in this proceeding.

The market in^ Process
The marketing of the Core Telecom Business w s informally initiated in late Apdl2002 a

F o n d notice of the Transaction Process and the Approved Bidding Procedures were

provided to prospective purchasers immediately following the approval of the Transaction
Process Order. The Monitor and the Applicant, assisted by Lazard FrBres & Co. LLC12('Zazard"), have taken
the following actions to properly expose the Cm Telecorn Business to the market and to c !

comply with the Approved Bidding Procedures:
0

Sixty nine (69) qualified potential purchasers of the Core Telecom Business were

contacted, including 29 strategic investors and 40 financial investorsi3;
0

Thirty seven (37) of the sixty nine (69) qualified potential purchasers signed nondisclosure agreements in a form satisfactoryto TelegIobe and the Monitor to allow

them to meive confidential infonnation on the opportunity to acquire the Core
Telecom Business and conduct due diligence;
D

Data rooms containing extensive business, financial and legal information in respect of
the Core Telecom Business were made availableto those parties who had executed

non-disclosure agreements;

''~elegloba'sinvestment banker retained to assist in tbe divestiture process pursuant t an engagement krta o dated March 2I.U)OZ 'n addition lo Tdcglobc'~ I efforts t wnmct potential purchasers, them has been a general market awareness in o the industry regarding Teleglobe's h e s t in selling the Core T e l c m Busiaess as a w i t of the significant publicity of these restructuringproceedings.

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o

Management presentations were conducted with qualified parties who expressed an interest in such meetings;

0 0

All parties were provided with a Form Purchase Agreement;

As provided for in the U S Transaction Process Order, the "Sales Procedure Notice" ..
was pubiished in the WaH Street Journal and the New York T m s prior to July 5, ie

20'; 02~
0

As discussed in the Fifth ~eport'', after receiving feedback from a number of the
prospective purchasers regarding the status of their due diligence and consulting with a

number of the major stakeholdersin this CCAA proceeding, including the advisors to
the U.S. Unsecured Creditors Committee, the Monitor concluded that it would be

appropriate to extend the date for submission of final bids.

-

On June 14,2002, the Monitor instructed Lazard to send a revised Bid Process Letter to all prospective purchasers Ulat extended the date by which bids must be received f o June 24,2002 to July 15, 200216. rm

0

On July 15.2002. ten (10) written offers for the Core Telecom Business were received

The Monitor, wt the assistance of Lazard and representativesof the Applicant. ih
evaluated the offers received.

-

For those stakeholders, or their representatives, who executed a confidentiality

undertaking1' with the Monitor and the Applicant, the Monitor shared the
details of the offers received, the analysis of alternatives and Monitor's

recommended course of action.

l6 he bidding procedures approved by both the Ontario Superior Court of Justice and the U S BankruptcyCoua .. p k f c d t h c authority to makt modificatiom to the datc by which p d w were to Submit thtir bid+

'' Dated June 18.2002.

"~

hnotice was published on 3nly 3.2002 in both publications. c

Thest panics included the advisors to the US. Unsecured Creditors Comminae, the advisors t the Teleglobe o Lending Syndicateand t advisors t the ad hoc committeeof Telelgobe's noteholders and the CCAA Lender. k o

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Based on this evaluation, the Monitor instructed Lazard to invite five qualified
purchasers (the "Selected ProspectivePurchasers") to proceed to complete due

diligence, negotiate a purchase agreement and provide their final and best offer
for the Core Tele.com Business on August 12,2002.
0

In an effort to facilitate a continuation of the sales process on a nonexclusive basis.

the Monitor sought and received approval to utilize up to $1.75 million of the Applicant's funds for the purpose of reimbursing such reasonable legal fees, disbursements and other rwtsonable expenses of the Selected Prospective Purchasers in connection with such parties continued participation in the sales process'8.

-

Considering the significant additional due diligence that Teleglobe and the Monitor were requesting parties to do to comply with the bidding procedures and the fact that each of the Selected ProspectivePurchasers had no -nty that they would be the successful bidder, the reimbursement of fees was
believed necessary to maintain a competitive process.

O

TheSelected Prospective Purchasers and their legal and financial advisors were
provided with extensive access to business, financial and legal information on the Coxe

Telecom Business. Key members of the management team were ma& available to
each of the Selected Prospective Purchasers.
0

Three of the Selected Prospective Puchasers advancednegotiations of their proposed

forms of Purchase Agreement during this period During this process the value of the

offers and terms of the Selected Prospective Purchasers' proposed forms of Purchase
Agreement improved materially.
0

On August 12,2002, four (4) written offas for the Core Telecom Business were

received from the SelectedProspective Purchasers. Three (3) of the offers were
accompanied by a detailed mark up of the Form Purchase Agnxment.

"Paragraph 2 of the July 29.2002 Cwrt Order. The reimbursemeatof expenses pwsuant to the July 29.2002 Court Order i not being funded by the U.S. Chapler 11 Companies. s

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a

During the period from August 12 to August 14, the Monitor, Lazard and TelegIobe undertook a process of clarifying and working with three of the p d e s to address the consideration and form of purchase agreement that they had offered. Each of the parties was provided guidance on the competitiveness of their offer, including the proposed purchase agreement. MuItipIe improved revised offers wee receivedfrom
three of the Selected Prospective Purchasers during this period.

0

O August 14,2002, three of the Selected Prospective Purchasexs were provided with n
a revised Form Purchase Agreement that was, m all material respects, acceptable to Teleglobe.

C3

By August 14,2002, the Monitor, Teleglobe and its advisors concluded that a definitive conclusion to the bidding process needed to take place. The reasons for this conclusion included, inter alia: the positive momentum in the transaction process w s a reaching or had reached its peak and limited additional clarification could be provided to the SelectedProspective Purchms m order to maximize the value of their bids without losing the positive momentum and competitiveness of the transaction process.

0

On August 14,2002,the Monitor and Lazard advised the parties to submit their final
and best offers (the "Final Offers'') on the basis that there would be no additional

discussions after such offers were received and the Monitor wouid select one party,

based on price and certainty of closing a transaction, to continue with exclusive
negotiations with a view to finalizing a definitive agreement of purchase and sale that could be brought forward for Court approval in Canada, the United States and other jurisdictions, as required'g.

-

Each of the parties was advised that there was no certainty that an auction

would be held and they should provide their best offer if they wanted to be the
selected party to proceed with exclusive negotiations.

l9 l'he

The Final Offers would be received on August 15,2002.

Monitor had resewed its right to dcct to conducr an auction in accordance with the TransactionProcess

Order.

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0

On August 15,2002, three (3) Final Offers were received. Two of the Final Offers

were structured based on the form of the revised Form Purchase Agreement provided
by Teleglobe on August 14,2002. The third Final Offer contemplated a structure and

form of agreement that was materially differentmthan the revised FoTm Purchase

Agreement provided.
0

On August 16,2002, the Monitor, Lazard and representatives of Teleglobe met with advisors to the Teleglobehnding Syndicate, the ad hoc committee of TelegIobe's Noteholders and the U S Unsecured Creditors' Committee to =view the WnaI Offers ..
and the Monitor's recommendation on which party to primed with exclusive

negotiations b finalize a defmitive purchase agreement (once chosen, the
Bidder").

Following the meeting on August 16,2002, Teleglobe, the Monitor and the Final Bidder have been in exclusive negotiations to finalize an agreement to sell the Core Telecom Business. On September 18,2002, the Purchaser and the Sellers executed the Purchase Agreement. The Monitor is of the opinion that the transaction process outlined in this Report complied
with the Approved Bidding Procedures. The transaction process resulted in the Core Telecom

Business being properly exposed to the market and a purchase agreement with a price and

structure that was the result of a competitive bidding pn>cess in an auction like environment
between multiple parties.
SUMMARY OF PURCHASE AGREEW3NT The Purchase Agreement and related agreements m the result of a competitive sales process

and extensive negotiation between the Monitor, Teleglobe and the Purchaser. The Purchase

D e to the nature of the assets u comprising the C r Telecom Business, the fact that the Core TeIecom Business operates in a oe
mThe offer contemplated a prim that wris clqedent upon tbc fimuc operating r d t s of the Con T c b Business. The conditions of the offer a d its stntchne resulted in the offer having a wide range of potential value. Based on discussions with advisors I tho Tclcglobc Lcrtding Syndicate. the ad h& conmitt& of ~c[c~lobc's o notehotders and the U.S. Unsecured Creditors' cbmmittee. t m was liitcd. if any. interst in this proposed h :

Agreement is the p ~ ~ i agreement between the parties. p d

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regulated environment, the global nature of this business and certain options provided to the

Purchaser to facilitate the transaction, the Purchase Agreement is a complicated agreement and
the schedules to it are voluminous.

The following is a summ&'

of t principal business terms of the Purchase Agreement: k

Two Step Closin~ Process
The Core Telecom Business operates in a regulated industry. Consequently, the completion of the sale will require regulatory approvals in a number of jurisdictions including Canada, the
United States, the United Kingdom, Ausaalia, Hong Kong and Spain. Closingof the

transaction is subject to these regulatory approvals and they are estimated to take not less than
three to six months to complete. The closing process reflects Telegiobe's pmposed stmhm.

which w s designed to minimize closing risk in light of the timelines required to achieve a required regulatory approvals. In order to facilitate the sale in a manner that is conducive to reducing uncertainty with respect

to the business and accelerating the closing of a sde for the benefit of Teleglobe's creditors,
the Purchase A&reernentcontemplatesa two-step closing process. This two-step process is

consistent with that used for going concern transactions of this nature in the
telecommunications and other regulated industries. The two step process involves: 1) if the conditions to the IMA are satisfied,effectively all of the risks and rewards of ownership, including operating responsibility, of the Purchased Assets are transferred to the Pmhaser and
?

substantially all of the economics of the Final Purchase Price that pose a risk to the Sellers (i.e. working capital adjustments) are settled on the date that the IMA becomes effective (the

"IllrlA ate")"; and 2) if the conditions to the Closing Date are satisfied, the transfer of legal
title to the PurchasedAssets to the Purchaser and payment of the Rnal Purchase Price to the Sellers will occur on the Closing Date. Between the IMA Date and the CIosing Date, the
a As previously noted under Terms ofReftxnce. this is a summary of the principal business terms of Uw Purchase Agreement. The reader is cautioned lhat this Report does no& purport toprovide a detailed explanation of the terms of thePurchaseAgreement, the IMA or olher agreements relating to the propnsed tramaction and nfuence should be made t the relevant agreements attached to this Report. o Tbis i accomplished by paying a managementfcc equal to 509b of thc B u s h Rcccipts lcss Busincss s of the Corc Telecom Business during the IMA period a , Closing occurs, deaeasing L e pmchase d if price by an amount equal 10 the managmwnt feepaid.

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Purchaser will operate the Purchased Assets on the Sellers' behalf, subject t certain approval o
rights of the Sellers. The material condition to the Closing Date is the receipt of required
regulatory approval to transfer the Purchased Assets to the Purchaser. Upon the signing of the

a Purchase A p m e n t , a deposit of 5%of the purchase price w s paid into escrow. The deposit
and a ~ommitment Letter from Cerberus Capital Management, LP. supporting the Final Purchase Price will secure the Purchaser's obligations.

The key conditions to the IMA becoming effectivea are:
U

The receipt of bankruptcy court approvals in Canada and the United States and the

expiry of the relevant appeal periods jn respect of the Purchase Agreement and Interim Management Agreement;
0

Approval of the D P Lender shall have been obtained for the PurchaseAgreement and I
the IMA;

0

Delivery of certain agmments by the UK Sellers, including the UK Interim Management Agreement;

O

No Mattrial Adverse Change in the business since the date of signing the Purchase
Agreement;

0

Agreement or requisite Court approval of the assignment of the Bell contract notwithstanding any anti-assignment, change of control or insolvency default provisions;

0

Clearing certain antitrust and competitionprocesses;

0

Bring-downof certain representations and warranties of the Sellers to the M A Date;
and

0

he purchaser obtaining insurance25.

"The CoromitmentLetter i s attacbed at Appendix 4 to thls Report.
~Y~~X&YOUNG

U ~ e f eto Section TX of the Pwchase Agreement for the specif= conditicmsto the IMA r 25~&globt the option of providing the insurance m satis@this condition. has

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BCE-AD 0154419

Case 1:04-cv-01266-SLR

Document 268-6

Filed 05/23/2006

Page 16 of 42

Upon the execution of the IMA, the Purchaser will assume responsibility for the operations of

the Core Telecom Business, subject to the terms of the IMA. Pursuant to the terms of the

IMA, if the Closing occurs, substmtiaIly a of the risks and rewards of the ownership of the U

Core Telecom Business, including responsibility for funding the cash flow of the
will have passed to the Puzhaser.

On the Closing Date, legal title to the Purchased Assets will be transferred to the htrchaser
and the Sellers will receive payment of tbe Final PurchasePrice in accordance with the t r s em

of the Purchase Agreement. The key conditions to the closing ~ a @ are:
0

The consents of the required Governmental Entities necessary to consummate fbe transactions contemplated by the Purchase Agteernent shall have been obtained;

U

That portion of the Final Purchase P i e that is not subject to dispute shall have been rc paid to the Sellers and the Purchaser shall have deposited any disputed amounts under
the provisions of the Purchase Agreement with the Escrow Agent pending resoIntion

of such disputests;

D

The Purchaser shalt have received all required Closing DeIiveries pursuant to Section
5.2.2 of the Purchase Agreement;

0

Any required Bankruptcy Court approvals shall have been obtained and remain in full force and effect and shall have become f n and non appealable; and id

0

Certain transactions related to the Purchased Assets in the UK shall have been
completed and certain non-US and non-Canadian consents shall have been obtained

IU dtt event tbat the conditionsto the ClosingDate are satisfiedor the Purcham breaches the Purchase Agreement or the IMA. the Purcbasw is r q c m i i e for any negative cash flow associatad with the operation of the Purchased As* a h tl# M A Datt, R c f a to Scction X of rho Purchase Agrammt for tha q a S c conditionsto the Closing Date Sections 4.4.1,4.4.32 and 5.2.5 of the RuchaseAgreemem detail the amounts that can be disputed and the Purchase Agreement sets out how such disputes are to b nsolvat e

"

3ERMT&YOW

-15-

September 19,2002

BCE-AD 0154420

Case 1:04-cv-01266-SLR

Document 268-6

Filed 05/23/2006

Page 17 of 42

The accuracy of the Sellers' representations and warranties. which are to be brought forward
only to the IMADate, are not a condition to the Closing Date.
This two-step process facilitates accelerating the closing process in respect of this transaction

in a manner that is designed to protect Teleglobe's creditoxs' interests. Structum of the Sale The Purchase Agreement provides the Purchaser with flexibilityin tern of how it acquires
the Purchased Assets. This flexibility is provided to the Purchaser so it can retain, if possible, certain tax attributes of the Purchased Assets. The base line structureof the Purchase
Agreement is that on or prior to the Closing Date, the Sellers will transfer the P u r c W
Assets to ~ e w c o s 'and, on the ClosingDate, the Sellers wiU transfer the equity of the ~

Newcos to the Purchaser. Any costs associated wirh the implementation of the base line structure will be borne by the Sellers. Teleglobe estimates that these costs will be de minimis.

The Sellers have provided the Purchaser with the option to either accept the equity in Newcos
or purchase certain of the Purchased Assets, including Teleglobe's equity and inter-company interest in cmain foreign subsidiarjesm,directly from the Sellers. Most of the incremental tax or other costs associated with the Fluchaser exercising this option will be borne by the

~urchase?'. The Purchaser has been given 30 days from the lMA Date to exercise such
options.
k h a s e Price

On the Closing Date, the Sellers will transfer to the Furchaser all of the Purchased ~ s s e t s ~ ' and the Purchaser wilI assume certain liabilities, which are referred to as the Assumed
Liabilities. The Purchased Assets Lepresent the rights, properties and assets of the Core

Telecom Business and are detailed in the Purchase Agreement. The Assumed Liabilities repxesent liabilities and obligations dating to the Core Telecom Business, including the
Each N e m will be an affiliate of the Sellcrs. 10L.qyi entities ia Spain. Hong Kong and Awrralia. See sc!cfion2.1.52 and 21.5.3 of the Purchase -nt. The Purchaser has an option of wmplehg the tramaction as an acquisition of asscts or acquisition of the equity of catain k w c a which arc formed immtdiaUy prior to tbe Closing (or m catain cascs. including thc UK)immadiateIy prior to the signing of the IMA) to hold the relevant assets and assumed liabilities.

'' *
~

~

&

Y

~

G

-16-

September 19,2002

BCE-AD 0154421

Case 1:04-cv-01266-SLR

Document 268-6

Filed 05/23/2006

Page 18 of 42

Contracts assumed by the Purchaser (but excluding Contracts the Purchaser determinesnot to

assume), employee related liabilities (including the pension plan should the Purchaser elect to
assume the plan) and the Cure Amounts.

The final Purchase Price is payable in cash on the Closing Date and it win be equal to $155.3 adjusted as follows:
0

Increased or decreased, as applicable, by the amount, if my, by which the Adjusted Net Current ~sset? as of the ZMA Date differs from the Target Net Current ~ s s e @ (the

'Working Capitd Adjustment");
P

Increased by 50% of the (3ure Savings realized by the Purchaser between the signingof
the Purchase Agreement and the Closing

ate^^ (the "Cure Savings Adjustment");

0

Inmased by the amount of any post petition, p s IMA Date Current Liabilities ot
incurred after the IMA Date with respect to a Rejected ~ontrac?';

0
0

Decreased by the management fee paid in respect of the IMA and the UK IMA~';and

Decreased by cextain severance costs related to nowcore TeIecom Business employees
that the S e l h will not have to pay as a result of actionstaken by the ~ u r c h a d

"~ t f i n c d the UnadjustedPurchase P r i a in the Purchase Agreement as

The Ner Current Assers excluding the Cue Amun?s

The TargctNet Current Assets an zero pha Ihc Cun Amounts. he PI* is responsiblefor tha payment of the Curc Amounts prior to the CIosin~ Date. Section4.4.3 of the Padase Agramcnt gcts out the proadurcs for seulemnt of Mc C l m Amounts To the extent chat the
3'

Purchasanegotiatesa settlement ofLC Amwnts for h s s than the face amount of the Curc Amounts as Cure specified in a ferter agreement between the Sellers and the Purchaser, the Sellers will receive 5 % of such 0 skng.~.As indicated earlier in this Report. the aggregate Cure Amounts are approximately$70 million. ,n Purcliasw has thcrizht t have ihc SelIers ,at cdain contracts. This adiusbncot is intended to o c m c a r ~ e l e ~ l o for kt cost o such an dectiin by the Purchaser. apmt: be f "~hchcbaserreceives50%of the cash flow of the Core Telecom Business during the M A period tfnwgh tbe management fct payable under the IMA and the other 50% through the purchase price redudon B ~ e swsts would be born by the S l e sif the I'mhsadid mt ass~lmth n Therefon, dccxcasing the e elr tu purchase price for these ammts has m, e c o d c impact to thc Sclkrs.

~FRN~&YOUNG

- 17 -

September 19,2002

BCE-AD 0154422

Case 1:04-cv-01266-SLR

Document 268-6

Filed 05/23/2006

Page 19 of 42

The most significant potential adjustmentsin determining the Hnal Pun:hase Price refate to the Working Capital Adjustment and the Cure Savings Adjustment. The following is a

summary of how these adjustmentswill be determined:
0

The calculation of the Working Capital Adjustment will be determined by the delivery of a financial statementa prepared as of the IMA Date (the "IMA Date Financial Statement") and a s a e e t calculating the Net Current Assets and Adjusted Net ttmn
Curmt Assets prepared as of the IMA Date (the "Closing ~taternent")~'.

-

The Purchase Agreement provides for a 45 day period for the Sellers to review the IMA Date Financial Statement and the Closing Statement.

-

A dispute notice and dispute resolution procedure, consisting of submission of
the dispute to a nationally recognized independent accounting f r , provided i m is

for in the Purchase ~ ~ r e e r n e n t ~ ~ .
D

Tbe calculation of the Cure Savings achieved by the Purchaser (the 'Cure Savings
Statement") will be made by the Purchaser and delivered to the Sellers between twenty (20) and twenty-five (25) business days prior to the closing Date.

-

The Purchase Agreement provides for a ten (10) business day period for the Sellers to review the C r Savings Statement. ue
A dispute notice and dispute resolution procedure, consisting of submission of

the dispute to a nationally recognized independent accounting firm, is provided

f in the Purchase ~greernent~~. a
The adjustments to the UnadjustedPurchase Price of $155.3 million arc based on future
events which cannot be determined with any certainty and some of which are under the control
R q m d in accordance with the Base Line Financial Statcmcnt Mchdology which i set out in detail as a s schedule t the PmchasoA g m c n t . o "To facilitate providing comfort to the Purchaser regarding the amount of Assumad Liabilities and Cure Amounts,Tdcglobe has agreed to pursue, subjed to Court appmvai. sdling W m s Bar D e w in Canada and the United States. The Buyer has 45 days a& thc later o the IMA Dateand the Claims Bar Dates to deliver these f statto thc Sdlas. See section4.4. iof the Purchase Agrecmenl a See section4.4.3.2 of the Purchase Agzcemt

"

September 19,2002

BCE-AD 0154423

Case 1:04-cv-01266-SLR

Document 268-6

Filed 05/23/2006

Page 20 of 42

of the Purchaser (i.e. the Cure Savings, the rejection of contiacts and relief f o sevemce rm
costs). Consequently, these adjustments cannot be forecast with any certainty. The

Applicant's most recent estimate of the Adjusted Net Current Assets (as previously discussed

e in this Report) suggests that it should not differ materiafly from the Target Nt Current Assets.
The transfer of the Assumed Liabilities to the Purchaser represents a significant benefit to Teleglobe's creditors. Teleglobe estimates that approximately $350 million of liabilities are
included in the Net Current Assets of the Core Telecom ~ u s i n e of ~ ~ approximate[y s which

$70 million represent Cure Amounts (which are an obligation assumed by the Purchaser). The severance obligations Sellers will not have to pay as a result of offers ma& by the hur:haser related to employees of the Core Telecom Business total approximately$9 millionG- The

opportunity for a continuation of business and enhanced recovery, as compared to liquidation,
for the credirors, who will benefit from the Purchaser's assumption of the Assumed Liabilities,
represents a significant benefit t the Sellers*estates. In addition, (he assumption of these o
liabilities by the Purchaser will directly benefit the recoveries of Teleglobe's remaining

creditors The Assumed Liabilities are primariIy at the operating company level. Allocation of Purchase Price
It is recognized that the final allocation of proceeds amongst the various legal entities within

the Teleglobe group is a material issue to the creditors of Teleglobe. The Purchase Agreement recognizes this issue and Teleglobe's creditors' rights to resolve this issue at a later date in a
manner which is different than the Purchaser's and SeIlers' allocation of the Unadjusted

Purchase Price for tax purposes is expressly preserved

On or prior to the IMA Date, for tax filing purposes, the Purchaser and the Sellers agree to act in good faith to attempt to agree on the allocation of the Unadjusted Purchase Price on an
entity-by-entity basis among the Purchased Assets. This allocation will not be binding on the

Bankruptcy Courts.
Approximately $240 milllon relate to liabilities in Canadian domiciled legal tntiticf $90 million is related to liabifiticsof the U.S. Chapter 11Companies. The remainder n1ate.s to liabililies in legal entities domidled in the U i e Kingdom, Australia, Spain and Hong Kong. ntd
U

SESW&Y~~NG

-19-

September 19,2002

BCE-AD 0154424

Case 1:04-cv-01266-SLR

Document 268-6

Filed 05/23/2006

Page 21 of 42

The Monitor has had preliminary discussions with a number of the major creditor groups
regarding the alternative approaches to allocation of proceeds from the sale of the Core Telecom Business to the legal entities selling the Pmhased Assets. It is expected that the relevant parties will pursue a consensual resolution to this issue between the IMADate and the Closing Date involving direct dialogue and negotiations between representatives of the Teleglobe Lending Syndicate, the ad hoe committee of Teleglobft's noteholders, the U.S. Unsecured Creditor's Committeeand the c on it or^^.

In the event that compatible orders of the Canadian and US Bankruptcy Courts setting out the
allocation of the Final Purchase Price are not obtained prior to the Closing Date, the Find

Purchase Price will be held in a segregated account pending resolution of the ctiwxepancies

between such Court orders.

The Purchase Agreement provides significant benefits to TeleIgobe in terms of preserving
employment and transfenring costs and claims that would otherwise serve to reduce mveries to Teleglobe's creditors. Some of the more significantprovisions include:
D

The Purchaser will become the successor employer under the Collective Agreements
that Telegtobe has with certain unions. As such, the Purchaser will be bound by and comply with the Collective Agreements effective as of the Closing.

0

Prior to the Closing Date, the Purchaser shall make an offer of employment to at least

95%of all non-union employees4B employed by the SeUers primarily in connection
with the Core Telecom Business on terms that provide an aggregate compensation

package that is substantially similar to existing employment terms.

Tdeglobe's obligation for t h a t amounts arise.. undw theEmploycc Facility approved in thc CCAA proc&ings and thcst obligations arc essentially secured by virtue ofthe tarnsof the Employee Facility provided
4 . 1

b tkCCAALcnder. ' discussed later in UM Report, in order t facilitate the sk offhe Purchased Assets in jurisdictions outside A s o of N r h M c a . Tclcdobc Inc. has entered into agraments t purchasethe Puchased Asxts in the United ot o ~ i n ~ d o m a fixed price. The total fued ptmha&price was I&than 10% of the Unadjusted PmchaseRice. for "E~~tp~oycc are addressed in section 8.8 of the Purcha&eAmcement. issues 48 hiradk active employees and thosc: wfio have rightsof mplo&nt on returnfrom vdcation, leave, ctc. and excludo UK employeeswhose employment transfersto UK Newco at the time of Closing.

~ E w & Y m

- 20 -

September 19,2002

BCE-AD 0154425

Case 1:04-cv-01266-SLR

Document 268-6

Filed 05/23/2006

Page 22 of 42

P

The Purchaser agrees to provide severance benefits similar to W e offered by

rm Teleglobe for a one year period f o the Closing Date.

Taken as a whole, the empioyee related provisions of the Purchase Agreement ensure the
continued employment of approximately555 employees and eliminate approximately$9 million of severance and retention obligations that would have otherwise been payable by Teleglobe under arrangements put in place at the outset of these CCAA proceedings. Representations and Warranties Teleglobe is pursuing a going concern sale of the Core Telecom Business and the price that it

received reflects this fact. In order to realize a going concern value for the business and to
complete the transaction process within the accelerated timelines that are necessary to

maximize value, the Sellers need to make certain representations and wananties to the

Purchaser. The following is a summary of the major categories of the material representations and
warranties made by the Sellers under the Purchase ~~reernent~':
1 2

Ownership and legal status of Owned Real Property, Leased Real Property and Tangible Persona1 Property;

0

Delivery of and status of Contracts;
Ownership, legal status and infringement of Intellectual Property;

a
R
0

Sufficiency of the Purchased Assets to operate the Core Telecom Business;
Factual information regarding employee matters includingcompensation and benefit

plans and arrangements, union matters and pension matteas;
0

F c u l information regarding revenues for May to July 2002 and %gardingthe ata
application of the Baseline Financial Statement ~ e t h o d o l o ~ ~ ;

' 9 Thc detailed representations and warranties

an contained in Aa-ticlc VI ofthe Purchase Agreement

E!lE~~&Yourvc

-21-

September 19.2002

BCE-AD 0154426

Case 1:04-cv-01266-SLR

Document 268-6

Filed 05/23/2006

Page 23 of 42

a

Ownership and legal status of Permits necessary to operate the Core Telecom Business;

Ct
0

Required consents; Compliance with law; and

D

Tax matters.

The representations and warranties made by the Sellers are made as of the date of the Purchase Agreement. The representations and warranties ale brought forward to the IMA Date and
expire on the later of the Closing Date and the first anniversary of the IMA Date. The

representations and warranties are not brought forward to the CIosing Date.

To the extent that either party believes the other has breached a representation or warranty and
has suffered losses as a result of such breach, the pn>cess for providing notice of this breach and resolving it is discussed below under Notices of and Resolution of Disputes. The Purchaser retains the right of offset against the purchase price for any claims made for a
breach of representations and warranties during the 90 day period following the a4A ~ a t 2 ' .

Thereafter, the Purchaser does not have the right of offset against the Final Purchase Price for any claims for a breach of representations and warranties.

There can be no certainty that claims for a breach of representation or warranty will not be
asserted. Teleglobe has taken reasonable steps, under the circumstances, to protect against such a risk Theextent and nature of the representations and warranties has been limited to
the greatest extent possibIe. Teleglobe has undertaken extensive disclosure and review with

the Purchaser of the matters that are subject to the representations and warranties. In addition, in connection with the execution of thc Purchase Agreement, Teleglobe Inc. and the Monitor have received a certificate from key members of the management team with knowIedge of the
Purchased Assets supportingcertain of the representations and warranties provided by the

Sellers in the Purchase Agreement.
- --

"The BascLinc Financial Statement Methodology i the methodology used tu prepam (hc Closing Stattmcat s that will dctaolint the adjustment lo the purchase price. ~Iating working capital. to " The amount of any such claim must be paid to the Escrow Agent peodig thefts01ution of the dispute.

EYE~~sratYoLwc

-22-

September 19,2002

BCE-AD 0154427

Case 1:04-cv-01266-SLR

Document 268-6

Filed 05/23/2006

Page 24 of 42

Teleglobe and the Monitor believe that the representations that the Sellers are required to give pursuant to the Purchase Agreement are not unusual for an agreement of this nature and the
circumstancessurrounding Ule sale and are necessary in order to achieve the going concern

price received. Completing the sale on an "as is where is*'basis would likely have resulted in
a materially Iower purchase price.

N t c s of and Resolution of Disputes oie

En the event that either the Purchaser or the Seller believes that a representation or wananty
has been breached when made as of the date of the Purchase A p r n e n t or the IMA Date, the
party has ninety (90) days to provide a Breach Notice specifying the nature of such breach and

the good faith estimate of Lases resulting &from.

I the Pufchaser delivers a Breach f

~ Notice piior to the 9 0 day after the IMA Date, an amount equal to the aggregate amount of
such estimated Losses shall be deposited in the Escrow Account pending resolution pursuant to the terns of the Purchase Agreement. If a disputed amount remains with the Escrow Agent
after the Closing Date. upon resolution of the dispute, the D s u e Amount in escrow shall be iptd
released to the applicable party based on the resolution of the dispute.

Section 5.2.5 of the Purchase Agreement sets out the Disputed Amount SettlementProcedure.

This section provides for a 45 day period for the party receiving a Breach Notice to review the
notice and decide if it intends to object. If the party intends to object, it must file a dispute notice. The parties then have a period of thilty days to negotiate in good faith to resolve the
o dispute. If the parties fail to resolve the dispute, it will be submitted for resolution t either an

independent accounting firm, for accounting matters, o an arbitrator for other matters. The r decision of these parties will be binding upon the Purchaser and Sellers and the costs of such a dispute resolution process shall be allocated between the parties based on the results of the

claims and defenses.

September 19.2002

BCE-AD 0154428

Case 1:04-cv-01266-SLR

Document 268-6

Filed 05/23/2006

Page 25 of 42

Purchaser's TerminationRights

The Purchase Agreement may be terminated by the Purchaser, on written notice to the Sellers: i the following circumstances: n
I 3

If the IMA Date has not occurred prior to December 31,2002 or the Closing has not
occurred prior to August 31.2003 (provided the Buyer has not caused such failure by

breaching any of its representations, warranties, covenants or agreementscontained in
the Purchase Agreement;
0

Prior to the IMA

ate^^ if any of the Key Sellers' representations and warranties have

been materially breached, except for bmiches or inaccuracies that did not individually or in the aggregate, result in a Material Adverse Effect or any of the K y SeIlers is in e

material breach of any materid covenant contained in the Purchase Agreement, unless
such breach or inaccuracy has'been cured by the earlier of the IMA Date or 30 days following the date on which the Pmchaser provides Teleglobe Inc. written notice theme

n

On or after the ZMA Date but prior to Closing, if any of the Key Sellers is in material
breach of any of the covenants contained in section 8.13 (certain negative covenants of

the Sellers) or section 8.15 (Migration Transactions) of the Purchase Agreement or any material covenant in the M A or the UK 3MA and such breach is caused by the d o n s of certain designated persons, unless such breach has been cured within 30 days following the date on which the Purchaser provides TelegIobe Inc. written notice thereof;
0

If any bankruptcy court disapproves of the Purchase Agreement, the Interim
Management Agreement or the UK Interim Management Agreement;

0

If the Purchaser's right to receive the Break Fee or Expense Reimbuxsement are held to

be unenforceable, in whole or in any material part or in the event of a Competing

Transaction; or

September 19,2002

BCE-AD 0154429

Case 1:04-cv-01266-SLR

Document 268-6

Filed 05/23/2006

Page 26 of 42

0

If the Canadian Transaction Notice is not filed on or before the date that is five

business days after the date of the Purchase Agreement, and if either of the Canadian Court or the U S Bankmptcy Court has not entered the applicable Sales Approval ..
Order or such Sales Approval Order has not become Final Order on or before the date

that is seventy five (75) days after the date of the Purchase Agreement,
Bredam Fee and Exuense ~eirnbursernent'~

llhe Purchase Agreement provides for certain protections to the Purchaser that are customary

in transactions of this nature.
Except for specific ~ircurnstances~~, Sellers tenninate the agreement or agree to if the

complete a Competing Transaction, Teleglobe wiI1 be obligated to pay a Breakup Fee in the
amount of $4,659,000.

Teleglobe is also liable under certain circumstancesrelating to the termination of the Purchase
Agreement for an Expense Reimbursement to the Purchaser in an amount not to exceed
$4,OM),W0 less the amount of up to $0.4 million actually received as provided for pursuant to

a letter dated August 2,2002 from the Monitor to the Purchaser. Any Expense Reimbursement that is less than $1.5 million will be deemed to be reasonable and any amount in excess of $1.5 million shall require submission of reasonable documentation supporting

such excess amount.
Teleglobe's obligation to pay the Breakup Fee and Expense Reimbursement survives the termination of the Purchase Agreement and Teleglobe is required to request that the CCAA
Court provide that the Breakup Fee shall be paid in priority to the Administration Charge, the

CCAA Lender's Charge and the Director's Charge and the Expense Reimbursementshall be

paid in priority to the Administration Charge and rhc Director's Charge, a11 as defined in the
Initial Order.
So tong as the Key Sellers are not then atitled to terminate the Purchase Agreement because o f d n beaches by the Purchaser. Section 11.3 of the Purchase Agreement. %SetSection 11.1.2 (a) o 0). r Howcvcr, iCthc S e b s tcrminatc t agrccmcnt pursuant to Scction 11.1.2 (a) k and, wilin 12 months thc Sellers publicly announce or enter into a definitive agreement for a Competing Transactior Teleglobe will be obligatal to pay the Break-up Fee.

"

I&NST&- 25 -

September 19.2002

BCE-AD 0154430

Case 1:04-cv-01266-SLR

Document 268-6

Filed 05/23/2006

Page 27 of 42

SUMMARY OF INTERIM MANAGEMENT AGREEMENT

The form of IMA is attached as Exhibit F to the Purchase Agreement. The conditions to the entering into the IMA have been previously discussed.
The terns of the IMA provide that TLGB Acquisition LLC (in the context of this agreement,

the "'Manager") shall manage the Core Telecom Business on behalf of the Sellers from the
IMA Date until the Closing Date. The terms of the IMA provide thac, in all material respects,

if the Closing occurs, the r s s and rewards of operating the business duing the IMA period ik

rest with the Manager.

The Manager is to manage the facilities and operations of the Core Telecom Business on
behalf of the Sellers subject to the Sellers' continued ownership,operation and control of the Core Telecom Business. The Manager is subject to the reasonable supervision of the Sellers. For the purposes of receiving notices and granting approvals pursuant to the IMA, the Chief Executive Officer (currently Mr. John Brunette) and the designated officer of the Monitor (currently Mr. Benjamin Babcock) arejointly appointed as the Representatives under the JMA. Without the approval of the Representatives, the Manager does not have the authority to, inter
alia:
0
D

Terminate or modify any material contracts;
Institute or defend any legal actions or proceedings;

0

Tenninate the employment of any employee or hire any new employees or make changes to the compensation arrangements with employees;

R

Sell. lease or otherwise dispose of any Purchased Asset for an amount less than fair market value;

U
0

Incur indebtedness or pledge the assets as security for indebtedness; and
Enter into agreements to merge, consolidate or enter into any business combination, etc.

September 19,2002

BCE-AD 0154431

Case 1:04-cv-01266-SLR

Document 268-6

Filed 05/23/2006

Page 28 of 42

The agreement provides for reasonable rights of access to information and books and records
and good faith cooperation between the parties. The Manager i s required to manage the
business in accordance with applicable laws rind regulations.

The Manager is responsible for the funding of the cash flow of the Core Telecom Business
etr during the term of the IMA. The Ahnager has received a Commitment L t e from Cerbems

Capital Management L.P. for $20 million to support its obligation to fund the Business
Expenses of the Core Telecom Business after the rmA Dale.

The IMA addresses v+ous rnaters dating to services provided, liability under the agreement, termination provisions, employment matters, etc. that are standard for an agreement of this nature.

APPROACH TO SELL PURCHASED ASSETS OUTSIDENORTH AMERICA

Cran of the Purchased Assets are domiciled in the United Kingdom. Spain, Hong Kong and eti Australia. The Purchased Assets in the United Kingdom are under the admimstration of the
UK Administrators.

In the United Kingdom, immediately prior to the effectivenessof the IMA, UK Purchased the
Assets will be transferred down from TeleglobeInternational (UK) Limited and Teleglobe
b1ding.s 0Limited to a newly formed company (the "UK Newco"). Effective as of the
IMA Date, the Manager will manage UK Newcorsbusiness pursuant to the t r sof the UK em

Interim Management Agreement (the "UK W). terms of the UK IMA are substantially The

similar to the terms of IMA pmiousty described. At the Closing, the stock of UK Newco will
be transferred first to Teleglobe Inc. and then to the Purchaser, and the UK IMA will

terminate.

In order to facilitate the sale of the UK Purchased Assets in a manner acceptable to the UK
Administrators, TelegIobe Inc. will, subject to Court Approval, enter into an agreement to

acquire the shares of UK Newco for $8.4 million (the "UK Purchase Agreementn). This
acquisition will occur concurrent with the transfer of assets to UK Neww r e f 4 to above.

In connection with the Closing of the Purchase Agreement, TelegIobe bc. wl convey the UK il
September 19,2002

IERNsJ&).~U~U;

-27-

BCE-AD 0154432

Case 1:04-cv-01266-SLR

Document 268-6

Filed 05/23/2006

Page 29 of 42

Purchased Assets, via the transfer of UKNewco's stack, to the Purchaser. The UK Purchase
Agreement provides certain protections to the UK Administrators: 1) In the event that the

final Purchase Price ( r mthe Purchaser or any other purchaser) is greater than $165 million, fo Teleglobe Inc. shall pay 5.6% of such amount greater than $165 million; and 2) The UK Administratorsare entitled to retain up to $375k from amounts owing to Teleglobehc. to provide for costs during the period f o the M A Date to the Closing Date. TeleglobeJnc. is rm also providing a side letter to the UK Administrators to provide them further assurances on

d

n financial matters. These assurances are not material to the transaction.

ELECTION TO HOLD AN AUCTION
Pursuant to the Approved Bidding Procedures, the right to commence an auction was specificallyreseryed and in the bidding procedures letter provided to prospective purchasen

they were specificallyadvised that there was no certainty that such a process would be
commenced. Pursuant to the bidding procedures approved by the U S Bankmptcy Court. .. Teleglobe and the Monitor are required to consult with the US.Unsecured Creditors' Committee regarding the decision to hold an auction. The Monitor has had a number of discussions with the financial advisor to the U.S. Unsecured Cteditors' C o m W the advisors to theTeleglobeLending Syndicateand the ad hoc committeeof Teleglobe's noteholders regardingthe election to hold an auction. The Monitor and Teleglobe, including
the Chapter 11Companies, have concluded that, under the circumstances, they wiIl not eIect

to hold an auction pursuant to the Approved Bidding Procedures.

BELL CONTRACT
As previously discussed in this Report and the previous R e p , Bell is an important customer
of the Core Telecom Business. Bell's contract with the Applicant is one of the most valuable
assets of the Care Telecom Business. The Monitor has had a number of discussions w t Bell ih

regarding the contract and its assignment to the purchaser of the business. Assignment of this

contract is a critical element to a successful sale and to realizing the benefits toTe1eglobe's
creditors, customers and other stakeholders that would result from a sale.

E~ERNST~YOUNG

-28-

September 19,2002

BCE-AD 01544.33

Case 1:04-cv-01266-SLR

Document 268-6

Filed 05/23/2006

Page 30 of 42

Due to the importance of the Bell contract to the Core Telecom Business, under the Purchase
Agreement a condition t entering into the IMA is that the consent will have been obtained or o
the appropriate Bankruptcy Court will have issued an order addressing:
0

Consent to assignment of the Bell contract to the Purchaser, waiver of applicable

Change of Control provisions applicable to the transfer and waiver of all defaults
arising prior to the dates of the consent or relating to the bankruptcy of any of the Sellers;
0

Clarification to the limitation of liability language in the Bell contract; and Confirmation that BCE and its Affiliates, including Bell (but excluding Teleglobe b . c

O

and its subsidiaries). shall have no right of offset (including under the Be11 Contracts)

from and after the IMA Date, against the Core Telecom Business, the Purchased
Assets (including Current Assets as of the IMA Date) or the Assumed Idabilities

arising out of or relating to claims in respect of the assets and Liabilities retained by the Sellers (i.e. the non-Core Telecom Business). From and after the IMA Date, payment arrangements under the Bell contracts, including the practice of offsetting payments and remittance of cash payment on a net basis, will continue in accordance with usual past practice. of The purpose of the latter confirmation is consistent with the s t n ~ c m the Purchase Agreement which provides for the risks and rewards of ownership of the Core Telecom Business transferring to the Purchaser on the IMA Date. Representativesof the Monitor andTeleglobe have met w t Bell and discussed the terms ih

required by the Purchaser relating to an assignment of the Bell contract Bell has also been
provided with a draft of the proposed Co