Exhibit (b)(iii)
April 30, 1998
To The Board of Directors
IPC Information Systems, Inc.
To The Lenders (as hereinafter defined)
Dear Directors and Lenders:
We understand that IPC Information Systems, Inc. ( the "Company") has entered
into an Agreement and Plan of Merger (the "Merger Agreement") with Arizona
Acquisition Corp. ("AAC") whereby AAC will merge (the "Merger") with and into
the Company with the Company surviving the merger. Under the terms of the Merger
Agreement each share of the Company's common stock will be converted at the
election of the holder thereof into either (i) the right to receive $21.00 in
cash; or (ii) the right to retain one share of common stock of the surviving
corporation ("Surviving Corporation"). As a result of the Merger AAC's parent
Cable Systems Holdings, LLC. ("CSH"), a majority of whose membership interests
are owned by Citicorp Venture Capital, Ltd. ("CVC") and their respective
affiliates will receive in exchange for its shares of AAC not less than 54% nor
more than 90% of the number of shares of the Surviving Corporation. The Merger,
the financings referred to in the next sentence and other related transactions
disclosed to Xxxxxxxx Xxxxx are referred to collectively herein as the
"Transaction." In addition, we understand that in connection with the Merger the
Company will sell $180 million aggregate face amount of Senior Discount Notes
and will enter into a $55 million revolving credit facility which will be
undrawn at closing, but under which two letters of credit aggregating
approximately $4 million will be issued at closing. It is our under-
standing that a significant part of the financing for the Transaction will be
obtained by the Company from one or more institutional lenders (the "Lenders").
You have requested our written opinion (the "Opinion") as to the matters set
forth below. This Opinion values the Company as a going-concern (including
goodwill), on a pro forma basis, both immediately before and immediately after
and giving effect to the Transaction and the associated indebtedness. For
purposes of this Opinion, "fair value" shall be defined as the amount at which
the Company would change hands between a willing buyer and a willing seller,
each having reasonable knowledge of the relevant facts, neither being under any
compulsion to act, with equity to both; and "present fair saleable value" shall
be defined as the amount that may be realized if the Company's aggregate assets
(including goodwill) are sold as an entirety with reasonable promptness in an
arm's length transaction under present conditions for the sale of comparable
business enterprises, as such
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IPC Information Systems
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April 30, 1998 -2-
conditions can be reasonably evaluated by Xxxxxxxx Xxxxx. We have used the same
valuation methodologies in determining fair value and present fair saleable
value for purposes of rendering this Opinion. The term "identified contingent
liabilities" shall mean the stated amount of contingent liabilities identified
to us and valued by responsible officers of the Company, upon whom we have
relied upon without independent verification; no other contingent liabilities
will be considered. The amount of contingent liabilities at any time shall be
computed by officers of the Company as the amount that, in the light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability whether or not
such liability meets the criteria for disclosure under FAS 5. Being "able to pay
its debts as they become absolute and mature" shall mean that, assuming the
Transaction has been consummated substantially as proposed, the Company's
financial forecasts for the period 1998 to 2002 indicate positive cash flow for
such period, including (and after giving effect to) the payment of installments
due under the indebtedness incurred in the Transaction, as such installments are
scheduled at the close of the Transaction. It is Xxxxxxxx Lokey's understanding,
upon which it is relying, that the Company's Board of Directors and any other
recipient of the Opinion will consult with and rely solely upon their own legal
counsel with respect to said definitions. No representation is made herein, or
directly or indirectly by the Opinion, as to any legal matter or as to the
sufficiency of said definitions for any purpose other than setting forth the
scope of Xxxxxxxx Lokey's Opinion hereunder.
Notwithstanding the use of the defined terms "fair value" and "present fair
saleable value," we have not been engaged to identify prospective purchasers or
to ascertain the actual prices at which and terms on which the Company can
currently be sold, and we know of no such efforts by others. Because the sale of
any business enterprise involves numerous assumptions and uncertainties, not all
of which can be quantified or ascertained prior to engaging in an actual selling
effort, we express no opinion as to whether the Company would actually be sold
for the amount we believe to be its fair value and present fair saleable value.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders on
Form 10-K for the two fiscal years ended September 30, 1997
and quarterly reports on Form 10-Q for the three months
ended December 31, 1997, which the Company's management has
identified as the most current information available;
2. reviewed copies of the following documents and agreements:
(i) Form S-3/A dated April 27, 1998;
(ii) Form S-4/A dated April 9, 1998;
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IPC Information Systems
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April 30, 1998 -3-
(iii) Agreement and Plan of Merger between Arizona
Acquisition Corp. and IPC Information Systems,
Inc. dated December 18, 1997 as amended on April
9, 1998;
(iv) $55,000,000 Credit Agreement dated as of April
30, 1998 among IPC Information Systems, Inc. as
Parent Borrower and IPC Funding Corp. as Sub
Borrower and the Initial Lenders and the Initial
Issuing Bank named therein and Xxxxxx Xxxxxxx
Senior Funding, Inc. as Administrative Agent,
Syndication Agent and Arranger, Xxxxxxx Xxxxx
Credit Partners L.P. as Documentation Agent and
General Electric Capital Corporation as
Collateral Agent;
(v) $247,400,000 aggregate principal amount at
maturity IPC Information Systems, Inc. 10 7/8%
Senior Discount Notes Due 2008;
(vi) Citicorp Venture Capital, Ltd. Commitment Letter
dated December 17, 1997 regarding the purchase of
up to 90% of the capital stock of IPC Information
Systems, Inc.;
(vii) Xxxxxx Xxxxxxx Senior Funding, Inc. Commitment
Letter dated December 17, 1997 regarding the $75
million senior secured revolving credit facility
(it being understood that the revolving credit
facility has been reduced to $55 million) and
Xxxxxx Xxxxxxx & Co. Incorporated Commitment
Letter dated December 17, 1997 regarding the
$157,000,000 (aggregate principal amount at
maturity) senior discount notes;
(viii) IPC Information Systems, Inc. Financial Plan,
1994-2002;
(ix) IPC Information Systems, Inc. Notice of Annual
Meeting of Stockholders dated April 10, 1998 and
the Proxy Statement/Prospectus dated the same
date.; and
(x) IPC Rating Agency Presentation March 1998.
3. met with certain members of the senior management of the
Company to discuss the operations, financial condition,
future prospects and projected operations and performance
of the Company, and met with representatives of the
Company's independent accounting firm and counsel to
discuss certain matters;
4. visited certain facilities and business offices of the
Company;
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IPC Information Systems
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April 30, 1998 -4-
5. reviewed forecasts and projections prepared by the
Company's management with respect to the Company for the
years ended September 30, 1998 through 2002;
6. reviewed the historical market prices and trading volume
for the Company's publicly traded securities;
7. reviewed other publicly available financial data for the
Company and certain companies that we deem comparable to
the Company; and
8. conducted such other studies, analyses and investigations
as we have deemed appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company, and that there has been no material
adverse change in the assets, financial condition, business or prospects of the
Company since the date of the most recent financial statements made available to
us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it; provided, however, in the case of financial
projections contained in the information, such financial projections shall have
been prepared in good faith based upon reasonable assumptions and information
reasonably available and will be, to the best of the Company's knowledge, true,
complete and correct in all material respects, but no other representation is
made with respect thereto. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other conditions
as they exist and can be evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion as of the
date of this letter that, assuming the Transaction had been consummated
substantially as proposed, both immediately before and immediately after and
giving effect to the Transaction:
(a) on a pro forma basis, the fair value and present fair
saleable value of the Company's assets would exceed the
Company's stated liabilities and identified contingent
liabilities;
(b) the Company should be able to pay its debts as they become
absolute and mature; and
(c) the capital remaining in the Company after the Transaction
would not be unreasonably small for the business in which
the Company is engaged, as
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IPC Information Systems
The Lenders
April 30, 1998 -5-
management has indicated it is now conducted and is
proposed to be conducted following the consummation of the
Transaction.
This Opinion is furnished solely for your benefit and may not be relied upon by
any other person without our express, prior written consent. Information copies
of this Opinion may, however, be delivered to financial institutions that
purchase participations in loans constituting the financing incurred in
connection with the Transaction, subject to the understanding that this Opinion
speaks only as of the date hereof and that we assume no responsibility for the
effect of any event occurring after the date hereof. This Opinion is delivered
to each recipient subject to the conditions, scope of engagement, limitations
and understandings set forth in this Opinion and our engagement letter dated
January 9, 1998, and subject to the understanding that the obligations of
Xxxxxxxx Xxxxx in the Transactions are solely corporate obligations, and no
officer, director, employee, agent, shareholder or controlling person of
Xxxxxxxx Xxxxx shall be subjected to any personal liability whatsoever to any
person, nor will any such claim be asserted by or on behalf of you or your
affiliates.
HOULIHAN, LOKEY, XXXXXX & XXXXX FINANCIAL ADVISORS, INC.
