<PAGE>
As filed with the Securities and Exchange Commission on February 13, 1998.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
IPC INFORMATION SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3661 58-1636502
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer Identification No.)
Classification Code No.)
WALL STREET PLAZA
88 PINE STREET
NEW YORK, NEW YORK 10005
(212)825-9060
</TABLE>
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
DANIEL UTEVSKY, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
IPC INFORMATION SYSTEMS, INC.
WALL STREET PLAZA
88 PINE STREET
NEW YORK, NEW YORK 10005
(212) 825-9060
(Name, Address, Including Zip Code, and telephone number, including
area code of agent for service)
with copies to:
<TABLE>
<S> <C>
THOMAS N. TALLEY, ESQ. PHILIP H. WERNER, ESQ.
THACHER PROFFITT & WOOD MORGAN, LEWIS & BOCKIUS LLP
TWO WORLD TRADE CENTER 101 PARK AVENUE
NEW YORK, NEW YORK 10048 NEW YORK, NEW YORK 10178
(212) 912-7400 (212) 309-6000
</TABLE>
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effectiveness of this Registration Statement and the
effective time ("Effective Time") of the merger (the "Merger") of Arizona
Acquisition Corp. ("AAC") with and into IPC Information Systems, Inc. (the
"Registrant") as described in the attached Proxy Statement/Prospectus.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================================
Title of Each Class of Securities Amount to Be Proposed Maximum Proposed Maximum Amount of
to Be Registered Registered(1) Offering Price per Unit(2) Aggregate Offering Price Registration Fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value 3,809,524 $21.00 $80,000,004 $23,600
=================================================================================================================================
</TABLE>
1. This Registration Statement relates to the 3,809,524 shares of Common Stock
of the Registrant to be retained by holders of the Registrant's Common Stock
in the proposed Merger of AAC with and into the Registrant, with the
Registrant continuing as the surviving corporation.
2. Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, based on the
proposed offering price to existing holders of the Registrant's Common Stock.
__________________________________
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 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>
[LETTERHEAD OF IPC INFORMATION SYSTEMS, INC.]
[__________], 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
IPC Information Systems, Inc. ("IPC"), which will be held on [__________, 1998]
at [__________] (the "Annual Meeting"). As you may be aware, IPC and Arizona
Acquisition Corp. ("AAC") entered into an Agreement and Plan of Merger, dated as
of December 18, 1997 (the "Merger Agreement"), pursuant to which AAC will be
merged with and into IPC (the "Merger") with IPC continuing as the surviving
corporation (the "Surviving Corporation"). At the Annual Meeting, in addition
to the election of two directors and the ratification of the appointment of
Coopers & Lybrand L.L.P. ("Coopers & Lybrand") as independent accountants, you
will be asked to consider and vote upon a proposal to approve the Merger
Agreement, a proposal to amend and restate IPC's Certificate of Incorporation
(the "Certificate Amendment") and a proposal to approve and adopt the IPC
Information Systems, Inc. 1998 Stock Incentive Plan for selected employees,
directors and consultants of the Surviving Corporation and its subsidiaries (the
"New Stock Incentive Plan") in connection with the Merger.
The Merger Agreement provides that each share of IPC common stock, par
value $.01 per share ("IPC Common Stock"), issued and outstanding immediately
prior to the effective time of the Merger (other than treasury shares and shares
as to which appraisal rights have been exercised) will be converted at the
election of the holder thereof and subject to the terms described in the Proxy
Statement/Prospectus into either (i) the right to receive $21.00 in cash or (ii)
the right to retain one fully paid and nonassessable share of common stock of
the Surviving Corporation following the Merger ("Surviving Corporation Common
Stock"), subject to proration in certain circumstances. Under the terms of the
Merger Agreement, cash will be paid in lieu of fractional shares of Surviving
Corporation Common Stock. A copy of the Merger Agreement is included as Annex A
to the Proxy Statement/Prospectus, which you are urged to read carefully.
The Certificate Amendment provides, among other things, for the elimination
of the staggered Board of Directors of IPC. Consummation of the Merger is not
contingent on approval of the Certificate Amendment. The Certificate Amendment
is included as Annex B to the Proxy Statement/Prospectus.
The New Stock Incentive Plan provides for the grant of options to purchase
Surviving Corporation Common Stock to selected employees, directors and
consultants of the Surviving Corporation and its subsidiaries. The New Stock
Incentive Plan is contingent on approval of the Merger Agreement and will become
effective only upon consummation of the Merger. The New Stock Incentive Plan is
included as Annex C to the Proxy Statement/Prospectus.
Approval and adoption of the Merger Agreement requires the affirmative vote
of a majority of the outstanding shares of IPC Common Stock held by stockholders
of record on _________, 1998 (the "Record Date"). Peter J. Kleinknecht, Vice
Chairman of IPC, and certain family members and affiliated parties and Richard
P. Kleinknecht, Chairman of IPC, and certain family members and affiliated
parties (collectively, the "Kleinknecht Stockholders") owned, beneficially
and/or of record, an aggregate of 6,906,554 shares of IPC Common Stock on the
Record Date, constituting approximately 64% of the outstanding shares of IPC
Common Stock entitled to vote at the Annual Meeting. Pursuant to a Stockholders
Agreement by and among AAC and the Kleinknecht Stockholders, dated as of
December 18, 1997 (the "Stockholders Agreement"), the Kleinknecht Stockholders,
in their capacity as such, have agreed, among other things, to vote their shares
in favor of the Merger and the adoption of the Merger Agreement. The
Stockholders Agreement is included as Annex D to the Proxy Statement/Prospectus.
The summaries of portions of the Stockholders Agreement set forth in the Proxy
Statement/Prospectus describe the material provisions of the Stockholders
Agreement but are subject to, and are qualified in their entirety by reference
to, the text of the Stockholders Agreement.
Holders of IPC Common Stock will be entitled to dissenters' rights under
Delaware General Corporation Law in connection with the Merger, as described in
the accompanying Proxy Statement/Prospectus.
THE MERGER AGREEMENT, THE CERTIFICATE AMENDMENT AND THE NEW STOCK INCENTIVE
PLAN HAVE BEEN UNANIMOUSLY APPROVED BY THE BOARD OF DIRECTORS OF IPC. YOUR
BOARD HAS DETERMINED THAT THE MERGER IS FAIR AND IN THE BEST INTERESTS OF IPC
AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
<PAGE>
The investment banking firm of Deutsche Morgan Grenfell Inc. ("DMG") has
advised the Board of Directors that, in its opinion, as of December 17, 1997,
the consideration to be received by the holders of IPC Common Stock is fair from
a financial point of view to the holders of such shares. DMG's opinion is
included as Annex E to the accompanying Proxy Statement/Prospectus. You are
urged to read the opinion in its entirety for further information with respect
to the assumptions made, matters considered and limits of the reviews undertaken
by DMG.
Consummation of the Merger is subject to certain conditions, including the
approval of the Merger Agreement by the requisite vote of IPC stockholders and
the approval of the Merger by various regulatory agencies.
The enclosed Notice of Annual Meeting of Stockholders and Proxy
Statement/Prospectus describe the Merger and provide information regarding the
Annual Meeting. Please read these materials carefully.
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST A MAJORITY OF THE OUTSTANDING
SHARES OF IPC COMMON STOCK ELIGIBLE TO VOTE IS REQUIRED TO APPROVE THE MERGER
AGREEMENT, THE AFFIRMATIVE VOTE OF AT LEAST 80% OF THE OUTSTANDING SHARES OF IPC
COMMON STOCK ELIGIBLE TO VOTE IS REQUIRED TO APPROVE THE CERTIFICATE AMENDMENT,
AND THE AFFIRMATIVE VOTE OF AT LEAST A MAJORITY OF THE VOTES PRESENT IN PERSON
OR BY PROXY AND ENTITLED TO VOTE IS REQUIRED TO APPROVE THE NEW STOCK INCENTIVE
PLAN. A FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE IN PERSON
WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT AND THE
CERTIFICATE AMENDMENT. THEREFORE, I URGE YOU TO FILL IN, SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE AS
SOON AS POSSIBLE TO ASSURE THAT YOUR SHARES WILL BE VOTED AT THE ANNUAL MEETING.
On behalf of the Board of Directors, we thank you for your support and urge
you to vote FOR approval of the Merger Agreement, FOR approval of the
Certificate Amendment, FOR approval of the New Stock Incentive Plan, FOR the
election of two directors and FOR ratification of the appointment of Coopers &
Lybrand.
If you have any questions, please call us at (212) 825-9060. I look
forward to seeing you on [__________, 1998].
Sincerely,
S. Terry Clontz
President and Chief Executive Officer
<PAGE>
IPC INFORMATION SYSTEMS, INC.
WALL STREET PLAZA
88 PINE STREET
NEW YORK, NEW YORK 10005
(212) 825-9060
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
An Annual Meeting of Stockholders (the "Annual Meeting") of IPC Information
Systems, Inc. ("IPC" or the "Company") will be held on [__________], 1998 at
[__________], New York, New York, at [__________] [__].m., for the following
purposes:
1. To consider and vote on a proposal to approve and adopt an Agreement
and Plan of Merger, dated as of December 18, 1997 (the "Merger
Agreement"), by and between IPC and Arizona Acquisition Corp. ("AAC")
pursuant to which AAC will be merged with and into IPC (the "Merger")
with IPC continuing as the surviving corporation (the "Surviving
Corporation"). Pursuant to the Merger, each share of common stock,
par value $.01 per share, of IPC ("IPC Common Stock") issued and
outstanding immediately prior to the effective time of the Merger
(other than (i) shares of IPC Common Stock held by IPC or any
subsidiary thereof as treasury stock or owned by AAC, which shares
shall be canceled and (ii) shares as to which appraisal rights have
been exercised) will be converted at the election of the holder
thereof and subject to the terms described herein, into either (a) the
right to receive $21.00 in cash, or (b) the right to retain one fully
paid and nonassessable share of common stock of the Surviving
Corporation following the Merger (the "Surviving Corporation Common
Stock"), subject to proration in certain circumstances. Under the
terms of the Merger Agreement, cash will be paid in lieu of fractional
shares of Surviving Corporation Common Stock. The Merger Agreement is
included as Annex A to the Proxy Statement/Prospectus.
2. To consider and vote on a proposal to amend and restate the
Certificate of Incorporation of IPC to that as included as Annex B to
the Proxy Statement/Prospectus which, among other things, would delete
the provision providing for a staggered board of directors (the
"Certificate Amendment"). Consummation of the Merger is not
---
contingent upon approval of the Certificate Amendment.
3. To consider and vote upon a proposal to approve and adopt the IPC
Information Systems, Inc. 1998 Stock Incentive Plan for selected
employees, directors and consultants of the Surviving Corporation and
its subsidiaries (the "New Stock Incentive Plan"). Adoption of the
New Stock Incentive Plan is contingent upon approval of the Merger
Agreement and will become effective only upon consummation of the
Merger. The New Stock Incentive Plan is included as Annex C to the
Proxy Statement/Prospectus.
4. To elect two directors to hold office until the 2001 annual meeting
and until their respective successors have been duly elected or
appointed (as the case may be) and qualified, provided, that, as
further described in the accompanying Proxy Statement/Prospectus, if
the Merger is approved by the IPC stockholders, the composition of the
Board of Directors of the Surviving Corporation will change.
5. To ratify the appointment by the Board of Directors of the firm of
Coopers & Lybrand L.L.P. as independent accountants for the Company
for the fiscal year ending September 30, 1998.
6. To consider and vote upon a proposal to authorize the Board of
Directors of IPC, in its discretion, to vote upon such other business
as may properly come before the Annual Meeting and any adjournment or
postponement thereof, including, without limitation, a motion to
adjourn the Annual Meeting to another time or place for the purpose of
soliciting additional proxies in order to approve and adopt the Merger
Agreement, or otherwise.
Pursuant to IPC's bylaws, IPC's Board of Directors has fixed the close of
business on [__________], 1998 as the record date for the determination of
stockholders entitled to notice of, and to vote at, the Annual Meeting. Only
holders of record of IPC Common Stock at the close of business on that date are
entitled to notice of, and to vote at, the Annual Meeting.
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. THE
AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST A MAJORITY OF THE OUTSTANDING SHARES
OF IPC COMMON STOCK ELIGIBLE TO VOTE IS REQUIRED TO APPROVE THE MERGER
AGREEMENT, THE AFFIRMATIVE VOTE OF AT LEAST 80% OF THE
<PAGE>
OUTSTANDING SHARES OF IPC COMMON STOCK IS REQUIRED TO APPROVE THE CERTIFICATE
AMENDMENT AND THE AFFIRMATIVE VOTE OF AT LEAST A MAJORITY OF THE VOTES PRESENT
IN PERSON OR BY PROXY AND ENTITLED TO VOTE IS REQUIRED TO APPROVE THE NEW STOCK
INCENTIVE PLAN.
Approval and adoption of the Merger Agreement requires the affirmative vote
of a majority of the outstanding shares of IPC Common Stock held by stockholders
of record on _________, 1998 (the "Record Date"). Peter J. Kleinknecht, Vice
Chairman of IPC, and certain family members and affiliated parties and Richard
P. Kleinknecht, Chairman of IPC, and certain family members and affiliated
parties (collectively, the "Kleinknecht Stockholders") owned, beneficially
and/or of record, an aggregate of 6,906,554 shares of IPC Common Stock on the
Record Date, constituting approximately 64% of the outstanding shares of IPC
Common Stock entitled to vote at the Annual Meeting. Pursuant to a Stockholders
Agreement by and among AAC and the Kleinknecht Stockholders, dated as of
December 18, 1997 (the "Stockholders Agreement"), the Kleinknecht Stockholders,
in their capacity as such, have agreed, among other things, to vote their shares
in favor of the Merger and the adoption of the Merger Agreement. The
Stockholders Agreement is included as Annex D to the Proxy Statement/Prospectus.
The summaries of portions of the Stockholders Agreement set forth in the Proxy
Statement/Prospectus describe the material provisions of the Stockholders
Agreement but are subject to, and are qualified in their entirety by reference
to, the text of the Stockholders Agreement.
In connection with the proposed Merger, those stockholders of IPC who meet
and comply with the requirements of Section 262 of Delaware General Corporation
Law ("DGCL"), a copy of which is included as Annex F to the accompanying Proxy
Statement/Prospectus, will be entitled to dissenters' rights. Reference is made
to the section entitled "THE MERGER -- Dissenters' Rights" in the accompanying
Proxy Statement/Prospectus for a discussion of the procedures to be followed by
dissenting stockholders in asserting appraisal rights under Section 262 of the
DGCL in connection with the proposed Merger.
A FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE IN PERSON WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER AGREEMENT AND THE CERTIFICATE
AMENDMENT. PLEASE FILL IN, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY
CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IF YOU DECIDE TO ATTEND THE ANNUAL
MEETING, YOU CAN REVOKE YOUR PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT
BEFORE THE ANNUAL MEETING.
By Order of the Board of Directors,
Daniel Utevsky
Vice President, General Counsel and Corporate
Secretary
New York, New York
[__________], 1998
<PAGE>
IPC INFORMATION SYSTEMS, INC.
WALL STREET PLAZA
88 PINE STREET
NEW YORK, NEW YORK 10005
(212) 825-9060
____________________________
PROXY STATEMENT/PROSPECTUS
____________________________
This Proxy Statement/Prospectus is being furnished to the holders of common
stock, par value $.01 per share ("IPC Common Stock"), of IPC Information
Systems, Inc. ("IPC" or the "Company") in connection with the solicitation of
proxies by the Board of Directors of IPC (the "IPC Board") for use at an annual
meeting of IPC's stockholders and at any adjournment or postponement thereof
(the "Annual Meeting"), to be held at [__________] on [__________], 1998, at the
[__________] New York, New York.
At the Annual Meeting, in addition to the election of directors and the
ratification of the appointment of the firm of Coopers & Lybrand L.L.P.
("Coopers & Lybrand") as independent accountants, holders of IPC common stock
will consider and vote upon (i) a proposal to approve and adopt the Agreement
and Plan of Merger between Arizona Acquisition Corp. ("AAC") and IPC, dated as
of December 18, 1997 (the "Merger Agreement"), (ii) a proposal to approve and
adopt an amended and restated Certificate of Incorporation for IPC (the
"Certificate Amendment") and (iii) a proposal to approve and adopt the IPC
Information Systems, Inc. 1998 Stock Incentive Plan for selected employees,
directors and consultants of the Surviving Corporation and its subsidiaries (the
"New Stock Incentive Plan").
The Merger Agreement provides, among other things, for the merger of AAC
with and into the Company (the "Merger"), with the Company as the surviving
corporation (the "Surviving Corporation"). Pursuant to the Merger, each share of
IPC Common Stock issued and outstanding immediately prior to the effective time
of the Merger (the "Effective Time") (other than (i) shares of IPC Common Stock
held by IPC or any subsidiary thereof as treasury stock, which shares shall be
canceled, and (ii) shares as to which appraisal rights have been exercised) will
be converted, at the election of the holder thereof and subject to the terms
described herein, into either (a) the right to receive $21.00 in cash, or (b)
the right to retain one fully paid and nonassessable share of common stock of
the Surviving Corporation ("Surviving Corporation Common Stock"). Because the
number of shares of Surviving Corporation Common Stock to be retained by
existing IPC stockholders in the aggregate must be no less than 10% nor more
than 46% of the number of shares of Surviving Corporation Common Stock
outstanding after the Merger, the right to receive $21.00 in cash or retain
Surviving Corporation Common Stock is subject to proration as set forth in the
Merger Agreement and described in this Proxy Statement/Prospectus. However,
because Richard P. Kleinknecht has agreed to elect to retain 10% of the
outstanding shares of Surviving Corporation Common Stock after the Merger, any
other stockholders of the Company who choose to convert their shares into cash
should receive the full amount of the merger consideration in cash and should
not be required, by virtue of proration, to retain shares of Surviving
Corporation Common Stock. See "THE MERGER -- Merger Consideration." For a
description of the Merger Agreement, which is included in its entirety as Annex
A to this Proxy Statement/Prospectus, see "THE MERGER."
The Certificate Amendment provides, among other things, for the elimination
of the classified board of directors of IPC. The Certificate Amendment is
included as Annex B to this Proxy Statement/Prospectus. Approval of the Merger
is not contingent upon approval of the Certificate Amendment. See "PROPOSAL 2 -
CERTIFICATE AMENDMENT."
The New Stock Incentive Plan provides for grants of options to purchase
Surviving Corporation Common Stock to selected employees, directors and
consultants of the Surviving Corporation and its subsidiaries. The New Stock
Incentive Plan is included as Annex C to this Proxy Statement/Prospectus.
Adoption of the New Stock Incentive Plan is contingent upon approval of the
Merger Agreement and will become effective only upon consummation of the Merger.
See "PROPOSAL 3 -- NEW STOCK INCENTIVE PLAN."
<PAGE>
Each stockholder of IPC entitled to vote at the Annual Meeting will also
consider and vote upon a proposal to authorize the IPC Board, in its discretion,
to vote upon such other business as may properly come before the Annual Meeting
and any adjournment or postponement thereof, including, without limitation, a
motion to adjourn the Annual Meeting to another time or place for the purpose of
soliciting additional proxies to approve the Merger Agreement, or otherwise (the
"Additional Proposal"). See "PROPOSAL 6 -- ADDITIONAL PROPOSAL."
The Company has filed a registration statement on Form S-4 (together with
all amendments, exhibits and schedules thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the 3,809,524 shares of Surviving Corporation Common Stock which may
be retained pursuant to the Merger. This Proxy Statement/Prospectus also
constitutes a prospectus of the Company with respect to the 3,809,524 shares of
Surviving Corporation Common Stock which may be retained pursuant to the Merger.
This Proxy Statement/Prospectus does not cover any resales of Surviving
Corporation Common Stock to be received by the stockholders of the Surviving
Corporation upon consummation of the Merger, and no person is authorized to make
any use of this Proxy Statement/Prospectus in connection with any such resale.
Approval and adoption of the Merger Agreement requires the affirmative vote
of a majority of the outstanding shares of IPC Common Stock held by stockholders
of record on _________, 1998 (the "Record Date"). Peter J. Kleinknecht, Vice
Chairman of IPC, and certain family members and affiliated parties and Richard
P. Kleinknecht, Chairman of IPC, and certain family members and affiliated
parties (collectively, the "Kleinknecht Stockholders") owned, beneficially
and/or of record, an aggregate of 6,906,554 shares of IPC Common Stock on the
Record Date, constituting approximately 64% of the outstanding shares of IPC
Common Stock entitled to vote at the Annual Meeting. Pursuant to a Stockholders
Agreement by and among AAC and the Kleinknecht Stockholders, dated as of
December 18, 1997 (the "Stockholders Agreement"), the Kleinknecht Stockholders,
in their capacity as such, have agreed, among other things, to vote their shares
in favor of the Merger and the adoption of the Merger Agreement. The
Stockholders Agreement is included as Annex D to this Proxy
Statement/Prospectus. The summaries of provisions of the Stockholders Agreement
set forth in this Proxy Statement/Prospectus describe the material portions of
the Stockholders Agreement but are subject to, and are qualified in their
entirety by reference to, the text of the Stockholders Agreement.
In addition to the foregoing matters, at the Annual Meeting, the
stockholders of IPC will be asked to consider and vote on proposals to elect two
directors and to ratify the selection of Coopers & Lybrand as independent
accountants of the Company.
IPC Common Stock is listed for trading on The Nasdaq National Market
("Nasdaq") under the symbol "IPCI." On December 18, 1997, the last trading day
before public announcement of the execution of the Merger Agreement, the closing
price of IPC Common Stock on the Nasdaq was $18.375 per share. If the Merger is
approved, there will be a substantial decrease in the number of outstanding
shares of Surviving Corporation Common Stock, and the volume of shares of
Surviving Corporation Common Stock traded following the Merger will be
substantially smaller than the trading volume of IPC Common Stock prior to the
Merger. Therefore, no assurance can be given that the Surviving Corporation
Common Stock will continue to be listed on Nasdaq. See "RISK FACTORS -- Risks
Associated with the Merger -- Potential Delisting and Loss of Liquidity."
This Proxy Statement/Prospectus, the accompanying proxy card and, under
separate cover, the Form of Stock Election are first being mailed to
stockholders of IPC on or about [__________], 1998.
STOCKHOLDERS ARE URGED TO READ THE INFORMATION SET FORTH UNDER "RISK FACTORS"
BEGINNING ON PAGE [__________], OF THIS PROXY STATEMENT/PROSPECTUS.
2
<PAGE>
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE
SECURITIES COMMISSION. NEITHER THE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON
THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
______________________________
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS [__________], 1998.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
AVAILABLE INFORMATION........................................................................................ 8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................................................. 10
SUMMARY...................................................................................................... 11
Parties to the Merger...................................................................................... 11
The Annual Meeting......................................................................................... 12
The Merger................................................................................................. 13
Merger Financing........................................................................................... 18
Ancillary Agreements....................................................................................... 19
Interests of Certain Persons in the Merger................................................................. 20
Management of the Surviving Corporation After the Merger................................................... 21
Conversion of AAC Stock.................................................................................... 21
Certain Differences in Stockholder Rights.................................................................. 21
Risk Factors............................................................................................... 21
STOCK PRICE AND DIVIDEND INFORMATION......................................................................... 23
SUMMARY SELECTED HISTORICAL AND UNAUDITED PRO FORMACONDENSED CONSOLIDATED
FINANCIAL DATA.............................................................................................. 24
RISK FACTORS................................................................................................. 27
Risks Associated with Operations........................................................................... 27
Risks Associated with the Merger........................................................................... 30
Cautionary Statement Concerning Forward-Looking Statements................................................. 32
THE COMPANY.................................................................................................. 33
General.................................................................................................... 33
The Company's Three Major Operating Units.................................................................. 33
Business Strategy.......................................................................................... 34
Industry Background........................................................................................ 36
Products and Services...................................................................................... 36
Sales and Marketing........................................................................................ 42
Customers.................................................................................................. 43
Backlog.................................................................................................... 43
Research and Development................................................................................... 43
Manufacturing.............................................................................................. 44
Competition................................................................................................ 44
Regulatory Environment..................................................................................... 45
Intellectual Property...................................................................................... 48
Employees.................................................................................................. 49
Environmental Matters...................................................................................... 49
Properties................................................................................................. 49
Legal Proceedings.......................................................................................... 49
THE ANNUAL MEETING........................................................................................... 49
General.................................................................................................... 49
Recommendation of the IPC Board............................................................................ 50
Record Date................................................................................................ 50
Voting of Proxies.......................................................................................... 50
Solicitation of Proxies.................................................................................... 50
Revocability of Proxies.................................................................................... 51
Vote Required.............................................................................................. 51
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Dissenters' Rights......................................................................................... 52
THE MERGER................................................................................................... 52
Parties to the Merger...................................................................................... 52
Merger Consideration....................................................................................... 53
Stock Election............................................................................................. 53
Possible Effects of Proration.............................................................................. 54
Stock Election Procedure................................................................................... 55
Effects of the Merger; Effective Time of the Merger........................................................ 56
Conversion/Retention of Shares; Procedures for Exchange of Certificates.................................... 56
Fractional Shares.......................................................................................... 57
Conduct of Business Pending the Merger..................................................................... 57
No Solicitation............................................................................................ 58
Conditions to the Consummation of the Merger............................................................... 59
Background of the Merger................................................................................... 59
Recommendation of the IPC Board; Reasons for the Merger.................................................... 66
Opinion of Financial Advisor............................................................................... 69
Ancillary Agreements....................................................................................... 74
Regulatory Considerations/Approvals........................................................................ 79
Representations and Warranties............................................................................. 79
Amendment and Waiver....................................................................................... 80
Termination................................................................................................ 80
Termination Fee............................................................................................ 80
Certain Fees and Expenses.................................................................................. 81
Federal Income Tax Consequences............................................................................ 81
Accounting Treatment....................................................................................... 85
Resale of Surviving Corporation Common Stock Following the Merger.......................................... 86
Merger Financing........................................................................................... 86
Conversion of AAC Stock.................................................................................... 87
Dissenters' Rights......................................................................................... 87
Interests of Certain Persons in the Merger................................................................. 90
Effect on IPC Employee Benefit Plans....................................................................... 90
PROPOSAL 2 -- CERTIFICATE AMENDMENT.......................................................................... 91
Classification of the Board................................................................................ 91
Limitations of Director Liability.......................................................................... 91
Vacancies.................................................................................................. 92
Amendments to Certificate of Incorporation................................................................. 92
Amendments to Bylaws....................................................................................... 92
PROPOSAL 3 -- NEW STOCK INCENTIVE PLAN....................................................................... 92
General Plan Information................................................................................... 92
Vote Required.............................................................................................. 93
Purpose of the New Stock Incentive Plan.................................................................... 93
Description of the New Stock Incentive Plan................................................................ 93
Termination or Amendment of the New Stock Incentive Plan................................................... 95
Federal Income Tax Consequences............................................................................ 95
New Plan Benefits.......................................................................................... 96
IPC ANNUAL MEETING -- OTHER MATTERS.......................................................................... 96
General.................................................................................................... 96
Security Ownership of Certain Beneficial Owners and Management............................................. 96
Proposal 4 -- Election of Directors........................................................................ 97
Information with Respect to Nominees and Continuing Directors.............................................. 98
Nominees for Election as Directors......................................................................... 99
Continuing Directors....................................................................................... 99
Board Meetings and Committees.............................................................................. 100
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Directors' Compensation..................................................................................... 100
Compensation Committee Interlock and Insider Participation.................................................. 100
Report of the Compensation Committee on Executive Compensation.............................................. 101
Executive Officer Compensation.............................................................................. 101
Chairman and Vice Chairman Compensation..................................................................... 102
President and Chief Executive Officer Compensation.......................................................... 102
Other Executive Officers' Compensation...................................................................... 102
Employee Retention and Incentive Arrangements -- Change of Control.......................................... 103
Federal Tax Considerations Under Section 162(m)............................................................. 103
Performance Graph........................................................................................... 103
Management.................................................................................................. 104
Executive Compensation...................................................................................... 105
Employment Agreements....................................................................................... 107
Stock Option Plan........................................................................................... 109
Stock Purchase Plan......................................................................................... 111
Certain Relationships and Related Transactions.............................................................. 112
Compliance with Section 16(a) of the Securities Exchange Act of 1934........................................ 113
Proposal 5 -- Ratification of Appointment of Independent Accountants....................................... 113
PROPOSAL 6 -- ADDITIONAL PROPOSAL............................................................................. 114
MANAGEMENT FOLLOWING THE MERGER............................................................................... 114
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION........................................................ 116
DESCRIPTION OF IPC CAPITAL STOCK.............................................................................. 117
Common Stock................................................................................................ 117
Preferred Stock............................................................................................. 117
Delaware Anti-Takeover Law and Certain Charter Provisions................................................... 117
Capital Stock of the Surviving Corporation.................................................................. 118
Transfer Agent and Registrar................................................................................ 118
COMPARISON OF CERTAIN RIGHTS OF STOCKHOLDERS.................................................................. 118
General..................................................................................................... 118
Special Meetings of Stockholders............................................................................ 118
Stockholder Action by Written Consent....................................................................... 119
Classification of the Board................................................................................. 119
Removal of Directors........................................................................................ 119
Indemnification of Directors, Officers and Other Agents..................................................... 119
Limitations of Director Liability........................................................................... 119
Bylaw Amendments............................................................................................ 120
LEGAL MATTERS................................................................................................. 120
EXPERTS....................................................................................................... 120
STOCKHOLDER PROPOSALS......................................................................................... 120
ANNEXES
A Merger Agreement..................................................................................... A-1
B Certificate Amendment................................................................................ B-1
C New Stock Incentive Plan............................................................................. C-1
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
D Stockholders Agreement............................................................................... D-1
E Opinion of IPC's Financial Advisor................................................................... E-1
F Section 262 of Delaware General Corporation Law...................................................... F-1
</TABLE>
7
<PAGE>
AVAILABLE INFORMATION
IPC is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Commission.
Copies of IPC's reports, proxy statements and other information can be
obtained, upon payment of prescribed fees, from the public reference facilities
of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549.
In addition, such reports, proxy statements and other information can be
inspected at the Commission's facilities referred to above and at the
Commission's Regional Offices at 7 World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. If available, such information may also be accessed through the
Commission's Electronic Data, Gathering, Analysis and Retrieval System via
electronic means, including the Commission's website on the Internet
(http://www.sec.gov).
The shares of IPC Common Stock are included for quotation on Nasdaq, and
such reports, proxy statements and other information concerning IPC are
available for inspection and copying at the offices of the National Association
of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
Statements contained in this Proxy Statement/Prospectus or in any document
incorporated by reference in this Proxy Statement/Prospectus as to the contents
of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.
THIS PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS
WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF
THE SURVIVING CORPORATION FOLLOWING THE CONSUMMATION OF THE MERGER. SEE
"SUMMARY," "THE MERGER -- BACKGROUND OF THE MERGER," AND "-- RECOMMENDATION OF
THE IPC BOARD; REASONS FOR THE MERGER" AND "UNAUDITED CONDENSED CONSOLIDATED PRO
FORMA FINANCIAL DATA."
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS RELATING TO IPC BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(EXCLUDING CERTAIN EXHIBITS THERETO) ARE AVAILABLE UPON REQUEST FROM THE
INVESTOR RELATIONS DEPARTMENT, IPC INFORMATION SYSTEMS, INC., WALL STREET PLAZA,
88 PINE STREET, NEW YORK, NEW YORK 10005, TELEPHONE NUMBER (212) 858-7969. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
[DATE FIVE BUSINESS DAYS PRIOR TO FINAL INVESTMENT DECISION].
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY IPC. THIS PROXY STATEMENT/PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF IPC SINCE THE DATE HEREOF OR THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
The information herein contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that involve a
number of risks and uncertainties. A number of factors could cause actual
results, performance, achievements of the Surviving Corporation and its
subsidiaries, or industry results to be materially different from any future
results, performance or achievements expressed or implied by
<PAGE>
such forward-looking statements. These factors include, but are not limited to,
the competitive environment in the telecommunications industry in general and in
the Surviving Corporation's and its subsidiaries' specific market areas; changes
in prevailing interest rates and the availability of and terms of financing to
fund the anticipated growth of the Surviving Corporation's and its subsidiaries'
respective businesses; inflation; changes in costs of goods and services;
economic conditions in general and in the Surviving Corporation's and its
subsidiaries' specific market areas; demographic changes; changes in or failure
to comply with federal, state and/or local government regulations; liability and
other claims asserted against the Surviving Corporation or its subsidiaries;
changes in operating strategy or development plans; the ability to attract and
retain qualified personnel; the significant indebtedness of the Surviving
Corporation and its subsidiaries; labor disturbances; changes in the Surviving
Corporation's and its subsidiaries' acquisition and capital expenditure plans;
and other factors referenced herein. In addition, such forward-looking
statements are necessarily dependent upon assumptions, estimates and dates that
may be incorrect or imprecise and involve known and unknown risks uncertainties
and other factors. Accordingly, any forward-looking statements included herein
do not purport to be predictions of future events or circumstances and may not
be realized. Forward-looking statements can be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should," "seeks," "pro forma," "anticipates," "intends" or the
negative of any thereof, or other variations thereon or comparable terminology,
or by discussions of strategy or intentions. Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such forward-
looking statements. The Company and the Surviving Corporation disclaim any
obligations to update any such factors or to publicly announce the results of
any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.
Tradent MX(R) and Exchangefone(R) are registered trademarks of the
Company, and VS-MX(TM), TraderConnect(TM), MX Compact(TM), TradePhone MX(TM),
The WorldTurret(TM), IXLink(TM), DigiHoot(TM), MetroLink(TM), IXFrame(TM),
IXGlobal(TM) and IXPrime(TM) are trademarks of the Company. Other trademarks or
trade names referred to in this Prospectus are the property of their respective
owner[s].
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by IPC (File No. 0-25492)
pursuant to the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus:
1. IPC's Annual Report on Form 10-K for the year ended September 30,
1997, as amended;
2. IPC's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997;
3. IPC's Current Report on Form 8-K, dated December 24, 1997; and
4. The description of IPC Common Stock, set forth in the Company's
Registration Statement on Form 8-A, dated September 21, 1994, and
any amendment or report filed for the purpose of updating any
such description.
The IPC Form 10-K (without the exhibits thereto) is included in the IPC
Annual Report to Stockholders that accompanies this Proxy Statement/Prospectus.
An additional copy of the Annual Report will be furnished promptly without
charge to stockholders of IPC upon request.
All documents filed by IPC with the Commission pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Proxy
Statement/Prospectus and prior to the conclusion of the Annual Meeting shall be
deemed to be incorporated by reference in this Proxy Statement/Prospectus and to
be a part hereof from the date of filing of such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Proxy Statement/Prospectus.
For information on how to obtain copies of the documents incorporated
herein by reference, see "AVAILABLE INFORMATION."
<PAGE>
SUMMARY
The following summary is not intended to be a complete description of all
material facts regarding IPC, AAC and the matters to be considered at the Annual
Meeting and is qualified in all respects by the information appearing elsewhere
or incorporated by reference in this Proxy Statement/Prospectus, the Annexes
hereto and the documents referred to herein.
For a discussion of certain important factors that should be considered by
holders of IPC Common Stock in connection with their consideration of the
Merger, including certain risks related to retaining Surviving Corporation
Common Stock, see "RISK FACTORS."
PARTIES TO THE MERGER
IPC Information Systems, Inc. IPC is a leader in providing integrated
telecommunications equipment and services that facilitate the execution of
transactions by the financial trading community. Such transactions involve the
trading of equity and debt securities, commodities, currencies and other
financial instruments. The Company designs, manufactures, installs and services
trading room voice communication systems ("turret systems") and installs and
services the cabling infrastructure and networks ("Information Transport
Systems" or "I.T.S.") which provide financial traders with desktop access to
time-sensitive communications and data. The Company's primary customers include
securities and investment banking firms, merchant and commercial banks,
interdealer brokers, foreign exchange and commodity brokers and dealers,
securities and commodity exchanges, mutual and hedge fund companies, asset
managers and insurance companies. The Company uses an integrated approach to
marketing its products and services, leveraging its established customer base
throughout the financial trading community. In addition, through its
subsidiary, International Exchange Networks, Ltd. ("IXnet"), the Company
operates 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. See "AVAILABLE INFORMATION," "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE", "THE COMPANY," "THE MERGER -- Parties to the
Merger," "SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL DATA," and "PRO FORMA CONSOLIDATED FINANCIAL INFORMATION."
The Company's principal executive offices are located at Wall Street Plaza,
88 Pine Street, New York, New York 10005, and its telephone number is (212) 825-
9060.
Arizona Acquisition Corp. AAC is a Delaware corporation which was
incorporated on November 13, 1997 and has not carried on any activities to date
other than those incident to its formation and the transactions contemplated by
the Merger Agreement. All of the outstanding capital stock of AAC is owned by
Cable Systems Holding, LLC ("CSH LLC") and its subsidiaries.
Cable Systems Holding, LLC. CSH LLC is a Delaware limited liability
company which engages in certain telecommunication businesses through its
subsidiaries. Members of CSH LLC owning units of CSH LLC attributable to CSH
LLC's ownership of AAC, acting directly or through their designees, make all of
the investment decisions on behalf of CSH LLC. CSH LLC is headquartered at 505
N. 51st Avenue, Phoenix, Arizona 85043-2701. CSH LLC has two other operating
subsidiaries, Cable Systems International, Inc. ("CSI"), a closely-held
manufacturer of telecommunications products for outside plant, customer premises
and broadband networks, and LoDan Electronics, Inc., a closely-held manufacturer
of specialized cable assemblies and contract assembly service provider. See
"THE MERGER -- Parties to the Merger."
<PAGE>
THE ANNUAL MEETING
General. The Annual Meeting is scheduled to be held at [__________] __.m.,
on [__________], 1998 at [__________], New York, New York. At the Annual
Meeting IPC stockholders will consider and vote upon (i) a proposal to approve
the Merger Agreement, (ii) a proposal to approve the Certificate Amendment,
(iii) a proposal to approve and adopt the New Stock Incentive Plan, (iv) the
election of two directors to hold office until the 2001 annual meeting and until
their respective successors have been duly elected or appointed (as the case may
be) and qualified; provided, that if the Merger is approved by the stockholders
of IPC, the current directors of IPC, other than Richard P. Kleinknecht, will
submit their resignations, and the individuals set forth in the Merger Agreement
will be designated as directors of the Surviving Corporation following the
Effective Time, (v) the ratification of the appointment by the IPC Board of
Coopers & Lybrand as independent accountants for IPC for the fiscal year ending
September 30, 1998 and (vi) the Additional Proposal.
Record Date; Voting of Proxies. Only holders of record of IPC Common Stock
as of the close of business on the Record Date will be entitled to vote at the
Annual Meeting, with each such holder entitled to one vote per share. All
shares of IPC Common Stock represented by properly executed proxies received at
or prior to the Annual Meeting and not subsequently revoked will be voted as
directed in such proxies. IF INSTRUCTIONS ARE NOT GIVEN, SHARES REPRESENTED BY
PROPERLY EXECUTED PROXIES WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT, FOR APPROVAL AND ADOPTION OF THE CERTIFICATE AMENDMENT, FOR THE NEW
STOCK INCENTIVE PLAN, FOR THE ELECTION OF TWO DIRECTORS, FOR RATIFICATION OF THE
APPOINTMENT OF COOPERS & LYBRAND AND FOR THE ADDITIONAL PROPOSAL. However, no
proxy which is voted against the proposal to approve the Merger Agreement will
be voted in favor of the Additional Proposal by the proxies pursuant to such
discretion. See "THE ANNUAL MEETING -- Voting of Proxies."
Solicitation of Proxies. The cost of soliciting proxies from holders of
IPC Common Stock will be borne by the Company. Such solicitation will be made
by mail but may also be made by telephone, telegram or in person by directors,
officers and employees of IPC, who will receive no additional compensation for
doing so but may be reimbursed for reasonable out-of-pocket expenses in
connection therewith. IPC will make arrangements to furnish copies of proxy
materials to fiduciaries, custodians and brokerage houses for forwarding to
beneficial owners of IPC Common Stock. Such persons will be reimbursed for
reasonable out-of-pocket expenses in connection with their distribution of proxy
materials to beneficial owners of IPC Common Stock. See "THE ANNUAL MEETING --
Solicitation of Proxies."
IPC has retained [ ] to assist in the solicitation of proxies by the
Company for an estimated fee of [ ], plus reasonable out-of-pocket expenses.
If you have any questions or require additional material, please call __________
at ______ (toll free) or __________.
HOLDERS OF IPC COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY
CARDS. THE FORM OF STOCK ELECTION SENT TO ALL IPC STOCKHOLDERS UNDER SEPARATE
COVER WILL SET FORTH INSTRUCTIONS FOR RETURNING STOCK CERTIFICATES FOR
STOCKHOLDERS WHO ELECT TO RETAIN SHARES OF SURVIVING CORPORATION COMMON STOCK.
A LETTER OF TRANSMITTAL TO BE SENT TO STOCKHOLDERS AFTER THE EFFECTIVE TIME WILL
SET FORTH INSTRUCTIONS FOR RETURNING STOCK CERTIFICATES FOR STOCKHOLDERS WHO
CHOOSE TO RECEIVE CASH.
Revocability of Proxies. Any holder of IPC Common Stock who has executed
and delivered a proxy may revoke it at any time prior to its exercise (i) by
delivering a written notice of revocation to the Corporate Secretary of IPC,
(ii) by delivering a duly executed proxy relating to the matters to be
considered at the Annual Meeting bearing a date later than the proxy previously
executed, to the Corporate Secretary of IPC, or (iii) by attending the Annual
Meeting, filing a written notice of revocation with the secretary of the meeting
and voting in person (although attendance at the Annual Meeting will not in and
of itself constitute revocation of a proxy). If you are a stockholder whose
shares are not registered in your own name, you must send any revocation of
proxy or any proxy bearing a later date to the registered holders thereof, and
you will need additional documentation from your
<PAGE>
recordholder to attend and to vote personally at the Annual Meeting. Examples of
such documentation would include a broker's statement, letter or other document
that will confirm your ownership of IPC Common Stock. Unless revoked in one of
the manners set forth above, proxies in the form enclosed will be voted at the
Annual Meeting in accordance with instructions in such proxies. A proxy will not
be revoked by death or supervening incapacity of the stockholder executing the
proxy unless, before the vote, notice of such death or incapacity is filed with
the Corporate Secretary or other person responsible for tabulating votes on
behalf of IPC.
Vote Required. The affirmative vote of the holders of a majority of the
aggregate outstanding shares of IPC Common Stock on the Record Date is required
to approve and adopt the Merger Agreement and the affirmative vote of the
holders of at least 80% of the aggregate outstanding shares of IPC Common Stock
on the Record Date is required to approve the Certificate Amendment. A
plurality of the votes cast is sufficient to elect directors. In addition,
assuming the existence of a quorum, the affirmative vote of a majority of the
shares present in person or by proxy and entitled to vote at the Annual Meeting
is required to approve the New Stock Incentive Plan, ratify the appointment of
Coopers & Lybrand and approve the Additional Proposal. A failure to return a
properly executed proxy card or to vote in person or abstaining from voting will
have the same effect as a vote against the Merger Agreement and the Certificate
Amendment. Abstentions with respect to the New Stock Incentive Plan, the
ratification of Coopers & Lybrand and the Additional Proposal, will have the
effect of a vote against such proposals. Broker non-votes will not be counted as
having been voted in person or by proxy at the Annual Meeting and will have the
same effect as a vote against the Merger Agreement and the Certificate
Amendment. In contrast, shares underlying broker non-votes will have no effect
on the vote on the New Stock Incentive Plan, the ratification of Coopers &
Lybrand and the Additional Proposal. As of the Record Date, there were
[__________] shares of IPC Common Stock outstanding and entitled to be voted at
the Annual Meeting.
Security Ownership of Management. As of the Record Date, IPC's directors
and executive officers (and their affiliates) ([20] persons), beneficially own
and have the power to vote [6,993,883] shares of IPC Common Stock which
represent approximately [65]% of the outstanding shares of IPC Common Stock that
may be voted at the Annual Meeting. Such persons have indicated their intention
to vote, or direct the voting of all such shares in favor of the Merger
Agreement, the New Stock Incentive Plan and the Certificate Amendment. The
Kleinknecht Stockholders have entered into the Stockholders Agreement, pursuant
to which they have agreed upon the terms set forth therein to vote all shares
beneficially owned by them, which shares represent approximately 64% of shares
of IPC Common Stock eligible to be voted at the Annual Meeting, in favor of
approval and adoption of the Merger Agreement, the New Stock Incentive Plan and
the Certificate Amendment. See "THE MERGER -- Interests of Certain Persons in
the Merger" and " -- Ancillary Agreements -- Stockholders Agreement." As of
December 31, 1997, AAC and its directors and executive officers, beneficially
owned no shares of IPC Common Stock. See "THE ANNUAL MEETING."
Dissenting Stockholders. See "-- Dissenters' Rights."
THE MERGER
Merger Consideration. At the Effective Time, subject to certain provisions
as described herein with respect to shares of IPC Common Stock held in treasury,
shares owned by AAC and shares as to which dissenters' rights have been
exercised ("Dissenting Shares") and the effects of proration described herein,
each share of IPC Common Stock (other than Stock Electing Shares (as defined
below)), will be converted into the right to receive in cash following the
Merger an amount equal to $21.00 (the "Cash Election Price"), and each share of
IPC Common Stock with respect to which an election to retain Surviving
Corporation Common Stock has been made and not revoked in accordance with the
Merger Agreement (a "Stock Electing Share") will be converted into the right to
retain one fully paid and nonassessable share of Surviving Corporation Common
Stock (the "Stock Election Price," and together with the Cash Election Price,
the "Merger Consideration").
The Merger Agreement contemplates that stockholders of IPC must elect to
convert a minimum number of shares of IPC Common Stock into the right to retain
at least 380,952 shares of Surviving Corporation Common Stock (the "Minimum
Stock Election Number") and a maximum number of shares of IPC Common Stock into
the
<PAGE>
right to retain no more than 1,752,381 shares of Surviving Corporation Common
Stock (the "Maximum Stock Election Number"). Pursuant to the Stockholders
Agreement, Richard P. Kleinknecht has agreed to elect to retain an aggregate of
380,952 shares of Surviving Corporation Common Stock, which is equal to the
Minimum Stock Election Number. As a result, IPC stockholders who choose to
convert their shares into cash should receive the full amount in cash and should
not be required to retain any shares of Surviving Corporation Common Stock.
However, stockholders who elect to retain shares of Surviving Corporation Common
Stock, including Richard P. Kleinknecht, may receive a lesser, prorated number
of shares of Surviving Corporation Common Stock than such stockholders elected
to retain, plus cash, if the aggregate number of shares of Surviving Corporation
Common Stock elected to be retained exceeds the Maximum Stock Election Number.
Richard P. Kleinknecht has advised the Company of his intent to elect to receive
cash for his remaining ________ shares of IPC Common Stock. In addition, all
other signatories to the Stockholders Agreement, including family members of
Richard P. Kleinknecht, Peter J. Kleinknecht and his family members and Russell
G. Kleinknecht have advised the Company of their intent to elect to receive cash
for their aggregate of 6,525,602 shares of IPC Common Stock.
At the Effective Time, each option to purchase shares of IPC Common Stock
that is outstanding immediately prior to the Effective Time (whether vested or
exercisable) (the "Options") will be canceled and, in exchange therefor, the
holders of such Options will receive, with respect to each Option, a cash
payment which, prior to deduction for applicable withholding taxes, is in an
amount equal to the product of (i) the excess, if any, of $21.00 over the per
share exercise price of such Option and (ii) the number of shares of IPC Common
Stock subject to such Option (the "Option Cash Proceeds"). Payment of the Option
Cash Proceeds will be made by the Surviving Corporation on or after the closing
date of the Merger immediately upon receipt of a written agreement from the
Option holder to accept such payment in full settlement of such Option holder's
rights with respect to the Option. If the per share exercise price of any Option
equals or exceeds $21.00, such Option will be canceled without any payment
therefor.
If IPC effects a stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares prior to the
Effective Time, an appropriate adjustment to the Merger Consideration and Option
Cash Proceeds will be made.
Upon consummation of the Merger, any shares of IPC Common Stock that are
owned by IPC or any subsidiary thereof as treasury stock or that are held
directly or indirectly by IPC (other than in a fiduciary capacity or in
satisfaction of a debt previously contracted) will be canceled and retired and
cease to exist, and no payment will be made with respect thereto. In addition,
Dissenting Shares will not be converted into Surviving Corporation Common Stock
as provided in the Merger Agreement. See "-- Dissenters' Rights." For certain
information concerning the historical market prices of IPC Common Stock, see
"STOCK PRICE AND DIVIDEND INFORMATION."
Fractional Shares. No certificates or scrip representing fractional shares
of Surviving Corporation Common Stock will be issued upon the surrender for
exchange of certificates representing shares of IPC Common Stock, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of the Surviving Corporation following the Merger. Each
holder of shares of IPC Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Surviving
Corporation Common Stock (after taking into account all shares of IPC Common
Stock delivered by such holder) will receive, in lieu thereof, a cash payment
(without interest) representing (i) the applicable fraction of Surviving
Corporation Common Stock multiplied by (ii) $21.00, payable as soon as
practicable on or after the Effective Time. See "THE MERGER -- Fractional
Shares."
Stock Election. Record holders of shares of IPC Common Stock will be
entitled to make an unconditional Stock Election on or prior to the business day
next preceding the date of the Annual Meeting (the "Election Date") to retain
the Stock Election Price (the "Stock Election") on a form of stock election (the
"Form of Stock Election") being sent to all IPC stockholders at the same time
this Proxy Statement/Prospectus but under separate cover. If the number of
Stock Electing Shares exceeds the Maximum Stock Election Number, however, then
(i) the number of Stock Electing Shares covered by a holder's Stock Election to
be converted into the right to retain Surviving
<PAGE>
Corporation Common Stock will be determined by multiplying the total number of
Surviving Corporation Common Stock covered by such Stock Election by a stock
proration factor (the "Stock Proration Factor") determined by dividing the
Maximum Stock Election Number by the total number of Stock Electing Shares, and
(ii) such number of Stock Electing Shares will be so converted. All Stock
Electing Shares, other than those shares converted into the right to retain
Surviving Corporation Common Stock as described in the immediately preceding
sentence, will be converted into the right to receive the Cash Election Price as
if such shares were not Stock Electing Shares.
The Merger Agreement provides that, if the number of Stock Electing Shares
is less than the Minimum Stock Election Number, then (i) all Stock Electing
Shares will be converted into the right to retain Surviving Corporation Common
Stock in accordance therewith, (ii) additional shares of IPC Common Stock, other
than Stock Electing Shares and Dissenting Shares, will be converted into the
right to retain Surviving Corporation Common Stock, which number of additional
shares shall be determined by multiplying the total number of shares, other than
Stock Electing Shares and Dissenting Shares, by a proration factor (the "Cash
Proration Factor") determined by dividing (x) the difference between the Minimum
Stock Election Number and the number of Stock Electing Shares by (y) the total
number of shares of IPC Common Stock, other than Stock Electing Shares and
Dissenting Shares, and (iii) such additional shares of IPC Common Stock will be
converted into the right to retain Surviving Corporation Common Stock in
accordance with the Merger Agreement (on a consistent pro rata basis among
stockholders who held shares of IPC Common Stock as to which they did not make a
Stock Election). However, as described above, pursuant to the Stockholders
Agreement, Richard P. Kleinknecht has elected to retain, 380,952 shares of
Surviving Corporation Common Stock, which is equal to the Minimum Stock Election
Number. As a result, all IPC stockholders who choose to convert their shares of
IPC Common Stock into cash should receive the full amount in cash and should not
be required to retain any shares of Surviving Corporation Common Stock. Examples
of the effects of the result of a Stock Election are set forth in "THE MERGER --
Possible Effects of Proration."
If a stockholder elects to make a Stock Election and receives cash as a
result of the proration procedures described in the second preceding paragraph,
or if a stockholder makes a split election of both retained stock and cash, such
stockholder's cash proceeds received thereby may be treated as a dividend,
rather than as a capital gain, for tax purposes. See "RISK FACTORS." See also
"THE MERGER -- Conversion/Retention of Shares; Procedures for Exchange of
Certificates" and "THE MERGER -- Federal Income Tax Consequences -- Stockholders
Receiving Cash," and "-- Stockholders Retaining a Portion of their Stock and
Receiving Cash."
With respect to certain risks related to retaining Surviving Corporation
Common Stock, see "RISK FACTORS." For information on how IPC stockholders will
be able to exchange certificates representing shares of IPC Common Stock for new
certificates representing the shares of Surviving Corporation Common Stock to be
issued to them, see "THE MERGER -- Conversion/Retention of Shares; Procedures
for Exchange of Certificates."
Effects of the Merger; Effective Time. Pursuant to the Merger Agreement,
at the Effective Time, AAC will be merged with and into IPC with IPC being the
Surviving Corporation.
The Merger will become effective at the time (the "Effective Time") set
forth in the certificate of merger that will be filed with the Secretary of
State of the State of Delaware in accordance with applicable law. See "THE
MERGER -- Effective Time of the Merger."
Following the Merger, the total number of outstanding shares of IPC Common
Stock will decrease from 10.7 million shares to approximately 3.8 million
shares of Surviving Corporation Common Stock, of which the stockholders of AAC
will own between 2,057,142 and 3,428,571 shares of Surviving Corporation Common
Stock (representing between 54% and 90%), and the existing holders of IPC Common
Stock will own between 380,952 and 1,752,381 shares of Surviving Corporation
Common Stock (representing between 10% and 46%), depending upon the number of
shares of Surviving Corporation Common Stock to be retained by existing holders
of IPC Common Stock and cash to be received in lieu of fractional shares. The
stockholders of the Surviving Corporation will be subject to immediate dilution
as a result of the exchange of shares of common stock of IXnet ("IXnet Common
Stock") for shares of Surviving Corporation
<PAGE>
Common Stock and will be subject to dilution upon the exercise of options
granted under the New Stock Incentive Plan. See "THE MERGER -- Ancillary
Agreements -- Share Exchange and Termination Agreement."
Board Recommendation; Opinion of Financial Advisor to the IPC Board. The
IPC Board, acting on the unanimous recommendation of the Independent Directors,
has unanimously approved the Merger Agreement and has determined that the Merger
is fair and in the best interests of IPC and its stockholders. The IPC Board
unanimously recommends that IPC's stockholders vote FOR approval of the Merger
Agreement, the Certificate Amendment, the New Stock Incentive Plan, as well as
the election of two directors, the ratification of the appointment of Coopers &
Lybrand and the Additional Proposal.
Deutsche Morgan Grenfell Inc. ("DMG") has served as financial advisor to
IPC in connection with the Merger and has rendered an opinion to the IPC Board
that, as of the date of this Proxy Statement/Prospectus, the consideration to be
received by the holders of shares of IPC Common Stock pursuant to the Merger
Agreement was fair, from a financial point of view, to such stockholders. For
additional information, see "THE MERGER -- Opinion of Financial Advisor." The
opinion of DMG is included as Annex E to this Proxy Statement/Prospectus.
Stockholders are urged to read such opinion in its entirety for a description of
the procedures followed, assumptions made, matters considered and qualifications
of the review undertaken by DMG in connection therewith.
Advantages and Disadvantages of the Merger. The IPC Board believes that
among the principal advantages of the Merger to the stockholders is that they
will have the opportunity to receive an attractive value for their shares of IPC
Common Stock while also being offered the opportunity to elect to participate in
the potential growth of the Surviving Corporation through the retention of
shares of Surviving Corporation Common Stock (to the extent such retention is
not otherwise limited by the terms of the Merger Agreement). See "THE MERGER --
Recommendation of the IPC Board; Reasons for the Merger" and "THE ANNUAL
MEETING--Recommendation of the IPC Board."
The IPC Board believes that among the principal detriments of the Merger to
the stockholders are the inability of stockholders who choose to receive cash
for their shares of IPC Common Stock to participate in any growth of the
Surviving Corporation that may not be reflected in the Merger Consideration, the
inability of stockholders who choose to retain shares to participate fully in
any growth of the Surviving Corporation due to the potential dilution following
the Merger of the equity ownership percentage and book value of the shares of
Surviving Corporation Common Stock to be retained by stockholders, the increased
risk to such stockholders resulting from the increased indebtedness of the
Surviving Corporation and the potential delisting of, and ensuing loss of
liquidity of, Surviving Corporation Common Stock to be retained by stockholders.
See "RISK FACTORS"and "THE MERGER -- Recommendation of the IPC Board; Reasons
for the Merger."
AAC's Reasons for the Merger. CSH LLC and AAC believe that consummation of
the Merger and the transactions contemplated thereby are a good long-term
investment.
Conduct of Business Pending the Merger. Pursuant to the Merger Agreement,
the Company has agreed to carry on its business and that of its subsidiaries in
the ordinary and usual course of business consistent with past practices. See
"THE MERGER -- Conduct of Business Pending the Merger."
No Solicitation. The Merger Agreement generally provides that neither the
Company nor any of its subsidiaries or affiliates will either directly or
indirectly solicit the submission of inquiries, proposals or offers from any
third party relating to the (i) acquisition or purchase of assets of the Company
and its subsidiaries, (ii) certain tender offers, (iii) certain mergers or
consolidations involving the Company or its subsidiaries or (iv) any other
transaction which would impede, prevent or delay the Merger. See "THE MERGER--
No Solicitation."
Conditions. The obligations of the Company and AAC to consummate the
Merger are subject to various conditions, including receipt of the approval of
IPC's stockholders solicited hereby, the termination or expiration of the
relevant waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), the absence of any injunction or other
legal restraint or prohibition preventing consummation of the Merger and
satisfaction of other customary closing conditions.
<PAGE>
Regulatory Approvals. Under the HSR Act and the rules that have been
promulgated thereunder (the "HSR Rules") by the Federal Trade Commission (the
"FTC"), certain merger transactions may not be consummated unless certain
information has been furnished to the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the FTC and certain applicable waiting
periods have expired. The Merger is subject to the requirements of the HSR Act
and the HSR Rules. Pursuant to the requirements of the HSR Act, AAC filed
Notification and Report Form with respect to the Merger with the Antitrust
Division and the FTC on February __, 1998. IPC filed a Notification and Report
Form with respect to the Merger on February __, 1998. The waiting period
applicable to the Merger was terminated on ________, 1998.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding any approval
of the Merger Agreement by the stockholders of the Company): (a) by mutual
written consent of the Company and AAC; (b) by either the Company or AAC, if the
Merger has not been consummated by April 30, 1998 by reason of the failure of
any condition precedent, provided that the party seeking to exercise such right
is not then in breach in any material respect of any of its obligations under
the Merger Agreement; (c) by either the Company or AAC, if AAC (in the case of
termination by the Company), or the Company (in the case of termination by AAC)
shall have breached in any material respect any of its obligations or
representations and warranties under the Merger Agreement and the breach has
continued without cure for a period of 15 days after notice of the breach of any
such obligation, representation and warranty of AAC (in the case of termination
by the Company) or the Company (in the case of termination by AAC); (d) by the
Company, in the event that any person has made an Acquisition Proposal (the
"Acquisition Proposal") that the IPC Board determines in good faith, after
consultation with and advice from its financial advisors, is reasonably likely
to be subject to completion and would, if consummated, result in a transaction
more favorable, from a financial point of view, to the stockholders of the
Company than the Merger Agreement and the Merger (a "Superior Acquisition
Proposal"); (e) by AAC if the IPC Board has withdrawn or modified or amended, in
a manner adverse to AAC, its approval or recommendation of the Merger Agreement
and the Merger or its recommendation that stockholders of the Company adopt and
approve the Merger Agreement and the Merger, or approved, recommended or
endorsed any proposal for a transaction other than the Merger (including a
tender or exchange offer for shares of IPC Common Stock) or if the Company has
failed to call a stockholder meeting to vote on the Merger; (f) by the Company
if prior to the Effective Time the IPC Board has withdrawn or modified or
amended, in a manner adverse to AAC, its approval or recommendation of the
Merger Agreement and the Merger or its recommendation that stockholders of the
Company adopt and approve the Merger Agreement and the Merger or the IPC Board
has approved or endorsed any proposal recommended for a transaction other than
the Merger, provided that the Company is in compliance with its obligations
described under "THE MERGER -- No Solicitation;" and (g) by either the Company
or AAC if, at a duly held stockholders meeting of the Company or any adjournment
thereof at which the Merger Agreement and the Merger is voted upon, the adoption
and approval by a majority vote of the Company's stockholders has not been
obtained.
The party desiring to terminate the Merger Agreement will give written
notice of such termination to the other party in accordance with the terms
thereof. If the Merger Agreement is terminated, such Agreement will become void
and of no effect with no liability on the part of any party thereto, except as
provided therein.
Termination Fee. In recognition of the efforts and expenses of and other
opportunities foregone by AAC while structuring the Merger, the Merger Agreement
provides that IPC shall, in certain circumstances, pay to AAC a termination fee
of $3.37 million (the "Termination Fee"). The Termination Fee is payable upon
the occurrence of any one of the following: (i) the Merger Agreement is
terminated by the Company or AAC, as the case may be, pursuant to (d) above
under "THE MERGER -- Termination" or the IPC Board has approved, recommended, or
endorsed a Superior Acquisition Proposal; or (ii) a Third Party has made an
Acquisition Proposal, the Merger Agreement is terminated because the IPC Board
has withdrawn, modified, or amended, in a manner adverse to AAC, its approval
and recommendation of the Merger Agreement and the Merger or its recommendation
that the stockholders of the Company adopt and approve the Merger Agreement and
the Merger or the Company has failed to call a meeting of stockholders to vote
on the Merger, and the Company consummates an Acquisition Transaction within 12
months following termination of the Merger Agreement.
<PAGE>
In addition, the Merger Agreement provides, subject to various exceptions
and limitations, for the reimbursement by IPC of certain expenses of AAC, not to
exceed $2.2 million in the aggregate, consisting of all reasonable out-of-pocket
costs, fees and expenses, including, without limitation, the reasonable fees and
disbursements of banks, investment banks, accountants or legal counsel. These
costs, fees and expenses are payable, upon termination of the Merger Agreement
as a result of one of the events described in the previous paragraph, within 10
business days of receipt by the Company of reasonably satisfactory documentation
detailing such costs, fees and expenses. See "THE MERGER -- Termination" and
"--Termination Fee."
Certain Federal Income Tax Considerations. For a summary of the material
U.S. federal income tax consequences of the Merger, see "THE MERGER -- Federal
Income Tax Consequences."
EACH IPC STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING
THE FEDERAL (AND ANY STATE, LOCAL AND FOREIGN) TAX CONSEQUENCES OF THE MERGER.
Accounting Treatment. It is expected that the Merger will be accounted for
as a leveraged recapitalization. Accordingly, the historical basis of IPC's
assets and liabilities should not be affected by the Merger. See "THE MERGER --
Accounting Treatment."
Dissenters' Rights. Under Section 262 of DGCL, holders of IPC Common Stock
who: (i) hold shares of IPC Common Stock on the date of making a demand for
appraisal; (ii) continuously hold such shares through the Effective Time; (iii)
deliver a properly executed written demand for appraisal to IPC prior to the
Annual Meeting; (iv) do not vote in favor of the Merger or consent thereto in
writing; (v) file any necessary petition in the Delaware Court of Chancery (the
"Delaware Court") within 120 days after the Effective Time and (vi) otherwise
satisfy all procedural requirements, are entitled, if the Merger is consummated,
to receive payment of the fair value of their shares of IPC Common Stock as
appraised by the Delaware Court; provided, however, that if any such holder of
Dissenting Shares shall have failed to establish an entitlement to appraisal
rights as provided in Section 262 of DGCL, if any such holder of Dissenting
Shares shall have effectively withdrawn a demand for appraisal of such shares or
lost the right to appraisal and payment for his shares under Section 262 of the
DGCL or if neither any holder of Dissenting Shares nor the Surviving Corporation
shall have filed a petition demanding a determination of the value of all
Dissenting Shares within the time provided in Section 262 of DGCL, such holder
will forfeit the right to appraisal of such shares and each such share will be
treated as if it had been a share with respect to which no election to receive
the Stock Election Stock Price has been made and had been converted, as of the
Effective Time, into a right to receive the Cash Election Price as the Merger
Consideration, without interest thereon, from the Surviving Corporation. See
"THE ANNUAL MEETING -- Dissenters' Rights" and "THE MERGER -- Dissenters'
Rights."
Nasdaq Listing. IPC Common Stock is currently included for quotation on
Nasdaq under the symbol "IPCI." However, see "RISK FACTORS -- Risks Associated
with the Merger -- Potential Delisting and Loss of Liquidity."
MERGER FINANCING
CSH LLC, directly or indirectly, expects to make an equity contribution of
between $43.2 and $72 million (the "Equity Investment") which amounts will be
used to fund partially the payment of the cash consideration and expenses
incurred in the Merger. It is currently expected that the transactions
contemplated by the Merger Agreement and fees and expenses incurred in
connection with this Merger will be funded by $157 million through the issuance
of the Company's unsecured senior notes assisted by Morgan Stanley & Co.
Incorporated ("MSCI") and Goldman, Sachs & Co. ("Goldman") ("Notes") and, to the
extent required, by $75 million of bank borrowings by the Company pursuant to a
senior secured five-year revolving credit facility (the "Revolving Credit
Facility") with a group of banks led by Morgan Stanley Senior Funding, Inc.
("MSSF"). The Merger, the Notes, the Revolving Credit Facility, the Equity
Investment and the use of proceeds therefrom and the transactions contemplated
by the Ancillary Agreements are collectively referred to as the "Merger
Transactions." It is expected that a three year deferred interest component of
the Notes will, together with cash flow from the
<PAGE>
Surviving Corporation's operations, be used to satisfy the capital requirements
of IXnet. On December 17, 1997, Citicorp Venture Capital, Ltd., which together
with certain officers and employees thereof and others own a majority of the
membership interests in CSH LLC, and AAC received an executed commitment from
MSSF to provide up to $75 million under the Revolving Credit Facility. On
December 17, 1997, MSCI delivered to CVC and AAC an original commitment
regarding the senior notes, pursuant to which it agreed to use its best efforts
to complete a public offering or a private placement of the Notes, or, in the
event such public offering or private placement is not completed withing the
offering period described therein, to purchase the Notes. The commitments are
subject to customary conditions, including the negotiation, execution and
delivery of definitive documentation with respect to the commitments. On January
12, 1998, CVC and AAC received an amended and restated commitment letter, which
added Goldman as a co-manager from MSCI and Goldman and which superseded the
commitment letter from MSCI referred to in the second preceding sentence. See
"THE MERGER Merger Financing."
ANCILLARY AGREEMENTS
In connection with the execution of the Merger Agreement, certain parties
to the Merger Agreement or related thereto have entered into certain agreements
with respect to the transactions contemplated by the Merger Agreement. These
agreements, other than the Stockholders Agreement, which was effective upon
execution, become effective only upon the consummation of the transactions
contemplated by the Merger Agreement and such agreements, including the
Stockholders Agreement, will automatically terminate and be of no further force
or effect upon termination of the Merger Agreement. For a further discussion,
see "THE MERGER -- Ancillary Agreements."
Investors Agreement. The Investors Agreement, by and among IPC, CSH LLC,
Richard P. Kleinknecht, David Walsh ("Walsh") and Anthony Servidio ("Servidio")
(Richard P. Kleinknecht, Walsh and Servidio collectively, the "Management
Stockholders"), dated as of December 18, 1997 (the "Investors Agreement"), is
effective only upon the consummation of the Merger Agreement. The Investors
Agreement provides generally that each party thereto will vote in favor of the
nominees for director of each other party, subject to such party's ownership
percentage of Surviving Corporation Common Stock. The Investors Agreement also
provides for restrictions on, and rights in connection with, sales and transfer
of Surviving Corporation Common Stock by any CSH stockholder or Management
Stockholder and certain of their respective permitted transferees.
Stockholders Agreement. Pursuant to the Stockholders Agreement, the
Kleinknecht Stockholders have agreed to vote their shares of IPC Common Stock
(i) in favor of the Merger Agreement and the Merger (ii) against any action or
agreement that would result in a breach of any covenant, representation or
warranty or any other obligation or agreement of IPC under the Merger Agreement
or the Kleinknecht Stockholders under the Stockholders Agreement, (iii) in favor
of the New Stock Incentive Plan and (iv) against a number of actions which could
impede, interfere with or delay the Merger or the transactions contemplated by
the Merger Agreement or the Stockholders Agreement. Each Kleinknecht
Stockholder has also agreed, except as otherwise permitted by certain other
ancillary agreements, for a period of 3 years after the Effective Time not to
directly or indirectly (i) engage in any activities competitive in any material
respect with the business of the Surviving Corporation and its subsidiaries and
affiliates or (ii) become a partner, stockholder or involved in any capacity in
an entity which engages in activities competitive with the business of the
Surviving Corporation and its subsidiaries.
In addition, pursuant to the Stockholders Agreement, Richard R. Kleinknecht
has agreed to elect to, subject to proration, retain an aggregate of 380,952
shares of Surviving Corporation Common Stock.
Share Exchange and Termination Agreement. Pursuant to the Share Exchange
and Termination Agreement, dated as of December 18, 1997 (the "Share Exchange
and Termination Agreement"), by and among IPC, IXnet, Walsh and Servidio, Walsh
has agreed to exchange 336 shares of IXnet Common Stock representing 12% of
the outstanding shares of IXnet Common Stock for 152,381 shares of Surviving
Corporation Common Stock and Servidio has agreed to exchange 224 shares of IXnet
Common Stock representing 8% of the outstanding shares of IXnet Common Stock
for 101,587 shares of Surviving Corporation Common Stock immediately following
the Effective Time. Ten percent of Walsh's and Servidio's Surviving Corporation
Common
<PAGE>
Stock will be issued only upon delivery, by June 18, 1998, of certain releases
of claims by three former IXnet stockholders. The shares of Surviving
Corporation Common Stock so received will be subject to usual and customary
restrictions on transfer.
Each of Walsh and Servidio has agreed that, except as permitted under the
Merger Agreement, for a period of two and one-half years after the Effective
Time, he will not, directly or indirectly, in any form or manner on a worldwide
basis (i) engage in any activities competitive in any material respect with the
business of the Surviving Corporation and its subsidiaries and affiliates or
(ii) become a partner, shareholder or involved in any other capacity in an
entity which engages in activities competitive with the business of the
Surviving Corporation and its subsidiaries; provided that each of Walsh and
Servidio may own, directly or indirectly, solely as a passive investment,
securities of an entity so long as he does not control the entity and does not,
directly or indirectly, own 5% or more of any voting class of securities of the
entity.
Other Agreements. In addition to the agreements referred to above, various
parties entered into (i) the Amended and Restated Corporate Opportunity
Agreement, (ii) the Amended and Restated Labor Pool Agreements, (iii) Amended
and Restated Employment Agreements between the Company and each of Richard P.
Kleinknecht and Peter J. Kleinknecht and between IXnet and each of Walsh and
Servidio, (iv) the Starr Termination Agreement and (v) the AAC Stockholders
Agreement. See "THE MERGER -- Ancillary Agreements" for a description of the
relevant terms of such agreements.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of IPC's management and the IPC Board may be deemed to have
interests in the Merger in addition to their interests, if any, as holders of
IPC Common Stock. The IPC Board was aware of these factors and considered them,
among other matters, in approving the Merger Agreement and the transactions
contemplated thereby. See "THE MERGER -- Ancillary Agreements."
Indemnification and Insurance. Pursuant to the Merger Agreement, the
Company has agreed to indemnify all present directors and officers of the
Company for six years after the Effective Time and, subject to certain
limitations, to maintain for six years a directors' and officers' insurance and
indemnification policy containing terms and conditions which are not less
advantageous to the directors and officers than any such policy which may be in
effect prior to the Effective Time.
Employment Agreements, Severance Arrangements and Bonuses. Certain
officers of the Company have severance agreements with the Company that could
provide them with incentive compensation if the Merger is consummated and with
certain termination benefits in the event their employment is terminated after
consummation of, or in connection with, the Merger. See "IPC ANNUAL MEETING --
OTHER MATTERS -- Employment Agreements." Certain officers of the Company and
IXnet have entered into amended and restated employment agreements with the
Surviving Corporation that will become effective as of the Effective Time. See
"THE MERGER -- Ancillary Agreements -- Employment Agreements."
At the Effective Time, all Options will be canceled and the holders thereof
will receive the Option Cash Proceeds in lieu of the Merger Consideration. As of
the Record Date, approximately__________ Options were outstanding. The Company
estimates that the aggregate amount of the Option Cash Proceeds, assuming all
Options are canceled, will be approximately $__________. Also, at the Effective
Time, the Surviving Corporation expects to establish the New Stock Incentive
Plan under which up to approximately [_______] shares of Surviving Corporation
Common Stock will be reserved for issuance upon exercise of options which may be
granted to certain employees, directors and consultants. The Surviving
Corporation has committed to grant 230,910 options pursuant to the New Stock
Incentive Plan to four senior employees of the Company or a subsidiary thereof.
See "PROPOSAL 3 -- NEW STOCK INCENTIVE PLAN"
<PAGE>
Stock Ownership. As of the Record Date, directors and executive officers
of IPC and certain of their affiliates, other than the Kleinknecht Stockholders
(see below), owned an aggregate of [87,329] shares of IPC Common Stock for which
they will receive the Merger Consideration.
Stockholders Agreement. As of the Record Date the Kleinknecht Stockholders
owned, beneficially and/or of record, an aggregate of 6,906,554 shares of IPC
Common Stock constituting approximately 64% of the outstanding shares of IPC
Common Stock entitled to vote at the Annual Meeting. Pursuant to the
Stockholders Agreement, the Kleinknecht Stockholders, in their capacity as such,
have agreed, among other things, to vote their shares in favor of the Merger and
the adoption of the Merger Agreement.
MANAGEMENT OF THE SURVIVING CORPORATION AFTER THE MERGER
It is a condition to the consummation of the Merger that all current
directors of IPC, other than Richard P. Kleinknecht, submit their resignations
prior to the Effective Time. Pursuant to the Merger Agreement, the following
individuals will be appointed to serve as directors after the Effective Time:
[ ]. After the Merger, it is contemplated that Peter Woog, President of CSI,
will serve as Chairman and Richard P. Kleinknecht will serve as Vice Chairman of
the Board of Directors of the Surviving Corporation ("Surviving Corporation
Board"). Following the Merger, the Investors Agreement will govern certain
rights, duties and obligations of the parties thereto, as the principal
stockholders of the Surviving Corporation, including, without limitation, the
election of directors. See "MANAGEMENT FOLLOWING THE MERGER" and "THE MERGER --
Ancillary Agreements --Investors Agreement."
CONVERSION OF AAC STOCK
As a result of the Merger, in connection with an equity contribution of not
less than $43.2 million nor more than $72 million, AAC and CSH LLC will receive
not less than 2,057,142 nor more than 3,428,571 shares of Surviving Corporation
Common Stock representing not less than 54% nor more than 90% of the number of
shares of Surviving Corporation Common Stock to be outstanding upon the Merger.
CERTAIN DIFFERENCES IN STOCKHOLDER RIGHTS
If the Certificate Amendment is adopted at the Annual Meeting, at the
Effective Time, the rights of stockholders of the Surviving Corporation will be
determined by the Certificate Amendment, the Amended and Restated Bylaws of the
Surviving Corporation (the "Surviving Corporation Bylaws") and DGCL. If the
Certificate Amendment is not approved, then the Surviving Corporation will be
governed by IPC's Existing Certificate of Incorporation, the Surviving
Corporation's Bylaws and DGCL. The rights of stockholders of the Surviving
Corporation will differ from the rights of stockholders of IPC with respect to
certain important matters, including special meetings of stockholders,
stockholder action by written consent, classification of the board, removal of
directors, indemnification of directors, officers and other agents, limitations
of director liability, and bylaw amendments. For a summary of these
differences, see "COMPARISON OF CERTAIN RIGHTS OF STOCKHOLDERS."
RISK FACTORS
Holders of IPC Common Stock, in connection with their consideration of
the Merger, should carefully consider the following factors related to the
retention of Surviving Corporation Common Stock, which are described in more
detail beginning on page [__]. As a result of the Merger (i) CSH LLC and its
affiliates and associates will have control of the Surviving Corporation,
including the ability to elect a majority of its directors, (ii) there will be a
substantial decrease in the liquidity of Surviving Corporation Common Stock and
(iii) the terms of the Merger Financing are expected to subject the Surviving
Corporation to significant operating and financial restrictions and to increase
substantially the leverage of the Surviving Corporation. Any future grant or
sale by the Surviving Corporation of shares of Surviving Corporation Common
Stock or options to purchase Surviving Corporation Common Stock to management
will dilute the equity percentage ownership of stockholders and may result in a
decrease in Surviving Corporation Common Stock book value per share. The risk of
proration, as described in
<PAGE>
greater detail herein, may subject holders of Surviving Corporation Common Stock
to dividend treatment for tax purposes with respect to cash received in the
Merger. The effects of proration may also result in stockholders receiving
consideration which is different from the consideration specified in their
respective elections. In addition, IPC's business entails certain risks relating
to (i) concentration of customers in the financial trading community, (ii)
competitors with greater resources, (iii) management of growth, (iv) risks
associated with international expansion, (v) market acceptance, (vi) dependence
on key personnel, (vii) dependence on suppliers, (viii) regulation and (ix)
rapid technological change. See "RISK FACTORS" for a more detailed discussion of
the above mentioned risk factors.
<PAGE>
STOCK PRICE AND DIVIDEND INFORMATION
The shares of IPC Common Stock are included for quotation on Nasdaq
(symbol: "IPCI"). The following table sets forth the high and low sale prices
of shares of IPC Common Stock as reported on Nasdaq. IPC Common Stock began
trading on September 27, 1994.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------
1997 1996 1995
----------------------- ------------------------ ----
HIGH LOW HIGH LOW HIGH LOW
------- ------- ------- ------------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
First Quarter $22 $ 14 $19 1/4 $ 13 1/2 $15 1/4 $ 11
Second Quarter 16 3/4 8 7/8 26 1/4 16 1/2 14 11 1/4
Third Quarter 19 1/8 9 25 17/1/16 15 1/2 11 1/2
Fourth Quarter 21 3/4 15 3/4 21 13 1/2 18 3/4 12
</TABLE>
As of the Record Date, there were (i) __ shares of IPC Common Stock
outstanding, (ii) no shares of preferred stock outstanding and (iii) __ holders
of record of IPC's Common Stock (although the Company estimates that
approximately 1,600 to 1,800 additional beneficial owners hold IPC Common Stock
in street name through various nominees). To date, the Company has not paid any
cash dividends to its stockholders. Any future payments of cash dividends will
depend upon the Company's earnings and financial condition, capital
requirements, and other relevant factors. The Company does not intend to pay
cash dividends in the foreseeable future but intends to retain its earnings for
use in its business.
On December 18, 1997, the last trading day before public announcement of
the execution of the Merger Agreement, the closing price of IPC Common Stock as
reported on Nasdaq was $18 3/8 per share.
On ___________, 1998, the closing price of IPC Common Stock as reported on
Nasdaq was $__________ per share.
Stockholders should obtain current market price quotations for IPC Common
Stock in connection with voting their shares.
<PAGE>
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial information set forth below
for the Company as of September 30, 1997 and 1996 and for each of the three
years in the period ended September 30, 1997 is derived from the audited
consolidated financial statements incorporated herein by reference. The
selected historical consolidated financial information set forth below for the
Company as of September 30, 1995 is derived from the consolidated financial
statements not included elsewhere herein. The selected historical combined
financial information set forth below for the Company as of September 30, 1994
and 1993 and for each of the two years in the period ended September 30, 1994 is
derived from the combined financial statements not included elsewhere herein.
The unaudited consolidated pro forma financial information of the Company
set forth below is based on historical consolidated financial statements of the
Company as adjusted to give effect to the Merger Transactions. The pro forma
statements of operations for the three months ended December 31, 1997 and for
the year ended September 30, 1997 give effect to the Merger Transactions as if
they had occurred as of October 1, 1996. The pro forma balance sheet gives
effect to the Merger Transactions, as if they had occurred at December 31, 1997.
This table should be read in conjunction with, and is qualified in its entirety
by, the historical financial statements, including the notes thereto, of IPC
incorporated herein by reference. The unaudited pro forma financial
information is not indicative of the results that actually would have occurred
had the Merger been consummated on the dates indicated, or which may be attained
in the future.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30, THREE MONTHS ENDED DECEMBER 31,
--------------------------------------------------------------------- --------------------------------
PRO PRO
ACTUAL FORMA ACTUAL FORMA
1993 1994 1995 1996 1997 1997(4) 1996 1997 1997(4)
---------- ---------- --------- ---------- ---------- ---------- ---------- ---------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
INFORMATION:
Revenues $112,714 $ 163,671 $206,254 $249,508 $270,323 $270,323 $ 59,411 $ 67,052 $67,052
Gross profit 31,152 48,043 63,173 76,818 80,214 80,214 17,574 26,627 26,627
Selling, general and
administrative expense 19,542 23,727 31,038 45,143 60,697 60,697 13,847 16,557 16,557
Research and development
expense 7,703 7,654 10,108 11,467 9,976 9,976 2,372 2,404 2,404
Income/(Loss) from
operations 3,907 16,662 22,027 20,208 9,541 9,541 1,355 7,666 7,666
Interest
income/(expense),
net (1,404) (1,568) 233 (678) (1,844) (21,691) (463) (440) (5,736)
Net income (loss) $ 1,753 $ 16,549 (1)$ 13,267 $ 12,129 $ 3,834 $ (7,592) $ 566 $ 3,594 $ 628
Basic earnings per share $ 1.26 $ 1.15 $ 0.36 $ (1.87) $ 0.05 $ 0.34 $ 0.15
Basic weighted average
shares outstanding 10,506 10,590 10,664 4,063 10,647 10,711 4,063
Diluted earnings per
share $ 1.26 $ 1.14 $ 0.36 $ (1.87) $ 0.05 $ 0.33 $ 0.15
Diluted weighted average
shares outstanding 10,506 10,615 10,704 4,063 10,758 10,865 4,063
Pro forma earnings per
share $ 1.11 (2)
Pro forma weighted
average
shares outstanding 8,535 (2)
Supplemental pro forma
earnings per share $ 0.88 (3)
</TABLE>
<TABLE>
<CAPTION>
SELECTED OTHER DATA:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Depreciation and $ 4,214 $ 4,288 $ 3,840 $ 6,388 $ 8,743 $ 8,743 $ 1,707 $ 2,787 $ 2,787
amortization
EBITDA(5) $ 8,121 $ 20,950 $ 25,867 $ 26,596 $ 18,284 $ 18,284 $ 3,062 $ 10,453 $10,453
EBITDA to interest
expense 5.8x 13.1x 61.6x 24.4x 9.0x 0.8x 6.2x 19.3x 1.8x
Ratio of earnings to
fixed charges (6) 2.7x 8.4x 23.9x 12.2x 3.9x 0.5x 2.3x 11.22x 1.5x
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31, 1997
------------------------------------------------------ -----------------------
PRO
1993 1994 1995 1996 1997 ACTUAL FORMA (7)
-------- ---------- -------- -------- -------- --------- ---------
BALANCE SHEET INFORMATION:
Cash and cash $ 1,574 $ 2,616 $ 15,786 $ 2,306 $ 1,465 $ 3,655 $ --
equivalents
Working capital 16,696 27,661 46,851 50,807 46,933 49,811 49,107
Total assets 70,120 110,702 128,036 141,877 158,362 169,788 172,036
Revolving Credit -- -- -- -- -- -- 8,080
Facility
Capital lease -- -- -- 3,429 10,336 11,085 11,085
obligations, net
of current portion
Other long-term debt,
net of 12,916 10,663 -- -- 2,133 2,124 2,124
current portion
Notes -- -- -- -- -- -- 157,000
Stockholders' equity 7,328 21,122 58,504 71,715 76,910 81,314 (73,048)
(deficit)
</TABLE>
(1) Net income includes the cumulative effect of the Company's termination of
its S corporation status which resulted in a tax benefit of $3,295.
(2) Pro forma earnings per share was computed by dividing pro forma net income
(income before provision for income taxes less pro forma provision for
income taxes) by pro forma weighted average number of shares outstanding.
The pro forma provision for income taxes assumes that IPC was subject to
corporate federal income taxes for the year and excludes the tax benefit
associated with the termination of the Company's S corporation status (See
(1) above). Pro forma weighted average number of shares outstanding is the
historical weighted average number of shares outstanding during the past
year adjusted to give effect to the number of shares whose proceeds were
necessary to pay the remaining S corporation distribution to the
stockholders of IPC prior to IPC's initial public offering of stock.
(3) Effective October 1, 1994, and in connection with the Company's initial
public offering, IPC converted from an S corporation to a C corporation.
Supplemental pro forma earnings per share for 1994 has been calculated using
the Company's reported income before taxes and giving effect for both the
Company's fiscal 1995 effective tax rate and weighted average shares
outstanding.
(4) The pro forma statement of operations information reflects the Merger
Transactions as if the Merger Transactions occurred on October 1, 1996,
assuming an interest rate of 10% on the Notes and 8.15% on the Revolving
Credit Facility. A change of 1/2% on these interest rates would change
interest expense by $887 for the year ended September 30, 1997 and $253 for
the three months ending December 31, 1997. See the Company's unaudited pro
forma financial information included elsewhere in this Proxy
Statement/Prospectus.
(5) EBITDA consists of income from operations plus depreciation and
amortization. EBITDA is provided because it is a measure commonly used in
the telecommunications industry. It is presented to enhance an understanding
of the Company's operating results and is not intended to represent cash
flow or results of operations in accordance with generally accepted
accounting principles ("GAAP") for the periods indicated. EBITDA is not
calculated under US GAAP and is not necessarily comparable to similarly
titled measures of other companies. See the Company's consolidated financial
statements and notes thereto incorporated herein by reference. For
certain state income tax purposes (including New York State, where a
substantial portion of the Company's revenues and net income have been
generated) the Company is not allowed to deduct the losses of IXnet which
have been material to the income of its other operations. As a result, the
Company's EBITDA will not necessarily all be available to pay its interest
expense.
(6) The ratio of earnings to fixed charges is computed by dividing pretax income
from continuing operations before fixed charges (other than capitalized
interest) by fixed charges. Fixed charges consist of interest charges and
amortization of debt expense and discount or premium related to
indebtedness, whether expensed or capitalized, and 10% of rental expense
which the Company believes to be representative of interest.
(7) The pro forma balance sheet information reflects the Merger Transactions as
if the transactions occurred on December 31, 1997. See the Company's
unaudited pro forma financial information included elsewhere in this
Proxy Statement/Prospectus.
<PAGE>
Telecommunications services provided by IXnet are subject to regulation by
international entities as well as by United States federal, state and local
government agencies. The primary regulatory policy of the United States is to
promote effective competition in the United States telecommunications service
market, particularly the market for international services. It is the view of
the United States government that competitive international markets will provide
incentives for further market entry both in the United States and foreign
markets. Competitive markets will also stimulate technological innovation by
United States suppliers of information technology. There can be no assurance
that future, legislative, regulatory and judicial changes in the United States
will not have an adverse impact on IXnet's business.
For domestic services in the United States, the FCC and State Public
Utility Commissions have direct jurisdiction, granted by statute, over all
aspects of IXnet service. With international traffic, however, the United
States' regulatory structure is limited to the origination or termination of
service 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 of a domestic statute, such as
the Telecommunications Act of 1996 ("the Telecommunications Act") can have in
developing a new structure for international telecommunications.
In the United States, the provision of IXnet's services is subject to the
provisions of the Communications Act of 1934, as amended by the
Telecommunications Reform Act of 1996 and the FCC regulations thereunder, as
well as the applicable laws and regulations of the various states as
administered by the relevant state public utility commissions ("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
state PUCs continue to exercise extensive authority to regulate ownership of
transmission facilities, provision of services and the terms and conditions
under which IXnet's services are provided. The interpretation and enforcement of
laws and regulations by these regulatory authorities vary and could limit
IXnet's ability to provide certain telecommunications services. Thus, there can
be no assurance that changes in current or future laws or regulations or future
judicial intervention in the United States or in any individual state would not
have a material adverse effect on the Company or that FCC or other regulatory
investigation or intervention would not have a material adverse effect on IXnet.
In addition IXnet is required by federal and state law and regulations to
file tariffs listing the rates, terms and conditions of the services it
provides. Any failure to maintain proper federal and state tariffs or
certification or any finding by the federal or state agencies that IXnet is 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
IXnet.
The existing regulatory environment for international telecommunications
service outside the United States differs from country-to-country.
Internationally, the World Trade Organization ("WTO") Basic Telecommunication
Agreement ("WTO Agreement") may result in the introduction of competitive
services in a number of countries throughout the world. Nevertheless, national
and local laws and regulations continue to differ significantly among the
countries in which Ixnet currently operates and plans to operate. An IXnet
subsidiary, IXnet Ltd., currently holds a license to provide international
simple resale ("ISR") services to all international points from the United
Kingdom and has recently been awarded a license to provide international
facilities-based voice services. In other European Union ("EU") countries and
Switzerland, IXnet currently provides voice services pursuant to special
regulations established for provision of telecommunication services to closed
user groups ("CUGS"). In Asia, IXnet has been issued certain licenses to offer
limited types of services in Japan, Hong Kong and Singapore. The regulatory
structures pursuant to which IXnet operates in all of these countries were all
recently enacted. Consequently, there is very limited guidance on the scope of
the authority provided to IXnet pursuant to existing regulatory structures in
these countries. Thus, there can be no assurance that any examination of
IXnet's operations by a regulatory or governmental authority would conclude that
IXnet is operating in a manner consistent with existing law, regulation or
license issued to IXnet. If a regulatory authority concludes that IXnet is not
operating in a matter consistent with the law, regulation or a license issued to
IXnet, it could limit IXnet's ability to provide certain telecommunications
services and may have a material adverse impact on IXnet's business in the
country in question. There can be no assurance that future changes in the law
or regulation of any particular country or the WTO Agreement will not have a
material adverse effect on IXnet's business, results of operations and financial
condition.
<PAGE>
RISK FACTORS
In addition to the other information set forth herein, stockholders should
carefully consider the following information in evaluating the Company and its
business before voting on the Merger and making a Stock Election.
RISKS ASSOCIATED WITH OPERATIONS
Concentration of Customers in the Financial Trading Community. Almost all
of the Company's revenues historically have been derived from, and its success
is dependent upon, sales to customers in the financial services industry. If the
financial services industry suffers an economic downturn, it is likely that the
Surviving Corporation would experience a decline in revenues which could have a
material adverse effect on the Surviving Corporation's financial condition and
results of operations.
Competition. The markets in which the Company operates are comprised of a
substantial number of global and regional competitors, including national and
international carriers and global alliances. In addition, the continuing trend
toward business combinations and strategic alliances in the telecommunications
industry may create significant new competitors to the Surviving Corporation.
Many of the Company's current and potential competitors have greater financial,
engineering, manufacturing and other resources than the Company. For example,
the Company's principal competitor in the turret system business is British
Telecom ("B.T."). B.T. has resources that are significantly larger than those
available to the Company. If B.T. decided to devote substantial focus to the
turret system business, it would have a material adverse effect on the Company.
Competing with such companies will require continued investment by the Surviving
Corporation in engineering, research and development, marketing and customer
service and support. There can be no assurance that the Surviving Corporation
will have sufficient resources to make such investments. In addition, in many
non-U.S. markets, the Company faces competition from dominant local providers
that have long standing relationships with the Company's target customers. For
example, in Japan, Hitachi Ltd. has the leading market share of installed turret
systems. Due to Hitachi's relationships with the Company's target customers, it
may be difficult for the Company to significantly increase its penetration of
the Japanese market. Similar situations exist in many other non-U.S. markets.
Further, a number of companies compete for parts of the Company's I.T.S.
business. See "THE COMPANY -- Competition."
Management of Growth; International Growth. The Company has experienced a
period of rapid growth that has placed significant demands on the Company's
management, operational, financial and accounting resources. The Company intends
to expand the operations of IXnet and expects to dedicate a substantial portion
of its financial and management resources to support such expansion. The
Surviving Corporation's future success will depend in part on whether it can
improve its operational, financial and accounting systems and expand, train and
manage its employee base. Whether the Surviving Corporation can increase
revenues is in part dependent upon hiring and training a sufficient number of
suitably skilled employees. A failure by the Surviving Corporation
to manage growth effectively could have a material adverse effect on the
Surviving Corporation's financial condition and results of operations.
A key component of the Company's strategy is its planned expansion into
international markets. There are certain risks inherent to doing business on an
international level, such as unexpected changes in regulatory requirements,
tariffs, customs, duties and other trade barriers, difficulties in staffing and
managing foreign operations, nationalization, war, insurrection and other
political risks, import restrictions or prohibitions, delays from customs
brokers or government agencies and potentially adverse tax consequences, which
could adversely impact the success of the Surviving Corporation's international
operations. In many countries, the Surviving Corporation may need to enter into
a joint venture or other strategic relationship with one or more third parties
in order to conduct successfully its operations. There can be no assurance that
such factors will not have an adverse effect on the Surviving Corporation's
future international operations. In addition, the U.S. dollar value of revenues
derived from products and services sold outside the United States varies with
currency exchange rate fluctuations, and the Surviving Corporation may be
exposed to exchange losses based upon such fluctuations, which losses could have
a material adverse effect on the Surviving Corporation's financial results.
Moreover, there can be no assurance that laws or administrative practices
relating to taxation, foreign exchange or other matters of countries within
which the Company operates will not change. Any such change could have a
material adverse effect on the Surviving Corporation's business, financial
condition and results of operations.
<PAGE>
Market Acceptance. Although IPC has strong relationships with its financial
institution customers from the turret business, there can be no assurance that
the new products and services being offered through IXnet will be accepted by
the financial trading community. IXnet had $17.9 million of revenues in the
fiscal year ending September 30, 1997 and $7.4 million of revenues in the three
months ended December 31, 1997. IXnet had 131 and 150 customers as of September
30, 1997 and December 31, 1997, respectively. The individuals within the
financial institutions who would decide whether to purchase the products and
services of IXnet are not necessarily the same individuals who decide to
purchase the Company's turrets. In addition, many of the traditional providers
of telecommunications services to financial institutions have long standing
relationships with these customers' senior management. Accordingly, there may be
strong institutional reluctance for a financial institution to purchase the
products and services offered through IXnet.
Dependence on Key Personnel. The Company's success depends to a significant
degree upon the continued contributions of its senior management team and
technical, marketing and sales personnel. The Company's employees may
voluntarily terminate their employment with the Company at any time. Competition
for qualified employees and personnel is intense, and there is a limited number
of persons with relevant knowledge and experience. The loss of the services of
key personnel, or the inability to attract additional qualified personnel, could
have a material adverse effect on the Surviving Corporation's results and
operations, product development efforts and ability to expand its businesses.
There can be no assurance that the Surviving Corporation will be successful in
attracting and retaining such executives and personnel. In addition, the labor
market for Software engineers has been extremely competitive recently and the
Surviving Corporation may lose key employees or be forced to increase their
compensation as a result.
Dependence Upon Suppliers. The IXnet Network (as herein defined) is
dependent on third party suppliers for its leased lines connections, or
bandwidth. These network suppliers are or may become competitors of the Company
or the Surviving Corporation.
The Company currently relies on third party single source suppliers of
certain hardware and software components used by the Company in providing its
networking services, including switches. The Company has from time to time
experienced delays in the receipt of certain components. The Company's remedies
against suppliers who fail to deliver products on a timely basis are limited by
contractual liability limitations contained in supply agreements and purchase
orders and, more importantly, by practical considerations. A failure by a
supplier to deliver quality products on a timely basis, or the inability to
develop alternative sources if and as required, could result in delays which
could materially adversely affect the Surviving Corporation.
In addition, the Company purchases certain custom product components for
its manufacturing operation primarily from single source suppliers. The
disruption of current flow of supplies could impair the Surviving Corporation's
ability to manufacture products or cause the Surviving Corporation to incur
costs, including payment of non-recurring engineering expenses to prospective
vendors, associated with the development of alternative sources. Any such
disruption could result in delays in product shipments or cause the Company to
incur unanticipated expenses, which could have a material adverse effect on the
Surviving Corporation's financial condition and results of operations. See "THE
COMPANY -- Manufacturing."
Rapid Technological Changes. The markets for turret systems, I.T.S. and
networking services, are characterized by rapid technological change. The
Company believes that its ability to compete successfully is also dependent upon
the continued compatibility and interoperability issues raised by technological
changes. While the Company believes that for the foreseeable future these
changes will neither materially affect the continued use of telecommunications
networks nor materially hinder the Surviving Corporation's ability to acquire
necessary technologies, the effect of
<PAGE>
technological changes on the businesses of the Surviving Corporation cannot be
predicted. Thus, there can be no assurance that technological developments will
not have a material adverse effect on the Surviving Corporation.
Need to Develop New Products and Services; Capital Requirements. The
Surviving Corporation's success will depend in part upon its ability to develop
new products and provide new services that meet customers' changing
requirements. The markets served by the Company are characterized by changes in
customer needs and frequent new service and product introductions. In addition,
the Company's substantial domestic market share for turret systems (its
principal product) will require it to develop new products and services in order
to achieve significant growth or to identify additional (non-financial) markets
for such products. In order to develop and roll out new products and services,
the Surviving Corporation expects to make significant expenditures for IXnet
Network development, research and development for new products and services and
for selling, general and administrative expenses in advance of anticipated
related revenues. In addition, new products and services will consume a
substantial amount of senior management time. The Surviving Corporation's future
success will depend, in part, on its ability to use effectively leading
technologies, to continue to develop its technical expertise, to enhance its
current services, to develop new services that meet changing customer needs, and
to influence and respond to emerging industry standards on a timely and cost
effective basis. The failure to develop and manufacture or deploy new or
enhanced products and services that meet or anticipate such changes on a timely
and cost-competitive basis could have a material adverse effect on the Surviving
Corporation's financial condition and results of operations.
Dependence on Patents and Licenses. The Company owns certain patents and
has applied for other patents relating to its technology and proposed turret
products. No assurance can be given, however, whether pending patent
applications will be granted or whether any patents granted will be enforceable
or will provide the Surviving Corporation with meaningful protection from
competitors. The Surviving Corporation also may desire or be required to renew
or to obtain licenses from others in order further to develop, produce and
market commercially viable products effectively. There can be no assurance that
such licenses will be renewable or obtainable on commercially reasonable terms,
if at all, that the patents underlying such licenses will be valid and
enforceable or that the proprietary nature of the unpatented technology
underlying such licenses will remain proprietary. See "THE COMPANY --
Intellectual Property."
Dependence on Billing, Customer Service and Information Systems.
Sophisticated information and processing systems are vital to the Company's
growth and its ability to monitor costs, provision customer orders, bill
customers and achieve operating efficiencies. As the Company commences providing
dial tone and switched local access services, the need for enhanced billing and
information systems will increase significantly. The Company currently uses five
different management information systems and is acquiring a new system to
replace its existing systems. The inability of the Surviving Corporation to
adequately identify all of its information and processing needs, or to upgrade
systems as necessary, could have a material adverse effect on the ability of the
Surviving Corporation to reach its objectives, on its financial condition and
results of operations.
The Company's new management information system will be year 2000
compliant. However, if the systems of the Company's suppliers or customers are
not year 2000 compliant, it would have a material adverse effect on the
Company. All of the products that the Company currently sells and most of the
Company's products that are currently being used by its customers are year 2000
compliant. However, certain of the Company's older products are not year 2000
compliant. The Company has sought to so notify such customers and to sell such
customers more recent products which are year 2000 compliant.
Reliance on Unpatented Proprietary Know-how and Trade Secrets. The Company
also relies on unpatented proprietary know-how and trade secrets, and employs
various methods, including confidentiality agreements with employees and
consultants, to protect its trade secrets and know-how. However, such methods
may not afford complete protection and there can be no assurance that others
will not independently develop such trade secrets and know-how or obtain access
thereto. Furthermore, no assurance can be given that claims or litigation
asserting infringement of intellectual property rights will not be initiated in
the future seeking damages or an injunction against the sale of the Surviving
Corporation's products or that the Surviving Corporation would prevail in any
such litigation. Any such litigation could be protracted and, regardless of its
outcome, costly and could have a material adverse effect on the Surviving
Corporation's business and results of operations. See "THE COMPANY --
Intellectual Property."
Potential Fluctuations in Quarterly Results. The Company's revenues and
operating results from turret systems and I.T.S. could fluctuate significantly
from period to period. Given the relatively large sales price of the Company's
systems, a limited number of system installations may account for a substantial
portion of revenues in any particular period. Due to the substantial sales price
of the Company's large turret and I.T.S. installations and the Company's
recognition of revenue only upon completion of installations, revenue and
operating results could fluctuate significantly from quarter to quarter. In
addition, revenues and gross profit margins may fluctuate due to the mix of
products sold and the size of systems sold. The Company generally realizes a
higher gross margin on sales of turret systems than on sales of I.T.S. services
and equipment. Furthermore, the Company expects revenue from I.T.S. for its
current fiscal year to decrease from prior year levels, but does not expect this
decrease to have a material effect on its operating income. As a result of these
and other factors, the Surviving Corporation could experience significant
fluctuations in revenues and operating results in future periods.
Catastrophic Loss of Manufacturing Facility. The Company's sole manufacturing
- -------------------------------------------
facility is in Westbrook, Connecticut. While the Company maintains insurance
covering such facility, including business interruption insurance, a
catastrophic loss of all or a portion of the facility could have a material
adverse effect on the Company.
<PAGE>
Possible Volatility of Stock Price. The market price of Surviving
Corporation Common Stock could be subject to significant fluctuations in
response to variations in quarterly operating results, trading volume and other
factors, including announcements of technical innovations or new products by the
Surviving Corporation or its competitors, the timing and success or lack
thereof, of its anticipated product releases, changes in law and regulations and
general market and economic conditions. The market price of the shares of
Surviving Corporation Common Stock, like that of the common stock of many other
telecommunications and technology companies, is likely to be highly volatile.
Payment of Dividends Uncertain. The Surviving Corporation does not intend
to pay cash dividends in the foreseeable future but intends to retain its
earnings for use in its business. See "STOCK PRICE AND DIVIDEND INFORMATION."
Regulation. Telecommunications services provided by IXnet are subject to
regulation by international entities as well as by United States federal, state
and local government agencies. The primary regulatory policy of the United
States is to promote effective competition in the United States
telecommunications service market, particularly the market for international
services. It is the view of the United States government that competitive
international markets will provide incentives for further market entry both in
the United States and foreign markets. Competitive markets will also stimulate
technological innovation by United States suppliers of information technology.
There can be no assurance that future, legislative, regulatory and judicial
changes in the United States will not have an adverse impact on IXnet's
business.
For domestic services in the United States, the FCC and State Public
Utility Commissions have direct jurisdiction, granted by statute, over all
aspects of IXnet service. With international traffic, however, the United
States' regulatory structure is limited to the origination or termination of
service 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 of a domestic statute, such as
the Telecommunications Act of 1996 ("the Telecommunications Act") can have in
developing a new structure for international telecommunications.
In the United States, the provision of IXnet's services is subject to the
provisions of the Communications Act of 1934, as amended by the
Telecommunications Reform Act of 1996 and the FCC regulations thereunder, as
well as the applicable laws and regulations of the various states as
administered by the relevant state public utility commissions ("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
state PUCs continue to exercise extensive authority to regulate ownership of
transmission facilities, provision of services and the terms and conditions
under which IXnet's services are provided. The interpretation and enforcement of
laws and regulations by these regulatory authorities vary and could limit
IXnet's ability to provide certain telecommunications services. Thus, there can
be no assurance that changes in current or future laws or regulations or future
judicial intervention in the United States or in any individual state would not
have a material adverse effect on the Company or that FCC or other regulatory
investigation or intervention would not have a material adverse effect on IXnet.
In addition IXnet is required by federal and state law and regulations to
file tariffs listing the rates, terms and conditions of the services it
provides. Any failure to maintain proper federal and state tariffs or
certification or any finding by the federal or state agencies that IXnet is 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
IXnet.
The existing regulatory environment for international telecommunications
service outside the United States differs from country-to-country.
Internationally, the World Trade Organization ("WTO") Basic Telecommunication
Agreement ("WTO Agreement") may result in the introduction of competitive
services in a number of countries throughout the world. Nevertheless, national
and local laws and regulations continue to differ significantly among the
countries in which Ixnet currently operates and plans to operate. An IXnet
subsidiary, IXnet Ltd., currently holds a license to provide international
simple resale ("ISR") services to all international points from the United
Kingdom and has recently been awarded a license to provide international
facilities-based voice services. In other European Union ("EU") countries and
Switzerland, IXnet currently provides voice services pursuant to special
regulations established for provision of telecommunication services to closed
user groups ("CUGS"). In Asia, IXnet has been issued certain licenses to offer
limited types of services in Japan, Hong Kong and Singapore. The regulatory
structures pursuant to which IXnet operates in all of these countries were all
recently enacted. Consequently, there is very limited guidance on the scope of
the authority provided to IXnet pursuant to existing regulatory structures in
these countries. Thus, there can be no assurance that any examination of
IXnet's operations by a regulatory or governmental authority would conclude that
IXnet is operating in a manner consistent with existing law, regulation or
license issued to IXnet. If a regulatory authority concludes that IXnet is not
operating in a matter consistent with the law, regulation or a license issued to
IXnet, it could limit IXnet's ability to provide certain telecommunications
services and may have a material adverse impact on IXnet's business in the
country in question. There can be no assurance that future changes in the law
or regulation of any particular country or the WTO Agreement will not have a
material adverse effect on IXnet's business, results of operations and financial
condition.
<PAGE>
RISKS ASSOCIATED WITH THE MERGER
Control by CSH LLC. Following the Merger, not less than 54% nor more than
90% of the outstanding shares of Surviving Corporation Common Stock will be held
by the stockholders of AAC. As of the date hereof, all of the outstanding
capital stock of AAC is owned, directly or indirectly, in the aggregate by CSH
LLC.
IPC, CSH LLC, Richard P. Kleinknecht, Walsh and Servidio entered into the
Investors Agreement to be effective only upon the consummation of the
transactions contemplated by the Merger Agreement. The Investors Agreement
contains provisions that, among other things, require the parties thereto to
vote in favor of the persons to be nominated to serve on the Surviving
Corporation Board following the Merger and restrict the transfer of shares of
Surviving Corporation Common Stock by Messrs. Richard Kleinknecht, Walsh and
Servidio. As a result of their stock ownership and the Investors Agreement,
following the Effective Time, CSH LLC, its subsidiaries, affiliates and
associates (collectively, the "CSH Entities") will control the Surviving
Corporation and will have the power to elect a majority of its directors and
approve any action requiring the approval of the holders of Surviving
Corporation Common Stock, including adopting certain amendments to the Surviving
Corporation's certificate of incorporation and approving mergers or sales of all
or substantially all of the Surviving Corporation's assets. The directors
elected by the CSH Entities will have the authority to effect decisions
affecting the capital structure of the Surviving Corporation, including the
issuance of additional capital stock, the implementation of stock repurchase
programs and the declaration of dividends.
CSH LLC is a Delaware limited liability company. A majority of the
membership interests in CSH LLC are owned by CVC, officers and employees
thereof, and members of the management of CSH LLC, its wholly owned subsidiary,
Cable Systems Holding Company, and CSI.
The existence of controlling stockholders of the Surviving Corporation is
likely to have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from seeking to acquire, a majority of
the outstanding shares of Surviving Corporation Common Stock. A third party
would be required to negotiate any such transaction with the CSH Entities, and
the interests of the CSH Entities may be different from the interests of other
stockholders of the Surviving Corporation.
Potential of a Second Stage Transaction. Because there are no contractual
restrictions or limitations on the stockholders of AAC from engaging in a second
stage transaction, the risk exists that the stockholders of AAC could engage in
such a transaction thereby eliminating the minority stockholders of the
Surviving Corporation at a price lower than $21 per share.
Potential Delisting and Loss of Liquidity. As a result of the Merger, the
Surviving Corporation Common Stock may no longer meet the listing requirements
of Nasdaq, and Nasdaq may unilaterally act to delist the Surviving Corporation
Common Stock. Pursuant to Nasdaq rules, the Company will seek a dispensation
from such listing requirements to permit the Surviving Corporation Common Stock
to continue to be listed on Nasdaq, or, alternatively, the Surviving Corporation
may seek to be listed on a national exchange. No assurance can be given that
such dispensation will be granted or that such listing will be achieved. Whether
or not the Surviving Corporation Common Stock is delisted, the volume of shares
traded after the merger is expected to decline substantially because of the
significant ownership by the CSH Entities.
Upon any delisting, shares of the Surviving Corporation Common Stock would
trade only in the over-the-counter market. Although prices in respect of trades
would be published by the National Association of Securities Dealers, Inc.
periodically in the "pink sheets," quotes for such shares would not be readily
available. As a result, it is anticipated that the shares would trade much less
frequently relative to the trading volume of IPC Common Stock prior to the
Merger, and stockholders may experience difficulty selling Surviving Corporation
Common Stock or obtaining prices that reflect the value thereof.
<PAGE>
Taxation of Stockholders Receiving Cash -- Possible Dividend Treatment. A
stockholder may make a Stock Election and thereby elect to retain shares of
Surviving Corporation Common Stock in the Merger. However, if the number of
Stock Electing Shares exceeds the Maximum Stock Election Number, each electing
stockholder will receive some cash for a portion of his or her IPC Common Stock
as a result of the proration procedures described herein under "THE MERGER --
Stock Election." In addition, a stockholder may make a split election and as a
result thereof would also receive some cash in the Merger. In such events, a
stockholder may receive dividend treatment (rather than the generally more
favorable capital gain treatment) for any cash received in the Merger as a
result of such proration procedures or election. See "THE MERGER -- Federal
Income Tax Consequences" for a more detailed discussion of the tax consequences
of receiving cash. No such dividend treatment should generally be applicable in
the case of a stockholder who exchanges all of his shares of IPC Common Stock
for cash in the Merger.
Certain Proration Risks. The election of record holders of IPC Common
Stock to retain the Stock Election Price or to receive the Cash Election Price
pursuant to the Merger is subject to the proration procedures of the Merger
Agreement. Accordingly, if the Merger is consummated, stockholders may not
necessarily receive the type of consideration specified in their respective
elections. However, because Richard P. Kleinknecht has agreed to retain 380,952
shares of Surviving Corporation Common Stock, which is equal to the Minimum
Stock Election Number, any other stockholder who elects to receive cash will
receive the full amount of the Merger Consideration in cash and will not be
required to retain any portion of his or her shares as Surviving Corporation
Common Stock.
Potential ERISA Implications. In the event that, following the Merger, the
stockholders of AAC own 80% or more of the outstanding shares of Surviving
Corporation Common Stock, IPC and IXnet may become members of a controlled group
of corporations that includes CVC and its affiliates. In such event, IPC and
IXnet may have joint and several liability with CVC and its affiliates for
certain benefit obligations incurred by CVC or its affiliates under ERISA.
Neither CVC nor any of its affiliates has made any representation to IPC
concerning the existence of any such obligations, and no assessment has been
made as to the potential effect of such joint and several liability on the
Surviving Corporation.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The information herein contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that involve a
number of risks and uncertainties. A number of factors could cause actual
results, performance, achievements of the Surviving Corporation and its
subsidiaries, or industry results to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. These factors include, but are not limited to, the
competitive environment in the telecommunications industry in general and in the
Surviving Corporation's and its subsidiaries' specific market areas; changes in
prevailing interest rates and the availability of and terms of financing to fund
the anticipated growth of the Surviving Corporation's and its subsidiaries'
respective businesses; inflation; changes in costs of goods and services;
economic conditions in general and in the Surviving Corporation's and its
subsidiaries' specific market areas; demographic changes; changes in or failure
to comply with federal, state and/or local government regulations; liability and
other claims asserted against the Surviving Corporation or its subsidiaries;
changes in operating strategy or development plans; the ability to attract and
retain qualified personnel; the significant indebtedness of the Surviving
Corporation and its subsidiaries'; labor disturbances; changes in the Surviving
Corporation's and its subsidiaries' acquisition and capital expenditure plans;
and other factors referenced herein. In addition, such forward-looking
statements are necessarily dependent upon assumptions, estimates and dates that
may be incorrect or imprecise and involve known and unknown risks uncertainties
and other factors. Accordingly, any forward-looking statements included herein
do not purport to be predictions of future events or circumstances and may not
be realized. Forward-looking statements can be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects,"
"may," "will," "should," "seeks," "pro forma," "anticipates," "intends" or the
negative of any thereof, or other variations thereon or comparable terminology,
or by discussions of strategy or intentions. Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such forward-
looking statements. The Company and the Surviving Corporation disclaim any
<PAGE>
obligations to update any such factors or to publicly announce the results of
any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.
THE COMPANY
GENERAL
IPC Information Systems, Inc. IPC is a leader in providing integrated
telecommunications equipment and services that facilitate the execution of
transactions by the financial trading community. Such transactions involve the
trading of equity and debt securities, commodities, currencies and other
financial instruments. The Company designs, manufactures, installs and services
"turret systems" and installs and services the cabling infrastructure and
networks which provide financial traders with desktop access to time-sensitive
communications and data. The Company's primary customers include securities and
investment banking firms, merchant and commercial banks, interdealer brokers,
foreign exchange and commodity brokers and dealers, securities and commodity
exchanges, mutual and hedge fund companies, asset managers and insurance
companies. The Company uses an integrated approach to marketing its products
and services, leveraging its established customer base throughout the financial
trading community. In addition, through its subsidiary, IXnet, the Company
operates 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.
THE COMPANY'S THREE MAJOR OPERATING UNITS
Turret Systems. The Company's sophisticated turret systems, consisting of
turrets and associated backroom switching equipment, provide highly reliable,
"non-blocking" voice communications for trading operations. In addition, these
systems incorporate a proprietary design, including many features designed to
increase the trader's productivity, such as expanded access to telephone lines,
rapid call completion times, high voice quality, built-in redundancy, trader
mobility, personalized call button layouts and the ability to implement system
upgrades via software changes as opposed to hardware changes. The Company
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. The Company offers a
full-line of digital turret systems, including systems for trading floors with
over 1,000 trading positions as well as systems for smaller operations with as
few as five trading positions. The Company also provides its customers with
post-installation maintenance and service, often pursuant to long-term
contracts.
Information Transport Systems. The Company's Information Transport Systems
("I.T.S.") division provides cabling infrastructure, design, installation and
maintenance services for high speed voice and data networks, including local
area networks ("LANs"), wide area networks ("WANs") and data connectivity
applications. The Company'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,
utilizing components from suppliers such as Cisco Systems, Inc. ("Cisco"), 3Com
Corporation ("3Com"), Bay Networks, Inc. ("Bay Networks") and Xylan Corporation
("Xylan"), 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. The Company stations I.T.S. personnel on-site for
many of its major investment banking customers.
IXnet. IXnet has deployed and continues to expand a network (the "IXnet
Network") specifically designed to address the needs of the global financial
community. The IXnet Network uses uniform equipment platforms and includes
network operation centers ("NOCs") and switches located in New York and London,
network access nodes (known as "Points of Presence", or "POPs") and customer
premise nodes (known as customer access nodes, or "CANs") in 15 financial
centers including Frankfurt, Paris, Zurich, Tokyo and Hong Kong and additional
CANs
<PAGE>
in 29 other cities at December 31, 1997. The IXnet Network employs leased
dedicated long-haul circuits to connect IXnet Network cities and leased
dedicated local circuits to connect customers to the IXnet Network. Because the
IXnet Network is, for the most part, leased, the Company generally can rapidly
expand capacity in response to increased customer traffic while reducing the
level of capital expenditures required in advance of related revenues. However,
the Company may participate in the ownership of transmission facilities from
time to time where it believes there will eventually be sufficient traffic to
improve gross margins. The IXnet Network combines the benefits of high quality,
security and end-to-end connectivity from a single network provider, which have
historically only been available through private networks, with the significant
advantages of lower cost, outsourcing of network management, and the ability for
network subscribers to communicate over dedicated circuits not only with other
offices of the same firm, but also with other IXnet subscriber firms.
Through IXnet, the Company provides a variety of telecommunications
services, including dedicated private line, managed data and switched voice
communications among network subscribers. These services include specific
applications for the financial trading community such as turret-to-turret
communications, multi-location voice broadcast and on- and off-net long-
distance voice and data transport services. IXnet provides dedicated private
network connectivity to the financial trading community in the U.S., the
countries of the European Union, Japan, Hong Kong, Singapore and several other
countries. IXnet is authorized to provide interstate long distance voice
service throughout the U.S., to provide international resale of long-distance
services between the U.S. and the U.K., Canada, Sweden, New Zealand and
Australia, and to resell private line service to numerous international points.
See " -- Regulatory Environment." The installation of a CAN in a customer
location often leads to subsequent sales of additional equipment. As of
December 31, 1997, the Company provided telecommunications services to 150
customers and had 229 CANs.
The Company was established in 1973 as Interconnect Planning Corporation to
provide telephone equipment specifically designed to perform in the demanding
environment of the financial trading community. In 1986, the Company, then
owned by Contel Corporation and known as Contel IPC, opened its current
manufacturing facility in the U.S. and commenced operations in the U.K. In
October 1991, the Company was acquired from Contel Corporation by Richard and
Peter Kleinknecht and certain others and renamed IPC Information Systems, Inc.
On October 3, 1994, the Company completed its initial public offering of
3,250,000 shares of common stock at $15.00 per share.
BUSINESS STRATEGY
The Company's strategy is to enhance its turret system leadership position
and leverage its established customer relationships to become the preferred
network provider to the financial trading community. The principal elements of
the Company's business strategy include the following:
Increase Market Share of Turret Systems on Large Trading Floors. The
Company estimates that its turrets represent a majority of the total installed
base of turrets in New York, and approximately 38% of the total installed base
of turrets in London and lower percentages in other financial centers such as
Hong Kong, Tokyo and Frankfurt. Between 1994 and 1997, the Company estimates
that it increased its market share of the installed base of turrets in London
from 24% to 38%. The Company believes that there is substantial opportunity to
achieve substantial increases in other financial centers, as well as further
increasing its London market share by dedicating additional sales and marketing
resources and by focusing on the large installation opportunities the Company
expects will continue to be created in the financial services industry expansion
and consolidation trend. The Company expects to further grow market share as
its customers expand to new locations and standardize their technology
platforms. The Company also believes it will generate substantial new sales from
existing customers who upgrade their older analog turret systems with digital
systems; currently, analog systems represent approximately half of the Company's
installed base of turrets.
Penetrate New Markets. The Company's turret systems have traditionally
been designed as "high-end" products offering optimal performance for large
trading organizations at premium prices. The Company has enjoyed strong market
share among large trading organizations such as global investment banks and is
now focusing on penetrating other markets. These markets include smaller
broker/dealers, hedge funds and asset management
<PAGE>
companies, as well as commodity trading operations in non-financial firms (such
as energy-related companies) and regional trading organizations based in
emerging markets, which typically require either smaller installations or less
functional capability. The Company has recently completed development of two new
products to meet the needs of these customers: VS-MX(TM), a turret system
designed to be cost effective for the smallest trading organizations; and
TraderConnect(TM), a Centrex-like managed service. The VS-MX system, which the
Company intends to begin shipping in the spring of 1998, shares most of the
features of the Company's flagship Tradenet MX(R) product but provides
comparable price performance per trading position for locations with between
five and 16 trading positions. The Company believes that this product will
enable it to penetrate new geographic markets in Latin America and Asia, as well
as smaller trading operations in established markets. TraderConnect is a managed
service in which the Company owns and operates a centrally located and shared
trading turret system and provides IXnet Network services to the customer.
TraderConnect meets the needs of trading organizations that either cannot afford
the upfront investment of a full turret system or prefer to outsource. The
Company offers TraderConnect in New York and intends to begin providing this
service in London during 1998 and in other financial centers thereafter. The
Company intends to use TraderConnect to increase its penetration of smaller
accounts in major financial centers.
Leverage Existing Customer Relationships to Provide Enhanced
Telecommunications Services. The Company believes it is in a strong position to
provide private network services via IXnet to the financial trading community by
virtue of IPC's large installed base of turrets systems and established
relationships with many of the largest firms involved in global trading
activity. The Company believes its reputation for high quality service will
enable it to capture much of the telecommunications services revenue generated
by these clients. A substantial portion of the total telecommunications
spending by financial services firms is generated by trading operations using
turret systems. In addition, the Company believes that its ability to provide
fully managed turret-to-turret connectivity between users of IPC turret systems,
with a single point of contact for all customer service issues, will be a
competitive advantage.
Leverage I.T.S. Expertise. The Company intends to leverage I.T.S.'s
expertise in the design, integration and installation of internet-working
equipment (such as routers and hubs) to provide turnkey managed data services
and ongoing support of data networking equipment located at the Company's
client sites.
Broaden IXnet Customer Base to Include Buyside Participants. While many of
the largest investment banks and broker/dealer firms have either created their
own private networks or contracted for managed private network services, most if
not all of these firms still rely on public switched networks for communications
with trading counterparties and customers on the "buyside" (mutual fund
companies, asset managers and hedge funds). By targeting buyside participants,
the Company intends to increase the number of subscribers to the IXnet Network.
As the number of buyside participants connected to the IXnet Network increases,
the incentive for "sellside" participants and market data and application
providers to use the IXnet Network to communicate with these buyside
participants is expected to increase.
Exploit First-Mover Advantage. The Company believes that it is the first
to offer an international, inter-firm private network (extranet) service
dedicated primarily to the financial trading community, and that the high
concentration of telecommunications traffic among financial trading community
participants will enable the Company to leverage its first-mover advantage into
a position as the preferred service provider to the financial trading community.
As the number of customer locations connected to the IXnet Network grows, the
appeal of the network to prospective customers increases. The limited number of
financial trading community participants amplifies this effect and enables the
Company to achieve significant penetration of the target customer base.
Commercially launched in the spring of 1996, IXnet had 59 customers as of
December 31, 1996 and 150 customers as of December 31, 1997.
Reduce Risk by Scaling IXnet Network Expansion to Customer Additions.
IXnet's business plan is based on a success-driven network investment program,
which generally calls for the addition of network equipment and transport
capacity as required by the addition of new customers to the network or the sale
of additional services to
<PAGE>
existing customers, as opposed to in advance of such events as is typical of
other telecommunication services firms. Given the availability of local fiber
facilities at competitive rates in many of the world's financial centers, as
well as the competitive market for transport capacity on major international
routes, the Company believes it will be able to rapidly provision high-quality
services without building its own fiber facilities, although the Company will
participate in ownership of transmission facilities from time to time where it
believes there will eventually be sufficient traffic to improve gross margins.
The capital investment required to expand the IXnet Network is comprised largely
of additional CANs and incremental additions to the Company's existing London
and New York NOCs and various POPs.
INDUSTRY BACKGROUND
Turret Systems. The turret systems industry is characterized by a small
number of manufacturers of highly specialized telecommunications systems sold
primarily to companies in the financial trading community. A trader requires
highly reliable, non-blocking simultaneous access to multiple lines which cannot
be provided by traditional internal corporate telephone systems (also known as
"Private Branch Exchange" or "PBX"). In order to meet these specific needs, a
small number of manufacturers have developed a highly specialized voice
communications systems called turret systems. Turret systems must be
exceptionally reliable because of the time-sensitive nature of trading activity
and the high potential opportunity cost of a service outage. A single trading
floor may contain in excess of 1,000 turrets, with each turret providing access
to hundreds of telephone lines.
Telecommunications Services. The telecommunications marketplace has
experienced a transformation over the last decade. Improved technology and
increased competition, due in part to widespread regulatory reform, have
contributed to the rapid expansion of telecommunications traffic. The financial
trading community has grown significantly, while at the same time individual
firms have expanded operations to new international locations to compete in the
global marketplace. Many of these firms require extensive communication network
capabilities to remain competitive in this environment. However, the Company
believes that most readily available alternatives either do not adequately
address the specific needs for seamless, high performance international
communications between the various trading partners, or provide the required
services in a suboptimal manner which is neither ideal for the client nor cost
effective for the provider.
To date, financial trading firms have had two alternatives for addressing
their exacting telecommunications demands: (i) building a private network,
thereby incurring both substantial development and ongoing costs while primarily
providing connectivity among various locations of a single firm; or (ii)
utilizing the broad based common carriers' public networks, which 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 and the global telecommunications alliances as
"virtual private network" services, are typically conducted through disparate
public networks and service organizations that do not offer the quality,
services, reliability or timeliness of delivery that would be available through
a dedicated private network.
LAN/WAN Infrastructure, Design, Installation and Maintenance. Integrated
high speed internal data communications networks have become critical to
financial services companies. Companies are installing increasingly complex
computing environments centered around LANs and WANs that connect networked
desktop personal computers and workstations, printers, telecommunications
equipment, file servers and facsimile machines. As network requirements have
grown and network designs have become more complex, many companies have chosen
to outsource their LAN/WAN design, installation and maintenance needs to
independent specialists.
PRODUCTS AND SERVICES
The Company is involved in (i) the design, manufacture, installation and
maintenance of voice telecommunications systems primarily for the financial
trading community (including turret systems and other associated products); (ii)
the design, installation and maintenance of data networks and associated cabling
infrastructures (I.T.S.); and (iii) the provision of voice and data
telecommunications services to the financial trading community (IXnet). For the
fiscal year ended September 30, 1997, these products and services represented
65.7%,
<PAGE>
27.7% and 6.6%, respectively, and 73.1%, 15.9% and 11.0%, respectively,
for the three months ended December 31, 1997 of the Company's consolidated
revenue.
Turret Systems
A turret system is a sophisticated telephone system consisting of desktop
consoles and backroom switching equipment, used by trading personnel requiring
rapid access to multiple telephone lines, near instantaneous connection to the
call recipient and a high degree of reliability. A turret system is installed
in addition to, and communicates with, a company's PBX, but has enhanced
features compared to a PBX.
Key features of the Company's turret systems include:
Reliability. On a trading floor, a lost connection could result in a lost
transaction, and the outage of the entire telecommunications system could be
extremely damaging to a trading firm. IPC's turret systems are designed with a
distributed architecture utilizing redundant equipment and circuitry with
parallel internal transmission paths. This architecture ensures that no single
component failure within the system can cause the failure of the entire system.
Call Capacity. IPC's turret systems are "non-blocking," designed to allow
every user to be on one or more telephone lines at the same time without call
blocking or a degradation of call setup speed. The Company's flagship Tradenet
MX system is designed to support up to 23,000 telephone lines in simultaneous
use by up to 4,000 user positions. In sharp contrast, a typical PBX
configuration accommodates only approximately 20% of users speaking at the same
time.
User Programmability and Mobility; Speed. IPC's digital turret systems
allow each user trader to customize the system with his own speed-dial and
direct connections and associated displays, and to store his personal settings
in memory in the system's back room switching equipment. If for any reason a
trader is in a location other than his normal location, he can easily access his
customized settings from any other MX turret on the system at the same location
or at any remote network-linked location.
The Company has historically focused on large trading organizations. The
Tradenet MX is designed for trading floors from 40 to over 1,000 positions. The
MX Compact, introduced in 1994, is designed for trading floors of between 16 and
40 positions. The VS-MX, which the Company expects to begin shipping in the
spring of 1998, is designed for between five and 16 positions. The entire MX
product line utilizes similar hardware and software, has common interfacing (all
of which facilitates upgrading) and can be interconnected and integrated in
order to meet the requirements of customers with multiple trading floors of
various sizes.
The Company's key turret systems products and services include the
following:
Large Trading Systems. The Company's flagship turret product is the
Tradenet MX system. Tradenet MX is a fully digital proprietary system based on
a fault tolerant switch which is not vulnerable to isolated component failure.
Its distributed architecture design provides reliability by harnessing the
computing power of multiple Sun Microsystems SPARC microprocessors throughout
the system, and provides rapid and easily programmable switching of voice calls.
Tradenet MX is designed to allow software upgradability of features and
applications without major hardware upgrades. Because they are mainly software-
based, such upgrades can be made quickly to enable the Company to respond
rapidly to developments in the market or to a customer's specific request. The
customer can have maintain a continually up-to-date system by gradual periodic
upgrading of software. The Tradenet MX platform is designed with the capability
to switch data and video as well as voice. The current list price range for the
Tradenet MX is between $8,500 and $15,000 per user position depending on the
configuration and features required.
<PAGE>
Medium-sized Trading Systems. The Company provides MX Compact, a less
costly version of Tradenet MX, for medium-sized locations. MX Compact is
designed for trading operations from between 16 and 40 trading positions at a
single site, such as branch offices or those located in smaller markets. The MX
Compact is packaged in a single cabinet and is competitively priced, while
retaining most of the same advanced features as the Tradenet MX.
Small Trading Systems. The Company has recently completed final testing of
the VS-MX, which provides high reliability and most of the same advanced
features of the Tradenet MX but at a substantially lower price per trading
position for locations of five to 16 positions. The Company intends to begin
shipping the VS-MX in the spring of 1998 and believes that this product will
provide it with a means to enhance its penetration with target customers such as
asset managers, hedge funds, smaller energy and commodity trading floors, and
financial trading firms typical of emerging markets such as Latin America, Asia
and the Middle East.
Turret Service. A significant portion of the Company's revenue from turret
systems is related to post-installation service and is generated (i) under
annual and long-term service contracts; and (ii) from incremental sales of
turrets and related equipment for "moves, adds and changes" to existing IPC
trading floor installations. For fiscal year 1997, turret service revenue
accounted for $55.1 million of the Company's $177.6 million in consolidated
revenue from turret systems. Turret service revenue has historically been very
stable and less subject than the Company's turret systems sales to cyclical
changes in the financial strength and growth of the financial trading community.
Following a standard one-year period after installation of a turret system, a
customer generally enters into an annual or multi-year service contract with the
Company. These contracts typically cover full time on-site technical support by
IPC technicians deployed to client sites for large trading operations, and on-
call technical support by IPC personnel for smaller trading operations. As of
September 30, 1997, the Company had over 90 technicians servicing ongoing
contracts, primarily in New York and London. "Moves, adds and changes"
revenue is generated whenever a customer adds additional trading positions to an
existing IPC trading floor or makes changes to the turret system configuration
and produces a steady and relatively predictable revenue stream for the Company.
Centralized Trading Systems. In June 1997, the Company introduced a
centralized trading system called TraderConnect, in which the Company maintains
equipment and operating responsibility for a centrally located and shared
Tradenet MX turret system and provides a turnkey solution to customers by
furnishing turrets at the customer premises in addition to local and long
distance communications. The service is akin to the Centrex method of providing
centralized PBX services, and is billed to clients on a per position and
communication usage basis. TraderConnect provides its customers with many of the
same features available to owners of other MX products. While TraderConnect is
capable of supporting larger trading operations, the Company is initially
targeting trading operations between one and 30 trader positions for
TraderConnect services.
TradePhone MX(TM). The Company also manufactures a multi-button telephone
called the TradePhone MX that is designed to operate with the Tradenet MX family
of turret systems. This product was introduced in May of 1997 and is targeted
at trading support, sales and research personnel that have a need to communicate
directly with the traders. It provides the connectivity to the MX system and
with the feature functionality of a trading turret in a scaled-down unit that is
suitable for use off of the trading floor.
The WorldTurret(TM). The WorldTurret is a JAVA(TM) software application
that provides remote access to a trader's existing MX system via the Internet.
This product provides a trader with a standard PC ease of access to his trading
system from a remote location. A WorldTurret user gains the full feature
functionality and real time performance of the trading system via a standard
voice and data connection.
Exchangefone(R). Exchangefone is an extremely ruggedized telephone
specifically designed for use on exchange floors. Exchangefone uses distributed
microprocessor technology to provide ease of feature customization and reduces
the amount of cable required between the trading floor and the backroom
switching equipment.
<PAGE>
Open Line Speaker Systems. The Company manufactures open-line, digital
speaker systems for the financial trading community. These speaker systems,
which are sold either as an integral part of a turret system or on a stand-alone
basis, provide full-duplex continuous communications that enable enabling
brokers to communicate rapidly on a "hands-free" basis without having to dial a
telephone. From a single microphone, brokers can broadcast simultaneously to
numerous trading counterparts. Additionally, these speaker systems contain
digital signal processor software which enables them to function effectively in
a noisy trading floor environment.
Other Products and Services. In order to offer a broader product line, IPC
remarkets various other products, including PBX systems, video conferencing
equipment and voice logging and recorder devices.
The installation of a turret system involves extensive planning to ensure
that all materials and labor are coordinated to achieve and be completed on-
time, and within-budget. Detailed analysis is performed, defining all required
features and lines. The cabling infrastructure is installed and tested prior to
delivery of backroom switching equipment, usually a month before the time when
the system use begins (referred to as "cutover"). About two weeks prior to
cutover, the desktop consoles are installed and the complete system is
rigorously tested. The largest trading floors currently in operation using IPC
equipment have in excess of 1,200 turret positions with access to 8,000-10,000
telephone lines and can take up to a year to install. IPC's turret systems
customers are natural candidates for the Company's I.T.S. services.
The IXnet Network
IXnet was founded by several telecommunications specialists with extensive
experience in purchasing and implementing telecommunications services for the
financial trading community and began commercial operations in the
spring of 1996. IXnet capitalizes on several characteristics of the target
customer base: rapid changes in technology requiring constant reevaluation of
previous technology decisions and new investments to remain competitive;
internal telecommunications departments focused on intra-firm communications via
private networks rather than on communications with trading counterparts; demand
for high performance communications between firms; difficulties in dealing with
multiple vendors, particularly in international markets; significant disparity
between the pricing and underlying costs of international communications
traffic; and no uniform global technology platform for international
communications.
IXnet has implemented a network specifically designed to address the needs
of the financial trading community. The network consists of Company-owned
switches, network access nodes POPs, customer access nodes CANs and NOCs, and
uses primarily leased transport capacity. Significant features of the IXnet
Network include the following:
Uniform Equipment Platforms. The IXnet Network is based on a Newbridge
Network Corporation ("Newbridge") managed transport network overlaid with
Northern Telecom Ltd. ("Nortel") switches for enhanced voice services and Cisco
routers for enhanced data services. Newbridge network access nodes and network
management software are located at the Company's POPs, while CANs are directly
installed at the customers' premises. The Newbridge platform provides high
performance, advanced features and global network management which allows for
rapid provisioning, and end-to-end network diagnostics from the Company's
facilities to each customer's premises. The Company owns a Nortel DMS-500
digital switch located in New York City and a Nortel DMS-100E digital switch
located in London. These switches are equipped with the latest advanced
intelligent networking ("AIN") and common channel signaling system 7 ("SS7")
capabilities, allowing for universal availability of services, rapid
provisioning of service, short call setup times and a single network management
and control system to enhance network performance.
Transport Facilities. IXnet utilizes multiple carriers to provide access
facilities from customer premises to IXnet POPs. Such carriers include
incumbent local exchange carriers ("ILECs"), competitive access providers
("CAPs") and competitive local exchange carriers ("CLECs"). Access from the
customer sites is typically via a digital facility, using one or more dedicated
T-1 or E-1 fiber optic links. In addition, the Company leases and
<PAGE>
acquires bandwidth from regional and international common carriers to link its
network locations. In most of its market areas there are competitive providers
of fiber optic capacity.
Network Operation Centers. The Company currently has fully operational
NOCs in New York City and London, which house the specialized equipment
necessary for managing the network. The NOCs contain systems allowing for the
display of alarms for all equipment conditions, testing of adverse conditions,
re-routing of traffic to other equipment or networks, management notification of
critical conditions and provisioning of customer bandwidth. While the New York
City NOC acts as the overall operations control center for the entire IXnet
Network, either NOC can independently support the IXnet Network. The New York
NOC is fully manned, on a 7 day, 24 hour basis.
IXnet Services
IXnet services fall into three categories: dedicated private line
services, managed data services and switched voice services. Dedicated private
line services include the following:
IXLink(TM). IXLink is a managed dedicated private line service which
provides voice and/or data transmission on circuits ranging in capacity from 8
Kbps to 2 Mbps. The service features include high quality digital connectivity
worldwide and end-to-end circuits which eliminate the need for multiple vendors.
These services are provided for both intra-firm and inter-firm communications.
DigiHoot(TM). DigiHoot is a single sourced digital hoot & holler service
with network management and speaker equipment provided as part of an integrated
offering. Hoot & holler networks are specialized open line voice conference
systems that trading firms operate to allow continuous mission-critical contact
between various trading locations. This service combines the IXnet high
performance international network with IPC's MX turret systems and IPC's speaker
systems for a total desktop to desktop managed solution. Digital connections and
bridging provide clear communications and IXnet backs up supports the service
with 24-hour network management and customer support. DigiHoot service can be
rapidly provisioned and reconfigured to meet customers' demand for a flexible
trading environment.
MetroLink(TM). MetroLink is a private line service that connects IPC's MX
customers within the same metropolitan area. IXnet serves as a single source
provider of hardware and connectivity from turret to turret. Compared to the
analog connections typically provided by the ILEC, MetroLink provides faster
circuit provisioning, end-to-end managed digital connectivity, and reduced
installation cost and space requirements at a competitive price. MetroLink is
currently offered in New York City, and the Company intends to offer this
service in other cities as the regulatory environment and customer demand
warrants.
IXFrame(TM); Liquidity. IXFrame is a Managed data services provided by
IXnet using basic frame relay as its underlying technology, and Liquidity(TM) is
a managed inter-firm and intra-firm data network service which is also frame
relay based with frame relay as its underlying technology. The service Liquidity
provides secures delivery of time-sensitive financial applications and
information such as electronic trading, market data, and FIX (Financial
Information Exchange) messages. Its standard features include: stand-alone
encryption hardware, a Cisco router supplied, owned and managed by IXnet,
network performance guarantees and real time network performance reporting.
Switched voice services provided by IPC include the following:
IXGlobal(TM). IXGlobal is IXnet's on-net switched voice service. It
provides a seamless international virtual private voice network service to the
financial trading community over a uniform switching platform. Because IXnet
provides end-to-end connectivity among all IXnet subscribers, it is able to
provide the same high performance characteristics presently available only on
dedicated private networks. Features of IXGlobal include: preferential pricing
for on-net calls to IXnet subscribers, fast call completion and AIN features
including caller ID,
<PAGE>
conference calling, call forwarding, etc., customized billing formats for the
financial trading community and network control and account management.
All switched calls between IXGlobal subscribers are carried entirely on-net
(i.e., not terminated through LECs that impose access charges). As a result,
IXnet can provide customers with substantial discounts for IXGlobal calls, while
still enjoying favorable margins. Accordingly, as more members of the financial
trading community come onto the IXnet Network, the Company expects the
attractiveness of this service to improve.
IXPrime(TM). IXPrime is IXnet's off-network switched voice service. Unlike
IXGlobal, IXPrime calls terminate to off-net locations. Features of IXPrime
include switched or dedicated originating access and simplified pricing for
calls.
IXnet has a flexible and highly capable operational support system which
provides efficient management of "back office" functions such as order entry,
trouble ticket monitoring, provisioning and reporting. The system is centered
around an Oracle database for centralized customer and system information.
Billing is provided by a flexible system which allows the customization of
customer invoices. For all of its services, IXnet provides flexible billing
format and media, including clear and concise calendar month invoicing which
allows the user to see actual costs for each different service. IXnet also
offers optional local currency billing.
Information Transport Systems
The Company's I.T.S. division provides cabling infrastructure, design,
implementation and maintenance services for high speed data networks, including
LANs and WANs, with a primary focus on the financial trading community. This
business line includes four major product and service areas: value-added
services, networking products, cabling infrastructure and network maintenance
and support. Customers purchase these products and services, which are cross-
marketed with IPC's turret systems, on a stand-alone basis or in bundled
combinations. Over 89% of the Company's fiscal 1997 I.T.S. revenue was from jobs
performed in the New York City metropolitan area. In addition, I.T.S. has a
core group of highly skilled project managers and design engineers who are
dispatched to manage installation projects elsewhere.
Value-Added Services. The Company provides a wide range of value-added
services, including network and trading room design, consulting, engineering
implementation, project management, the staging and operational testing of
workstations and technology and operational outsourcing.
Networking Products. The Company markets and services a full line of
third-party manufactured networking products including LAN hubs, adapters,
bridges, routers, network management software and protocol converters. The
company is a certified reseller of third party networking products, including
products from Cisco, 3Com, Xylan and Bay Networks. The Company sells these
products on a stand-alone basis or fully installed, configured and integrated
with customer systems.
Cabling Infrastructure. Cabling infrastructure provides physical
connectivity among communications devices, including turrets, telephone
switching equipment (turret or PBX), facsimile machines, computer networks and
video conference facilities. Providing a customer with cabling infrastructure
includes several distinct phases: network design, documentation, installation,
certification and ongoing service and maintenance. The Company offers its
cabling infrastructure customers design input on various system elements,
including diversity of cable routing, uninterruptable power systems, security
safeguards and cable management systems. The Company places special emphasis on
the testing and certification phases of the project since today's high speed
networks demand that products be installed in accordance with strict
manufacturer specifications.
Network Maintenance and Support. The Company offers a broad line of post-
installation maintenance and support services to customers for "moves, additions
and changes" or as part of a long-term technical services contract. These
contracts provide customers with access to a wide range of IPC technical and
operational resources,
<PAGE>
including network engineering analysis, on- site technical support, help desk
support, user training and network reconfiguration. These services provide the
Company with a recurring revenue stream, which, in fiscal 1997, accounted for
$17.3 million out of total I.T.S. revenue of $74.8 million.
SALES AND MARKETING
IPC uses a team approach to sales and account management across its lines
of business. Customers are assigned a multi-disciplinary sales/service team
(except where turret systems are marketed through distributors) in order to
leverage IPC's existing extensive customer relationships, to present a unified
Company approach and to coordinate service offerings. IPC's sales efforts are
organized on an international basis in order to promote relationships with and
provide enhanced service to customers who have significant international
operations. This is a departure from the historical location-by-location and
project-by-project approach taken by turret vendors and service providers and
reflects the consolidation trend in the financial trading community and
customers' preference to utilize common technology and services throughout their
organizations. Account executives are compensated for identifying and
developing revenue opportunities outside their lines of business. The Company
presently markets its turret and I.T.S. products and services domestically and
in key international financial centers. This is accomplished through a
combination of distribution channels including both direct and distributor
sales. The Company employed 68 direct sales representatives for its turret
systems and I.T.S. products and services as of December 31, 1997, in sales
offices and service locations in:
Atlanta Hong Kong Philadelphia
Baltimore Houston Pittsburgh
Boston London San Francisco
Chicago Los Angeles Stamford
Cincinnati New Jersey St. Louis
Dallas New York Toronto
The Company also has distributors for its turret systems in the following
countries:
Argentina Japan Philippines
Belgium Kuwait Russia
Brazil Luxembourg South Africa
Canada Malaysia Singapore
China Mexico Switzerland
Greece Netherlands Taiwan
Ireland New Zealand Thailand
Italy Peru Turkey
These distributors receive extensive training from the Company, and are
qualified in turret sales and maintenance, and LAN design and installation, and
provide qualified systems engineers to support customers.
IXnet services are marketed and sold by experienced network sales
professionals dedicated to the IXnet service offering. As of December, 1997,
IXnet had a total of 18 network sales professionals, including 12 in the United
States, and the remainder in the United Kingdom, Canada and France. The Company
intends to add sales professionals in these locations and in other key locations
as its expansion continues. The Company also sells IXnet services through
agents in selected international markets including Tokyo, Frankfurt and Mexico
City.
Non-U.S. markets are important to the Company. The following table shows
the approximate distribution of the Company's total consolidated revenue for the
fiscal years indicated:
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30
--------------------------------
REGION 1995 1996 1997
- -------------------------- --------- --------- ---------
<S> <C> <C> <C>
New York 68% 54% 55%
Rest of United States 17 20 18
United Kingdom 10 20 22
Rest of Europe -- 1 1
Far East 3 4 3
Latin America 2 1 1
---------------------------------
Total 100% 100% 100%
=================================
</TABLE>
IPC maintains a high profile in the financial services market by
publicizing contracts won, utilizing placement of advertising in industry
publications and participating in relevant industry trade shows.
The Company also actively participates in industry seminars to communicate IPC's
capabilities to prospective customers and maintains a staff of experienced
marketing professionals who generate promotional brochures and training
materials.
CUSTOMERS
The Company's customers are concentrated primarily in the financial trading
community which includes securities and investment banking firms, merchant and
commercial banks, inter-dealer brokers, and foreign exchange and commodity
brokers and dealers, securities and commodity exchanges, mutual and hedge fund
companies, asset managers and insurance companies. The Company also provides
equipment and services to commodity trading operations in non-financial firms
(such as energy-related companies). Historically, almost all of the Company's
consolidated revenue has been derived from sales to customers in the financial
trading community. In fiscal 1996, approximately 13% of consolidated revenues
were from one customer. In fiscal 1997, no single customer accounted for more
than 10% of the Company's consolidated revenues.
BACKLOG
As of December 31, 1997, the Company had a backlog of purchase contracts
representing approximately $57.0 million of future revenue, as compared with
approximately $53.4 million as of September 30, 1997. Due to the size and lead
time of orders, which can vary substantially, and because the Company recognizes
revenue upon the completion of an installation, the amount of backlog at any
date may not be indicative of actual sales for any subsequent period. The
Company's backlog includes only orders for new installations and does not
reflect annual or multi-year service contracts or orders for the
reconfiguration, alteration or expansion of existing systems, as such orders are
normally completed within one month.
RESEARCH AND DEVELOPMENT
IPC's Tradenet MX product family is recognized within the financial trading
community as providing a high standard of reliability, performance, and
functionality. IPC endeavors to work closely with its customers to understand
their future requirements and invests in research and development to ensure its
products address customer needs. For the fiscal years ended September 30, 1995,
1996 and 1997, the Company recorded expenses of $10.1, $11.5 and $10.0 million,
respectively, on research and development. During 1997, IPC spent 3.7% of its
<PAGE>
total revenue on the continued development of the Tradenet MX family as well as
in developing its next generation of voice-based trading system products.
Additions to the Tradenet MX product line during fiscal 1997 included
TraderConnect and the WorldTurret MX, and the Company expects to ship its VS-MX
system beginning in the spring of 1998. At December 31, 1997, the Company
employed 98 persons in the area of research, development and product
engineering.
In addition to developing new MX system features and functionality, IPC
intends to strongly emphasize product integration of the MX product line with
the IXnet Network telecommunications network. This integration is intended to
remove the traditional boundaries between internal turret systems and external
telecommunications networks.
Interoperability and integration of the traders' desktop systems will
remain a strategic focus. IPC intends to utilize its core competencies in call
processing, Computer Telephony Integration and fault tolerant switching to
provide solutions which meet the evolving needs of its customers.
MANUFACTURING
The Company manufactures its turret systems products at an 85,000-square
foot Company-owned building in Westbrook, Connecticut. The facility houses
production lines, a repair department, inventory, a training center and various
support functions, including production scheduling, purchasing and quality
assurance personnel. The Company Management believes that the manufacturing
facility and its resources are capable of handling expected demand for the
foreseeable future. The Company believes that there are adequate supplies of
labor in the immediate area of the Westbrook facility. Although the Company
carries insurance, including business interruption insurance, on its
manufacturing facility a calamity at the facility could have a material adverse
effect on the Company.
Most turret components have a relatively short lead time of approximately
30 days. However, there are a few long lead time items, specifically displays
and buttons, that need up to 24 weeks order time. The Company purchases certain
key product components that are made to order from single source suppliers.
Materials are ordered in accordance with a production forecast that is
derived by constantly monitoring sales activity. Furthermore, IPC has developed
a "point-of-use" program whereby certain suppliers pre-position their inventory
in IPC's warehouse and IPC does not take ownership until the components are
needed. The Company believes that its relationships with its suppliers are
good, and it has not experienced supply difficulties.
COMPETITION
Turret Systems and LAN/WAN Infrastructure, Design, Installation and Maintenance
The markets for turret systems and LAN/WAN infrastructure, design,
installation and maintenance are highly competitive. Although some of the
Company's competitors are substantially larger and have greater resources, the
Company believes that IPC's strong market position is the result of its
consistent ability to produce high quality products, its established reputation
for the high quality service, strong relationships with customers and
experienced management, sales and technical staffs.
In the worldwide market for trading turrets, IPC's main competitors are V
Band Corporation and BT. The Company also competes with Hitachi Ltd., Telaid
Industries Inc., Etrali S.A., Telenorma GmbH (a division of Robert Bosch GmbH),
LM Ericsson Ltd. and Siemens A.G., which have historically achieved strong
market shares in their respective domestic markets. The Company believes it is
able to compete effectively against these companies due to the high quality of
its products, its reputation for providing outstanding customer service and its
ability to provide a standardized technology platform on a global scale.
Direct competitors to IPC in the I.T.S. business are numerous due to the
highly fragmented nature of the data networking market. Although a number of
companies compete for parts of what the Company includes in its
<PAGE>
customer solutions (for example, cable installation), management believes that
its expertise and capability to support the full range of data network design
and installation requirements of large national and international customers
enable it to compete effectively in this market.
Telecommunications Services Competition
The nature of the telecommunications services market is changing
dramatically. These changes are creating opportunities for new market entrants.
Three major interrelated trends are apparent:
The first is a trend toward market liberalization and the introduction of
facilities-based competition for both domestic and international
telecommunications services. This trend is accelerating a shift from single
national carriers, whether government- or privately- owned, to multiple carriers
and more competitive markets.
The second is a trend toward the emergence of competition in many foreign
markets, allowing international carriers to transmit traffic without paying
artificially high prices to monopoly carriers. This competition has reduced
both the prices the Company can charge as well as its transmission costs for
international traffic. The Company believes its focus on the specific needs of
the financial trading community will help it mitigate the effect of declining
prices, while the increasing competition among international carriers will
continue to drive down the wholesale prices of long haul transport capacity.
The third trend is the increasing participation among major international
carriers in global alliances. The major telecommunications alliances are Concert
(BT & MCI Communications Corporation), Global One (France Telecom, Deutsche
Telekom AG and Sprint Corporation) and World Partners Association (a
confederation of carriers including AT&T Corp.). Such alliances, which may be
based on either equity or non-equity relations, are still new and not fully
developed, either in terms of corporate form or market strategy. To date,
revenues to the alliances from target markets, which include the global
provision of enhanced services to multinational corporations, are small relative
to traditional international voice traffic revenue. Nonetheless, such alliances
are of significance because they represent individual national carriers'
attempts to meet the perceived desire of multinational corporate customers to
obtain worldwide telecommunications services from a single provider.
In addition to competing with the alliances, the Company also competes with
many additional carriers which provide service in single or multiple markets,
including Cable & Wireless plc , Worldcom, Inc., Kokusai Denshin Denwa Co. Ltd.
(KDD), Swiss Telecom PTT and Hong Kong Telecom Ltd.
The Company believes that it has certain competitive advantages over
existing carriers and the developing alliances, including its network design and
its strategic focus on the financial trading community. The participants in the
alliances, as common carriers, have designed broad-based networks to provide
service to the public at large. These networks utilize a variety of hardware and
software, making it difficult to implement a uniform global system platform that
provides the common set of features and performance characteristics demanded by
the financial trading community. While the alliances are a response to customer
demand for a single point of contact, by their nature the alliances have
difficulty implementing projects and servicing customers across corporate and
national borders. The IXnet Network is designed to meet the specific
performance requirements of the financial trading community. This single market
focus and the Company's ability to integrate its products and services allow the
Company to provide comprehensive single source solutions for its customers,
which translates into a competitive advantage over global alliances and large
common carriers. See "RISK FACTORS -- Risks Associated with Operations --
Competitors with Greater Resources."
<PAGE>
REGULATORY ENVIRONMENT
Government Regulation
Telecommunications services provided by IXnet are subject to regulation by
international entities as well as by United States federal, state and local
government agencies. The primary regulatory policy of the United States is to
promote effective competition in the United States telecommunications service
market, particularly the market for international services. It is the view of
the United States government that competitive international markets will provide
incentives for further market entry both in the United States and foreign
markets. Competitive markets will also stimulate technological innovation by
United States suppliers of information technology. See "Risk Factors--
Regulation."
The existing regulatory environment for international telecommunications
service differs from country-to-country. For domestic services in the United
States, the FCC and State Public Utility Commissions have direct jurisdiction,
granted by statute, over all aspects of IXnet service. With international
traffic, however, the United States regulatory structure is limited to the
origination or termination of service 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, the provision of IXnet's services is subject to the
provisions of the Communications Act of 1934, as amended by the
Telecommunications Act and the FCC regulations 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 state PUCs continue to exercise extensive authority to regulate
ownership of transmission facilities, provision of services and the terms and
conditions under which IXnet's services are provided. In addition IXnet is
required by federal and state law and regulations to file tariffs listing the
rates, terms and conditions of the services it provides. Any failure to maintain
proper federal and state tariffs or certification or any finding by the federal
or state agencies that IXnet is 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 IXnet.
IXnet currently holds several FCC authorizations for telecommunications
services. These authorizations permit IXnet to (i) acquire interests in
submarine cable and international satellite facilities previously authorized by
the FCC; (ii) 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 (iii) resell private lines interconnected to the
public switched telephone network for service between the United States and a
small number of approved countries. To date, the FCC has approved
interconnected resale to the United Kingdom, Canada, Sweden, New Zealand,
Australia and the Netherlands. IXnet has received a reciprocal authorization
from the United Kingdom to resell private lines interconnected to the public
switched network between the United States and the United Kingdom.
<PAGE>
State regulatory commissions exercise jurisdiction over intrastate
services. Intrastate services are communications that originate and terminate
in the same state. IXnet holds a certificate of public convenience and necessity
to resell forms of telephone service within New York state and in nine other
states. IXnet is able to provide service in Michigan and Washington, D.C.
without authorization from those jurisdictions. IXnet has an application pending
in Georgia for authorization to provide service in that state and is preparing
to file for similar authorization in at least one other state. As the
regulatory regimes change in the United States and elsewhere, the authorizations
held by the Company also may need to be adjusted.
Regulatory requirements pertinent to IXnet's operations have recently
changed and will continue to change as a result of the WTO Agreement, federal
legislation, court decisions, and new and revised policies of the FCC and state
PUCs. In particular, the FCC continues to refine its international service rules
to promote competition, reflect and encourage liberalization in foreign
countries, and reduce international accounting rates toward cost. Among other
things, such changes may increase competition and alter the ability of IXnet to
compete with other service providers and continue to provide the same services,
or introduce new services. The impact on IXnet's operations of any changes in
applicable regulatory requirements cannot be predicted.
International Regulatory Considerations
Significant liberalization of telecommunications regulation in a number of
countries has provided IXnet with greater flexibility to obtain authorizations
to provide service. The specific licensing approach or regulation of IXnet
services has differed from country to country depending on the status of
deregulation and the development of competition in each country.
Canada. IXnet is registered as reseller and currently provides private
line service between Canada and the U.S. and Canada and the U.K. It is
anticipated that Canada will open its market to increased competition in
international telecommunication services in 1998. There can be no assurance
that changes in the Canadian regulatory structure will not adversely impact
IXnet services in Canada.
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. An IXnet subsidiary holds both an International Facilities Based
Telecommunications License ("IFBTL") and an ISR license in the United Kingdom.
The IFBTL entitles IXnet 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
British Telecom and Mercury. The ISR license allows IXnet to resell
international private lines, as well as interconnect with, and obtain capacity
at wholesale rates from British Telecom and Mercury Communications, Ltd.
Other European Union Countries. Prior to January 1, 1998, a majority of
the EU countries has maintained the position that all or most
telecommunications services are 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. The EU has required that member states liberalize their
telecommunications regulations, effective January 1, 1998, to permit the
introduction of competition in all sectors of the telecommunications market.
These regulatory reforms are in the early stages of implementation. Nonetheless,
IXnet has already initiated service prior to these reforms. In some cases, IXnet
was able to take advantage of a special status granted to CUGs. 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." IXnet and its
subsidiaries fit this definition of CUGs in several countries. In addition, in
several EU countries, IXnet structured its service offerings to not require
interconnection to the local public switched telephone network. Based on CUG
status and/or lack of interconnections to the public switched network in these
countries, IXnet subsidiaries are able to operate in France, Germany, Ireland
and The Netherlands without the need for licenses in these countries. In these
cases, the IXnet companies provide private line and virtual private network
voice services and a full range of data services. IXnet has applications pending
in Belgium and Italy to provide voice and data service based on IXnet's status
as a CUG.
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, IXnet, through its subsidiaries,
has been able to provide private line and virtual private network voice services
and a full range of data services in Switzerland due to its status as a CUG and
its lack of interconnection to the Swiss public switched telephone network.
<PAGE>
Japan. On January 27, 1997, the Japanese Ministry of Post & Telephone
granted IXnet's Japanese subsidiary a Special Type II telecommunications carrier
license. This license allows IXnet 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, an IXnet subsidiary received from the Hong
Kong Government Office of the Telecommunications Authority a Public Non-
Exclusive Telecommunications Service ("PNETS") license for the provision of
Virtual Private Network Services. This license allows IXnet 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 IXnet's Singapore subsidiary a license to operate a network in
Singapore for a closed user group of entities actively involved in the financial
services industry for the provision of data services including bandwidth on
demand, frame relay, ATM and multi-protocol transport services. IXnet is
preparing to seek authority to provide virtual private network voice services in
1998.
Latin America. IXnet, through a subsidiary, has filed an application to
provide certain limited services in Brazil, including virtual private network
services. IXnet is preparing to seek authority in Mexico to provide similar
services.
IXnet intends to expand its operations into other jurisdictions as such
markets deregulate and IXnet is able to offer a full range of services to its
customers. In addition, 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 IXnet's entry into such additional markets. The ability of IXnet to
enter a particular market and provide telecommunications services, particularly
in developing countries, is dependent upon the extent to which the regulations
in a particular market permit new entrants. In some countries, regulators may
make subjective judgments in awarding licenses and permits, without any legal
recourse for unsuccessful applicants. In the event IXnet is able to gain entry
to such a market, no assurances can be given that IXnet will be able to provide
a full range of services in such market, that it will not have to significantly
modify its 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
IXnet's business, results of operations or financial condition.
In those countries where IXnet is strictly prohibited from offering
service, IXnet may enter into a relationship with the state sanctioned
telecommunications monopoly so that its services can be offered in that
jurisdiction. In these situations, the local telecommunications service
provider would provide the facilities and offer local services to IXnet
customers. It is likely that services would be of higher cost in these
situations. There are, however, certain countries which do not require
licensing for the provision of telecommunications network services.
INTELLECTUAL PROPERTY
The Company relies on a combination of patents, trade secrets, trademarks,
copyrights and other intellectual property law, nondisclosure agreements and
other protective measures to protect its proprietary rights. The Company
currently has 16 United States patents, including design patents, and 4 more
pending United States patent applications for its technologies. The Company
also relies on unpatented know-how and trade secrets and employs various
methods, including confidentiality agreements with employees and consultants, to
protect its trade secrets and know-how. The Company also may desire to develop,
produce and market commercially viable new products, such as personal
communications systems, that may require new or renewed licenses from others.
<PAGE>
EMPLOYEES
As of December 31, 1997, the Company had 663 full-time, non-union employees
worldwide, including 519 in the United States, and 132 in the United Kingdom, 8
in Canada, 2 in France and 2 in Hong Kong. Of these, 91 were engaged in
marketing and sales, 98 in research, development and product engineering, 189 in
branch operations, finance and corporate administration, 122 in manufacturing
and 163 in operations.
An additional 363 United States workers are represented by collective
bargaining units at December 31, 1997, including 297 within the New York
metropolitan area provided under labor pooling agreements between the Company
and two of its affiliates. See "IPC ANNUAL MEETING -- OTHER MATTERS -- Certain
Relationships and Related Transactions." Contracts with unions are negotiated
every three years. The Company has never experienced a work stoppage.
Management believes that current relations with labor are good and that existing
union contracts will be renewed.
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local environmental
laws and regulations, including those governing the use, discharge and disposal
of hazardous substances in the ordinary course of its manufacturing process.
Although management believes that its current manufacturing operations comply in
all material respects with applicable environmental laws and regulations, there
is no assurance that environmental legislation may not in the future be enacted
or interpreted to create environmental liability with respect to the Company's
facilities or operations.
PROPERTIES
During 1997, the Company purchased its sole manufacturing facility in
Westbrook, Connecticut and related land for approximately $2.5 million.
Additionally, the Company leases its executive offices and network switching
facilities in New York City and London, its research and development facility in
Stamford, Connecticut and its branch offices and sales offices in the United
States, Canada, Hong Kong and the United Kingdom. The Company believes that its
current facilities are adequate for its near-term requirements and does not
anticipate the need for significant expansion in the foreseeable future,
although it is currently in the process of procuring replacement space for its
research and development facility as the lease on currently occupied space in
Stamford, Connecticut expires May 31, 1998.
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings except for
claims and lawsuits arising in the normal course of business. The Company does
not believe that these claims or lawsuits will have a material adverse effect on
the Company's financial condition or results of operations.
THE ANNUAL MEETING
GENERAL
Each copy of this Proxy Statement/Prospectus mailed to holders of IPC
Common Stock is accompanied by a proxy card furnished in connection with the IPC
Board's solicitation of proxies for use at the Annual Meeting. A Form of Stock
Election sent under separate cover is to be completed only by those IPC
stockholders who elect to retain Surviving Corporation Common Stock. The Annual
Meeting is scheduled to be held on [__________], 1998 at [__________] __.m. at
[__________]. At the Annual Meeting, IPC stockholders will consider and vote
upon (i) a proposal to approve the Merger Agreement, (ii) a proposal to approve
the Certificate Amendment, (iii) a proposal to approve and adopt the New Stock
Incentive Plan, (iv) the election of two directors to hold office until
<PAGE>
the 2001 annual meeting and until their respective successors have been duly
elected or appointed (as the case may be) and qualified; provided, that if the
Merger is approved by the stockholders of IPC, the current directors of IPC,
other than Richard P. Kleinknecht, will submit their resignations, and, the
individuals set forth in the Merger Agreement will be designated as directors of
the Surviving Corporation following the Effective Time, (v) the ratification of
the appointment of Coopers & Lybrand as independent accountants for IPC for the
fiscal year ending September 30, 1998, and (vi) the Additional Proposal. See
"PROPOSAL 2 -- CERTIFICATE AMENDMENT," "PROPOSAL 3 -- NEW STOCK INCENTIVE PLAN,"
"PROPOSAL 6 -- ADDITIONAL PROPOSAL" and "MANAGEMENT FOLLOWING THE MERGER."
HOLDERS OF IPC COMMON STOCK ARE REQUESTED TO PROMPTLY COMPLETE, SIGN AND
DATE THE ACCOMPANYING PROXY CARD AND RETURN IT TO CHASE MELLON SHAREHOLDER
SERVICES, L.L.C. ("CHASE MELLON") IN THE ENCLOSED POSTAGE-PAID, ADDRESSED
ENVELOPE.
RECOMMENDATION OF THE IPC BOARD
The IPC Board, acting on the unanimous recommendation of the Independent
Directors, has unanimously approved the Merger Agreement and has
determined that the Merger is fair and in the best interests of IPC and its
stockholders. The IPC Board unanimously recommends that IPC's stockholders vote
FOR approval of the Merger Agreement, the Certificate Amendment, the New Stock
Incentive Plan, the proposed election of two directors, the ratification of the
appointment of Coopers & Lybrand and the Additional Proposal. See "THE MERGER -
- - Recommendation of the IPC Board; Reasons for the Merger."
RECORD DATE
The IPC Board has fixed the close of business on [__________], 1998 as the
record date for the determination of holders of IPC Common Stock entitled to
receive notice of, and to vote at, the Annual Meeting. Only holders of record of
IPC Common Stock at the close of business on the Record Date are entitled to
receive notice of, and to vote at, the Annual Meeting.
VOTING OF PROXIES
IPC stockholders will be entitled to one vote for each share of IPC Common
Stock held of record as of the close of business on the Record Date on each
matter to be voted upon at the Annual Meeting. The presence in person or by
proxy of the holders of at least a majority of the total number of outstanding
shares of IPC Common Stock on the Record Date is necessary to constitute a
quorum at the Annual Meeting.
All shares of IPC Common Stock represented by properly executed proxies
received at or prior to the Annual Meeting and not subsequently revoked prior to
the vote at the Annual Meeting will be voted as directed in such proxies. IF
INSTRUCTIONS ARE NOT GIVEN, SHARES REPRESENTED BY PROPERLY EXECUTED PROXIES WILL
BE VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, FOR APPROVAL AND
ADOPTION OF THE CERTIFICATE AMENDMENT, FOR THE NEW STOCK INCENTIVE PLAN, FOR THE
PROPOSED ELECTION OF TWO DIRECTORS, FOR RATIFICATION OF THE APPOINTMENT OF
COOPERS & LYBRAND AND FOR THE ADDITIONAL PROPOSAL. However, no proxy which is
voted against the proposal to approve the Merger Agreement will be voted in
favor of the Additional Proposal by the proxies pursuant to such discretion.
SOLICITATION OF PROXIES
The cost of soliciting proxies from holders of IPC Common Stock will be
borne by IPC. Such solicitation will be made by mail but also may be made by
telephone or in person by the directors, officers and employees of IPC (who will
receive no additional compensation for doing so but may be reimbursed for
reasonable out of pocket expenses in connection therewith). In addition, IPC
will make arrangements to furnish copies of proxy materials to fiduciaries,
custodians and brokerage houses for forwarding to beneficial owners of IPC
Common Stock. Such
<PAGE>
persons will be reimbursed for reasonable out-of-pocket expenses in connection
with their distribution of proxy materials to beneficial owners of IPC Common
Stock.
IPC has retained [__________], a proxy solicitation firm, to assist in such
solicitation. The fee to be paid to such firm is not expected to exceed
$[__________], plus reasonable out-of-pocket costs and expenses authorized by
IPC.
REVOCABILITY OF PROXIES
Any holder of IPC Common Stock who has executed and delivered a proxy may
revoke it at any time prior to its exercise (i) by delivering a written notice
of revocation to the Corporate Secretary of IPC, (ii) by delivering a duly
executed proxy relating to the matters to be considered at the Annual Meeting
bearing a date later than the proxy previously executed, to the Corporate
Secretary of IPC, or (iii) by attending the Annual Meeting, filing a written
notice of revocation with the secretary of the meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself constitute
revocation of a proxy). If you are a stockholder whose shares are not
registered in your own name, you must send any revocation of proxy or any proxy
bearing a later date to the registered holder thereof, and will need additional
documentation from your recordholder to attend and to vote personally at the
Annual Meeting. Examples of such documentation would include a broker's
statement, letter or other document that will confirm your ownership of IPC
Common Stock. Unless revoked in one of the manners set forth above, proxies in
the form enclosed will be voted at the Annual Meeting in accordance with
instructions in such proxies. A proxy will not be revoked by death or
supervening incapacity of the stockholder executing the proxy unless, before the
vote, notice of such death or incapacity is filed with the Corporate Secretary
or other person responsible for tabulating votes on behalf of IPC.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the aggregate
outstanding shares of IPC Common Stock on the Record Date is required to approve
and adopt the Merger Agreement and the affirmative vote of the holders of at
least 80% of the aggregate outstanding shares of IPC Common Stock on the Record
Date is required to approve the Certificate Amendment. A plurality of the votes
cast is sufficient to elect directors. In addition, assuming the existence of a
quorum, the affirmative vote of a majority of the shares present in person or by
proxy and entitled to vote at the Annual Meeting is required to approve the New
Stock Incentive Plan, ratify the appointment of Coopers & Lybrand and approve
the Additional Proposal. A failure to return a properly executed proxy card or
to vote in person or abstaining from voting will have the same effect as a vote
against the Merger Agreement and the Certificate Amendment. Abstentions with
respect to the New Stock Incentive Plan, the ratification of Coopers & Lybrand
and the Additional Proposal, will have the effect of a vote against such
proposals. Broker non-votes will not be counted as having been voted in person
or by proxy at the Annual Meeting and will have the same effect as a vote
against the Merger Agreement and the Certificate Amendment. In contrast, shares
underlying broker non-votes will have no effect on the vote on the New Stock
Incentive Plan, the ratification of Coopers & Lybrand and the Additional
Proposal. As of the Record Date, there were [__________] shares of IPC Common
Stock outstanding and entitled to be voted at the Annual Meeting.
As of the Record Date, IPC's directors and executive officers (and their
affiliates) ([20] persons), beneficially own and have the power to vote
[6,993,883] shares of IPC Common Stock, which represent approximately [65]% of
the outstanding shares of IPC Common Stock, that may be voted at the Annual
Meeting. [Such persons have indicated their intention to vote, or direct the
voting of all such shares in favor of the Merger Agreement, the New Stock
Incentive Plan and the Certificate Amendment.] See "IPC ANNUAL MEETING -- OTHER
MATTERS -- Security Ownership of Certain Beneficial Owners and Management."
Pursuant to the Stockholders Agreement, the Kleinknecht Stockholders have
agreed to vote all of the shares of IPC Common Stock owned by them, or
approximately 64% of the outstanding shares of IPC Common Stock, to approve and
adopt the Merger Agreement, the Certificate Amendment, the New Stock Incentive
Plan and any
<PAGE>
other transactions or agreements related to the Merger and against
any action which is intended, or could reasonably be expected, to impede,
interfere with, delay, postpone, discourage or materially adversely affect the
Merger or the transactions contemplated by the Merger Agreement or the
Stockholders Agreement, including, among other things, any extraordinary
corporate transactions, including, without limitation, a merger, consolidation
or other business combination involving IPC or its subsidiaries. A copy of the
Stockholders Agreement is included as Annex D to this Proxy
Statement/Prospectus. See "THE MERGER -- Ancillary Agreements -- Stockholders
Agreement."
DISSENTERS' RIGHTS
Each holder of IPC Common Stock has a right to dissent from the Merger,
and, if the Merger is consummated, to receive "fair value" for his or her shares
in cash by complying with the provisions of Delaware law, including Section 262
of DGCL. The dissenting stockholder must deliver to the Company, prior to the
vote being taken on the Merger Agreement at the Annual Meeting, written notice
of his or her intent to demand payment for his or her shares if the Merger is
effected and must not vote in favor of approval and adoption of the Merger
Agreement. The full text of Section 262 of DGCL is included as Annex F hereto.
See "THE MERGER -- Dissenters' Rights" for a further discussion of such rights
and the legal consequences of voting shares of IPC Common Stock in favor of the
approval and adoption of the Merger Agreement.
THE MERGER
The following information, insofar as it relates to matters contained in
the Merger Agreement, is qualified in its entirety by reference to the Merger
Agreement, which is included herewith as Annex A, and is incorporated herein by
reference. IPC stockholders are urged to read the Merger Agreement in its
entirety.
PARTIES TO THE MERGER
IPC. IPC is a leader in providing integrated telecommunications equipment
and services that facilitate the execution of transactions by the financial
trading community. Such transactions involve the trading of equity and debt
securities, commodities, currencies and other financial instruments. The
Company designs, manufactures, installs and services turret systems and installs
and services the cabling infrastructure and networks which provide financial
traders with desktop access to time-sensitive communications and data. The
Company's primary customers include securities and investment banking firms,
merchant and commercial banks, interdealer brokers, foreign exchange and
commodity brokers and dealers, securities and commodity exchanges, mutual and
hedge fund companies, asset managers and insurance companies. The Company uses
an integrated approach to marketing its products and services, leveraging its
established customer base throughout the financial trading community. In
addition, through its subsidiary, IXnet, the Company operates 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. See "AVAILABLE INFORMATION" and "THE COMPANY."
AAC. AAC is a Delaware corporation which was incorporated on November 13,
1997 and has not carried on any activities to date other than those incident to
its formation and the transactions contemplated by the Merger Agreement. All of
the outstanding capital stock of AAC is owned, directly or indirectly, by CSH
LLC and its subsidiaries.
CSH LLC. CSH LLC is a Delaware limited liability company which engages in
certain telecommunication businesses through its subsidiaries. Members of CSH
LLC owning units of CSH LLC attributable to CSH LLC's ownership of AAC, acting
directly or through their designees, make all of the investment decisions on
behalf of CSH LLC. CSH LLC is headquartered at 505 N. 51st Avenue, Phoenix,
Arizona 85043-2701. CSH LLC has two other operating subsidiaries, Cable Systems
International, Inc., a closely-held manufacturer of telecommunications
<PAGE>
products for outside plant, customer premises and broadband networks, and LoDan
Electronics, Inc., a closely-held manufacturer of specialized cable assembly and
contract assembly service provider.
MERGER CONSIDERATION
At the Effective Time, subject to certain provisions as described herein
with respect to shares of IPC Common Stock held in treasury, shares owned by
AAC, fractional shares and Dissenting Shares and the effects of proration
described herein, each share of IPC Common Stock (other than Stock Electing
Shares), will be converted into the right to receive in cash following the
Merger an amount equal to $21.00, and each Stock Electing Share will be
converted into the right to retain one fully paid and nonassessable share of
Surviving Corporation Common Stock.
The Merger Agreement contemplates that stockholders of IPC must elect to
convert a minimum number of shares of IPC Common Stock into the right to retain
at least 380,952 shares of Surviving Corporation Common Stock and a maximum
number of shares of IPC Common Stock into the right to retain no more than
1,752,381 shares of Surviving Corporation Common Stock. Pursuant to the
Stockholders Agreement, Richard P. Kleinknecht has agreed to elect to retain an
aggregate of 380,952 shares of Surviving Corporation Common Stock, which is
equal to the Minimum Stock Election Number. As a result, IPC stockholders who
choose to convert their shares into cash will receive the full amount in cash
and will not be required to retain any shares of Surviving Corporation Common
Stock. However, stockholders who elect to retain shares of Surviving
Corporation Common Stock may receive a lesser, prorated number of shares of
Surviving Corporation Common Stock than such stockholders elected to retain,
plus cash, if the aggregate number of shares of Surviving Corporation Common
Stock elected to be retained exceeds the Maximum Stock Election Number.
At the Effective Time, each Option will be canceled and, in exchange
therefor, the holders of such Options will receive, with respect to each Option,
a cash payment which, prior to deduction for applicable withholding taxes, is in
an amount equal to the Option Cash Proceeds. Payment of the Option Cash
Proceeds will be made by the Surviving Corporation on or after the closing date
of the Merger immediately upon receipt of a written agreement from the Option
holder to accept such payment in full settlement of such Option holder's rights
with respect to the Option. If the per share exercise price of any Option
equals or exceeds $21.00, such Option will be canceled without any payment
therefor.
No certificates or scrip representing fractional shares of Surviving
Corporation Common Stock will be issued upon the surrender for exchange of
certificates representing shares of IPC Common Stock. See "-- Fractional
Shares."
Dissenting Stockholders. See "-- Dissenters' Rights."
STOCK ELECTION
Record holders of shares of IPC Common Stock will be entitled to make an
unconditional Stock Election to retain shares of Surviving Corporation Common
Stock on or prior to the Election Date on the Form of Stock Election being sent
to all record holders of IPC Common Stock at the same time as this Proxy
Statement/Prospectus but under separate cover. If the number of Stock Electing
Shares exceeds the Maximum Stock Election Number, however, then (i) the number
of Stock Electing Shares covered by a holder's Stock Election to be converted
into the right to retain Surviving Corporation Common Stock will be determined
by multiplying the total number of Stock Electing Shares covered by such Stock
Election by the Stock Proration Factor. All Stock Electing Shares, other than
those shares converted into the right to retain Stock Electing Shares as
described in the immediately preceding sentence, will be converted into the
right to receive the Cash Election Price as if such shares were not Stock
Electing Shares.
<PAGE>
The Merger Agreement provides that, if the number of Stock Electing Shares
is less than the Minimum Stock Election Number, then (i) all Stock Electing
Shares will be converted into the right to retain Surviving Corporation Common
Stock in accordance therewith, (ii) additional shares of IPC Common Stock, other
than Stock Electing Shares and Dissenting Shares, will be converted into the
right to retain Surviving Corporation Common Stock, which number of additional
shares shall be determined by multiplying the total number of shares, other than
Stock Electing Shares and Dissenting Shares, by the Cash Proration Factor and
(iii) such additional shares of IPC Common Stock will be converted into the
right to retain Surviving Corporation Common Stock in accordance with the Merger
Agreement (on a consistent pro rata basis among stockholders who held shares of
IPC Common Stock as to which they did not make a Stock Election.) However, as
described above, pursuant to the Stockholders Agreement, Richard P. Kleinknecht
has elected to retain 380,952 shares of Surviving Corporation Common Stock,
which is equal to the Minimum Stock Election Number. As a result, all IPC
stockholders who choose to convert their shares of IPC Common Stock into cash
will receive the full amount in cash and will not be required to retain any
shares as Surviving Corporation Common Stock. Examples of the effects of the
result of a Stock Election are set forth below.
If a stockholder elects to make a Stock Election or makes a split election
and receives cash as a result of the proration procedures described above or a
split election, such stockholder may receive dividend treatment (rather than
capital gain treatment) for any cash received in the Merger as a result of such
proration procedures or split election. See "RISK FACTORS -- Risks Associated
with the Merger -- Taxation of Stockholders Receiving Cash -- Possible Dividend
Treatment." See also "THE MERGER -- Federal Income Tax Consequences --
Stockholders Receiving Cash" and " -- Stockholders Retaining a Portion of their
Stock and Receiving Cash."
With respect to certain risks related to continuing to hold Surviving
Corporation Common Stock, see "RISK FACTORS."
POSSIBLE EFFECTS OF PRORATION
The following examples illustrate the potential effects of proration. No
fractional shares of Surviving Corporation Common Stock will be issued; in lieu
of fractional shares of Surviving Corporation Common Stock, stockholders who
elect Surviving Corporation Common Stock will receive cash.
A. HOLDER A OWNS 100 SHARES OF IPC COMMON STOCK AND DOES NOT ELECT TO
RETAIN ANY SHARES OF SURVIVING CORPORATION COMMON STOCK
As described above, because Richard P. Kleinknecht has elected to
retain 380,952 shares of Surviving Corporation Common Stock, which is equal to
the Minimum Stock Election Number, Holder A should receive $2,100 in cash (100
shares at $21 per share).
B. HOLDER B OWNS 100 SHARES OF IPC COMMON STOCK AND ELECTS TO RETAIN ALL
SUCH SHARES OF SURVIVING CORPORATION COMMON STOCK.
1. If all the stockholders, including Holder B, elect to retain a number
of shares of Surviving Corporation Common Stock equal to or less than the
Maximum Stock Election Number, then Holder B will be able to retain 100 shares
of Surviving Corporation Common Stock.
2. If all stockholders, including Holder B, elect to retain more shares
of Surviving Corporation Common Stock than the Maximum Stock Election Number in
the aggregate, then Holder B will not be able to retain all of his or her shares
and will receive some cash. In the case of maximum proration (i.e., the number
of Stock Electing Shares equals 10,715,119, which is equal to the number of
outstanding shares of IPC Common Stock as of December 17, 1997), Holder B would
be able to retain only 16 shares and would receive $1,756.65 in cash (83.65
shares at $21 per share) plus an amount of cash equal to $7.35 (.35 share at $21
per share).
<PAGE>
Stockholders should note that Richard P. Kleinknecht has advised the
Company of his intent to elect to receive cash for his remaining _____ shares of
IPC Common Stock and all signatories to the Stockholders Agreement, other than
Richard P. Kleinknecht, including family members of Richard P. Kleinknecht,
Peter J. Kleinknecht and his family members and Russell G. Kleinknecht have
advised the Company of their intent to elect to receive cash for their aggregate
of 6,525,602 shares of IPC Common Stock.
Fractional shares of Surviving Corporation Common Stock will not be issued
in the Merger. Holders of IPC Common Stock otherwise entitled to a fractional
share of Surviving Corporation Common Stock following the Merger will be paid
cash in lieu of such fractional share, determined and paid as described under
"--Fractional Shares" below.
C. HOLDER C OWNS 100 SHARES OF IPC COMMON STOCK AND ELECTS TO RETAIN 50
SHARES OF SURVIVING CORPORATION COMMON STOCK AND CONVERT 50 SHARES OF IPC COMMON
STOCK TO CASH.
1. In the unlikely event that stockholders (including Holder C) elect to
retain exactly 1,752,381 shares of Surviving Corporation Common Stock in the
aggregate, then Holder C will be able to retain his or her 50 shares of
Surviving Corporation Common Stock and will receive $1,050 in cash (50 shares at
$21 per share).
2. If the stockholders (including Holder C) elect to retain more shares
of Surviving Corporation Common Stock than the Maximum Stock Election Number in
the aggregate, then Holder C will not be able to retain all of his or her 50
shares. For example, if stockholders elected to retain 10,000,000 shares in the
aggregate, then each holder, including Holder C, would be able to retain only
17.52% of shares of Surviving Corporation Common Stock in order to reduce the
number of retained shares to the Maximum Stock Election Number. Therefore,
Holder C would be able to retain only 8 shares of Surviving Corporation Common
Stock (or 16% of his or her 50 shares) and would receive $1,916.04 in cash
(91.24 shares at $21 per share) plus an amount of cash equal to $15.96 (.76
share at $21 per share). If the stockholders elected to retain more than
10,000,000 shares of Surviving Corporation Common Stock in the aggregate, Holder
C would receive fewer shares of Surviving Corporation Common Stock than in the
example above, but would receive a commensurately greater amount of cash.
STOCK ELECTION PROCEDURE
The Form of Stock Election is being mailed to all holders of record of IPC
Common Stock as of the last business day preceding such mailing at the same time
as this Proxy Statement/Prospectus but under separate cover.
FOR A FORM OF STOCK ELECTION TO BE EFFECTIVE, HOLDERS OF IPC COMMON STOCK
MUST PROPERLY COMPLETE SUCH FORM OF STOCK ELECTION, AND SUCH FORM OF STOCK
ELECTION, TOGETHER WITH ALL CERTIFICATES FOR SHARES OF IPC COMMON STOCK HELD BY
SUCH HOLDER, DULY ENDORSED IN BLANK OR OTHERWISE IN FORM ACCEPTABLE FOR TRANSFER
ON THE BOOKS OF THE COMPANY (OR BY APPROPRIATE GUARANTEE OF DELIVERY AS SET
FORTH IN SUCH FORM OF STOCK ELECTION), MUST BE RECEIVED BY THE EXCHANGE AGENT AT
ONE OF THE ADDRESSES LISTED ON THE FORM OF STOCK ELECTION AND NOT WITHDRAWN, BY
5:00 P.M., ON THE ELECTION DATE.
ONLY HOLDERS OF IPC COMMON STOCK WHO WISH TO MAKE A STOCK ELECTION ARE
REQUIRED TO SEND STOCK CERTIFICATES WITH THEIR FORM OF STOCK ELECTION. HOLDERS
OF IPC COMMON STOCK WHO DO NOT MAKE A STOCK ELECTION WITH RESPECT TO ALL OF SUCH
HOLDER'S SHARES OF IPC COMMON STOCK WILL RECEIVE, BY MAIL, LETTERS OF
TRANSMITTAL WITH WHICH SUCH STOCK CERTIFICATES SHOULD BE RETURNED AFTER THE
EFFECTIVE TIME. IN NO EVENT SHOULD STOCKHOLDERS SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS.
<PAGE>
The good faith determinations of the Exchange Agent as to whether or not
Stock Elections have been properly made or revoked, and when such elections or
revocations were received, will be binding.
EFFECTS OF THE MERGER; EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware or at such later
time as is specified in the Certificate of Merger. The filing of the Certificate
of Merger will occur as soon as practicable on or after the closing of the
Merger unless another date is agreed to in writing by the Company and AAC.
Subject to certain limitations, the Merger Agreement may be terminated by either
party if, among other reasons, the Merger has not been consummated by April 30,
1998. See "-- Conditions to the Consummation of the Merger" and "--
Termination."
Following the Merger, the total number of outstanding shares of IPC Common
Stock will decrease from approximately 10.7 million shares to approximately 3.8
million shares of Surviving Corporation Common Stock, of which the stockholders
of AAC will own between 2,057,142 and 3,428,571 shares of Surviving Corporation
Common Stock (representing between 54% and 90%), and the existing holders of IPC
Common Stock will own between 380,952 and 1,752,381 shares of Surviving
Corporation Common Stock (representing between 10% and 46%), depending upon the
number of shares of Surviving Corporation Common Stock to be retained by
existing holders of IPC Common Stock and cash to be received in lieu of
fractional shares of Surviving Corporation Common Stock. The stockholders of the
Surviving Corporation will immediately be subject to dilution as a result of the
exchange of shares of IXnet Common Stock for shares of Surviving Corporation
Common Stock and will be subject to dilution upon the exercise of options
granted under the New Stock Incentive Plan. See "THE MERGER -- Ancillary
Agreements -- Share Exchange and Termination Agreement."
CONVERSION/RETENTION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of shares of IPC Common Stock (other than Dissenting Shares)
into the right to receive cash or the right to retain shares of Surviving
Corporation Common Stock following the Merger will occur at the Effective Time.
As soon as practicable as of or after the Effective Time, the Exchange
Agent will send a letter of transmittal to each holder of IPC Common Stock
(other than holders of IPC Common Stock who made a timely and valid Stock
Election with respect to all of such holder's shares). The letter of transmittal
will contain instructions with respect to the surrender of certificates
representing shares of IPC Common Stock in exchange for the cash portion of the
Merger Consideration.
EXCEPT FOR IPC COMMON STOCK CERTIFICATES SURRENDERED WITH A FORM OF STOCK
ELECTION AS DESCRIBED ABOVE UNDER "--STOCK ELECTION PROCEDURE," STOCKHOLDERS OF
THE COMPANY SHOULD NOT FORWARD STOCK CERTIFICATES TO THE EXCHANGE AGENT UNTIL
THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL.
As soon as practicable after the Effective Time, each holder of an
outstanding certificate or certificates at such time which prior thereto
represented shares of IPC Common Stock shall, upon surrender to ChaseMellon
Shareholder Services, L.L.C. as exchange agent (the "Exchange Agent"), of such
certificate or certificates and acceptance thereof by the Exchange Agent, be
entitled to the amount of cash, into which the number of shares of IPC Common
Stock previously represented by such certificate or certificates surrendered
shall have been converted pursuant to the Merger Agreement. The Exchange Agent
will accept such certificates upon compliance with such reasonable terms and
conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal exchange practices. After the Effective Time,
there will be no further transfer on the records of the Company or its transfer
agent of certificates representing shares of IPC Common Stock which have been
converted, in whole or in part, pursuant to the Merger Agreement into the right
to receive cash, and if such certificates are presented to the Company for
transfer, they will be canceled against delivery of cash. Until
<PAGE>
surrendered as contemplated by the Merger Agreement, each certificate for shares
of IPC Common Stock will be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Merger
Consideration. No interest will be paid or will accrue on any cash payable as
consideration in the Merger or in lieu of any fractional shares of Surviving
Corporation Common Stock.
No dividends or other distributions with respect to Surviving Corporation
Common Stock with a record date after the Effective Time will be paid to the
holder of any unsurrendered certificate for shares of IPC Common Stock with
respect to the shares of Surviving Corporation Common Stock represented thereby
and no cash payment in lieu of fractional shares shall be paid to any such
holder pursuant to the Merger Agreement until the surrender of such certificate
in accordance with the Merger Agreement. Subject to the effect of applicable
laws, following surrender of any such certificate, there shall be paid to the
holder of the certificate representing whole shares of Surviving Corporation
Common Stock issued in connection therewith, without interest, (i) the amount of
dividends and other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Surviving Corporation
Common Stock, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
such surrender and a payment date subsequent to such surrender payable with
respect to such whole shares of Surviving Corporation Common Stock.
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Surviving
Corporation Common Stock will be issued upon the surrender or exchange of
certificates representing shares of IPC Common Stock in connection with the
Merger, and such fractional share interests will not entitle the owner thereof
to vote or to any rights of a stockholder of the Surviving Corporation following
the Merger. Each holder of shares of IPC Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of Surviving Corporation Common Stock (after taking into account all shares of
IPC Common Stock delivered by such holder) will receive, in lieu thereof, a cash
payment (without interest) representing the product of (i) the applicable
fraction of Surviving Corporation Common Stock and (ii) $21.00, payable as soon
as practicable on or after the Effective Time.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, the Company has agreed that without the
written consent of AAC, the Company will not (and will not cause or permit any
of its subsidiaries to) engage in any practice, take any action or enter into
any transaction other than in the ordinary and usual course of business and
consistent with prior practice, including, without limitation, the following:
(i) authorizing or effecting any change in its certification of incorporation or
bylaws other than as contemplated by the Merger Agreement; (ii) granting any
options, warrants, or other rights to purchase or obtain any of its capital
stock or issuing, selling, or otherwise disposing of any of its capital stock
(except upon the conversion or exercise of options and other rights and
obligations outstanding as of the date of the Merger Agreement); (iii)
declaring, setting aside, or paying any dividend or distribution with respect to
its capital stock, or redeeming, repurchasing, or otherwise acquiring any of its
capital stock, in either case, outside the ordinary course of business; (iv)
issuing any note, bond, or other debt security or creating, incurring, assuming,
or guaranteeing any indebtedness for borrowed money or capitalized lease
obligation (except for inter-company loans or advances from the Company to, or
guarantees on behalf of, any one or more of its subsidiaries), outside the
ordinary course of business; (v) imposing any lien upon any of its assets
outside the ordinary course of business; (vi) making any material change in
employment terms for any of its directors, officers and employees outside the
ordinary course of business (other than pursuant to the transactions
contemplated by the Merger Agreement); (vii) making any capital investment in,
making any loan to, or acquiring the securities or assets of any other person
outside the ordinary course of business (except pursuant to agreements existing
as of the date of the Merger Agreement); (viii) adopting or amending any bonus,
profit sharing, compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment or employee benefit plan,
agreement, trust, plan, fund or other arrangement for the benefit and welfare of
any director, officer or employee, except for normal increases in the ordinary
course of business and that, in the aggregate, do not result in a material
increase in benefits
<PAGE>
or compensation expense to the Company or any subsidiary; (ix) revaluing in any
material respect any significant portion of its assets, including, without
limitation, writing down the value of inventory in any material amount or write-
off of notes or accounts receivable in any material amount; (x) paying,
discharging or satisfying any material liabilities other than the payment,
discharge or satisfaction in the ordinary course of business of liabilities
reflected or reserved against in the consolidated financial statements of the
Company and set forth in the Company's filings with the Commission or incurred
in the ordinary course of business; (xi) making any tax election with respect to
or settling or compromising any material income tax liability; (xii) taking any
action other than in the ordinary course of business with respect to accounting
policies or procedures; and (xiii) committing to any of the foregoing.
NO SOLICITATION
The Merger Agreement provides that neither the Company nor any of its
subsidiaries will (whether directly or indirectly through advisors, agents or
other intermediaries), nor will the Company or any of its subsidiaries authorize
or permit any of its or their officers, directors, agents, representatives,
advisors or subsidiaries to, (a) solicit, initiate or take any action knowingly
to facilitate the submission of inquiries, proposals or offers from any Third
Party relating to (i) any acquisition or purchase of 10% or more of the
consolidated assets of the Company and its subsidiaries or of over 10% of any
class of equity securities of the Company or any of its subsidiaries, (ii) any
tender offer (including a self tender offer) or exchange offer that if
consummated would result in any Third Party beneficially owning 10% or more of
any class of equity securities of the Company or any of its subsidiaries, (iii)
any merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Company, or any of its
subsidiaries whose assets, individually or in the aggregate, constitute more
than 10% of the consolidated assets of the Company, other than the transactions
contemplated by the Merger Agreement, or (iv) any other transaction the
consummation of which would, or could reasonably be expected to impede,
interfere with, prevent or materially delay the Merger or which would, or could
reasonably be expected to, materially dilute the benefits to AAC of the
transactions contemplated hereby, or (b) enter into or participate in any
discussions or negotiations regarding any of the foregoing, or furnish to any
Third Party any information with respect to its business, properties or assets
in connection with the foregoing, or otherwise cooperate in any way with, or
knowingly assist or participate in, facilitate or encourage, any effort or
attempt by any Third Party to do or seek any of the foregoing; provided,
however, that the foregoing will not prohibit the Company or the IPC Board
(either directly or indirectly through advisors, agents or other intermediaries)
from (i) furnishing information pursuant to an appropriate confidentiality
letter concerning the Company and its businesses, properties or assets to a
Third Party who has made a Superior Acquisition Proposal as to which a prior
determination of the IPC Board as contemplated under clause (i) above has been
made and (ii) engaging in discussions or negotiations with such a Third Party
who has made a Superior Acquisition Proposal but only if the IPC Board, after
consultation with and advice from outside counsel, determines in good faith
that, in the exercise of its fiduciary responsibilities, such discussions or
negotiations should be commenced or such information should be furnished or such
facilitation undertaken; provided, further, that (A) the IPC Board will not, and
will not authorize any officers or representatives to, take any of the foregoing
actions until notice to AAC of the Company's intent to take such action will
have been give to AAC; and (B) if the IPC Board receives a Superior Acquisition
Proposal, to the extent it may do so without breaching its fiduciary duties as
determined in good faith after consultation with its outside counsel, and
without violating any of the conditions of such Acquisition Proposal, then the
Company will promptly inform AAC of the material terms and conditions of such
proposal and the identity of the person making it; and (iii) taking a position
on a tender offer by a Third Party, as required under Rule 14e-2 under the
Exchange Act (provided no such position shall constitute a recommendation of
such transaction if it does not constitute a Superior Acquisition Proposal) or
complying with its duties of disclosure under applicable state law subject to
the provisions set forth above, as of December 18, 1997, the Company was
obligated to immediately cease and cause its subsidiaries and its and their
advisors, agents and other intermediaries to cease, any and all existing
activity, discussions or negotiations with any Third Party conducted prior to
the date on which the Merger Agreement was entered into.
<PAGE>
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The respective obligations of the Company and AAC to consummate the Merger
are subject to the satisfaction of the following conditions: (a) the
representations and warranties of the Company or AAC, as the case may be,
contained in the Merger Agreement and in any certificate or other writing
delivered by the Company or AAC, as the case may be, pursuant thereto shall be
true and correct in all respects at and as of the Effective Time (provided that
representations made as of a specific date will be required to be true as of
such date only) as if made at and as of such time; (b) each party shall have
performed and complied with all of its covenants under the Merger Agreement in
all material respects; (c) no judgment, order, decree or injunction shall
prohibit or restrain the consummation of the Merger; provided, however, that the
Company and AAC will each use its reasonable best efforts to have any such
judgment, order, decree or injunction vacated or reversed; (d) each party shall
have received a certificate signed by an officer of the other party with respect
to clauses (a), (b) and (c) above; (e) the Merger Agreement shall have been
adopted by the stockholders of the Company in accordance with DGCL; (f) any
applicable waiting period under the HSR Act relating to the Merger shall have
expired or been terminated and the parties shall have received all other
authorizations, consents and approvals of government bodies, and (g) each of the
Company and AAC shall be reasonably satisfied that the Merger will be recorded
as a recapitalization for financial reporting purposes.
In addition, the obligations of AAC to consummate the Merger are further
subject to the satisfaction of the following conditions: (a) the holders of not
more than 3% of the outstanding shares of IPC Common Stock shall have demanded
appraisal rights in accordance with DGCL; (b) the Company shall have delivered
to AAC written consents to the transactions contemplated by the Merger Agreement
from third parties who are parties to certain contracts of the Company; (c) the
total debt of the Company and its subsidiaries on a consolidated basis in
accordance with United States generally accepted accounting principles,
consistently applied, as of the Effective Time shall not exceed $38 million; (d)
the Company shall have received the proceeds of the financing on terms and
conditions set forth in the Notes or upon the terms and conditions which are
substantially equivalent thereto; (e) the Company shall have received and
accepted the resignations of all directors of the Company other than Richard P.
Kleinknecht; (f) the Stockholders Agreement shall be in full force and effect
and the parties thereto shall have taken the actions required to be taken
pursuant to Section 5 thereof; and (g) each of the Investors Agreement, the
Share Exchange Agreement, the Starr Termination Agreement, the Walsh Employment
Agreement, the Corporate Opportunity Agreement and the Labor Pool Agreements
shall be in full force and effect. See "-- Ancillary Agreements" for a
description of such agreements.
In addition, the obligations of the Company to consummate the Merger are
further subject to the following conditions: (a) the AAC Stockholders Agreement
shall be in full force and effect; and (b) the IPC Board shall have received an
opinion from an independent advisor confirming that, upon the consummation of
the transactions contemplated by the Merger Agreement, the Surviving Corporation
(on a consolidated basis) (i) will not be insolvent, (ii) will not be left with
unreasonably small capital, (iii) will not have incurred debts beyond its
ability to pay such debts as they mature, and (iv) will have a fair value and
present salable value of its assets in excess of its stated liabilities and
identified contingent liabilities by at least the total par value of its capital
stock. To the extent permitted by applicable law, either party may waive any
condition specified in the Merger Agreement, if it executes and delivers to the
other party a written notice so stating at or prior to the closing.
BACKGROUND OF THE MERGER
In early 1997, the price of IPC Common Stock was trading below the initial
public offering price of $15.00, having hit an historic low of $8 7/8 on March
24 and March 25. There was a lack of equity analyst research coverage, and the
Company's management believed that the equity markets did not fully understand
the Company's mix of a mature equipment manufacturing business with a
developmental stage growth subsidiary (IXnet) and the synergies and growth that
the Company's management projected from this mix. In addition, IXnet's
development required significant amounts of capital, and IPC's financial
capacity to supply that capital was limited. Finally, one of the Company's
directors, senior executive officers and principal stockholders, Peter J.
Kleinknecht, asked that
<PAGE>
the IPC Board and management consider the possibility of selling the Company
rather than seeking alternatives for the Company to further develop and
integrate IXnet with the Company. As was the case with many other strategic
direction and management issues, Richard P. Kleinknecht, a director, senior
executive officer and the other principal stockholder, disagreed with Peter J.
Kleinknecht's suggestion.
At a special meeting of the IPC Board held on March 28 in response to the
foregoing factors and at the recommendation of IPC's management, the IPC Board
authorized the engagement of DMG to evaluate and advise the Company on
alternative strategies for enhancing shareholder value, including, without
limitation, alliances with strategic partners, joint ventures, business
combinations, the sale of all or part of the Company's equity or assets to one
or more acquirers and raising new capital through a private placement or public
offering of the Company's securities. On April 2, a Company press release
announced the Company's engagement of DMG.
At a regularly scheduled meeting of the IPC Board held on May 8, the IPC
Board considered DMG's preliminary report, which included a preliminary
valuation of IPC and a preliminary evaluation of strategic alternatives
available to IPC. In discussing strategic alternatives, Richard P. Kleinknecht
and Peter J. Kleinknecht expressed markedly differing views concerning the
Company's prospects and direction. Peter J. Kleinknecht believed the capital
requirements and risk of successfully developing IXnet could have an adverse
impact on the Company as a whole. He again proposed that the Company be sold.
No action was taken on Peter J. Kleinknecht's proposal. Richard P. Kleinknecht
believed the Company's prospects as an independent entity were attractive,
although he was undecided about the level of continued investment for IXnet.
These substantial differences in risk tolerance, as well as in other areas,
between Richard P. Kleinknecht and Peter J. Kleinknecht had become generally
known to employees and some customers, and the other members of the IPC Board
expressed their strong belief that a solution needed to be found. Given the
potential conflicts that the three management directors (including Richard P.
Kleinknecht and Peter J. Kleinknecht) might have in arriving at a decision
regarding the appropriate strategic direction for the Company, the IPC Board
acknowledged that the independent directors, Theodore J. Johnson, Robert J.
McInerney and Peter M. Stein (the "Independent Directors"), should have an
active role in recommending action to the full IPC Board.
The IPC Board tabled further discussion of the differences discussed at the
meeting, pending management's preparation of a revised and updated business plan
and related financial forecasts and assumptions. In the interim, however, it
was agreed that IPC's management would work with DMG to develop a preliminary
list of possible third party strategic partners and others who might have an
interest in the Company.
At a special meeting of the IPC Board held on June 26, the IPC Board
reviewed a revised and updated five-year business plan and the related financial
forecasts and assumptions that had been prepared by the Company's management.
The IPC Board acknowledged the attractiveness of the forecasts presented but
noted that the forecasts assumed access to adequate capital for investment in
IXnet and the resolution of the differing views of Richard P. Kleinknecht and
Peter J. Kleinknecht regarding the future of the Company. Following opinionated
discussions on the strategic alternatives available to the Company, the
Independent Directors met privately with representatives of DMG and the
Company's legal counsel. The Independent Directors reiterated that the
continuing disagreements between Richard P. Kleinknecht and Peter J. Kleinknecht
over the management and strategic direction of the Company needed resolution. A
number of solutions were considered, including a possible sale of the Company.
The Independent Directors considered the timing of such a sale in light of the
Company's prospects as reflected in the updated business plan and financial
forecasts, on the one hand, and the greater risk to realizing such prospects if
the disagreements between Richard P. Kleinknecht and Peter J. Kleinknecht
continued, on the other hand. The Independent Directors determined that it had
become necessary to consider consolidating control in a single entity through
the sale of the Company. After further consideration of the Company's
prospects, the Independent Directors also determined that another acceptable
alternative to be considered would be to sell only a controlling interest in the
Company to a new entity which would enhance the Company's access to capital for
investment in IXnet while allowing existing stockholders the option to retain
their investment in the Company and share in the value that might be created
through continued pursuit of the IXnet business expansion. Accordingly, in
accordance with the recommendation of the Independent Directors, the IPC Board
directed DMG to explore third party interest in (i)
<PAGE>
the acquisition of the Company and (ii) the acquisition of control of the
Company, preferably to a party that could commit substantial resources (e.g.,
$50 million or more) to IXnet's continued development. The IPC Board designated
an ad-hoc committee of Terry Clontz, the Company's President and Chief Executive
Officer, Theodore J. Johnson, Richard P. Kleinknecht and Peter J. Kleinknecht,
with Theodore J. Johnson to serve as chairman (the "Transaction Committee"), to
coordinate DMG's efforts and to review responses to those efforts.
Following the June 26 meeting, a senior executive of IXnet asked his
brother, a senior executive of CSH LLC, if CVC might be interested in
participating in the process of evaluating the Company as a possible investment.
Several meetings followed between representatives of CVC and David Walsh,
President of IXnet, and the other senior executive at IXnet to discuss this
possibility. Representatives of DMG contacted representatives of CVC as a
potential party who might have an interest in the Company.
On July 7, IPC and DMG entered into an engagement letter (the "Engagement
Letter"), pursuant to which DMG was engaged to act as the Company's exclusive
financial advisor in connection with entering into a possible investment, sale
or merger involving a change of control of the Company's equity or assets. See
"THE MERGER -- Opinion of Financial Advisor."
On July 16, representatives of DMG made a presentation to the Company's
management, with Richard P. Kleinknecht and Peter J. Kleinknecht also present.
DMG presented its revised preliminary valuation ranges based on the revised and
updated business plan and the related financial forecasts and assumptions
prepared by management (as presented to the IPC Board on June 26) and which
reflected a material investment to develop IXnet during the five fiscal years
1998 through 2002. DMG reviewed several different valuation models used to
determine the valuation ranges. Representatives of DMG also discussed a list of
potential third party entities that it expected to target consistent with the
IPC Board's June 26 mandate. Terry Clontz subsequently communicated the details
of the DMG presentation to the members of the IPC Board not present at the
presentation.
In the weeks following the July 16 meeting, DMG initiated contact with a
number of third parties to determine possible interest in a transaction with the
Company.
On August 7, 1997, CVC executed a Confidentiality Letter with the Company
and began to conduct due diligence on the Company. After CVC had been contacted,
numerous discussions continued (a) between the brothers, regarding explanations
of business concepts, and (b) with David Walsh, regarding the elimination of
IXnet's minority equity interest and his new employment agreement.
At a regularly scheduled meeting of the IPC Board held on August 12, the
IPC Board received a status report regarding DMG's efforts. The IPC Board
learned (i) that the procedures letter for submitting written definitive offers
by potentially interested third parties had been prepared, (ii) the identity of
the parties that had been contacted by DMG, as well as the degree of interest
expressed by those parties, (iii) the identity of those parties who had signed
confidentiality and standstill agreements and were scheduled to attend
management presentations and (iv) a list of third parties reserved for future
contact, as necessary, to ensure that a sufficient number of parties would be
contacted during the solicitation process.
During the period beginning in early June and continuing until late
November, several third parties indicated to representatives of IPC a possible
interest in a transaction. In each case, such third parties were referred to
DMG.
During the period from the end of July through the middle of September,
approximately forty companies (as identified through a collaborative effort
between DMG and IPC's management) were solicited, of which four parties
(including (i) CVC, (ii) another domestic financial investor, (iii) a foreign
diversified multinational company with substantial telecommunications equipment
manufacturing operations and (iv) a foreign telecommunications company)
conducted preliminary due diligence on the Company. Each of these four parties
met with management and was provided access to relevant company information.
Each of these parties was given a deadline of September 30 to submit its written
offer together with comments on the form of acquisition agreement previously
<PAGE>
furnished it by the Company. Notwithstanding these four contacts, DMG continued
to solicit other potentially interested parties.
Throughout this period, the Transaction Committee met weekly, either by
telephone or in person, to review the results of the solicitation process and to
provide information to DMG to assist it in furthering the process.
In late August, 1997 representatives of CVC attended a management
presentation with representatives of DMG in attendance.
On October 2, the Company received a letter from CVC (the "October 2
Letter") setting forth the proposed terms of a possible transaction. This
followed several weeks of discussions between DMG and CVC regarding the
structure that would best satisfy the IPC Board's June 26 mandate. The October
2 Letter contemplated (i) a price per share of $20, (ii) a transaction
structured as a leveraged recapitalization, enabling IPC stockholders existing
at the time of transaction to retain up to 49% of the equity of the
recapitalized company, in the form of both preferred and common stock and (iii)
a management stock option plan granted at closing equal to 10% of the fully
diluted common stock of the recapitalized company. The primary condition
precedent to the closing of the proposed transaction was the satisfactory
completion of the anticipated financing.
At a special meeting of the IPC Board held on October 3 to inform the IPC
Board of the results that had been achieved by the Company and DMG in exploring
a possible change of control transaction, the IPC Board was advised of the
October 2 Letter from CVC, as well as a letter from a foreign telecommunications
company that expressed interest only with respect to the Trading Systems
division. After the terms of the October 2 Letter were described to the IPC
Board, the IPC Board determined that the offer from CVC should be pursued
because the proposed structure met the stated objectives that the IPC Board had
outlined at its June 26 board meeting and because DMG informed the IPC Board
that DMG believed it could render an opinion that the value of CVC's offer was
fair to the Company's stockholders from a financial point of view.
Representatives of DMG suggested to the IPC Board that it should require a firm
financing commitment as part of any acceptable offer. The IPC Board instructed
DMG and IPC's management to respond to the CVC offer with several conditions:
(i) a price per share of not less than $21.00, (ii) a firm commitment for full
financing of the transaction and (iii) completion of due diligence within two
weeks.
On October 6, DMG sent a letter to CVC indicating that DMG had been
authorized to negotiate, on IPC's behalf, a transaction with CVC subject to the
conditions outlined above and the negotiation of a definitive agreement
satisfactory to IPC by Friday, October 17. Subject to agreement by CVC to such
amended terms, CVC was granted a period of exclusivity ending on October 17.
On October 8, CVC responded with a letter which provided for (i) a purchase
price of $21 per share, (ii) receipt of committed debt financing in writing from
the party providing the financing, prior to the announcement of a transaction,
(iii) all required due diligence to be completed as soon as possible and in any
event no later than October 24 and (iv) a definitive agreement satisfactory to
IPC to be negotiated and agreed to by October 24. An IPC Board meeting to
formally consider the new CVC offer was deferred pending a better understanding
by IPC of the details of the proposed structure, which details were discussed
with IPC management over the next two weeks.
During a telephone conference call with the IPC Board held on October 24,
IPC's management and representatives of DMG informed the IPC Board that (i) CVC
had raised its price from $20 per share to $21 per share, (ii) CVC imminently
would be receiving drafts of financing commitment letters from two nationally
recognized investment banking firms, each of whom had proposed a different
financing structure and (iii) CVC and IPC had been unable to finalize
documentation but efforts to do so were continuing.
<PAGE>
From October 24 until December 5, the next regularly scheduled meeting of
the IPC Board, the IPC Board was kept apprised of developments and issues
through five telephone conference calls. Representatives of IPC's management
and of DMG and the Company's legal counsel participated in each conference call.
A telephone conference call with the IPC Board was arranged on October 27
in order for representatives of DMG to review the structure of the proposed
leveraged recapitalization with the IPC Board and to provide the directors the
opportunity to ask any questions they might have. In addition, representatives
of DMG described the proposed alternative financing structures to the IPC Board.
During the conference call, the IPC Board discussed a potential conflict of
interest with respect to one of the Independent Directors, Theodore J. Johnson,
Managing Director - National Institutional Equity Research Sales and Trading
Manager of MSCI, because of the possibility that MSCI would serve as lead
underwriter for the debt financing. After a thorough discussion which included
a summary of discussions held between the Company's counsel and MSCI's counsel
who was performing his own conflicts review, the IPC Board determined that no
conflict existed and that Mr. Johnson could continue to serve as an independent
director.
Representatives of DMG and IPC's management then informed the IPC Board of
a letter from a foreign diversified multinational company with substantial
telecommunications equipment manufacturing operations, which indicated its
interest in securing a minority interest in IPC but only if IXnet were sold.
Noting that the exclusive negotiation period offered to CVC had expired, the IPC
Board instructed DMG and IPC's management to further explore this possibility.
During a telephone conference call with the IPC Board on October 31,
representatives of DMG and IPC's management informed the IPC Board of the status
of contacts with parties other than CVC and, together with representatives of
Company's legal counsel, discussed certain issues relating to the proposed
documentation with CVC, in particular, (i) the fact that CVC had designated a
newly-formed subsidiary with no significant assets to be its only signatory to
the Merger Agreement, thus providing IPC with limited or no recourse in the
event CVC, through such subsidiary, defaulted on the Merger Agreement and (ii)
the proposed termination fee and the circumstances under which such a fee would
be paid. With respect to the first issue, representatives of DMG noted CVC's
strong reputation in the financial marketplace. With respect to the second
issue, they also indicated that the then proposed termination fee equal to 2-2
1/2% of the aggregate transaction value, plus the reimbursement of reasonable
fees and expenses, was not atypical for this type of transaction. Members of
the IPC Board continued to discuss both the size of an acceptable termination
fee and the type of termination events that they believed should result in the
payment of a termination fee and the reimbursement of expenses.
During the ensuing weeks, negotiations leading toward definitive
documentation continued.
During a telephone conference call with the IPC Board held on November 26,
a number of issues were discussed. First, the IPC Board learned that
discussions with the foreign diversified multinational company discussed during
the October 27 telephone conference were not progressing and, that, while
another party was continuing to explore a direct interest in IXnet, the
likelihood of combining the separate interests of these two parties into a
competitive offer for the entire Company was remote in the immediate term. In
addition, the IPC Board was informed that a large domestic data-processing and
servicing company that had expressed an interest in the Company was no longer
interested and that a large multi-national computer manufacturing and services
provider, while potentially interested in the Company, would not be able to
contemplate a transaction until after January, 1998.
During this conference call, Richard P. Kleinknecht advised the IPC Board
that he did not intend to retain any shares of Surviving Corporation Common
Stock as part of the proposed transaction. As a result, the IPC Board directed
DMG to discuss with CVC the possibility of restructuring the transaction as a
tender offer instead of a recapitalization.
<PAGE>
After discussion between Richard P. Kleinknecht and representatives of CVC
regarding the Company's long-term prospects, Richard P. Kleinknecht chose to
retain shares of Surviving Corporation Common Stock.
During a conference call with the IPC Board on December 3, Richard P.
Kleinknecht informed the IPC Board that Richard P. Kleinknecht had decided to
retain up to 10% of the outstanding shares of Surviving Corporation Common
Stock, which would most likely allow the transaction to be structured as a
recapitalization. It was noted that, since October 17, the expiration of the
exclusive negotiating period granted CVC, DMG had resumed solicitation of other
competitive offers. However, representatives of DMG advised the IPC Board that
no other third parties with whom discussions had been held had indicated to DMG
that they would be in a position to make a definitive offer in the immediate
future.
The IPC Board discussed a number of issues relating to the negotiations
with CVC, including (i) the necessity that IPC, and not the CVC-designated
purchaser, AAC, incur the debt required to consummate the transaction; (ii) the
acceptability of certain exceptions and conditions in the proposed financing
commitment letters; (iii) the proposed no solicitation provision and (iv) the
size and the timing of its payment of the proposed termination fee.
Because of questions related to the progress of the DMG engagement that had
arisen from investors and analysts during the two previous quarterly financial
conference calls held since announcing the DMG engagement on April 2, there was
also some discussion regarding IPC management's preference to announce a
definitive acquisition agreement with CVC simultaneously with IPC's fourth
quarter and fiscal year-end financial results announcement rather than shortly
thereafter.
The IPC Board directed IPC's management and IPC's legal counsel to attempt
to avoid terms in the Merger Agreement that would be likely to create any
material obstacles to an interested third party making a bid for the Company
after the Merger Agreement was signed.
On December 4, representatives of the Company, having initiated
communications with a new financial investor about a possible investment in the
Company, met with representatives of the new financial investor. Several follow-
up meetings were held.
During a regularly scheduled meeting of the IPC Board held on December 5,
representatives of DMG and legal counsel to the Company updated the IPC Board on
the remaining open issues with respect to the proposed transaction with CVC,
which included, among other things, the ongoing differences relating to the
extent, and effect on the Company, of stockholder lock-up agreements to which
Richard P. Kleinknecht, Peter J. Kleinknecht and others would be parties, the
scope of the no solicitation provision and the amount and timing of payment of
the termination fees and the types of fee-triggering termination events.
It was also reported to the IPC Board that there were still numerous
unresolved issues relating to the Ancillary Agreements, most of which were being
negotiated between CVC and various employees, affiliates and stockholders of
IPC. The IPC Board heard descriptions of these negotiations between CVC and (i)
Richard P. Kleinknecht and Peter J. Kleinknecht, in connection with proposed new
employment agreements to replace their existing employment agreements, (ii)
David Walsh and Anthony Servidio, in connection with the exchange of their
minority equity interest in IXnet and other IXnet related contractual rights for
Surviving Corporation Common Stock and other consideration, including new
employment agreements and substantial grants of stock options and (iii) KEC in
connection with the Labor Pooling Agreements and Corporate Opportunity
Agreement. IPC's legal counsel noted that the delay in finalizing the Merger
Agreement was largely attributable to the foregoing matters being resolved
concurrently with the finalizing of the Merger Agreement.
Finally, representatives of DMG notified the IPC Board of a letter received
from a financial investor requesting the opportunity to perform due diligence on
the Company so that it would be in a position potentially to make a timely
definitive offer for the Company which also provided for a leveraged
recapitalization and continued IPC shareholder minority investment. The
financial investor
<PAGE>
requested a ten-day period to perform its due diligence and to meet with
management and indicated its understanding of the requirement for an
accelerated time schedule.
The IPC Board authorized IPC's management to continue to explore a
potential transaction with this new party and also to continue efforts to
resolve the differences in the terms of the proposed Merger Agreement with CVC.
During a telephone conference call on December 11 with the IPC Board,
representatives of DMG updated the IPC Board on the status of negotiations with
the new financial investor and with CVC. With respect to the new financial
investor, it was noted that the new financial investor had met with management
and was taking the opportunity very seriously, although the new financial
investor had not proposed a price nor, to DMG's knowledge, did it have committed
financing.
Members of the IPC Board, believing that CVC was aware of the interest of a
competing financial investor, discussed possible reactions by CVC.
Representatives of DMG observed that there existed a risk of jeopardizing the
only definitive offer received that met the criteria set by the IPC Board at its
June 26 meeting. With respect to CVC, representatives of IPC's legal counsel
discussed the remaining open issues with respect to the Merger Agreement,
including the amount and timing of the payment of a termination fee, the
termination events and the no solicitation provision. Representatives of DMG
advised the IPC Board that they did not believe that the 1 1/2% termination fee
(as then tentatively agreed to by CVC) together with the no solicitation
provision sought by CVC would not materially impede another serious possible
suitor. In response to inquiries by the IPC Board concerning the fact that only
one definitive offer meeting the IPC Board's June 26 criteria had been received,
representatives of DMG reiterated that, although a public auction had not been
conducted, a press release relating to DMG's engagement had been issued, equity
research reports speculating on a sale of the Company had been published by
third parties, the Company had been extensively marketed through contacts with
approximately 40 parties and the industry was generally aware of the
solicitation efforts.
On December 12, based on CVC's belief of the existence of the other
financial investor, CVC communicated that, if an agreement was not signed with
CVC by Monday, December 15, its offer would be withdrawn. Following further
discussions between representatives of DMG and IPC's legal counsel and
representatives of CVC, CVC agreed to leave its offer open for a 48 hour period
beginning from the point all relevant documentation was finalized in order to
allow the IPC Board time to evaluate the final documentation.
On December 17, a special meeting of the IPC Board was called to provide
the IPC Board the opportunity to hear presentations from representatives of CVC
and from the new financial investor. A representative of DMG advised the IPC
Board of the deadline imposed by CVC and noted that, although the new financial
investor had attempted to complete its due diligence and review of the Company
in a short time frame, as far as DMG was aware, the new financial investor did
not yet have a firm financing commitment and had not yet proposed a price or a
preferred capital structure. A representative of the Company's legal counsel
described (i) the differences in the transaction structures proposed by CVC and
the new financial investor and (ii) the status of the negotiations with each of
CVC and the new financial investor, noting that efforts to negotiate a
satisfactory form of merger agreement with each party were virtually complete.
A representative from DMG then discussed DMG's revised preliminary views as
to the possible ranges of values to a financial investor and to a strategic
investor.
Certain members of management discussed various aspects of a possible
transaction with the new financial investor and identified what they believed to
be certain advantages to such a transaction.
The IPC Board received an oral summary of the DMG Opinion which provided
that, as of the date of the DMG Opinion and based upon and subject to the
various considerations set forth in the DMG Opinion, the $21
<PAGE>
price offered by CVC pursuant to the terms of the Merger Agreement was fair from
a financial point of view to the holders of IPC Common Stock.
As scheduled, representatives of IPC's legal counsel met separately with
the Independent Directors. They were given the opportunity to ask questions and
to consult with Delaware counsel who had agreed to be available by telephone for
this purpose.
Following this session, representatives of CVC made a detailed presentation
of CVC's offer, noting the complexity of the transaction, noting the numerous
parties whose interests had been addressed during the negotiations of the
Ancillary Agreements and how the structure of the transaction attempted to
accommodate those stockholders seeking liquidity, as well as those who wanted to
participate in IPC's future growth. They also informed the IPC Board that CVC
was aware that another financial investor was scheduled to make a presentation
following CVC's and that if the IPC Board heard this presentation or
communicated with the other financial investor, CVC would withdraw its offer.
The representatives of CVC then left the meeting to await, in a nearby
conference room, the IPC Board's decision.
The IPC Board then considered at length the merits of the CVC proposal and
the possible consequences of rejecting the CVC demand in order to enable the IPC
Board to consider what might be a superior offer from the new financial
investor. Representatives of the Company's management again expressed their
belief regarding certain advantages to a transaction with the new financial
investor. The IPC Board acknowledged that, if the Company agreed to sign a
Merger Agreement with CVC's designee, AAC, the Company would be bound by the
terms of the Merger Agreement and would thereby be prohibited, pursuant to the
no solicitation provision, from soliciting or negotiating with the other
financial investor or any other third party. However, if IPC subsequently
received a Superior Acquisition Proposal from the other financial investor, or
any other third party, the Merger Agreement could be terminated by the Company
and that, under certain circumstances, such termination could result in a
termination fee of $3.37 million and the reimbursement of CVC's fees and
expenses up to $2.2 million, an approximate cost of approximately $.52 per
share.
Representatives of DMG reminded the IPC Board of the uncertainties
regarding a possible offer from the new financial investor: no price had
previously been communicated and any offer might be subject to further
due diligence and could be conditioned on financing. Furthermore, if CVC's
proposal were withdrawn, there would be little reason for the new financial
investor to offer a higher price.
After discussion and deliberation, the IPC Board, acting on the unanimous
recommendation of the Independent Directors, voted unanimously to approve the
Merger Agreement with CVC as fair and in the best interests of IPC and its
stockholders and to recommend, subject to the terms of the Merger Agreement, the
approval of the Merger Agreement by the Company's stockholders.
RECOMMENDATION OF THE IPC BOARD; REASONS FOR THE MERGER
At its meeting on December 17, 1997, the IPC Board, acting on the unanimous
recommendation of the Independent Directors, voted unanimously to approve the
Merger Agreement as fair and in the best interests of IPC and its stockholders
and to recommend, subject to the terms of the Merger Agreement, the Merger
Agreement to the holders of IPC Common Stock. The IPC Board received an oral
summary of the DMG Opinion, which provided that, as of the date of the DMG
Opinion and based upon and subject to the various considerations set forth in
the DMG Opinion, the $21 price to be received by the holders of IPC Common Stock
pursuant to the terms of the Merger Agreement was fair from a financial point of
view to such holders.
The recommendation by the IPC Board that the IPC stockholders approve and
adopt the Merger Agreement is not, and should not be considered to be, a
recommendation by the IPC Board that the stockholders elect to retain or,
alternatively, that the stockholders sell shares, of IPC Common Stock held by
them in connection with the Merger.
<PAGE>
In its deliberations, the IPC Board considered a number of factors
including, without limitation, the following:
1. The IPC Board's knowledge of the Company's business, operations,
properties, financial condition, operating results and prospects,
including, without limitation, the forecasted growth of the Company and
expected industry growth.
2. The IPC Board's belief that (a) the $21 price was within the possible
ranges of values discussed by DMG and (b) the Merger Consideration
permitted IPC stockholders to recognize with certainty $21 per share for
all their shares, whereas, without the Merger, the ability of IPC
stockholders to realize the $21 price or any price within the possible
ranges of values discussed by DMG would be subject to significant economic
and competitive uncertainties and contingencies beyond IPC's control.
3. The determination by the IPC Board that it would be desirable to
consolidate control in a single entity, through the sale of all or a
controlling interest in the Company.
4. The determination by the IPC Board that the single entity to whom control
of the Company would be sold would be able to provide, not only direction,
but also financial capacity to the Surviving Corporation to promote IXnet's
development. CVC's equity capital infusion of between $43.2 million and
$72 million (depending on the number of Stock Electing Shares) will enable
the Company to access more funds from the debt capital markets, thereby
providing an additional source of capital for IXnet's development.
5. The IPC Board's belief, that, although only one definitive offer meeting
the IPC Board's June 26 criteria had been received, the Company had been
extensively marketed through contacts with approximately 40 parties from
the period beginning July 7, 1997 through December 17, 1997. The IPC Board
took into account that, although a public auction had not been conducted, a
press release relating to DMG's engagement had been issued, equity research
reports speculating on a sale of the Company had been published by third
parties, and the industry was generally aware of the solicitation efforts.
6. The oral and written presentations of DMG, including the DMG Opinion.
7. The terms and conditions of the Merger Agreement including in particular
the "no solicitation" provision, the termination fee and expense
reimbursement provision and the termination events provision. Although
termination of the Agreement would be subject to an obligation, under
certain circumstances, to pay a termination fee and reimburse expenses, the
IPC Board determined that these provisions, (a) would not materially impede
another serious possible suitor and would allow the IPC Board to fulfill
its fiduciary obligations to consider such a Superior Acquisition Proposal
in the event one were to be received and (b) would allow the IPC Board to
terminate the Merger Agreement if the IPC Board's approval or
recommendation of the Merger Agreement and the Merger were withdrawn,
modified or amended in a manner adverse to AAC.
8. The terms and conditions of the Stockholders Agreement (which among other
things obligates the Kleinknecht Stockholders to vote in favor of the
Merger Agreement), including in particular the fact that it would terminate
if the IPC Board determined to terminate the Merger Agreement (subject to
an obligation, under certain circumstances, to pay a termination fee and
reimburse expenses), thereby enabling the Company to engage in another
transaction involving the sale of all or a controlling interest in the
Company.
9. The inability of the Company to recapitalize on its own at a price equal to
or better than $21 per share without a third party equity sponsor.
<PAGE>
10. The endorsement by Richard P. Kleinknecht (who has expressed his intent to
convert all, except for approximately 12%, of his beneficially owned IPC
Common Stock into cash) and Peter J. Kleinknecht (who has expressed his
intent to sell all of his beneficially owned IPC Common Stock) of the CVC
offer and the consideration to be received thereunder as fair and in the
best interests of the Company and its stockholders.
11. The IPC Board's consideration of the conditions to closing included in the
Merger Agreement and the fact that the financing commitment letters
furnished by MSSF, MSCI and CVC rendered the financing condition likely to
be satisfied, and the IPC Board's belief that CVC was a recognized
participant in the financial marketplace with a longstanding history of
completing transactions.
12. The fact that, as a result of Richard P. Kleinknecht's agreement under the
Stockholders Agreement to retain up to 380,952 shares of Surviving
Corporation Common Stock, which is equal to the Minimum Stock Election
Number, all IPC stockholders who elect to convert their stock into cash
should receive the full amount in cash and should not be required to retain
a portion of their shares of Surviving Corporation Common Stock.
13. The IPC Board's belief that, as a result of the consummation of the
transactions contemplated by the Merger Agreement, the Surviving
Corporation (on a consolidated basis) (a) will not be insolvent, (b) will
not be left with unreasonably small capital, (c) will not have incurred
debts beyond its ability to pay such debts as they mature, and (d) will
have a fair value and present fair salable value of its assets in excess of
its stated liabilities and identified contingent liabilities by at least
the total par value of its capital stock. A condition to closing provides
that the IPC Board will receive an opinion to the foregoing effect from an
independent valuation firm.
14. The possible adverse effect on a potential transaction if the trading price
of the IPC Common Stock were to materially decline as a result of not
announcing a transaction at the time of the year-end earnings announcement,
more than eight months after announcing the Company's initial engagement of
DMG.
15. The IPC Board's belief that the price of IPC's Common Stock did not reflect
the Company's true value as evidenced by the fact that in early 1997 the
price of IPC Common Stock was trading below the initial public offering
price of $15.00, having hit an historic low of $8 7/8 on March 24 and March
25. There was a lack of equity analyst research coverage, and the Company's
management believed that the equity markets did not fully understand the
Company's mix of a mature equipment manufacturing business with a
developmental stage growth subsidiary (IXnet) and the synergies and growth
that the Company's management projected from this mix.
In addition to the foregoing factors, the IPC Board considered the
following:
1. The effect of the transaction on management.
2. The high level of debt to be incurred by the Surviving Corporation as a
result of the financing required to consummate the transactions
contemplated by the Merger Agreement and to develop IXnet.
3. The expected decline in the number of stockholders, the number of shares
outstanding and the volume of shares of IPC Common Stock following the
Merger and the potential delisting of such shares as a result thereof, all
of which will be likely to make an investment in the Surviving Corporation
less liquid.
<PAGE>
4. The fact that (a) the IPC stockholders who choose to convert their shares
of IPC Common Stock into cash would not have an opportunity to participate
in any future growth of the Company and (b) the IPC stockholders who choose
to retain their shares of the Surviving Corporation Common Stock will be
unable to participate fully in any such future growth due to the potential
dilution following the Merger of the equity percentage and book value of
the shares of the Surviving Corporation Common Stock to be retained by such
stockholders.
5. Because the approval of the Merger Agreement requires a vote of the
majority of the outstanding shares of IPC Common Stock and because the
Kleinknecht Stockholders have agreed to vote all their beneficially owned
shares (equal to approximately 64% of the outstanding shares of IPC Common
Stock), the vote of the unaffiliated stockholders of IPC will not be
determinative of the outcome of the vote to approve the Merger Agreement.
(However, in order for the Certificate Amendment to be adopted and
approved, an additional approximately 16% of the shares of IPC Common Stock
must vote in favor of the proposal.)
6. The lack of contractual restrictions or limitations on CVC's engaging in a
second stage transaction which could eliminate the minority stockholders of
the Surviving Corporation at a price lower than $21 per share.
The foregoing discussion of the information and factors considered and
given weight by the IPC Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Merger,
the IPC Board did not find it practicable to, and did not, quantify or otherwise
assign relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the IPC Board may have given
different weights to different factors. Although the IPC Board did not consider
the liquidation value or the book value of IPC, it was the IPC Board's view that
such values would be significantly below the other possible ranges of values
discussed by DMG using other valuation methodologies.
Because of the role of the Independent Directors and the engagement of DMG
and the Company's outside legal counsel, the IPC Board did not appoint an
unaffiliated representative to act solely on behalf of the unaffiliated holders
of IPC Common Stock.
OPINION OF FINANCIAL ADVISOR
Pursuant to the Engagement Letter, DMG provided a financial fairness
opinion to IPC in connection with the Merger Agreement. At the meeting of the
IPC Board on December 17, 1997, DMG rendered its oral opinion, which was
subsequently confirmed in writing as of December 17, 1997 (the "DMG Opinion"),
that, as of such date, based upon and subject to the various considerations set
forth in the DMG Opinion, the Merger Consideration to be received by the holders
of IPC Common Stock pursuant to the terms of the Merger Agreement was fair from
a financial point of view to such holders.
THE FULL TEXT OF THE DMG OPINION, WHICH SETS FORTH, AMONG OTHER THINGS,
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE
SCOPE OF THE REVIEW UNDERTAKEN BY DMG IN RENDERING THE DMG OPINION, IS INCLUDED
AS ANNEX E TO THIS PROXY STATEMENT/PROSPECTUS. IPC STOCKHOLDERS ARE URGED TO
READ THE DMG OPINION CAREFULLY AND IN ITS ENTIRETY. THE DMG OPINION ADDRESSES
ONLY THE FAIRNESS OF THE MERGER CONSIDERATION FROM A FINANCIAL POINT OF VIEW TO
THE IPC STOCKHOLDERS AS OF THE DATE OF THE DMG OPINION, AND DOES NOT CONSTITUTE
A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT
THE ANNUAL MEETING. THE SUMMARY OF THE DMG OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE DMG OPINION.
In rendering the DMG Opinion, DMG, among other things: (i) analyzed certain
publicly available financial statements and other information of IPC; (ii)
reviewed and analyzed certain financial projections of IPC for the period 1998-
2002 prepared by the Company (the "Projections"); (iii) discussed with senior
<PAGE>
management of IPC the current operations, financial condition and the prospects
of the Company; (iv) reviewed the reported stock prices and trading activity for
IPC Common Stock; (v) compared the historical financial performance and market
trading values of IPC with that of certain other generally comparable publicly-
traded companies and their securities; (vi) reviewed the financial terms, to the
extent publicly available, of certain comparable acquisition transactions; (vii)
based on the Projections, performed a discounted cash flow analysis and
leveraged buy-out analysis of IPC; (viii) discussed with senior management of
IPC other acquisition proposals and related discussions the Company held with
other parties; (ix) reviewed the financial terms of the Merger Agreement; and
(x) performed such other financial analysis and examinations and considered such
other factors as DMG deemed appropriate.
In rendering the DMG Opinion, DMG assumed and relied upon, without
independent verification, the accuracy and completeness of the information
reviewed by DMG for the purposes of the DMG Opinion. With respect to the
Projections supplied by or confirmed by IPC, DMG further assumed that such
Projections represented the best currently available estimates and judgment of
the management of IPC as to the expected future financial performance of the
Company. DMG did not make any independent verification of information supplied
by or confirmed by IPC and did not undertake any independent valuation or
appraisal of the assets or liabilities of IPC, nor was DMG furnished with such
appraisals. The DMG Opinion does not imply any conclusion as to the likely
trading range for the Surviving Corporation Common Stock following the Merger,
which may vary depending upon, among other factors, changes in interest rates,
market conditions, general economic conditions and other factors that generally
influence the price of securities. The DMG Opinion does not address IPC's
underlying business decision to effect the Merger. DMG assumed that the Merger
would be consummated in accordance with the terms set forth in the Merger
Agreement. The DMG Opinion is necessarily based on economic, market, financial
and other conditions as in effect on, and the information made available to DMG
as of, the date thereof.
The following is a summary of the analysis performed by DMG in preparation
of the DMG Opinion, and reviewed with the IPC Board at its meeting held on
December 17, 1997. This analysis was provided to the IPC Board for background
information only and was one of the many factors considered by DMG in rendering
the DMG Opinion. No conclusions can be independently drawn from any independent
analysis.
(i) Historical Trading Analysis: DMG reviewed the history of trading
prices and volumes for shares of IPC Common Stock over the period from September
27, 1994 to December 16, 1997. DMG observed that the $21 offer price
represented a premium of 18%, 17% and 123% over the December 16, 1997 closing
price, the 10-day moving average IPC share price ending December 16, 1997 and
the April 1, 1997 closing price, respectively. DMG observed that on April 2,
1997, IPC's announcement that it had retained DMG to advise and assist IPC in
achieving enhanced shareholder value, had a perceived positive impact on the IPC
stock price.
(ii) Peer Group Comparison: DMG performed a peer group comparison analysis
for IPC. DMG examined certain publicly available financial and market
information of four selected publicly-traded companies in the telecommunications
equipment sector: Cidco Inc., Plantronics Inc., Inter-tel Inc., and
Communications Systems, Inc. (the "Selected Telecommunications Equipment
Companies") and compared the financial performance of IPC's turret systems and
I.T.S. divisions with this group of companies. DMG also selected five publicly-
traded companies in the international long distance re-seller sector: IDT Corp.,
Primus Telecommunications, Trescom International Inc., Viatel Inc. and ACC Corp.
(the "Selected International Long Distance Re-seller Companies") which were
compared with the financial performance of the IXnet division. The peer group
comparison showed median ratios for the Selected Telecommunications Equipment
Companies of market capitalization plus total debt and preferred stock less cash
("Aggregate Value") to revenue, earnings before interest, taxes, depreciation
and amortization ("EBITDA"), and earnings before interest and taxes ("EBIT") for
1997 of 1.85x, 10.9x, and 12.0x, respectively, and a median equity value to net
income for 1997 of 19.5x. A similar analysis for 1998 ratios for the Selected
Telecommunications Equipment Companies of Aggregate Value to revenue, EBITDA and
EBIT showed median multiples of 1.62x, 11.2x, and 11.6x,
<PAGE>
respectively, and a median equity value to net income for 1998 of 15.2x. The
analysis for the Selected International Long Distance Re-seller Companies showed
median ratios of Aggregate Value to revenue for 1997, 1998, 1999 and 2000 of
2.07x, 1.40x, 0.95x and 0.83x, respectively, and Aggregate Value to EBITDA for
the same years of 10.5x, 11.9x, 5.8x and 4.7x, respectively. Median multiples of
equity value to net income for 1998, 1999 and 2000 were 36.0x, 25.7x and 18.4x,
respectively.
No company used in the peer group comparison was identical to IPC's turret
systems and I.T.S. divisions or IXnet. Accordingly, an analysis of the results
of the foregoing necessarily involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value of the
companies to which they are being compared. Mathematical analysis is not, in
itself, a meaningful method of ensuring comparable company data.
(iii) Discounted Cash Flow Analysis: DMG performed an analysis of the
present value per share of IPC Common Stock based on free cash flows determined
using the assumptions and Projections for IPC which were discussed, reviewed and
confirmed by management for calendar years 1998 to 2002 (the "IPC Best Case").
The Projections included certain corporate overhead and research and development
savings to be implemented as a result of and following financial due diligence
by CVC and the lead debt underwriters. DMG also performed a sensitivity to the
IPC Best Case which reflected more conservative growth and profitability
assumptions (the "IPC Flat Case"). DMG performed separate valuations for (a)
the turret systems and I.T.S. divisions and (b) IXnet reflecting the different
risk and growth profiles of the businesses. DMG applied a range of discount
rates of between 14% to 15% for the projected cash flows of the turret systems
and I.T.S. divisions. This discount range was selected on the basis of a
weighted average cost of capital analysis for the Company. The exit terminal
value in 2002 was calculated based on a perpetual growth rate of 2.5% to 3.0%,
which seemed consistent with the future growth profile of the turret systems and
I.T.S. divisions. DMG treated IXnet as a new venture equity investment and
assumed a cost of equity range of 35% to 40% which was regarded as reasonable
given its early developmental stage and current business projections. An EBITDA
exit multiple of 5.5x to 6.5x was applied in 2002 to calculate the terminal
value of IXnet which implied an exit revenue multiple of 1.30x to 1.50x. This
multiple range was found to be generally consistent with the range of exit
multiples used by equity research analysts for more mature comparable companies.
Based on a summation of the valuations for (a) the turret systems and I.T.S.
divisions and (b) 80% of IXnet (as of the date of the DMG Opinion, IPC owned 80%
of IXnet DMG computed a range of estimated values per share of IPC Common Stock
for the IPC Flat Case and the IPC Best Case of $17 to $24.
(iv) Selected Precedent Transactions: DMG reviewed eight transactions
since 1994 involving companies in the telecommunications equipment sector: (i)
Octel Communications Corp./Lucent Technologies Inc. (July 1997); (ii) ITC Media
Conferencing/Williams Cos. Inc. (September 1996); (iii) Electronic Systems
division (SAFCO Corp.)/Gilbert Assoc., Inc. (August 1996); (iv) Colonial Data
Technologies/US Order Inc. (August 1996); (v) Reliance Comm/Tec (Rockwell
International Corp.)/Kohlberg Kravis Roberts & Co. (June 1996); (vi) ConferTech
International Inc./ALC Communications Corp. (January 1995); (vii) Realcom Office
Communications/MFS Communications Inc. (May 1994); and (viii) VMX/Octel
Communications (January 1994). DMG computed various multiples which resulted in
median multiples of Aggregate Value paid for the target company as a ratio of
its last twelve months' ("LTM") revenues, EBITDA and EBIT of 1.44x, 9.7x and
18.7x, respectively. Median multiples of equity value paid for the target
company compared to LTM earnings and book value were 25.9x and 3.34x,
respectively. DMG also reviewed eight transactions since 1994 in the second
tier inter-exchange carrier industry: (i) ACC Corp./Teleport Communications
Group (November 1997); (ii) USLD Communications Corp./LCI International, Inc.
(September 1997); (iii) Consolidated Communications Inc./McLeodUSA Inc. (June
1996); (iv) Telco Communications Group, Inc./EXCEL Communications, Inc. (June
1997); (v) Corporate Telemanagement Group/LCI International Inc. (May 1995);
(vi) ALC Communications/Frontier Corp. (April 1995); (vii) IDB Communications
Inc./LDDS Communications (August 1994); and (viii) WilTel Network services (The
Williams Cos. Inc.)/LDDS Communications (August 1994). DMG computed various
multiples which resulted in median multiples of Aggregate Value paid for the
target company compared to LTM revenues, EBITDA and EBIT of 2.60x, 13.7x and
26.6x, respectively. Median
<PAGE>
multiples of equity value paid for the target company compared to LTM earnings
and book value were 24.8x and 9.7x, respectively.
No transaction used in the precedent transactions analysis summarized above
was identical to the Merger. Accordingly, an analysis of the value of the
Merger involves complex considerations and judgments concerning differences in
the potential financial and operating characteristics of the comparable
companies and other factors in relation to the trading and acquisition values of
the comparable companies and publicly announced transactions. Mathematical
analysis is not, in itself, a meaningful method of ensuring comparable
transaction data.
(v) Leveraged Buy-Out Analysis: DMG performed a leveraged buy-out ("LBO")
analysis of the turret systems and I.T.S. divisions of IPC assuming a
recapitalization of the company. DMG used the IPC Best Case and IPC Flat Case
projections for the turret systems and I.T.S. divisions. Given the projected
negative cash flow characteristics of IXnet, DMG valued this division separately
and on the basis of the discounted cash flow analysis as outlined above. The
LBO analysis assumed the following: transaction capitalization: 26% equity
(reflecting $80 million equity capitalization at $21 per share); $157 million of
subordinated debt at 11% interest cost, receivable financing credit line of up
to $75 million at 7% interest cost and $50 million as pre-funding for IXnet
working capital. DMG also analyzed an alternative funding structure assuming no
interest paid for 3 years on the $157 million subordinated debt, with such
interest accruing to the principal, with IXnet funded from the cash flow
generated by the turret systems and I.T.S. divisions (such funding capped at $50
million). The LBO valuation analysis for the IPC Best Case and the IPC Flat
Case was computed on achieving a set of constraints which included: a required
rate of return for the equity investors of 25% to 30%; a maximum total debt
ratio to EBITDA of 5.0x; the subordinated debt being re-paid within seven years;
and EBITDA to interest coverage ratio of being greater than 1.35x. Based on
this analysis and a summation of the valuations for (a) the LBO analysis of the
turret systems and I.T.S. divisions and (b) the discounted cash flow analysis
valuation for 80% of IXnet, DMG computed a range of estimated values per share
of IPC Common Stock for the IPC Flat Case and the IPC Best Case of $13 to $22.
(vi) Premiums Paid Analysis: DMG analyzed premiums paid in a number of
selected public telecommunications transactions since 1988. Such analysis
showed median offer premiums of approximately 23%, 29% and 36% over the average
closing stock price of the target company over 1 day, 10 day and 30 day periods
ending the day preceding the public announcement of these transactions,
respectively. DMG also reviewed selected recent leveraged recapitalization
transactions: (i) Zilog, Inc./Texas Pacific Group, Inc. (July 1997); (ii)
Alliance Imaging, Inc./Newport Investment LLC (July 1997); (iii) Fisher
Scientific International, Inc./Investor Group (DLJ Merchant Banking, Chase
Capital Partners, Thomas Lee & Co.) (August 1997); and (iv) Amscan Holdings,
Inc./GS Capital Partners II (August 1997). Such analysis showed median offer
premiums of approximately 10%, 10% and 16% over the average closing stock price
of the target companies over a 1 day, 10 day and 30 day period ending the day
preceding the public announcement of the transactions, respectively. DMG
observed that the $21 offer price for IPC Common Stock represented average
premiums of approximately 18%, 17%, 16% and 123% over the December 16, 1997
closing stock price, the 10-day average closing price prior to the announcement
of the transaction, the 30-day average closing price prior to the announcement
and April 1, 1997 (the day prior to the IPC announcement that DMG had been
retained to advise and assist IPC in achieving enhanced shareholder value),
respectively.
(vii) Other Considerations: DMG also gave consideration to the results of
its efforts to solicit indications of interest for all or a controlling interest
in IPC. The retention of DMG by IPC to advise and assist IPC in achieving
enhanced shareholder value was publicly announced on April 2, 1997 and certain
market analysts commented that the retention of DMG signaled an intention of the
IPC Board to sell the Company. During the process, DMG contacted approximately
40 parties in total. In considering the fairness of the transaction, DMG
observed that, despite an extensive marketing process, only one party made a
definitive offer for IPC as a whole.
<PAGE>
In connection with the review of the Merger by the IPC Board, DMG performed
a variety of financial and comparative analyses for the purpose of rendering the
DMG Opinion. While the foregoing summary describes all material analyses and
factors reviewed by DMG with the IPC Board, it does not purport to be a complete
description of the presentation by DMG to the IPC Board or the analyses
performed by DMG in arriving at the DMG Opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. DMG believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors, could
create a misleading view of the processes underlying the DMG Opinion. In
addition, DMG may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the range of valuation resulting from any particular
analysis described above should not be taken to be DMG's view of the actual
value of IPC. In performing its analyses, DMG made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of IPC. The analyses
performed by DMG are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than suggested
by such analyses. In addition, analyses relating to the value of businesses or
assets do not purport to be appraisals or necessarily to reflect the prices at
which businesses or assets may actually be sold. The analyses performed were
prepared solely as part of DMG's analysis of the fairness of the Merger
Consideration, from a financial point of view, to the holders of IPC Common
Stock and were provided to the Board of IPC Directors in connection with the
delivery of the DMG Opinion.
DMG is an internationally recognized investment banking and advisory firm.
DMG, as part of its investment banking business, is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. In the ordinary course of its
business, DMG and its affiliates may actively trade the securities and loans of
IPC for their own accounts and for the accounts of their customers and,
accordingly, may at any time hold a long or short position in such securities
and loans.
DMG has from time to time provided investment banking and financial
advisory services to IPC and has received fees for rendering such services. In
addition, both Deutsche Bank AG and DMG are substantial customers of IPC,
purchasing turrets, I.T.S. and IXnet services on an ongoing basis.
Although several nationally recognized investment banks, including DMG,
were familiar with the Company and the industries within which the Company
competed, the Company retained DMG in part because of its belief that the
substantial relationship with DMG (and, because of that relationship, its
significant relationship with senior executives of DMG's parent, Deutsche Bank
AG) was such that the Company would receive greater attention from more senior
people than it would from other investment banks.
IPC and DMG entered into a letter agreement dated March 27, 1997 (the
"Letter Agreement"), pursuant to which DMG was engaged to evaluate and advise
IPC on alternative strategies for enhancing shareholder value. The advisory fee
under such agreement was equal to $250,000, $125,000 of which was paid upon
execution of such agreement and the balance was to be paid on the date 12 months
after the date of such agreement, provided, however, that if IPC retained DMG to
provide services in connection with a transaction described therein, the balance
of the advisory fee would be waived.
Pursuant to the Engagement Letter, IPC has agreed to pay DMG a retainer in
the amount of $500,000, payable in two installments and a success fee on closing
of a transaction equivalent to 1.25% of the aggregate value of the transaction,
subject to a minimum of $1.0 million, against which such retainer fee will be
credited. The second $125,000 installment of the advisory fee described in the
preceding paragraph was waived pursuant to the terms of the Letter Agreement.
In addition, IPC has agreed to reimburse DMG for its reasonable out-of-pocket
expenses incurred in connection with its engagement, and to indemnify DMG and
certain related persons
<PAGE>
against certain liabilities and expenses arising out of or in conjunction with
its rendering of services under its engagement, including certain liabilities
under the federal securities laws.
ANCILLARY AGREEMENTS
In connection with the execution of the Merger Agreement, the following
agreements were entered into each of which will become effective only upon the
consummation of the transactions contemplated by the Merger Agreement.
Investors Agreement. IPC, CSH LLC, Richard P. Kleinknecht, Walsh and
Servidio have entered into the Investors Agreement to be effective only upon the
consummation of the transactions contemplated by the Merger Agreement. Pursuant
to the Investors Agreement, the Board of Directors of the Surviving Corporation
will consist of nine members, (i) three of whom shall be nominated by CSH LLC
and its Permitted Transferees (as defined in the Investors Agreement) ("CSH
Stockholders"); (ii) two of whom shall be nominated by the CSH Stockholders and
shall be individuals who are not "Affiliates" or "Associates" (as those terms
are used within the meaning of Rule 12b-2 of the General Rules and Regulations
under the Exchange Act) of any party to the Investors Agreement or any Affiliate
thereof; (iii) two of whom shall be nominated by the CSH Stockholders and shall
be individuals who are executive officers of IPC or its subsidiaries; and (iv)
two of whom shall be nominated by Richard P. Kleinknecht and his Permitted
Transferees. Each of the parties to the Investors Agreement and its Permitted
Transferees has agreed to vote its shares of IPC Common Stock in favor of the
persons so nominated, provided that none of the parties will be required to vote
for another party's nominees if the number of shares of Surviving Corporation
Common Stock held by the person or group making the nomination is (A) in the
case of the CSH Stockholders, less than 5% of the then outstanding number of
shares of Surviving Corporation Common Stock or (B) in the case of Richard P.
Kleinknecht and his Permitted Transferees, less than 50% of such person's or
group's Initial Ownership (defined as the number of shares of Surviving
Corporation Common Stock held by such person or group as of the Effective Time)
("Initial Ownership").
Pursuant to the Investors Agreement, the CSH Stockholders and the
Management Stockholders have agreed that they will not, directly or indirectly,
sell, assign, transfer, grant a participation in, pledge or otherwise dispose of
any Surviving Corporation Common Stock (or solicit any offers to buy or
otherwise acquire, or take a pledge of any Surviving Corporation Common Stock)
except in compliance with the Securities Act of 1933, as amended, and the terms
and conditions of the Investors Agreement.
Any CSH Stockholder or Management Stockholder may at any time transfer any
or all of its Surviving Corporation Common Stock to one or more of its Permitted
Transferees without the consent of the Surviving Corporation or any CSH
Stockholder or Management Stockholder, as the case may be, so long as (i) such
Permitted Transferee shall have executed a Joinder Agreement substantially in
the form of Exhibit A to the Investors Agreement and thereby agreed to be bound
by the terms of the Investors Agreement and (ii) the transfer to such Permitted
Transferee is not in violation of applicable federal or state securities laws.
Aside from a transfer to a Permitted Transferee as discussed above, Richard
P. Kleinknecht and his Permitted Transferees may transfer their Surviving
Corporation Common Stock only as follows: (i) pursuant to the Tag-Along Rights
described below; (ii) pursuant to the Drag-Along Rights described below; (iii)
in a public offering in connection with the exercise of their registration
rights under Article 5 of the Investors Agreement; or (iv) following the earlier
to occur of (A) the date on which the number of shares of Surviving Corporation
Common Stock held by Richard P. Kleinknecht and his Permitted Transferees is
less than 5% of the outstanding number of shares of Surviving Corporation Common
Stock and (B) the fifth anniversary of the Effective Time, to any person other
than any Adverse Person (as defined in the Investors Agreement). The above-
described restrictions on Richard P. Kleinknecht and his Permitted Transferees
shall terminate at such time as the aggregate number of shares of Surviving
Corporation Common Stock held by the CSH Stockholders is less than 50% of the
CSH Stockholders' aggregate Initial Ownership of Surviving Corporation Common
Stock.
<PAGE>
Aside from a transfer to a Permitted Transferee as discussed above, Walsh
and his Permitted Transferees and Servidio and his Permitted Transferees may
transfer their Surviving Corporation Common Stock only as follows: (i) pursuant
to the Tag-Along Rights described below; (ii) pursuant to the Drag-Along Rights
described below; (iii) in any public offering; (iv) following the 30th month
anniversary of the Effective Time, to any person other than any Adverse Person
(as defined in the Investors Agreement); or (v) to any person, in a transfer
through a broker or dealer in compliance with Rule 144 (or any successor rule).
The Investors Agreement also provides that if the CSH Stockholders propose
to sell Surviving Corporation Common Stock, the Management Stockholders will
have the right to participate in the sale ("Tag-Along Rights"), provided that no
such rights shall apply (i) to sales of up to 3% in the aggregate of the
outstanding Surviving Corporation Common Stock; (ii) to sales to Permitted
Transferees of CSH Stockholders; or (iii) in public offerings. If Tag-Along
Rights apply, the CSH Stockholders will inform the Management Stockholders
(collectively, the "Tag Stockholders") of the terms and conditions of the
proposed sale and offer each Tag Stockholder the opportunity to participate. If
the number of shares of Surviving Corporation Common Stock that CSH Stockholders
and the Tag Stockholders propose to sell exceeds the number that can be sold on
the terms and conditions proposed by the buyer, the CSH Stockholders and each
Tag Stockholder who has exercised Tag-Along Rights will be entitled to sell up
to his or her Tag Along Portion. "Tag Along Portion" shall mean the number of
shares of Surviving Corporation Common Stock owned by such Tag Stockholder (on a
fully diluted basis) (and in the case of the CSH Stockholders, owned by CSH
Stockholders on a fully diluted basis) multiplied by a fraction, the numerator
of which shall be the number of shares of Surviving Corporation Common Stock
proposed to be sold by CSH Stockholders and the denominator of which shall be
the total number of shares of Surviving Corporation Common Stock (on a fully
diluted basis) held by parties to the Investors Agreement. The CSH Stockholders
and the Tag Stockholders who have exercised Tag-Along Rights may sell their
Surviving Corporation Common Stock on substantially the same terms and
conditions set forth in the notice (subject to an increase in the amount of
consideration of up to 5%) within 120 days of the date all Tag-Along Rights are
waived, exercised or expire.
The Investors Agreement contemplates that if the CSH Shareholders (i)
propose to sell shares of Surviving Corporation Common Stock constituting not
less than 50% of their Initial Ownership in a bona fide third party sale, and
(ii) propose a sale in which the Surviving Corporation Common Stock to be sold
by CSH Stockholders and the Management Stockholders constitute 50% or more of
the outstanding Surviving Corporation Common Stock held by all such
Stockholders, the CSH Stockholders will be entitled to compel the Management
Stockholders to participate in the sale ("Drag-Along Rights") with respect to
the Surviving Corporation Common Stock owned by each Management Shareholder
which constitute the "Drag-Along Portion" of the number of Surviving Corporation
Common Stock that such person owns. "Drag-Along Portion" shall mean as to any
Management Shareholder, the number of shares of Surviving Corporation Common
Stock such person owns (on a fully diluted basis) multiplied by a fraction, the
numerator of which is the number of shares of Surviving Corporation Common Stock
to be sold by the seller and proposed sellers and the denominator of which is
the total number of shares of Surviving Corporation Common Stock owned by the
seller and proposed sellers.
Pursuant to the Investors Agreement, CSH LLC also has the right to request
the Surviving Corporation to register for sale its Surviving Corporation Common
Stock on five occasions if the aggregate proceeds expected to be received from
any such sale exceeds $7,500,000. Once the Surviving Corporation has effected
one such registration for the CSH Stockholders, Richard P. Kleinknecht and his
Permitted Transferees may request two registrations of their Surviving
Corporation Common Stock. Each party to the Investors Agreement has the right,
subject to certain limitations, to request the Surviving Corporation to include
its Surviving Corporation Common Stock in any registration undertaken by the
Surviving Corporation. All requests for registration are subject to certain
other customary terms and conditions.
The Investors Agreement also provides that until the earlier to occur of
(i) the fifth anniversary of the Effective Time or (ii) the occurrence of a
"change in control" (defined as the date on which the CSH Stockholders own less
than 20% of the outstanding Surviving Corporation Common Stock or the transfer
of all
<PAGE>
or substantially all of the assets of the Surviving Corporation or a liquidation
of the Surviving Corporation), neither Richard P. Kleinknecht nor the Permitted
Transferees shall acquire any Surviving Corporation Common Stock or securities
convertible into or exercisable or exchangeable for Surviving Corporation Common
Stock, with certain exceptions.
Amended and Restated Corporate Opportunity Agreement. Under the Amended
and Restated Corporate Opportunity Agreement, Kleinknecht Electric Company, a
New York corporation ("KEC-NY") and Kleinknecht Electric Company, a New Jersey
corporation ("KEC-NJ" and together with KEC-NY, "KEC" each of which are
electrical companies controlled by Richard P. Kleinknecht, Peter J. Kleinknecht
and certain members of their families) agree for three years from December 18,
1997 not to bid for or accept any [job requiring KEC to install low voltage
wire, cable and related devices intended to serve as local or wide area network
for voice, data and/or video communication, which installation does not require
such work to be performed by a licensed electrician but specifically excludes
installations intended to transmit signaling in connection with mechanical
controls, fire safety and security systems] [Cabling Work]. KEC may not bid for
Cabling Work without IPC's written consent if IPC has notified KEC of its intent
to bid for such job. This restriction on KEC does not apply if (a) IPC does not
so notify KEC and (b) KEC notifies IPC of its intention to bid for the job and
does not receive notification from IPC within 5 days that IPC wishes to place
its own bid for the job.
The Corporate Opportunity Agreement may be terminated (a) by IPC with or
without cause upon 90 days written notice; (b) by either party upon 5 days
written notice if (i) there is a material default or (ii) a party files for
insolvency relief; or (c) will automatically terminate if (i) the Labor Pool
Agreements are terminated and (ii) IPC does not elect to pay KEC an aggregate of
$500,000 per year.
Amended and Restated Labor Pool Agreements. KEC-NY and KEC-NJ are each
parties to the Amended and Restated Labor Pool Agreements, individual but
virtually identical labor sharing agreements with IPC, whereby KEC continues to
act as payroll agents for IPC's Pooled Employees and serves as the signatory to
collective bargaining agreements with the Union Locals that represent these
employees (IBEW Locals 3 and 164T in New York and New Jersey, respectively) (the
"Labor Pool Agreements"). Each of the Labor Pool Agreements is for a term of 20
years. IPC agrees to pay $45,000 to KEC-NY and $5,000 to KEC-NJ in monthly fees
under the respective Agreements.
IPC will obtain a standby letter of credit in the amount of $1.5 million
with respect to KEC's payments for labor compensation and benefits related to
Pooled Employees.
IPC will indemnify KEC-NJ and KEC-NY from "Losses" that arise from a final
determination that either KEC entity is subject to withdrawal liability under
Title IV of ERISA. There is a $5 million cap on the indemnity. Under the Labor
Pool Agreements, "Loss" expressly does not include any (a) diminution in value
of capital stock of either of the KEC entities or (b) any fines or penalties
incurred due to KEC's failure to comply with ERISA or to cooperate with the
Surviving Corporation in defending the Loss in a timely and reasonable manner
(unless such fines are due to the Surviving Corporation's failure to make
payments under its indemnity obligation in a timely manner). Fees and expenses
incurred in defending against the Loss, to the extent that they relate to Losses
under the cap, shall be borne by IPC. The obligation to indemnify terminates
after five years.
Each of the Labor Pool Agreements may be terminated (a) by the Surviving
Corporation with or without cause upon 90 days written notice; or (b) by either
party upon 30 days written notice if (i) the Surviving Corporation fails to
reimburse KEC for payroll and such failure continues for three business days
after receipt of notice from KEC; (ii) there is a material default; (iii) a
party files for insolvency relief; or (iv) the union withdraws its consent to or
objects to continuation of the pooling arrangement.
Stockholders Agreement. Pursuant to the Stockholders Agreement, Richard P.
Kleinknecht and Peter J. Kleinknecht and certain family members and trusts
associated with Richard P. Kleinknecht and Peter J.
<PAGE>
Kleinknecht and Russell G. Kleinknecht have agreed that, until the first to
occur of (a) the Effective Time and (b) the date the Merger Agreement is
terminated in accordance with its terms (the "Termination Date"), such
Kleinknecht Stockholder shall vote (or cause to be voted) the shares of IPC
Common Stock held of record or beneficially by such Stockholder (i) in favor of
the Merger, the execution and delivery by IPC of the Merger Agreement and the
approval of the terms thereof and each of the other actions contemplated by the
Merger Agreement and the Stockholders Agreement and any actions required in
furtherance thereof; (ii) against any action or agreement that would result in a
breach of any covenant, representation or warranty or any other obligation or
agreement of IPC under the Merger Agreement or the Stockholders under the
Stockholders Agreement; (iii) in favor of the New Stock Incentive Plan and (iv)
against the following actions (other than the Merger and the transactions
contemplated by the Merger Agreement or any such actions identified in writing
to AAC in advance): (A) any extraordinary corporate transaction, including,
without limitation, a merger, consolidation or other business combination
involving IPC or its subsidiaries; (B) a sale, lease or transfer of a material
amount of assets of IPC or its subsidiaries or a reorganization,
recapitalization, dissolution or liquidation of IPC or its subsidiaries; (C) any
change in the majority of the IPC Board; (D) any material change in the present
capitalization of IPC or any amendment of IPC's Certificate of Incorporation or
By-Laws; (E) any other material change in IPC's corporate structure or business;
or (F) any other action which is intended, or could reasonably be expected, to
impede, interfere with, delay, postpone, discourage or materially adversely
affect the Merger or the transactions contemplated by the Merger Agreement or
the Stockholders Agreement.
Pursuant to the Stockholders Agreement, Richard P. Kleinknecht has agreed
to elect, subject to proration, to retain an aggregate of 380,952 shares of
Surviving Corporation Common Stock. In addition, all other signatories to the
Stockholders Agreement, including family members of Richard P. Kleinknecht,
Peter J. Kleinknecht and his family members and Russell G. Kleinknecht have
advised the Company of their intent to elect to receive cash for their aggregate
of 6,525,602 shares of IPC Common Stock.
Each Kleinknecht Stockholder has agreed that, except as permitted under the
Merger Agreement, the Corporate Opportunity Agreement or the Labor Pool
Agreements, for a period of three years after the Effective Time, he will not,
directly or indirectly, in any form or manner on a worldwide basis: (i) engage
in any activities competitive in any material respect with the business of the
Surviving Corporation and its subsidiaries and affiliates or (ii) become a
partner, shareholder or involved in any other capacity in an entity which
engages in activities competitive with the business of the Surviving Corporation
and its subsidiaries; provided that each of Walsh and Servidio may own, directly
or indirectly, solely as a passive investment, securities of an entity so long
as he does not control the entity and does not, directly or indirectly, own 5%
or more of any voting class of securities of the entity.
In addition, under the Stockholders Agreement, each of Richard P.
Kleinknecht and Peter J. Kleinknecht has agreed that, for a period ending on the
later of three years following the Effective Time or the termination of the
Labor Pool Agreements, he will not employ or attempt to employ an employee of
the Surviving Corporation or any of its subsidiaries or joint ventures (other
than, with respect to Richard P. Kleinknecht, his executive assistant).
AAC Stockholders Agreement. Pursuant to the terms of the AAC Stockholders
Agreement, dated as of December 18, 1997 between IPC and CSH LLC, as sole
stockholder of AAC ("AAC Stockholders Agreement") CSH LLC has agreed, among
other things, to vote its shares of AAC in favor of the Merger and against any
action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of AAC under the
Merger Agreement or the AAC Stockholders Agreement.
Share Exchange and Termination Agreement. Pursuant to the Share Exchange
and Termination Agreement, by and among IPC, IXnet, Walsh and Servidio, Walsh
has agreed to exchange 336 shares of IXnet Common Stock for 152,381 shares of
Surviving Corporation Common Stock and Servidio has agreed to exchange 224
shares of IXnet Common Stock for 101,587 shares of Surviving Corporation Common
Stock immediately following the Effective Time. Ten percent of Walsh's and
Servidio's shares of Surviving Corporation Common Stock will be retained and
issued only upon delivery, by June 18, 1998, of releases by three former IXnet
Common Stock shareholders with respect to certain installment purchase
agreements. The shares of IPC Common Stock so received will be subject to usual
and customary restrictions on transfer.
Each of Walsh and Servidio has agreed that, except as permitted under the
Merger Agreement, for a period of two and one-half years after the Effective
Time, he will not, directly or indirectly, in any form or manner on a worldwide
basis: (i) engage in any activities competitive in any material respect with
the business
<PAGE>
of the Surviving Corporation and its subsidiaries and affiliates or (ii) become
a partner, shareholder or involved in any other capacity in an entity which
engages in activities competitive with the business of the Surviving Corporation
and its subsidiaries; provided that each of Walsh and Servidio may own, directly
or indirectly, solely as a passive investment, securities of an entity so long
as he does not control the entity and does not, directly or indirectly, own 5%
or more of any voting class of securities of the entity.
Starr Termination Agreement. Pursuant to a Termination Agreement, dated as
of December 18, 1997, among IPC and the Starrs, the Starrs have agreed to
terminate registration rights they formerly had with respect to IPC Common
Stock.
Employment Agreements. Under an Amended and Restated Employment Agreement,
dated as of December 18, 1997, by and between Richard P. Kleinknecht and IPC,
Richard P. Kleinknecht is to be employed for a two-year term, commencing on the
closing date of the transactions contemplated by the Merger Agreement (the
"Closing Date"), as Vice-Chairman, reporting to the Board of Directors and
Chairman of the Surviving Corporation. Richard P. Kleinknecht shall receive
$420,000 in annual base salary, plus a possible discretionary bonus as well as
options to purchase 1.25% of the fully diluted shares of the Surviving
Corporation pursuant to the New Stock Incentive Plan. The Surviving Corporation
has a right to terminate the employment agreement with or without cause. If
Richard P. Kleinknecht's employment is terminated without cause, the Surviving
Corporation must pay Richard P. Kleinknecht's base salary for the remainder of
his term, at normal payroll intervals. During the term of his employment and
for one year thereafter, Richard P. Kleinknecht will be subject to restrictions
on (i) competition and (ii) the solicitation of customers and employees, and for
all periods during and after the term, he will be subject to nondisclosure and
confidentiality restrictions relating to the confidential information and trade
secrets of the Surviving Corporation and its affiliates. Richard P. Kleinknecht
is to be employed on a full-time basis subject to his continued work for KEC-NJ,
KEC-NY and Knight Maintenance Corporation. The Amended and Restated Employment
Agreement will supercede an existing employment agreement between Richard P.
Kleinknecht and the Company. See "THE ANNUAL MEETING -- OTHER MATTERS --
Employment Agreements."
Peter J. Kleinknecht has entered into an Amended and Restated Employment
Agreement with IPC, dated as of December 18, 1997, whereby he will be engaged as
an IPC employee reporting only to the full Surviving Corporation Board under
which agreement he shall perform such duties as may be from time to time
assigned, not inconsistent with the duties performed in the six months prior to
the Closing Date, although he shall not be required to perform such duties at
the offices of the Surviving Corporation. The terms and conditions are
substantially the same as Richard P. Kleinknecht's employment agreement except
for the following: (i) Peter J. Kleinknecht shall devote time to the Surviving
Corporation on an "as needed basis" and shall continue in his capacity as an
officer of both KEC-NY and KEC-NJ; (ii) if Peter J. Kleinknecht's employment is
terminated by the Surviving Corporation due to death, disability or without
cause, the Surviving Corporation must pay him or his estate, as the case may be,
a lump sum equal to his base salary for the remainder of his term, discounted
for present value; and (iii) Peter J. Kleinknecht's employment agreement
specifically provides for a car, life insurance and social club membership,
consistent with past practice. The Amended and Restated Employment Agreement
will supercede an existing employment agreement between Peter J. Kleinknecht and
the Company. See "THE ANNUAL MEETING -- OTHER MATTERS -- Employment
Agreements."
Walsh has entered into an Amended and Restated Employment Agreement with
IXnet, dated as of December 18, 1997, under which he is to be employed on a full
time basis for a five-year term as Chief Executive Officer of IXnet and Chairman
of the IXnet Board of Directors ("IXnet Board") reporting only to the full IXnet
Board or Surviving Corporation Board. Under the employment agreement, Walsh
will receive $225,000 in base salary plus a discretionary bonus targeted at a
minimum of $175,000 and benefits consistent with past practice. He will also
receive options to purchase ____% of the fully diluted shares of the Surviving
Corporation and "springing" options grant equal to 3% of the shares of IXnet
(with an additional 2% reserved for grants to other employees) in the event of a
public offering or spin-off of IXnet stock. He is entitled to lump sum
severance payments payable if he is terminated "without cause" or for "good
reason" equal to his base
<PAGE>
salary, plus his average bonus, for a period equal to the greater of three (3)
years or the number of years in his then-remaining term of employment. Walsh's
benefits under his employment agreement will continue during such severance
period. During the term and for 2.5 years thereafter, Walsh is subject to
restrictions on (i) competition and (ii) the solicitation of customers and
employees, and for all periods during and after the term, he is subject to
nondisclosure and confidentiality restrictions relating to the confidential
information and trade secrets of the Surviving Corporation and its affiliates.
Servidio has entered into an Amended and Restated Employment Agreement with
IXnet, dated as of December 18, 1997, as Vice President - Sales of IXnet,
reporting to the full IXnet Board or the Chief Executive Officer of IXnet. The
terms and conditions of Servidio's employment agreement are substantially the
same as Walsh's employment agreement except for the following distinctions: (i)
Servidio will receive $190,000 in base salary, plus a commission-based bonus
with a minimum draw of $110,000 and benefits consistent with past practice; and
(ii) Servidio will receive options to purchase 0.1407% of the fully diluted
shares of the Surviving Corporation.
REGULATORY CONSIDERATIONS/APPROVALS
Under the HSR Act and the HSR Rules by the FTC, certain merger transactions
may not be consummated unless certain information has been furnished to the
Antitrust Division and the FTC and certain applicable waiting periods have
expired. The Merger is subject to the requirements of the HSR Act and the HSR
Rules.
Pursuant to the requirements of the HSR Act, AAC filed a Notification and
Report Form with respect to the Merger with the Antitrust Division and the FTC
on February __, 1998. The Company filed a Notification and Report Form with
respect to the Merger on February __, 1998. The waiting period applicable to the
Merger was terminated on _______, 1998.
At any time before or after the consummation of the Merger, the Antitrust
Division or the FTC could take such action under the antitrust laws as either
deems necessary or desirable in the public interest, including seeking to enjoin
the Merger or seeking divestiture of the Company by AAC following consummation
of the Merger. Private parties (including individual states) may also bring
legal actions under the antitrust laws. Neither AAC nor the Company believes
that the consummation of the Merger will result in a violation of any applicable
antitrust laws. However, there can be no assurance that a challenge to the
Merger on antitrust grounds will not be made, or if such a challenge is made,
what the result will be.
REPRESENTATIONS AND WARRANTIES
Each of IPC and AAC has made certain representations and warranties to each
other in the Merger Agreement as to, among other things, the authorization,
validity, binding effect and enforceability of the Merger Agreement, various
corporate matters, capital structure, compliance with laws, absence of material
adverse changes, financial statements, labor matters, employee benefit plans,
environmental matters, asset quality, loan portfolio and allowances for possible
loan losses, investment securities and borrowings, books and records, absence of
certain legal proceedings and regulatory actions and certain fees payable in
connection with the proposed transactions. Virtually all of the representations
and warranties of the parties, the accuracy of which is a condition to the
closing of the transactions contemplated by the Merger Agreement, contain
exceptions for any condition, event, change or occurrence that would not have a
material adverse effect on the financial condition or operations, business,
assets or results of operations of the party making such representation or
warranty, and its subsidiaries taken as a whole. The representations and
warranties of the parties do not survive beyond the Effective Time if the Merger
is consummated, and, if the Merger Agreement is terminated without consummation
of the Merger, there will be no liability on the part of any party for a
misrepresentation except that no party will be relieved from any liability
arising out of the willful breach by any other party of any covenant or willful
misrepresentation contained in the Merger Agreement.
<PAGE>
AMENDMENT AND WAIVER
Subject to applicable law, the Merger Agreement may be amended by IPC and
AAC at any time before or after approval by the stockholders of IPC of the
matters presented herein in connection with the Merger, except that, after any
such approval, no amendment may be made which contravenes the DGCL. Subject to
applicable law, the parties may extend the time for performance of the
obligations or other acts of the other party to the Merger Agreement, may waive
any inaccuracies in the representations and warranties contained in the Merger
Agreement or in any document delivered pursuant thereto and may waive compliance
with any agreements or conditions for their respective benefit contained in the
Merger Agreement.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time (notwithstanding any approval of the Merger
Agreement by the stockholders of the Company): (a) by mutual written consent of
the Company and AAC; (b) by either the Company or AAC, if the Merger has not
been consummated by April 30, 1998 by reason of the failure of any condition
precedent, provided that the party seeking to exercise such right is not then in
breach in any material respect of any of its obligations under the Merger
Agreement; (c) by either the Company or AAC, if AAC (in the case of termination
by the Company), or the Company (in the case of termination by AAC) shall have
breached in any material respect any of its obligations or representations and
warranties under the Merger Agreement and the breach has continued without cure
for a period of 15 days after notice of the breach of any such obligation,
representation and warranty of AAC (in the case of termination by the Company)
or the Company (in the case of termination by AAC); (d) by the Company, in the
event that any person has made a Superior Acquisition Proposal; (e) by AAC if
the IPC Board has withdrawn or modified or amended, in a manner adverse to AAC,
its approval or recommendation of the Merger Agreement and the Merger or its
recommendation that stockholders of the Company adopt and approve the Merger
Agreement and the Merger, or approved, recommended or endorsed any proposal for
a transaction other than the Merger (including a tender or exchange offer for
shares of IPC Common Stock) or if the Company has failed to call stockholder
meeting to vote on the Merger; (f) by the Company, if prior to the Effective
Time, the IPC Board has withdrawn or modified or amended, in a manner adverse to
AAC, its approval or recommendation of the Merger Agreement and the Merger or
its recommendation that stockholders of the Company adopt and approve the Merger
Agreement and the Merger or the IPC Board has approved or endorsed any proposal
recommended for a transaction other than the Merger provided that the Company is
in compliance with its obligations described under "-- No Solicitation;" and (g)
by either the Company or AAC if, at a duly held stockholders meeting of the
Company or any adjournment thereof at which the Merger Agreement and the Merger
is voted upon, the adoption and approval by a majority vote of the Company's
stockholders has not been obtained.
The party desiring to terminate the Merger Agreement must give written
notice of such termination to the other party in accordance with the terms
thereof. If the Merger Agreement is terminated, such Agreement will become void
and of no effect with no liability on the part of any party thereto, except as
provided therein.
TERMINATION FEE
In recognition of the efforts and expenses of and other opportunities
foregone by AAC while structuring the Merger, the Merger Agreement provides that
IPC shall, in certain circumstances, pay to AAC a termination fee of $3.37
million. The Termination Fee is payable upon the occurrence of any one of the
following: (i) the Merger Agreement is terminated by the Company or AAC, as the
case may be, pursuant to (d) above under "THE MERGER-Termination" or the IPC
Board has approved, recommended, or endorsed a Superior Acquisition Proposal; or
(ii) a Third Party has made an Acquisition Proposal, the Merger Agreement is
terminated because the IPC Board has withdrawn, modified, amended in a manner
adverse to AAC, its approval and recommendation of the Merger Agreement and the
Merger or its recommendation that the stockholders of the Company adopt and
approve the Merger Agreement and the Merger or the Company has failed to call a
<PAGE>
meeting of stockholders to vote on the Merger, and the Company consummates an
Acquisition Transaction within 12 months following termination of the Merger
Agreement.
In addition, the Merger Agreement provides, subject to various exceptions
and limitations, for reimbursement of certain expenses of AAC, not to exceed
$2.2 million in the aggregate, consisting of all reasonable out-of-pocket costs,
fees and expenses, including without limitation, the reasonable fees and
disbursements of banks, investment banks, accountants or legal counsel. These
costs, fees and expenses are payable, upon termination of the Merger Agreement
as a result of one of the events described in the previous paragraph, within 10
business days of receipt by the Company of reasonably satisfactory documentation
detailing such costs, fees and expenses.
CERTAIN FEES AND EXPENSES
All costs and expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby shall be paid by the party incurring such
expense.
As a result of the proposed Merger, the Company will incur various costs
currently estimated at $14.0 million (pre-tax) in connection with consummating
the transaction. These costs consist primarily of professional fees,
registration costs, printing costs and other expenses. While the exact timing,
nature and amount of these costs are subject to change the Company will also
incur a one-time charge of approximately $8.3 million ($4.7 million after tax)
in the quarter in which the Merger is consummated. This one time charge consists
of certain "change in control" bonuses and severance payments aggregating $2.5
million (pre-tax) and the payment, upon cancellation, of stock options
aggregating $5.8 million on a pre-tax basis. As a result of the foregoing, the
Company expects to record a significant net loss in the quarter in which the
Merger is recorded. Because this loss will result directly from the one-time
charge incurred in connection with the Merger, and this charge will be funded
entirely through the proceeds of the Merger Financing, the Company does not
expect this loss to materially impact its liquidity, ongoing operations or
market position.
FEDERAL INCOME TAX CONSEQUENCES
This discussion is a general summary of the material United States federal
income tax consequences of the Merger to stockholders of the Company and does
not purport to be a complete analysis or discussion of all potential tax
considerations or consequences relevant to a decision whether to vote for the
approval of the Merger, or whether to make an election to retain shares of
Surviving Corporation Common Stock or to receive cash with respect to a
stockholder's shares of IPC Common Stock or to make a split election. The tax
treatment described herein may vary depending upon each stockholder's particular
circumstances and tax position. Certain stockholders (including insurance
companies, tax-exempt organizations, retirement plans, financial institutions or
broker-dealers, foreign corporations, persons who are not citizens or residents
of the U.S., stockholders who do not hold their shares as capital assets,
stockholders who have acquired their existing stock upon the exercise of options
or otherwise as compensation and stockholders who hold their stock as part of a
"straddle," "hedge" or "conversion transaction") may be subject to special rules
not discussed below. No ruling from the Internal Revenue Service ("IRS") will
be applied for with respect to the federal income tax consequences discussed
herein and, accordingly, there can be no assurance that the IRS will agree with
the conclusions stated herein. The discussion below is based upon the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and
regulations, rulings and judicial decisions thereunder as of the date hereof,
and such authorities may be repealed, revoked or modified, possibly on a
retroactive basis, so as to result in U.S. federal income tax consequences
different from those discussed below. The discussion is also based on certain
customary assumptions and representations regarding the factual circumstances
that will exist at the Effective Time of the Merger. If any of these factual
assumptions or representations is inaccurate, the tax consequences of the Merger
could differ from those described herein. In addition, this discussion does not
consider the effect of any applicable foreign, state, local or other tax laws.
EACH STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY
<PAGE>
FOREIGN, STATE, LOCAL OR OTHER TAX LAWS, ANY RECENT CHANGES IN APPLICABLE TAX
LAWS AND ANY PROPOSED LEGISLATION.
Characterization of the Merger for U.S. Federal Income Tax Purposes
For U.S. federal income tax purposes, AAC will be disregarded as a
transitory entity, and a shareholder who chooses to receive cash in the Merger
with respect to such stockholder's shares of IPC Common Stock (the "Cash
Electing Shares") will be treated as if there were a sale of a portion of such
shares to CSH LLC and a purchase of a portion of such shares by the Company. It
is unclear how the allocation of proceeds between the two should be determined.
The Company intends to take the position that the percentage of a stockholder's
Cash Electing Shares that will be treated as if sold to CSH LLC will be a
percentage of such shares equal to (i) the amount contributed to AAC by CSH LLC
in exchange for AAC common stock or as a capital contribution divided by (ii)
the aggregate amount of cash paid to stockholders pursuant to the Merger. The
remainder of the stockholder's Cash Electing Shares will be treated as purchased
by the Company. The IRS, however, could, however, adopt a different approach in
determining the portion, if any, of a stockholder's Cash Electing Shares that is
treated as purchased by the Company. See "-- Stockholders Receiving Cash" below
for a discussion of the consequences of cash being deemed paid for the purchase
of Cash Electing Shares by the Company. Stockholders should note that, because
the number of shares of Surviving Corporation Common Stock retained may not
exceed the Maximum Stock Election Number, they will be subject to a pro rata
reduction in the number of shares of Surviving Corporation Common Stock they
elect to retain in the event that the Maximum Stock Election Number is exceeded.
See "-- Stockholders Receiving Cash," below for a discussion of the consequences
of receiving cash in the Merger.
Stockholders Receiving Cash
As described more fully below, the U.S. federal income tax consequences of
the Merger with respect to a particular stockholder will depend upon, among
other things, (i) whether the stockholder receives any cash pursuant to the
Merger (including cash paid to dissenting stockholders and cash paid in lieu of
fractional shares), (ii) the extent to which a stockholder is deemed to have
sold shares of IPC Common Stock to CSH LLC or is deemed to have had such shares
purchased by the Company and (iii) whether the deemed purchase of a
stockholder's shares by the Company qualifies as a sale or exchange under
Section 302 of the Code. First, to the extent that a stockholder is considered
to have sold shares to CSH LLC, such stockholder will recognize either capital
gain or loss (assuming the shares are held by such stockholder as a capital
asset) equal to the difference between the amount realized on the deemed sale of
shares to CSH LLC (i.e., the cash proceeds properly allocated to such deemed
sale) and the stockholder's adjusted tax basis in such shares. Second, a
stockholder also will recognize either capital gain or loss equal to the
difference between the cash proceeds allocable to the deemed purchase of such
shares by the Company and the stockholder's adjusted tax basis in such shares,
to the extent such deemed purchase by the Company is treated as a sale or
exchange under Section 302 of the Code with respect to such stockholder. In
either case, any such capital gain will qualify for the 20% maximum tax (10% in
the case of individual stockholders in the 15% ordinary income tax bracket) on
net capital gains if the shares were held for at least 18 months, and for the
28% maximum tax on net capital gains if the shares were held for more than one
year and less than 18 months. Under Section 302 of the Code, a deemed purchase
by the Company of shares pursuant to the Merger will, as a general rule, be
treated as a sale or exchange if such deemed purchase (a) is "substantially
disproportionate" with respect to the stockholder as defined in Section
302(b)(2) of the Code, (b) results in a complete termination of the
stockholder's interest in the Company as described in Section 302(b)(3) of the
Code or (c) is "not essentially equivalent to a dividend" with respect to the
stockholder within the meaning of Section 302(b)(1) of the Code.
In determining whether any of these Code Section 302 tests is satisfied,
stockholders must take into account not only the shares that they actually own,
but also any shares they are deemed to own under the constructive ownership
rules set forth in Section 318 of the Code. Pursuant to these constructive
ownership rules, a stockholder is deemed to constructively own any shares that
are owned by certain related individuals (including a spouse, children,
grandchildren and parents) or entities (including certain partnerships, estates,
<PAGE>
trusts and corporations) and any shares that the stockholder (or a related
person) has the right to acquire by exercise of an option or by conversion or
exchange of a security. In addition, if a stockholder lives in a community
property state, the community property laws of that state may have an effect on
the constructive ownership rules. Stockholders who live in a community property
state should consult their own advisors with respect to the impact of community
property laws on the constructive ownership rules.
The deemed purchase by the Company of a stockholder's shares will be
"substantially disproportionate" with respect to such stockholder if (i) the
percentage of shares actually or constructively owned by such stockholder
immediately following the Merger is less than 80% of the percentage of shares
actually or constructively owned by such stockholder immediately prior to the
Merger and (ii) the same stockholder, immediately after the Merger, actually or
constructively owns less than 50% of the total combined voting power of the
Company. Stockholders should consult their own tax advisors with respect to the
application of the "substantially disproportionate" test to their particular
facts and circumstances.
The deemed purchase by the Company of a stockholder's shares will result in
a complete termination of a stockholder's interest in the Company described in
Section 302(b)(3) of the Code if either (a) all the shares actually or
constructively owned by the stockholder are sold in the Merger or (b) all the
shares actually owned by the stockholder are sold in the Merger and the
stockholder is eligible to waive, and does effectively waive in accordance with
Section 302(c) of the Code, attribution of all shares which otherwise would be
considered to be constructively owned by such stockholder. Such waiver of
attribution applies only to shares that would be attributed to a stockholder
from members of such stockholder's family. Stockholders should consult their
own tax advisors with respect to the application of the "complete termination"
test to their particular facts and circumstances.
Even if, because of the constructive ownership rules, the deemed purchase
by the Company of a stockholder's shares fails to satisfy the "substantially
disproportionate" test and the complete termination test described above, the
deemed purchase by the Company of a stockholder's shares may nevertheless
satisfy the "not essentially equivalent to a dividend" test if the stockholder's
sale of shares in the Merger results in a "meaningful reduction" in such
stockholder's proportionate interest in the IPC Common Stock. Whether the
receipt of cash by a stockholder will be considered "not essentially equivalent
to a dividend" will depend upon such stockholder's facts and circumstances. In
certain circumstances, even a small reduction in a stockholder's proportionate
equity interest may satisfy this test. For example, the IRS has indicated in a
published ruling that a relatively small reduction in the proportionate equity
interest of a small (substantially less than 1%) stockholder in a publicly held
corporation who exercises no control over corporate affairs constitutes such a
"meaningful reduction." Stockholders should consult their own tax advisors as
to the application of this test in their particular situation.
A tendering stockholder may not be able to satisfy one of the above three
tests because of a contemporaneous election to retain some shares of Surviving
Corporation Common Stock owned by a related party whose shares would be
attributed to such stockholder under Section 318 of the Code, or because of
another acquisition of such shares by such stockholder or such a related party.
Stockholders should consult their own tax advisors regarding the tax
consequences of such acquisitions in their particular circumstances. Also, in
assessing whether a purchase by the Company of a stockholder's IPC Common Stock
satisfies the "substantially disproportionate" test or the "not essentially
equivalent to a dividend" test described above, stockholders should consider the
fact that the Merger will substantially reduce the number of outstanding shares
of Surviving Corporation Common Stock. As a result, if a related party whose
shares would be attributed to such stockholder under Section 318 of the Code
elects to retain a portion of his or her Surviving Corporation Common Stock, the
stockholder's percentage interest in the Surviving Corporation Common Stock may
not be sufficiently reduced.
If a stockholder cannot satisfy any of the three tests described above and
to the extent the Company has sufficient current and/or accumulated earnings and
profits, such stockholder will be treated as having received a dividend which
will be includable in gross income (and treated as ordinary income) in an amount
equal to the
<PAGE>
cash received in respect of the purchase by the Company of such stockholder's
shares, and the stockholder's basis in the shares of IPC Common Stock purchased
by the Company will not offset the amount of cash received, but instead, will be
reallocated to shares of Surviving Corporation Common Stock retained by such
stockholder or, although the matter is not free from doubt, if no shares are
actually owned, reallocated to those shares constructively owned, under certain
circumstances.
In the case of a corporate stockholder, if the cash paid is treated as a
dividend, such dividend income may be eligible for the dividends-received
deduction. The dividends-received deduction is subject to certain limitations,
and may not be available if the corporate stockholder does not satisfy certain
holding period requirements with respect to the shares or if the shares are
treated as "debt financed portfolio stock" within the meaning of Section 246A(c)
of the Code. Additionally, if a dividends-received deduction is available, the
dividend may be treated as an "extraordinary dividend" under Section 1059(a) of
the Code, in which case a corporate stockholder's adjusted tax basis in the
shares retained by such stockholder would be reduced, but not below zero, by the
amount of the nontaxed portion of such dividend and, if the nontaxed portion of
the dividend exceeds such basis, such excess will be treated as gain from the
sale or exchange of such shares. In addition, under the adjusted current
earnings rules of the alternative minimum tax provisions of the Code, and
depending upon a corporate holder's particular tax situation, up to 75% of any
dividends received deduction may be added back in the computation of alternative
minimum taxable income.
Stockholders Retaining Stock and Receiving No Cash
The Merger will have no U.S. federal income tax consequences for
stockholders who retain shares of Surviving Corporation Common Stock and receive
no cash. Accordingly, a stockholder will not recognize any gain or loss on any
shares retained by such stockholder.
Stockholders Retaining a Portion of Their Stock and Receiving Cash
To the extent that a stockholder elects to both retain a portion of his or
her shares and exchange a portion of his or her shares for cash or to the extent
a stockholder is prorated into receiving cash in exchange for some portion of
his or her shares, the tax treatment of the stockholder's receipt of such cash
will be the same as set forth above under "-- Stockholders Receiving Cash." In
general, such a stockholder will not recognize any gain or loss as a result of
the Merger to the extent the stockholder retains shares of Surviving Corporation
Common Stock. However, as described more fully above under "-- Stockholders
Receiving Cash," a stockholder's retention of shares may, under certain
circumstances, cause the cash received by such stockholder pursuant to the
Merger to be treated as a dividend for U.S. federal income tax purposes.
Foreign Stockholders--Withholding
The following is a general discussion of certain U.S. federal income tax
consequences of the Merger to foreign stockholders. For this purpose, a foreign
stockholder is any person who is, for U.S. federal income tax purposes, a
foreign corporation, a non-resident alien individual, a foreign partnership or a
foreign estate or trust.
In the case of any foreign stockholder, the Exchange Agent will withhold
30% of the amount treated as paid by the Company to purchase the shares of such
stockholder in order to satisfy certain U.S. withholding requirements, unless
such foreign stockholder proves in a manner satisfactory to the Company and the
Exchange Agent that either (i) the deemed purchase by the Company of his or her
shares pursuant to the Merger will qualify as a sale or exchange under Section
302 of the Code, rather than as a dividend for U.S. federal income tax purposes,
in which case no withholding will be required, (ii) the foreign stockholder is
eligible for a reduced tax treaty rate with respect to dividend income, in which
case the Exchange Agent will withhold at the reduced treaty rate or (iii) no
U.S. withholding is otherwise required. Foreign stockholders should consult
their own tax advisors regarding the application of these withholding rules.
<PAGE>
Information Reporting and Backup Withholding
The Company must report annually to the IRS and to each stockholder the
amount of dividends paid to such stockholder and the backup withholding tax, if
any, withheld with respect to such dividends. Copies of these information
returns also may be made available to the tax authorities in the country in
which a foreign stockholder resides under the provisions of an applicable income
tax treaty.
Backup withholding (which generally is a withholding tax imposed at the
rate of 31% on certain payments to persons that fail to furnish certain
information under the United States information reporting requirements)
generally will not apply to dividends paid to a foreign stockholder at an
address outside the United States (unless the payer has knowledge that the payee
is a U.S. person).
Payment of the proceeds of a sale of shares by or through a U.S. office of
a broker is subject to both backup withholding and information reporting unless
the beneficial owner certifies under penalties of perjury that it is a foreign
stockholder, and the payer does not have actual knowledge that such owner is a
U.S. person, or otherwise establishes an exemption. In general, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of shares by or through a foreign office of a broker. If,
however, such broker is, for United States federal income tax purposes, a U.S.
person, a controlled foreign corporation, or a foreign person that derives 50%
or more of his or her gross income for certain periods from the conduct of a
trade or business in the U.S. such payments will be subject to information
reporting, but not backup withholding, unless (1) such broker has documentary
evidence in its records that the beneficial owner is a foreign holder and
certain other conditions are met, or (2) the beneficial owner otherwise
establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against the holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
United States Treasury Regulations, issued on October 6, 1997 (the
"Regulations") and generally effective with respect to dividends paid after
December 31, 1998, alter the foregoing rules in certain respects. Among other
things, the Regulations provide certain presumptions under which a foreign
stockholder could be subject to backup withholding and information reporting
unless the holder properly documents its foreign status to the Company through a
completed Form W-8.
THOUGH THE FOREGOING ARE THE MATERIAL U.S. FEDERAL INCOME TAX
CONSIDERATIONS GENERALLY APPLICABLE TO THE MERGER, THE DISCUSSION DOES NOT
ADDRESS EVERY FEDERAL INCOME TAX CONCERN WHICH MAY BE APPLICABLE TO A PARTICULAR
STOCKHOLDER. EACH STOCKHOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX
ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO SUCH STOCKHOLDER, IN THE LIGHT OF
HIS OR HER PARTICULAR CIRCUMSTANCES, OF THE DISPOSITION OF SHARES PURSUANT TO
THE MERGER.
ACCOUNTING TREATMENT
It is expected that the Merger will be accounted for as a leveraged
recapitalization. Accordingly, the historical basis of the Company's assets and
liabilities should not be affected by the Merger.
RESALE OF SURVIVING CORPORATION COMMON STOCK FOLLOWING THE MERGER
Surviving Corporation Common Stock to be retained in connection with the
Merger will be freely transferable, except that shares of Surviving Corporation
Common Stock retained by any stockholder who may be deemed to be an "affiliate"
(as defined under the Securities Act and generally including, without
limitation, directors, certain executive officers and beneficial owners of 10%
or more of a class of capital stock) of the Company for purposes of Rule 145
under the Securities Act will not be transferable except in compliance with
<PAGE>
the Securities Act. This Proxy Statement/Prospectus does not cover sales of
Surviving Corporation Common Stock retained by any person who may be deemed to
be an affiliate of the Company.
MERGER FINANCING
The Company is expected to enter into debt financing arrangements
aggregating approximately $232 million, which will consist of both the Notes and
the Revolving Credit Facility. It is anticipated that the full proceeds of the
Notes and a portion of the proceeds available pursuant to the Revolving Credit
Facility will be used to finance the conversion into cash of the shares of IPC
Common Stock currently outstanding which are not retained as Surviving
Corporation Common Stock by existing stockholders, and to pay related costs,
fees and expenses incurred in connection with the Merger. It is also anticipated
that a portion of the proceeds available pursuant to the Revolving Credit
Facility will be used to refinance the Company's outstanding indebtedness and to
meet the Company's working capital requirements at the time of the Merger. It is
also expected that a three year deferred interest component of the Notes will,
together with cash flow from the Company's operations, be used to satisfy
capital requirements of IXnet. On December 17, 1997, CVC and AAC received
commitment letters to provide such financing. With respect to the Notes, MSCI
committed to use its best efforts to complete a public offering or a private
placement of the Notes, or, in the event such public offering or private
placement is not completed within the offered period described therein, to
purchase the Notes. On January 12, 1998 CVC and AAC received an amended and
restated commitment letter from MSCI and Goldman, which superseded the
commitment letter referred to in the second preceding sentence and which added
Goldman as a co-manager. The commitments are subject to customary conditions,
including the negotiation, execution and delivery of definitive documentation
with respect to the financings contemplated by the commitments.
Under the Revolving Credit Facility, MSSF will provide the Surviving
Corporation with $75.0 million of revolving credit borrowings. The Revolving
Credit Facility will include a $_____ million sublimit for the issuance of
letters of credit. Borrowings made under the Revolving Credit Facility will bear
interest at a rate equal to, at the Surviving Corporation's option, the
administrative agent's Base Rate plus 150 basis points or the LIBOR Rate plus
250 basis points. The "Base Rate" is a fluctuating interest rate equal to the
higher of (i) the rate of interest announced publicly by the administrative
agent as its prime rate and (ii) a rate equal to 1/2 of 1% per annum above the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as
determined for any day by the administrative agent. The Base Rate and LIBOR Rate
will be subject to step-downs based on the leverage ratio of the Surviving
Corporation and its subsidiaries on a consolidated basis.
The Revolving Credit Facility expires five (5) years from the Effective
Time. The obligations of the Surviving Corporation under the Revolving Credit
Facility are secured by substantially all of the real and personal property of
the Surviving Corporation and its subsidiaries including its inventory, accounts
receivable and the proceeds of the foregoing.
The Revolving Credit Facility contains customary covenants of the Surviving
Corporation and its subsidiaries, including, without limitation, restrictions on
(i) asset dispositions, (ii) mergers or acquisitions, (iii) capital
expenditures, (iv) restricted payments, including prohibitions on the payment of
dividends to, or the repurchase or redemption of stock from, stockholders, (v)
the incurrence of indebtedness, (vi) loans and investments, (vii) liens, (viii)
transactions with affiliates (as defined in the Revolving Credit Facility) and
(ix) various other covenants. Pursuant to the terms of the Revolving Credit
Facility, the Surviving Corporation would be in default under the Revolving
Credit Facility upon the non-payment of principal or interest when due under the
notes issued in connection with the Revolving Credit Facility or, subject to
applicable grace periods in certain circumstances, upon the non-fulfillment of
the covenants described above, certain changes in control of the ownership of
the Surviving Corporation or various other defaults described in the Revolving
Credit Facility. If such a default occurs, the banks will be entitled to take
all actions permitted to be taken by a secured creditor under the Uniform
Commercial Code and to accelerate the amounts due under the Revolving Credit
Facility and may require all such amounts to be immediately paid in full.
<PAGE>
The Company plans to issue $157 million original principal amount of Notes.
The Notes will have a maturity of ten years from the date of issue. Interest
shall be payable semi-annually except that interest shall be payable in
additional Notes, rather than cash, for three years after their issuance. The
Notes will be general unsecured obligations of the Surviving Corporation,
ranking senior to all existing and future subordinated indebtedness of the
Surviving Corporation and pari passu in right of payment with most other
existing and future unsubordinated indebtedness of the Surviving Corporation,
including the Revolving Credit Facility. The payment of principal, premium, if
any, and interest on the Notes will be unconditionally guaranteed on a joint and
several basis by each of the Surviving Corporation's domestic subsidiaries.
On or after five years from the date of issue, the Surviving Corporation
may redeem the Notes in whole or in part pursuant to the terms thereof.
Notwithstanding the foregoing, at any time on or before three years from the
date of issue, the Surviving Corporation may redeem up to 35% of the original
aggregate principal amount of Notes at a redemption price of ____% of the
principal amount thereof, provided that at least $_______ million of Notes
remain outstanding immediately after the occurrence of such redemption. Upon a
Change of Control (as defined in the Indenture pursuant to which the Notes will
be issued (the "Indenture")), the Surviving Corporation will be required to make
an offer to purchase all outstanding Notes at 101% of the accrued value thereof.
In addition, a Change of Control would also require the Surviving Corporation to
repay outstanding indebtedness under the Revolving Credit Facility. There can
be no assurance that in the event of a Change of Control the Company will have,
or will have access to, sufficient funds to repurchase the Notes and to repay
indebtedness under the Revolving Credit Facility.
In addition, the Indenture will restrict, among other things, the ability
of the Company and its subsidiaries to incur additional indebtedness, pay
dividends or make certain other restricted payments, incur liens, engage in any
sale and leaseback transactions, sell stock of subsidiaries, apply net proceeds
from certain assets sales, merge or consolidate with any other person, sell,
assign, transfer, lease, convey or otherwise dispose of substantially all of the
assets of the Company, enter into certain transactions with affiliates, or incur
indebtedness that is subordinate in right of payment to any indebtedness and
senior in right of payment to the Notes.
CSH LLC, directly or indirectly, expects to make an equity contribution to
AAC of no less than $43.2 million, or more than $72 million depending on the
amount of Surviving Corporation Common Stock that existing shareholders of the
Company elect to retain in the Merger.
CONVERSION OF AAC STOCK
As a result of the Merger, in connection with an equity contribution of not
less than $43.2 million nor more than $72 million, AAC and CSH LLC will receive
not less than 54% nor more than 90% of the number of shares of Surviving
Corporation Common Stock expected to be outstanding upon the Merger.
DISSENTERS' RIGHTS
Holders of shares of IPC Common Stock are entitled to appraisal rights
under Section 262 ("Section 262") of DGCL, provided that they comply with the
conditions established by Section 262. Section 262 is included in its entirety
as Annex F to this Proxy Statement/Prospectus. The following discussion does not
purport to be a complete statement of the law relating to appraisal rights and
is qualified in its entirety by reference to Annex F. This discussion and Annex
F should be reviewed carefully by any holder who wishes to exercise statutory
appraisal rights or who wishes to preserve the right to do so, as failure to
comply with the procedures set forth herein or therein may result in the loss of
appraisal rights. Stockholders of record who desire to exercise their appraisal
rights must: (i) hold shares of IPC Common Stock on the date of making a demand
for appraisal; (ii) continuously hold such shares through the Effective Time;
(iii) deliver a properly executed written demand for appraisal to the Company
prior to the vote by the stockholders of the Company on the Merger; (iv) not
vote in favor of the Merger or consent thereto in writing; (v) file any
necessary petition in
<PAGE>
the Delaware Court, as more fully described below, within 120 days after the
Effective Time; and (vi) otherwise satisfy all of the conditions described more
fully below and in Annex F.
A record holder of shares of IPC Common Stock who makes the demand
described below with respect to such shares, who continuously is the record
holder of such shares through the Effective Time, who otherwise complies with
the statutory requirements of Section 262 and who neither votes in favor of the
Merger nor consents thereto in writing will be entitled, if the Merger is
consummated, to receive payment of the fair value of his shares of IPC Common
Stock as appraised by the Delaware Court. All references in Section 262 and in
this summary of appraisal rights to a "stockholder" or "holders of shares of
common stock" are to the record holder or holders of shares of IPC Common Stock.
Under Section 262, not less than 20 days prior to the Annual Meeting, the
Company is required to notify each stockholder eligible for appraisal rights of
the availability of such appraisal rights. This Proxy Statement/Prospectus
constitutes notice to holders of IPC Common Stock that appraisal rights are
available to them. Stockholders of record who desire to exercise their appraisal
rights must satisfy all of the conditions set forth herein. A written demand for
appraisal of any shares of IPC Common Stock must be filed with the Company
before the taking of the vote on the Merger. Such written demand must reasonably
inform the Company of the identity of the stockholder of record and of such
stockholder's intention to demand appraisal of the IPC Common Stock held by such
stockholder. This written demand for appraisal of shares must be in addition to
and separate from any proxy or vote abstaining from or voting against the
Merger. Voting against, abstaining from voting on, failing to return a proxy
with respect to, or failing to vote on the Merger will not, in and of itself,
constitute a demand for appraisal within Section 262.
Stockholders who desire to exercise appraisal rights must not vote in favor
of the Merger or consent thereto in writing. Voting in favor of the Merger or
delivering a proxy in connection with the Annual Meeting (unless the proxy votes
against, or expressly abstains from the vote on, the approval of the Merger),
will constitute a waiver of the stockholder's right of appraisal and will
nullify any written demand for appraisal submitted by the stockholder.
A demand for appraisal must be executed by or on behalf of the stockholder
of record, fully and correctly, as such stockholder's name appears on the
certificate or certificates representing the shares of IPC Common Stock. A
person having a beneficial interest in shares of IPC Common Stock that are held
of record in the name of another person, such as a broker, fiduciary or other
nominee, must act promptly to cause the record holder to follow the steps
summarized herein properly and in a timely manner to perfect any appraisal
rights. If the shares of IPC Common Stock are owned of record by a person other
than the beneficial owner, including a broker, fiduciary (such as a trustee,
guardian or custodian) or other nominee, such demand must be executed by or for
the record owner. If the shares of IPC Common Stock are owned of record by more
than one person, as in a joint tenancy or tenancy in common, such demand must be
executed by or for all such joint owners. An authorized agent, including an
agent for two or more joint owners, may execute the demand for appraisal for a
stockholder of record; however, the agent must identify the record owner and
expressly disclose the fact that, in exercising the demand, such person is
acting as agent for the record owner. A record owner, such as a broker,
fiduciary or other nominee, who holds shares of IPC Common Stock as a nominee
for others, may exercise appraisal rights with respect to the shares held for
all or less than all beneficial owners of shares as to which such person is the
record owner. In such case, the written demand must set forth the number of
shares covered by such demand. Where the number of shares is not expressly
stated, the demand will be presumed to cover all shares of IPC Common Stock
outstanding in the name of such record owner. A stockholder who elects to
exercise appraisal rights should mail or deliver his or her written demand to:
IPC Information Systems, Inc., Wall Street Plaza, 88 Pine Street, New York, New
York 10005; Attention: Corporate Secretary. The written demand for appraisal
should specify the stockholder's name and mailing address, the number of shares
of IPC Common Stock owned, and that the stockholder is thereby demanding
appraisal of his or her shares. A proxy or vote against the Merger will not
constitute such a demand.
<PAGE>
Within ten days after the Effective Time, the Surviving Corporation must
provide notice of the Effective Time to all stockholders who have complied with
Section 262. Within 120 days after the Effective Time, either the Surviving
Corporation or any stockholder who has complied with the required conditions of
Section 262 may file a petition in the Delaware Court, with a copy served on the
Surviving Corporation in the case of a petition filed by a stockholder,
demanding a determination of the fair value of the shares of all dissenting
stockholders. The Surviving Corporation does not currently intend to file an
appraisal petition. Stockholders seeking to exercise appraisal rights should not
assume that the Surviving Corporation will file such a petition or that the
Surviving Corporation will initiate any negotiations with respect to the fair
value of such shares. Accordingly, stockholders who desire to have their shares
appraised should initiate any petitions necessary for the perfection of their
appraisal rights within the time periods and in the manner prescribed in Section
262. Within 120 days after the Effective Time, any stockholder who has
theretofore complied with the applicable provisions of Section 262 will be
entitled, upon written request, to receive from the Surviving Corporation a
statement setting forth the aggregate number of shares of IPC Common Stock not
voted in favor of the Merger and with respect to which demands for appraisal
were received by the Company and the number of holders of such shares. Such
statement must be mailed within 10 days after the written request therefor has
been received by the Surviving Corporation (addressed as specified for written
demands in the preceding paragraph) or within 10 days after expiration of the
time for delivery of demands for appraisal under Section 262, whichever is
later.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine which stockholders are entitled to
appraisal rights and will appraise the shares of IPC Common Stock owned by such
stockholders, determining the fair value of such shares exclusive of any element
of value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, if any, to be paid upon the amount determined to
be the fair value. In determining fair value, the Delaware Court will take into
account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme
-----------------------
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered, and that, "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that in making this determination
of fair value the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts which are
known or which can be ascertained as of the date of the merger and which throw
any light on future prospects of the merged corporation. In Weinberger, the
----------
Delaware Supreme Court stated that "elements of future value, including the
nature of the enterprise, which are known or susceptible of proof as of the date
of the merger and not the product of speculation, may be considered." Section
262, however, provides that fair value is to be "exclusive of any element of
value arising from the accomplishment or expectation of the merger."
Stockholders considering seeking appraisal should recognize that the fair
value of their shares as determined under Section 262 could be more than, the
same as or less than the Merger Consideration to be received if they do not seek
appraisal of their shares. The cost of the appraisal proceeding may be
determined by the Delaware Court and taxed against the parties as the Delaware
Court deems equitable in the circumstances. Upon application of a dissenting
stockholder of the Company, the Delaware Court may order that all or a portion
of the expenses incurred by any dissenting stockholder in connection with the
appraisal proceeding, including without limitation, reasonable attorneys' fees
and the fees and expenses of experts, be charged pro rata against the value of
all shares of stock entitled to appraisal.
Any holder of shares of IPC Common Stock who has duly demanded appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote for any purpose any shares subject to such demand or to receive payment of
dividends or other distributions on such shares, except for dividends or
distributions payable to stockholders of record at a date prior to the Effective
Time.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
<PAGE>
Certain members of IPC's management and the IPC Board may be deemed to have
interests in the Merger in addition to their interests, if any, as holders of
IPC Common Stock. The IPC Board was aware of these factors and considered them,
among other matters, in approving the Merger Agreement and the transactions
contemplated thereby. See " -- Ancillary Agreements."
Indemnification and Insurance. Pursuant to the Merger Agreement, the
Company has agreed to indemnify all present directors and officers of the
Company for six years after the Effective Time and, subject to certain
limitations, to maintain for six years a directors' and officers' insurance and
indemnification policy containing terms and conditions which are not less
advantageous to the directors and officers than any such policy which may be in
effect prior to the Effective Time.
Employment Agreements, Severance Arrangements and Bonuses. Certain officers
of the Company have severance agreements with the Company that could provide
them with incentive compensation if the Merger is consummated and with certain
termination benefits in the event their employment is terminated after
consummation of, or in connection with, the Merger. See "IPC ANNUAL MEETING --
OTHER MATTERS -- Employment Agreements." Certain officers of the Company and
IXnet have entered into amended and restated employment agreements with the
Surviving Corporation that will become effective as of the Effective Time. See "
- -- Ancillary Agreements -- Employment Agreements."
At the Effective Time, all Options will be canceled and the holders thereof
will receive the Option Cash Proceeds in lieu of the Merger Consideration. As of
the Record Date, approximately__________ Options were outstanding. The Company
estimates that the aggregate amount of the Option Cash Proceeds, assuming all
Options are canceled, will be approximately $__________. Also, at the Effective
Time, the Surviving Corporation expects to establish the New Stock Incentive
Plan under which up to approximately ___________ shares of Surviving Corporation
Common Stock will be reserved for issuance upon exercise of options which may be
granted to certain employees, directors and consultants. The Surviving
Corporation has committed to grant 230,910 options pursuant to the New Stock
Incentive Plan to four senior employees of the Company or a subsidiary thereof.
See "PROPOSAL 3 -- NEW STOCK INCENTIVE PLAN."
Stock Ownership. As of the Record Date, directors and executive officers
of IPC and certain of their affiliates, other than the Kleinknecht Stockholders
(see below), owned an aggregate of [87,329] shares of IPC Common Stock for which
they will receive the Merger Consideration.
Stockholders Agreement. As of the Record Date, the Kleinknecht
Stockholders owned, beneficially and/or of record, an aggregate of 6,906,554
shares of IPC Common Stock constituting approximately 64% of the outstanding
shares of IPC Common Stock entitled to vote at the Annual Meeting. Pursuant to
the Stockholders Agreement, the Kleinknecht Stockholders, in their capacity as
such, have agreed, among other things, to vote their shares in favor of the
Merger and the adoption of the Merger Agreement.
EFFECT ON IPC EMPLOYEE BENEFIT PLANS
1994 Stock Option and Incentive Plan. Pursuant to the Merger Agreement,
IPC has agreed that it will not grant any additional options or rights or
benefits under the 1994 Stock Option and Incentive Plan. In addition, at the
Effective Time all outstanding options will be canceled and exchanged for the
Option Cash Proceeds. See "-- Interests of Certain Persons in the Merger --
Employment Agreements, Severance Arrangements and Bonuses."
1994 Employee Stock Purchase Plan. Pursuant to the Merger Agreement, IPC
has agreed that it will not grant any stock purchase rights under the 1994
Employee Stock Purchase Plan following the conclusion of the calendar year 1997
offering period.
Advance Notice of Benefit Plan Changes. Pursuant to the Merger Agreement,
it has been agreed that, for a period of one year after the Effective Time, none
of IPC's employee pension or welfare benefit plans will
<PAGE>
be changed in any way that would terminate or substantially reduce any benefits
provided thereunder, or materially increase the cost of participation by any
employee, without at least sixty days advance notice to the affected employees.
PROPOSAL 2 -- CERTIFICATE AMENDMENT
In connection with the Merger, the IPC Board has approved and adopted,
subject to stockholder approval, the Certificate Amendment which is included in
this Proxy Statement/Prospectus as Annex B. Adoption of the Certificate
Amendment requires an affirmative vote of the holders of at least 80% of the
aggregate outstanding shares of IPC Common Stock on the Record Date. A failure
to return a properly executed proxy card or to vote in person or abstaining from
voting will have the same effect as a vote against the Certificate Amendment.
Broker non-votes will not be counted as having been voted in person or by proxy
at the Annual Meeting and will have the same effect as a vote against the
Certificate Amendment. Consummation of the Merger is not contingent on adoption
---
of the Certificate Amendment.
The following is a summary of the material differences between the Restated
Certificate of Incorporation of IPC (the "Existing Certificate of
Incorporation") and the Certificate Amendment. The following discussion does
not purport to be a complete discussion of, and is qualified in its entirety by
reference to DGCL, the Existing Certificate of Incorporation and the Certificate
Amendment.
CLASSIFICATION OF THE BOARD
The Existing Certificate of Incorporation provides that the directors of
the Company shall be divided into three classes with respect to the term of
office, each class to contain, as near as may be possible, one-third of the
whole number of the IPC Board with the terms of office of one class expiring
each successive year. At each annual meeting of stockholders, the successors to
the class of directors whose term expires at that time shall be elected by the
stockholders to serve until the annual meeting of stockholders held three years
next following and until their successors shall be elected and qualified. Any
amendment to this provision requires an affirmative vote of the stockholders of
not less than eighty (80%) percent of the total number of votes eligible to be
cast by the holders of all outstanding shares of capital stock.
The Certificate Amendment does not provide for separate classes of
directors with respect to the term of office.
LIMITATIONS OF DIRECTOR LIABILITY
Under the Existing Certificate of Incorporation, directors are not
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duties as a director except to the extent such exemption of
liability or limitation thereof is expressly prohibited by the DGCL. Any
amendment to this provision requires an affirmative vote of the stockholders of
not less than seventy (70%) percent of the total number of votes eligible to be
cast by the holders of all outstanding shares of capital stock.
The Certificate Amendment contains a substantially similar provision.
However, any amendment to this provision in the Certificate Amendment requires
only the affirmative vote of a majority of the total number of votes eligible to
be cast.
VACANCIES
The Existing Certificate of Incorporation provides that, subject to the
limitations prescribed by law, all vacancies in the office of director,
including vacancies created by newly created directorships resulting from an
increase in the authorized number of directors, may be filled only by a vote of
the directors then holding office, even if less than a quorum, or a sole
remaining director. The Existing Certificate of Incorporation further provides
that any director so elected shall serve the remainder of the full term of the
class of directors in which
<PAGE>
the new directorship was created or the vacancy occurred and until such
director's successor is duly elected and shall qualify or until such director's
resignation or removal. Any amendment to this provision requires an affirmative
vote of the stockholders of not less than eighty (80%) percent of the total
number of votes eligible to be cast by the holders of all outstanding shares of
capital stock.
There is no analogous provision regarding vacancies in the office of
director in the Certificate Amendment, therefore all vacancies in the office of
director shall be filled pursuant to the governing provisions of the bylaws.
The provision in the Amended and Restated Bylaws of the Surviving Corporation
with respect to directors is substantially similar to the provision in the
Existing Certificate of Incorporation.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under the Existing Certificate of Incorporation, any amendment to the
Certificate of Incorporation must be approved by the majority of directors of
the Company then in office and by the affirmative vote of the holders of a
majority (or such greater proportion as may be required pursuant to any specific
provision of the Certificate of Incorporation) of the total votes eligible to be
cast of the holders of all outstanding shares of capital stock entitled to vote
thereon.
The Certificate Amendment does not contain an analogous provision.
However, pursuant to DGCL, the method for amending a certificate of
incorporation is substantially similar. The Certificate Amendment may therefore
be amended by the affirmative vote of a majority of the outstanding stock
entitled to vote thereon, after a resolution proposing such amendment has been
adopted by the IPC Board. There is no provision in the Certificate Amendment
that requires amendment by the affirmative vote of more than a majority of votes
entitled to be cast.
AMENDMENTS TO BYLAWS
The Existing Certificate of Incorporation grants the IPC Board, acting by
majority vote, the power to alter, amend or repeal the bylaws of the Company,
provided that any Bylaw may be altered, amended, rescinded or repealed by the
holders of a majority of the shares of capital stock entitled to vote thereon at
any annual or special meeting called for that purpose.
The Certificate Amendment also provides that directors, acting by majority
vote, may amend the bylaws of the Company. While the Certificate Amendment does
not provide for amendment of the bylaws by the stockholders, the stockholders
have such power pursuant to the Surviving Corporation bylaws and DGCL.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE CERTIFICATE AMENDMENT
PROPOSAL 3 -- NEW STOCK INCENTIVE PLAN
GENERAL PLAN INFORMATION
The Company has adopted, subject to approval by shareholders of the
Company, a New Stock Incentive Plan. The New Stock Incentive Plan provides for
the grant of options to purchase Common Stock of the Surviving Corporation
("Surviving Corporation Options") to selected officers, employees, consultants
and directors of the Surviving Corporation and its subsidiaries. The New Stock
Incentive Plan is not subject to ERISA and is not a tax qualified plan under the
Code. The principal provisions of the New Stock Incentive Plan are summarized
below. The full text of the New Stock Incentive Plan is included as Annex C to
this Proxy Statement/Prospectus, to which reference is made, and the summary
provided below is qualified in its entirety by such reference.
VOTE REQUIRED
<PAGE>
The New Stock Incentive Plan shall be effective immediately after the
closing of the transactions contemplated by the Merger Agreement, subject to
approval by the Company's stockholders before, or the Surviving Corporation's
stockholders after, such effective date. Approval of the New Stock Incentive
Plan requires the affirmative vote of a majority of shares present in person or
by proxy and entitled to vote at the meeting when the vote is taken.
Abstentions will be counted as present and entitled to vote and will have the
effect of a vote against the New Stock Incentive Plan. In contrast, shares
underlying broker non-votes will not be counted as present and entitled to vote
and will have no effect on the vote on the New Stock Incentive Plan. In the
event that the Merger is approved but stockholder approval is not obtained at
the Annual Meeting for the New Stock Incentive Plan, the New Stock Incentive
Plan will be resubmitted at a later date when CSH LLC will control a sufficient
number of votes to assure approval. If the Merger is not approved by the
stockholders, the New Stock Incentive Plan shall not become effective. The
effective date of the New Stock Incentive Plan shall be referred to as the "New
Stock Incentive Plan Effective Date."
PURPOSE OF THE NEW STOCK INCENTIVE PLAN
The purpose of the New Stock Incentive Plan is to cause persons who are in
a position to contribute to the long-term success of the Surviving Corporation
and its subsidiaries to increase their interest in the welfare of the Surviving
Corporation and its subsidiaries and to aid in attracting and retaining
employees and consultants of outstanding ability.
DESCRIPTION OF THE NEW STOCK INCENTIVE PLAN
Administration. The members of the Compensation Committee of the Surviving
Corporation Board ("Surviving Corporation Compensation Committee") will
administer the New Stock Incentive Plan and determine, within the limitations of
the New Stock Incentive Plan, the officers, consultants and employees to whom
Surviving Corporation Options will be granted ("Grantees"), the number of shares
subject to each Surviving Corporation Option (subject to the limitation that
during any calendar year, no individual may be granted Options with respect to
more than 250,000 shares of Surviving Corporation Common Stock), the terms of
such Surviving Corporation Options (including provisions regarding
exercisability and acceleration of exercisability) and the procedures by which
the Surviving Corporation Options may be exercised, the restrictions or
conditions related to the delivery, holding and disposition of shares of
Surviving Corporation Common Stock received upon the exercise of a Surviving
Corporation Option, whether, to what extent and under what circumstances the
exercise price of a Surviving Corporation Option may be paid in cash, Surviving
Corporation Common Stock or other property, or a Surviving Corporation Option
may expire or be canceled, forfeited, or surrendered and the form of each
agreement granting the Surviving Corporation Options (which need not be
identical for each Grantee). Subject to certain specific limitations and
restrictions set forth in the New Stock Incentive Plan, the Surviving
Corporation Compensation Committee has full and final authority to interpret the
New Stock Incentive Plan, to prescribe, amend and rescind rules and regulations,
if any, relating to the New Stock Incentive Plan and to make all determinations
necessary or advisable for the administration of the New Stock Incentive Plan.
The costs and expenses of administering the New Stock Incentive Plan will be
borne by the Surviving Corporation.
Stock Subject to the New Stock Incentive Plan. Subject to adjustment upon
changes in capitalization, the Surviving Corporation Common Stock which may be
issued pursuant to Surviving Corporation Options granted under the New Stock
Incentive Plan shall not exceed [______] shares in the aggregate ("Option
Shares"). Such Option Shares may be authorized and unissued shares or shares
previously issued and reacquired by the Surviving Corporation. Any Option
Shares subject to grants under the New Stock Incentive Plan which expire or are
terminated, forfeited or canceled without having been exercised or vested in
full, shall again be available for purposes of the New Stock Incentive Plan. As
of ________________, the aggregate fair market value of the Option Shares
reserved for issuance was ________________ based on the closing sales price per
share of IPC Common Stock of ________________on the Record Date.
<PAGE>
Eligibility. Any employee, director or consultant of the Surviving
Corporation or its subsidiaries who is selected by the Surviving Corporation
Compensation Committee is eligible to participate in the New Stock Incentive
Plan. As of ____________there were __________ eligible individuals.
Terms and Conditions of Options Granted. The New Stock Incentive Plan
provides for the grant of Surviving Corporation Options which are not intended
to qualify as incentive stock options pursuant to Section 422 of the Code.
Unless otherwise designated by the Surviving Corporation Compensation Committee,
Surviving Corporation Options will be exercisable at a price per share equal to
the fair market value of a share of Surviving Corporation Common Stock on the
date of the Option grant. Unless otherwise designated by the Surviving
Corporation Compensation Committee, Surviving Corporation Options will be
exercisable for a period of ten (10) years after the date of grant or for a
shorter period ending (i) 90 days after the Grantee's termination of employment
for reasons other than death or disability or discharge for cause, (ii) 180 days
after termination of employment due to death or disability or (iii) immediately
upon termination for cause, or (iv) upon the consummation of any transaction
whereby the Surviving Corporation (or any successor to the Surviving Corporation
or substantially all of its business) becomes a wholly-owned subsidiary of any
other corporation unless such other corporation shall continue or assume the New
Stock Incentive Plan as it relates to Surviving Corporation Options then
outstanding.
Unless otherwise designated by the Surviving Corporation Compensation
Committee, each Surviving Corporation Option shall vest and become exercisable
in five (5) equal installments on each of the first five (5) anniversaries of
the date the Surviving Corporation Option is granted; provided, however, the
Surviving Corporation Option shall be vested and exercisable as to no less than
seventy-five (75%) percent of the shares of Surviving Corporation Common Stock
subject thereto as of the end of any period of thirty consecutive trading days
during which the fair market value thereof averages at least 300% of the fair
market value on the date the Surviving Corporation Option is granted, and shall
be vested and exercisable as to 100% of the shares of Surviving Corporation
Common Stock subject thereto as of the end of any period of thirty consecutive
trading days during which the fair market value thereof averages at least 450%
of the fair market value on the date the Surviving Corporation Option is
granted; and provided further that each Surviving Corporation Option shall
become vested and exercisable in full immediately prior to a "change in control"
as described in the New Stock Incentive Plan.
A holder of a Surviving Corporation Option shall exercise a Surviving
Corporation Option by delivery of written notice to the Surviving Corporation
setting forth the number of shares with respect to which the Surviving
Corporation Option is to be exercised, together with cash or a certified check,
bank draft, wire transfer, or postal or express money order payable to the order
of the Surviving Corporation for an amount equal to the exercise price of such
Surviving Corporation Option and any income tax required to be withheld. The
Surviving Corporation Compensation Committee, in its sole discretion, may permit
the holder of a Surviving Corporation Option to pay all or a portion of the
exercise price or tax withholding obligation by delivery of Surviving
Corporation Common Stock or other property (including notes or other contractual
obligations of the grantee to make payment on a deferred basis, such as through
"cashless exercise" arrangements, to the extent permitted by applicable law),
and the methods by which Surviving Corporation Common Stock will be delivered or
deemed to be delivered by the Grantee.
Adjustment Upon Changes in Capitalization. In the event any
recapitalization, reorganization, merger, Surviving Corporation Common Stock
dividend or other special and nonrecurring dividend or distribution or other
similar corporate transaction or event, affects the Surviving Corporation Common
Stock such that an adjustment is appropriate in order to prevent dilution or
enlargement of the rights of Grantees under the New Stock Incentive Plan, the
Surviving Corporation Compensation Committee shall, in such manner as it may
deem equitable, adjust any or all of (i) the number and kind of shares of
Surviving Corporation Common Stock to be deemed available thereafter for grants
of Surviving Corporation Options, (ii) the number and kind of shares of
Surviving Corporation Common Stock that may be delivered or deliverable in
respect of outstanding Surviving Corporation Options, (iii) the number of shares
with respect to which Surviving Corporation Options may be granted to a given
Grantee in the specified period, and (iv) the exercise price. In addition, the
Surviving Corporation Compensation Committee is authorized to make adjustments
in the terms and conditions of, and the criteria included in, Surviving
Corporation Options in recognition of unusual or nonrecurring events (including,
without limitation, events described in the
<PAGE>
preceding sentence) affecting the Surviving Corporation or any subsidiary or the
financial statements of the Surviving Corporation or any subsidiary, or in
response to changes in applicable laws, regulations, or accounting principals.
TERMINATION OR AMENDMENT OF THE NEW STOCK INCENTIVE PLAN
The Board of Directors of the Surviving Corporation may alter, amend,
suspend, discontinue or terminate the New Stock Incentive Plan at any time;
provided, however, that no such action shall adversely affect the rights of
Grantees of Surviving Corporation Options previously granted hereunder and,
provided further, however, that any stockholder approval necessary or desirable
in order to comply with applicable law, regulation or listing requirement shall
be obtained in the manner required therein.
FEDERAL INCOME TAX CONSEQUENCES
There are no federal income tax consequences for the Surviving Corporation
or the Grantee at the date of the grant of any Surviving Corporation Option.
Upon the exercise of a Surviving Corporation Option, an amount equal to the
difference between the fair market value of the shares to be purchased on the
date of exercise and the aggregate purchase price of such shares is generally
includible in the ordinary income of the person exercising such Surviving
Corporation Option, although such inclusion may be at a later date in the case
of a Grantee whose disposition of shares could result in liability under
Section 16(b) of the Exchange Act. The Surviving Corporation will ordinarily be
entitled to a deduction for federal income tax purposes at the time the Grantee
is taxed on the exercise of the Surviving Corporation Option equal to the amount
which the Grantee is required to include as ordinary income. Section 162(m) of
the Code limits the Surviving Corporation's deductions of compensation in excess
of $1,000,000.00 per year for the Chief Executive Officer and the four (4) other
most highly paid executives required to be named in its Proxy Statement
Compensation Table, but provides for certain exceptions for performance-based
compensation. In general, the Surviving Corporation intends the New Stock
Incentive Plan to comply with the requirements for an exception to Section
162(m) applicable to stock option plans so that the Surviving Corporation's
deduction for compensation related to the exercise of Surviving Corporation
Options would not be subject to the $1,000,000.00 limitation. However, this
exception would not be available with respect to any Surviving Corporation
Option which has an exercise price that is less than the fair market value of
Surviving Corporation Common Stock on the date of grant.
The foregoing statements are intended to summarize the general principles
of current federal income tax law applicable to Surviving Corporation Options
that may be granted under the New Stock Incentive Plan. State and local tax
consequences may also be significant.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE NEW STOCK INCENTIVE PLAN.
<PAGE>
NEW PLAN BENEFITS
IPC INFORMATION SYSTEMS, INC. NEW STOCK
---------------------------------------
INCENTIVE PLAN (1)(2)
- ---------------------
<TABLE>
<CAPTION>
NAME/PRINCIPAL POSITION DOLLAR VALUE (3) NUMBER OF UNITS
- ----------------------------------------------------- ---------------- ---------------
<S> <C> <C>
Richard P. Kleinknecht, Chairman -- 57,720
Peter J. Kleinknecht, Vice Chairman -- 57,720
Terry Clontz, President and Chief Executive Officer --
Russell G. Kleinknecht, Executive Vice President, --
I.T.S.
Gerald E. Starr, Executive Vice President, --
Turret Systems
Executive Group --
All Non-Executive Director Group --
All Nominees for Election as Directors --
5% Grantees --
Non-Executive Officer Employees Group --
</TABLE>
(1) The numbers in the table reflect the grants to be made upon the New Stock
Incentive Plan Effective Date. On each anniversary of this date, subject
to each Surviving Corporation Options with respect to 20% (50% in the case
of Peter J. Kleinknecht) of the shares will become exercisable; provided,
however, the Surviving Corporation Options shall be vested and exercisable
as to no less than seventy-five (75%) percent of the shares of Surviving
Corporation Common Stock subject thereto as of the end of any period of
thirty consecutive trading days during which the fair market value averages
at least 300% of the fair market value on the date the Surviving
Corporation Option is granted, and shall be vested and exercisable as to
100% of the shares of Surviving Corporation Common Stock subject thereto as
of the end of any period of thirty consecutive trading days during which
the fair market value averages at least 450% of the fair market value on
the date the Surviving Corporation Option is granted; and provided further
that each Surviving Corporation Option shall become vested and exercisable
in full immediately prior to a "change in control" as described in the New
Stock Incentive Plan.
(2) As of the date of this Proxy Statement/Prospectus, no determination has
been made as to whether other employees, directors or consultants other
than __________ will receive grants or the amounts of such grants, if
awarded.
(3) The value of the Surviving Corporation Options will depend upon changes in
value of Surviving Corporation Common Stock after the date of grant.
IPC ANNUAL MEETING -- OTHER MATTERS
GENERAL
In addition to voting on the approval and adoption of the Merger Agreement
and the transactions contemplated thereby, the shareholders of IPC will also be
asked to consider and vote upon the following matters: (i) the election of two
directors; and (ii) the ratification of the appointment of Coopers & Lybrand
L.L.P. as IPC's independent accountants for the fiscal year ending September 30,
1998.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
By Management. The following table sets forth certain information, as of
January 26, 1998, with respect to the beneficial ownership of IPC Common Stock
by: (i) each director and nominee; (ii) each of the named executive officers;
and (iii) all executive officers and directors as a group. Unless indicated
otherwise, each person listed has sole voting and investment power over the
shares beneficially owned.
<TABLE>
<CAPTION>
AMOUNT & NATURE OF APPROXIMATE
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS (2)
- ---------------------------- ---------------------------- --------------------
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Richard P. Kleinknecht 3,453,398 (3)(9) 32.16%
- ---------------------------------------------------------------------------------------
Peter J. Kleinknecht 2,852,348 (4)(9) 26.56%
- ---------------------------------------------------------------------------------------
Terry Clontz 68,333 (5) *
- ---------------------------------------------------------------------------------------
Theodore J. Johnson 5000 *
- ---------------------------------------------------------------------------------------
Robert J. McInerney 4000 *
- ---------------------------------------------------------------------------------------
Peter M. Stein 1,000 *
- ---------------------------------------------------------------------------------------
Gerald E. Starr 77,617 (6) *
- ---------------------------------------------------------------------------------------
Russell G. Kleinknecht 116,907 (7)(9) *
- ---------------------------------------------------------------------------------------
All executive officers and 6,592,480 (8) 60.52%
directors as a group (10 persons)
</TABLE>
* Less than 1%
(1) Based upon information supplied by officers and directors, and filings
under Sections 13 and 16 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
(2) Percentage of ownership is based on 10,739,446 shares of IPC Common Stock
outstanding on January 26, 1998, except that the percentage ownership of
the group is based on 10,892,277 shares, including as outstanding all
shares issuable upon exercise of stock options which may be exercised
within 60 days of January 26, 1998.
(3) Includes 1,552,273 shares directly owned by Richard P. Kleinknecht and
1,901,125 shares beneficially owned as follows: (a) 1,000,000 shares held
in a trust pursuant to a trust agreement dated February 12, 1997, for which
Richard Kleinknecht and his wife are the trustees and (b) 901,125 shares
held in three trusts for Richard P. Kleinknecht's children.
(4) Includes 2,240,999 shares directly owned by Peter J. Kleinknecht and
611,349 shares beneficially owned as follows: (i) 155,637 shares in his
Grantor Retained Annuity Trust; (ii) 155,637 shares in his wife's Grantor
Retained Annuity Trust; and (iii) 300,075 as custodian for his minor child.
Excludes 600,150 shares owned by Peter J. Kleinknecht's major children for
which he disclaims beneficial ownership.
(5) Includes options to purchase 58,333 shares exercisable within 60 days of
January 26, 1998.
(6) Includes options to purchase 13,333 shares exercisable within 60 days of
January 26, 1998.
(7) Includes options to purchase 70,333 shares exercisable within 60 days of
January 26, 1998.
(8) Includes options to purchase 152,831 shares exercisable within 60 days of
January 26, 1998.
(9) In accordance with the Stockholders Agreement, Richard P. Kleinknecht, and
certain family members and trusts, Peter J. Kleinknecht and certain family
members and trusts and Russell G. Kleinknecht have agreed, among other
things, to vote their shares of IPC Common Stock in favor of the Merger and
the Merger Agreement. See "THE MERGER -- Ancillary Agreements --
Stockholders Agreement."
By Others. Except as set forth in the previous section, the Company is not
aware of any beneficial owner of more than 5% of IPC Common Stock as of
January 26, 1998.
PROPOSAL 4 -- ELECTION OF DIRECTORS
The Existing Certificate of Incorporation provides that the IPC Board shall
be divided into three classes, each class consisting, as near as may be
possible, of one-third of the total number of directors. The term of directors
serving in Class I (Richard P. Kleinknecht and Peter J. Kleinknecht) expires in
1998; in Class II (Theodore J. Johnson and Terry Clontz), the term expires in
1999; and in Class III (Robert J. McInerney and Peter M. Stein), the term
expires in 2000. Each director serves for an initial term ending on the date of
the annual meeting of stockholders occurring in the aforementioned years, or his
earlier death, resignation or removal. Directors elected
<PAGE>
at the annual meetings of stockholders in 1998, 1999 and 2000 thereafter, shall
serve for a term ending on the date of the third annual meeting following the
annual meeting at which the director is elected, or his earlier death,
resignation or removal.
In the event of a vacancy on the IPC Board, the Existing Certificate of
Incorporation permits the remaining members of the IPC Board to fill such
vacancy, and the director selected shall hold office for the remainder of the
full term of the class of directors in which the vacancy occurred and until such
director's successor is elected and qualified, or until his earlier death,
resignation or removal.
The nominees for election include the members of Class I who, if elected at
the Annual Meeting, would each serve until the annual meeting to be held in 2001
and until their successors are elected or appointed (as the case may be) and
qualified, or until their earlier death, resignation or removal. It is the
intention of the persons named in the enclosed proxy, unless authorization to do
so is withheld, to vote the proxies received by them for the election of the
nominees named below. If prior to the Annual Meeting either of the nominees
should become unavailable for election, an event which is not now anticipated by
the IPC Board, the proxies will be voted for the election of such substitute
nominee as the IPC Board may propose. Each person nominated for election has
agreed to serve if elected and management has no reason to believe that any
nominee will be unable to serve. However, if the Merger is approved, all
current directors of IPC, other than Richard P. Kleinknecht, will submit their
resignations prior to the Effective Time. See "THE MERGER -- Conditions to
Consummation of the Merger" and "MANAGEMENT FOLLOWING THE MERGER."
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the Annual Meeting. Stockholders
may not vote their shares cumulatively in the election of directors. Set forth
below is biographical information for the persons nominated and each person
whose term of office as a director will continue after the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF
THE NAMED NOMINEES.
INFORMATION WITH RESPECT TO NOMINEES AND CONTINUING DIRECTORS
The following table sets forth certain information with respect to each
nominee for election as a director and each continuing director whose term does
not expire at the IPC annual meeting. No person being nominated as a director
is being nominated for election pursuant to any agreement or understanding
between any such person and IPC.
<PAGE>
<TABLE>
<CAPTION>
Name Age (1) Position Since Class
- --------------------------------------------------- ------- --------------------- ----- -----
NOMINEES FOR A THREE-YEAR TERM EXPIRING IN 2001
<S> <C> <C> <C> <C>
Richard P. Kleinknecht 59 Chairman and Director 1991 I
Peter J. Kleinknecht 52 Vice Chairman and 1991 I
Director
CONTINUING DIRECTORS
Terry Clontz 47 CEO, President and 1995 II
Director
Theodore J. Johnson (2) (3) 56 Director 1994 II
Robert J. McInerney (2) (3) 52 Director 1994 III
Peter M. Stein (2) (3) 47 Director 1994 III
</TABLE>
(1) As of January 26, 1998.
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
NOMINEES FOR ELECTION AS DIRECTORS
RICHARD P. KLEINKNECHT has served as Chairman and a Director of the Company
since its acquisition from Contel Corporation in October 1991 (the
"Acquisition"). Prior to the appointment of Mr. Clontz on December 3, 1995, Mr.
Kleinknecht also served as Chief Executive Officer of the Company. His current
responsibilities include presiding at meetings of the IPC Board and stockholders
and the planning for the Company's long-term needs and objectives and strategic
business development. Mr. Kleinknecht has also served as Chairman of various
companies which he and his brother, Peter, have jointly owned or controlled
(collectively, the "Kleinknecht Organization") since 1968 and has worked for the
Kleinknecht Organization since 1960.
PETER J. KLEINKNECHT has served as Vice Chairman of the Company since May
1994 and a Director of the Company since the Acquisition. Prior to the
appointment of Mr. Clontz on December 3, 1995, Mr. Kleinknecht also served as
President of the Company. His current responsibilities include presiding at
meetings of the IPC Board and stockholders (in the absence of the Chairman) and
the planning for the Company's long-term needs and objectives and strategic
business development. Mr. Kleinknecht has also served as President of various
companies within the Kleinknecht Organization since 1972 and has been employed
by the Kleinknecht Organization since 1969.
Richard P. Kleinknecht and Peter J. Kleinknecht are brothers.
CONTINUING DIRECTORS
TERRY CLONTZ joined the Company in December, 1995 as President and Chief
Executive Officer and Director. From 1992 through December, 1995, Mr. Clontz
served as President of BellSouth International's Asia/Pacific Region and a
director of BellSouth's ventures in Australia, Singapore, India, New Zealand and
the People's Republic of China. Mr. Clontz was employed by BellSouth
Corporation and its affiliates for a total of 23 years, including 1987 to 1990
as Vice President of International Business Development and 1990 to 1992 as Vice
President--Business Development and Operations for Bell South's investments in
Europe.
THEODORE J. JOHNSON has been employed by Morgan Stanley & Co., Incorporated
since March 1995, as Managing Director, National Institutional Equity Research
Sales and Trading Manager. Prior to this date, Mr. Johnson was employed by
Kidder, Peabody & Co. Incorporated and served as its Director of Equity
Research from
<PAGE>
1991 to 1995. Mr. Johnson also served as Kidder, Peabody's National
Institutional Equity Sales Manager and a branch manager of Institutional Equity
Sales.
PETER M. STEIN has been a partner with the law firm of Epstein Becker &
Green since July 1986, having joined the firm in January 1984. Mr. Stein is
presently the Managing Partner of the firm's Stamford, Connecticut office.
Prior to joining Epstein Becker & Green, Mr. Stein was employed as Manager of
Labor Relations for U.S. Industries, Inc. from 1981 to 1984 and Associate
General Counsel for Health Industries, Inc. from 1975 to 1981.
ROBERT J. MCINERNEY has been employed since February 1997 as President and
Chief Operating Office of Merisel, Inc., a leading distributor of computer
hardware, networking equipment and software, where he is responsible for U.S.
and Canadian operations. He was previously employed as Executive Vice President
of United Capital Corporation, a multi-national holding corporation and parent
to Dorne & Margolin, Ancom Corporation, Metex Corporation and AFP Corporation
from 1995. Prior to joining United Capital Corporation, from 1981 Mr. McInerney
was employed by Arrow Electronics, Inc., the largest electronic component
distributor in the world, and served as President of Arrow's Commercial Systems
Group from 1987 to 1994.
BOARD MEETINGS AND COMMITTEES
In fiscal 1997, the IPC's Board met in person on seven occasions, the Audit
Committee met twice and the Compensation Committee of the IPC Board
("Compensation Committee") met twice. Each director attended, in person or by
telephone, all of the meetings of the IPC Board and the committees of which he
was a member.
The Audit Committee reviews with the Company's management and independent
accountants the financial statements and internal financial reporting system and
controls of the Company, reports to the IPC Board on the results of its
examination and makes recommendations to the IPC Board regarding the employment
of accountants and independent auditors.
The Compensation Committee oversees the development, implementation and
conduct of the Company's employment and personnel practices, including the
administration of the Company's compensation and benefit programs. The
Compensation Committee also makes recommendations to the IPC Board concerning
executive officers' compensation and the granting of stock options.
DIRECTORS' COMPENSATION
Each member of the IPC Board who is not an employee of the Company receives
an annual retainer of $5,000 contingent upon attending at least 75% of the
aggregate total number of meetings of the IPC Board and of each committee of
which such director is a member. Additionally, each non-employee director will
receive a fee of $2,500 for each IPC Board meeting or committee meeting
attended. However, if such director attends more than one meeting in a single
day, he will receive a fee of $2,500 for the first meeting attended and a fee of
$1,250 for each additional meeting. There are no provisions in the Existing
Certificate of Incorporation or Bylaws that have the effect of, nor has the IPC
Board adopted any policy that has the effect of, imposing a maximum limitation
on the total compensation payable in any year to any director.
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
The Compensation Committee of the IPC Board consists of Messrs. Johnson,
McInerney and Stein. There is no insider participation on the Compensation
Committee.
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The following shall not be deemed to be "soliciting material" or to be
"filed" with the Commission nor shall such information be incorporated by
reference into any future filing of the Company under the Securities Act, or the
Exchange Act.
The duties of the Compensation Committee (the "Committee") include approval
of salary and other compensation arrangements for the Company's executive
officers.
The Company has established a compensation philosophy around the principle
of having compensation reflect and reinforce the Company's strategic and
operational goals and enhance long-term stockholder value. The Company's
philosophy is to:
Attract, retain, reward and motivate executive officers and employees by aiming
at compensation levels that are generally competitive with comparable
organizations in industry;
Align compensation with business objectives and performance;
Position compensation to reflect the individual's performance as well as the
level of responsibility, skill and strategic value of the employee;
and
Recognize the evolving organizational structure of the Company and directly
motivate executives to accomplish results within their spheres of
influence as well as foster a Company-wide team spirit.
The Company attempts to target its compensation programs to provide
compensation opportunities that are perceived to be generally comparable to
those provided by similar companies in its industry.
During the fiscal year ended September 30, 1996, the Company adopted a
formal Management Compensation Plan (the "Plan") and management compensation
continues to be recast in accordance therewith. This Plan addresses three major
elements: salary, bonus and long-term incentives. Each of these elements of
compensation serves a unique role in meeting the Company's compensation
objectives:
Salary forms the basic building block of the executive compensation
program. It is the assured element of compensation that permits income
predictability. In general, it is intended that salary levels be set at the
competitive norm but that individual salaries may vary from that norm to reflect
each executive's strategic value, experience, proficiency and performance.
The annual bonus plan is designed to play a number of roles in implementing
the Company's compensation philosophy. Annual bonuses provide a direct pay-for-
performance vehicle. The bonus plan also serves to focus executives on those
activities that most directly affect shareholder value which are within their
control and for which they should be held accountable. Therefore, it is
intended that an annual bonus reflect performance of the respective operating
unit, as well as the entire Company.
The long-term incentive program is also intended to play important roles in
implementing the Company's compensation philosophy. It directly links
executives' financial interests to the interests of the stockholder by tying a
portion of their overall compensation to share price appreciation. It also acts
as a motivation and reward system and as a device to attract and retain superior
management talent.
EXECUTIVE OFFICER COMPENSATION
In the fiscal year ended September 30, 1997, the Company continued to
address an enterprise-wide restructuring involving the redirection and expansion
of its market and its product orientation from a limited product and service
provider to a broad-based global technology integrator meeting the needs of the
global financial
<PAGE>
community. In addition, during the second half of the fiscal year, the Company's
senior management spent considerable time and effort addressing an IPC Board-
directed effort to update the Company's five-year business plan and to work with
DMG to solicit interest of third parties in a potential acquisition or change of
control of the Company. In preparation for this eventuality, the Committee also
worked with Company management to put in place appropriate retention and
incentive agreements so that management could perform their regular duties and
contribute fully to this extraordinary effort with reasonable stability assured
to key management, while also being assured of appropriate compensation for
their extra efforts. See " -- Employee Retention and Incentive Arrangements --
Change Of Control," below.
Compensation decisions for the fiscal year ended September 30, 1997 were
based on the following considerations:
Existing contractual compensation commitments with four top executive
officers;
General industry compensation practices and levels where appropriate;
The criticality of the executives to the Company's current and future
success;
The significance of the executive's compensation cost relative to its
impact on the Company's financial success over the next few critical years;
and
The maintenance, where practical, of internal compensation relationships
that provide rationale and flexibility in organizational staffing.
CHAIRMAN AND VICE CHAIRMAN COMPENSATION
Pre-existing employment contracts for Richard P. Kleinknecht and Peter J.
Kleinknecht stipulate that they receive equal amounts of salary and other
compensation as Chairman and Vice Chairman. For the fiscal year ended September
30, 1997, no increase in the annual salary ($420,000) for each individual was
approved. Neither bonus payments nor grants of long-term incentive
compensation, in the form of option grants or otherwise, were made with respect
to said fiscal year.
PRESIDENT AND CHIEF EXECUTIVE OFFICER COMPENSATION
The employment agreement for Terry Clontz, the President and Chief
Executive Officer, became effective December 3, 1995. It provided for a minimum
annual salary of $300,000 (increased by the IPC Board to $330,000, as of
December 3, 1996), an annual performance bonus to be determined by the
Committee, a hiring (sign-on) bonus of $100,000 and a grant of stock options
totaling 200,000 shares of which 50,000 shares were contingent upon the
attainment of specified share prices of the Company's stock. Additionally,
effective October 31, 1996, the Committee awarded Mr. Clontz an additional grant
of 25,000 stock options. After evaluating the achievements of the Company
during the fiscal year ended September 30, 1997, including the aforementioned
enterprise-wide restructuring and the Company's efforts with respect to the
change of control, the Committee awarded Mr. Clontz a performance bonus of
$60,000 for that year.
OTHER EXECUTIVE OFFICERS' COMPENSATION
Gerald E. Starr, the Executive Vice President, Turret Systems receives
compensation in accordance with an employment agreement entered into with the
Company's subsidiary, IPC Bridge, Inc., upon the acquisition of the assets of
Bridge Electronics, Inc. Effective January 13, 1997, in connection with an
expansion of his duties and responsibilities, Mr. Starr's base salary was
increased by the Committee to $225,000. The Committee awarded Mr. Starr a grant
of 20,000 stock options, as of October 31, 1996, and an additional 20,000 stock
options as of February 14, 1997 in consideration of his enhanced duties and
responsibilities.
<PAGE>
Russell G. Kleinknecht, the Executive Vice President, I.T.S. received
compensation during the fiscal year ended September 30, 1997 as specified by the
Committee. For such period the Committee approved an increase in his annual
salary to $250,000 and awarded a bonus of $31,250. Effective October 1, 1997,
Mr. Kleinknecht entered into an employment agreement with the Company providing
for a base salary of $250,000, a signing bonus of $250,000, certain grants of
performance-based stock options and other matters. See "IPC ANNUAL MEETING --
OTHER MATTERS -- Employment Agreements"
With respect to all Executive Officers and other Company management, no new
compensation plans were adopted nor were any such plans discontinued during the
fiscal year ended September 30, 1997. The compensation actions for executive
officers and other executives during the fiscal year ended September 30, 1997
were based on the considerations listed earlier in this report.
EMPLOYEE RETENTION AND INCENTIVE ARRANGEMENTS -- CHANGE OF CONTROL
In anticipation of a potential change of control transaction, which the
Company began exploring during the second fiscal quarter of the fiscal year
ended September 30, 1997, the Company's management, at the direction of the
Committee, established certain categories of regional, divisional and senior
corporate management personnel for whom special consideration was necessary.
The Company's management developed, and the Committee and the IPC Board
approved, (i) a special transaction-related incentive bonus which, depending
upon an employee's involvement in and contribution to the potential transaction
process, was designed both to compensate such employees for extraordinary
efforts and to incent senior management to work towards the highest attainable
return to stockholders should such a transaction occur and (ii) varying levels
of severance assurance agreements to provide such employees with reasonable
security (or assured severance in the event of employment termination related to
such change of control) in order to maintain stability in key positions.
FEDERAL TAX CONSIDERATIONS UNDER SECTION 162(M)
Section 162(m) of the Internal Revenue Code of 1986 (the "Code") disallows
tax deductions for certain compensation paid by a public company to any
executive officer named in its proxy statement compensation table to the extent
such compensation exceeds $1 million in any calendar year. None of the Company
officers received taxable compensation from the Company in excess of $1 million
in 1997. If IPC Common Stock remains registered under the Exchange Act
following the Merger, considerations such as the timing of the closing of the
Merger, changes in the identities of the Named Executive Officers for 1998,
contractual obligations triggered by acts or omissions of IPC or the Surviving
Corporation in connection with the Merger and changes in compensation philosophy
of the Surviving Corporation Compensation Committee following the resignation of
the undersigned may affect the applicability of Section 162(m) of the Code.
No member of the committee is a current or former officer or employee of
the Company.
The duties of the Compensation Committee include approval of salary and
other compensation arrangements for the Company's executive officers.
PERFORMANCE GRAPH
IPC's Common Stock began trading on the Nasdaq effective with the start of
business on September 27, 1994. The following graph provides a comparison of
36-Month Cumulative Total Return among IPC Information Systems, Inc., the Nasdaq
Stock Market - US Index and the Nasdaq Telecommunications Index, assuming $100
invested on September 26, 1994 in IPC Common Stock or the respective Indices
(including reinvestment of dividends). These indices are provided for
comparative purposes only and do not necessarily reflect management's opinion
that such indices are an appropriate measure of the relative performance of the
stock involved and are not intended to forecast or be indicative of possible
future performance of IPC Common Stock.
<PAGE>
COMPARISON OF 36 MONTH CUMULATIVE TOTAL RETURN*
AMONG IPC INFORMATION SYSTEMS, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX AND
THE NASDAQ TELECOMMUNICATIONS INDEX
SEPTEMBER 26, 1994 - SEPTEMBER 1997
[CHART]
* $100 Invested on 9/26/94 in stock or index -- including reinvestment of
dividends. Fiscal year ending September 30.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9/26/94 9/94 3/95 9/95 3/96 9/96 3/97 9/97
------- ------ ------ ------ ------ ------ ------ ------
- ----------------------------------------------------------------------------------------------------------------
IPC INFORMATION SYSTEMS, INC. 100.00 100.42 90.00 113.30 156.67 138.33 64.17 136.67
- ----------------------------------------------------------------------------------------------------------------
NASDAQ STOCK MARKET (U.S.) 100.00 101.11 108.97 139.66 147.96 165.73 164.45 227.51
- ----------------------------------------------------------------------------------------------------------------
NASDAQ TELECOMMUNICATIONS 100.00 101.71 98.26 121.37 129.64 125.85 117.12 170.67
- ----------------------------------------------------------------------------------------------------------------
NOTES:
A. THE LINES REPRESENT INDEX LEVELS DERIVED FROM COMPOUNDED DAILY RETURNS THAT INCLUDE ALL DIVIDENDS.
B. THE INDEXES ARE REWEIGHTED DAILY, USING THE MARKET CAPITALIZATION ON THE PREVIOUS TRADING DAY.
C. IF THE INTERVAL, BASED ON THE FISCAL YEAR-END, IS NOT A TRADING DAY, THE PRECEDING TRADING DAY IS USED.
D. THE INDEX LEVEL FOR ALL SERIES WAS SET TO $100.00 ON 09/26/94.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
MANAGEMENT
The Company's executive officers who are not also directors and their ages and
positions, as of January 26, 1998, are as follows:
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- -------------------------------------------------------
<S> <C> <C>
Russell G. Kleinknecht 44 Executive Vice President, Information Transport Systems
Gerald E. Starr 44 Executive Vice President, Turret Systems
Brian L. Reach 42 Vice President, Chief Financial Officer
Daniel Utevsky 47 Vice President, General Counsel and Corporate Secretary
</TABLE>
RUSSELL G. KLEINKNECHT has served as Executive Vice President, Information
Transport Systems since October of 1997 and previously had been Executive Vice
President, Global Sales since August 1996 when the Company was restructured
along functional lines. He is responsible for sales and operations for the
I.T.S. division. From December 1995 he served as Executive Vice President of
Global Business Development where he built the Company's organization addressing
global customer needs. Mr. Kleinknecht also serves as Chairman of the Company's
subsidiary, IXnet. From April 1994, he served as Vice President responsible for
major account development. Prior to joining the Company, Mr. Kleinknecht was
Executive Vice President of Kleinknecht Electric Company, an affiliated company.
Mr. Kleinknecht is the nephew of Richard P. and Peter J. Kleinknecht.
GERALD E. STARR has served as Executive Vice President, Turret Systems
since January of 1997 and previously had been Vice President of Manufacturing
and Engineering since February of 1996. He is presently responsible for the
sales, operations, engineering and manufacturing of all IPC Turret Systems
Products. Since April 1995, he has also served as President of IPC Bridge,
Inc., a wholly-owned subsidiary which acquired the assets of Bridge Electronics,
Inc. Mr. Starr founded Bridge Electronics, Inc. in 1987 and built it into the
leading provider of digital open line speaker systems to the foreign exchange
trading industry. Previously, Mr. Starr founded Turret Equipment Corporation
("TEC") in 1980 and sold TEC to Tie Communications in 1984, where he remained
until 1990.
BRIAN L. REACH joined the Company in May of 1997 as Chief Financial Officer
and in November of 1997 was named a Vice President. Prior to joining IPC, from
1993 through April 1997, Mr. Reach was employed by the Celadon Group Inc., an
international transportation company, as its Chief Financial Officer through
April 1996 and Vice President - Special Projects through April 1997. From 1990
through 1993, he was employed by Cantel Industries, Inc., an international
distributor of medical and scientific products and ergonomic seating, as the
Chief Financial Officer. Mr. Reach is a Certified Public Accountant.
DANIEL UTEVSKY has been employed by the Company since July 1993, has served
as General Counsel and Corporate Secretary since May 1994 and was named a Vice
President in October of 1996. He is responsible for the Company's law
department, the Company's activities in various corporate transactions and the
coordination of its legal policy in regard to all customers, suppliers,
distributors and outside legal service providers. As Corporate Secretary he
maintains the Company's and subsidiaries' corporate books and records. Mr.
Utevsky has 20 years experience in the telecommunications industry, including 14
years as an attorney. He was previously employed for five years by Northern
Telecom Inc. and for six years by the City of New York, Office of
Telecommunications Control.
EXECUTIVE COMPENSATION
The following table provides certain summary information concerning all
compensation earned by the Company's Chief Executive Officer, each of the other
four most highly compensated executive officers of the Company (collectively,
the "Named Executive Officers") whose annual salary and bonus for the fiscal
year ended September 30, 1997 exceeded $100,000 in the aggregate and a former
executive officer who, except for his termination of employment, would have been
among the other four most highly compensated executive officers of the Company.
<PAGE>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING
FISCAL OPTIONS/SARS OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS GRANTED COMPENSATION (2) COMPENSATION (3)
- --------------------------- ------ --------- ----- ------------ ------------- ----------------
<S> <C> <C><C> <C><C> <C> <C><C> <C> <C>
Richard P. Kleinknecht 1997 $ 420,000 $ -- -- $ -- $ 10,730
Chairman (4)
- ------------------------------------------------------------------------------------------------------------------
1996 420,000 -- -- -- 26,540
- ------------------------------------------------------------------------------------------------------------------
1995 380,000 380,000 -- -- 33,254
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Peter J. Kleinknecht 1997 420,000 -- -- -- 13,400
Vice Chairman (5)
- ------------------------------------------------------------------------------------------------------------------
1996 420,000 -- -- -- 13,200
- ------------------------------------------------------------------------------------------------------------------
1995 380,000 380,000 -- -- 17,800
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Terry Clontz (6) 1997 324,692 60,000 25,000 82,829 (7) 15,756
President and Chief
Executive Officer
- ------------------------------------------------------------------------------------------------------------------
1996 255,006 150,000 200,000 133,300 (7) 12,871
- ------------------------------------------------------------------------------------------------------------------
1995 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Gerald E. Starr (8) 1997 217,789 28,325 40,000 -- 3,200
Executive Vice
President
Turret Systems
- ------------------------------------------------------------------------------------------------------------------
1996 183,077 25,000 -- -- --
- ------------------------------------------------------------------------------------------------------------------
1995 66,346 -- -- -- --
==================================================================================================================
Russell G. Kleinknecht 1997 250,000 31,250 40,000 -- 7,670
Executive Vice
President
I.T.S.
- ------------------------------------------------------------------------------------------------------------------
1996 220,000 160,000 100,000 -- 10,773
- ------------------------------------------------------------------------------------------------------------------
1995 133,461 200,000 7,000 -- 4,004
==================================================================================================================
Jeffrey M. Gill (9) 1997 250,000 -- -- 477,536 (10) --
Former Executive Vice
President
- ------------------------------------------------------------------------------------------------------------------
1996 250,000 100,000 -- 477,536 (10) 45,198
- ------------------------------------------------------------------------------------------------------------------
1995 200,000 200,000 -- 380,000 (10) 45,844
==================================================================================================================
</TABLE>
(1) Includes amounts, if any, deferred by the named individual for the period
in question pursuant to Section 401(k) of the Code under the IPC
Information Systems, Inc. Retirement Savings Plan and Trust (the "401(k)
Plan").
(2) Does not include certain perquisites and other personal benefits,
securities or property received by the Named Executive Officers when the
aggregate value does not exceed the lesser of $50,000 or 10% of any such
officer's salary and bonus disclosed in this table.
(3) Consists of (i) premiums paid by the Company for term or other life
insurance coverage under contracts affording the named individual
dispositive control over the death benefit proceeds and (ii) amounts paid
by the Company as matching and/or profit sharing contributions to the
401(k) Plan.
(4) Effective December 3, 1995, Richard P. Kleinknecht resigned as Chief
Executive Officer.
(5) Effective December 3, 1995, Peter J. Kleinknecht resigned as President.
(6) Terry Clontz was employed by the Company as President and Chief Executive
Officer as of December 3, 1995.
(7) For fiscal year 1997, consists of $71,429 ($40,000 for moving expenses and
$31,429 tax gross-up on said payment) and $11,400 related to housing costs.
For fiscal year 1996, consists of $100,000 hiring bonus, in accordance with
Mr. Clontz's employment agreement and $33,300 related to housing costs.
(8) Gerald E. Starr was originally employed by a subsidiary of the Company, IPC
Bridge, Inc., as President, effective upon the acquisition of the assets of
Bridge Electronics, Inc. in April, 1995. Mr. Starr became an Executive
Office of the Company effective October 23, 1996.
(9) Jeffrey M. Gill's employment with the Company terminated as of January 22,
1997. In accordance with provisions of an employment agreement entered
into with the Company, Mr. Gill continued to receive base salary for one
year thereafter and was entitled to receive 31,857 shares of IPC Common
Stock on September 30, 1997. Issuance of said stock has been deferred, by
mutual agreement, until Mr. Gill makes payment to the Company for certain
loans and employee advances made to him during the course of his employ.
(10) Represents the value of 31,857 shares of IPC Common Stock earned in each
such fiscal year, in accordance with Mr. Gill's employment agreement.
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into separate employment agreements with each of
Richard P. Kleinknecht and Peter J. Kleinknecht setting forth the terms and
conditions of their service to the Company as its Chairman and Chief Executive
Officer, and Vice Chairman and President, respectively. (The employment
agreements were amended, as of October 17, 1995 and effective December 3, 1995,
whereby Richard P. Kleinknecht resigned as Chief Executive Officer and Peter J.
Kleinknecht resigned as President and each consented to the appointment of Terry
Clontz to the formerly held positions.) Each employment agreement is for an
initial term of five years commencing on October 3, 1994 and converted to a
rolling two-year term after the first three years. Pursuant to his employment
agreement, each executive receives a base salary at the minimum annual rate of
$380,000 and is eligible for an annual performance bonus in an amount determined
by the Compensation Committee, in its discretion. As of October 1, 1995, the
Compensation Committee approved an increase in the salary of each executive to
$420,000 which, under the terms of the employment agreements, becomes the
minimum annual base salary for the remainder of the term. In addition to
standard benefits under the terms of the Company's generally applicable benefit
plans, each executive's employment agreement provides for other fringe benefits
including vacation, vehicle, and life insurance.
Each executive's employment agreement provides that he may be discharged
for cause, as defined, without liability to the Company other than for accrued
and unpaid compensation and benefits. If, however, the executive is discharged
under other circumstances or resigns following certain acts or failures to act
by the Company, the Company is liable for additional payments, as contract
damages, as follows: a lump sum payment equal to the present value of base
salary and bonus payments that would have been made if his employment had
continued for the remaining contract term; continued health, disability and life
insurance coverage (or the monetary equivalent) for the remaining contract term;
a lump sum payment equal to the value of additional benefits that would have
accrued under the Company's qualified and non-qualified retirement plans if his
employment had continued for the remaining contract term; and, at the
executive's election upon surrender of all options, appreciation rights and
restricted stock issued and outstanding to him, a cash payment in lieu thereof.
If the aggregate amount of payments contingent on a "change in control" equals
or exceeds three times the average compensation for the prior five years (the
"Base Amount"), so called "golden parachute" taxes under Section 4999 of the
Code (a nondeductible excise tax at the rate of 20% of the amount by which
payments contingent on a "change in control" exceed the Base Amount) may be
assessed. If termination occurs following a "change in control" of the Company
under circumstances giving rise to a liability for so-called "golden parachute"
taxes, each executive would be entitled to an additional cash payment to
indemnify him against the expense of such taxes.
As of December 18, 1997, Richard P. Kleinknecht and Peter J. Kleinknecht
each entered into an Amended and Restated Employment Agreement, effective and
contingent upon the closing of the Merger contemplated by the Merger Agreement.
Upon the occurrence of such contingency, the pre-existing employment agreement
shall terminate. For a description of such Amended and Restated Employment
Agreement see "THE MERGER -- Ancillary Agreements -- Employment Agreements."
The Company entered into an employment agreement with Jeffrey M. Gill, with
a term commencing October 3, 1994, continuing until September 30, 1997 and
containing certain extension provisions, under which Mr. Gill was employed as
Chief Operating Officer. Effective January 22, 1997, as a result of certain
changes made by the Company to Mr. Gill's title and duties, Mr. Gill submitted
his resignation. The Company has paid Mr. Gill his base salary for the one year
period beginning upon his resignation, in accordance with the terms of the
agreement.
The Company entered into an employment agreement with Terry Clontz, as of
October 17, 1995, setting forth the terms and conditions of his service to the
Company as its Chief Executive Officer and President. Mr. Clontz's employment
agreement was for an initial term commencing December 3, 1995 and ending
December 2, 1997 and which automatically renewed for subsequent one-year terms
unless notice of non-renewal was given by either party. Pursuant to a
resolution of the IPC Board (Mr. Clontz abstaining both from discussion and
voting thereupon) at a regular meeting held August 8, 1996, the Company has
extended the term of Mr. Clontz's
<PAGE>
employment agreement to December 2, 1998. Pursuant to his employment agreement,
Mr. Clontz will receive a base salary at the minimum annual rate of $300,000 and
is eligible for an annual performance bonus in an amount determined by the
Compensation Committee. Mr. Clontz received a hiring bonus of $100,000 and is
eligible for a residential loan in the amount of $150,000 upon contracting for
the purchase of a primary residence in the New York area. Also pursuant to this
Agreement, the Company issued to Mr. Clontz 150,000 Options to purchase shares
of the IPC Common Stock, exercisable at $14.125 and vesting in the following
installments:
NUMBER OF OPTIONS DATE OF VESTING
================= ==================
16,667 December 2, 1996
33,333 December 2, 1997
50,000 December 2, 1998
33,334 December 2, 1999
16,666 December 2, 2000
=====================================
provided Mr. Clontz is then in the Company's employ. Mr. Clontz has also
received additional Options to purchase shares of the IPC Common Stock which,
contingent upon continued employment of Mr. Clontz by the Company, may be
exercised as follows: (i) 25,000 shares at a share price of $25.00 upon the
occurrence of ninety consecutive trading days during which the closing price
averages at least $40.00; and (ii) 25,000 shares at a share price of $40.00 upon
the occurrence of ninety consecutive trading days during which the closing price
averages at least $60.00. Mr. Clontz's employment agreement provides that he may
be discharged for cause, as defined, without liability to the Company other than
for accrued and unpaid compensation and benefits. If, however, Mr. Clontz is
discharged under other circumstances, the Company is liable for payment of base
salary through the end of the then-current term of employment, but not less than
twelve months of base salary.
Effective as of August 1, 1997, the Company and Mr. Clontz entered into the
first amendment to Mr. Clontz's employment agreement, providing (i)
documentation of the extension of the term of the agreement to December 2, 1998,
by resolution of the IPC Board made on August 8, 1996, (ii) documentation of the
modification of the base salary to $330,000, by resolution of the Compensation
Committee of the IPC Board, made on November 26, 1996, (iii) addition of an
additional paragraph to the "termination at will" section, providing that in the
event of his termination without cause at or following a "change of control" (as
defined therein) of the Company prior to July 31, 1998, the Company would make
severance payments to Mr. Clontz in an amount equal to 240% of his then current
base salary, (iv) an additional provision providing, upon the occurrence prior
to July 31, 1998 of a change of control transaction involving the Company,
payment to Mr. Clontz of incentive payments (ranging from $200,900 to $717,500,
depending upon the price realized by the Company and/or its stockholders in said
transaction); and (v) a provision regarding the payment to certain specified
charities of any amounts constituting excess parachute payments due to Mr.
Clontz under his employment or the employment agreement.
The Company entered into an employment agreement with Russell G.
Kleinknecht, effective as of October 1, 1997. The agreement provides for an
employment term commencing October 1, 1997 and terminating September 30, 1999
(the "Initial Term"), unless extended. In accordance with the agreement, Mr.
Kleinknecht shall serve as an executive officer of the Company, devoting his
full time and attention thereto. The agreement provides for a minimum annual
base salary of $250,000 and participation by Mr. Kleinknecht in the Company's
Management Incentive Bonus Plan with a minimum target bonus equal to 50% of his
then current base salary. It also provides for the Company to obtain, at its
expense, whole life insurance (under a split-dollar arrangement) in the amount
of $1,000,000 and to pay up to $7,000 per year for term insurance for Mr.
Kleinknecht. Under the agreement, the Company paid to Mr. Kleinknecht a signing
bonus in the amount of $250,000 and granted to him 100,000 stock options, as
follows: (i) 50,000 options, exercisable at $25.00 per option and vesting,
contingent upon continued employment upon the date on which there shall have
occurred for ninety consecutive trading days, a last reported sale price for IPC
Common Stock equal to or exceeding $25.00 and (ii) 50,000 options, exercisable
at $25.00 per option and vesting, contingent upon continued employment on
September 30, 2001 and there having occurred prior
<PAGE>
to such date a ninety consecutive trading day period during which the last
reported sale price for IPC Common Stock had equaled or exceeded $25.00.
The agreement with Mr. Kleinknecht also provides, in the event of a "change
of control" (as defined therein) of the Company, the Company shall pay to Mr.
Kleinknecht an incentive payment (ranging from $152,600 to $426,000, depending
upon the price realized by the Company and/or its stockholders in said
transaction) and in the event of his termination from employment without cause
at or following a change of control, the Company will make severance payments to
him in an amount equal to 225% of his then current base salary. Concurrent with
the execution of the employment agreement, Mr. Kleinknecht signed a letter
agreement relating to certain loans and employee advances, in the amount of
$276,739, as of September 30, 1997 and inclusive of accrued interest, that had
been previously made to him by the Company. This letter agreement specifies the
repayments to be made by Mr. Kleinknecht from bonuses payable to him under the
employment agreement and from change of control incentive payments which may
become due, but in any case not later than the expiration of the Initial Term of
the employment agreement.
As of April 20, 1995 and coincident with the acquisition of assets of
Bridge Electronics, Inc., IPC Bridge, Inc., a wholly-owned subsidiary of the
Company, entered into an employment agreement with Gerald E. Starr, providing an
employment term of five years, a minimum base salary of $150,000 and other
benefits. The agreement provided for its termination, with no further liability
to the Company in the event of Mr. Starr's death, disability or his termination
for Cause (as defined therein). The agreement also contains provisions
regarding the Company's ownership of inventions which he may make during its
term, and certain confidentiality and non-competition provisions. Effective as
of May 21, 1996, the parties entered into a first amendment to the employment
agreement, providing an increase in the base salary to $200,000. As of August
1, 1997, the parties entered into a second amendment to the employment
agreement, providing: (i) documentation of an increase in Mr. Starr's base
salary to $225,000 (effective as of January 13, 1997); (ii) an additional
provision providing, upon the occurrence prior to July 31, 1998 of a change of
control transaction involving the Company, payment to Mr. Starr of incentive
payments (ranging from $137,200 to $392,000, depending upon the price realized
by the Company and/or its stockholders in said transaction); and (iii) a
termination at will clause which provides that in the event of his termination
without cause, at or following a change of control (as defined therein) of the
Company prior to July 31, 1998, the Company would make severance payments to Mr.
Starr in an amount equal to 225% of his then current base salary.
As of August 1, 1997, the Company entered into Employee Retention and
Incentive Agreements with eight senior officers, including two Executive
Officers, Brian Reach and Daniel Utevsky, who are not Named Executive Officers.
In the event of a change of control, as defined therein, of the Company prior to
July 31, 1998, these Agreements provide for the payment to said officers of (i)
incentive bonus payments ranging from $54,000 to $90,000 and $57,000 to $95,000,
respectively and (ii) additional payments equal to the product of the difference
between the per share price realized in the change of control and $13 multiplied
times 25,500 and 5,000, respectively, representing authorized but ungranted
stock options. Additionally, in the event that these individuals' employment
with the Company is terminated without cause at or following a change of control
of the Company prior to July 31, 1998, the Company would make severance payments
equal to such employee's base salary plus target bonus for a period not to
exceed one year but not less than six months plus one week for each year of
service.
In connection with the Merger, certain officers of IPC and its subsidiaries
have entered into employment agreements to be effective upon consummation of the
Merger. See "THE MERGER -- Ancillary Agreements -- Employment Agreements."
STOCK OPTION PLAN
General Plan Information. The IPC Information Systems, Inc. 1994 Stock
Option and Incentive Plan (the "Option Plan") provides for the grant to certain
officers and employees of options, stock appreciation rights ("SARs") and
restricted stock. The Option Plan was approved by holders of a majority of the
shares of the IPC's Common Stock present and entitled to vote at a stockholders'
meeting held on May 9, 1994. An amendment to the
<PAGE>
Option Plan, providing for an increase in the number of shares reserved for
issuance, was approved by a vote of stockholders at the Annual Meeting of
Stockholders held on February 14, 1996.
The Compensation Committee administers the Option Plan. Subject to certain
specific limitations and restrictions set forth in the Option Plan, the
Compensation Committee has full and final authority to interpret the Option
Plan, to prescribe, amend and rescind rules and regulations, if any, relating to
the Option Plan and to make all determinations necessary or advisable for the
administration of the Option Plan.
The Company has reserved [ ] shares of IPC Common Stock for current
and future issuance of stock options. Such IPC Common Stock may be authorized
and unissued shares, treasury shares, or shares previously issued and reacquired
by the Company. Any shares of IPC Common Stock subject to awards under the
Option Plan which are terminated, expire, forfeited or are canceled (for any
reason other than the surrender of any such award upon exercise of a related
SAR) without having been exercised in full, shall again be available for
purposes of the Option Plan.
The following table sets forth certain information with respect to options
granted under the Option Plan during the fiscal year ended September 30, 1997 to
the executive officers of the Company who are named in the Summary Compensation
Table:
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN FISCAL YEAR ENDED SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------------------------------------------
Potential Realizable
Value
at Assumed Annual Rates
of Share Price
Appreciation for
Individual Grants Option Term
- -----------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Name Number of % of Total Exercise Expiration 5% 10%
- ------------------------ Securities Options/ SARs or Base Date ($) ($)
Underlying Granted to Price ---------- ------ -----------------------
Options/SARs employees ($/Share)
Granted in Fiscal --------
------------ Year
-------------
- -------------------------------------------------------------------------------------------------------------------
Terry Clontz 25,000 6% $14.50 10/31/06 227,974 577,732
- --------------------------------------------------------------------------------------------------------------------
Richard P. Kleinknecht 0 __ __ __ __ __
- --------------------------------------------------------------------------------------------------------------------
Peter J. Kleinknecht 0 __ __ __ __ __
- --------------------------------------------------------------------------------------------------------------------
Gerald E. Starr 20,000 5% 14.50 10/31/06 182,379 462,185
20,000 5% 13.31 02/14/07 167,412 424,254
Russell G. Kleinknecht 40,000 10% 14.50 10/31/06 364,759 924,371
</TABLE>
All Options granted during the fiscal year ended September 30, 1997
provided a ten-year term, vest in equal amounts on the first three anniversaries
of their grant date and are exercisable at the fair market value of IPC Common
Stock on the date of grant.
<PAGE>
The following table sets forth certain information with respect to options
exercised under the Option Plan during the fiscal year ended September 30, 1997
by the executive officers of the Company who are named in the Summary
Compensation Table:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
- -----------------------------------------------------------------------------------------------------------
Name Shares Value Number of Securities Value of Unexercisable
- ---- Acquired Realized Underlying Unexercised In-the-Money Options/SARs
on Exercise on Exercise Options/SARs at Fiscal at Fiscal Year-End
(#) ($) Year-End ($)
------------ ------------ (#) Exercisable/Unexercisable
Exercisable/Unexercisable --------------------------
--------------------------
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Terry Clontz 0 -- 16,667/208,333 $105,252/$990,498
- -----------------------------------------------------------------------------------------------------------
Richard P. Kleinknecht 0 -- -- --
- -----------------------------------------------------------------------------------------------------------
Peter J. Kleinknecht 0 -- -- --
- -----------------------------------------------------------------------------------------------------------
Gerald E. Starr 0 -- 0/40,000 $ 0/261,350
Russell G. Kleinknecht 0 -- 21,332/125,668 $130,629/$776,551
</TABLE>
STOCK PURCHASE PLAN
General Plan Information. The Company adopted the IPC Information Systems,
Inc. Employee Stock Purchase Plan ("Stock Purchase Plan") effective October 3,
1994. The Stock Purchase Plan is intended to enable eligible employees of the
Company and its participating subsidiaries to purchase shares of IPC Common
Stock and is intended to qualify as an "employee stock purchase plan under
Section 423 of the Code. The Stock Purchase Plan is administered by the
Compensation Committee which has full power to interpret the terms and adopt,
amend and repeal the rules for implementing and administering the Stock Purchase
Plan. The Company has reserved 526,813 shares for issuance under the Stock
Purchase Plan. At January 1, 1998, 477,393 shares are reserved for future
issuance after subtraction of 10,373 shares, 20,953 shares and 18,094 issued in
respect of the 1995, 1996 and 1997 offering periods, respectively.
IPC Common Stock will be offered for sale pursuant to the Stock Purchase
Plan during offering periods established by the Compensation Committee. The
purchase price will be the lesser of 90% of the Fair Market Value on the last
business day or 100% of the Fair Market Value on the first business day of the
offering period, but not less than 85% of the lesser of the Fair Market Value on
the date of grant or exercise of the purchase right. Employees participate in
the Stock Purchase Plan through payroll deductions in an amount ranging from 1%
to 10% of base pay. Otherwise eligible employees will not be granted a purchase
right under the Stock Purchase Plan if, after grant of such purchase right, the
employee would own shares, options or other rights to purchase 5% or more of the
stock of the Company, or if the employee's rights to purchase under this and any
other employee stock purchase plan would exceed $25,000 of stock in any calendar
year. Unless a participant elects to withdraw from the Stock Purchase Plan, the
participant will be deemed to have automatically exercised a purchase right on
the last day of the offering period.
Certificates issued under the Stock Purchase Plan may be subject to such
transfer or other restrictions as the Compensation Committee may designate.
Additionally, "affiliates" of the Company may be subject to restrictions on
resale and executive officers, directors and 10% shareholders are subject to
certain reporting requirements under Section 16 of the Exchange Act.
Fifty-one employees participated in payroll deductions through the end of
the 1995 fiscal year which resulted in the issuance of 10,373 shares of IPC's
Common Stock after the conclusion of the offering period on December 29, 1995.
Ninety-three employees participated in payroll deductions through the end of the
1996 fiscal year which resulted in the issuance of 20,953 shares of IPC Common
Stock after the conclusion of the offering period on December 31, 1996. Sixty-
eight employees participated in payroll deductions through the end of the 1997
<PAGE>
fiscal year which resulted in the issuance of 18,904 shares of IPC Common Stock
after the conclusion of the offering period on December 31, 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Richard P. Kleinknecht, the Company's Chairman, and Peter J. Kleinknecht,
the Company's Vice Chairman, are controlling stockholders and executive officers
of several other entities that do business from time to time with the Company
and certain of its customers. These entities include KEC-NY, KEC-NJ, both
electrical services companies, and Humaco Leasing & Holding Corporation
("Humaco"), a tool and vehicle leasing company.
As of October 1, 1993, the Company and KEC-NY entered into a 20-year
contract with respect to a pool of field technicians and administrative
employees, who are members of the International Brotherhood of Electrical
Workers ("IBEW"), Local 3 and are utilized by either the Company or KEC-NY on an
ongoing or per project basis. The Company and KEC-NJ also entered into a
comparable 20-year agreement with respect to a similar pool of employees who are
members of IBEW, Local 164T. See THE MERGER -- Ancillary Agreements -- Amended
and Restated Labor Pool Agreements. The Company, KEC-NY and KEC-NJ have
benefitted from these arrangements by allowing each company to draw from a
larger pool of field technicians and retaining the more highly trained and
skilled technicians for a broader range of projects. KEC-NY and KEC-NJ are
responsible for administering the payroll and related services for Company
employees in these pools. The Company pays all such compensation and benefits
by reimbursement to KEC-NY or KEC-NJ, as appropriate, plus an administration fee
equal to 2.5% of such costs. Effective October 3, 1996, the parties agreed to
amend this agreement to provide for a flat administrative fee of $50,000 per
month (to be apportioned between KEC-NY and KEC-NJ for the period from October
1, 1996 through October 1, 1997). The total amounts paid by the Company for
compensation and benefits under these arrangements in the fiscal years ended
September 30, 1997, 1996 and 1995 were $54.9, $54.9 and $40.7 million,
respectively. In addition, the Company paid $0.6, $1.4 and $1.0 million in the
fiscal years ended September 30, 1997, 1996 and 1995, respectively, in related
administrative fees.
In connection with and contingent upon consummation of the transactions
contemplated by the Merger Agreement, the Labor Pool Agreements have been
amended and restated. See "THE MERGER -- Ancillary Agreements -- Amended and
Restated Labor Pool Agreements."
The Company periodically subcontracts certain work to KEC-NY or KEC-NJ.
Amounts charged to these companies under subcontracts with the Company for the
years ended September 30, 1997, 1996 and 1995 were approximately $0.1, $1.0 and
$2.2 million, respectively, while amounts charged to the Company under
subcontracts with these companies were approximately $0.3, $0.7 and $0.6
million, respectively.
The Company, KEC-NY and KEC-NJ entered into a 20-year agreement dated as of
May 9, 1994 with respect to corporate opportunities regarding electrical and
communications cable infrastructures (the "Corporate Opportunity Agreement").
KEC-NY and KEC-NJ have agreed not to bid for or accept any communications
cabling jobs in competition with the Company, if the Company intends to bid or
accept such work. The Company, which is not a licensed electrical contractor,
has agreed to refrain from bidding for or accepting, without the consent of KEC-
NY or KEC-NJ, opportunities that combine both electrical and communications
cabling work. IPC has also agreed to continue to refer to KEC-NY and KEC-NJ
certain electrical contracting bid opportunities which may arise.
In connection with and contingent upon consummation of the transaction
contemplated by the Merger Agreement, the Corporate Opportunity Agreement has
been amended and restated. See "THE MERGER -- Ancillary Agreements -- Amended
and Restated Corporate Opportunity Agreement."
The Company has from time to time rented certain equipment from Humaco.
There were no equipment rentals from affiliated companies during fiscal 1997.
During the years ended September 30, 1996 and 1995, approximately $0.9 and $1.0
million, respectively, of equipment rentals were utilized. The Company, under
month to month arrangements, has rented three facilities from entities
controlled by Richard P. Kleinknecht and Peter J.
<PAGE>
Kleinknecht. For the years ended September 30, 1997, 1996 and 1995,
approximately $0.2, $0.5 and $0.5 million, respectively, of such lease expense
was incurred.
The Company loaned to Russell G. Kleinknecht $98,371, with interest
accruing at 6% per annum. As of September 30, 1997, the total amount
outstanding under this loan and under employee advances in the principal amount
of $140,000 (inclusive of accrued interest) was $276,739.
Contel Litigation. During the fiscal year ended September 30, 1996, Knight
Ventures, Inc. ("KVI"), a company principally owned by Richard P. Kleinknecht
and Peter J. Kleinknecht (the "Principal Stockholders"), and the former parent
of the Company, agreed to settle its litigation with Contel Corporation
("Contel") over, among other claims, responsibility for taxes, tax liens, tax
assessments and tax warrants with respect to Contel IPC, for periods prior to
the acquisition of the Company from Contel.
As of May 9, 1994, the Company, KVI and the Principal Stockholders entered
into a Tax Allocation and Indemnification Agreement (the "Tax Agreement")
relating to their respective income tax liabilities and certain related matters
as a consequence of the Company's termination of its S Corporation status and
its initial public offering. In addition, the Company, KVI and the Principal
Stockholders agreed, to the extent that either KVI or the Principal Stockholders
receives any cash proceeds or other benefit in the form of a reduction in
amounts payable to Contel, as a consequence of the litigation, they will pay to
the Company the lesser of (i) such benefit or (ii) the amount paid by the
Company for taxes and related charges subject to the dispute, plus the amount of
any expenses of such litigation incurred by the Company following the
consummation of the Company's initial public offering.
As of May 15, 1996, Contel, KVI, the Principal Stockholders and the
Company, although not a party to the litigation, entered into a settlement
agreement and mutual releases. In connection with this settlement agreement,
KVI has executed, and the Principal Stockholders have guaranteed, a note payable
to the Company, in the amount of $1.3 million, to fulfill obligations under the
Tax Agreement. As of December 31, 1997, this note, together with accrued
interest, was paid in full by KVI.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States, the Company's directors,
executive officers and any person holding more than ten percent of IPC's Common
Stock are required to file initial reports of ownership of IPC's Common Stock
and reports of changes in that ownership at the Commission and the National
Association of Securities Dealers, Inc. Specific due dates for these reports
have been established, and the Company is required to disclose in this Proxy
Statement/Prospectus any failure to file by these dates.
Form 3s are required to be filed within ten days after the event by which
an individual becomes a reporting person. Form 4s are required to be filed
within ten days after the end of the reporting month. Form 5s are required to
be filed on or before the forty-fifth day after the end of the issuer's fiscal
year. Based upon information available to it, the Company's management believes
that all Form 3s, Form 4s, and Form 5s required to be filed during the fiscal
year ended September 30, 1997 were filed on a timely basis.
PROPOSAL 5 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The IPC Board has appointed Coopers & Lybrand as the Company's independent
accountants for the year ending September 30, 1998, and has further directed
that management submit the appointment of independent accountants for
ratification by the stockholders at the Annual Meeting. Coopers & Lybrand has
audited the Company's financial statements since 1991. Representatives of
Coopers & Lybrand are expected to be present at the Annual Meeting, will have an
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions. In the event the stockholders fail to ratify
the appointment, the IPC Board or the Surviving Corporation Board, as
appropriate, will reconsider whether or not to retain that firm.
<PAGE>
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the appointment of Coopers & Lybrand.
THE IPC BOARD RECOMMENDS A VOTE IN FAVOR OF THE RATIFICATION OF THE
APPOINTMENT OF COOPERS & LYBRAND.
PROPOSAL 6 -- ADDITIONAL PROPOSAL
The IPC Board is not aware of any other business that may properly come
before the Annual Meeting. The IPC Board seeks the authorization of the IPC
stockholders, in the event matters incident to the conduct of the Annual Meeting
properly come before such meeting, including, without limitation, a motion to
adjourn the Annual Meeting to another time or place for the purpose of
soliciting additional proxies in order to approve and adopt the transactions
contemplated by the Merger Agreement, or otherwise. As to all such matters, the
IPC Board intends to direct the voting of such shares in the manner determined
by the IPC Board in its discretion, and in the exercise of its duties and
responsibilities, to be in the best interests of IPC, and its stockholders,
taken as a whole. Only proxies marked "FOR" this proposal will be voted for
adjournment, in the event such vote is necessary.
THE IPC BOARD UNANIMOUSLY RECOMMENDS THAT ITS STOCKHOLDERS VOTE "FOR"
AUTHORIZATION OF THE IPC BOARD, TO DIRECT THE VOTE OF THE PROXIES UPON SUCH
OTHER MATTERS INCIDENT TO THE CONDUCT OF THE ANNUAL MEETING, AS MAY PROPERLY
COME BEFORE SUCH MEETING, INCLUDING, WITHOUT LIMITATION, A MOTION TO ADJOURN
SUCH MEETING.
MANAGEMENT FOLLOWING THE MERGER
BOARD OF DIRECTORS
In the event the Merger is approved by IPC stockholders, all current
directors of IPC, other than Richard P. Kleinknecht, will submit their
resignations prior to the Effective Time. The individuals listed below are
expected to serve as directors of the Surviving Corporation Board following the
Effective Time. The following table sets forth the name, age and position with
the Surviving Corporation of each such person. Following the Merger, the
Investors Agreement will govern certain rights, duties and obligations of the
parties thereto, as the principal stockholders of the Surviving Corporation,
including, without limitation, the election of directors. Following the
Effective Time, directors of the Surviving Corporation are expected to be
compensated in accordance with the current policies of the Company. See "IPC
ANNUAL MEETING -- OTHER MATTERS -- Directors' Compensation."
<PAGE>
<TABLE>
<CAPTION>
NAME AGE (1) POSITION
- ---- --- --------
<S> <C> <C>
Peter Woog 55 Chairman of the Board and Director
- ---------------------------------------------------------------------
Richard P. Kleinknecht 59 Vice Chairman and Director
- ---------------------------------------------------------------------
Richard Cashin, Jr. Director
- ---------------------------------------------------------------------
David Y. Howe 33 Director
- ---------------------------------------------------------------------
Robert J. McInerney 52 Director
- ---------------------------------------------------------------------
[ ] Director
[ ] Director
- ---------------------------------------------------------------------
Terry Clontz 47 CEO and President and
Director
- ---------------------------------------------------------------------
David Walsh Executive Vice President,
36 IXnet and Director
- ---------------------------------------------------------------------
</TABLE>
(1) As of _________________.
PETER WOOG, DIRECTOR AND CHAIRMAN OF THE BOARD. Mr. Woog is President and
Chief Executive Officer of CSI where he has been employed since 1995. He also
serves on the Board of Directors for Cable Systems Holding Company, CSI, LoDan
Electronics, Inc., the Arizona Association of Industries, the Samaritan Health
System, and AAC. Mr. Woog is also a trustee and chairman for the Arizona
Science Center.
RICHARD M. CASHIN, JR., DIRECTOR. Mr. Cashin has been employed by CVC
since 1980, and has been President since 1994. Mr. Cashin is a director of
Levitz Furniture Incorporated, Lifestyle Furnishings International, Euromax and
Titan Wheel International.
DAVID Y. HOWE, DIRECTOR. Mr. Howe is a Vice President of CVC where he
has been employed since 1993. He is also a director of American-Italian Pasta
Company, Aetna Industries, Inc., Bob's Stores, Inc., Brake-Pro, Inc., CSI,
Copes-Vulcan, Inc., Pen-Tab Industries, Inc., Milk Specialties Company and
Lifestyle Furnishings, Ltd.
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information (the
"Pro Forma Financial Information") of the Company are based on historical
consolidated financial statements of the Company and give effect to the Merger
Transactions. The unaudited consolidated pro forma statement of operations for
the quarter ended December 31, 1997 and year ended September 30, 1997 gives
effect to the Merger Transactions as if they had occurred at October 1, 1996.
The pro forma balance sheet gives effect to the Merger Transactions as if they
had occurred on December 31, 1997. The pro forma adjustments are based upon
available information and upon certain assumptions that management believes are
reasonable under the circumstances. The Pro Forma Financial Information and
accompanying notes should be read in conjunction with the historical
consolidated financial statements of the Company, including the notes thereto,
which are incorporated by reference, and other financial information pertaining
to the Company. The Pro Forma Financial Information do not purport to represent
what the Company's actual results of operations or actual financial position
would have been if the Merger Transactions in fact occurred on such dates or to
project the Company's results of operations or financial position for any future
period or date.
In connection with the proposed Merger Transactions, the Company will incur
various one-time costs currently estimated at $22.3 million. These costs
consist primarily of professional fees, printing costs and other expenses.
While the exact timing, nature and amount of these costs are subject to change
the Company will incur a one-time charge of approximately $8.3 million in the
quarter in which the Merger is consummated. This one-time charge is included in
the $22.3 million referred to above and consists of certain change in control
bonuses and severance payments aggregating $2.5 million and the payment, upon
cancellation of stock options, aggregating $5.8 million. As a result of the
foregoing, the Company will incur a net loss in the quarter in which the Merger
is recorded. Because this loss will result directly from the one-time charge
incurred in connection with the Merger Transactions, the Company does not expect
this loss to materially impact its liquidity or ongoing operations.
The pro forma adjustments were applied to the respective historical
consolidated financial statements of the Company to reflect and account for the
Merger as a recapitalization; accordingly, the historical basis of the Company's
assets and liabilities has not been impacted thereby.
IPC INFORMATION SYSTEMS, INC.
Pro Forma Consolidated Balance Sheet (unaudited)
December 31, 1997
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro forma
Historical adjustments Pro forma
----------- ------------ -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents .......................................................... $3,655 $ (3,655) (a) $ -
Trade receivables, less allowance of $1,515......................................... 65,887 65,887
Inventories......................................................................... 36,883 36,883
Prepaid expenses and other current assets........................................... 13,333 (3,894) (e) 9,439
----------- ------------ -----------
Total current assets............................................... 119,758 (7,549) 112,209
Property, plant and equipment, net.................................................... 40,420 40,420
Other assets, net..................................................................... 9,610 9,797 (e) 19,407
----------- ------------ -----------
Total assets....................................................... $169,788 $ 2,248 $172,036
=========== ============ ===========
Current liabilities:
Accounts payable.................................................................... $ 14,333 $ 14,333
Accrued liabilities................................................................. 28,408 $ (3,667) (f) 21,563
(3,096) (e)
(1,500) (g)
1,418 (f)
Customer advances and deferred revenue.............................................. 23,843 23,843
Current portion of capital leases ................................................. 3,363 3,363
----------- ------------ -----------
Total current liabilities.......................................... 69,947 (6,845) 63,102
Senior secured revolving credit....................................................... - 8,080 (a) 8,080
Long-term debt, net of current portion................................................ 2,124 2,124
Lease obligations, net of current portion............................................. 11,085 11,085
Senior unsecured notes................................................................ - 157,000 (b) 157,000
Other liabilities..................................................................... 5,318 (1,625) (g) 3,693
----------- ------------ -----------
Total liabilities.................................................. 88,474 156,610 245,084
----------- ------------ -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock - $0.01 par value, authorized 10,000,000 shares,
none issued and outstanding
Common stock - $0.01 par value, authorized 25,000,000 shares; issued December
31, 1997 - 10,979,964 shares, pro forma - 4,063,492 shares;
outstanding December 31, 1997 - 10,737,779, pro forma - 4,063,492 shares .......... 110 34 (c) 41
(103) (d)
(3) (h)
3 (i)
Paid-in capital..................................................................... 48,600 71,966 (c) -
(120,566) (d)
Retained earnings (deficit) ........................................................ 33,322 (96,824) (d) (73,089)
(4,203) (e)
(4,666) (f)
(715) (h)
(3) (i)
Less treasury stock, at cost, December 31, 1997 - 242,185 shares, pro forma - none . (718) 718 (h) -
----------- ------------ -----------
Total stockholders' equity (deficit)................................ 81,314 (154,362) (73,048)
----------- ------------ -----------
Total liabilities and stockholders' equity (deficit)............... $169,788 $ 2,248 $172,036
=========== ============ ===========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Information.
IPC INFORMATION SYSTEMS, INC.
Pro Forma Consolidated Statement Of Operations (unaudited)
For the three months ended December 31, 1997
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro forma
Historical adjustments Pro forma
-------------- ------------- --------------
<S> <C> <C> <C>
Revenue:
Product sales and installation............................................. $ 38,441 $ 38,441
Service.................................................................... 28,611 28,611
----------- ------------- --------------
67,052 - 67,052
Cost of revenue:
Product sales and installation.............................................. 22,185 22,185
Service..................................................................... 18,240 18,240
----------- ------------- --------------
40,425 - 40,425
----------- ------------- --------------
Gross profit...................................................... 26,627 - 26,627
Research and development expenses.............................................. 2,404 2,404
Selling, general and administrative expenses................................... 16,557 16,557
----------- ------------- --------------
Income from operations............................................ 7,666 - 7,666
Interest income/(expense), net................................................. (440) $ (5,006)(k) (5,736)
(290)(j)
Other income/(expense), net (39) (39)
----------- ------------- --------------
Income before provision for income taxes 7,187 (5,296) 1,891
Provision (benefit) for income taxes........................................... 3,593 (2,330)(l) 1,263
----------- ------------- --------------
Net income........................................................ $ 3,594 $ (2,966) $ 628
=========== ============= ==============
Basic earnings per share....................................................... $0.34 $0.15
----------- --------------
Basic weighted average shares outstanding...................................... 10,711 4,063
----------- --------------
Diluted earnings per share..................................................... $0.33 $0.15
----------- --------------
Diluted weighted average shares outstanding.................................... 10,865 4,063
----------- --------------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Information.
IPC INFORMATION SYSTEMS, INC.
Pro Forma Consolidated Statement Of Operations (unaudited)
For the year ended September 30, 1997
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro forma
Historical adjustments Pro forma
--------------- -------------- --------------
<S> <C> <C> <C>
Revenue:
Product sales and installation......................................... $179,978 $179,978
Service................................................................ 90,345 90,345
-------------- -------------- --------------
270,323 - 270,323
Cost of revenue:
Product sales and installation......................................... 127,212 127,212
Service................................................................ 62,897 62,897
-------------- -------------- --------------
190,109 - 190,109
-------------- -------------- --------------
Gross profit.................................. 80,214 - 80,214
Research and development expenses......................................... 9,976 9,976
Selling, general and administrative expenses.............................. 60,697 60,697
-------------- -------------- --------------
Income from operations........................ 9,541 - 9,541
Interest income/(expense), net............................................ (1,844) $ (18,687)(n) (21,691)
(1,160)(m)
Other income/(expense), net................... 417 (312)(p) 105
-------------- -------------- --------------
Income (loss) before provision for income taxes 8,114 (20,159) (12,045)
Provision (benefit) for income taxes...................................... 4,280 (8,733)(o) (4,453)
-------------- -------------- --------------
Net income (loss)............................. $ 3,834 $ (11,426) $ (7,592)
============== ============== ==============
Basic earnings (loss) per share........................................... $0.36 ($1.87)
-------------- --------------
Basic weighted average shares outstanding................................. 10,664 4,063
-------------- --------------
Diluted earnings (loss) per share......................................... $0.36 ($1.87)
-------------- --------------
Diluted weighted average shares outstanding............................... 10,704 4,063
-------------- --------------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Financial Information.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(a) Represents cash required to be borrowed from the Revolving Credit Facility
after application of the Company's cash balances, proceeds from the Notes
and the Equity Investment to fund the repurchase of IPC Common Stock, repay
certain other obligations and related fees and expenses due on consummation
of the Merger Transactions.
<TABLE>
<S> <C>
Company cash $ 3,655
Proceeds from Notes 157,000
Equity Investment 72,000
Repurchase of IPC Common Stock (217,493)
Repayment of certain other obligations (3,125)
Fees and expenses (20,117)
------------
Required from Revolving Credit Facility $ (8,080)
============
</TABLE>
In connection with the repurchase and retirement of IPC Common Stock, the
issuance of Surviving Corporation Common Stock related to the Equity
Investment and the exchange of the IXnet Common Stock for Surviving
Corporation Common Stock, the following table reconciles the pre-merger
outstanding shares of IPC Common Stock to the pro forma Surviving Corporation
Common Stock issued and outstanding, assuming all such transactions occurred
as of December 31, 1997.
<TABLE>
<S> <C>
Pre-merger shares outstanding 10,737,779
Repurchase and retirement of IPC Common Stock, assuming
the minimum number of shares will be converted into
Surviving Corporation Common Stock (10,356,827)
Issuance of Surviving Corporation Common Stock related
to the Equity Investment 3,428,572
Exchange of 560 shares of IXnet Common Stock for
Surviving Corporation Common Stock 253,968
-------------------
Pro forma issued and outstanding shares of Surviving Corporation
Common Stock 4,063,492
===================
</TABLE>
(b) Represents the gross proceeds to the Company from the issuance of the
Notes.
(c) Represents the issuance of 3,428,572 shares of Surviving Corporation Common
Stock at $21 per share.
(d) Represents the repurchase and retirement by the Company of 10,356,827
shares of IPC Common Stock at $21 per share.
(e) In connection with the Merger Transactions, the Company will incur
approximately $14,000 of professional fees, printing costs and other
expenses. Of the $14,000 in anticipated costs, $3,894 was included in
prepaid expenses and other current assets and $3,096 was included
in accrued liabilities at December 31, 1997. The $14,000 of fees
are as follows:
<TABLE>
<S> <C> <C>
Fees and other expenses related to the Revolving Credit
Facility, $1,800
to be amortized over five years commencing with the Merger
Fees and other expenses related to the Notes,
to be amortized over ten years commencing with the Merger 7,997
------------
Prepaid debt issuance costs $ 9,797
Fees and other expenses related to the Merger Agreement,
to be charged to paid-in-capital upon the Merger 4,203
--------------
Total professional fees, printing costs and other expenses $14,000
==============
</TABLE>
(f) The Company will incur $8,333 of change of control costs related to the
cancellation of stock options in the amount of $5,808 and change of control
severances and bonuses of $2,525. Of the $2,525 in change of control
severances and bonuses, $1,418 will be paid in periods subsequent to the
Merger. The unaudited pro forma consolidated balance sheet at December 31,
1997 reflects the above change of control costs, net of a $3,667 tax
benefit.
Because the above change of control expenses are non-recurring, they have
been excluded from the unaudited pro forma consolidated statements of
operations for the three months ended December 31, 1997 and the year ended
September 30, 1997.
(g) In connection with the change of control, the payment of certain other
obligations in the amount of $3,125 become due at the Merger.
(h) Represents the retirement, upon the Merger, of 242,185 shares of IPC Common
Stock held in treasury.
(i) Represents the Exchange of 560 shares of IXnet Common Stock for 253,968
shares of Surviving Corporation Common Stock.
(j) Represents the amortization of debt issuance cost over the respective terms
of the debt financing, for the three months ended December 31, 1997.
Revolving Credit Facility $ 90
Notes 200
-------------
$290
=============
(k) Represents the interest expense on (i) an assumed $12,102 borrowed at
October 1, 1996 under the Revolving Credit Facility, at an assumed rate of
8.15%, (ii) $157,000 proceeds from Notes, at an assumed interest rate of
10%, compounded semi-annually, and (iii) accretion of discount on Notes for
the three months ended December 31, 1997.
Revolving Credit Facility $ 247
Notes 4,327
Accretion of discount on Notes 432
-------------
$5,006
=============
A change of 0.5% in the assumed interest rates would result in a change of $15
and $238 in interest expense for the Revolving Credit Facility and the Notes,
respectively, for the three months ended December 31, 1997.
(l) Represents the income tax benefit related to the pro forma adjustments, for
the three months ended December 31, 1997, at the Company's federal and
state incremental tax rate of 44%.
(m) Represents the amortization of debt issuance cost over the respective terms
of the debt financing, for the year ended September 30, 1997.
Revolving Credit Facility $ 360
Notes 800
-------------
$1,160
=============
(n) Represents the interest expense on (i) an assumed $12,102 borrowed at
October 1, 1996 under the Revolving Credit Facility, at an assumed rate of
8.15%, (ii) $157,000 proceeds from the Notes, at an assumed interest rate
of 10%, compounded semi-annually, and (iii) accretion of discount on Notes
for the year ended September 30, 1997.
Revolving Credit Facility $ 986
Notes 16,092
Accretion of discount on Notes 1,609
-------------
$18,687
=============
A change of 0.5% in the assumed interest rates would result in a change of $61
and $826 in interest expense for the Revolving Credit Facility and the Notes,
respectively, for the year ended September 30, 1997.
(o) Represents the income tax benefit related to the pro forma adjustments, for
the year ended September 30, 1997, at the Company's federal and state
incremental tax rate of 44%.
(p) Represents the reversal of the after-tax minority interest benefit
associated with IXnet's losses for the year ended September 30, 1997.
<PAGE>
DESCRIPTION OF IPC CAPITAL STOCK
The authorized capital stock of IPC consists of 25,000,000 shares of common
stock, $.01 par value per share, and 10,000,000 shares of preferred stock, $.01
par value per share. At the Record Date, there were __________ shares of IPC
Common Stock outstanding, held of record by ____ stockholders, and no shares of
Preferred Stock outstanding. IPC has reserved for issuance (i) 1,579,337 shares
pursuant to the 1994 Stock Option Plan, as amended, of which __________ options
have been granted as of December 31, 1997; (ii) 526,813 shares pursuant to the
1994 Employee Stock Purchase Plan of which 49,420 shares have been issued
pursuant to such plan and (iii) 31,857 shares pursuant to an employment
agreement between IPC and a former employee. The following description of the
capital stock of IPC and certain provisions of the Existing Certificate of
Incorporation and Bylaws is a summary and is qualified in its entirety by the
provisions of the Existing Certificate of Incorporation and Bylaws, a copy of
each of which is on file with the Commission.
COMMON STOCK
Holders of IPC Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders, including the election of
directors, and are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the IPC Board out of funds legally available
therefor. See "STOCK PRICE AND DIVIDEND INFORMATION." In the event of a
liquidation, dissolution or winding up of IPC, holders of IPC Common Stock are
entitled to share ratably in all assets remaining after payment of IPC's
liabilities and the liquidation preference, if any, of any outstanding shares of
Preferred Stock. Holders of IPC Common Stock have no preemptive or other
subscription rights and no rights to convert their IPC Common Stock into any
other securities, and there are no redemptive provisions with respect to such
shares. All of the outstanding shares of IPC Common Stock are, and the shares of
Surviving Corporation will be, fully paid and non-assessable. The rights,
preferences and privileges of holders of IPC Common Stock are subject to, and
may be adversely affected by, the rights of the holders of shares of any series
of Preferred Stock which IPC or the Surviving Corporation may designate and
issue in the future.
PREFERRED STOCK
The IPC Board has the authority, without any further vote or action by the
stockholders, to provide for the issuance of up to 10,000,000 shares of
Preferred Stock from time to time in one or more series, to establish the number
of shares to be included in each such series, to fix the designations,
preferences, limitations and relative, participating, optional or other special
rights and qualifications or restrictions of the shares of each series, and to
determine the voting powers, if any, of such shares. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could adversely effect, among other things, the rights
of existing stockholders or could have the effect of delaying, deferring or
preventing a "change in control" of IPC without further action by the
stockholders. In addition, the issuance of Preferred Stock could decrease the
amount of earnings and assets available for distribution to holders of IPC
Common Stock. IPC has no current plans to issue any Preferred Stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Section 203 of the DGCL ("Section 203") generally 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 Section
203, 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. The statute could prohibit or delay the accomplishment of mergers
or other takeover or "change in control" attempts with respect to IPC and,
accordingly, may discourage attempts to acquire IPC. However, IPC has waived the
provisions of Section 203 by an amendment to IPC's Bylaws adopted on May 9, 1994
<PAGE>
by the stockholders of record on that date. Such amendment became effective on
May 9, 1995. The Surviving Corporation's Bylaws also provide for a waiver of
Section 203.
Pursuant to the Investors Agreement, the Surviving Corporation Board will
consist of nine members, (i) three of whom shall be nominated by CSH
Stockholders; (ii) two of whom shall be nominated by the CSH Stockholders and
shall be individuals who are not "Affiliates" or "Associates" (as those terms
are used within the meaning of Rule 12b-2 of the General Rules and Regulations
under the Exchange Act) of any party to the Investors Agreement or any Affiliate
thereof; (iii) two of whom shall be nominated by the CSH Stockholders and shall
be individuals who are executive officers of IPC or its subsidiaries; and (iv)
two of whom shall be nominated by Richard P. Kleinknecht and his Permitted
Transferees. Each of the parties to the Investors Agreement and its Permitted
Transferees has agreed to vote its shares of IPC Common Stock in favor of the
persons so nominated, provided that none of the parties will be required to vote
for another party's nominees if the number of shares of Surviving Corporation
Common Stock held by the person or group making the nomination is (A) in the
case of the CSH Stockholders, less than 5% of the then outstanding number of
shares of Surviving Corporation Common Stock or (B) in the case of Richard P.
Kleinknecht and his Permitted Transferees, less than 50% of such person's or
group's Initial Ownership.
CAPITAL STOCK OF THE SURVIVING CORPORATION
If the Certificate Amendment is approved by the requisite vote of the
stockholders of IPC Common Stock at the Annual Meeting, at the Effective Time of
the Merger, the Existing Certificate of Incorporation of IPC will be amended and
restated to read as set forth in Annex B, and, as so amended, until thereafter
further amended as provided therein will be the certificate of incorporation of
the Surviving Corporation. After the Merger, the Surviving Corporation will have
the same authorized capital stock as the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for IPC Common Stock is, and for the
Surviving Corporation will be, ChaseMellon Shareholder Services L.L.C., New
York, New York.
COMPARISON OF CERTAIN RIGHTS OF STOCKHOLDERS
GENERAL
Both IPC and the Surviving Corporation are Delaware corporations subject to
the provisions of DGCL. At the Effective Time, stockholders of IPC whose rights
are currently governed by the Existing Certificate of Incorporation, IPC's
Bylaws (the "IPC Bylaws") and DGCL who retain Surviving Corporation Common Stock
under the exchange procedures set forth herein, will, if the Merger Agreement is
adopted at the Annual Meeting, and upon consummation of the Merger, become
stockholders of the Surviving Corporation, and their rights as stockholders will
be determined by the Surviving Corporation's Bylaws and DGCL and the Existing
Certificate of Incorporation or, if the proposal for the Certificate Amendment
is approved at the Annual Meeting, the Certificate Amendment.
The following is a summary of the material differences in the rights of
stockholders of IPC and the Surviving Corporation. The following discussion
does not purport to be a complete discussion of, and is qualified in its
entirety by reference to, the governing laws, the Existing Certificate of
Incorporation, the IPC Bylaws, the Certificate Amendment and the Surviving
Corporation's Bylaws.
<PAGE>
SPECIAL MEETINGS OF STOCKHOLDERS
IPC. Under the IPC Bylaws, special meetings of stockholders may be called
by the Chairman or the Vice-Chairman of the IPC Board or by the Secretary of IPC
upon the written request of stockholders owning at least a majority of IPC's
Common Stock issued and outstanding.
Surviving Corporation. The Surviving Corporation's Bylaws provide that
special meetings of stockholders may be called only by the Surviving Corporation
Board or by the Chairman of the Surviving Corporation.
CLASSIFICATION OF THE BOARD; REMOVAL OF DIRECTORS
IPC. As a result of the classified board, the IPC Bylaws provide that any
director or the entire IPC Board may be removed by the holders of a majority of
shares entitled to vote for the election of directors only for cause. Upon the
removal of a director, such vacancy can only be filled by a majority of
directors then in office.
Surviving Corporation. The Surviving Corporation's Bylaws permit
stockholders to remove directors, with or without cause, at a special meeting of
stockholders called for that purpose. Vacancies created by the removal of
directors may be filled by stockholders at such special meeting. If the
stockholders do not fill such vacancy at the special meeting, a majority of
directors then in office may fill the vacancy.
For a discussion of the differences between the structure of the IPC Board
and the Surviving Corporation Board, see "PROPOSAL 2 -- CERTIFICATE AMENDMENT --
Classification of the Board."
LIMITATIONS OF DIRECTOR LIABILITY
For a discussion of the differences related to director liability between
IPC and the Surviving Corporation, see "PROPOSAL 2 -- CERTIFICATE AMENDMENT --
Limitations of Director Liability."
BYLAW AMENDMENTS
IPC. The IPC Bylaws provide that the IPC Bylaws may be amended or repealed
by the vote of two-thirds of the whole IPC Board or by stockholders, subject to
the supermajority voting requirements which are necessary to alter, amend,
rescind or repeal certain of the IPC Bylaws (which include provisions concerning
the number, election and tenure, vacancies, removal and resignation of
directors).
Surviving Corporation. The Surviving Corporation's Bylaws provide that
bylaws may be altered, amended or repealed, or new bylaws adopted by the
affirmative vote of a majority of the members of the Surviving Corporation Board
or by the holders of a majority of Surviving Corporation Common Stock entitled
to vote at any annual or special meeting. See also "PROPOSAL 2 -- CERTIFICATE
AMENDMENT -- Amendments to Bylaws."
LEGAL MATTERS
The validity of the Surviving Corporation Common Stock to be retained in
connection with the Merger will be passed upon for IPC by Thacher Proffitt &
Wood, New York, New York, counsel to the Company. Thacher Proffitt & Wood has
delivered an opinion concerning certain Federal income taxes of the Merger.
<PAGE>
EXPERTS
The consolidated financial statements of IPC and subsidiaries as of
September 30, 1997 and 1996 and for each of three years in the period ended
September 30, 1997 incorporated by reference in this Proxy Statement/Prospectus,
and in the Registration Statement of which this Proxy Statement/Prospectus is a
part, have been incorporated herein in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's 1999 Annual Meeting of Stockholders must
have been received by the Company no later than _______________, 1998 in order
to be included in the proxy statement and proxy relating to that meeting.
<PAGE>
ANNEX A
EXECUTION COPY
-------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
ARIZONA ACQUISITION CORP.
AND
IPC INFORMATION SYSTEMS, INC.
December 18, 1997
-------------------------------------------
<PAGE>
CONTENTS
--------
(Continued)
CONTENTS
PAGE
----
1. Definitions.......................................................1
2. Basic Transaction................................................10
(a) The Merger..............................................10
(b) The Closing.............................................10
(c) Actions at the Closing..................................11
(d) Effect of Merger........................................11
(e) Elections...............................................13
(f) Proration...............................................14
(g) Procedure for Payment...................................15
(h) Dissenting Shares.......................................17
(i) Fractional Shares.......................................18
(j) Closing of Transfer Records.............................18
3. Representations and Warranties of the Company....................18
(a) Organization, Qualification, and Corporate Power........18
(b) Capitalization..........................................19
(c) Authorization of Transaction............................19
(d) Noncontravention........................................20
(e) Filings with the SEC....................................20
(f) Financial Statements....................................20
(g) [Intentionally left blank.].............................20
(h) Undisclosed Liabilities.................................20
(i) Brokers' Fees...........................................21
(j) Absence of Certain Changes..............................21
(k) Litigation..............................................22
(l) Taxes...................................................22
(m) Compliance with Laws....................................23
(n) Permits.................................................23
(o) Contracts...............................................23
(p) Intellectual Property Rights............................24
(q) Board Approval; Fairness Opinion........................25
(r) ERISA...................................................25
(s) Labor and Employment Matters............................26
(t) Real Estate.............................................27
(u) Environmental Matters...................................27
4. Representations and Warranties of AAC............................28
(a) Organization............................................28
(b) Financing...............................................28
(c) Authorization of Transaction............................29
(i)
<PAGE>
CONTENTS
(Continued)
PAGE
----
(d) Noncontravention........................................29
(e) Brokers' Fees...........................................30
(f) Capitalization..........................................30
5. Covenants........................................................30
(a) General.................................................30
(b) Notices and Consents....................................30
(c) Regulatory Matters and Approvals........................30
(d) Financing...............................................32
(e) Accounting Treatment....................................32
(f) Cooperation.............................................32
(g) Operation of the Company's Business.....................33
(h) Full Access.............................................34
(i) Notice of Developments..................................34
(j) No Solicitation.........................................34
(k) Insurance and Indemnification...........................35
(l) Employees...............................................36
(m) Disclosure..............................................37
(n) Comfort Letters.........................................37
(o) Affiliate Letters.......................................37
(p) Continued Registration..................................38
(q) Operation of AAC's Business.............................38
(r) No Amendment of Ancillary Agreements....................38
(s) Solvency Opinion........................................38
6. Conditions to Obligation to Close................................38
(a) Conditions to Obligation of AAC.........................38
(b) Conditions to Obligation of the Company.................40
7. Termination......................................................41
(a) Termination of Agreement................................41
(b) Effect of Termination...................................42
(c) Termination Fee; Expenses...............................42
8. Miscellaneous....................................................42
(a) Survival................................................42
(b) Press Releases and Public Announcements.................43
(c) No Third Party Beneficiaries............................43
(d) Entire Agreement........................................43
(e) Succession and Assignment...............................43
(f) Counterparts............................................43
(ii)
<PAGE>
CONTENTS
(Continued)
PAGE
----
(g) General Interpretive Principles.........................43
(h) Notices.................................................44
(i) Governing Law; Forum Selection; and
Waiver of Jury Trial....................................45
(j) Amendments and Waivers..................................46
(k) Severability............................................47
(l) Expenses................................................47
(m) Incorporation of Exhibits, Schedule
and Disclosure Schedules................................47
(n) Transfer Taxes..........................................47
(o) Limited Recourse........................................47
Company Disclosure Schedule
AAC Disclosure Schedule
Schedule A List of Directors of the Surviving Corporation
Exhibit A-1 Amended and Restated Certificate of Incorporation
Exhibit A-2 Restated Certificate of Incorporation
Exhibit B Bylaws
Exhibit C Stock Option Plan
Exhibit D Affiliate Letters
(iii)
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger (the "Agreement") entered into as of
December 18, 1997, by and between Arizona Acquisition Corp., a Delaware
corporation ("AAC"), and IPC Information Systems, Inc., a Delaware corporation
(the "Company"). AAC and the Company are referred to collectively herein as the
"Parties."
This Agreement contemplates the merger of AAC with and into the
Company.
Concurrently with the execution of this Agreement, and as an inducement
to AAC and the Company to enter into this Agreement, (i) AAC and certain
principal stockholders of the Company have entered into the Stockholders
Agreement pursuant to which such stockholders have agreed, among other things,
not to sell, transfer, pledge, assign or otherwise dispose of any shares of
Company Common Stock owned or held by them, or enter into any agreement to
accomplish any of the foregoing prior to the Closing, with certain exceptions
and (ii) one or more of the parties thereto and/or others have entered into the
other Ancillary Agreements.
It is intended that the Merger be recorded as a recapitalization for
financial reporting purposes, and both Parties, after discussion with their
auditors, believe that the Merger is eligible for such accounting treatment.
It is intended that the Merger constitute a tax-free reorganization
within the meaning of Section 368(a)(1)(E) of the Code.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
------------
"AAC" has the meaning set forth in the preface above.
"AAC Disclosure Schedule" has the meaning set forth in ss.4.
"AAC-owned Share" means any Company Common Stock that AAC beneficially
owns.
"AAC Comfort Letter" has the meaning set forth in ss.5(n).
"AAC Common Stock" has the meaning set forth in ss.4(f).
"AAC Shareholder Agreement" means the AAC Shareholder Agreement, dated
as of the date hereof between CSH LLC, as shareholder of AAC, and the Company.
"Acquisition Proposal" has the meaning set forth in ss.5(j).
1
<PAGE>
"Acquisition Transaction" has the meaning set forth in ss.5(j).
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Agent" has the meaning set forth in ss.8(i).
"Agreement" has the meaning set forth in the preface above.
"Ancillary Agreements" means the Stockholders Agreement, the Investors
Agreement, the Share Exchange and Termination Agreement, the Starr Termination
Agreement, the Walsh Employment Agreement, the Servidio Employment Agreement,
the KEC-NY Labor Pool Agreement, the KEC-NJ Labor Pool Agreement, the Corporate
Opportunity Agreement, the Richard P. Kleinknecht Employment Agreement, the
Peter J. Kleinknecht Employment Agreement and the AAC Shareholder Agreement.
"Benefit Plan" means any Plan, other than a Multiemployer Plan,
existing at the Closing Date or prior thereto, established or to which
contributions have at any time been made by the Company or any Subsidiary, or
any predecessor of the Company or any Subsidiary, under which any employee,
former employee or director of the Company or any Subsidiary, or any beneficiary
thereof is covered, is eligible for coverage or has benefit rights in respect of
service to the Company or any Subsidiary.
"Business Day" means any day on which the principal offices of the SEC
in Washington, D.C., are open to accept filings or, in the case of determining a
date when any payment is due, any day other than a day on which banks in New
York, New York, are required or authorized to be closed.
"Capital Lease" means a lease with respect to which the lessee is
required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"Capital Lease Obligation" means, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person as the lessee under
such Capital Lease which would, in accordance with GAAP, appear as a liability
on a balance sheet of such Person.
"Cash Electing Shares" has the meaning set forth in ss.2(d)(viii).
"Cash Election Price" has the meaning set forth in ss.2(d)(viii).
"Cash Proration Factor" has the meaning set forth in ss.2(f)(iii).
"Certificate of Merger" has the meaning set forth in ss.2(c).
"Closing" has the meaning set forth in ss.2(b).
"Closing Date" has the meaning set forth in ss.2(b).
2
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface above.
"Company Comfort Letter" has the meaning set forth in ss.5(n).
"Company Common Stock" means any share of the common stock, $0.01 par
value per share, of the Company.
"Company Disclosure Schedule" has the meaning set forth in ss.3.
"Company Stockholder" means any Person who or which holds any shares of
Company Common Stock.
"Confidential Information" means any information concerning the
businesses and affairs of the Company and its Subsidiaries that is not already
generally available to the public or is otherwise required to be disclosed by
law or court order.
"Confidentiality/Standstill Letter Agreement" means the
confidentiality/standstill letter agreement, dated as of November 13, 1997,
between AAC and the Company.
"Contracts" means, with respect to any Person, any agreement, contract,
obligation, note, bond, mortgage, indenture, option, Lease, promise or
undertaking that is legally binding on such Person or to which such Person is a
party.
"Corporate Opportunity Agreement" means the Amended and Restated
Corporate Opportunity Agreement dated as of the date hereof, among the Company,
KEC-NY and KEC-NJ.
"CSH LLC" means Cable Systems Holdings, LLC, a Delaware limited
liability company.
"CSI" means Cable Systems International, Inc., a Delaware corporation.
"CVC" means Citicorp Venture Capital, Ltd., a New York corporation.
"Debt" with respect to any Person means, at any time, without
duplication,
(a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable preferred stock;
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising in
the Ordinary Course of Business but including all liabilities created
or arising under any conditional sale or other title retention
agreement with respect to any such property);
3
<PAGE>
(c) all Capital Lease Obligations of such Person;
(d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not such
Person has assumed or otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its
account by banks and other financial institutions (whether or not
representing obligations for borrowed money);
(f) Swap Obligations of such Person; and
(g) any Guaranty of such Person with respect to liabilities of
a type described in any of clauses (a) through (f) hereof.
"Debt Financing Commitments" has the meaning set forth in ss.4(b).
"Definitive Proxy Materials" means the definitive proxy materials
relating to the Special Meeting.
"Delaware General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended.
"Dissenting Shares" has the meaning set forth in ss.2(h).
"Election Date" has the meaning set forth in ss.2(e)(i).
"Effective Time" has the meaning set forth in ss.2(d)(i).
"Environmental Law" means any and all current federal, state, local,
foreign and provincial statutes, ordinances, rules and regulations relating to
the protection of the environment, and/or governing the generation, treatment,
storage, transportation, disposal, manufacture, or release of Hazardous
Materials, and any common law doctrine, including but not limited to,
negligence, nuisance, trespass, personal injury, or property damage related to,
or arising out of, the presence, release, or exposure to a Hazardous Material.
"Equity Financing Commitment" has the meaning set forth in ss.4(b).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means any Person who is, or was, a member of a
controlled group (within the meaning of Section 412(n)(6) of the Code) that
includes, or at any time included, the Company or any Subsidiary, or any
predecessor of any of the foregoing.
4
<PAGE>
"Exchange Agent" has the meaning set forth in ss.2(e)(ii).
"Exchange Fund" has the meaning set forth in ss.2(g).
"Form of Election" has the meaning set forth in ss.2(e)(iii).
"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.
"Guaranties" by any Person means all obligations (other than
endorsements in the Ordinary Course of Business of negotiable instruments for
deposit or collection) of such Person guaranteeing, or in effect guaranteeing,
any Debt, cash dividend or other monetary obligation of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Debt or obligation or any
property or assets constituting security therefor; (ii) to advance or supply
funds for the purchase or payment of such Debt or obligation; (iii) to lease
property or to purchase securities or other property or services primarily for
the purpose of assuring the owner of such Debt or obligation of the ability of
the primary obligor to make payment of the Debt or obligation; or (iv) otherwise
to assure the owner of the Debt or obligation of the primary obligor against
loss in respect thereof. For the purposes of all computations made under this
Agreement, a Guaranty in respect of any Debt for borrowed money shall be deemed
to be Debt equal to the principal amount of such Debt for borrowed money which
has been guaranteed, and a Guaranty in respect of any other obligation or
liability or any dividend shall be deemed to be Debt equal to the maximum
aggregate amount of such obligation, liability or dividend unless such Guaranty
is limited.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Hazardous Material" means any materials, substances or wastes defined
as or included in the definition of "hazardous substances," "hazardous
materials," "hazardous wastes," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "pollutants,"
"regulated substances," or "contaminants" or words of similar import, under any
Environmental Law.
"Intellectual Property" shall mean all trademarks and trademark rights,
trade names and trade name rights, service marks and service mark rights,
service names and service name rights, copyrights and copyright rights, patents
and patent rights, brand names, trade dress, business and
5
<PAGE>
product names, logos, slogans, trade secrets, inventions, processes, formulae,
industrial models, processes, designs, specifications, data, technology,
methodologies, computer programs (including all source codes), confidential and
proprietary information, whether or not subject to statutory registration, and
all related technical information, manufacturing, engineering and technical
drawings, know-how and all pending applications for and registrations of
patents, trademarks, service marks and copyrights, and the right to sue for past
infringement, if any, in connection with any of the foregoing, and all
documents, disks and other media on which any of the foregoing is stored.
"Investors Agreement" means the Investors Agreement, dated as of the
date hereof, by and among the Company, CSH LLC, CSI and certain other persons
named therein.
"IXNET" means International Exchange Networks, Ltd., a Delaware
corporation.
"Joint Disclosure Document" means the disclosure document combining the
Prospectus and the Definitive Proxy Materials.
"KEC-NJ" means Kleinknecht Electric Company, Inc., a New Jersey
corporation.
"KEC-NJ Labor Pool Agreement" means the Amended and Restated Labor Pool
Agreement, dated as of the date hereof, between KEC-NJ and the Company.
"KEC-NY" means Kleinknecht Electric Company, Inc., a New York
corporation.
"KEC-NY Labor Pool Agreement" means the Amended and Restated Labor Pool
Agreement, dated as of the date hereof, between KEC-NY and the Company.
"Kleinknechts" means Richard P. Kleinknecht and Peter J. Kleinknecht.
"Knowledge" means actual or constructive knowledge without independent
investigation of any current director or current executive officer.
"Lease" means any lease of real property made under which the Company
or a Subsidiary thereof is a tenant.
"Lien" means any lien, claim, restriction, security interest,
preemptive right, covenant, easement, mortgage, other encumbrance or any claim
of any third party other than (a) mechanic's, materialman's, and similar liens,
(b) liens for taxes not yet due and payable or for taxes that the taxpayer is
contesting in good faith through appropriate proceedings, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Material Adverse Effect" means any material adverse effect on the
financial condition or operations, business, assets, or results of operations of
the Company and its Subsidiaries taken as
6
<PAGE>
a whole, or AAC, as the context in this Agreement requires, but excluding any
change resulting from general industry or economic conditions.
"Maximum Stock Election Number" has the meaning set forth in
ss.2(f)(i).
"Merger" has the meaning set forth in ss.2(a).
"Merger Consideration" has the meaning set forth in ss.2(d)(viii).
"Minimum Stock Election Number" has the meaning set forth in
ss.2(f)(i).
"Most Recent Fiscal Year End" has the meaning set forth in ss.3(f).
"MSCI" has the meaning set forth in ss.4(b).
"Multiemployer Plan" means a multiemployer plan within the meaning of
Section 4001(a)(3) of ERISA with respect to which the Company or any ERISA
Affiliate has an obligation to contribute or has or could have withdrawal
liability under ss.4201 of ERISA.
"Non-Stock Electing Shares" has the meaning set forth in ss.2(f)(iii).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Owned Real Property" has the meaning set forth in ss.3(t).
"Party" has the meaning set forth in the preface above.
"Permits" means each material license (other than with respect to
Intellectual Property), franchise, permit, certificate, approval, consent or
other similar authorization affecting, or relating in any way to, the assets or
business of the Company and its Subsidiaries.
"Person" means an individual, a partnership, a limited liability
company, a corporation, an association, a joint stock company, a trust, an
estate, a joint venture, an unincorporated organization, or other entity or a
Governmental Body.
"Peter J. Kleinknecht Employment Agreement" means the Amended and
Restated Employment Agreement dated as of the date hereof between the Company
and Peter J.
Kleinknecht.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether
7
<PAGE>
written or oral, or whether for the benefit of a single individual or more than
one individual including, but not limited to, without limitation, any "employee
benefit plan" within the meaning of Section 3(3) of ERISA (whether or not
subject thereto).
"Predecessor Site" means any of the real properties of any predecessors
of the Company or any Subsidiary thereof or any entities previously owned by the
Company or any Subsidiary thereof.
"Preliminary Proxy Materials" has the meaning set forth in ss.5(c)(i).
"Prospectus" means the final prospectus relating to the registration of
the Surviving Corporation Common Stock under the Securities Act.
"Proceeding" has the meaning set forth in ss.8(i).
"Public Reports" has the meaning set forth in ss.3(e).
"Registration Statement" has the meaning set forth in ss.5(c)(i).
"Requisite Stockholder Approval" means the affirmative vote of at least
a majority of the shares of Company Common Stock, but less than 80% of the
shares of the Company Common Stock, in favor of this Agreement and the Merger in
accordance with the Delaware General Corporation Law.
"Requisite Super-Majority Stockholder Approval" means the affirmative
vote of at least 80% of the shares of Company Common Stock in favor of the
Merger and this Agreement in accordance with Delaware General Corporation Law.
"Richard P. Kleinknecht Employment Agreement" means the Amended and
Restated Employment Agreement dated as of the date hereof between the Company
and Richard P.
Kleinknecht.
"Schedule 13E-3" has the meaning set forth in ss.5(c)(i).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Servidio" means Anthony Servidio.
"Servidio Employment Agreement" means the Amended and Restated
Employment Agreement, dated as of the date hereof, between Servidio and IXNET.
8
<PAGE>
"Share Exchange and Termination Agreement" means the Share Exchange and
Termination Agreement, dated as of the date hereof, among Walsh, Servidio, IXNET
and the Company.
"Site" means any of the real properties currently or previously owned,
leased or operated by the Company or any Subsidiary thereof, including all soil,
subsoil, surface waters and groundwater thereat.
"Solvency Opinion" means the opinion from an independent advisor
confirming that, upon the consummation of the transactions contemplated hereby,
the Surviving Corporation (on a consolidated basis) (i) will not be insolvent,
(ii) will not be left with unreasonably small capital, (iii) will not have
incurred debts beyond its ability to pay such debts as they mature, and (iv)
will have a fair value and present fair salable value of its assets in excess of
its stated liabilities and identified contingent liabilities by at least the
total par value of its capital stock.
"Special Meeting" has the meaning set forth in ss.5(c)(ii).
"Starrs" mean Gerald and Robert Starr.
"Starr Termination Agreement" means the Termination Agreement, dated as
of the date hereof, among the Starrs and the Company.
"Stock Electing Shares" has the meaning set forth in ss.2(d)(viii).
"Stock Election" has the meaning set forth in ss.2(e)(i).
"Stock Election Price" has the meaning set forth in ss.2(d)(viii).
"Stock Proration Factor" has the meaning set forth in ss.2(f)(ii).
"Stockholders Agreement" means the Stockholders Agreement, dated as of
the date hereof, by and among, inter alia, the Kleinknechts, AAC and Russell G.
Kleinknecht.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Superior Acquisition Proposal" has the meaning set forth in
ss.7(a)(iv).
"Surviving Corporation" has the meaning set forth in ss.2(a).
"Surviving Corporation Common Stock" has the meaning set forth in
ss.2(d)(vi).
"Swap Obligations" means, with respect to any Person, payment
obligations with respect to interest rate swaps, currency swaps and similar
obligations obligating such Person to make payments, whether periodically or
upon the happening of a contingency. For the purposes of this
9
<PAGE>
Agreement, the amount of any Swap Obligation shall be the amount determined in
respect thereof as of the end of the then most recently ended fiscal quarter of
such Person, based on the assumption that such Swap Obligation had terminated at
the end of such fiscal quarter, and, in making such determination, if any
agreement relating to such Swap Obligation provides for the netting of amounts
payable by and to such Person thereunder or if any such agreement provides for
the simultaneous payment of amounts by and to such Person, then, in each such
case, the amount of such obligation shall be the net amount so determined.
"Taxes" means all federal, state, local and foreign income, profits,
franchise, gross receipts, environmental, customs duty, capital stock,
severance, stamp, payroll, sales, employment, unemployment, disability, use,
property, withholding, excise, production, value added, occupancy and other
taxes, duties or assessments of any nature whatsoever together with all
interest, penalties, fines and additions to tax imposed with respect to such
amounts and any interest in respect of such penalties and additions to tax.
"Tax Returns" means all returns and reports (including elections,
claims, declarations, disclosures, schedules, estimates, computations and
information returns) required to be supplied to a Tax authority in any
jurisdiction relating to Taxes.
"Termination Fee" has the meaning set forth in ss.7(c).
"Third Party" means any "group," as described in Rule 13d-5(b)
promulgated under the Securities Exchange Act, or Person, other than AAC or any
of its Affiliates.
"Walsh" means David Walsh.
"Walsh Employment Agreement" means the Amended and Restated Employment
Agreement, dated as of the date hereof, between Walsh and IXNET.
2. BASIC TRANSACTION.
(a) THE MERGER. Subject to the terms and conditions of this Agreement
and in accordance with the Delaware General Corporation Law, AAC will merge with
and into the Company (the "Merger") at the Effective Time. Upon the Effective
Time, the separate existence of AAC shall cease and the Company shall be the
corporation surviving the Merger and shall continue under the name IPC
Information Systems, Inc. (the "Surviving Corporation").
(b) THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Morgan, Lewis &
Bockius LLP in New York City commencing at 9:00 a.m., local time, on the second
Business Day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing itself) or such other date as the Parties may mutually determine
(the "Closing Date").
10
<PAGE>
(c) ACTIONS AT THE CLOSING. On the day of the Closing (which Closing
satisfies the requirements of ss.2(b)), immediately following the satisfaction
or waiver of the conditions to the obligations of the Parties to consummate the
transactions contemplated hereby, (i) the Company will file with the Secretary
of State of the State of Delaware a Certificate of Merger (the "Certificate of
Merger"), and (ii) AAC will cause the Exchange Fund to be delivered to the
Exchange Agent in the manner provided below in this ss.2.
(d) EFFECT OF MERGER.
(i) GENERAL. The Merger shall become effective at the time
(the "Effective Time") the Company duly files the Certificate of Merger with the
Secretary of State of the State of Delaware or at such later time as is
specified in the Certificate of Merger. The Merger shall have the effect set
forth in the Delaware General Corporation Law. The Surviving Corporation may, at
any time after the Effective Time, take any action (including executing and
delivering any document) in the name and on behalf of either the Company or AAC
in order to carry out and effectuate the transactions contemplated by this
Agreement.
(ii) CERTIFICATE OF INCORPORATION. At the Effective Time, and
without any further action on the part of the Company or AAC, the certificate of
incorporation of the Company in effect immediately prior to the Effective Time
shall be amended as of the Effective Time, (i) in the event that the Requisite
Super-Majority Stockholder Approval is obtained, to read as set forth in Exhibit
A-1, or (ii) in the event that the Requisite Stockholder Approval is obtained,
to read as set forth in the Exhibit A-2, and as so amended shall be the
certificate of incorporation of the Surviving Corporation until thereafter
amended in accordance with applicable law.
(iii) BYLAWS. At the Effective Time and without any further
action on the part of the Company or AAC, the bylaws of the Company, as amended
and restated, a copy of which is set forth as Exhibit B, and in effect
immediately prior to the Effective Time, shall be the bylaws of the Surviving
Corporation, until amended in accordance with applicable law.
(iv) (A) DIRECTORS. (1) Subject to applicable law, in the
event that the Requisite Super-Majority Stockholder Approval is obtained, the
directors of the Surviving Corporation at the Effective Time shall be the
directors as set forth on Schedule A hereto; provided, that in the event any
such director is unable, or becomes unable to serve, a replacement director
shall be designated by AAC.
(2) In the event that the Requisite Stockholder Approval
is obtained:
(a) Subject to applicable law, (i) the vacancies on
the board of directors of the Company created by the
resignations of directors at the Closing and (ii) the
vacancies created by an increase in the size of the board of
directors of the Company from six to nine in accordance with
the bylaws of the Surviving Corporation, in each case, shall
be filled by the individuals set forth on Schedule A hereto;
provided, that in the event any such individual is unable, or
becomes unable to serve, a replacement director shall be
designated by AAC.
11
<PAGE>
(b) AAC will supply to the Surviving Corporation in
writing and be solely responsible for any information provided
by AAC with respect to itself and its nominees, officers,
directors and Affiliates required by Section 14(f) of the
Securities Exchange Act and Rule 14f-1 promulgated thereunder.
(B) OFFICERS. Subject to applicable law and the provisions of
applicable Ancillary Agreements, the officers of the Surviving
Corporation at the Effective Time shall be the officers of the Company
immediately prior to the Effective Time.
(v) TREASURY STOCK AND AAC-OWNED SHARES. At and as of the
Effective Time, by virtue of the Merger and without any action on the part of
the Company or AAC or any holder of shares of Company Common Stock or AAC Common
Stock, each share of Company Common Stock owned by the Company or any subsidiary
as treasury stock and each AAC-owned Share held immediately prior to the
Effective Time shall be canceled and cease to exist, and no consideration shall
be delivered or deliverable with respect thereto.
(vi) CONVERSION OF AAC COMMON STOCK. At and as of the
Effective Time, by virtue of the Merger and without any action on the part of
the Company or AAC or any holder of shares of Company Common Stock or AAC Common
Stock, each share of AAC Common Stock shall be converted into one share of
common stock, $0.01 par value per share, of the Surviving Corporation (the
"Surviving Corporation Common Stock").
(vii) COMPANY STOCK OPTIONS. Each option to purchase shares of
Company Common Stock that is outstanding immediately prior to the Effective Time
(whether or not vested or exercisable) shall, at the Effective Time, be
cancelled, and in exchange therefor, each option holder shall receive a cash
payment which, prior to deduction for applicable withholding taxes, is in an
amount equal to the product of (A) the excess, if any, of the Cash Election
Price over the per share exercise price of the option and (B) the number of
shares subject to the option (whether or not vested). AAC shall make such
payment on or after the Closing Date immediately upon receipt of a written
agreement from the option holder to accept such payment in full settlement of
such option holder's rights with respect to the option. If the per share
exercise price of any option equals or exceeds the Cash Election Price, such
option shall be cancelled without any payment required thereunder.
(viii) CONVERSION OPTION (OR RETENTION) OF COMPANY COMMON
STOCK. At and as of the Effective Time, by virtue of the Merger and without any
action on the part of the Company or AAC or any holder of shares of Company
Common Stock or AAC Common Stock, each share of Company Common Stock outstanding
immediately prior to the Effective Time shall, except as otherwise provided in
ss.2(d)(v)-(vii) or as provided in ss.2(h) with respect to Dissenting Shares as
to which appraisal rights have been exercised, be converted into the following
(the "Merger Consideration"), subject to ss.2(f):
(A) for each such share with respect to which an
election to retain Surviving Corporation Common Stock has been
effectively made and not revoked or lost
12
<PAGE>
pursuant to ss. 2(e)(iii), (iv) and (v) (the "Stock Electing Shares"),
the right to retain one share of Surviving Corporation Common Stock
(the "Stock Election Price"); and
(B) for each such share ("Cash Electing Shares")
(other than Stock Electing Shares), the right to receive in cash from
the Surviving Corporation following the Merger an amount equal to $21
(the "Cash Election Price").
(e) ELECTIONS.
----------
(i) Each Person who, on or prior to the Business Day next
preceding the date of the Special Meeting (the "Election Date"), is a record
holder of shares of Company Common Stock will be entitled, with respect to such
shares, to make an unconditional election on or prior to such Election Date to
retain the Stock Election Price (a "Stock Election") on the basis hereinafter
set forth.
(ii) Prior to the mailing of the Joint Disclosure Document,
the Company shall appoint an agent reasonably acceptable to AAC (the "Exchange
Agent") for the purpose of exchanging certificates representing shares of
Company Common Stock for the Merger Consideration.
(iii) The Company shall prepare and mail a form of election,
which form shall be subject to the reasonable approval of AAC (the "Form of
Election"), with the Joint Disclosure Document to the record holders of shares
of Company Common Stock as of the record date for the Special Meeting, which
Form of Election shall be used by each record holder of shares who makes a Stock
Election with respect to any or all such holder's shares. The Company will use
its reasonable best efforts to make the Form of Election and the Joint
Disclosure Document available to all persons who become holders of shares during
the period between such record date and the Election Date. Any such holder's
Stock Election shall have been properly made only if the Exchange Agent shall
have received at its designated office, by 5:00 p.m., New York City time on the
Election Date, a Form of Election properly completed and signed and accompanied
by certificates for the shares of Company Common Stock to which such Form of
Election relates, duly endorsed in blank or otherwise in form acceptable for
transfer on the books of the Company (or by an appropriate guarantee of delivery
of such certificates as set forth in such Form of Election from a firm which is
a member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States, provided such
certificates are in fact delivered to the Exchange Agent within five New York
Stock Exchange trading days after the date of execution of such guarantee of
delivery).
(iv) Any Form of Election may be revoked by the holder
submitting it to the Exchange Agent only by written notice received by the
Exchange Agent (i) prior to 5:00 p.m., New York City time, on the Election Date
or (ii) after the Election Date, if (and to the extent that) the Exchange Agent
is legally required to permit revocations, and the Effective Time shall not have
occurred prior to such date. In addition, all Forms of Election shall
automatically be revoked if the Exchange Agent is notified in writing by AAC or
the Company that the Merger has been
13
<PAGE>
abandoned or this Agreement has been terminated. If a Form of Election is
revoked, the certificate or certificates (or guarantees of delivery, as
appropriate) for the shares to which such Form of Election relates shall be
promptly returned by the Exchange Agent to the stockholder submitting the same
to the Exchange Agent.
(v) The good faith determination of the Exchange Agent shall
be binding as to whether or not Stock Elections have been properly made or
revoked pursuant to this ss.2(e) with respect to shares and when elections and
revocations were received by it. If the Exchange Agent determines that any Stock
Election either (x) was not properly made or (y) was not submitted to or
received by the Exchange Agent with respect to any shares, such shares shall be
converted into Merger Consideration in accordance with ss.2(d)(viii)(B). The
Exchange Agent shall also make all computations as to the allocation and the
proration contemplated by ss.2(f), and any such computation shall be conclusive
and binding on the holders of shares. The Exchange Agent may, with the mutual
agreement of AAC and the Company, make such rules as are consistent with this
ss.2(e) for the implementation of the elections provided for herein as shall be
necessary or desirable fully to effect such elections.
(f) PRORATION.
---------
(i) Notwithstanding anything to the contrary contained in this
Agreement but subject to ss.2(d)(v) and ss.2(h),
(A) the minimum number of shares of Company Common
Stock to be converted into the right to retain Surviving Corporation
Common Stock shall be equal to 380,952 shares (the "Minimum Stock
Election Number"), and
(B) the maximum number of shares of Company Common
Stock to be converted into the right to retain Surviving Corporation
Common Stock shall be equal to 1,752,381 shares (the "Maximum Stock
Election Number").
(ii) If the number of Stock Electing Shares exceeds in the
aggregate the Maximum Stock Election Number, then the Stock Electing Shares for
each Stock Election shall be converted into the right to retain the Stock
Election Price or the right to receive the Cash Election Price in accordance
with the terms of ss.2(d)(viii) in the following manner:
(A) A stock proration factor (the "Stock Proration
Factor") shall be determined by dividing the Maximum Stock Election
Number by the total number of Stock Electing Shares.
(B) The number of Stock Electing Shares covered by
each Stock Election to be converted into the right to retain the Stock
Election Price shall be determined by multiplying the Stock Proration
Factor by the total number of Stock Electing Shares covered by such
Stock Election.
14
<PAGE>
(C) Each Stock Electing Share, other than any shares
converted into the right to receive the Stock Election Price in
accordance with ss.2(f)(ii)(B), shall be converted into the right to
receive the Cash Election Price as if such shares were not Stock
Electing Shares in accordance with the terms of ss.2(d)(viii)(B).
(iii) If the number of Stock Electing Shares is less in the
aggregate than the Minimum Stock Election Number, then:
(A) All Stock Electing Shares shall be converted into
the right to receive the Stock Election Price in accordance with
ss.2(d)(viii)(A).
(B) Such number of shares with respect to which a
Stock Election is not in effect ("Non-Stock Electing Shares") shall be
converted into the right to retain the Stock Election Price (and a
Stock Election shall be deemed to have been made with respect to such
shares) in accordance with ss.2(d)(viii)(A) in the following manner:
(1) a cash proration factor (the "Cash
Proration Factor") shall be determined by dividing (x) the
difference between the Minimum Stock Election Number and the
number of Stock Electing Shares by (y) the total number of
shares other than Stock Electing Shares and Dissenting Shares;
and
(2) the number of shares (in addition to
Stock Electing Shares) to be converted into the right to
retain the Stock Election Price shall be determined by
multiplying the Cash Proration Factor by the total number of
shares other than Stock Electing Shares and Dissenting Shares
so that the aggregate number of Stock Electing Shares and
Non-Stock Electing Shares converted into such right equals the
Minimum Stock Election Number.
(g) PROCEDURE FOR PAYMENT.
---------------------
(i) At the Closing, AAC will cause to be furnished to the
Exchange Agent a corpus (the "Exchange Fund") consisting of cash sufficient in
the aggregate for the Exchange Agent to make full payment of the cash portion of
the Merger Consideration to the holders of all of the issued and outstanding
shares of Company Common Stock (other than any Dissenting Shares and AAC-owned
Shares). Immediately after the Effective Time, the Company will cause the
Exchange Agent to mail a letter of transmittal (with instructions for its use)
to each record holder of issued and outstanding shares of Company Common Stock
who did not make a timely and valid Stock Election in order to permit the
Exchange Agent to pay such record holder the cash portion of the Merger
Consideration. No interest will accrue or be paid to the holder of any issued
and outstanding shares of Company Common Stock.
(ii) If any portion of the Merger Consideration is to be paid
to a Person other than the registered holder of the shares represented by the
certificate or certificates surrendered in exchange therefor, it shall be a
condition to such payment that the certificate or certificates so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the
15
<PAGE>
Person requesting such payment shall pay to the Exchange Agent any transfer or
other Taxes required as a result of such payment to a Person other than the
registered holder of such shares or establish to the satisfaction of the
Exchange Agent that such Tax has been paid or is not payable.
(iii) After the Effective Time, there shall be no further
registration of transfers of shares of Company Common Stock. If, after the
Effective Time, certificates representing shares of Company Common Stock are
presented to the Surviving Corporation, they shall be canceled and exchanged for
the cash portion of the Merger Consideration provided for in accordance with the
procedures set forth herein.
(iv) Any portion of the Merger Consideration made available to
the Exchange Agent to pay for shares of Company Common Stock for which appraisal
rights have been perfected shall be paid to the Surviving Corporation, upon
demand.
(v) The Surviving Corporation may cause the Exchange Agent to
pay over to the Surviving Corporation any portion of the Exchange Fund
(including any earnings thereon) remaining 180 days after the Effective Time,
and thereafter each remaining Company Stockholder shall be entitled to look only
to the Surviving Corporation (subject to abandoned property, escheat, and other
similar laws) as a general creditor thereof with respect to the cash payable
upon surrender of such Company Stockholder's certificates. To the extent
permitted by applicable law, neither the Surviving Corporation nor the Exchange
Agent shall be liable to any Person in respect of any shares of Company Common
Stock (or dividends or distributions with respect thereto) or cash from the
Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. Any amounts remaining unclaimed by
holders of shares of Company Common Stock two years after the Effective Time (or
such earlier date immediately prior to such time as such amounts would otherwise
escheat to or become property of any Governmental Body) shall, to the extent
permitted by applicable law, become the property of Surviving Corporation free
and clear of any claims or interest of any Person previously entitled thereto.
(vi) No dividends or other distributions with respect to
Company Common Stock with a record date after the Effective Time shall be paid
to the holder of any unsurrendered certificate for shares of Company Common
Stock with respect to the shares of Company Common Stock represented thereby,
and no cash payment in lieu of fractional shares shall be paid to any such
holder pursuant to ss.2(i) until the surrender of such certificate in accordance
with this Article 2. Subject to the effect of applicable laws, following
surrender of any such certificate, there shall be paid to the holder of the
certificate representing whole shares of Company Common Stock issued in exchange
therefor, without interest, (A) the amount of dividends and other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole shares of Company Common Stock, and (B) at the appropriate payment
date, the amount of dividends or other distributions with a record date after
the Effective Time but prior to such surrender and a payment date subsequent to
such surrender payable with respect to such whole shares of Company Common
Stock.
16
<PAGE>
(vii) The Exchange Agent shall invest any cash included in the
Exchange Fund as directed by the Company or the Surviving Corporation, as the
case may be, provided that such investment shall be in (A) securities issued or
directly and fully guaranteed or insured by the United States Government or any
agency or instrumentality thereof having maturities not more than six months
from the Effective Time of the Merger, (B) certificates of deposit, Eurodollar
time deposits and bankers' acceptances with maturities not exceeding six months
and overnight bank deposits with any commercial bank, depository institution or
trust company incorporated or doing business under the laws of the United States
of America, any state thereof or the District of Columbia, provided that such
commercial bank, depository institution or trust company has, at the time of
investment, (1) capital and surplus exceeding $250 million and (2) outstanding
short-term debt securities which are rated at least A-1 by Standard & Poor's
Ratings Group, a Division of the McGraw-Hill Companies, Inc., or at least P-1 by
Moody's Investors Service, Inc. or carry an equivalent rating by a nationally
recognized rating agency if both of the two named rating agencies cease to
publish ratings of investment, (C) repurchase obligations with a term of not
more than 30 days for underlying securities of the types described in clauses
(A) and (B) above entered into with any financial institution meeting the
qualifications specified in clause (B) above, (D) commercial paper having a
rating in the highest rating categories from Standard & Poor's Ratings Group, a
Division of the McGraw-Hill Companies, Inc. or Moody's Investors Service, Inc.,
or carrying an equivalent rating by a nationally recognized rating agency if
both of the two named rating agencies cease to publish ratings of investments
and in each case maturing within six months of the Effective Time and (E) money
market mutual or similar funds having assets in excess of $1 billion. Any
interest and other income resulting from such investments shall be paid to the
Company or the Surviving Corporation, as the case may be.
(viii) The Surviving Corporation shall pay all charges and
expenses of the Exchange Agent.
(h) DISSENTING SHARES. Notwithstanding ss.2(d), shares of Company
Common Stock which are issued and outstanding immediately prior to the Effective
Time and which are held by a Company Stockholder who has not voted such shares
in favor of the Merger, who shall have delivered a written demand for appraisal
of such shares in the manner provided by the Delaware General Corporation Law
and who, as of the Effective Time, shall not have effectively withdrawn or lost
such right to appraisal ("Dissenting Shares") shall not be converted into a
right to receive the Merger Consideration. The holders thereof shall be entitled
only to such rights as are granted by Section 262 of the Delaware General
Corporation Law. Each holder of Dissenting Shares who becomes entitled to
payment for such shares pursuant to Section 262 of the Delaware General
Corporation Law shall receive payment therefor from the Surviving Corporation in
accordance with the Delaware General Corporation Law; PROVIDED, HOWEVER, that
(i) if any such holder of Dissenting Shares shall have failed to establish his
entitlement to appraisal rights as provided in Section 262 of the Delaware
General Corporation Law, (ii) if any such holder of Dissenting Shares shall have
effectively withdrawn his demand for appraisal of such shares or lost his right
to appraisal and payment for his shares under Section 262 of the Delaware
General Corporation Law or (iii) if neither any holder of Dissenting Shares nor
the Surviving Corporation shall have filed a petition demanding a determination
of the value of all Dissenting Shares within the time provided in Section 262 of
the Delaware General Corporation Law, such holder shall forfeit the right to
17
<PAGE>
appraisal of such shares and each such share shall be treated as if it had been
a Non-Stock Electing Share and had been converted, as of the Effective Time,
into a right to receive the Merger Consideration, without interest thereon, from
the Surviving Corporation as provided in ss.2(d) hereof. The Company shall give
AAC prompt notice of any demands received by the Company for appraisal of
shares, and, until the Effective Time, AAC shall have the right to participate
in all negotiations and proceedings with respect to such demands. The Company
shall not, except with the prior written consent of AAC, make any payment with
respect to, or settle or offer to settle, any such demands.
(i) FRACTIONAL SHARES.
-----------------
(i) No certificates or scrip representing fractional shares of
Surviving Corporation Common Stock shall be issued upon the surrender for
exchange of certificates representing shares of Company Common Stock, and such
fractional interests shall not entitle the owner thereof to vote or to any
rights of a stockholder of the Surviving Corporation.
(ii) Notwithstanding any other provision of this Agreement,
each holder of shares of Company Common Stock exchanged pursuant to the Merger
who would otherwise be entitled to receive a fraction of a share of Surviving
Corporation Common Stock (after taking into account all shares of Company Common
Stock delivered by such holder) shall receive, in lieu thereof, a cash payment
(without interest) representing (A) the applicable fraction of Surviving
Corporation Common Stock multiplied by (B) $21, payable as soon as practicable
on or after the Effective Time.
(j) CLOSING OF TRANSFER RECORDS. After the close of business on the
Closing Date, transfers of Company Common Stock outstanding prior to the
Effective Time shall not be made on the stock transfer books of the Surviving
Corporation.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to AAC that the statements contained in this ss.3 are
correct and complete as of the date of this Agreement, except as set forth in
the disclosure schedule prepared by the Company accompanying this Agreement (the
"Company Disclosure Schedule"). The Company Disclosure Schedule will be arranged
in paragraphs corresponding to the lettered and numbered paragraphs contained in
this ss.3.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of the
Company and its Subsidiaries is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its incorporation.
Each of the Company and its Subsidiaries is duly authorized to conduct business
and is in good standing under the laws of each jurisdiction where such
qualification is required, except where the lack of such qualification would not
have a Material Adverse Effect or a material adverse effect on the ability of
the Parties to consummate the transactions contemplated by this Agreement. Each
of the Company and its Subsidiaries has full corporate power and authority to
carry on the businesses in which it is engaged and to own and use the properties
owned and used by it. Each of the Company and its Subsidiaries is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction where
18
<PAGE>
the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary, except for those jurisdictions
where the failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect.
(b) CAPITALIZATION. The authorized capital stock of the Company
consists of 25,000,000 shares, $0.01 par value per share, of Company Common
Stock and 10,000,000 shares, $0.01 par value per share, of preferred stock (the
"Company Preferred Stock"). As of the date of this Agreement: (i) 10,715,119
shares of Company Common Stock were issued and outstanding, and no shares of
Company Preferred Stock were issued or outstanding, (ii) no shares of Company
Common Stock were reserved for issuance except that (A) 1,579,337 shares of
Company Common Stock have been reserved for issuance pursuant to the 1994
Company Stock Option and Incentive Plan, of which 1,082,334 may be issued in the
future upon the exercise of options currently outstanding and (B) 526,813 shares
of Company Common Stock have been reserved for issuance pursuant to the 1994
Company Employee Stock Purchase Plan, of which 19,037 shares are estimated to be
the number of shares of Company Common Stock which will be issued pursuant to
contributions by employees of the Company under the 1994 Company Employee Stock
Purchase Plan during calendar year 1997, and (C) 31,857 shares of Company Common
Stock have been reserved for issuance at par value on or about September 30,
1997 pursuant to an employment agreement with a former employee, (iii) no shares
of Company Preferred Stock were reserved for issuance and (iv) 242,185 shares of
Company Common Stock were held by the Company in its treasury. All of the issued
and outstanding shares of Company Common Stock have been duly authorized and are
validly issued, fully paid, and nonassessable. Except as indicated hereinabove,
there are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require the Company or any Subsidiary thereof to issue,
sell, or otherwise cause to become outstanding any of its capital stock or the
capital stock of any Subsidiary thereof. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to the Company or any of its Subsidiaries. After giving effect to the
transactions contemplated by the Share Exchange and Termination Agreement, all
shares of capital stock of Subsidiaries of the Company are wholly owned directly
or indirectly by the Company and have been duly authorized and are validly
issued, fully paid and nonassessable.
(c) AUTHORIZATION OF TRANSACTION. The Company has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder, subject to the
Requisite Stockholder Approval or Requisite Super-Majority Stockholder Approval,
as the case may be. The execution and delivery by the Company of this Agreement
and the Merger, and the performance of the Company's obligations hereunder, have
been duly authorized by all requisite corporate action, subject to the Requisite
Stockholder Approval or Requisite Super-Majority Stockholder Approval, as the
case may be, and this Agreement has been executed and delivered by the Company.
This Agreement constitutes the valid and legally binding obligation of the
Company, enforceable in accordance with its terms and conditions. The Company
has heretofore duly elected, pursuant to Section 203 of the Delaware General
Corporation Law, not to be governed by such Section.
19
<PAGE>
(d) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any Governmental Body or
court to which any of the Company and its Subsidiaries is subject or any
provision of the certificate of incorporation or bylaws of any of the Company
and its Subsidiaries or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
Contract to which any of the Company and its Subsidiaries is a party or by which
it is bound or to which any of its assets is subject, except where the
violation, conflict, breach, default, acceleration, termination, modification,
cancellation, or failure to give notice would not have a Material Adverse Effect
or a material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement. Other than in connection with the
provisions of the Hart-Scott-Rodino Act, the Delaware General Corporation Law,
the Securities Exchange Act, the Securities Act, the state securities laws, the
Communications Act of 1934, as amended, and as set forth on ss. 3(d) of the
Company Disclosure Schedule, none of the Company and its Subsidiaries needs to
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any Governmental Body in order for the Parties to consummate the
transactions contemplated by this Agreement or execute, deliver and perform its
obligations under this Agreement, except where the failure to give notice, to
file, or to obtain any authorization, consent, or approval would not have a
Material Adverse Effect or a material adverse effect on the ability of the
Parties to consummate the transactions contemplated by this Agreement.
(e) FILINGS WITH THE SEC. Since October 1, 1994, the Company has made
all filings with the SEC that it has been required to make under the Securities
Act and the Securities Exchange Act (collectively the "Public Reports"). Each of
the Public Reports has complied with the Securities Act and the Securities
Exchange Act and the rules and regulations promulgated thereunder in all
material respects. None of the Public Reports, as of their respective dates,
contained any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(f) FINANCIAL STATEMENTS. The Company has delivered to AAC a draft, in
substantially final form, of an Annual Report on Form 10-K for the fiscal year
ended September 30, 1997 (the "Most Recent Fiscal Year End"). The financial
statements included in or incorporated by reference into these Public Reports
(including the related notes and schedules) have been prepared in accordance
with GAAP and present fairly the financial condition of the Company and its
Subsidiaries as of the indicated dates and the results of operations of the
Company and its Subsidiaries for the indicated periods.
(g) [INTENTIONALLY LEFT BLANK.]
(h) UNDISCLOSED LIABILITIES. Except as set forth in the Public Reports
and except for (i) liabilities which have arisen after the Most Recent Fiscal
Year End in the Ordinary Course of Business and (ii) liabilities under this
Agreement, neither the Company nor any of its Subsidiaries has any material
liabilities of any nature (whether accrued, absolute, contingent or otherwise)
20
<PAGE>
required by GAAP to be set forth on a financial statement or in the notes
thereto and which individually or in the aggregate would have a Material Adverse
Effect. To the extent that any provision of this ss.3(h) conflicts with any
representation made by the Company having a Knowledge qualification contained in
any subsection of this ss.3, the provisions of that subsection shall apply.
(i) BROKERS' FEES. Other than fees related to financial advisory
services performed for the Company to be paid to the Persons set forth on
ss.3(i) of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries has any liability or obligation to pay any fees or commissions to
any broker, finder, or agent with respect to the transactions contemplated by
this Agreement. The Company has furnished to AAC true, correct and complete
copies of engagement letters relating to such services.
(j) ABSENCE OF CERTAIN CHANGES. Since September 30, 1997, the Company
and its Subsidiaries have conducted their business in the Ordinary Course of
Business and there has not been:
(i) any event, occurrence or development of a state of facts
which, to the Company's Knowledge, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect, except, however, any
event, occurrence or development related to, arising out of or resulting from
this Agreement and the transactions and activities contemplated hereby;
(ii) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of the
Company, or (other than (A) any retirement of, or issuance of Company Common
Stock pursuant to the exercise of options to acquire shares of Company Common
Stock granted to employees or directors, or (B) contemplated pursuant to this
Agreement), any repurchase, redemption or other acquisition by the Company or
any Subsidiary thereof of any outstanding shares of capital stock or other
securities of, or other ownership interests in, the Company or any Subsidiary
thereof;
(iii) any amendment of any material term of any outstanding
equity security of the Company or any Subsidiary thereof;
(iv) any incurrence, assumption or guarantee by the Company or
any Subsidiary thereof of any indebtedness for borrowed money, other than in the
Ordinary Course of Business in amounts and on terms consistent with past
practices;
(v) any damage, destruction or other casualty loss (whether or
not covered by insurance) affecting the business or assets of the Company or any
Subsidiary thereof which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect;
(vi) any material change in any method of accounting or
accounting practice by the Company or any Subsidiary thereof which, individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect;
21
<PAGE>
(vii) any (A) grant of any severance or termination pay to any
director, officer or employee of the Company or any Subsidiary thereof, (B)
entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any director,
officer or employee of the Company or any Subsidiary thereof, (C) increase in
benefits payable under any existing severance or termination pay policies or
employment agreements or (D) increase in compensation, bonus or other benefits
payable to directors, officers or employees of the Company or any Subsidiary
thereof; in each case, other than in the Ordinary Course of Business; or
(viii) any cancellation of any Permits or Contracts to which
the Company or any Subsidiary thereof is a party, or any written or oral
notification to the Company or any Subsidiary thereof that any party to any such
arrangement intends to cancel or not renew such arrangement beyond its
expiration date as in effect on the date hereof, which cancellation or
notification, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect.
(k) LITIGATION. There is no action, suit or proceeding pending against,
or, to the Knowledge of the Company, any action, suit, investigation or
proceeding threatened against or affecting, the Company or any Subsidiary
thereof or any of their respective properties before any Governmental Body,
which could reasonably be expected to have a Material Adverse Effect or which in
any manner challenges or seeks to prevent, enjoin, alter or materially delay the
Merger or any of the other transactions contemplated hereby.
(l) TAXES. (i) The Company and each of its Subsidiaries have duly and
timely filed (taking into account any extension of time within which to file)
all material Tax Returns required to be filed by any of them and all such filed
Tax Returns are complete and accurate in all material respects; (ii) the Company
and each of its Subsidiaries have paid all Taxes required to be paid by it
including Taxes that the Company and its Subsidiaries are obligated to withhold
from amounts owing to any employee, creditor or third party, except with respect
to matters contested in good faith or for such amounts that, individually or in
aggregate, could not reasonably be expected to have a Material Adverse Effect;
(iii) as of the date of this Agreement, there are no pending or, to the
Knowledge of the Company, threatened in writing audits, examinations,
investigations or other proceedings in respect of Taxes or Tax matters relating
to the Company or any of its Subsidiaries which, if determined adversely to the
Company or its Subsidiaries, could reasonably be expected to have a Material
Adverse Effect; (iv) there are no deficiencies or claims for any Taxes that have
been proposed, asserted or assessed against the Company or any of its
Subsidiaries which, if such deficiencies or claims were finally resolved against
the Company or any of its Subsidiaries, could reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect; (v) there
are no material Liens for Taxes upon the assets of the Company or any of its
Subsidiaries, other than Liens for current Taxes not yet due and payable and
Liens for Taxes that are being contested in good faith by appropriate
proceedings; (vi) none of the Company or any of its Subsidiaries has made an
election under Section 341(f) of the Code; (vii) except as set forth in ss.3(l)
of the Company Disclosure Schedule, no extension of the statute of limitations
on the assessment of any Taxes has been granted by the Company or any of its
Subsidiaries and is currently in effect; (viii) except as set forth in ss.3(l)
of the Company Disclosure Schedule none of the Company or its Subsidiaries is a
party to any agreement or arrangement that could reasonably
22
<PAGE>
be expected to result, separately or in the aggregate, in the actual or deemed
payment by the Company or a Subsidiary of any "excess parachute payments" within
the meaning of Section 280G or 162(m) of the Code; (ix) none of the Company or
its Subsidiaries has been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code; (x) all Taxes required to be
withheld, collected or deposited by or with respect to the Company and its
Subsidiaries have been timely withheld, collected or deposited, as the case may
be, and, to the extent required, have been paid to the relevant taxing
authority, except, in each case, to the extent that failing to so withhold,
collect, deposit or pay would not have a Material Adverse Effect; (xi) none of
the Company or its Subsidiaries has issued or assumed (A) any obligations
described in Section 279(b) of the Code, (B) any applicable high yield discount
obligations, as defined in Section 163(i) of the Code, or (C) any
registration-required obligations, within the meaning of Section 163(f)(2) of
the Code, that is not in registered form; (xii) there are no requests for
information currently outstanding that could affect the Taxes of the Company and
its Subsidiaries; and (xiii) there are no proposed reassessments of any property
owned by the Company or its Subsidiaries or other proposals that could increase
the amount of any Tax to which the Company, its Subsidiaries or any such Person
would be subject.
(m) COMPLIANCE WITH LAWS. Neither the Company nor any Subsidiary
thereof is in violation of, or has since September 30, 1997 violated, and, to
the Knowledge of the Company, none of them is under investigation with respect
to or has been threatened to be charged with or given notice of any violation by
any Governmental Body of any applicable law, rule, regulation, judgment,
injunction, order or decree, except for violations that could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
(n) PERMITS. Except as could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect, (i) the Permits are
valid and in full force and effect, (ii) neither the Company nor any Subsidiary
thereof is in default under, and no condition exists that with notice or lapse
of time or both would constitute a default under, the Permits and (iii) none of
the Permits will be terminated or impaired or become terminable, in whole or in
part, as a result of the transactions contemplated hereby. The Company and each
of its Subsidiaries have all Permits necessary to carry on its business as
currently conducted or as proposed to be conducted, except to the extent that
the failure to so have them would not have a Material Adverse Effect.
(o) CONTRACTS. ss.3(o) of the Company Disclosure Schedule sets forth a
list of the following Contracts to which the Company or any of its Subsidiaries
is a party or by or to which it or its assets are bound or subject: (i)
Contracts relating to the borrowing of money; (ii) Contracts with any current or
former officer or director of the Company; (iii) joint venture agreements
between the Company or any of its Subsidiaries and an unaffiliated third party;
(iv) any Contracts providing for two or more fiscal year payments to or from the
Company or any Subsidiary thereof of $200,000 or more; (v) any license
agreements (except with respect to Intellectual Property), distribution
agreements, franchise agreements or agreements in respect of similar rights
granted to or held by the Company or any of its Subsidiaries; (vi) any Contract
that materially limits the freedom of the Company or any Subsidiary thereof to
compete in any line of
23
<PAGE>
business or with any Person or in any geographical area or which would so
materially limit the freedom of the Company or any Subsidiary thereof so to
compete after the Effective Time; (vii) any other Contract not made in the
Ordinary Course of Business which Contract is material to the Company and the
Subsidiaries taken as a whole; or (viii) any Tax sharing agreement or other
arrangement. The Company has heretofore made available to AAC true and complete
copies of each of the Contracts set forth in ss.3(o) of the Company Disclosure
Schedule. Except for Contracts that could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect, all Contracts
disclosed in ss.3(o) of the Company Disclosure Schedule are valid and binding
Contracts of the Company or a Subsidiary thereof, are in full force and effect
(except for those that have terminated or will terminate by their own terms),
and neither the Company, any Subsidiary thereof nor, to the Knowledge of the
Company, any other party thereto, is in default in any material respect under
the terms of any such Contract.
(p) INTELLECTUAL PROPERTY RIGHTS.
----------------------------
(i) ss.3(p) of the Company Disclosure Schedule sets forth a
complete list of all (A) patents and patent applications, (B) trademarks,
trademark registrations and applications to register any trademarks, and (C)
copyright registrations and copyright applications of the Company and its
Subsidiaries, in each case, whether currently used or not used by the Company
and its Subsidiaries in connection with the business of the Company and its
Subsidiaries as currently conducted. ss.3(p) also sets forth a complete list of
all material licenses with respect to Intellectual Property owned or licensed by
the Company or any Subsidiary thereof and used in the operation of the current
products of the Company or any Subsidiary thereof.
(ii) The Company and its Subsidiaries own or have the right to
use all material Intellectual Property currently used by the Company and its
Subsidiaries in the business of the Company and its Subsidiaries as currently
conducted. To the Knowledge of the Company, the Company and its Subsidiaries own
or have the right to use all other Intellectual Property currently used by the
Company and its Subsidiaries in the business of the Company and its Subsidiaries
as currently conducted.
(iii) The Company has no Knowledge of any unresolved claims
made by any third party that the Company or any Subsidiary thereof is infringing
the Intellectual Property rights of any Person as a result of the Company's or
any Subsidiary's use of any Intellectual Property. To the Company's Knowledge,
the use of the Company's or any Subsidiary's Intellectual Property does not
infringe the rights of any third party.
(iv) The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of any trade
secret of the Company or any Subsidiary thereof necessary for the operation of
the Company's or any Subsidiary's business.
(v) To the Knowledge of the Company, the Company and its
Subsidiaries are not, nor have they received any notice that they are, in
default or, with the giving of notice or lapse of time or both, would be in
default under any material license to use any Intellectual Property listed in
ss.3(p) of the Disclosure Schedule.
24
<PAGE>
(vi) To the Company's Knowledge, (A) the Company or any
Subsidiary thereof is not infringing any Intellectual Property of any other
Person in connection with the conduct of the Company's or any Subsidiary's
business as presently conducted and (B) no Person is infringing any Intellectual
Property either owned or licensed by the Company or any Subsidiary thereof which
is material to the operation of the Company's or any Subsidiary's business.
(q) BOARD APPROVAL; FAIRNESS OPINION. The board of directors of the
Company has determined that, as of the date hereof, this Agreement and the
transactions contemplated hereby are fair to, and in the best interest of, the
Company Stockholders. Deutsche Morgan Grenfell Inc. has delivered to the board
of directors of the Company its opinion that, as of the date hereof, the
consideration to be paid to the Company Stockholders in the Merger is fair from
a financial point of view, to the Company Stockholders.
(r) ERISA. Each Benefit Plan and Multiemployer Plan with an annualized
cost to the Company in excess of $100,000 are listed in ss.3(r) of the Company
Disclosure Schedule, and copies of all material documentation relating to such
Benefit Plans during the last three (3) years have been delivered to AAC
(including copies of written Benefit Plans, written descriptions of oral Benefit
Plans, summary plan descriptions, trust agreements, the three most recent annual
returns, employee communications, and IRS determination letters). Except as
disclosed in ss.3(r) of the Disclosure Schedule:
(i) each Benefit Plan has at all times been maintained and
administered in accordance with its terms and with the requirements of all
applicable laws, including ERISA and the Code (except to the extent that a
failure to so maintain and administer would have a Material Adverse Effect), and
each Benefit Plan intended to qualify under section 401(a) of the Code has a
current determination letter on which the Company may rely;
(ii) no Benefit Plan is a "defined benefit plan" within the
meaning of section 414(j) of the Code, other than a Benefit Plan described in
Section 401(a)(1) of ERISA;
(iii) no direct, contingent or secondary liability has been
incurred or is expected to be incurred by the Company or any Subsidiary under
Title IV of ERISA to any party with respect to any Benefit Plan, or, to the
Company's Knowledge, with respect to any other Plan presently or heretofore
maintained or contributed to by any ERISA Affiliate;
(iv) with respect to each Multiemployer Plan (A) no withdrawal
liability has been incurred by the Company or, to the Company's Knowledge, any
ERISA Affiliate, and the Company or any Subsidiary thereof has no reason to
believe that any such liability will be incurred, prior to the Closing Date,
(B), to the Knowledge of the Company, no such plan is in "reorganization"
(within the meaning of Section 4241 of ERISA), (C) no notice has been received
that increased contributions may be required to avoid a reduction in plan
benefits or the imposition of an excise tax, or that the plan is or may become
"insolvent" (within the meaning of Section 4241 of ERISA), (D), to the Knowledge
of the Company, no proceedings have been instituted by the Pension Benefit
Guaranty Corporation against the plan, (E) there is no contingent liability for
withdrawal liability by reason of a sale of assets pursuant to Section 4204 of
ERISA, and (F)
25
<PAGE>
except as disclosed in ss.3(r) of the Company Disclosure Schedule, if the
Company or any ERISA Affiliate were to have a complete or partial withdrawal
under Section 4203 of ERISA as of the Closing, no obligation to pay withdrawal
liability would exist on the part of the Company or, to the Company's Knowledge,
any ERISA Affiliate.
(v) neither the Company nor, to the Company's Knowledge, any
ERISA Affiliate has incurred any liability for any tax imposed under section
4971 through 4980B of the Code or civil liability under section 502(i) or (l) of
ERISA;
(vi) no benefit under any Benefit Plan, including, without
limitation, any severance or parachute payment plan or agreement, will be
established or become accelerated, vested or payable by reason of any
transaction contemplated under this Agreement;
(vii) no tax has been incurred under section 511 of the Code
with respect to any Benefit Plan (or trust or other funding vehicle pursuant
thereto).
(viii) no Benefit Plan provides health or death benefit
coverage beyond the termination of an employee's employment, except as required
by Part 6 of Subtitle B of Title I of ERISA or section 4980B of the Code or any
State or local laws requiring continuation of benefits coverage following
termination of employment;
(ix) no suit, actions or other litigation (excluding claims
for benefits incurred in the ordinary course of plan activities) have been
brought or, to the Knowledge of the Company, threatened against or with respect
to any Benefit Plan, and there are no facts or circumstances to the Knowledge of
the Company that could reasonably be expected to give rise to any such suit,
action or other litigation; and
(x) all contributions to Benefit Plans and Multiemployer Plans
that were required to be made under such Plans by the Company or any Subsidiary
thereof have been made and each of the Company and each Subsidiary has performed
all material obligations required to be performed under all such Plans.
(s) LABOR AND EMPLOYMENT MATTERS.
(i) (A) No employee of the Company or any Subsidiary thereof
is represented by a labor union, no labor union has been certified or recognized
as a representative of any such employee, and neither the Company nor any
Subsidiary thereof has any obligation under any collective bargaining agreement
or other agreement with any labor union or any obligation to recognize or deal
with any labor union, and there are no such contracts or agreements pertaining
to or which determine the terms or conditions of employment of any employee of
the Company or any Subsidiary thereof; (B) there are no pending or threatened
representation campaigns, elections or proceedings; (C) the Company has no
Knowledge of any strikes, slowdowns, or work stoppages of any kind, or threats
thereof, and no such activities occurred during the 24-month period preceding
the date hereof; (D) neither the Company nor any Subsidiary thereof has engaged
in, admitted committing or been held to have committed any unfair labor
practice; and
26
<PAGE>
(E) there are no controversies or grievances between the Company or any
Subsidiary thereof and any of its employees or representatives thereof, the
outcome of which could result in a Material Adverse Effect.
(ii) ss.3(s) of the Company Disclosure Schedule sets forth all
Contracts under which the Company or any Subsidiary thereof has any obligation
to provide compensation or remuneration of any kind (other than obligations to
make current wage or salary payments that are terminable at will without notice
or that are less than $100,000 annually per person) to or on behalf of any
employee or consultant.
(iii) The Company and each of its Subsidiaries have at all
times complied in all material respects, and is in material compliance with, all
applicable laws, rules and regulations respecting employment, wages, hours,
compensation, benefits, occupational health and safety, and payment and
withholding of taxes in connection with employment, except to the extent that
failure to so comply would not have a Material Adverse Effect.
(t) REAL ESTATE.
-----------
(i) ss.3(t) of the Company Disclosure Schedule is a true and
complete list (including, without limitation, legal descriptions) of all real
property owned in fee by the Company or any Subsidiary thereof (together with
all buildings and improvements thereon, the "Owned Real Property"). Such Owned
Real Property is not subject to any Liens (including, without limitation,
Leases, occupancy agreements, possessory rights, options and rights of first
refusal) except as listed on ss.3(t) of the Company Disclosure Schedule. Neither
the Company nor any Subsidiary thereof leases all or any part of any Owned Real
Property.
(ii) Neither the Company nor any Subsidiary thereof has
assigned, pledged or otherwise transferred, or has sublet (as sublessor) the
premises demised by, any Lease. The Company or a Subsidiary thereof is in
possession of the premises demised by the Leases. No tenant or landlord under
any Lease has exercised any option or right to (i) cancel or terminate such
Lease or shorten the term thereof, (ii) lease additional premises, (iii) reduce
or relocate the premises demised by such Lease, or (iv) purchase any property.
All brokerage commissions payable by the Company or any Subsidiary thereof with
respect to any Lease have been fully paid.
(u) ENVIRONMENTAL MATTERS. To the Knowledge of the Company:
(i) Neither the Company nor any of its Subsidiaries is in
violation of any Environmental Laws such that the violation would have a
Material Adverse Effect;
(ii) The Company and each of its Subsidiaries have obtained
all permits and licenses that are required under Environmental Laws and are not
in violation of any applicable permit or license such that the failure to have
such permits or licenses or the violation thereof would have a Material Adverse
Effect;
27
<PAGE>
(iii) Neither the Company nor any of its Subsidiaries has
received any written notices that are currently pending or outstanding alleging
that the Company, any Subsidiary of the Company, any predecessor of the Company,
or any entity previously owned by the Company, is in violation of or has any
liabilities under any Environmental Laws, except for any violation or
liabilities that would not have a Material Adverse Effect; and
(iv) There have been no releases of any Hazardous Materials
at, from, in, to, on or under any Site or, to the Company's Knowledge, any
Predecessor Site, that would have a Material Adverse Effect.
4. REPRESENTATIONS AND WARRANTIES OF AAC. AAC represents and warrants
to the Company that the statements contained in this ss.4 are correct and
complete as of the date of this Agreement, except as set forth in the disclosure
schedule prepared by AAC (the "AAC Disclosure Schedule"). The AAC Disclosure
Schedule will be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this ss.4.
(a) ORGANIZATION. AAC is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation. AAC is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a Material
Adverse Effect or a material adverse effect on the ability of the Parties to
consummate the transactions contemplated by this Agreement. AAC has full
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. AAC was formed solely
for the purpose of engaging in the transactions contemplated hereby, has engaged
in no other business activities and has conducted its operations only as
contemplated hereby. AAC has not engaged, nor prior to the Effective Time will
it engage, in any business activities other than the business activities
contemplated hereby (including business activities contemplated by or reasonably
incident to the Financing). AAC has conducted and, prior to the Effective Time,
will conduct its operations only as contemplated hereby (including activities
contemplated by or reasonably incident to the Financing). AAC has no
Subsidiaries and, during the period commencing with the date hereof and ending
at the Effective Time, AAC will have no Subsidiaries. AAC does not have, nor at
the Effective Time will it have, any liabilities or material obligations not
expressly contemplated pursuant to this Agreement or the transactions
contemplated hereby.
(b) FINANCING. AAC has delivered to the Company true and complete
copies of (i) a commitment letter, dated December 17, 1997, from Morgan Stanley
Senior Funding, Inc. relating to a $75 million senior secured revolving credit
facility, and (ii) a commitment letter, dated December 17, 1997, from Morgan
Stanley & Co. Incorporated ("MSCI") pursuant to which MSCI has committed,
subject to the terms and conditions set forth therein, to use its best efforts
to complete the public offering or the private placement of senior unsecured
notes of the Company for an aggregate amount equal to $157,000,000 or, under
certain circumstances set forth therein, to purchase such senior unsecured
notes. The commitment letters referred to in clauses (i) and (ii) above shall be
collectively referred to as the "Debt Financing Commitments" and the financing
under the Debt Financing Commitments shall be referred to as the "Financing". In
addition, AAC
28
<PAGE>
has delivered to the Company a true and complete copy of a commitment letter,
dated December 17, 1997, from CVC pursuant to which CVC (together with its
Affiliates) has committed, subject to the terms and conditions set forth
therein, to purchase securities of CSH LLC not exceeding $72 million in the
aggregate (the "Equity Financing Commitment"), the proceeds of which shall,
pursuant to the terms of the Equity Financing Commitment, be invested by CSH LLC
in AAC in furtherance of the consummation by AAC of the transactions
contemplated hereby. The aggregate proceeds to be made available pursuant to the
Debt Financing Commitments and the Equity Financing Commitment (including any
funds which may be made available to AAC by one or more Subsidiaries of CSH LLC
as contemplated by the Equity Financing Commitment) are in an amount sufficient
to consummate the transactions contemplated hereby. None of the Debt Financing
Commitments and the Equity Financing Commitment has been withdrawn and AAC knows
of no facts or circumstances that reasonably may be expected to result in any of
the conditions set forth in the Debt Financing Commitments and the Equity
Financing Commitment not being satisfied.
(c) AUTHORIZATION OF TRANSACTION. AAC has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. The execution and delivery
by AAC, and the performance of its obligations hereunder have been duly
authorized by all requisite corporate action other than the requisite
stockholder approval, and this Agreement has been duly executed and delivered by
AAC. This Agreement constitutes the valid and legally binding obligation of AAC,
enforceable in accordance with its terms and conditions.
(d) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any Governmental Body to
which AAC is subject or any provision of the certificate of incorporation or
bylaws of AAC or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under Contract,
or other arrangement to which AAC is a party or by which it is bound or to which
any of its assets is subject, except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation or failure to
give notice would not have a Material Adverse Effect or a material adverse
effect on the ability of the Parties to consummate the transactions contemplated
by this Agreement. Other than in connection with the provisions of the
Hart-Scott-Rodino Act, the Delaware General Corporation Law, the Securities
Exchange Act, the Securities Act, and the state securities laws, AAC is not
required to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any Governmental Body in order for the
Parties to consummate the transactions contemplated by this Agreement, except
where the failure to give notice, to file, or to obtain any authorization,
consent, or approval would not have a material adverse effect on the ability of
the Parties to consummate the transactions contemplated by this Agreement.
Neither AAC nor any Affiliate or Subsidiary thereof is a "telecommunications
carrier" as defined in Section 3(44) of the Communications Act of 1934, as
amended, or a "foreign carrier" or any affiliate thereof as defined in Section
63.18(h) of the rules of the Federal Communications Commission.
29
<PAGE>
(e) BROKERS' FEES. AAC has no liability or obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which any of the Company and its Subsidiaries
could become liable or obligated.
(f) CAPITALIZATION. The authorized capital stock of AAC consists of
4,000,000 shares, $.01 par value, of common stock (the "AAC Common Stock"). As
of the moment immediately prior to the Effective Time, the number of shares of
AAC Common Stock that will be outstanding will equal the sum of (A) 3,809,524
minus (B) the final aggregate number of Stock Electing Shares immediately prior
to the Effective Time (after giving effect to the provisions of ss.2(f)). All of
the issued and outstanding shares of AAC Common Stock have been duly authorized
and are validly issued, fully paid and nonassessable. AAC is a Subsidiary owned
by one or more of CSH LLC and its Subsidiaries. A majority of the membership
interests in CSH LLC are owned by CVC, officers and employees thereof, and
members of the management of CSH LLC, its wholly owned Subsidiary, Cable Systems
Holding Company, and CSI. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require AAC to issue, sell,
or otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to AAC. Except as otherwise
provided in the Ancillary Agreements, neither CSH LLC nor any of its
Subsidiaries has entered into any direct or indirect agreements related to the
voting or transferability of the Surviving Corporation Common Stock.
5. COVENANTS. The Parties agree as follows with respect to the period
from and after the execution of this Agreement.
(a) GENERAL. Each of the Parties will use its reasonable best efforts
to take all action and to do all things necessary, proper, or advisable in order
to consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
ss.6 below); PROVIDED, HOWEVER, that no director or officer of the Company shall
be required either to violate any requirement imposed by law in connection
therewith or to take any action such director or officer deems, after
consultation with outside counsel, not consistent with such director's or
officer's fiduciary duty.
(b) NOTICES AND CONSENTS. The Company will give any notices (and will
cause each of its Subsidiaries to give any notices) to third parties, and will
use its reasonable best efforts to obtain (and will cause each of its
Subsidiaries to use its reasonable best efforts to obtain) any required third
party consents, that AAC reasonably may request in connection with the matters
referred to in ss.3(d) above.
(c) REGULATORY MATTERS AND APPROVALS. Each of the Parties will (and the
Company will cause each of its Subsidiaries to) give any notices to, make any
filings with, and use its reasonable best efforts to obtain any authorizations,
consents, and approvals of governments and governmental agencies in connection
with the matters referred to in ss.3(d) and ss.4(d) above.
Without limiting the generality of the foregoing:
30
<PAGE>
(i) SECURITIES ACT, SECURITIES EXCHANGE ACT, AND STATE
--------------------------------------------------
SECURITIES LAWS.
---------------
(A) The Company will prepare and file with the SEC
preliminary proxy materials ("Preliminary Proxy Materials") under the
Securities Exchange Act relating to the Special Meeting. The Company
will use its best efforts to respond to the comments of the SEC thereon
and will make any further filings (including amendments and
supplements) in connection therewith that may be necessary, proper or
advisable. AAC will provide the Company with whatever information and
assistance in connection with the foregoing filings that the Company
may request.
(B) The Company and AAC shall each use its reasonable
best efforts to take, or cause to be taken, (i) all actions necessary,
proper or advisable by such Party with respect to the prompt
preparation and filing with the SEC of a registration statement on Form
S-4 relating to the Surviving Corporation Common Stock (the
"Registration Statement") and a Rule 13e-3 Transaction Statement on
Schedule 13E-3 with respect to the Merger (together with any
supplements or amendments thereto, collectively, the "Schedule 13E-3"),
(ii) such actions as may be required to have the Registration Statement
declared effective under the Securities Act and to have the Preliminary
Proxy Materials cleared by the SEC, in each case as promptly as
practicable, and (iii) such actions as may be required to be taken
under state securities or applicable Blue Sky laws in connection with
the issuance of the securities contemplated hereby.
(C) As soon as practicable after the date of
announcement of the execution of this Agreement, AAC shall file with
the SEC a Schedule 13E-3. AAC and the Company each agrees to correct
any information provided by it for use in the Schedule 13E-3, if and to
the extent that it shall have become false and misleading in any
material respect. AAC agrees to take all steps necessary to cause the
Schedule 13E-3 as so corrected to be filed with the SEC and to be
disseminated to holders of the Company Common Stock, in each case as
and to the extent required by applicable federal securities laws. The
Company and its counsel shall be given reasonable opportunity to review
and comment on Schedule 13E-3 prior to its being filed with the SEC.
(ii) DELAWARE GENERAL CORPORATION LAW; SPECIAL MEETING. The
Company will (A) call a special meeting of its stockholders (the "Special
Meeting"), as soon as reasonably practicable in order that such stockholders may
consider and vote upon the adoption of this Agreement and the approval of the
Merger in accordance with the Delaware General Corporation Law and (B) mail the
Joint Disclosure Document to its stockholders as soon as reasonably practicable,
which Joint Disclosure Document will contain the affirmative recommendation of
the board of directors of the Company in favor of the adoption of this Agreement
and the approval of the Merger; PROVIDED, HOWEVER, that any provision of this
Agreement to the contrary notwithstanding, the Company will not have any
obligation to call the Special Meeting or mail the Joint Disclosure Document to
its stockholders (x) if such action would require any director or officer of the
Company either to violate any requirement imposed by law in connection therewith
or, after consultation with and advice from its outside counsel, any director or
officer of the Company determines in good faith that to take such action would
be inconsistent with such
31
<PAGE>
director's or officer's fiduciary duty or (y) until the board of directors of
the Company shall have received from Deutsche Morgan Grenfell Inc. a
supplemental written confirmation of its opinion that the consideration to be
paid in the Merger is fair to the Company Stockholders from a financial point of
view, such confirmation to be dated as of a date within two Business Days of the
date that the Joint Disclosure Document is to be mailed.
(iii) HART-SCOTT-RODINO ACT. Each of the Parties will file
(and the Company will cause each of its Subsidiaries to file) any Notification
and Report Forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Act, will use its best efforts
to obtain (and the Company will cause each of its Subsidiaries to use its best
efforts to obtain) an early termination of the applicable waiting period, and
will make (and the Company will cause each of its Subsidiaries to make) any
further filings pursuant thereto that may be necessary, proper, or advisable.
(d) FINANCING. AAC will use its reasonable best efforts to (i) satisfy
all the conditions necessary to be satisfied by it and/or its Affiliates to
obtain the full proceeds under the Debt Financing Commitments and the Equity
Financing Commitment, (ii) assist the Company in obtaining the Financing, and
(iii) obtain the equity contributions contemplated under the Equity Financing
Commitment. Subject to the Company having received the proceeds, or the
immediate right to receive the proceeds, of the Financing, AAC at the Closing
will be capitalized with equity contributions in an amount at least equal to
$80,000,000 minus the product of (i) the final aggregate number of Stock
Electing Shares immediately prior to the Effective Time (after giving effect to
the provisions of ss.2(f)) and (ii) $21. AAC will not amend the Debt Financing
Commitments or the Equity Financing Commitment in any way materially adverse to
the Company, or the Company's interest as successor to AAC, without the written
consent of the Company, which consent shall not be unreasonably withheld.
(e) ACCOUNTING TREATMENT. The Company and AAC shall cooperate with any
reasonable requests of the other or the SEC related to the recording of the
Merger as a recapitalization for financial reporting purposes, including,
without limitation, to assist AAC and its Affiliates with any presentation to
the SEC with regard to such recording and to include appropriate disclosure with
regard to such recording in all filings with the SEC and all mailings to
shareholders made in connection with the Merger. In furtherance of the
foregoing, the Company shall provide to AAC for the prior review of AAC's
advisors any description of the transactions contemplated by this Agreement
which is meant to be filed with the SEC.
(f) COOPERATION. The Company agrees to provide, and will cause its
Subsidiaries and its and their respective officers, employees and advisors to
provide, all necessary and appropriate cooperation in connection with the
arrangement of the Financing. In conjunction with the obtaining of the
Financing, the Company agrees, at the request of AAC, (i) to call for prepayment
or redemption of all or a portion of the indebtedness disclosed in ss.3(o) of
the Company Disclosure Schedule, but, only to the extent that such call for
prepayment or redemption is permitted under the applicable agreement
representing such indebtedness, or (ii) to prepay or redeem all or a portion of
any then existing indebtedness of the Company or its Subsidiaries described in
ss.3(o)
32
<PAGE>
of the Company Disclosure Schedule, provided that no such prepayment or
redemption shall themselves actually be made (nor shall the Company be required
to incur any liability in respect of such prepayment or redemption) until
contemporaneously with the Effective Time.
(g) OPERATION OF THE COMPANY'S BUSINESS. Without the written consent of
AAC, the Company will not (and will not cause or permit any of its Subsidiaries
to) engage in any practice, take any action, or enter into any transaction
outside the Ordinary Course of Business, including, without limitation, the
following:
(i) authorizing or effecting any change in its charter or
bylaws (other than as contemplated by this Agreement);
(ii) granting any options, warrants, or other rights to
purchase or obtain any of its capital stock or issuing, selling, or otherwise
disposing of any of its capital stock (except upon the conversion or exercise of
options and other rights and obligations currently outstanding);
(iii) declaring, setting aside, or paying any dividend or
distribution with respect to its capital stock (whether in cash or in kind), or
redeeming, repurchasing, or otherwise acquiring any of its capital stock, in
either case, outside the Ordinary Course of Business;
(iv) issuing any note, bond, or other debt security or
creating, incurring, assuming, or guaranteeing any indebtedness for borrowed
money or capitalized lease obligation (except for inter-company loans or
advances from the Company to, or guarantees on behalf of, any one or more of its
Subsidiaries), outside the Ordinary Course of Business;
(v) imposing any Lien upon any of its assets outside the
Ordinary Course of Business;
(vi) other than pursuant to the transactions contemplated by
this Agreement, making any material change in employment terms for any of its
directors, officers and employees outside the Ordinary Course of Business;
(vii) except pursuant to existing agreements or arrangements
as of the date hereof, making any capital investment in, making any loan to, or
acquiring the securities or assets of any other Person outside the Ordinary
Course of Business;
(viii) adopting or amending any bonus, profit sharing,
compensation, severance, termination, stock option, pension, retirement,
deferred compensation, employment or employee benefit plan, agreement, trust,
plan, fund or other arrangement for the benefit and welfare of any director,
officer or employee, except for normal increases in the Ordinary Course of
Business and that, in the aggregate, do not result in a material increase in
benefits or compensation expense to the Company or any Subsidiary;
33
<PAGE>
(ix) revaluing in any material respect any significant portion
of its assets, including, without limitation, writing down the value of
inventory in any material amount or write-off of notes or accounts receivable in
any material amount;
(x) paying, discharging or satisfying any material liabilities
(whether matured, unmatured, absolute, accrued, asserted or unasserted,
contingent or otherwise) other than the payment, discharge or satisfaction in
the Ordinary Course of Business of liabilities reflected or reserved against in
the consolidated financial statements of the Company and set forth in the Public
Reports or incurred in the Ordinary Course of Business;
(xi) making any Tax election with respect to or settling or
compromising any material income Tax liability;
(xii) taking any action other than in the Ordinary Course of
Business with respect to accounting policies or procedures; and
(xiii) committing to any of the foregoing.
(h) FULL ACCESS. The Company will (and will cause each of its
Subsidiaries to) permit representatives of AAC to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Company and its Subsidiaries, to all premises,
properties, personnel, books, records (including tax records), contracts, and
documents of or pertaining to each of the Company and its Subsidiaries. AAC will
keep confidential and hold as such any Confidential Information it receives from
any of the Company and its Subsidiaries in the course of the reviews
contemplated by this ss.5(h), will not use any of the Confidential Information
except in connection with this Agreement, and, if this Agreement is terminated
for any reason whatsoever, will return to the Company all tangible embodiments
(and all copies) thereof which are in AAC's possession, and AAC acknowledges
that it and its Representatives (as defined therein) will be bound to the
Confidentiality/Standstill Letter Agreement.
(i) NOTICE OF DEVELOPMENTS. Each Party will give prompt written notice
to the others of any event giving rise to a Material Adverse Effect and causing
a breach of any of its own representations and warranties in ss.3 and ss.4
above. No disclosure by any Party pursuant to this ss.5(i), however, shall be
deemed to amend or supplement the Company Disclosure Schedule, or the AAC
Disclosure Schedule, as the case may be, or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(j) NO SOLICITATION.
---------------
(i) The Company shall not, and shall not permit any of its
Subsidiaries to (whether directly or indirectly through advisors, agents or
other intermediaries), and
(ii) the Company shall not, and shall not permit any of its
Subsidiaries to, authorize or knowingly permit any of its or their officers,
directors, agents, representatives, advisors or Subsidiaries,
34
<PAGE>
solicit, initiate or knowingly encourage the submission of inquiries, proposals
or offers from any Third Party relating to (A) any acquisition of 10% or more of
the consolidated assets of the Company and its Subsidiaries or of over 10% of
any class of equity securities of the Company or any of its Subsidiaries, (B)
any tender offer (including a self tender offer) or exchange offer that if
consummated would result in any Third Party beneficially owning 10% or more of
any class of equity securities of the Company or any of its Subsidiaries, (C)
any merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Company or any of its
Subsidiaries whose assets, individually or in the aggregate, constitute more
than 10% of the consolidated assets of the Company, other than the transactions
contemplated by this Agreement or (D) any other transaction the consummation of
which would, or could reasonably be expected to impede, interfere with, prevent
or materially delay the Merger or which would, or could reasonably be expected
to, materially dilute the benefits to AAC of the transactions contemplated
hereby (collectively, the "Acquisition Proposals" and which, if consummated,
will be an "Acquisition Transaction") or enter into or participate in any
discussions (except as may be necessary to inform a Third Party of the
provisions of this ss.5(j)) or negotiations regarding any of the foregoing, or
furnish to any Third Party any information with respect to the business,
properties or assets of the Company in connection with the foregoing, or
otherwise cooperate in any way with, or knowingly assist or participate in,
facilitate or encourage, any effort or attempt by any Third Party to do or seek
any of the foregoing; PROVIDED, HOWEVER, that the provisions of this ss.5(j)
shall not limit or prohibit the Company or its board of directors from (i)
engaging in discussions or negotiations with such a Third Party who has made a
Superior Acquisition Proposal but only if the board of directors of the Company,
after consultation with and advice from its outside counsel, determines in good
faith that, in the exercise of its fiduciary responsibilities, such discussions
or negotiations should be commenced or such information should be furnished or
such facilitation undertaken; (ii) furnishing information pursuant to an
appropriate and customary confidentiality letter concerning the Company and its
businesses, properties or assets to a Third Party who has made a Superior
Acquisition Proposal as to which a prior determination of the board of directors
of the Company as contemplated under clause (i) above has been made; PROVIDED,
FURTHER, that (A) the board of directors of the Company shall not, and shall not
authorize any officers or representatives to, take any of the foregoing actions
until notice to AAC of the Company's intent to take such action shall have been
given; and (B) if the board of directors of the Company receives a Superior
Acquisition Proposal, to the extent it may do so without breaching its fiduciary
duties as determined in good faith after consultation with its outside counsel,
and without violating any of the conditions of such Superior Acquisition
Proposal, then the Company shall promptly inform AAC of the material terms and
conditions of such proposal and the identity of the Third Party making it; or
(iii) taking a position on a tender offer by a Third Party, as required by Rule
14e-2 under the Securities Exchange Act (provided no such position shall
constitute a recommendation of such transaction if it does not constitute a
Superior Acquisition Proposal), or complying with its duties of disclosure under
applicable state law. As of the date hereof, the Company shall immediately cease
and cause each of its Subsidiaries and its and their advisors, agents and other
intermediaries to cease, any and all existing activities, discussions or
negotiations with any Third Party conducted heretofore with respect to any of
the foregoing.
(k) INSURANCE AND INDEMNIFICATION.
-----------------------------
35
<PAGE>
(i) For a period of 6 years after the Effective Time, the
Surviving Corporation shall indemnify and hold harmless the present and former
officers and directors of the Company and its Subsidiaries in respect of acts or
omissions occurring prior to the Effective Time to the maximum extent provided
under the Company's certificate of incorporation and bylaws, or any Subsidiary's
certificate of incorporation or bylaws, in either case, as in effect on the date
hereof; provided that such indemnification shall be subject to any limitation
imposed from time to time under applicable law.
(ii) For a period of 6 years after the Effective Time, the
Surviving Corporation shall provide officers' and directors' liability insurance
in respect of acts or omissions occurring prior to the Effective Time covering
each such Person currently covered by the Company's or any Subsidiary's
officers' and directors' liability insurance policy on terms with respect to
coverage and amount no less favorable than those of such policy in effect on the
date hereof (or, if such insurance policy cannot be obtained, such insurance
policy on terms with respect to coverage and amount as favorable as can be
obtained, subject to the proviso at the conclusion of this sentence), provided
that, in satisfying its obligation under this Section, the Surviving Corporation
shall not be obligated to pay premiums in excess of, 150% of the amount per
annum the Company paid in its last full fiscal year, which amount has been
disclosed to AAC.
(l) EMPLOYEES.
---------
(i) For a period of one year following the Effective Time, the
Surviving Corporation will not adopt or make effective any change in any
"employee benefit plan" (within the meaning of Section 3(3) of ERISA) that would
terminate or substantially reduce any benefits provided thereunder or materially
increase the cost to any employee of participation thereunder without any notice
to all affected employees at least 60 days in advance.
(ii) The Surviving Corporation shall assume and perform the
obligations of the Company and its Subsidiaries under the employment and
severance contracts specified in ss.3(h) of the Company Disclosure Schedule.
(iii) Prior to the Effective Time, the Company shall adopt,
effective at the Effective Time, a stock incentive plan substantially in the
form attached as Exhibit C hereto (the "Plan"), and shall reserve for issuance
under such Plan a number of shares, equal to 10% of Surviving Corporation Common
Stock. To the extent required by law or NASDAQ listing requirements or necessary
to obtain customary tax benefits for the Company or the holders of options, the
adoption of such Plan shall be contingent on approval by the holders of
Surviving Corporation Common Stock. The Company shall use its best efforts to
secure such approval not later than the Effective Time. On or immediately after
the Effective Time, the Surviving Corporation shall grant options to purchase at
least 10.0% of Surviving Corporation Common Stock under such Plan pursuant to
the terms and conditions set forth in ss.5 of the Plan to such Persons and in
such amounts as determined by the board of directors of the Surviving
Corporation or its Compensation Committee. Within eighteen months following the
Effective Time, the Surviving Corporation shall grant options to purchase at
least 2.0% of Surviving Corporation Common Stock (except with respect to options
that expire by their own terms). As soon as
36
<PAGE>
practicable after the adoption of such Plan, the Surviving Corporation shall
file a registration statement on Form S-8 (or other appropriate form) with
respect to the Surviving Corporation Common Stock to be issued pursuant to such
Plan and shall use its best efforts to maintain the effectiveness of such
registration statement (and maintain the currency of any related prospectus) for
so long as options are outstanding or may be granted under such Plan.
(iv) Prior to the Effective Time, the Company shall (A) take
such action as may be necessary to terminate the Company's 1994 Stock Option and
Incentive Plan, and (B) use its reasonable efforts under the circumstances to
enter into a written agreement with each Person who holds an option to purchase
shares of Company Common Stock whereby each such option holder agrees that such
option will be cancelled immediately prior to the Effective Time in exchange for
the cash payment specified in ss.2(d)(vii). If the per share exercise price of
any option equals or exceeds the Cash Election Price, such agreement shall
provide for the cancellation of such option without any corresponding payment.
(m) DISCLOSURE.
----------
(i) DISCLOSURE BY COMPANY. The Joint Disclosure Documents
prepared by the Company will comply with the Securities Exchange Act in all
material respects. The Joint Disclosure Documents will not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made therein, in the light of the circumstances under
which they will be made, not misleading; PROVIDED, HOWEVER, that the Company
makes no representation or warranty with respect to any information that AAC and
its Affiliates will supply specifically for use in the Joint Disclosure
Documents.
(ii) DISCLOSURE BY AAC. The Joint Disclosure Documents will
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading; PROVIDED, HOWEVER,
that AAC makes no representation or warranty with respect to any information
that the Company will supply specifically for use in the Joint Disclosure
Documents.
(n) COMFORT LETTERS. The Company will deliver to AAC on or before the
date the Joint Disclosure Document is mailed to the Company Stockholders a
letter from its accountants, Coopers & Lybrand, LLP stating its conclusions as
to the accuracy of certain information derived from the financial records from
the Company and its Subsidiaries and contained in the Joint Disclosure Document
(the "Company Comfort Letter"). The Company Comfort Letter shall be reasonably
satisfactory to AAC in form and substance. AAC will deliver to the Company on or
before the date the Joint Disclosure Document is mailed to the Stockholders of
the Company a letter from its accountants, Coopers & Lybrand, LLP, stating its
conclusions as to the accuracy of certain information derived from the financial
records of AAC and contained in the Joint Disclosure Document (the "AAC Comfort
Letter"). The AAC Comfort Letter shall be reasonably satisfactory to the Company
in form and substance. Each of the Company Comfort Letter and the AAC Comfort
Letter shall cover such matters as are customarily covered in transactions of
the type contemplated hereby.
37
<PAGE>
(o) AFFILIATE LETTERS. Not later than the tenth Business Day following
the mailing of the Joint Disclosure Document, the Company shall deliver to AAC,
after consultation with legal counsel, a list of the names and addresses of
those persons it deems to be "Affiliates" of the Company within the meaning of
Rule 145 promulgated under the Securities Act and a letter, substantially in the
form attached hereto as Exhibit D, restricting the disposition of shares
retained by such Affiliate as part of the Merger Consideration.
(p) CONTINUED REGISTRATION. The Surviving Corporation will use
commercially reasonable efforts, for at least two years after the Effective Time
of the Merger, to cause the Surviving Corporation Common Stock not to be
de-listed from The NASDAQ National Market System ("NASDAQ"); PROVIDED, HOWEVER,
that the Surviving Corporation may cause or permit the Surviving Corporation
Common Stock to be de-listed in connection with any transaction which results in
the termination of registration of such securities under Section 12 of the
Securities Exchange Act; PROVIDED, HOWEVER, that nothing in this ss.5(p) shall
require the Surviving Corporation to take any affirmative action to prevent the
Surviving Corporation Common Stock from being delisted by NASDAQ if the
Surviving Corporation Common Stock ceases to meet the applicable listing
standards.
(q) OPERATION OF AAC'S BUSINESS. Except as expressly permitted by this
Agreement or contemplated in the Ancillary Agreements, the Debt Financing
Commitments and the Equity Financing Commitment, AAC will not incur any
liabilities or material obligations not set forth in ss.5(q) of the AAC
Disclosure Schedule.
(r) NO AMENDMENT OF ANCILLARY AGREEMENTS. From the date hereof through
the Effective Time, neither AAC nor the Company shall amend in any manner
adverse to the other Party in any material respect any of the Ancillary
Agreements without the other Party's prior written consent, which consent shall
not be unreasonably withheld.
(s) SOLVENCY OPINION. The Company shall use its commercially reasonable
efforts to obtain the Solvency Opinion.
6. CONDITIONS TO OBLIGATION TO CLOSE.
---------------------------------
(a) CONDITIONS TO OBLIGATION OF AAC. The obligation of AAC to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in ss.3 above
shall be true and correct in all respects at and as of the Effective Time,
except (A) for those representations and warranties which address matters only
as of a particular date (which shall have been true and correct as of such date,
subject to clause (B)), and (B) where the failure of such representations and
warranties taken together without regard to any materiality or Knowledge
qualification set forth therein to be true and correct could reasonably be
expected to have a Material Adverse Effect, with the same force and effect as if
made on and as of the Effective Time;
38
<PAGE>
(ii) the Company shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
(iii) there shall not be any judgment, order, decree,
stipulation, injunction, or charge in effect preventing consummation of any of
the transactions contemplated by this Agreement; PROVIDED, HOWEVER, that AAC
shall use its reasonable best efforts to have any such judgment, order, decree,
stipulation, injunction or charge vacated or reversed;
(iv) the Company shall have delivered to AAC a certificate to
the effect that each of the conditions specified above in ss.6(a)(i)-(iii) is
satisfied in all respects
(v) this Agreement and the Merger shall have received the
Requisite Stockholder Approval or the Requisite Super-Majority Stockholder
Approval, as the case may be;
(vi) the holders of not more than 3% of the outstanding shares
of Company Common Stock shall have demanded appraisal of such shares in
accordance with the Delaware General Corporation Law;
(vii) the Company shall have delivered to AAC written consents
to the transactions contemplated hereby from third parties who are parties to
Contracts set forth on ss.6(a) of the Company Disclosure Schedule;
(viii) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated and the Parties shall have received all other authorizations,
consents, and approvals of Governmental Bodies referred to in ss.3(d) above;
(ix) AAC shall be reasonably satisfied that the Merger will be
recorded as a recapitalization for financial reporting purposes;
(x) Total Debt of the Company and its Subsidiaries determined
on a consolidated basis in accordance with GAAP as of the Effective Time shall
not exceed $38 million;
(xi) the Company shall have received the proceeds of the
Financing on terms and conditions set forth in the Debt Financing Commitments or
upon terms and conditions which are substantially equivalent thereto;
(xii) the Company shall have received and accepted the
resignations of all directors of the Company other than Richard P. Kleinknecht;
(xiii) the Stockholders Agreement shall be in full force and
effect and the parties thereto shall have taken the actions required to be taken
pursuant to Section 5 thereof; and
(xiv) each of the Investors Agreement, Share Exchange and
Termination Agreement, the Starr Termination Agreement, the Walsh Employment
Agreement, the KEC-NJ
39
<PAGE>
Labor Pool Agreement, the Corporate Opportunity Agreement, and the KEC-NY Labor
Pool Agreement shall be in full force and effect.
To the extent permitted by applicable law, AAC may waive any condition specified
in this ss.6(a) if it executes and delivers to the Company written notice so
stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the
Company to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in ss.4
above, without regard to any materiality or Knowledge qualification set forth
therein, shall be true and correct in all respects at and as of the Effective
Time, except (A) for those representations and warranties which address matters
only as of a particular date (which shall have been true and correct as of such
date, subject to clause (B)) , and (B) where the failure of such representations
and warranties taken together without regard to any materiality or Knowledge
qualification set forth therein to be true and correct could reasonably be
expected to have a Material Adverse Effect, with the same force and effect as if
made on and as of the Effective Time;
(ii) AAC shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) there shall not be any judgment, order, decree,
stipulation, injunction, or charge in effect preventing consummation of any of
the transactions contemplated by this Agreement; PROVIDED, HOWEVER, that Company
shall use its reasonable best efforts to have any such judgment, order, decree,
stipulation, injunction or charge vacated or reversed;
(iv) AAC shall have delivered to the Company a certificate to
the effect that each of the conditions specified above in ss.6(b)(i)-(iii) is
satisfied in all respects;
(v) this Agreement and the Merger shall have received the
Requisite Stockholder Approval or the Requisite Super-Majority Stockholder
Approval, as the case may be;
(vi) the AAC Shareholder Agreement shall be in full force and
effect;
(vii) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated and the Parties shall have received all other authorizations,
consents, and approvals of Governmental Bodies referred to in ss.3(d) above;
(viii) the Company shall be reasonably satisfied that the
Merger will be recorded as a recapitalization for financial reporting purposes;
and
(ix) the board of directors of the Company shall have received
the Solvency Opinion.
40
<PAGE>
To the extent permitted by applicable law, the Company may waive any condition
specified in this ss.6(b) if it executes and delivers to AAC written notice so
stating at or prior to Closing.
7. TERMINATION.
-----------
(a) TERMINATION OF AGREEMENT. Any of the Parties may terminate this
Agreement, and the Merger contemplated hereby may be abandoned, with the prior
authorization of its board of directors (whether before or after stockholder
approval), as provided below:
(i) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Effective Time;
(ii) AAC may terminate this Agreement by giving written notice
to the Company at any time prior to the Effective Time (A) in the event the
Company has breached any material representation, warranty, or covenant
contained in this Agreement when made or at any time prior to the Closing in any
material respect, AAC has notified the Company of the breach, and the breach has
continued without cure for a period of 15 days after the notice of breach, or
(B) if the Closing shall not have occurred on or before April 30, 1998, by
reason of the failure of any condition precedent under ss.6(a) hereof (unless
the failure results from AAC breaching any of its representations, warranties,
or covenants contained in this Agreement);
(iii) the Company may terminate this Agreement by giving
written notice to AAC at any time prior to the Effective Time (A) in the event
AAC has breached any material representation, warranty, or covenant contained in
this Agreement when made or at any time prior to the Closing in any material
respect, the Company has notified AAC of the breach, and the breach has
continued without cure for a period of 15 days after the notice of breach, or
(B) if the Closing shall not have occurred on or before April 30, 1998, by
reason of the failure of any condition precedent under ss.6(b) hereof (unless
the failure results from the Company breaching any of its representations,
warranties, or covenants contained in this Agreement);
(iv) the Company may terminate this Agreement by giving
written notice to AAC, at any time prior to the Effective Time, in the event
that a Person has made an Acquisition Proposal that the board of directors of
the Company determines, in good faith, and after consultation with and advice
from its financial advisors, is reasonably likely to be subject to completion
and would, if consummated, result in a transaction more favorable, from a
financial point of view, to the Company's Stockholders than this Agreement and
the Merger (a "Superior Acquisition Proposal");
(v) either Party may terminate this Agreement by giving
written notice to the other Party at any time after the Special Meeting in the
event this Agreement and the Merger fail to receive the Requisite Stockholder
Approval;
(vi) AAC may terminate this Agreement by giving written notice
to the Company if (A) the board of directors of the Company shall have withdrawn
or modified or amended, in a manner adverse to AAC, either its approval or
recommendation of this Agreement and the Merger or its recommendation that the
Company Stockholders adopt and approve this Agreement and the
41
<PAGE>
Merger, (B) the board of directors of the Company shall have approved,
recommended or endorsed any Superior Acquisition Proposal, or (C) if the Company
has failed to duly call the Special Meeting;
(vii) the Company may terminate this Agreement by giving
written notice to AAC if (A) the board of directors of the Company shall have
withdrawn or modified or amended, in a manner adverse to AAC, its approval and
recommendation of this Agreement and the Merger or its recommendation that the
Company Stockholders adopt and approve this Agreement and the Merger, or (B) the
board of directors of the Company shall have approved, recommended or endorsed
any Superior Acquisition Proposal, provided that the Company shall be in
compliance with ss.5(j).
(b) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to ss.7(a) above, all rights and obligations of the Parties hereunder
shall terminate without any liability of any Party (or its directors, officers
or stockholders) to any other Party (except for any liability of any Party then
in breach); PROVIDED, HOWEVER, that (i) this ss.7(b), (ii) ss.7(c), (iii) the
confidentiality provisions contained in ss.5(h) above, (iv) the
Confidentiality/Standstill Letter Agreement, and (v) the provisions of ss.8(b),
ss.8(h), ss.8(i) and ss.8(l), shall, in each case, survive any such termination.
(c) TERMINATION FEE; EXPENSES. Upon the occurrence of any one of the
following, the Company shall pay AAC a Termination Fee (as defined below) and
certain expenses (as described below):
(i) this Agreement having been terminated by the
Company or AAC, as the case may be, pursuant to
ss.7(a)(iv), ss.7(a)(vi)(B) or ss.7(a)(vii)(B); or
(ii) a Third Party having made an Acquisition
Proposal (whether prior to or following the
termination of this Agreement) and this Agreement
having been terminated pursuant to ss.7(a)(vi)(A),
ss.7(a)(vi)(C) or ss.7(a)(vii)(A), the Company
consummates an Acquisition Transaction within 12
months following termination of this Agreement.
The termination fee referred to in the preceding sentence shall be equal to
$3.37 million (the "Termination Fee") and shall be payable, if at all, upon the
occurrence of the relevant event under clause (i) or (ii) above. The expenses
referred to in the first sentence of this ss.7(c) shall mean that amount, not to
exceed $2.2 million in the aggregate, of all reasonable out-of-pocket costs,
fees and expenses, including, without limitation, the reasonable fees and
disbursements of banks, investment banks, accountants or legal counsel.
Notwithstanding anything to the contrary contained in this ss.7(c), the expenses
referred to in the previous sentence shall be payable upon termination of this
Agreement under ss.7(a)(iv), ss.7(a)(vi) or ss.7(a)(vii) above within ten (10)
Business Days of receipt by the Company of reasonably satisfactory documentation
detailing such costs, fees and expenses.
42
<PAGE>
8. MISCELLANEOUS.
-------------
(a) SURVIVAL. Except for the provisions of ss.7(b), ss.7(c) and the
provisions of ss.8 (and the provisions referred to in ss.7(b), ss.7(c) and ss.8)
none of the representations, warranties, and covenants of the Parties will
survive the Effective Time.
(b) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Parties;
PROVIDED, HOWEVER, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its reasonable best efforts to advise the other Party prior to making
the disclosure).
(c) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; PROVIDED, HOWEVER, that (i) the provisions in
ss.2 above concerning payment of the Merger Consideration are intended for the
benefit of the Company's Stockholders; (ii) the provisions in ss.5(k) above
concerning insurance and indemnification are intended for the benefit of the
individuals specified therein and their respective heirs and legal
representatives; (iii) the provisions of ss.5(l) are for the benefit of
continuing employees; (iv) the provisions of ss.2(d)(vii) are for the benefit of
the holders of options to purchase shares of Company Common Stock; and (v) the
provisions of ss.5(p) are intended for the benefit of the holders of Surviving
Corporation Common Stock other than the stockholders of AAC.
(d) ENTIRE AGREEMENT. This Agreement (including the Exhibits and the
Schedule hereto, the Company Disclosure Schedule and AAC Disclosure Schedule and
the attachments thereto) and the Confidentiality/Standstill Letter Agreement,
constitute the entire agreement between the Parties and supersede any prior
understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof. References in this Agreement to transactions contemplated by this
Agreement shall include transactions contemplated by the Ancillary Agreements.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party.
(f) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) GENERAL INTERPRETIVE PRINCIPLES. For purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
43
<PAGE>
(i) 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;
(ii) accounting terms not otherwise defined herein have the
meanings given to them in accordance with GAAP;
(iii) references herein to "articles," "sections," "ss.'s,"
"subsections," and other subdivisions without reference to a document are to
designated articles, sections, ss.'s, subsections, and other subdivisions of
this Agreement;
(iv) 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;
(v) the words "herein," "hereof," "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
provision;
(vi) the term "include" or "including" shall mean without
limitation by reason of enumeration;
(vii) 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;
(viii) 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
(ix) 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.
(h) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
Business Days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
44
<PAGE>
If to the Company: IPC Information Systems, Inc.
Wall Street Plaza
88 Pine Street
New York, New York 10005
Facsimile: (212) 858-7959
Attention: Daniel Utevsky, Esq.
Copy to: Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Facsimile: (212) 912-7751
Attention: Thomas N. Talley, Esq.
If to AAC: Arizona Acquisition Corp.
c/o Cable Systems Holding LLC
505 North 51st Avenue
Phoenix, Arizona 85043-2701
Facsimile: (602) 233-5782
Attention: President
Copies to: Citicorp Venture Capital, Ltd.
399 Park Avenue
New York, New York 10043
Facsimile: (212) 888-2940
Attention: Richard M. Cashin, Jr.
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178-0060
Facsimile: (212) 309-6273
Attention: Philip H. Werner, Esq.
Either Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(i) GOVERNING LAW; FORUM SELECTION; AND WAIVER OF JURY TRIAL. (i) This
Agreement shall be governed by and construed in accordance with the domestic
laws of the State of New York without giving effect to any choice or conflict of
law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other
45
<PAGE>
than the State of New York; except, however, the Delaware General Corporation
Law shall apply to matters governed exclusively thereby.
(ii) The Parties hereto agree that any action, suit or
proceeding (a "Proceeding") arising out of the transactions contemplated by this
Agreement shall be commenced and litigated exclusively in the United States
District Court for the District of Delaware or in a state court of the State of
Delaware.
(iii) Each of the Parties hereto hereby irrevocably and
unconditionally (A) consents to submit to the exclusive jurisdiction of the
federal and state courts in the State of Delaware for any Proceeding (and each
such Party agrees not to commence any Proceeding, except in such courts), (B)
waives any objection to the laying of venue of any Proceeding in the courts of
the State of Delaware, and (C) waives, and agrees not to plead or to make, any
claim that any Proceeding brought in any court of the State of Delaware has been
brought in an improper or otherwise inconvenient forum.
(iv) Each of the Parties hereby irrevocably designates and
appoints RL&F Service Corp., with offices on the date hereof at One Rodney
Square, Wilmington, Delaware 19801 (hereinafter called the "Agent"), as its
attorney-in-fact to receive service of process in such Proceeding, it being
agreed that service upon such attorney-in-fact shall constitute valid service
upon each of the Parties or its successors or assigns. Each of the Parties
agrees that (A) the sole responsibilities of the Agent shall be (1) to receive
such process, (2) to send a copy of any such process so received to the relevant
Party, by registered airmail, return receipt requested, at the address set forth
in ss.8(h) hereof, or at the last address filed in writing by such Party with
the Agent and (3) to give prompt telegraphic notice of receipt thereof to such
Party at such address, and (B) the Agent shall have no responsibility for the
receipt or non-receipt by such Party of such process, nor for any performance or
non-performance by such Party or any other Party to this Agreement or their
successors or assigns. Each of the Parties hereby agrees to pay to the Agent
such compensation as shall be agreed upon from time to time for services of the
Agent hereunder. Each of the Parties hereby agrees that its submission to
jurisdiction and its designation of the Agent set forth above is made for the
express benefit of each of the Parties hereto. Each of the Parties further
agrees that a final judgment against a Party in any such action or proceeding
shall be conclusive, and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law, a certified or true copy of
which final judgment shall be conclusive evidence of the fact and of the amount
of any indebtedness or liability of such Party herein described; provided that
nothing in this ss.8(i)(iv) shall affect the right of any Party or its
successors or assigns to serve legal process in any other manner permitted by
law. Each of the Parties further covenants and agrees that so long as this
Agreement shall be in effect, each of the Parties shall maintain a duly
appointed agent for the service of summonses and other legal processes in
Wilmington, Delaware and will notify the other parties hereto of the name and
address of such agent if it is no longer the Agent.
(v) Each of the Parties hereto agrees that it shall not seek a
jury trial in any Proceeding based upon or arising out of or otherwise related
to this Agreement or any of the other documents and instruments contemplated
hereby and each of the Parties hereto hereby waives any and all right to any
such jury trial.
46
<PAGE>
(j) AMENDMENTS AND WAIVERS. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; PROVIDED, HOWEVER,
that any amendment effected subsequent to stockholder approval will be subject
to the restrictions contained in the Delaware General Corporation Law. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by both Parties. No waiver by either Party of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence. No waiver shall be valid unless the same shall be in writing and
signed by both Parties.
(k) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction; PROVIDED, HOWEVER, that if the
invalidity of any covenant, agreement or provision shall deprive any party of
the economic benefit intended to be conferred by this Agreement, the Parties
shall negotiate in good faith to amend the Agreement in a manner so that the
economic effect of the Agreement, as amended, is as nearly as possible the same
as the economic effect of this Agreement.
(l) EXPENSES. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby, whether or not the Merger is
consummated.
(m) INCORPORATION OF EXHIBITS, SCHEDULE AND DISCLOSURE SCHEDULES. The
Exhibits, Schedule, the Company Disclosure Schedule and the AAC Disclosure
Schedule identified in this Agreement are incorporated herein by reference and
made a part hereof.
(n) TRANSFER TAXES. Any liability arising out of the New York City or
New York State Real Property Transfer Tax, if applicable and due with respect to
the Merger, shall be borne by the Surviving Corporation and expressly shall not
be a liability of the Company Stockholders.
(o) LIMITED RECOURSE. Notwithstanding anything in this Agreement or any
Ancillary Agreement to the contrary (except as otherwise provided in the
Ancillary Agreements), (i) the obligations and liabilities of the Parties
hereunder and thereunder shall be without recourse to any stockholder of such
Party or any of such stockholder's Affiliates (other than the Parties), or any
of their respective directors, employees, officers, representatives or agents
(in each case, in their capacity as such) and shall be limited to the assets of
such Party and (ii) the stockholders of AAC have made no (and shall not be
deemed to have made any) representations, warranties or covenants (express or
implied) under or in connection with this Agreement or any Ancillary Agreement.
47
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
IPC INFORMATION SYSTEMS, INC.
By: /S/ S.T. CLONTZ
----------------------------------
Title: PRESIDENT AND C.E.O.
-------------------------------
ARIZONA ACQUISITION CORP.
By: /S/ PETER A. WOOG
---------------------------------
Title: PRESIDENT
------------------------------
48
<PAGE>
SCHEDULE A
DIRECTORS OF SURVIVING CORPORATION
----------------------------------
Peter Woog
Richard Cashin, Jr.
David Y. Howe
Robert J. McInerney
Richard Kleinknecht
2 independent directors to be designated by AAC
2 management directors to be designated by AAC
49
<PAGE>
ANNEX B
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
IPC INFORMATION SYSTEMS, INC.
IPC Information Systems, Inc., a Delaware corporation
incorporated August 29, 1985 under the name IPC Merger Corporation, does hereby
amend and restate its certificate of incorporation to read in its entirety as
set forth below:
1. NAME. The name of the corporation is IPC Information
Systems, Inc. (the "Corporation").
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.
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 corporations may be organized under the General Corporation
Law of the State of Delaware.
4. CAPITAL STOCK.
4.1 SHARES, CLASSES AND SERIES AUTHORIZED. The total number of
shares of all classes of capital stock which the Corporation shall have
authority to issue is thirty-five million (35,000,000) shares, of which ten
million (10,000,000) shares shall be preferred stock, par value one cent ($.01)
per share (the "Preferred Stock"), and twenty five million (25,000,000) shares
shall be common stock, par value one cent ($.01) per share (the "Common Stock").
The Preferred Stock and Common Stock are sometimes hereinafter collectively
referred to as the "Capital Stock."
4.2 DESIGNATIONS, POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS RELATING TO THE CAPITAL STOCK. The following is a
statement of the designations, powers, preferences and rights in respect of the
classes of the Capital Stock, and the qualifications, limitations or
restrictions thereof, and of the authority with respect thereto expressly vested
in the Board of the Corporation.
-1-
<PAGE>
(a) PREFERRED STOCK. The Preferred Stock may be issued from
time to time in one or more series, the number of shares and any designation of
each series and the powers, preferences and rights of the shares of each series,
and the qualifications, limitations or restrictions thereof, to be as stated and
expressed in a resolution or resolutions providing for the issue of such series
adopted by the Board of Directors, subject to the limitations prescribed by law.
The Board of Directors in any such resolution or resolutions is expressly
authorized to state for each such series:
(i) the voting powers, if any, of the holders of stock of such
series in addition to any voting rights affirmatively required by law;
(ii) the rights of stockholders in respect of dividends,
including, without limitation, the rate or rates per annum and the time
or times at which (or the formula or other method pursuant to which
such rate or rates and such time or times may be determined) and
conditions upon which the holders of stock of such series shall be
entitled to receive dividends and other distributions, and whether any
such dividends shall be cumulative or noncumulative and, if cumulative,
the terms upon which such dividends shall be cumulative;
(iii) whether the stock of each such series shall be
redeemable by the Corporation at the option of the Corporation or the
holder thereof or upon the occurrence of a specified event or events,
and, if redeemable, the terms and conditions upon which the stock of
such series may be redeemed;
(iv) the amount payable and the rights or preferences to which
the holders of the stock of such series shall be entitled upon any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(v) the terms, if any, upon which shares of stock of such
series shall be convertible into, or exchangeable for, shares of stock
of any other class or classes or of any other series of the same or any
other class or classes, including the price or prices or the rate or
rates of conversion or exchange and the terms of adjustment, if any;
and
(vi) any other designations, preferences, and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, so far as they are not
inconsistent with the provisions of this Restated Certificate of
Incorporation and to the full extent now or hereafter permitted by the
laws of the State of Delaware.
All shares of the Preferred Stock of any one series shall be
identical to each other in all respects, except that shares of any one series
issued at different times may differ as to the dates from which dividends
thereon, if cumulative, shall be cumulative.
Subject to any limitations or restrictions stated in the
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting a series, the Board of
-2-
<PAGE>
Directors may by resolution or resolutions likewise adopted increase (but not
above the total number of authorized shares of that class) or decrease (but not
below the number of shares of the series then outstanding) the number of shares
of the series subsequent to the issue of shares of that series; and if the
number of shares of any series shall be so decreased, the shares constituting
the decrease shall resume that status that they had prior to the adoption of the
resolution originally fixing the number of shares constituting such series.
(b) COMMON STOCK. All shares of Common Stock shall be
identical to each other in every respect. The shares of Common Stock shall
entitle the holders thereof to one vote for each share on all matters on which
stockholders have the right to vote. The holders of Common Stock shall not be
permitted to cumulate their votes for the election of directors.
Subject to the preferences, privileges and powers with respect
to each class or series of Capital Stock having any priority over the Common
Stock, and the qualifications, limitations or restrictions thereof, the holders
of the Common Stock shall have and possess all rights pertaining to the Common
Stock. No holder of shares of Common Stock shall be entitled as such, as a
matter of preemptive right, to subscribe for, purchase or otherwise acquire any
part of any new or additional issue of stock of any class or series whatsoever
of the Corporation, or of securities convertible into stock of any class or
series whatsoever of the Corporation, or of any warrants or other instruments
evidencing rights or options to subscribe for, purchase or otherwise acquire
such stock or securities, whether now or hereafter authorized or whether issued
for cash or other consideration or by way of dividend.
5. BOARD OF DIRECTORS.
5.1 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 two (2) nor more
than nine (9).
5.2 WRITTEN BALLOT. Unless and to the extent that the By-Laws
so provide, elections of directors need not be by written ballot.
5.3 AMENDMENT OF BY-LAWS. The Board of Directors of the
Corporation, acting by majority vote, may alter, amend or repeal the By-Laws of
the Corporation.
6. LIMITATION OF DIRECTOR LIABILITY. Except as otherwise
provided by the Delaware General Corporation Law as the same exists or may
hereafter be amended, no director of the Corporation shall be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. Any repeal or modification of this Section 6 by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be duly executed by ______________________, its
Chief Executive Officer, and attested to by ______________, its Secretary, this
___th day of ___, 199_.
-3-
<PAGE>
IPC INFORMATION SYSTEMS, INC.
By:_________________________
Name:
Title:
Attest:
___________________________
Name:
Title:
-4-
<PAGE>
ANNEX C
IPC INFORMATION SYSTEMS, INC.
STOCK OPTION PLAN
Section 1. PURPOSE
-------
The Plan authorizes the Compensation Committee of the Board to provide
employees, directors and consultants of the Corporation or its Subsidiaries, who
are in a position to contribute to the long-term success of the Corporation and
its Subsidiaries, with Options to acquire Common Stock of the Corporation. The
Corporation believes that this incentive program will cause those persons to
increase their interest in the welfare of the Corporation and its Subsidiaries,
and aid in attracting and retaining employees and consultants of outstanding
ability. Options granted under the Plan are not intended to qualify as incentive
stock options pursuant to Section 422 of the Internal Revenue Code of 1986, as
amended.
Section 2. DEFINITIONS
-----------
Unless the context clearly indicates otherwise, the following terms,
when used in the Plan, shall have the meanings set forth in this Section:
(a) "Board" means the Board of Directors of the Corporation.
(b) "Cause" means any of the following: (i) commission of any act of
fraud or dishonesty with respect to the business of the Corporation or its
Subsidiaries, (ii) willful misconduct or gross negligence in connection with the
performance of a Grantee's duties to the Corporation and its Subsidiaries, (iii)
indictment for, or conviction of, any crime or an offence involving moral
turpitude, (iv) commission of any act injurious to the interest of the
Corporation, or (v) breach of any material provision of any applicable
employment or consulting agreement. Notwithstanding the foregoing, if any
Grantee is party to an employment or consulting agreement governing the terms of
his employment or consultancy with the Corporation or its Subsidiaries, and such
agreement includes a definition of cause, then for purposes hereof, cause shall
have the meaning ascribed thereto in such agreement.
(c) "Change in Control" shall mean (i) approval by the stockholders of
the Corporation of a transaction that would result in the reorganization, merger
or consolidation of the Corporation with one or more persons, and, upon
consummation thereof, would result in persons who, immediately prior to such
transaction, beneficially owned (within the meaning of Rule 13d-3 promulgated
under the Securities Exchange Act of 1934) at least 50% of the securities
entitled to vote generally in the election of directors of the Corporation,
beneficially owning (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934) in the aggregate immediately after such
transaction less than 50% of the securities entitled to vote generally in the
election of directors of the entity resulting from such transaction; (ii) the
acquisition of all or
<PAGE>
substantially all of the assets of the Corporation or beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act
of 1934) of at least 50% of the outstanding securities of the Corporation
entitled to vote generally in the election of directors by any person or by any
persons acting in concert, or approval by the stockholder of the Corporation of
any transaction which would result in such an acquisition (other than by any
person or persons who beneficially own (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934), immediately after the
closing date of transactions contemplated by the Merger Agreement at least 50%
of the outstanding securities of the Corporation entitled to vote generally in
the election of directors); or (iii) a complete liquidation or dissolution of
the Corporation, or approval of the Corporation of a plan for such liquidation
or dissolution; PROVIDED, HOWEVER, that in no event shall any of the
transactions contemplated by the Merger Agreement (or shareholder approval
thereof) constitute a Change in Control.
(d) "Committee" means the Compensation Committee of the Board;
PROVIDED, HOWEVER, that with respect to any Option granted or to be granted to
any member of the Compensation Committee, Committee shall mean the Board acting
through a majority of its members who are not members of the Compensation
Committee.
(e) "Common Stock" means the common stock par value $.01 per share, of
the Corporation.
(f) "Consultant" means any person who is engaged to perform services
for the Corporation, or has agreed to perform services for the Corporation,
other than as an Employee or Director.
(g) "Corporation" means IPC Information Systems, Inc., a Delaware
corporation.
(h) "Director" means any member of the Board.
(i) "Disability" means a physical or mental impairment that causes the
Grantee to be unable to engage in any substantial gainful activity and that is
expected to result in death or is expected to last for a continuous period of at
least 12 months. Notwithstanding the foregoing, if any Grantee is party to an
employment or consulting agreement governing the terms of his employment or
consultancy with the Corporation or its Subsidiaries, and such agreement
includes a definition of disability, then for purposes hereof, disability shall
have the meaning ascribed thereto in such agreement.
(j) "Employee" means any employee of the Corporation or any of its
Subsidiaries, or any person who has agreed to become an employee of the
Corporation or any of its Subsidiaries. The term Employee shall include
directors who are otherwise employed by the Corporation or any
Subsidiary.
2
<PAGE>
(k) "Fair Market Value" means, as of any date, the fair market value of
a share of Common Stock as determined by the Committee acting in good faith in
its sole discretion; PROVIDED, HOWEVER, that if the Common Stock is listed on a
national securities exchange or quoted in an interdealer quotation system, the
fair market value shall be based on the last sales price or, if unavailable, the
average of the closing bid and asked prices per share of the Common Stock on
such date (or, if there was no trading or quotation in the Common Stock on such
date, on the next preceding date on which there was trading or quotation) as
provided by one of such organizations. Notwithstanding the foregoing, the Fair
Market Value of a share of Common Stock on the closing date of the transactions
contemplated by the Merger Agreement shall be deemed to be the "Cash Election
Price" as defined in the Merger Agreement.
(l) "Grantee" means a person granted an Option under the Plan.
(m) "Merger Agreement" means the Agreement and Plan of Merger, dated as
of December 18, 1997 by and between the Corporation and Arizona Acquisition
Corp., a Delaware Corporation.
(n) "Option" means an option granted pursuant to the Plan to purchase
shares of the Common Stock.
(o) "Plan" means this Stock Option Plan as set forth herein and as
amended from time to time.
(p) "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations thereunder as presently in effect or hereafter
amended.
(q) "Stock Option Agreement" shall mean a written agreement between the
Corporation and the Grantee, or a certificate accepted by the Grantee,
evidencing the grant of an Option hereunder and containing such terms and
conditions, not inconsistent with the Plan, as the Committee shall approve.
(r) "Subsidiary" shall mean (i) any corporation with respect to which
the Corporation owns, directly or indirectly, 50% or more of the total combined
voting power of all classes of stock of such corporation, or (ii) any entity
which the Committee reasonably expects to become a
Subsidiary within the meaning of clause (i).
Section 3. SHARES OF COMMON STOCK SUBJECT TO THE PLAN
------------------------------------------
Subject to adjustment as provided in Section 7, the Common Stock which
may be issued pursuant to Options granted under the Plan shall not exceed
[554,112] shares in the aggregate [12% of outstanding on a fully diluted basis.]
Common Stock issuable under the Plan may be authorized but unissued shares or
reacquired shares of Common Stock. Common Stock subject to Options that
3
<PAGE>
are forfeited, lapse or terminate in whole or in part for any reason, shall be
available for issuance pursuant to other Options.
Section 4. ADMINISTRATION OF THE PLAN
--------------------------
(a) AUTHORITY OF THE COMMITTEE. The Plan shall be administered by the
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to
and consistent with the provisions of the Plan:
(i) to select the Employees, Directors and Consultants to whom
Options may be granted;
(ii) to determine the number of shares of Common Stock subject to each
such Option; PROVIDED, HOWEVER, that during any calendar year, no individual may
be granted Options with respect to more than 250,000 shares of Common Stock.
(iii) to determine the terms and conditions of any Option granted under
the Plan (including, but not limited to, the exercise price, the period, if any,
over which Options shall vest and become exercisable (which period may be
accelerated at any time in the discretion of the Committee), and performance
conditions relating to an Option, based in each case on such considerations as
the Committee shall determine), and all other matters to be determined in
connection with an Option;
(iv) to determine whether, to what extent and under what circumstances
an the exercise price of an Option may be paid, in cash, Common Stock, or other
property, or an Option may expire or be canceled, forfeited, or surrendered;
(v) to determine the restrictions or conditions related to the
delivery, holding and disposition of shares of Common Stock received upon
exercise of an Option, and
(vi) to prescribe the form of each Stock Option Agreement, which need
not be identical for each Grantee;
(vii) to adopt, amend, suspend, waive and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(viii) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any Option,
Stock Option Agreement or other instrument hereunder; and
(ix) to make all other decisions and determinations as may be required
under the terms of the Plan or as the Committee may deem necessary or advisable
for the administration of the Plan.
4
<PAGE>
The Committee may, at any time, grant new or additional options to any eligible
Employee, Director or Consultant who has previously received Options under the
Plan, or options under other plans, whether such prior Options or other options
are still outstanding, have been exercised previously in whole or in part, or
have been canceled. The exercise price of such new or additional Options may be
established by the Committee, without regard to such previously granted Options
or other options.
Other provisions of the Plan notwithstanding, the Board may perform any function
of the Committee under the Plan, including without limitation for the purpose of
ensuring that transactions under the Plan by Grantees who are then subject to
Section 16 of the Securities Exchange Act of 1934 in respect of the Corporation
are exempt under Rule 16b-3 thereunder. In any case in which the Board is
performing a function of the Committee under the Plan, each reference to the
Committee herein shall be deemed to refer to the Board.
(b) MANNER OF EXERCISE OF COMMITTEE AUTHORITY. Any action of the
Committee with respect to the Plan shall be final, conclusive and binding on all
persons, including the Corporation, Subsidiaries, Grantees, any person claiming
any rights under the Plan from or through any Grantee and stockholders, except
to the extent the Committee may subsequently modify, or take further action not
consistent with, its prior action. If not specified in the Plan, the time at
which the Committee must or may make any determination shall be determined by
the Committee, and any such determination may thereafter by modified by the
Committee (subject to Section 10). The express grant of any specific power to
the Committee, and the taking of any action by the Committee, shall not be
construed as limiting any power or authority of the Committee. The Committee may
delegate to officers or managers of the Corporation or any subsidiary of the
Corporation the authority, subject to such terms as the Committee shall
determine, to perform such functions as the Committee may determine, to the
extent permitted under applicable law.
(c) LIMITATION OF LIABILITY. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Corporation or any
subsidiary, the Corporation's independent certified public accountants or any
executive compensation consultant, legal counsel or other professional retained
by the Corporation to assist in the administration of the Plan. To the fullest
extent permitted by applicable law, no member of the Committee, nor any officer
or employee of the Corporation acting on behalf of the Committee, shall be
personally liable for any action, determination or interpretation taken or made
in good faith with respect to the Plan, and all members of the Committee and any
officer or employee of the Corporation acting on its behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Corporation with
respect to any such action, determination or interpretation.
Section 5. OPTION TERMS
------------
Unless otherwise determined by the Committee and set forth in a Stock
Option Agreement, Options granted under the Plan shall contain the following
terms and conditions:
5
<PAGE>
(a) EXERCISE PRICE. The exercise price per share of Common Stock
subject to each Option shall equal the Fair Market Value on the date the Option
is granted.
(b) VESTING. Each Option shall vest and become exercisable in five
equal installments on each of the first five anniversaries on the date the
Option is granted; PROVIDED, HOWEVER that the Option shall be vested and
exercisable as to no less than 75% of the shares of Common Stock subject thereto
as of the end of any period of 30 consecutive trading days during which the Fair
Market Value averages at least 300% of the Fair Market Value on the date the
Option is granted, and shall be vested and exercisable as to 100% of the shares
of Common Stock subject thereto as of the end of any period of 30 consecutive
trading days during which the Fair Market Value averages at least 450% of the
Fair Market Value on the date the Option is granted; AND PROVIDED FURTHER that
each Option shall become vested and exercisable in full immediately prior to a
Change in Control.
(c) TERMINATION. Options held by any Grantee shall terminate upon the
earliest of:
(i) the termination of the Grantee's employment, directorship
or consultancy with the Corporation and its Subsidiaries for Cause;
(ii) 90 days after the Grantee's termination of employment,
directorship or consultancy with the Corporation and its Subsidiaries (which
shall be deemed to include the sale of any Subsidiary of the Corporation that
employs such Grantee) for any reason other than Cause, death or Disability;
PROVIDED, HOWEVER, that during any such 90-day period, the Options shall be
exercisable only to the extent vested and exercisable as of the date of such
termination;
(iii) 180 days after the Grantee's termination of employment,
directorship or consultancy with the Corporation and its Subsidiaries by reason
of death or Disability; PROVIDED, HOWEVER, that during any such 180-day period,
the Options shall be exercisable only to the extent vested and exercisable as of
the date of such termination;
(iv) the tenth anniversary of the date of grant; and
(v) upon the consummation of any transaction whereby the
Corporation (or any successor to the Corporation or substantially all of its
business) becomes a wholly-owned subsidiary of any other corporation (but after
giving effect to Section 5(b)), unless such other corporation shall continue or
assume the Plan as it relates to Options then outstanding (in which case such
other corporation shall be treated as the Corporation for all purposes
hereunder, and, pursuant to Section 7, the Committee of such other corporation
shall make appropriate adjustment in the number and kind of shares of Common
Stock subject thereto and the exercise price per share thereof to reflect
consummation of such transaction). If the Plan is not to be so assumed, the
Corporation shall notify the Grantee of consummation of such transaction at
least ten days in advance thereof.
6
<PAGE>
Section 6. EXERCISE OF OPTIONS
-------------------
A Grantee shall exercise an Option by delivery of written notice to the
Corporation setting forth the number of shares with respect to which the Option
is to be exercised, together with cash, certified check, bank draft, wire
transfer, or postal or express money order payable to the order of the
Corporation for an amount equal to the exercise price of such shares and any
income tax required to be withheld. The Committee may, in its sole discretion,
permit a Grantee to pay all or a portion of the exercise price or tax
withholding obligation by delivery of Common Stock or other property (including
notes or other contractual obligations of the Grantee to make payment on a
deferred basis, such as through "cashless exercise" arrangements, to the extent
permitted by applicable law), and the methods by which Common Stock will be
delivered or deemed to be delivered by the Grantee.
Section 7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
-----------------------------------------
In the event any recapitalization, forward or reverse split,
reorganization, merger, consoli dation, spin-off, combination, repurchase, or
exchange of Common Stock or other securities, Common Stock dividend or other
special and nonrecurring dividend or distribution (whether in the form of cash,
securities or other property), liquidation, dissolution, or other similar
corporate transaction or event, affects the Common Stock such that an adjustment
is appropriate in order to prevent dilution or enlargement of the rights of
Grantees under the Plan, then the Committee shall, in such manner as it may deem
equitable, adjust any or all of (i) the number and kind of shares of Common
Stock deemed to be available thereafter for grants of Options under Section 3,
(ii) the number and kind of shares of Common Stock that may be delivered or
deliverable in respect of outstanding Options, (iii) the number of shares with
respect to which Options may be granted to a given Grantee in the specified
period as set forth in Section 4(a)(ii), and (iv) the exercise price. In
addition, the Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Options (including, without
limitation, cancellation of Options in exchange for the in-the-money value, if
any, of the vested portion thereof, or substitution of Options using stock of a
successor or other entity) in recognition of unusual or nonrecurring events
(including, without limitation, events described in the preceding sentence)
affecting the Corporation or any Subsidiary or the financial statements of the
Corporation or any Subsidiary, or in response to changes in applicable laws,
regulations, or accounting principles.
Section 8. RESTRICTIONS ON ISSUANCE OF SHARES.
----------------------------------
The Corporation shall not be obligated to deliver Common Stock upon the
exercise or settlement of any Option or take any other action under the Plan
until the Corporation shall have determined that applicable federal and state
laws, rules, and regulations have been complied with and such approvals of any
regulatory or governmental agency have been obtained and contractual obligations
to which the Option may be subject have been satisfied. The Corporation, in its
discretion, may postpone the issuance or delivery of Common Stock under any
Option until
7
<PAGE>
completion of such stock exchange listing or registration or qualification of
Common Stock or other required action under any federal or state law, rule, or
regulation as the Corporation may consider appropriate, and may require any
Grantee to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of Common Stock
under the Plan. The Corporation shall file a registration statement on Form S-8
(or other appropriate form) with respect to the Common Stock to be issued
pursuant to the Plan and shall use its best efforts to maintain the
effectiveness of such registration statement (and maintain the currency of any
related prospectus) for so long as Options are outstanding or may be granted
under the Plan.
Section 9. GENERAL PROVISIONS
(a) Each Option grant shall be evidenced by a Stock Option
Agreement.
(b) The grant of an Option in any year shall not give the Grantee any
right to similar grants in future years or any right to continue such Grantee's
employment relationship with the Corporation. All Grantees shall remain subject
to discharge to the same extent as if the Plan were not in effect.
(c) No Grantee, and no beneficiary or other persons claiming under or
through the Grantee shall have any right, title or interest by reason of any
Option to any particular assets of the Corporation, or any shares of Common
Stock allocated or reserved for the purposes of the Plan or subject to any
Option except as set forth herein. The Corporation shall not be required to
establish any fund or make any other segregation of assets to assure the payment
of any Option.
(d) Unless otherwise permitted in the discretion of the Committee, no
Option or other right under the Plan may be sold, transferred, assigned, pledged
or otherwise encumbered, except by will or the laws of descent and distribution,
and an Option shall be exercisable during the Grantee's lifetime only by the
Grantee.
(e) The Corporation shall have the right to require that the Grantee
make such provision, or furnish the Corporation such authorization, necessary or
desirable so that the Corporation may satisfy its obligation, under applicable
laws, to withhold or otherwise pay for income or other taxes of the Grantee
attributable to the grant, exercise or cancellation of Options granted under the
Plan or the sale of Common Stock issued with respect to Options. This authority
shall include authority to withhold or receive Common Stock or other property
and to make cash payments in respect thereof in satisfaction of a Grantee's tax
obligations.
8
<PAGE>
Section 10. AMENDMENT OR TERMINATION
------------------------
The Board may alter, amend, suspend, discontinue or terminate the Plan
at any time; PROVIDED, HOWEVER, that no such action shall adversely affect the
rights of Grantees of Options previously granted hereunder and, PROVIDED
FURTHER, HOWEVER, that any stockholder approval necessary or desirable in order
to comply with applicable law, regulation or listing requirement shall
be obtained in the manner required therein.
Section 11. EFFECTIVE DATE OF PLAN
----------------------
The Plan shall be effective immediately after the closing of the
transactions contemplated by the Merger Agreement, subject to the approval of
the Plan by the Corporation's shareholders either
before or after such effective date.
9
<PAGE>
ANNEX D
EXECUTION COPY
STOCKHOLDERS AGREEMENT
AGREEMENT, dated as of December 18, 1997 by and between Arizona
Acquisition Corp., a Delaware corporation ("Merger Subsidiary"), and the other
parties signatory hereto (each, a "Stockholder"). Capitalized terms used but not
defined herein shall have the meanings set forth in the Agreement and Plan of
Merger, dated the date hereof (as such agreement may be amended from time to
time, the "Merger Agreement").
WHEREAS, concurrently herewith, Merger Subsidiary and IPC Information
Systems, Inc., a Delaware corporation (the "Company"), are entering into a
Merger Agreement, pursuant to which Merger Subsidiary will be merged with and
into the Company (the "Merger"), whereby each share of common stock, par value
$.01 per share, of the Company ("Company Common Stock") issued and outstanding
immediately prior to the Effective Time will be converted into either (A) the
right to retain at the election of the holder thereof and subject to the terms
of the Merger Agreement, common stock, par value $.01 per share, of the Company
or (B) the right to receive cash, other than (i) shares of Company Common Stock
owned, directly or indirectly, by the Company or any Subsidiary of the Company
or by Merger Subsidiary and (ii) Dissenting Shares.
WHEREAS, as a condition to Merger Subsidiary's entering into the Merger
Agreement, Merger Subsidiary requires that each Stockholder enter into, and each
such Stockholder has agreed to enter into, this Agreement with Merger
Subsidiary.
NOW, THEREFORE, in order to implement the foregoing and in
consideration of the mutual agreements contained herein, the parties hereby
agree as follows:
Section 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, provided that no securityholder of the Company shall be deemed an
Affiliate of any other securityholder solely by reason of any investment in the
Company. For the purpose of this definition, the term "control" (including with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of stock,
as a trustee or executor, by contract or credit arrangement or otherwise.
<PAGE>
"AMENDED AND RESTATED LABOR POOLING AGREEMENTS" has the meaning
ascribed thereto in Section 5(e) of this Agreement.
"BENEFICIALLY OWN" or "BENEFICIAL OWNERSHIP" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act), including pursuant to
any agreement, arrangement or understanding, whether or not in writing. Without
duplicative counting of the same securities by the same holder, securities
Beneficially Owned by a Person shall include securities Beneficially Owned by
all other Persons with whom such Person would constitute a "group" as described
in Section 13(d)(3) of the Exchange Act.
"BUSINESS" means (i) the design, manufacture, sale, distribution and/or
maintenance of voice and/or data communications products, including, but not
limited to, turret or dealerboard systems used within the financial services,
energy, transportation or emergency services industries, Private Branch Exchange
(PBX) and/or key telephone systems, voice recording systems and video
teleconferencing products; (ii) the furnishing of communications cabling or
voice or data communications products, including the design and/or installation
of local and wide area networks or the provision of maintenance services for
said communications cabling or products; (iii) the design, furnishing,
installation and/or maintenance of low voltage cabling systems (such as would
not require an electrical license for the installation thereof); and (iv) the
provision of long distance telecommunications network services.
"COMPANY" has the meaning ascribed thereto in the recitals of this
Agreement.
"COMPANY COMMON STOCK" has the meaning ascribed thereto in the recitals
of this Agreement.
"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 or
policies of a Person, whether through the ownership of stock, as a trustee or
executor, by contract or credit arrangement or otherwise.
"EXISTING SHARES" has the meaning ascribed thereto in Section 2(a)(i).
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"KEC-NY" means Kleinknecht Electric Company, Inc., a New York
corporation.
"KEC-NJ" means Kleinknecht Electric Company, Inc., a New Jersey
corporation.
"KLEINKNECHTS" means Richard Kleinknecht and Peter Kleinknecht.
"MERGER" has the meaning ascribed thereto in the recitals of this
Agreement.
-2-
<PAGE>
"MERGER SUBSIDIARY" has the meaning ascribed thereto in the
introductory paragraph of this Agreement.
"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
Exchange Act).
"ROLLOVER STOCKHOLDER" means Richard Kleinknecht.
"SHARES" means the Existing Shares, together with any shares of Company
Common Stock acquired of record or beneficially by such Stockholder in any
capacity after the date hereof and prior to the termination hereof, whether upon
exercise of options, conversion of convertible securities, purchase, exchange or
otherwise; PROVIDED, HOWEVER, that in the event of a stock dividend or
distribution, or any change in the Company Common Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" shall be deemed to refer to and include the Shares as
well as all such stock dividends and distributions and any shares into which or
for which any or all of the Shares may be changed or exchanged.
"STOCKHOLDER" has the meaning ascribed thereto in the introductory
paragraph to this Agreement.
"SUBSIDIARY" means, with respect to any Person, any entity of 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.
"TERMINATION DATE" has the meaning ascribed thereto in Section 12 of
this Agreement.
"TRUSTEE" has the meaning ascribed thereto in Section 2(a)(i) of this
Agreement.
Section 2. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. Each
Stockholder hereby, severally and not jointly, represents and warrants to Merger
Subsidiary as follows:
(a) (i) Such Stockholder is either (A) the record holder or
beneficial owner of the number of, or (B) trustee of a trust
that is the record holder or beneficial owner of, and whose
beneficiaries are the beneficial owners (such trustee, a
"Trustee"), shares of Company Common Stock as is set forth
opposite such Stockholder's name on Schedule I hereto (the
"Existing Shares").
(ii) On the date hereof, the Existing Shares set
forth opposite such Stockholder's name on Schedule I hereto
constitute all of the outstanding shares of Company Common
Stock owned of record or beneficially by such Stockholder.
-3-
<PAGE>
Such Stockholder does not have record or beneficial ownership
of any Shares not set forth on Schedule I hereto.
(iii) Such Stockholder has sole power of disposition
with respect to all of the Existing Shares set forth opposite
such Stockholder's name on Schedule I and sole voting power
with respect to the matters set forth in Section 4 hereof and
sole power to demand dissenter's or appraisal rights, in each
case with respect to all of the Existing Shares set forth
opposite such Stockholder's name on Schedule I, with no
restrictions on such rights, subject to applicable federal
securities laws and the terms of this Agreement.
(iv) Such Stockholder will have sole power of
disposition with respect to Shares other than Existing Shares,
if any, which become beneficially owned by such Stockholder
and will have sole voting power with respect to the matters
set forth in Section 4 hereof and sole power to demand
dissenter's or appraisal rights, in each case with respect to
all Shares other than Existing Shares, if any, which become
beneficially owned by such Stockholder with no restrictions on
such rights, subject to applicable federal securities laws and
the terms of this Agreement.
(b) Such Stockholder has the legal capacity, power and
authority to enter into and perform all of such Stockholder's
obligations under this Agreement. The execution, delivery and
performance of this Agreement by such Stockholder will not violate any
other agreement to which such Stockholder is a party or by which such
Stockholder is bound including, without limitation, any trust
agreement, voting agreement, stockholders agreement, voting trust,
partnership or other agreement. This Agreement has been duly and
validly executed and delivered by such Stockholder and constitutes a
valid and binding agreement of such Stockholder, enforceable against
such Stockholder in accordance with its terms, except as limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditor's rights generally, (b) general principles of
equity, whether such enforceability is considered in a proceeding in
equity or at law, and to the discretion of the court before which any
proceeding therefore may be brought, or (c) public policy
considerations or court decisions which may limit the rights of the
parties thereto for indemnification. All necessary consents of any
beneficiary of or holder of interest in any trust of which a
Stockholder is Trustee to the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been
obtained. If such Stockholder is married and such Stockholder's Shares
constitute community property, this Agreement has been duly authorized,
executed and delivered by, and constitutes a valid and binding
agreement of, such Stockholder's spouse, enforceable against such
person in accordance with its terms.
(c) Except for filings under the HSR Act, if applicable, (i)
no filing with, and no permit, authorization, consent or approval of,
any state or federal public body or
-4-
<PAGE>
authority is necessary for the execution of this Agreement by such
Stockholder and the consummation by such Stockholder of the
transactions contemplated hereby and (ii) neither the execution and
delivery of this Agreement by such Stockholder nor the consummation by
such Stockholder of the transactions contemplated hereby nor compliance
by such Stockholder with any of the provisions hereof shall (x)
conflict with or result in any breach of any applicable trust,
partnership agreement or other agreements or organizational documents
applicable to such Stockholder, (y) result in a violation or breach of,
or constitute (with or without notice or lapse of time or both) a
default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or
other instrument or obligation of any kind to which such Stockholder is
a party or by which such Stockholder or any of such Stockholder's
properties or assets may be bound or (z) violate any order, writ,
injunction, decree, judgment, statute, rule or regulation applicable to
such Stockholder or any of such Stockholder's properties or assets.
(d) Except for the shares of Company Common Stock owned by the
Kleinknechts identified in Schedule II hereto (the "Pledged Shares"),
such Stockholder's Shares and the certificates representing such Shares
are now and at all times during the term hereof will be held by such
Stockholder, or by a nominee or custodian for the benefit of such
Stockholder, free and clear of all liens, claims, security interests,
proxies, voting trusts or agreements, understandings or arrangements or
any other encumbrances whatsoever, except for any such encumbrances or
proxies arising hereunder.
(e) No broker, investment banker, financial adviser or other
person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of
such Stockholder in his or her capacity as such.
(f) Such Stockholder understands and acknowledges that Merger
Subsidiary is entering into the Merger Agreement in reliance upon such
Stockholder's execution and delivery of this Agreement with Merger
Subsidiary.
Section 3. REPRESENTATIONS AND WARRANTIES OF MERGER SUBSIDIARY. Merger
Subsidiary hereby represents and warrants to each Stockholder as follows:
(a) Merger Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
formation.
(b) Merger Subsidiary has all necessary power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by Merger
Subsidiary of this Agreement and the
-5-
<PAGE>
consummation by Merger Subsidiary of the transactions contemplated
hereby have been duly and validly authorized and approved by all
required corporate action other than shareholder approval which shall
be effected prior to the Effective Time. This Agreement has been duly
executed and delivered by Merger Subsidiary, and (assuming due
authorization, execution and delivery by the Stockholders) constitutes
a valid and binding obligation of Merger Subsidiary, enforceable
against it in accordance with its terms, except as limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditor's rights generally, (b) general principles of
equity, whether such enforceability is considered in a proceeding in
equity or at law, and to the discretion of the court before which any
proceeding therefor may be brought, or (c) public policy considerations
or court decisions which may limit the rights of the parties thereto
for indemnification.
(c) Except for the filing of a pre-merger notification and
report form under the HSR Act, the execution and delivery of this
Agreement do not, and the consummation by Merger Subsidiary of the
transactions contemplated by this Agreement and compliance by Merger
Subsidiary with the provisions of this Agreement will not, conflict
with, or result in any breach or violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of or "put" right
with respect to any obligation or to loss of a material benefit under,
or result in the creation of any lien upon any of the properties or
assets of Merger Subsidiary under, (i) any charter or by-laws of Merger
Subsidiary, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to Merger Subsidiary or its properties
or assets or (iii) any judgment, order, decree, statute, law,
ordinance, rule, regulation or arbitration award applicable to Merger
Subsidiary or its properties or assets. No consent, approval, order or
authorization of, or registration, declaration or filing with, or
notice to, any state or federal public body or authority is required by
or with respect to Merger Subsidiary in connection with the execution
and delivery of this Agreement by Merger Subsidiary or the consummation
by Merger Subsidiary of any of the transactions contemplated by this
Agreement.
Section 4. AGREEMENT TO VOTE; PROXY
(a) Each Stockholder hereby, severally and not jointly, agrees
that, until the Termination Date (as defined in Section 12), at any
meeting of the Company Stockholders, however called, or in connection
with any written consent of the Company Stockholders, such Stockholder
shall vote (or cause to be voted) the Shares held of record or
beneficially by such Stockholder (i) in favor of the Merger, the
execution and delivery by the Company of the Merger Agreement and the
approval of the terms thereof and each of the other actions
contemplated by the Merger Agreement and this Agreement and any actions
required in furtherance hereof and thereof; (ii) against any action or
agreement that would result in a breach of any covenant, representation
or warranty or any other
-6-
<PAGE>
obligation or agreement of the Company under the Merger Agreement or
this Agreement; (iii) in favor of the incentive stock option plan
referred to in Section 5(l) of the Merger Agreement; and (iv) against
the following actions (other than the Merger and the transactions
contemplated by the Merger Agreement or any such actions identified in
writing by Merger Subsidiary in advance): (A) any extraordinary
corporate transaction, including, without limitation, a merger,
consolidation or other business combination involving the Company or
its Subsidiaries; (B) a sale, lease or transfer of a material amount of
assets of the Company or its Subsidiaries or a reorganization,
recapitalization, dissolution or liquidation of the Company or its
Subsidiaries; (C) any change in the majority of the board of directors
of the Company; (D) any material change in the present capitalization
of the Company or any amendment of the Company's Certificate of
Incorporation or By-Laws; (E) any other material change in the
Company's corporate structure or business; or (F) any other action
which is intended, or could reasonably be expected, to impede,
interfere with, delay, postpone, discourage or materially adversely
affect the Merger or the transactions contemplated by the Merger
Agreement or this Agreement. Such Stockholder shall not enter into any
agreement or understanding with any person or entity to vote or give
instructions in any manner inconsistent with clauses (i), (ii) or (iii)
of the preceding sentence.
(b) EACH STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS, MERGER
SUBSIDIARY AND ANY DESIGNEE OF MERGER SUBSIDIARY, EACH OF THEM
INDIVIDUALLY, SUCH STOCKHOLDER'S IRREVOCABLE (UNTIL THE TERMINATION
DATE) PROXY AND ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO
VOTE THE SHARES AS SET FORTH IN SECTION 4.1 ABOVE. EACH STOCKHOLDER
INTENDS THIS PROXY TO BE IRREVOCABLE (UNTIL THE TERMINATION DATE) AND
COUPLED WITH AN INTEREST AND WILL TAKE SUCH FURTHER ACTION AND EXECUTE
SUCH OTHER INSTRUMENTS AS MAY BE NECESSARY TO EFFECTUATE THE INTENT OF
THIS PROXY AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY SUCH
STOCKHOLDER WITH RESPECT TO SUCH STOCKHOLDER'S SHARES.
Section 5. CERTAIN COVENANTS OF STOCKHOLDERS. Except in accordance with
the terms of this Agreement, each Stockholder hereby severally covenants and
agrees as follows:
(a) Prior to the Termination Date, no Stockholder shall, in
its capacity as such, directly or indirectly (including through
advisors, agents or other intermediaries), solicit (including by way of
furnishing information) or respond to any inquiries or the making of
any proposal by any person or entity (other than Merger Subsidiary or
any Affiliate thereof) with respect to the Company that constitutes or
could reasonably be expected to lead to an Acquisition Proposal (as
defined in Section 5(j) of the Merger Agreement), provided, however,
that the foregoing shall not restrict a Stockholder who is also a
director of the Company from taking any actions in such Stockholder's
capacity as a
-7-
<PAGE>
director. If any Stockholder in its capacity as such receives any such
inquiry or proposal, then such Stockholder shall promptly inform Merger
Subsidiary of the material terms and conditions, if any, of such
inquiry or proposal and the identity of the person making it. Each
Stockholder, in its capacity as such, will immediately cease and cause
to be terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the
foregoing.
(b) Prior to the Termination Date, no Stockholder shall,
directly or indirectly (i) except pursuant to the terms of the Merger
Agreement or this Agreement, offer for sale, sell, transfer, tender,
pledge, encumber, assign or otherwise dispose of, enforce or permit the
execution of the provisions of any redemption agreement with the
Company or enter into any contract, option or other arrangement or
understanding with respect to or consent to the offer for sale, sale,
transfer, tender, pledge, encumbrance, assignment or other disposition
of, or exercise any discretionary powers to distribute, any or all of
such Stockholder's Shares or any interest therein, including any trust
income or principal, except in each case to a Permitted Transferee who
is or agrees to become bound by this Agreement; (ii) except as
contemplated hereby, grant any proxies or powers of attorney with
respect to any Shares, deposit any Shares into a voting trust or enter
into a voting agreement with respect to any Shares; or (iii) take any
action that would make any representation or warranty of such
Stockholder contained herein untrue or incorrect or have the effect of
preventing or disabling such Stockholder from performing such
Stockholder's obligations under this Agreement.
(c) Each Stockholder hereby waives any rights of appraisal or
rights to dissent from the Merger that such Stockholder may have. Each
Trustee represents that no beneficiary who is a beneficial owner of
Shares under any trust has any right of appraisal or right to dissent
from the Merger which has not been so waived.
(d) Subject to the terms and provisions of the Merger
Agreement, in connection with the Merger, the Rollover Stockholder
hereby agrees to elect to retain an aggregate of 380,952 shares of
Surviving Corporation Common Stock upon conversion of, and with respect
to, 380,952 of such Rollover Stockholder's Shares (the "Rollover
Shares") unless otherwise agreed with Merger Subsidiary.
(e) The Kleinknechts shall cause (i) KEC-NY to enter into the
Amended and Restated Labor Pooling Agreement between KEC-NY and the
Company, substantially in the form of Exhibit A-1 attached to the
Merger Agreement, and (ii) KEC-NJ to enter into the Amended and
Restated Labor Pooling Agreement between KEC-NJ and the Company,
substantially in the form of Exhibit A-2 attached hereto (collectively,
the "Amended and Restated Labor Pooling Agreements").
-8-
<PAGE>
(f) Richard Kleinknecht shall enter into the Investors
Agreement among the Company, Cable Systems Holding LLC, Cable Systems
International Inc. and certain other parties named therein.
(g) Unless, in connection therewith, the Shares held by any
trust which are presently subject to the terms of this Agreement are
transferred to one or more Stockholders and remain subject in all
respects to the terms of this Agreement, or other Permitted Transferees
who upon receipt of such Shares become signatories to this Agreement,
the Stockholders who are Trustees shall not take any action to
terminate, close or liquidate any such trust and shall take all steps
necessary to maintain the existence thereof at least until the first to
occur of (i) the Effective Time and (ii) the Termination Date.
(h) The Rollover Stockholder shall take all actions necessary
to cause any Rollover Shares that constitute Pledged Shares, prior to
the Effective Time, to be free and clear of all liens, claims, security
interests, proxies, voting trusts or agreements, understandings or
arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder.
Section 6. NON-COMPETITION.
(a) For a period of three years after the Effective Time,
except as contemplated or permitted under the Merger Agreement, the
Amended and Restated Labor Pooling Agreements, the Corporate
Opportunity Agreement, the Investors Agreement, dated the date hereof,
among the Company and the other parties named therein, the Amended and
Restated Employment Agreement, dated as of the Effective Date between
Richard Kleinknecht and the Company (the "Richard Kleinknecht
Employment Agreement"), or the Amended and Restated Employment
Agreement, dated the Effective Date, between Peter Kleinknecht and the
Company (the "Peter Kleinknecht Employment Agreement" and, together
with the Richard Kleinknecht Employment Agreement, the "Amended and
Restated Employment Agreements") each of the Kleinknechts severally
agrees, and shall cause each of their respective Affiliates, including,
without limitation, KEC-NY and KEC-NJ, to agree, that any such Person
shall not, directly or indirectly, through any Person Controlled by
either of the Kleinknechts in any form or manner within any
jurisdiction in which the Company or any of its Affiliates are doing
business: (i) engage in the Business (as defined herein) for his or
their own account or for the account of any other Person, or (ii)
become interested in any Person engaged in the Business as a partner,
shareholder, member, principal, agent, employee, trustee, consultant or
in any other relationship or capacity; PROVIDED, HOWEVER, that either
of the Kleinknechts may own, directly or indirectly, solely as a
passive investment, securities of any Person if either of the
Kleinknechts or any of their respective Affiliates, as the case may be
(1) is not a Person in Control of, or a member of a group that
Controls, such Person and (2) does not, directly or indirectly, own 5%
or more of any voting class of securities of such Person.
-9-
<PAGE>
(b) In perpetuity and on a worldwide basis, except as
contemplated or permitted under the Merger Agreement, each of the
Kleinknechts severally agrees, and shall cause each of their respective
Affiliates including, without limitation, KEC-NY or KEC-NJ to agree,
that such Person shall not, directly or indirectly, disclose to any
other party, unless required to do so by law or court order, any
confidential, non-public or proprietary information relating to the
Company or to any Subsidiary or joint venture thereof which information
was acquired during the course of such Person's relationship with the
Company, except information which (i) becomes known to such Person from
a source other than the Company, its directors, officers or employees,
which source is not obligated to the Company to keep such information
confidential or (ii) becomes generally available to the public through
no breach of this Agreement by the Kleinknechts.
(c) For a period ending on the later to occur of (i) three
years after the Effective Time and (ii) the expiration or termination
of the Amended and Restated Labor Pooling Agreements, on a worldwide
basis, except as contemplated or permitted under the Merger Agreement
or the Amended and Restated Labor Pooling Agreements, each of the
Kleinknechts severally agrees that, without the prior written consent
of the Company, the Kleinknechts, any of their Affiliates or any
business or enterprise with which either of the Kleinknechts is
associated as an officer, director or controlling shareholder or other
investor with the power to direct or cause the direction of the
management of such business or enterprise shall not employ or attempt
to employ an employee of the Company or any of its subsidiaries or
joint ventures (other than, with respect to Richard Kleinknecht, his
executive assistant).
(d) If either of the Kleinknechts breaches, or threatens to
commit a breach of, any of the provisions contained in this Section 6,
the Company shall have the following rights and remedies with respect
to Richard or Peter Kleinknecht, as the case may be, each of which
rights and remedies shall be independent of the others and severally
enforceable, and each of which is in addition to, and not in lieu of,
any other rights and remedies available to the Company under law or in
equity:
(i) the right and remedy to have the provisions of
this Section 6 specifically enforced by any court of competent
jurisdiction and Merger Subsidiary shall be entitled to apply
for and receive injunctive relief in order to prevent the
continuation of any existing breach or the occurrence of any
threatened breach, it being agreed that any breach or
threatened breach of the provisions of this Section 6 would
cause irreparable injury to the Company and that money damages
would not provide an adequate remedy to the Company.
(e) Each of the Kleinknechts agrees that the provisions of
this Section 6 are reasonable and valid in geographical and temporal
scope and in all other respects. If any court determines that the
provisions of this Section 6, or any part thereof, is unenforceable
because of the duration or geographical scope of such provision, such
court
-10-
<PAGE>
shall have the power to reduce the duration or scope of such provision,
as the case may be, and, in its reduced form, such provision shall be
enforceable.
(f) If any court determines that the provisions of this
Section 6, or any part thereof, is invalid or unenforceable, the
remainder of the provisions of this Section 6 shall not thereby be
affected and shall be given full effect without regard to invalid
portions.
Section 7. TERMINATION OF CERTAIN AGREEMENTS. Effective immediately
prior to the Effective Time and without further action by the parties hereto,
each of (a) the Employment Agreement, dated May 9, 1994, between the Company and
Peter Kleinknecht, (b) the Employment Agreement, dated May 9, 1994, between the
Company and Richard Kleinknecht, (c) Registration Rights Agreement, dated as of
May 9, 1994, between the Company, Richard Kleinknecht and Peter Kleinknecht and
(d) all special compensation arrangements for the Kleinknechts (other than those
set forth in the Amended and Restated Employment Agreements), in each case shall
terminate without any obligation or liability to the Company and shall be of no
further force and effect.
Section 8. FURTHER ASSURANCES. From time to time, at the other party's
request and without further consideration, each party hereto shall execute and
deliver such additional documents and take all such further action as may be
necessary or desirable to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement.
Section 9. CERTAIN EVENTS. Each Stockholder agrees that this Agreement
and the obligations hereunder shall attach to such Stockholder's Shares and
shall be binding upon any person or entity to which legal or beneficial
ownership of such Shares shall pass, whether by operation of law or otherwise,
including without limitation such Stockholder's heirs, guardians, administrators
or successors or as a result of any divorce.
Section 10. STOP TRANSFER. Each Stockholder agrees with, and covenants
to, Merger Subsidiary that such Stockholder shall not request that the Company
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing any of such Stockholder's Shares, unless
such transfer is made in compliance with this Agreement.
Section 11. RULE 145 AFFILIATES. Each Stockholder who is an "affiliate"
of the Company for purposes of Rule 145 under the Securities Act of 1933, as
amended, hereby agrees to deliver to Merger Subsidiary, on or prior to the
Closing Date (as defined in the Merger Agreement) a written agreement as
contemplated by Section 5(o) of the Merger Agreement.
Section 12. TERMINATION. The obligations of the Stockholders and the
irrevocable proxy contained in Section 4(b) of this Agreement shall terminate
upon the first to occur of (a) the Effective Time and (b) the date the Merger
Agreement is terminated in accordance with its terms (the "Termination Date");
provided that the provisions of Sections 2, 3 and 13 and any
-11-
<PAGE>
claim for breach of any representation, warranty, covenant or other agreement
under this Agreement shall survive the Effective Time and/or the Termination
Date, as applicable.
Section 13. MISCELLANEOUS.
(a) 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 Stockholders: Richard Kleinknecht
15 Banbury Lane
Huntington, NY 11743
Telecopier:
copy to: White & Case
1155 Avenue of the Americas
New York, NY 10036
Attn: Edward F. Rover, Esq.
Telecopier: (212) 354-8113
If to Merger Subsidiary: Arizona Acquisition Corp.
c/o Cable Systems Holding LLC
505 North 51st Avenue
Phoenix, Arizona 85043-2701
Attn: President
Telecopier: 602-233-5782
copy to: Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor, Zone 4
New York, NY 10043
Attn: Richard M. Cashin, Jr.
Telecopier: 212-888-2940
and: Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, NY 10178
Attn: Philip H. Werner, Esq.
Telecopier: 212-309-6273
-12-
<PAGE>
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth
above.
(b) At any time prior to the Effective Time, any party hereto
may, with respect to any other party hereto, (i) extend the time for
the performance of any of the obligations or other acts, (ii) waive any
inaccuracies in the representations and warranties contained herein or
in any document delivered pursuant hereto or (iii) waive compliance
with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
(c) The headings contained in this Agreement are for the
convenience of reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
(d) If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated by the
Merger Agreement is not affected in any manner adverse to any party.
Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable
manner.
(e) This Agreement, including all exhibits, disclosure
schedules and schedules hereto, constitutes the entire agreement and
supersedes all prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject
matter hereof and except as otherwise expressly provided herein.
(f) Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by any party (whether by
operation of law or otherwise) without the prior written consent of the
other parties hereto. Subject to the preceding sentence, this Agreement
shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, and no other
Person shall have any right, benefit or obligation under this Agreement
as a third party beneficiary or otherwise.
(g) The parties hereto agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were
not performed in accordance with their specific terms. It is
accordingly agreed that the parties hereto shall be entitled to
specific performance of the terms hereof, this being in addition to any
other remedy to which they are entitled at law or in equity.
-13-
<PAGE>
(h) No failure or delay on the part of any party hereto in the
exercise of any right hereunder shall impair such right or be construed
to be a waiver of, or acquiescence in, any breach of any
representation, warranty or agreement herein, nor shall any single or
partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under
this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
(i) Notwithstanding anything herein to the contrary, no Person
executing this Agreement who is, or becomes during the term hereof, a
director of the Company makes any agreement or understanding herein in
his or her capacity as such director, and the agreements set forth
herein shall in no way restrict any director in the exercise of his or
her fiduciary duties as a director of the Company. Each Stockholder has
executed this Agreement solely in his or her capacity as the record or
beneficial holder of such Stockholder's Shares or as the trustee of a
trust whose beneficiaries are the beneficial owners of such
Stockholder's Shares.
(j) Each party agrees to bear its own expenses in connection
with the transactions contemplated hereby.
(k) This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule that
would cause the application of the laws of any jurisdiction other than
the State of New York, except to the extent that the General
Corporation Law of the State of Delaware applies as a result of the
Company being incorporated in the State of Delaware, in which case such
General Corporation Law shall apply.
(l) EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY
WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT AND
FOR ANY COUNTERCLAIM THEREIN.
(m) This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the
same agreement.
(n) Each of the Stockholders hereby acknowledges that, for
purposes of Title IV of the Employee Retirement Income Security Act of
1974, as amended, IPC and IXNET may become members of a controlled
group of corporations that includes Citicorp Venture Capital, Ltd. and
its Affiliates.
-14-
<PAGE>
[Signature Page to Follow]
-15-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ARIZONA ACQUISITION CORP.
By: /s/ Peter A. Woog
---------------------------
Name: Peter A. Woog
Title: President
STOCKHOLDERS:
/s/ Richard Kleinknecht
---------------------------
Richard Kleinknecht
/s/ Peter Kleinknecht
---------------------------
Peter Kleinknecht
KLEINKNECHT 1997 ANNUITY TRUST
By: /s/ Richard Kleinknecht
---------------------------
Name: Richard Kleinknecht
Title: Agent
ERIC KLEINKNECHT
REVOCABLE TRUST
By: /s/ Richard Kleinknecht
---------------------------
Name: Richard Kleinknecht
Title: Agent
-16-
<PAGE>
MARK KLEINKNECHT
REVOCABLE TRUST
By: /s/ Richard Kleinknecht
---------------------------
Name: Richard Kleinknecht
Title: Agent
LISA KLEINKNECHT
REVOCABLE TRUST
By: /s/ Richard Kleinknecht
---------------------------
Name: Richard Kleinknecht
Title: Agent
/s/ Lisa Kleinknecht
---------------------------
Lisa Kleinknecht
PETER J. KLEINKNECHT 1996
GRANTOR RETAINED
ANNUITY TRUST
By: /s/ Peter Kleinknecht
---------------------------
Name: Peter Kleinknecht
Title:
MAUREEN KLEINKNECHT 1996
GRANTOR RETAINED
ANNUITY TRUST
By: /s/ Maureen Kleinknecht
---------------------------
Name: Maureen Kleinknecht
Title:
-17-
<PAGE>
/s/ Sabrina Kleinknecht
---------------------------
Sabrina Kleinknecht
/s/ Gavin Kleinknecht
---------------------------
Gavin Kleinknecht
/s/ Keir Kleinknecht
---------------------------
Keir Kleinknecht
/s/ Russell G. Kleinknecht
---------------------------
Russell G. Kleinknecht
-18-
<PAGE>
SCHEDULE I
EXISTING SHARES
---------------
SHAREHOLDER NO. OF EXISTING SHARES
- ----------- ----------------------
Richard P. Kleinknecht 1,552,273
Peter J. Kleinknecht 2,240,999
Kleinknecht 1997 Annuity Trust 1,000,000
Eric Kleinknecht 1997 Revocable Trust 300,575
Mark Kleinknecht Revocable Trust 300,275
Lisa Kleinknecht Revocable Trust 300,275
Lisa Kleinknecht 298
Peter J. Kleinknecht 1996 Grantor Retained Annuity Trust 155,637
Maureen Kleinknecht 1996 Grantor Retained Annuity Trust 155,637
Sabrina Kleinknecht 300,075
Gavin Kleinknecht 300,075
Keir Kleinknecht 300,075
Russell G. Kleinknecht 46,574
-19-
<PAGE>
SCHEDULE II
PLEDGED SHARES
--------------
Any and all shares of Existing Shares pledged by the Kleinknechts pursuant to
(a) the Pledge Agreement, dated April 28, 1994, by the Kleinknechts and
Citibank, N.A. and National Westminster Bank NJ, (b) the Pledge Agreement, dated
October 6, 1995, between the Kleinknechts and The Chase Manhattan Bank (National
Association) and (c) the Pledge Agreement, dated April 15, 1996, between Peter
J. Kleinknecht and Maureen Kleinknecht and Smith Barney Inc.
-20-
<PAGE>
ANNEX E
MERGERS & ACQUISITIONS
STRICTLY PRIVATE & CONFIDENTIAL
- -------------------------------
December 17, 1997
IPC Information Systems, Inc.
Wall Street Plaza
88 Pine Street
New York, NY 10005
Members of the Board of Directors:
We understand that IPC Information Systems, Inc. ("IPC" or the "Company") and
Arizona Acquisition Corporation. ("AAC"), a wholly owned subsidiary of Cable
Systems Holdings, LLC which is majority owned by Citicorp Venture Capital, Ltd.,
have entered into an Agreement and Plan of Merger, dated as of December 18, 1997
(the "Merger Agreement"), pursuant to which AAC will be merged with and into
IPC, with the Company remaining as the surviving corporation under the name of
IPC Information Systems, Inc. (the "Merger"). Pursuant to the Merger Agreement,
among other things, each share of AAC common stock will be converted into one
share of common stock, par value $.01 per share of IPC ("IPC Common Stock").
Following the Merger, shareholders of IPC will be granted a choice of receiving
either $21 per share in cash or the option of rolling over all of their equity,
subject to proration as described in the Merger Agreement, into IPC Common Stock
("Merger Consideration").
The terms and conditions of the Merger are more fully set forth in the Merger
Agreement.
You have asked for our opinion as to whether the Merger Consideration to be paid
to the holders of IPC Common Stock pursuant to the Merger Agreement is fair from
a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
1. Analyzed certain publicly available financial statements and other
information of IPC;
2. Reviewed and analyzed certain financial projections of IPC for the period
1998-2002 prepared by the Company (the "Projections");
3. Discussed with senior management of IPC the current operations, financial
condition and the prospects of the Company;
4. Reviewed the reported stock prices and trading activity for IPC Common
Stock;
5. Compared the historical financial performance and market trading values of
IPC with that of certain other generally comparable publicly traded
companies and their securities;
<PAGE>
6. Reviewed the financial terms, to the extent publicly available, of certain
comparable acquisition transactions;
7. Based on the Projections, performed a discounted cash flow analysis and
leveraged buy-out analysis of IPC;
8. Discussed with senior management of IPC other acquisition proposals and
related discussions the Company held with other parties;
9. Reviewed the financial terms of the Merger Agreement; and
10.Performed such other financial analyses and examinations and considered such
other factors as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the Projections supplied by or confirmed by the
Company, we have further assumed that such Projections represent the best
currently available estimates and judgment of the management of the Company as
to the expected future financial performance of the Company. We have not made
any independent verification of information supplied by or confirmed by IPC to
us and have not undertaken any independent valuation or appraisal of the assets
or liabilities of IPC, nor have we been furnished with such appraisals. Our
opinion is necessarily based on economic, market, financial and other conditions
as in effect on, and the information made available to us as of, the date
hereof.
Deutsche Morgan Grenfell, Inc. has from time to time provided investment banking
and financial advisory services to IPC and has received fees for the rendering
of such services.
It is understood that this letter is for the information of the Board of
Directors of IPC and may not be used for any other purpose without our prior
written consent, except that this opinion may be included it its entirety in any
filing made by IPC with the SEC with respect to the transactions contemplated by
the Merger Agreement.
<PAGE>
Based on our analysis of the foregoing and such other factors as we deem
relevant, including our assessment of current economic, market, financial and
other conditions, we are of the opinion that, as of the date hereof, the Merger
Consideration to be received by the holders of shares of IPC pursuant to the
Merger Agreement is fair from a financial point of view to such holders.
Very truly yours,
Deutsche Morgan Grenfell Inc.
By /s/ Louis B. Cooper
----------------------------------
Louis B. Cooper
Director
By /s/ Laurence B. Braham
-------------------------------
Laurence B. Braham
Assistant Vice President
<PAGE>
ANNEX F
DELAWARE GENERAL CORPORATION LAW, SECTION 262
---------------------------------------------
262. APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to (S)228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available of the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251 (other than a merger effected pursuant to (S)251(g)
of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of this title;
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (l) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to (S)(S)251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any corporation, or depository receipts in respect
thereof, which shares of stock (or depository receipts in respect thereof) or
depository receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated
<PAGE>
as a national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
his shares shall deliver to the corporation, before the taking of the vote on
the merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein provided.
Within 10 days after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each stockholder of each
constituent corporation who has complied with this subsection and has not voted
in favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the
-2-
<PAGE>
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares
-3-
<PAGE>
and with whom agreements as to the value of their shares have not been reached
by the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted his certificates of stock to the Register in Chancery, if
such is required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the
-4-
<PAGE>
appraisal proceeding, including, without limitation, reasonable attorney's fees
and the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, of if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
120, L. '97, eff. 7-1-97.)
-5-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 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 such person 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 shareholders 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 such person, and incurred by such person
in any such capacity, or arising out of such person's status as such, whether or
not the corporation would otherwise have the power to indemnify such person
under Section 145.
Section 6 of the Registrant's Restated Certificate of Incorporation provides
that a director shall not be personally liable to the Registrant or its
stockholders 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 DGCL. Article IX of the Registrant's Amended Bylaws requires the
Registrant, among other things, to indemnify to the fullest extent permitted by
DGCL, any person who is or was or has agreed to become a director or officer of
the Registrant, who was or is made a party to, or is threatened to be made a
party to, or has become a witness in, any threatened, pending or completed
action, suit or proceeding, including actions or suits by or in the right of the
Registrant, 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 written request of the Registrant.
Article IX also empowers the Registrant 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 the Registrant would have the power to indemnify those persons against such
liability under the law or the provisions set forth in the Restated Certificate
of Incorporation or Bylaws. The Registrant is also authorized by its Amended
Bylaws to enter into individual indemnification contracts with directors and
officers. The Registrant has obtained insurance policies under which the
Registrant's directors and officers are insured, within the limits and subject
to the limitations of the policies, against certain expenses in connection with
the defense of certain actions, suits or proceedings, and certain liabilities
which might be imposed as a result of certain actions, suits or proceedings, to
which they are parties by reason of being or having been such directors or
officers.
The Registrant has also entered into employment agreements with certain
executive officers, which agreements require that the Registrant maintain a
directors' and officers' liability policy for the benefit of such officers and
that the Registrant will indemnify such officers to the fullest extent permitted
by law.
II-2
<PAGE>
In addition, pursuant to the Merger Agreement, the Surviving Corporation has
agreed for a period of six years following the effective time of the Merger to
indemnify present and former directors and officers of the Registrant and its
subsidiaries with respect to acts or omissions occurring prior to the effective
time of the Merger to the maximum extent permitted under the Registrant's
Certificate of Incorporation and Bylaws. The Surviving Corporation has also
agreed in the Merger Agreement to maintain for a period of six years following
the effective time of the Merger the directors' and officers' liability
insurance coverage maintained by the Registrant (or substantially equivalent
coverage under substitute policies) with respect to any claims arising out of
any actions or omissions occurring prior to the effective time of the Merger.
II-3
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(A) LIST OF EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Agreement and Plan of Merger, dated as of December 18, 1997, by and
between the Registrant and Arizona Acquisition Corp. (included as
Annex A the Proxy Statement/Prospectus).
2.2 Stockholders Agreement, dated as of December 18, 1997, by and among
Arizona Acquisition Corp., Richard P. Kleinknecht, Peter J.
Kleinknecht, Russell G. Kleinknecht and other signatories thereto.
(3)
3.1 Restated Certificate of Incorporation of Registrant. (1)
3.2 Amended and Restated Certificate of Incorporation of Registrant
(included as Annex B to the Proxy Statement/Prospectus).
3.3 Amended and Restated Bylaws of Registrant. (2)
3.4 Amended and Restated Bylaws of Registrant after the Merger.*
4.1 Specimen Stock Certificate of Common Stock of the Registrant. (1)
5.1 Form of Opinion of Thacher Proffitt & Wood regarding legality. *
8.1 Form of Opinion of Thacher Proffitt & Wood regarding tax matters. *
10.2 Employment Agreement, dated May 9, 1994, between the Registrant and
Richard P. Kleinknecht. (1)
10.2.1 Letter Agreement, dated October 17, 1995, amending the Employment
Agreement between the Registrant and Richard P. Kleinknecht. (2)
10.2.2 Amended and Restated Employment Agreement, dated as of December 18,
1997, between the Registrant and Richard P. Kleinknecht. (3)
10.3 Employment Agreement, dated May 9, 1994, between the Registrant and
Peter J. Kleinknecht. (1)
10.3.1 Letter Agreement, dated October 17, 1995, amending the Employment
Agreement between the Registrant and Peter J. Kleinknecht. (2)
10.3.2 Amended and Restated Employment Agreement, dated as of December 18,
1997, between the Registrant and Peter J. Kleinknecht. (3)
10.8 Labor Pool Agreement between the Registrant and KEC-NY. (1)
10.8.1 Amended and Restated Labor Pool Agreement, dated as of December 18,
1997, by and between the Registrant and KEC-NY. (3)
II-4
<PAGE>
10.9 Labor Pool Agreement between the Registrant and KEC-NJ. (1)
10.9.1 Amended and Restated Labor Pool Agreement, dated as of December 18,
1997, by and between the Registrant and KEC-NJ. (3)
10.10 Corporate Opportunity Agreement among the Registrant, KEC-NY and
KEC-NJ. (1)
10.10.1 Amended and Restated Corporate Opportunity Agreement, dated as of
December 18, 1997, by and among the Registrant, KEC-NY and KEC-NJ.
(3)
10.13 Registration Rights Agreement between the Registrant and Richard P.
Kleinknecht and Peter J. Kleinknecht. (1)
10.14 Employment Agreement, dated as of October 17, 1995, between the
Registrant and Steven Terrell Clontz. (2)
10.14.1 First Amendment to Employment Agreement, dated as of August 1, 1997,
between the Registrant and Steven Terrell Clontz. (4)
10.15 Investors Agreement, dated as of December 18, 1997, by and among the
Registrant, Cable Systems Holding, LLC, Richard P. Kleinknecht,
David Walsh and Anthony Servidio. (3)
10.16 Share Exchange and Termination Agreement, dated as of December 18,
1997, by and among the Registrant, International Exchange Networks,
Ltd., David Walsh and Anthony Servidio. (3)
10.17 Amended and Restated Employment Agreement, dated as of December 18,
1997, by and between International Exchange Networks, Ltd. and David
Walsh. (3)
10.18 Amended and Restated Employment Agreement, dated as of December 18,
1997, by and between International Exchange Networks, Ltd. and
Anthony Servidio. (3)
10.19 Employment Agreement, dated as of April 20, 1995, by and between IPC
Bridge, Inc., a wholly-owned subsidiary of the Registrant, and
Gerald E. Starr. (4)
10.19.1 First Amendment to Employment Agreement between IPC Bridge, Inc. and
Gerald E. Starr, dated as of May 21, 1996. (4)
10.19.2 Second Amendment to Employment Agreement between IPC Bridge, Inc.
and Gerald E. Starr, dated as of August 1, 1997. (4)
10.20 Employment Agreement, dated as of October 1, 1997, by and between
the Registrant and Russell G. Kleinknecht. (4)
10.20.1 Letter Loan Agreement, dated as of October 1, 1997, by and between
the Registrant and Russell G. Kleinknecht. (4)
10.21 IPC Information Systems, Inc. 1998 Stock Incentive Plan (included as
Annex C to the Proxy Statement/Prospectus).
11.1 Statement regarding Computation of Per Share Earnings (4)
13.1 IPC Information Systems, Inc. Annual Report on Form 10-K for the
year ended September 30, 1997, as amended.
(4)
21.1 Subsidiaries of IPC Information Systems, Inc. (4)
II-5
<PAGE>
23.1 Consent of Thacher Proffitt & Wood (included in Exhibits 5.1 and
8.1). *
23.2 Consent of Coopers & Lybrand L.L.P. *
23.3 Consent of Deutsche Morgan Grenfell Inc. *
99.1 Form of Proxy. *
99.2 Form of Stock Election. **
99.3 Form of Letter of Transmittal. **
* Filed herewith
** To be filed by amendment.
(1) Previously filed as an exhibit to the Registrant's Registration Statement on
Form S-1, as amended, (No. 33-78754) and incorporated herein by reference.
(2) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K, filed November 30, 1995, and incorporated herein by reference.
(3) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K, filed December 24, 1997, and incorporated herein by reference.
(4) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K, filed January 13, 1998, and incorporated herein by reference.
(B) FINANCIAL STATEMENT SCHEDULES.
All schedules have either been incorporated by reference or have been
omitted as not applicable or not required under the rules of Regulation S-X.
(C) REPORTS, OPINIONS AND APPRAISALS OF OUTSIDE PARTIES.
The opinion of Deutsche Morgan Grenfell Inc. is included as Annex E to the
Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission
II-6
<PAGE>
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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 remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) For the purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (and each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration
statement shall be deemed 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.
(c)(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reoffering by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(2) That every prospectus: (i) that is filed pursuant to paragraph (c)(1)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment 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.
(d) To respond to requests for information that is incorporated by
reference into the Proxy Statement/ Prospectus pursuant to Item 4, 10(b), 11, or
13 of this Form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
(e) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such 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 the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant 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, the Registrant 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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in The City of New York, State of New York, on the 13th day of
February, 1998.
IPC INFORMATION SYSTEMS, INC.
(Registrant)
By:-----------------------------------------
S. Terry Clontz
President and Chief Executive Officer
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints S. Terry Clontz and Daniel Utevsky, and each or
any of them, as the true and lawful attorneys-in-fact and agents, 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-4 Registration Statement and
any and all amendments thereto, and to file the same, and 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 might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1933, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------ ------------------------------------------ -----------------
<S> <C> <C>
Chairman and Director February __, 1998
- ------------------------
Richard P. Kleinknecht
Vice Chairman and Director February __, 1998
- ------------------------
Peter J. Kleinknecht
President, Chief Executive Officer February __, 1998
- ------------------------ and Director (Principal Executive Officer)
S. Terry Clontz
Chief Financial Officer February __, 1998
- ------------------------ (Principal Financial Officer)
Brian L. Reach (Principal Accounting Officer)
Director February __, 1998
- ------------------------
Theodore J. Johnson
Director February __, 1998
- ------------------------
Robert J. McInerney
Director February __, 1998
- ------------------------
Peter M. Stein
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NUMBER
- ------------ ----------- -----------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of December 18, 1997, by and
between the Registrant and Arizona Acquisition Corp. (included as
Annex A the Proxy Statement/Prospectus).
2.2 Stockholders Agreement, dated as of December 18, 1997, by and among
Arizona Acquisition Corp., Richard P. Kleinknecht, Peter J. Kleinknecht,
Russell G. Kleinknecht and other signatories thereto. (3)
3.1 Restated Certificate of Incorporation of Registrant. (1)
3.2 Amended and Restated Certificate of Incorporation of Registrant
(included as Annex B to the Proxy Statement/Prospectus).
3.3 Amended and Restated Bylaws of Registrant. (2)
3.4 Amended and Restated Bylaws of Registrant after the Merger.*
4.1 Specimen Stock Certificate of Common Stock of the Registrant. (1)
5.1 Form of Opinion of Thacher Proffitt & Wood regarding legality. *
8.1 Form of Opinion of Thacher Proffitt & Wood regarding tax matters. *
10.2 Employment Agreement, dated May 9, 1994, between the Registrant and
Richard P. Kleinknecht. (1)
10.2.1 Letter Agreement, dated October 17, 1995, amending the Employment
Agreement between the Registrant and Richard P. Kleinknecht. (2)
10.2.2 Amended and Restated Employment Agreement, dated as of December
18, 1997, between the Registrant and Richard P. Kleinknecht. (3)
10.3 Employment Agreement, dated May 9, 1994, between the Registrant and
Peter J. Kleinknecht. (1)
10.3.1 Letter Agreement, dated October 17, 1995, amending the Employment
Agreement between the Registrant and Peter J. Kleinknecht. (2)
10.3.2 Amended and Restated Employment Agreement, dated as of December
18, 1997, between the Registrant and Peter J. Kleinknecht. (3)
10.8 Labor Pool Agreement between the Registrant and KEC-NY. (1)
10.8.1 Amended and Restated Labor Pool Agreement, dated as of December 18,
1997, by and between the Registrant and KEC-NY. (3)
10.9 Labor Pool Agreement between the Registrant and KEC-NJ. (1)
10.9.1 Amended and Restated Labor Pool Agreement, dated as of December 18,
1997, by and between the Registrant and KEC-NJ. (3)
10.10 Corporate Opportunity Agreement among the Registrant, KEC-NY and
KEC-NJ. (1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NUMBER
- ------------ ----------- -----------
<C> <S> <C>
10.10.1 Amended and Restated Corporate Opportunity Agreement, dated as of
December 18, 1997, by and among the Registrant, KEC-NY and
KEC-NJ. (3)
10.13 Registration Rights Agreement between the Registrant and Richard P.
Kleinknecht and Peter J. Kleinknecht. (1)
10.14 Employment Agreement, dated as of October 17, 1995, between the
Registrant and Steven Terrell Clontz. (2)
10.14.1 First Amendment to Employment Agreement, dated as of August 1, 1997,
between the Registrant and Steven Terrell Clontz. (4)
10.15 Investors Agreement, dated as of December 18, 1997, by and among the
Registrant, Cable Systems Holding, LLC, Richard P. Kleinknecht, David
Walsh and Anthony Servidio. (3)
10.16 Share Exchange and Termination Agreement, dated as of December 18,
1997, by and among the Registrant, International Exchange Networks,
Ltd., David Walsh and Anthony Servidio. (3)
10.17 Amended and Restated Employment Agreement, dated as of December
18, 1997, by and between International Exchange Networks, Ltd. and
David Walsh. (3)
10.18 Amended and Restated Employment Agreement, dated as of December
18, 1997, by and between International Exchange Networks, Ltd. and
Anthony Servidio. (3)
10.19 Employment Agreement, dated as of April 20, 1995, by and between IPC
Bridge, Inc., a wholly-owned subsidiary of the Registrant, and Gerald E.
Starr. (4)
10.19.1 First Amendment to Employment Agreement between IPC Bridge, Inc.
and Gerald E. Starr, dated as of May 21, 1996. (4)
10.19.2 Second Amendment to Employment Agreement between IPC Bridge, Inc.
and Gerald E. Starr, dated as of August 1, 1997. (4)
10.20 Employment Agreement, dated as of October 1, 1997, by and between the
Registrant and Russell G. Kleinknecht. (4)
10.20.1 Letter Loan Agreement, dated as of October 1, 1997, by and between the
Registrant and Russell G. Kleinknecht. (4)
10.21 IPC Information Systems, Inc. 1998 Stock Incentive Plan (included as
Annex C to the Proxy Statement/Prospectus).
11.1 Statement regarding Computation of Per Share Earnings (4)
13.1 IPC Information Systems, Inc. Annual Report on Form 10-K for the
year ended September 30, 1997, as amended.(4)
21.1 Subsidiaries of IPC Information Systems, Inc. (4)
23.1 Consent of Thacher Proffitt & Wood (included in Exhibits 5.1 and 8.1). *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NUMBER
- ------------ ----------- -----------
<C> <S> <C>
23.2 Consent of Coopers & Lybrand L.L.P. *
23.3 Consent of Deutsche Morgan Grenfell Inc. *
99.1 Form of Proxy. *
99.2 Form of Stock Election. **
99.3 Form of Letter of Transmittal. **
</TABLE>
- ---------------------
* Filed herewith
** To be filed by amendment.
(1) Previously filed as an exhibit to the Registrant's Registration
Statement on Form S-1, as amended, (No. 33-78754) and incorporated
herein by reference.
(2) Previously filed as an exhibit to the Registrant's Current Report on
Form 8-K, filed November 30, 1995, and incorporated herein by reference.
(3) Previously filed as an exhibit to the Registrant's Current Report on
Form 8-K, filed December 24, 1997, and incorporated herein by reference.
(4) Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K, filed January 13, 1998, and incorporated herein by reference.
<PAGE>
EXHIBIT 3.4
AMENDED AND RESTATED
BY-LAWS
OF
IPC INFORMATION SYSTEMS, 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 unless all of the stockholders are present in person or
<PAGE>
by proxy, in which case any and all business may be transacted at the meeting
even though the meeting is held without notice.
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 his or her 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.
-2-
<PAGE>
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 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 his
absence, the Vice-Chairman of the Board, or, in their absence, the Chief
Executive Officer, or, in the absence of the Chairman of the Board, the
Vice-Chairman of the Board and the Chief Executive Officer, the President, or,
in the absence of the Chairman of the Board, the Vice-Chairman of the Board, the
Chief Executive Officer and the President, a Vice President shall call all
meetings of the stockholders to order, and shall act as Chairman of such
meetings. In the absence of the
-3-
<PAGE>
Chairman of the Board, the Vice-Chairman of the Board, the Chief Executive
Officer, the President and all of the 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 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 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
-4-
<PAGE>
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. When directed by the presiding officer or upon the demand of any
stockholder, the vote upon any matter before a meeting of stockholders shall be
by ballot. 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.
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 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. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by one or more
Inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or
-5-
<PAGE>
act, the vacancy may be filled by appointment in like manner. Each inspector,
before entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his ability.
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 delivery to its
registered office in Delaware, its principal place of business, or 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.
-6-
<PAGE>
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 number of
Directors constituting the Board of Directors shall be fixed from time to time
by resolution passed by a majority of the Board of Directors. The Directors
shall, except as hereinafter otherwise provided for filling vacancies, be
elected at the annual meeting of stockholders, and shall hold office until their
respective successors are elected and qualified or until their 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 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
-7-
<PAGE>
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 his or her successor is elected and qualified or until his or her earlier
resignation or removal.
When one or more Directors shall resign effective at a future date,
a majority of the Directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office as herein provided in connection with
the filling of other vacancies.
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 from time to time shall determine.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No further notice shall be required for any
regular meeting of the Board of Directors; but a copy of every resolution fixing
or changing the time or place of regular meetings shall be mailed to every
Director at least five days before the first meeting held in pursuance thereof.
-8-
<PAGE>
SECTION 5. 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 6. 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 there is less than a quorum present, a
majority of those present may adjourn the meeting from time to time.
-9-
<PAGE>
SECTION 7. 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 8. COMMITTEES. The Board of Directors may designate one or
more committees including, without limitation, compensation and audit
committees, each committee to consist of one or more of the Directors of the
Corporation. The Board 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, 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.
-10-
<PAGE>
SECTION 9. 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, may
participate in a meeting of the Board or such committee, as the case may be, by
means of conference telephone or similar 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 10. 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 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 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, Vice-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 Vice-Chairman of the Board, the President, the Chief Executive
Officer, one or
-11-
<PAGE>
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.
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 his or her 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.
-12-
<PAGE>
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 VICE-CHAIRMAN OF THE BOARD. The
Vice-Chairman of the Board shall have all powers and shall perform all duties
incident to the office of Vice-Chairman of the Board 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 or the Chairman of the Board.
SECTION 4. 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 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 5. 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
-13-
<PAGE>
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 6. 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 7. 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 Vice-Chairman of the Board, the Chief
Executive Officer or the President shall authorize and direct; shall have charge
of the stock certificate books, transfer books and stock ledgers and such other
books and papers as the Board of Directors, the Chairman of the Board, the
Vice-Chairman of the Board, the Chief Executive
-14-
<PAGE>
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 Vice-Chairman of the Board, the Chief Executive
Officer or the President.
SECTION 8. 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
depositary or depositaries 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 Vice-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
-15-
<PAGE>
the Board of Directors, the Chairman of the Board, the Vice-Chaiman of the
Board, the Chief Executive Officer or the President.
SECTION 9. ADDITIONAL OFFICERS. The Board of Directors may from
time to time elect such other officers (who may but need not be Directors),
including a Controller, Assistant Treasurers, Assistant Secretaries and
Assistant Controllers, as the Board 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 Vice-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 10. 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, in such
penalties and with such conditions and security as the Board shall require.
SECTION 11. VOTING UPON STOCKS. Unless otherwise ordered by the
Board of Directors, the Chairman of the Board, the Vice-Chairman of the Board,
the Chief Executive
-16-
<PAGE>
Officer, the President or any 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.
SECTION 12. 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
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, including service with respect to an employee benefit plan
(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
-17-
<PAGE>
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
Delaware General Corporation Law, 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 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 Delaware General Corporation Law requires, an Advancement
of Expenses incurred by an Indemnitee in his or her 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
-18-
<PAGE>
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 Sections 1 or 2
of this Article IV shall be contract rights. If a claim under Sections 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 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 Delaware General
Corporation Law. 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
-19-
<PAGE>
standard of conduct set forth in the Delaware General Corporation Law, 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.
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 Delaware General Corporation Law.
-20-
<PAGE>
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
---------
STOCK-SEAL-FISCAL YEAR
----------------------
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
Vice-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
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.
-21-
<PAGE>
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. Whenever a
person owning a certificate for shares of stock of the Corporation alleges that
it has been lost, stolen or destroyed, he or she shall file in the office of the
Corporation an affidavit setting forth, to the best of his or her knowledge and
belief, the time, place and circumstances of the loss, theft or destruction,
and, if required by the Board of Directors, a bond of indemnity or other
indemnification sufficient in the opinion of the Board of Directors to indemnify
the Corporation and its agents against any claim that may be made against it or
them on account of the alleged loss, theft or destruction of any such
certificate or the issuance of a new certificate in replacement therefor.
Thereupon the Corporation may cause to be issued to such person a new
certificate in replacement for the certificate alleged to have been lost, stolen
or destroyed. Upon the stub of every new certificate so issued shall be noted
the fact of such issue and the number, date and the name of the registered owner
of the lost, stolen or destroyed certificate in lieu of which the new
certificate is issued.
-22-
<PAGE>
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 his or her 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 IV.
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
-23-
<PAGE>
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.
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 Delaware General Corporation Law, 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 Delaware
General Corporation Law 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.
-24-
<PAGE>
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.
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 Vice-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.
ARTICLE VI MISCELLANEOUS
------------------------
PROVISIONS.
-----------
-25-
<PAGE>
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. LOANS. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized to do so, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
-26-
<PAGE>
SECTION 3. 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 Vice-Chairman of the Board, the Chief Executive Officer, the
President or any Vice President shall be authorized to 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 Vice-Chairman of the Board, the Chief Executive Officer, the President or
any 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 or any such officer may be general or
confined to specific instances.
SECTION 4. 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 5. 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,
-27-
<PAGE>
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 Vice-Chairman of the Board, the Chief Executive Officer or the
President.
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, provided in the case of any special meeting at which all
of the members of the Board 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.
-28-
<PAGE>
ARTICLE VIII
------------
WAIVER OF SECTION 203
---------------------
The Corporation expressly elects not to be governed by Section 203
of the Delaware General Corporation Law, which election shall, in accordance
with such Section, not be effective until 12 months after the adoption of these
By-Laws and not apply to any business combination between the Corporation and
any person who became an interested stockholder of the Corporation on or prior
to such adoption.
-29-
<PAGE>
Exhibit 5.1
[THACHER PROFFITT & WOOD LETTERHEAD]
212-912-7645
___________, 1998
IPC Information Systems, Inc.
Wall Street Plaza
88 Pine Street
New York, New York 10005
Re: IPC Information Systems, Inc. -- Registration
Statement on Form S-4
----------------------------------------------
Ladies and Gentlemen::
We have acted as special counsel to IPC Information Systems, Inc., a
Delaware corporation ("IPC"), in connection with the preparation and filing by
IPC with the Securities and Exchange Commission (the "Commission") of a
registration statement on Form S-4 (the "Registration Statement") relating to
the up to 3,809,524 shares of common stock, par value $.01 per share of IPC
("Shares") to be retained by existing stockholders of IPC pursuant to the
Agreement and Plan of Merger dated December 18, 1997 between IPC and Arizona
Acquisition Corp. In rendering the opinions 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 opinions set forth below. As to matters of fact,
we have examined and relied upon the representation of IPC and AAC contained in
the Merger Agreement and the Registration Statement and, where we have deemed
appropriate, representations or certificates of officers of IPC or AAC or public
officials. 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 IPC, 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>
IPC Information Systems, Inc. Page 2.
, 1998
Based on the foregoing, we are of the opinion that, upon effectiveness
of the Registration Statement and the approval of the Merger Agreement by the
stockholders of IPC, the issuance of the Shares in accordance with the terms of
the Merger Agreement will have been duly authorized and, when the Shares are
retained in accordance with the terms of the Merger Agreement and the
Registration Statement, the Shares will continue to be validly issued, fully
paid and non-assessable.
In rendering the opinions 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 IPC and the shareholders
of IPC who retain 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 Proxy Statement/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
Securities Act of 1933, as amended, or the rules and regulations of the
Commission.
Very truly yours,
Thacher Proffitt & Wood
By:
Thomas N. Talley
TNT:lht
<PAGE>
Exhibit 8.1
[THACHER PROFFITT & WOOD LETTERHEAD]
, 1998
IPC Information Systems, Inc.
Wall Street Plaza
88 Pine Street
New York, NY 10005
Re: IPC Information Systems, Inc. -- Registration
Statement on Form S-4
---------------------------------------------
Ladies and Gentlemen:
You have requested our opinion as to the material United States federal
income tax considerations applicable to the merger between IPC Information
Systems, Inc., a Delaware corporation, and Arizona Acquisition Corp., a Delaware
corporation (the "Merger"), as more fully described in the above-referenced
Registration Statement and the exhibits thereto filed with the Securities and
Exchange Commission (the "Registration Statement"). Capitalized terms not
defined herein have the meanings ascribed to them in the Registration Statement.
Based upon and subject to the facts as set forth in the Registration
Statement, we hereby confirm that the discussion set forth under the heading
"Federal Income Tax Consequences" in the Proxy Statement/Prospectus included in
the Registration Statement addresses the material United States Federal income
tax matters and consequences generally applicable to the Merger, under currently
applicable law, subject to the qualifications stated in the Proxy
Statement/Prospectus.
This opinion expresses our views as to the United States federal income
tax laws in effect as of the date hereof, including the Internal Revenue Code of
1986, as amended, applicable Treasury Regulations promulgated thereunder, all of
which are subject to change either prospectively or retroactively. Also, any
variation or difference from the facts as set forth in the Registration
Statement and incorporated herein might affect the conclusion stated herein.
<PAGE>
- ----------, 1998 Page 2.
Except as set forth above, we express no opinion to any party as to the
tax consequences, whether federal, state, local or foreign, of the Merger or of
any transaction related thereto or contemplated by the Merger Agreement. This
opinion is given solely for the benefit of IPC and its stockholders, and may not
be relied upon by any other party or entity or otherwise referred to in any
document without our express written consent. We hereby consent to the filing
of this opinion as an exhibit to the Registration Statement and to the use of
our name in the Proxy Statement/Prospectus included in the 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
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission.
Very truly yours,
THACHER PROFFITT & WOOD
By:_______________________
AJC
<PAGE>
CONSENT
We hereby consent to (a) the use of our opinions contained as Exhibits 5.1 and
8.1 in the Registration Statement on Form S-4 of IPC Informations Systems, Inc.
and (b) the reference to our Firm under the heading Legal Matters in the
Prospectus contained in such Registration Statement.
Thacher Proffitt & Wood
February 13, 1998
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement on
Form S-4 of our report dated December 4, 1997, except for Note 13, for which the
date is December 19, 1997, on our audits of the consolidated financial
statements and financial statement schedule of IPC Information Systems, Inc. We
also consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
New York, New York
February 13, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF DEUTSCHE MORGAN GRENFELL INC.
We hereby consent to the use of Annex E containing our letter dated
December 17, 1997 to the Board of Directors of IPC Information Systems, Inc.
("IPC") in the Proxy Statement/Prospectus constituting a part of the
registration statement on Form S-4 filed by IPC relating to the merger of
Arizona Acquisition Corp. ("AAC") with and into IPC, with IPC remaining as the
surviving corporation under the name of IPC Information Systems, Inc., and to
the references to our firm name in such Proxy Statement/Prospectus. In giving
this consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended
(the "Act"), or the rules and regulations of the Securities and Exchange
Commission (the "SEC") promulgated thereunder, nor do we admit that we are
experts with respect to any part of such registration statement within the
meaning of the term "experts" as used in the Act or the rules and regulations of
the SEC promulgated thereunder.
February 11, 1998 DEUTSCHE MORGAN GRENFELL INC.
By: /s/ Louis Cooper
----------------------------
Louis Cooper
Director
By: /s/ Laurence Braham
----------------------------
Laurence Braham
Assistant Vice President
<PAGE>
[FRONT]Exhibit 99.1
IPC INFORMATION SYSTEMS, INC.
REVOCABLE PROXY
ANNUAL MEETING OF STOCKHOLDERS
_________, 1998
_________ __.m.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF IPC INFORMATION
SYSTEMS, INC. FOR USE AT THE 1998 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
__________, 1998 AND AT ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
The undersigned stockholder of IPC Information Systems, Inc., hereby
authorizes and appoints _______________, ______________, or either of them,
proxy of the undersigned, with full power of substitution, to attend and act as
proxy for the undersigned and to vote as designated below all shares of common
stock of IPC Information Systems, Inc. which the undersigned may be entitled to
vote at the Annual Meeting of Stockholders of IPC Information Systems, Inc. to
be held on _______, 1998 at ________ __.m., Eastern Time, at _________________,
______________________, ______________________, New York, and at any adjournment
or postponement thereof. The undersigned hereby revokes all prior proxies.
THIS PROXY WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL NOS. 1, 2, 3, 5 AND 6 AND FOR THE ELECTION OF NOMINEES
LISTED IN PROPOSAL 4.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY ON THE REVERSE SIDE AND RETURN IT
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
[BACK]
<TABLE>
<CAPTION>
Please mark your vote as
indicated in this example [X]
BOARD OF DIRECTORS OF IPC INFORMATION SYSTEMS, INC. RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
<S> <C>
1. Approval of the Amended and Restated Agreement and Plan of Merger, 2. Approval of the Amended and Restated Certificate of
dated as of the ____ day of February, 1998, ("Merger Agreement") by IPC Information Systems, Inc.
and between IPC Information Systems, Inc. ("IPC") and Arizona
Acquisition Corp. ("AAC") which provides for the merger of AAC with
and into IPC with IPC continuing as the surviving corporation
("Surviving Corporation").
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ] [ ]
3. The approval of the IPC Information Systems, Inc. 1998 Stock 4. The Election as directors of both nominees listed
Incentive Plan for certain employees, directors and consultants (except as marked to the contrary)
of the Surviving Corporation. Richard P. Kleinknecht, Peter J. Kleinknecht
INSTRUCTION: TO WITHHOLD YOUR VOTE FOR ANY
INDIVIDUAL NOMINEES, WRITE THAT NOMINEE'S NAME ON
THE LINE PROVIDED BELOW.
FOR AGAINST ABSTAIN FOR VOTE WITHHELD
[ ] [ ] [ ] [ ] [ ]
------------------------------------
5. Ratification of the appointment of Coopers & Lybrand, L.L.P. 6. The authorization of the Board of Directors of IPC,
as independent accountants for the Company for the fiscal year in its discretion, to vote upon such other
ending September 30, 1998. business as may properly come before the Annual
Meeting and any adjournment or postponement thereof,
including, without limitation, a motion to adjourn
the Annual Meeting to another time or place for the
purpose of soliciting additional proxies in order to
approve and adopt the Merger Agreement, or
otherwise.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ] [ ]
The undersigned hereby acknowledges receipt, prior
to the execution of this proxy, of a Notice of Annual
Meeting of Stockholders of IPC Information Systems,
Inc., a Proxy Statement/Prospectus dated ____________,
1998 for the Annual Meeting and the Annual Report to
Stockholders.
X X Date: , 1998
------------------ ---------------
Please sign name exactly as it appears hereon. If shares
are registered in more than one name, all should sign,
but if one signs, it binds the others. When signing as
attorney, executor, administrator, trustee or guardian,
please give your full title as such. If a corporation,
please sign in full corporate name by an authorized
officer. If a partnership, please sign partnership name
by an authorized person.
</TABLE>
