SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended September 30, 1997 Commission file number 0-25492
IPC INFORMATION SYSTEMS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 58-1636502
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
Wall Street Plaza
88 Pine Street
New York, New York 10005
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(Address of Principal Executive Offices) Zip Code
(212) 825-9060
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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Title of Class: Common Stock, $.01 Par Value
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.___
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of November 30, 1997 was approximately $76.9 million based upon
the last sale price reported for such date on the Nasdaq Stock Market.
The number of shares of the Registrant's Common Stock outstanding as of November
30, 1997 was 10,714,453.
DOCUMENTS INCORPORATED BY REFERENCE - None.
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Item 10. DIRECTORS, EXECUTIVE OFFICERS AND OTHER OFFICERS OF THE REGISTRANT
a. Identification of Directors:
Director
Name Age(1) Position Since Class
- ---- --- -------- ----- -----
Richard P. Kleinknecht 59 Chairman 1991 I
and Director
Peter J. Kleinknecht 52 Vice Chairman 1991 I
and Director
Terry Clontz 47 CEO and President 1995 II
and 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
- ---------------------------
(1) As of January 26, 1998.
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
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 Board of Directors 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, jointly own or control
(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 Board of Directors 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.
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.
ROBERT J. McINERNEY has been employed since February of 1997 as
President and Chief Operating Officer 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.
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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.
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 1991 to 1995. Mr. Johnson also served as Kidder, Peabody's
National Institutional Equity Sales Manager and a branch manager of
Institutional Equity Sales.
Board Meetings and Committees
In fiscal 1997, the Company's Board of Directors met in person on seven
occasions, the Audit Committee met twice and the Compensation Committee met
twice. Each director attended, in person or by telephone, all of the meetings of
the Board of Directors and the committees of which he was a member.
The Audit Committee reviews with the Company's management and independent
auditors the financial statements and internal financial reporting system and
controls of the Company, reports to the Board of Directors on the results of its
examination and makes recommendations to the Board of Directors 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 Board of Directors
concerning executive officers' compensation and the granting of stock options.
Directors Compensation
Each member of the Board of Directors 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 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 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 Company's Restated
Certificate of Incorporation or Bylaws that have the effect of, nor has the
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 Board of Directors consists of Messrs.
Johnson, McInerney and Stein. There is no insider participation on the
Compensation Committee.
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b. Identification of Executive Officers:
The Company's executive officers who are not also directors and their ages and
positions, as of January 26, 1998, are as follows:
Name Age Position
---- --- --------
Russell G. Kleinknecht 44 Executive Vice President, Information
Transport Systems
Gerald E. Starr 44 Executive Vice President,
Trading Systems
Brian Reach 42 Vice President, Chief Financial Officer
Daniel Utevsky 47 Vice President, General
Counsel/Corporate Secretary
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.
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ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain summary information concerning all
compensation earned by the Company's Chief Executive Officer and 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.
Summary Compensation Table
Annual Compensation
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Securities
Underlying
Fiscal Options/SARs Other Annual All Other
Name and Principal Position Year Salary(1) Bonus Granted Compensation(2) Compensation(3)
- --------------------------- ---- ------ ----- ------------ ------------ ------------
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Richard P. Kleinknecht 1997 $420,000 -- -- -- $10,730
Chairman 1996 420,000 -- -- -- 26,540
1995 380,000 $380,000 -- -- 33,254
Peter J. Kleinknecht 1997 420,000 -- -- -- 13,400
Vice Chairman 1996 420,000 -- -- -- 13,200
1995 380,000 380,000 -- -- 17,800
Terry Clontz (4) 1997 324,692 60,000 25,000 $ 82,529(5) 15,756
President and Chief 1996 255,006 150,000 200,000 133,300(5) 12,871
Executive Officer 1995 -- -- -- -- --
Gerald E. Starr (6) 1997 217,789 28,325 40,000 -- 3,200
Executive Vice President 1996 183,077 25,000 -- -- --
Turret Systems 1995 66,346 -- -- -- --
Russell G. Kleinknecht 1997 250,000 31,250 40,000 -- 7,670
Executive Vice President 1996 220,000 160,000 100,000 -- 10,773
I.T.S. 1995 133,461 200,000 7,000 -- 4,004
Jeffrey M. Gill (7) 1997 250,000 -- -- 477,536(8) --
Former Executive Vice 1996 250,000 100,000 -- 477,536(8) 45,198
President 1995 200,000 200,000 -- 380,000(8) 45,844
</TABLE>
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(1) Includes amounts, if any, deferred by the named individual for the period
in question pursuant to Section 401(k) of the Internal Revenue 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) Terry Clontz was employed by the Company as President & Chief Executive
Officer as of Dec. 3, 1995.
(5) 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.
(6) 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
Officer of the Company effective October 23, 1996.
(7) 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 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.
(8) 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.
Employment Agreements
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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 of the Board of Directors (the "Committee"), in
its discretion. As of October 1, 1995, the 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 entered into an Amended
and Restated Employment Agreement, effective and contingent upon the closing of
the Merger contemplated by the Agreement and Plan of Merger, dated as of
December 18, 1997, by and between the Company and Arizona Acquisition Company.
Upon the occurrence of such contingency, Mr. Kleinknecht's pre-existing
Employment Agreement shall terminate. The Amended and Restated Employment
Agreement provides for an initial term of two (2) years of employment, which
shall be automatically extended for successive one year terms unless either
party gives the other 90 days prior notice of non-extension. Mr. Kleinknecht
shall serve as Vice-Chairman of the Board of Directors, reporting to the Board
and the Chairman, shall devote his full working time and his best efforts to the
performance of his duties and shall receive a minimum base salary of $420,000
per annum. He may also receive, at the discretion of the Board, a bonus based
upon his performance and the performance of the Company. Mr. Kleinknecht was
also granted 57,720 stock options, pursuant to the Stock Incentive Plan to be
considered at the next occurring Stockholders Meeting. The Agreement shall
terminate if Mr. Kleinknecht's employment terminates by reason of resignation,
death, disability or his discharge for cause, as defined therein.
As of December 18, 1997, Peter J. Kleinknecht entered into an Amended and
Restated Employment Agreement, effective and contingent upon the closing of the
Merger contemplated by the Agreement and Plan of Merger, dated as of December
18, 1997, by and between the Company and Arizona Acquisition Company. Upon the
occurrence of such contingency, Mr. Kleinknecht's pre-existing Employment
Agreement shall terminate. The Amended and Restated Employment Agreement
provides for a term of two (2) years of employment. Mr. Kleinknecht shall serve
as an employee, shall perform such duties as may be assigned to him from time to
time (consistent with duties previously performed) and shall receive a minimum
base salary of $420,000 per annum. He may also receive, at the discretion of the
Board, a bonus based upon his performance and the performance of the Company.
Mr. Kleinknecht was also
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granted 57,720 stock options, pursuant to the Stock Incentive Plan to be
considered at the next occurring Stockholders Meeting. The Agreement shall
terminate if Mr. Kleinknecht's employment terminates by reason of resignation or
his discharge for cause, as defined therein.
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 Board of Directors (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 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 Company's Common Stock, exercisable at
$14.125 and vesting in the following installments:
==================== =========================== ============================
Name Number of Options Date of Vesting
==================== =========================== ============================
Terry Clontz 16,667 December 2, 1996
- -------------------- --------------------------- ----------------------------
Terry Clontz 33,333 December 2, 1997
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Terry Clontz 50,000 December 2, 1998
- -------------------- --------------------------- ----------------------------
Terry Clontz 33,334 December 2, 1999
- -------------------- --------------------------- ----------------------------
Terry Clontz 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 Company's 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 Board of Directors 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 Board of Directors, 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
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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 this Agreement.
The Company has 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 the
Company's 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 to such date a
ninety consecutive trading day period during which the last reported sale price
for the Company's 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.
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ITEM 12. 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 the Company's
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.
Amount & Nature of Approximate
Name of Beneficial Owner Beneficial Ownership(1) Percent of Class(2)
- ------------------------ -------------------- ----------------
Richard P. Kleinknecht 3,453,398(3) 32.16%
Peter J. Kleinknecht 2,852,348(4) 26.56%
Terry Clontz 68,333(5) *
Theodore J. Johnson 5,000 *
Robert J. McInerney 4,000 *
Peter M. Stein 1,000 *
Gerald E. Starr 77,617(6) *
Russell G. Kleinknecht 116,907(7) 1.08
All executive officers and
directors as a group (10 persons) 6,592,480(8) 60.52%
- -------------------------------------------
* 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 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 P. 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: (a) 155,637 shares in his
Grantor Retained Annuity Trust; (b) 155,637 shares in his wife's Grantor
Retained Annuity Trust; and (c) 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.
By Others. Except as set forth in the previous section, the Company is not
aware of any beneficial owner of more than 5% of the Company's Common Stock as
of January 26, 1998.
9
<PAGE>
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 has been approved by holders of a majority of the shares of the Company's
Common Stock present and entitled to vote at a stockholders' meeting held on May
9, 1994. An amendment to the 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
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 526,908 shares of Common Stock, at September 30,
1997, for future issuance of stock options. Such Common Stock may be authorized
and unissued shares, treasury shares, or shares previously issued and reacquired
by the Company. Any shares of Common Stock subject to awards under the 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)
% of Total
Number of Options/
Securities SARs Granted Exercise
Underlying to Employees or Base
Options/SARs in Fiscal Price Expiration 5% 10%
Name Granted Year ($/Share) Date ($) ($)
---- ------- ------------ --------- ---- --- ---
<S> <C> <C> <C> <C> <C> <C>
Terry Clontz 25,000 6% $14.50 10/31/06 $228,000 $577,750
Richard P. Kleinknecht 0 -- -- -- -- --
Peter J. Kleinknecht 0 -- -- -- -- --
Gerald E. Starr 20,000 5% 14.50 10/31/06 182,400 462,200
20,000 5% 13.31 02/14/07 167,400 424,200
Russell Kleinknecht 40,000 10% 14.50 10/31/06 364,800 924,400
</TABLE>
- -------------------------
Note:- All Options granted during the fiscal year ended September 30, 1997
provided a ten-year term, vested in equal amounts on the first three
anniversaries of their grant date and are exercisable at the fair market value
of the Company's Common Stock on the date of grant.
10
<PAGE>
The following table sets forth certain information with respect to options
exercised under the Option Plan during the fiscal year ended September 30, 1997
by the executive officers of the Company who are named in the Summary
Compensation Table:
Aggregated Option/SAR Exercises In Last Fiscal Year
and Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Value Options/SARs In-the-Money Options/SARs
Acquired Realized at Fiscal Year-End at Fiscal Year-End
on Exercise on Exercise (#) ($)
Name (#) ($) 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 Common Stock of the Company 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 Company's Compensation
Committee (the "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 shares
issued in respect of the 1995, 1996 and 1997 offering periods, respectively.
Common Stock has been offered for sale pursuant to the Stock Purchase Plan
during offering periods established by the Committee. The purchase price,
determined on a calendar year basis, 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 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 the
Company'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
the Company's 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 fiscal year which resulted in the issuance of 18,094
shares of the Company's Common Stock after the conclusion of the offering period
on December 31, 1997.
11
<PAGE>
ITEM 13. 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 Kleinknecht Electric
Company, Inc., a New York company ("KEC-NY"), Kleinknecht Electric Company,
Inc., a New Jersey company ("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. The Company, KEC-NY and KEC-NJ have benefited 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.
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. 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.
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. and Peter J. 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 lent 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.
12
<PAGE>
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 EXCHANGE ACT
Under the securities laws of the United States, the Company's directors,
executive officers and any person holding more than ten percent of the Company's
Common Stock are required to file initial reports of ownership of the Company's
Common Stock and reports of changes in that ownership at the Securities and
Exchange 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 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 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.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IPC INFORMATION SYSTEMS, INC.
Date: January 28, 1998 By:/s/ Terry Clontz
----------------
Terry Clontz
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
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> <C>
/s/ RICHARD P. KLEINKNECHT Chairman January 28, 1998
- ------------------------------------------------------ --------------------------
Richard P. Kleinknecht
/s/ PETER J. KLEINKNECHT Vice Chairman January 28, 1998
- ------------------------------------------------------ --------------------------
Peter J. Kleinknecht
/s/ TERRY CLONTZ Chief Executive Officer, January 28, 1998
- ------------------------------------------------------ President and Director --------------------------
Terry Clontz (Principal Executive Officer)
/s/ BRIAN L. REACH Chief Financial Officer January 28, 1998
- ------------------------------------------------------ (Principal Financial Officer) --------------------------
Brian L. Reach (Principal Accounting Officer)
/s/ ROBERT J. MCINERNEY Director January 28, 1998
- ------------------------------------------------------ --------------------------
Robert J. McInerney
14
</TABLE>
