SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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:
Title of Class: Common Stock, $.01 Par Value
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
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders of IPC Information Systems, Inc. (the "Proxy Statement") are
incorporated by reference in Part III of this Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
Company Description
IPC Information Systems, Inc. (together with its subsidiaries, the
"Company" or "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 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.
Turret Systems. The Company's sophisticated turret systems, consisting of
desktop consoles ("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, 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 of 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 Company's I.T.S. expertise encompasses network
design, utilizing components from suppliers such as Cisco Systems, Inc.
("Cisco"), 3COM Corporation ("3COM"), Bay Networks, Inc. ("Bay Networks") and
XYLAN Corporation ("XYLAN"), as well as 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 major 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 in 29 other cities. The IXnet Network employs leased dedicated long-
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haul circuits to connect IXnet Network cities and leased dedicated local
circuits to connect customers to the IXnet Network. The design of the IXnet
Network enables the Company to rapidly expand capacity in response to increased
customer traffic. It 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 locations
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." As of September 30, 1997, the Company provided telecommunications
services to 131 customers and had 158 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 by Richard and Peter Kleinknecht (the "Principal
Stockholders") 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, 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
similar 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 relative to the competition. 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 companies, as
well as commodity trading operations in non-financial firms (such as
energy-related companies) and regional trading organizations based in emerging
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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 turret 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 internetworking
equipment (such as routers and hubs) to provide turnkey managed data services.
This arrangement will provide for ongoing support of internetworking equipment
located at the Company's client sites around the world.
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 from
telecommunications carriers, most if not all of these firms still rely on public
switched networks for communications with trading counterparts 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.
Therefore, the Company is focused on broadening the IXnet subscriber base to
exploit its first-mover advantage. 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 39 customers as of September 30, 1996 and 131 customers as of September 30,
1997.
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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 existing customers. Given the widespread availability
of local fiber facilities at competitive rates in most of the world's financial
centers, as well as and 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. 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.
The Industry
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. 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 not 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 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.
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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. In response to this outsourcing trend, the Company
launched its Information Transport Systems business to provide data, voice and
video networking design, installation and maintenance services. The Company's
I.T.S. engineers design and implement intelligent network infrastructures to
provide connectivity to customer-owned devices. The Company's I.T.S. expertise
encompasses network design, utilizing components from suppliers such as Cisco,
3COM, Bay Networks, and XYLAN, as well as all available physical media,
including copper, fiber optic and coaxial cable. I.T.S. services also include
project management for network information upgrades and on-site, as well as
on-call, technical support. I.T.S. provides these services to financial trading
community firms as well as other clients with complex networking needs.
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%, 27.7% and 6.6%, respectively, of the Company's total revenues.
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 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.
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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(TM), introduced in 1994, is designed for trading floors 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 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 maintain a
continually up-to-date system by 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.
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 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 of 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 total revenues
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.
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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 its full suite of MX
switching platforms. 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 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 allows a trader with a standard laptop PC mobility and 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 minimize
the amount of cable required between the trading floor and backroom switching
equipment.
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 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 be completed on-time and
withinbudget. 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 cut-over, 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. Customers, where IPC turret systems are installed,
that have experienced this installation process are natural candidates for the
Company's I.T.S. services.
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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, POPs 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 and 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, minimal call setup times and a single network
management and control system to optimize 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 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.
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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 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). IXFrame is a managed data service provided by IXnet using
basic frame relay as its underlying technology. Liquidity(TM) is a managed
inter-firm and intra-firm data network service which is also frame relay based.
Liquidity provides secure 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, 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 the product 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.
10
<PAGE>
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 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, 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, 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
11
<PAGE>
distribution channels including both direct and distributor sales. The Company
employed 37 direct sales representatives for its turret systems and I.T.S.
products and services as of September 30, 1997, in sales offices and service
locations in:
New York Chicago Philadelphia
London Cincinnati Pittsburgh
Hong Kong Dallas San Francisco
Atlanta Houston Stamford
Baltimore Los Angeles St. Louis
Boston New Jersey Toronto
The Company also has distributors in the following countries:
Argentina Hong Kong New Zealand
Australia Indonesia Peru
Austria Ireland Philippines
Belgium Italy Russia
Brazil Japan South Africa
Canada Kuwait Singapore
China Luxembourg Switzerland
France Malaysia Taiwan
Germany Mexico Thailand
Greece Netherlands Turkey
These distributors receive extensive training from the Company, are
qualified in turret sales and maintenance, LAN design and installation and
provide resident 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 September 30, 1997,
IXnet had a total of 18 network sales professionals, including 11 in the United
States, and the remainder in the United Kingdom, Canada, France and Switzerland.
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 consolidated revenue for the years
ended September 30:
Region 1997 1996 1995
---------------------------- ---- ---- ----
New York 55% 54% 68%
Rest of United States 18 20 17
United Kingdom 22 20 10
Rest of Europe 1 1 --
Far East 3 4 3
Latin America 1 1 2
---- ---- ----
Total 100% 100% 100%
==== ==== ====
IPC maintains a high profile in the financial services market by
publicizing contracts won, 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
12
<PAGE>
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, interdealer 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 revenues have been derived from sales to customers in the financial
trading community. In fiscal 1996, approximately 13% of total revenues were from
one customer. In fiscal 1997, no single customer accounted for more than 10% of
the Company's total revenues.
Backlog
As of September 30, 1997, the Company had a backlog of purchase contracts
representing approximately $53.4 million of future revenues, as compared with
approximately $77.9 million as of September 30, 1996. 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, 1997,
1996 and 1995, the Company recorded expenses of $10.0, $11.5 and $10.1 million,
respectively, on research and development. During 1997, IPC spent 3.7% of its
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 September 30, 1997, the Company
employed 64 persons in the areas of research and development.
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. This integration removes 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 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.
13
<PAGE>
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 its strong market position is the result of its consistent
ability to produce high quality products, its established reputation for 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 British Telecommunications plc ("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. The Company
believes it is able to compete effectively against these companies due to the
high quality of its products and its reputation for providing outstanding
customer service.
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 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
14
<PAGE>
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 significant 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.
Regulatory Environment
Government Regulation
Telecommunications services provided by the Company 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.
The existing international telecommunications service regulatory
environment is very different than that which exists for United States domestic
telecommunications services. For domestic services, the FCC and State Public
Utility Commissions have direct jurisdiction, granted by statute, over all
aspects of the 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
Reform Act of 1996 ("the Communications Act") can have in developing a new
structure for international telecommunications.
Presently, the Company is required to file tariffs listing the terms,
conditions and rates for its services for both its intrastate and international
services. In addition, the Company is required to obtain FCC authorization to
provide international telecommunications services. Under the Communications Act,
the FCC has the authority to forbear from imposing any regulations it deems
unnecessary, including requiring non-dominant carriers to file tariffs.
15
<PAGE>
IXnet currently holds an FCC authorization to resell private lines that
are not interconnected to the public switched telephone network for
communication services between the United States and numerous international
points. IXnet also holds an FCC authorization to resell private lines
interconnected to the public switched telephone network for communication
services between the United States and the United Kingdom, Canada, Sweden, New
Zealand and Australia. 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.
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 and 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.
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.
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 International Simple Resale ("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
capacity at wholesale rates from British Telecom and Mercury Communications,
Ltd.
Other European Union Countries. Prior to January 1, 1998, a majority of
the European Union ("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 so-called "closed user
groups" ("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 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.
16
<PAGE>
IXnet has an application pending in Belgium 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 interconnections to the Swiss public switched telephone network.
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, is in the process of filing a
final application to provide certain limited service in Brazil, including
virtual private network services. IXnet is preparing to seek authority in Mexico
to provide similar services.
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.
Employees
As of September 30, 1997, the Company had 677 full-time, non-union
employees worldwide, including 545 in the United States, 131 in the United
Kingdom and 1 in Hong Kong. Of these, 80 were engaged in marketing and sales,
123 in research, development and product engineering, 216 in branch
17
<PAGE>
operations, finance and corporate administration, 116 in manufacturing and 142
in operations.
An additional 399 United States workers are represented by collective
bargaining units at September 30, 1997, including 350 within the New York
metropolitan area provided under labor pooling agreements between the Company
and two of its affiliates. Contracts with unions are negotiated every three
years. Current agreements expiring through June 11, 1998 provide benefits, wage
rates, wage increases and grievance and termination procedures. 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.
ITEM 2. 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.
ITEM 3. 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. See Note 9 to "Notes
to the Consolidated Financial Statements."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
18
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock is listed on the Nasdaq Stock Market (Nasdaq -
IPCI). The following table sets forth the high and low sales prices reported by
the Nasdaq. The common stock began trading on September 27, 1994.
For the year ended September 30,
-------------------------------------------------------
1997 1996
-------------------- ---------------------
High Low High Low
------ ------ ------ -------
First Quarter 22 14 19 1/4 13 1/2
Second Quarter 16 3/4 8 7/8 26 1/4 16 1/2
Third Quarter 19 1/8 9 25 17 1/16
Fourth Quarter 21 3/4 15 3/4 21 13 1/2
As of November 30, 1997 there were 109 holders of record of the Company's stock.
Additional shares of the Company's stock are held in street name by more than
1,600 additional beneficial owners.
To date, the Company has not paid any cash dividends to its stockholders. Any
future payment 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.
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (unaudited)
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the year ended September 30,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations:
Revenues $270,323 $249,508 $206,254 $163,671 $112,714
Gross profit 80,214 76,818 63,173 48,043 31,152
Net Income 3,834 12,129 13,267 16,549(1) 1,753
Earnings per share 0.36 1.15 1.26 -- --
Weighted average shares outstanding 10,664 10,590 10,506 -- --
Pro forma earnings per share -- -- -- 1.11(2) --
Pro forma weighted average shares -- -- -- 8,535(2) --
Supplemental pro forma earnings per share -- -- -- 0.88(3) --
September 30,
-----------------------------------------------------------------------
Balance Sheet Data: 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Working capital $ 46,933 $ 50,807 $ 46,851 $ 27,661 $ 16,696
Total Assets 158,362 141,877 128,036 110,702 70,120
Note payable 3,200 13,900 -- 1,411 1,411
Long-term debt 2,133 -- -- 10,663 12,916
Long-term lease obligations 10,336 3,429 -- -- --
Stockholders' equity 76,910 71,715 58,504 21,122 7,328
</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-US 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 pre-Offering
stockholders.
(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.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (unaudited)
The following tables set forth certain statements of operations data and its
percentage to total revenues for the periods indicated:
<TABLE>
<CAPTION>
For the year ended September 30,
------------------------------------------------
(Dollar amounts in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------ -------- -------- --------
<S> <C> <C> <C>
Revenue:
Turret sales and installation ............................................... $122,493 $111,471 $100,851
Turret service .............................................................. 55,146 55,484 50,057
Information Transport Systems sales, installation and service ............... 74,746 78,842 55,346
Network services ............................................................ 17,938 3,711 --
-------- -------- --------
Total revenue ............................................................ 270,323 249,508 206,254
Cost of revenue ............................................................. 190,109 172,690 143,081
-------- -------- --------
Gross profit .......................................................... 80,214 76,818 63,173
Research and development expenses ........................................... 9,976 11,467 10,108
Selling, general and administrative expenses ................................ 60,697 45,143 31,038
-------- -------- --------
Income from operations ................................................ 9,541 20,208 22,027
Interest income/(expense), net .............................................. (1,844) (678) 233
Other income/(expense), net ................................................. 417 591 226
-------- -------- --------
Income before provision for income taxes ................................. 8,114 20,121 22,486
Provision for income taxes .................................................. 4,280 7,992 9,219
-------- -------- --------
Net income ........................................................... $ 3,834 $ 12,129 $ 13,267
======== ======== ========
Revenue:
Turret sales and installation ............................................... 45.3% 44.7% 48.9%
Turret service .............................................................. 20.4 22.2 24.3
Information Transport Systems sales, installation and service ............... 27.7 31.6 26.8
Network services ............................................................ 6.6 1.5 --
-------- -------- --------
Total revenue ............................................................ 100.0 100.0 100.0
Cost of revenue ............................................................. 70.3 69.2 69.4
-------- -------- --------
Gross profit .......................................................... 29.7 30.8 30.6
Research and development expenses ........................................... 3.7 4.6 4.9
Selling, general and administrative expenses ................................ 22.5 18.1 15.0
-------- -------- --------
Income from operations ................................................ 3.5 8.1 10.7
Interest income/(expense), net .............................................. (0.7) (0.2) 0.1
Other income/(expense), net ................................................. 0.2 0.2 0.1
-------- -------- --------
Income before provision for income taxes ................................. 3.0 8.1 10.9
Provision for income taxes .................................................. 1.6 3.2 4.5
-------- -------- --------
Net income ............................................................ 1.4% 4.9% 6.4%
======== ======== ========
</TABLE>
21
<PAGE>
Overview
IPC Information Systems, Inc. (together with its subsidiaries, the
"Company" or "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 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 services, which has been specifically designed
to meet the specialized telecommunications requirements of the financial trading
community.
The Company's operations include: turret systems, I.T.S. and network
services (IXnet). The Company accounts for sales of turret systems to
distributors and direct sales and installations of turret systems as "turret
sales and installation." The Company accounts for revenues from turret system
maintenance, including annual and multi-year service contracts, and from moves,
additions and changes to existing turret system installations as "turret
service." The Company accounts for revenues from I.T.S. design, integration and
implementation projects, from sales of intelligent network products, such as
hubs, bridges and routers, from on-site maintenance of customer I.T.S.,
including annual and multi-year contracts, and from the provision of outsourcing
services for the support, expansion and upgrading of existing customer networks
as "I.T.S. sales, installation and service." Additionally, the Company accounts
for revenues derived from the IXnet Network as "network services."
Revenue from turret and I.T.S. sales and installation is recognized upon
completion of the installation, except for revenue from sales of turret systems
to distributors, which is recognized upon shipment of turret products by IPC.
Invoices representing progress payments are submitted during various stages of
the installation. The revenue attributable to such advance payments is deferred
until system installation is completed. In addition, contracts for annual
recurring turret and I.T.S. services are generally billed in advance, and are
recorded as revenues ratably (on a monthly basis) over the contractual periods.
Revenue from moves, additions and changes to turret systems is recognized upon
completion, which usually occurs in the same month or the month following the
order for services. Revenue from network services are recognized in the month
the service is provided.
Cost or revenue for turret systems and I.T.S. includes material and labor
associated with the installation of a project or service. Cost of revenue for
network services includes charges from carriers for bandwidth associated with
network services revenue.
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, revenues and operating results could fluctuate
significantly from quarter to quarter. However, the Company's service business
generates a more consistent revenue stream than sales and installation and,
consequently, these fluctuations could be somewhat diminished in the future as
the Company's service business expands.
22
<PAGE>
Comparison of the year ended September 30, 1997 to the year ended September 30,
1996
Revenue. Total revenue increased by $20.8 million or 8.3% to $270.3
million in the year ended September 30, 1997 from $249.5 million in the year
ended September 30, 1996.
Turret installation and related service revenues increased by $10.7
million, or 6.4%, to $177.6 million in the year ended September 30, 1997 from
$167.0 million in the year ended September 30, 1996. Turret revenue growth for
the year ended September 30, 1997 is from higher third party products sold in
conjunction with the Tradenet MX product.
Revenue from I.T.S. sales and related service decreased by $4.1 million,
or 5.2% to $74.8 million in the year ended September 30, 1997 from $78.8 in the
year ended September 30, 1996. Although the number of new installations in 1997
were comparable to 1996, the decrease in revenue from new installations related
to lower revenue from the two largest installations during 1997 as compared with
1996. This decrease was partially offset by higher service related revenue in
1997 as compared to 1996.
Revenue from network services increased by $14.2 million, or 383.4% to
$17.9 million in the year ended September 30, 1997 from $3.7 million in the year
ended September 30, 1996. The increase is from the continued buildup of IXnet'S
international telecommunication network during 1997. Annualized revenue for the
month of September 1997 was $24.8 million, an increase in excess of 148% as
compared with September 1996.
Cost of Revenue. Cost of revenue (as a percentage of revenue) of 70.3% in
the year ended September 30, 1997 increased slightly as compared to 69.2% in the
year ended September 30, 1996. The increase is attributable to higher third
party product revenue associated with turret installations in 1997, which
typically has a higher cost of revenue than the Company's manufactured products
and higher project costs for I.T.S. revenue. Network service cost (as a
percentage of revenue) decreased in fiscal 1997 as compared with fiscal 1996 due
to higher utilization of the IXnet Network in fiscal 1997.
Research and Development Expenses. Research and development expenses
decreased by $1.5 million, or 13.0%, to $10.0 million in the year ended
September 30, 1997 from $11.5 million in the year ended September 30, 1996. The
decrease is from the consolidation of research and development organizations and
the termination of development work on an Asynchronous Transfer Mode (ATM)
project. Also, spending during the year ended September 30, 1997 has a higher
mix of software development as opposed to hardware applications. The Company
intends to focus on the integration of the Tradenet MX turret with IXnet's
network capabilities as well as the enhancement of existing features of the
Tradenet MX family to sustain the Company's leadership position in voice-based
products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $15.6 million, or 34.5%, to $60.7 million
in the year ended September 30, 1997 from $45.1 million in the year ended
September 30, 1996. Approximately, $11.3 million of the increase (of which $2.2
million is depreciation) is due to infrastructure costs associated with the
expansion of IXnet's international telecommunications network, people resources
and other expenses required to build, manage and grow this global business. The
Company intends to continue to invest in the buildup of IXnet's network. As the
Company deploys its network, management anticipates that selling, general and
administrative expenses will increase. These expenses may be incurred prior to
the realization of revenues. Additionally, included in selling, general and
administrative expenses for the year ended September 30, 1997 is $0.65 million
or $0.04 per share representing the settlement of a employment agreement with
the former Chief Operating Officer.
Interest Income/(Expense). Interest (expense), net increased by $1.2
million to $1.9 million for the year ended September 30, 1997 from $0.7 million
for the year ended September 30, 1996. The increase is
23
<PAGE>
due to higher utilization of the Company's credit facilities and capital lease
obligations used primarily to finance capital expenditures for IXnet during
1997.
Provision for Income Taxes. The Company's effective tax rate was 52.8% for
the year ended September 30, 1997 compared to 39.7% for the year ended September
30, 1996. The increase is primarily due to IXnet's losses during 1997 for which
the Company is not able to receive certain state statutory tax benefits.
Comparison of the year ended September 30, 1996 to the year ended September 30,
1995
Revenue. Total revenues increased by $43.3 million or 21.0%, to $249.5
million in the year ended September 30, 1996 from $206.2 million in the year
ended September 30, 1995.
Turret installation and related service revenue increased by $16.1
million, or 10.6%, to $167.0 million in the year ended September 30, 1996 from
$150.9 million in the year ended September 30, 1995. This increase is primarily
attributable to the increased acceptance of Tradenet MX. Management expects that
sales of Tradenet MX will continue to generate the majority of turret sales and
installation revenue for the foreseeable future.
Revenue from I.T.S. sales and related service increased by $23.5 million,
or 42.5% to $78.8 million in the year ended September 30, 1996 from $55.3
million in the year ended September 30, 1995. These increases were attributable
to the continuing development and expansion of the I.T.S. business.
Revenue from network services of $3.7 million for the year ended
September 30, 1996 resulted from IXnet's implementation of its international
telecommunication network during 1996, achieving recurring monthly revenues at
an annualized rate exceeding $10 million at fiscal year end.
Cost of Revenue. Cost of revenue (as a percentage of revenue) decreased to
69.2% for the year ended September 30, 1996 from 69.4% for the year ended
September 30, 1995. This decrease is due to continued installation efficiencies
and manufacturing cost reductions.
Research and Development Expenses. Research and development expenses
increased by $1.4 million, or 13.4%, to $11.5 million in the year ended
September 30, 1996 from $10.1 million in the year ended September 30, 1995. The
increase was due to the development of new products and enhancements to existing
products. Also, research and development expenses for the year ended September
30, 1996 include expenses by IPC Bridge. Bridge Electronics, Inc., now known as
IPC Bridge, was acquired by the Company in April 1995. The Company believes that
development of new products and enhancements to existing products are essential
to its continuing success, and management intends to continue to devote
substantial resources to research and product development in the future.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $14.1 million, or 45.4%, to $45.1 million
in the year ended September 30, 1996 from $31.0 million in the year ended
September 30, 1995. These increases are attributable to an increase in headcount
and other expenses to support higher business levels, start up costs associated
with IXnet and the continued development and geographic expansion of the
Company's I.T.S. business.
Interest Income /(Expense). Interest income/(expense) decreased to $0.7
million in expense for the year ended September 30, 1996 from $0.2 million in
income for the year ended September 30, 1995. This decrease was primarily due to
the Company's' utilization of its line of credit during fiscal 1996. Total
interest expense for the fiscal year ended 1996 was $1.1 million compared to
$0.4 million in the fiscal year ended 1995.
24
<PAGE>
Provision for Income Taxes. The Company's effective tax rate for the years
ended September 30, 1996 and 1995 was 39.7% and 41.0 %, respectively.
Liquidity and Capital Resources
Net cash provided by operations was $24.1 million for the year ended
September 30, 1997 which resulted primarily from a reduction in working capital
and an increase in depreciation and amortization expense. The depreciation and
amortization expense increase is largely the result of increased capital
expenditures of which $10.8 million was financed with capital lease obligations
related principally to IXnet.
Net cash used in operations was $14.7 million for the year ended September
30, 1996 which resulted primarily from changes in accounts receivable and
customer advances and deferred revenue offset, in part, by changes in
depreciation and amortization and net income. Accounts receivable increased
during the period due to higher business volumes and the timing of customer
billings. The decrease in customer advances and deferred revenue was due to jobs
in progress at September 30, 1996 being at an earlier stage of completion when
compared to 1995.
Net cash provided by operations was $7.3 million for the year ended
September 30, 1995. Net cash provided by operations resulted from operating
profits and inventory decreases from production efficiencies, offset by
increases in trade receivables primarily from higher sales levels.
Cash used in investing activities was $14.5 million, $12.7 million and
$8.5 million for the years ended September 30, 1997, 1996 and 1995,
respectively. Cash used in investing activities resulted from acquisition
payments for IPC Bridge and expenditures for property, plant and equipment,
composed of IXnet network costs, machinery and equipment and leasehold
improvements. The use of cash in 1996 was offset in part by proceeds from the
sale of a short-term investment.
In April 1996, the Company signed a promissory note with a bank increasing
the Company's short-term credit facility from $15.0 million to $25.0 million. In
July 1997, the Company increased its short-term credit facility by $10.0 million
to $35.0 million by entering into a unsecured line of credit with an additional
bank. At September 30, 1997 and 1996, there was $3.2 million and $13.9 million,
respectively, of the short-term credit facility outstanding. The weighted
average interest rate on borrowings for the years ended September 30, 1997 and
1996 was 6.46% and 6.31%, respectively.
In April 1997, the Company purchased its sole manufacturing facility and
related land in Westbrook, Connecticut for approximately $2.5 million using the
Company's short-term credit facility. In July 1997, this purchase was refinanced
through a mortgage agreement with a bank for $2.2 million. The term of the
mortgage is for eight years with a twenty-year payout bearing interest at LIBOR
plus 125 basis points. The Company entered into an interest rate swap agreement
with its bank in order to fix the interest rate over the eight year term at an
effective interest rate of 7.85%.
In connection with the implementation of the IXnet Network, IXnet has
entered into capital lease agreements for certain network switching equipment
totaling approximately $9.7 million and $4.6 million during the years ended
September 30, 1997 and 1996, respectively.
The Company believes that cash flows from operations and existing credit
facilities would be sufficient to meet its working capital and capital
expenditure needs for the near future. The Company does not rule out seeking
additional debt or equity for other corporate purposes. (See "Subsequent Event")
25
<PAGE>
Subsequent Event
On December 18, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") by and between the Company and Arizona
Acquisition Corp., a Delaware corporation ("AAC") pursuant to which AAC will be
merged with and into the Company, with the Company being the surviving
corporation (the "Merger"). AAC is a subsidiary owned by Cable Systems Holding,
LLC, a Delaware limited liability company ("CSH LLC") and its subsidiaries,
including Cable Systems International, Inc., a Delaware corporation ("CSI"). CSH
LLC is a Delaware limited liability company, a majority of whose membership
interests are owned by Citicorp Venture Capital, Ltd., a New York corporation
("CVC"), officers and employees thereof, and members of management of CSH LLC
and CSI.
The Merger will be accounted for as a leveraged recapitalization. The
Merger Agreement is subject to regulatory review and approval by stockholders
representing a majority of outstanding shares at a meeting of stockholders to be
held during, or shortly after, the second fiscal quarter ending March 31, 1998.
In accordance therewith, stockholders may elect to retain shares in the
surviving company (subject to a maximum aggregate share retention of 46% of
outstanding shares as of an election date to be determined) or to receive $21.00
cash for each outstanding share. Not more than 90% of outstanding shares may
receive cash consideration and the maximum total cash consideration to
stockholders, assuming no change to shares outstanding as of the December 18,
1997, will be $202,516.
At the Merger, in accordance with certain commitments to the Company and
assuming the maximum stock for cash election, ACC will be capitalized with
$72,000 (the "Equity Financing Commitments"), to be funded by CVC (together with
affiliates) to purchase securities of CSH LLC and then invested by CSH LLC into
AAC. The Company will also raise $157,000 through the issuance of senior debt
securities and up to $75,000 through a revolving credit facility. Morgan Stanley
& Co. Incorporated and Morgan Stanley Senior Funding, Inc. have committed to CVC
and AAC to provide the senior debt securities and revolving credit facilities,
respectively, subject to certain terms and conditions (collectively, the "Debt
Financing Commitments"). The Debt Financing Commitments will be assigned to the
Company which will borrow these funds to consummate this transaction. The
proceeds of the Debt Financing Commitments and the Equity Financing Commitment
will be used in part to pay stockholders who elect to receive cash and will also
provide working capital for the Company after the Merger.
In connection with the execution of the Merger Agreement, AAC entered into
a Stockholders Agreement with Richard P. Kleinknecht, Peter J. Kleinknecht,
Russell G. Kleinknecht and certain family members and trusts controlled by said
persons, pursuant to which these individuals and trusts, subject to certain
conditions, have agreed to vote all of the 6,952,768 shares of Company common
stock owned or controlled by them in favor of the transaction and against
certain actions which can reasonably be expected to impede or adversely affect
the Merger. The 6,952,768 shares represent approximately 64.9% of the 10,715,119
shares of Company common stock outstanding on December 18, 1997.
Quarterly Fluctuations and the Effects of Inflation
The size and lead time of new orders can vary substantially and, since the
Company generally recognizes revenue from the sale and installation of turret
systems and Information Transport Systems on the completion of an installation,
the Company's quarterly results of operations may fluctuate significantly.
Management does not believe that inflation has a significant effect on the
Company's results.
26
<PAGE>
Foreign Exchange
The Company's shipments to foreign distributors are generally invoiced in
US Dollars. As a result, the Company believes its foreign exchange transaction
exposure caused by these shipments is insignificant. Sales to the Company's
customers in the United Kingdom are denominated in British Pounds Sterling. The
Company does not hedge its net asset exposure to fluctuations in the US
Dollar/British Pound Sterling exchange rate. Accordingly, the Company is subject
to risks associated with such fluctuation. However, adjustments to the Company's
financial position as a result of currency fluctuations have not been
significant.
- --------------------------------------------------------------------------------
This Report on Form 10-K contains certain forward-looking statements
concerning, among other things, the Company's plans and objectives for future
operations, planned products and services, potential expansion into new markets,
and anticipated customer demand for our existing and future products and
services. The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage the inclusion of prospective
information so long as those statements are accompanied by meaningful cautionary
statements identifying factors that could cause actual results to differ
materially. Among the factors that could cause actual results, performance or
achievement to differ materially from those described or implied in the
forward-looking statements are general economic conditions, competition,
potential technology changes, changes in or the lack of anticipated changes in
the regulatory environment in various countries, changes in customer purchasing
policies and practices, the ability to raise additional capital to finance
expansion, and the risks inherent in new product and service introductions and
the entry into new geographic markets.
- --------------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Financial Statements and Financial Statement Schedule.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND OTHER OFFICERS OF THE REGISTRANT
a. Identification of Directors:
The information required by this Item is incorporated herein by reference
to the information contained under the caption, "Election of Directors" in the
Proxy Statement which will be filed with the SEC within 120 days after the end
of the fiscal year covered by this Form 10-K (the "Proxy Statement"). Such
information is incorporated by reference pursuant to General Instruction G(3).
b. Identification of Executive Officers:
The information required by this Item is incorporated herein by reference
to the information contained under the captions "Election of Directors"
and "Management" in the Proxy Statement. Such information is incorporated
by reference, pursuant to General Instruction G(3).
27
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
to the information contained under the caption "Executive Compensation" in the
Proxy Statement. Such information is incorporated by reference, pursuant to
General Instruction G(3).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
to the information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement. Such information is
incorporated by reference, pursuant to General Instruction G(3).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein by reference
to the information contained under the caption "Certain Transactions and
Relationships" in the Proxy Statement. Such information is incorporated by
reference, pursuant to General Instruction G(3).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements Page(s)
Report of Independent Accountants 32
Consolidated Balance Sheets as of September 30, 33
1997 and 1996
Consolidated Statements of Operations for the 34
Years Ended September 30, 1997, 1996 and 1995
Consolidated Statements of Cash Flows 35
for the Years Ended September 30, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the 36
Years Ended September 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements 37-51
(a)(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts 52
Schedules not listed have been omitted because they are not applicable or
are not required or the information required to be set forth therein is
included in the Consolidated Financial Statements or notes thereto.
28
<PAGE>
(a)(3) Exhibits
Exhibit No. Exhibit Title
2.1*** Agreement and Plan of Merger, dated as of December 18, 1997,
by and between the Registrant and Arizona Acquisition Corp.
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.
3.1* Restated Certificate of Incorporation.
3.2* Amended and Restated Bylaws of Registrant.
4.1* Specimen Common Stock of the Registrant.
10.2* Employment Agreement, dated May 9, 1994, between the
Registrant and Richard P. Kleinknecht.
10.2.1** Letter Agreement, dated October 17, 1995, amending the
Employment Agreement between the Registrant and Richard P.
Kleinknecht.
10.2.2*** Amended and Restated Employment Agreement, dated as of
December 18, 1997, between the Registrant and Richard P.
Kleinknecht.
10.3* Employment Agreement, dated May 9, 1994, between the
Registrant and Peter J. Kleinknecht.
10.3.1** Letter Agreement, dated October 17, 1995, amending the
Employment Agreement between the Registrant and Peter J.
Kleinknecht.
10.3.2*** Amended and Restated Employment Agreement, dated as of
December 18, 1997, between the Registrant and Peter J.
Kleinknecht.
10.4* Employment Agreement, dated August 29, 1994, between the
Registrant and Jeffrey M. Gill.
10.4.1** Letter Agreement, dated October 17, 1995, amending the
Employment Agreement between the Registrant and Jeffrey M.
Gill.
10.8* Labor Pool Agreement between the Registrant and KEC-NY.
10.8.1*** Amended and Restated Labor Pool Agreement, dated as of
December 18, 1997, by and between the Registrant and KEC-NY.
10.9* Labor Pool Agreement between the Registrant and KEC-NJ.
10.9.1*** Amended and Restated Labor Pool Agreement, dated as of
December 18, 1997, by and between the Registrant and KEC-NJ.
10.10* Corporate Opportunity Agreement among the Registrant, KEC-NY
and KEC-NJ.
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.
29
<PAGE>
10.13* Registration Rights Agreement between the Registrant and
Richard P. Kleinknecht and Peter J. Kleinknecht.
10.14** Employment Agreement, dated as of October 17, 1995, between
the Registrant and Steven Terrell Clontz.
10.14.1 First Amendment to Employment Agreement, dated as of August 1,
1997, between the Registrant and Steven Terrell Clontz.
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.
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.
10.17*** Amended and Restated Employment Agreement, dated as of
December 18,1997, by and between International Exchange
Networks, Ltd. and David Walsh.
10.18*** Amended and Restated Employment Agreement, dated as of
December 18,1997, by and between International Exchange
Networks, Ltd. and Anthony Servidio.
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.
10.19.1 First Amendment to Employment Agreement between IPC Bridge,
Inc. and Gerald E. Starr, dated as of May 21, 1996.
10.19.2 Second Amendment to Employment Agreement between IPC Bridge,
Inc. and Gerald E. Starr, dated as of August 1, 1997.
10.20 Employment Agreement, dated as of October 1, 1997, by and
between the Registrant and Russell G. Kleinknecht.
10.20.1 Letter Loan Agreement, dated as of October 1, 1997, by and
between the Registrant and Russell G. Kleinknecht.
21.3 Subsidiaries of the Registrant.
23 Consent of Coopers and Lybrand, L.L.P.
27 Financial Data Schedule (for SEC use).
99*** Press Release issued on December 19, 1997.
- ----------
* Previously filed as an exhibit to the Registrant's Registration Statement on
Form S-1 (No. 33-78754) or Amendment No. 1, Amendment No. 2, or Amendment
No. 3 to the Registration Statement, and incorporated herein by reference.
** Previously filed as an exhibit to the Registrant's Report on Form 8-K, filed
November 30, 1995, and incorporated herein by reference.
*** Previously filed as an exhibit to the Registrant's Report on form 8-K, filed
December 24, 1997, and incorporated herein by reference.
30
<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 13, 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.
Signature Title Date
--------- ----- ----
/s/ RICHARD P. KLEINKNECHT Chairman January 13, 1998
- ------------------------------ ----------------
Richard P. Kleinknecht
/s/ PETER J. KLEINKNECHT Vice Chairman January 13, 1998
- ------------------------------ ----------------
Peter J. Kleinknecht
/s/ TERRY CLONTZ Chief Executive Officer, January 13, 1998
- ------------------------------ President and Director ----------------
Terry Clontz (Principal Executive Officer)
/s/ BRIAN L. REACH Chief Financial Officer January 13, 1998
- ------------------------------ (Principal Financial Officer) ----------------
Brian L. Reach (Principal Accounting Officer)
/s/ ROBERT J. MCINERNEY Director January 13, 1998
- ------------------------------ ----------------
Robert J. McInerney
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders
of IPC Information Systems, Inc.:
We have audited the consolidated financial statements and the financial
statement schedule of IPC Information Systems, Inc. listed in Item 14(a) of this
Form 10-K. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of IPC
Information Systems, Inc. as of September 30, 1997 and 1996 and the consolidated
results of their operations and their cash flows for the years ended September
30, 1997, 1996 and 1995 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
December 4, 1997, except for Note 13,
for which the date is December 19, 1997
32
<PAGE>
IPC INFORMATION SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30,
----------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents .................................................... $ 1,465 $ 2,306
Trade receivables, less allowance of $1,515 in 1997 and $1,521 in 1996 ....... 61,791 66,468
Inventories .................................................................. 33,557 36,367
Prepaid expenses and other current assets .................................... 13,426 8,204
-------- --------
Total current assets .............................................. 110,239 113,345
Property, plant and equipment, net ............................................. 38,314 21,867
Other assets, net .............................................................. 9,809 6,665
-------- --------
Total assets ...................................................... $158,362 $141,877
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Note payable ................................................................. $ 3,200 $ 13,900
Accounts payable ............................................................. 18,042 14,369
Accrued liabilities .......................................................... 21,395 13,883
Customer advances and deferred revenue ....................................... 17,682 19,446
Current portion of capital leases ............................................ 2,987 940
-------- --------
Total current liabilities ......................................... 63,306 62,538
Long-term debt, net of current portion ......................................... 2,133 --
Lease obligations, net of current portion ...................................... 10,336 3,429
Other liabilities .............................................................. 5,677 4,195
-------- --------
Total liabilities ................................................. 81,452 70,162
-------- --------
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 10,932,675 and 10,860,000 shares; outstanding 10,690,490 and
10,617,815 at September 30, 1997 and 1996, respectively ................... 109 109
Paid-in capital .............................................................. 47,922 46,831
Retained earnings ............................................................ 29,597 25,493
Less treasury stock, at cost, 242,185 shares .............................. (718) (718)
-------- --------
Total stockholders' equity ........................................ 76,910 71,715
-------- --------
Total liabilities and stockholders' equity ........................ $158,362 $141,877
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
33
<PAGE>
IPC INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands, except per share amount)
<TABLE>
<CAPTION>
For the year ended September 30,
----------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Product sales and installation ......................... $179,978 $178,513 $139,947
Service ................................................ 90,345 70,995 66,307
-------- -------- --------
270,323 249,508 206,254
Cost of revenue:
Product sales and installation ......................... 127,212 122,897 95,174
Service ................................................ 62,897 49,793 47,907
-------- -------- --------
190,109 172,690 143,081
-------- -------- --------
Gross profit ................................. 80,214 76,818 63,173
Research and development expenses ......................... 9,976 11,467 10,108
Selling, general and administrative expenses .............. 60,697 45,143 31,038
-------- -------- --------
Income from operations ....................... 9,541 20,208 22,027
Interest income/(expense), net ............................ (1,844) (678) 233
Other income/(expense), net ............................... 417 591 226
-------- -------- --------
Income before provision for income taxes ..... 8,114 20,121 22,486
Provision for income taxes ................................ 4,280 7,992 9,219
-------- -------- --------
Net income ................................... $ 3,834 $ 12,129 $ 13,267
======== ======== ========
Earnings per share ........................................ $ 0.36 $ 1.15 $ 1.26
-------- -------- --------
Weighted average shares outstanding ....................... 10,664 10,590 10,506
-------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
34
<PAGE>
IPC INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
For the year ended September 30,
--------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................................ $ 3,834 $ 12,129 $ 13,267
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization ...................................... 7,653 4,351 2,058
Other amortization ................................................. 1,090 2,037 1,782
Provision for doubtful accounts .................................... 338 240 861
Deferred income taxes .............................................. 83 674 (1,084)
Changes in operating assets and liabilities:
Trade receivables .................................................. 4,909 (16,385) (11,804)
Inventories ........................................................ 3,240 (1,678) 15,440
Prepaid expenses and other current assets .......................... (2,926) (1,208) (1,606)
Other assets ....................................................... (45) 130 (342)
Accounts payable ................................................... 1,330 (30) (717)
Accrued liabilities and other liabilities .......................... 6,628 (4,691) (630)
Customer advances and deferred revenue ............................. (1,988) (10,306) (9,882)
-------- -------- --------
Net cash provided by (used in) operating activities ...... 24,146 (14,737) 7,343
Cash flows from investing activities:
Capital expenditures ............................................... (12,974) (11,747) (6,499)
Purchase of short-term investment .................................. -- -- (2,007)
Proceeds from sale of short-term investment ........................ -- 2,007 --
Contingent acquisition payments to Bridge Electronics, Inc ......... (1,500) (2,997) --
-------- -------- --------
Net cash (used in) investing activities .................. (14,474) (12,737) (8,506)
Cash flows from financing activities:
Net repayment of note payable ...................................... (10,700) -- --
Net proceeds from note payable ..................................... -- 13,900 --
Principal payments on capital leases ............................... (1,822) (221) --
Proceeds from long-term debt ....................................... 2,182 -- --
Repayment of long-term debt ........................................ (4) -- (10,663)
Repayment of notes payable to affiliates ........................... -- -- (1,411)
Proceeds from the exercise of stock options ........................ 301 106 --
Proceeds from the sale of common stock ............................. -- -- 45,337
Purchase of treasury stock ......................................... -- -- (396)
S corporation distribution ......................................... -- -- (18,530)
-------- -------- --------
Net cash (used in) provided by financing activities ...... (10,043) 13,785 14,337
Effect of exchange rate changes on cash ................................... (470) 209 (4)
-------- -------- --------
Net (decrease) increase in cash ........................................... (841) (13,480) 13,170
Cash and cash equivalents, beginning of period ............................ 2,306 15,786 2,616
-------- -------- --------
Cash and cash equivalents, end of period .................................. $ 1,465 $ 2,306 $ 15,786
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for-
Income taxes ....................................................... $ 4,100 $ 6,863 $ 9,876
Interest ........................................................... $ 1,040 $ 756 $ 18
Non-cash investing and financing activities-
Capital lease obligations entered into during the year ............. $ 10,776 $ 4,369 --
Additional amount payable in connection with the aquisition of
Bridge Electronics, Inc ......................................... $ 3,500 -- --
Issuance of stock for the acquisition of Bridge Electronics, Inc ... -- $ 700 --
</TABLE>
See Notes to Consolidated Financial Statements.
35
<PAGE>
IPC INFORMATION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Paid- Total
Common in Retained Treasury stockholders'
stock capital earnings stock equity
------ -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Beginning balance, October 1, 1994 .............................. $ 75 $ 8,986 $ 12,383 ($322) $ 21,122
Translation adjustment ....................................... -- -- (34) -- (34)
Net income ................................................... -- -- 13,267 -- 13,267
Net proceeds from initial public offering .................... 32 42,219 -- -- 42,251
Issuance of common stock under employment contract ........... -- 824 -- -- 824
Purchase of treasury stock ................................... -- -- -- (396) (396)
S corporation distribution ................................... -- (6,176) (12,354) -- (18,530)
---- -------- -------- ----- --------
Consolidated balance, September 30, 1995 ........................ 107 45,853 13,262 (718) 58,504
Translation adjustment ....................................... -- -- 102 -- 102
Net income ................................................... -- -- 12,129 -- 12,129
Issuance of common stock in acquisition ...................... 1 699 -- -- 700
Issuance of common stock under stock purchase plan ........... 1 171 -- -- 172
Issuance of common stock under stock option plan ............. -- 108 -- -- 108
---- -------- -------- ----- --------
Consolidated balance, September 30, 1996 ........................ 109 46,831 25,493 (718) 71,715
Translation adjustment ....................................... -- -- 270 -- 270
Net income ................................................... -- -- 3,834 -- 3,834
Issuance of common stock under employment contracts .......... -- 478 -- -- 478
Issuance of common stock under stock purchase plan ........... -- 312 -- -- 312
Issuance of common stock under stock option plan ............. -- 301 -- -- 301
---- -------- -------- ----- --------
Consolidated balance, September 30, 1997 ........................ $109 $ 47,922 $ 29,597 ($718) $ 76,910
==== ======== ======== ===== ========
</TABLE>
See Notes to Consolidated Financial Statements.
36
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share amounts)
1. The Company:
IPC Information Systems, Inc. (the "Company") provides globally
integrated telecommunications products and services to the financial
services industry. The Company is in the business of designing,
manufacturing, installing and servicing trading room voice communication
workstations and installing and servicing comprehensive Local Area
Networks. In addition, International Exchange Networks Ltd. ("IXnet"), a
subsidiary of the Company, has implemented a facilities-based global
network designed for the specialized international telecommunications
requirements of the financial services industry.
2. Summary of Significant Accounting Policies:
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. Intercompany balances and transactions
have been eliminated.
Revenue Recognition
Revenue from product sales and installation is recognized upon
completion of the installation except for revenue from sales to
distributors, which is recognized upon shipment. Under contract
provisions, customers are progress-billed prior to the completion of the
installations. The revenue related to these advance payments is deferred
until the system installations are completed. Contracts for maintenance
are billed in advance, and are recorded as deferred revenue and
recognized ratably over the contractual periods. Revenue from network
services are recognized in the month the related service is provided.
Cash and Cash Equivalents
The Company places cash with several high quality financial institutions
and thereby limits the amount of credit exposure to any single financial
institution. Temporary cash investments with original maturities of
three months or less are considered cash equivalents and consist of high
grade municipal bond funds and time deposits. Temporary cash investments
are stated at cost, which approximates fair value. These investments are
not subject to significant market risk.
Trade Receivables
Trade accounts receivable potentially expose the Company to
concentrations of credit risk, as a large volume of business is
conducted with several major financial institutions, primarily companies
in the brokerage, banking and financial services industries. To help
reduce this risk, customers are progress-billed prior to the completion
of the contract.
Inventories
Inventories are stated at the lower of FIFO (first in, first out) cost
or market. Inventory costs include all direct manufacturing costs and
applied overhead.
37
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share amounts)
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated on a
straight-line basis over their estimated useful lives. Network switching
equipment is stated at cost. Various costs are capitalized during the
installation and expansion of the network. Depreciation is calculated
using the straight-line method over the estimated useful lives beginning
in the year the asset was placed into service. Amortization of network
switching equipment under capital leases is calculated using the
straight-line method over the lease term and is included in depreciation
and amortization expense.
Intangible Assets
Intangible assets, which are carried at cost less accumulated
amortization, consist primarily of acquired technology and goodwill.
Goodwill represents the excess of the cost over the fair value of the
identifiable tangible and intangible assets acquired in various
acquisitions. Costs allocated to technology and goodwill acquired in
acquisitions are amortized on a straight-line basis over the periods
benefited, principally 7 to 10 years. The Company measures the
recoverability of acquired technology and goodwill based on anticipated
gross operating income.
Research and Development
Research and development expenditures are charged to expense as
incurred.
Income Taxes
In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"), the Company recognizes
deferred income taxes for the tax consequences in future years of
differences between the tax basis of assets and liabilities and their
financial reporting amounts at each year end, based on enacted tax laws
and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amount that is "more likely than not" to be realized. Provision for
income taxes is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Financial Instrument
The Company is a party to a financial instrument with off-balance sheet
risk, that was entered into in the normal course of business to reduce
exposure to fluctuations in interest rates. The counterparty to this
instrument is a major financial institution. The fair value of the
interest rate swap agreement is determined by the cost to terminate the
swap agreement.
38
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share amounts)
Foreign Currency Translation Adjustment
The balance sheets and statements of operations of the Company's foreign
operations are measured using the local currency as the functional
currency. Assets and liabilities of these foreign operations are
translated at the year-end exchange rate and revenue and expense amounts
are translated at the average rate of exchange prevailing during the
year. Translation adjustments arising from the use of differing exchange
rates from period to period are included in the cumulative translation
adjustment account in stockholders' equity.
Earnings Per Share
Earnings per share are based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the period,
computed in accordance with the treasury stock method.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share", which simplifies existing computational guidelines, revises
disclosure requirements and increases the comparability of earnings per
share data on an international basis. The impact of adoption of SFAS No.
128 on the Company's financial statements is not expected to be
significant. This statement is effective for financial statements issued
for periods ending after December 15, 1997 and requires restatement of
prior-period earnings per share data.
Reclassifications
Certain reclassifications have been made to the 1996 financial
statements in order to conform to the current year's presentation.
3. Acquisitions:
During June 1995, the Company acquired a controlling interest in IXnet.
The Company acquired 80% of IXnet by providing $5,500 in working
capital. The acquisition was accounted for using the purchase method of
accounting. Included in other assets is $860 and $1,041 at September 30,
1997 and 1996, respectively, representing the excess of the cost over
the fair value of the identifiable tangible assets acquired, allocated
to acquired technology.
During April 1995, the Company acquired the assets of Bridge
Electronics, Inc. ("IPC Bridge"). The terms of the acquisition included
a payment in January 1996 of $2,025 in cash and 76,923 shares of the
Company's common stock, valued at $700 and amounts contingent on meeting
certain performance levels up to a maximum of $6,000. During fiscal 1996
and 1997, the maximum contingent performance levels for IPC Bridge were
achieved. Amounts paid pursuant to the contingent performance levels
under this agreement were $1,500 and $1,000, during fiscal 1997 and
1996, respectively. At September 30, 1997, an additional $3,500 is
included in liabilities. The acquisition was accounted for using the
purchase method of accounting. Included in other assets is $7,621 and
$3,202 at September 30, 1997 and 1996, respectively, representing the
excess of the cost over the fair value of the identifiable tangible and
intangible assets acquired.
39
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share amounts)
4. Inventories:
September 30,
------------------
1997 1996
------- -------
Components and manufacturing work in process $10,917 $13,913
Inventory on customer sites awaiting installation 14,230 12,503
Parts and maintenance supplies 8,410 9,951
------- -------
$33,557 $36,367
======= =======
5. Property, Plant and Equipment:
September 30,
------------------
1997 1996
------- -------
Building $ 2,442 --
Machinery and Equipment 24,514 $19,479
Furniture and Fixtures 2,437 2,006
Leasehold Improvements 8,470 5,424
Network Switching Equipment 2,843 1,600
Network Switching Equipment under capital leases 14,303 4,619
------- -------
Total depreciable property, plant and equipment 55,009 33,128
Less, accumulated depreciation and amortization (20,941) (13,376)
------- -------
34,068 19,752
Land 558 329
Construction in Progress 3,688 1,786
------- -------
$38,314 $21,867
======= =======
6. Note Payable:
In April 1996, the Company signed a promissory note with a bank
increasing the Company's short-term credit facility from $15,000 to
$25,000. In July 1997, the Company further increased its short-term
credit facility to $35,000 by entering into an unsecured line of credit
with an additional bank for $10,000. At September 30, 1997 and 1996,
there was $3,200 and $13,900 of the short-term credit facility
outstanding, respectively. The weighted average interest rate on these
borrowings was 6.46% and 6.31%, respectively.
7. Long-Term Debt and Financial Instrument:
In April 1997, the Company purchased its sole manufacturing facility and
related land in Westbrook, Connecticut for $2,540 using the Company's
short-term credit facility. In July 1997, $2,182 was refinanced through
a mortgage agreement with a bank. The term of the mortgage is for eight
years with a twenty-year payout bearing interest at LIBOR plus 125 basis
points. The mortgage is collateralized by the building and the land.
40
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share amounts)
Future minimum principal payments at September 30, 1997 are as follows:
1998 $ 45
1999 49
2000 52
2001 57
2002 61
Thereafter 1,914
------
$2,178
Interest Rate Swap Agreement
In connection with the mortgage agreement, the Company entered into an
interest rate swap agreement with its bank in order to fix the interest
rate over the eight-year term at an effective interest rate of 7.85%.
The swap contract expires on July 31, 2005. The interest rate swap is an
exchange of floating-rate payments for fixed-rate payments.
Floating-rates received are based on rates tied to prevailing short-term
interest rates. If the Company terminates the swap agreement, a gain or
loss is recorded as an adjustment to the basis of the underlying asset
and liability. At September 30, 1997, the unrealized fair value of the
interest rate swap was insignificant.
The following table indicates the type of swap in use as of September
30, 1997. Average variable rates are those in effect at the reporting
date and may change significantly over the life of the contract.
There were no interest rate swap agreements at September 30, 1996.
Variable to fixed swaps: 1997
----
Notional Amount $2,182
Average pay (fixed) rate 7.85%
Average receive (variable) rate 6.89%
8. Deferred Compensation and Other Benefit Plans:
Deferred Compensation
The Company has deferred compensation agreements with certain past key
officers and employees. Amounts to be paid range from $20-$75 per
individual per annum and are non-interest-bearing, with the payments
commencing on specified dates. Payments began in 1992 and continue
through 2019. The gross and discounted present value (using an interest
rate of 7.5%), net of cash payments, of the amounts to be paid under
these agreements, aggregated $7,114 and $3,828 at September 30, 1997 and
$7,500 and $3,732 at September 30, 1996, respectively.
41
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share amounts)
Approximate payments for subsequent annual periods related to the
deferred compensation agreements, at September 30, 1997, are as follows:
1998 $ 225
1999 280
2000 320
2001 390
2002 471
Thereafter 5,428
------
$7,114
======
Pension Plans
In April 1995, IPC terminated its participation in a defined
contribution plan sponsored by Kleinknecht Electric Company ("KEC"), an
affiliated company, and adopted its own plan for all eligible US
employees. According to plan provisions, IPC contributions are
discretionary and are subject to approval by the Board of Directors.
Eligible employees may contribute up to 15% of their annual
compensation. IPC contributed $404, $556 and $520 to the plan for the
years ended September 30, 1997, 1996 and 1995, respectively.
IPC-UK has a defined contribution plan covering all UK employees.
Employee contributions are limited by statute, generally not to exceed
17.5% of base salary. IPC-UK contributions, net of forfeitures, for the
years ended September 30, 1997, 1996 and 1995 were $172, $229, and $92,
respectively.
The Company paid to KEC and Kleinknecht Electric Company - New Jersey
("KEC-NJ"), also an affiliated company, in accordance with labor pooling
agreements, approximately $7,550, $7,750, and $5,074 for the years ended
September 30, 1997, 1996 and 1995, respectively, representing
pass-through contributions to various union sponsored pension plans.
42
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share amounts)
Stock Option and Incentive Plan
A summary of the Company's stock option plan as of September 30, 1997,
1996 and 1995 and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Option Exercise Option Exercise Option Exercise
Shares Price Shares Price Shares Price
--------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding -
Opening balance 826,201 $16.09 247,500 $14.90 -- --
Granted 395,500 $14.83 573,000 $14.23 263,500 $14.91
Granted -- -- 25,000 $25.00 -- --
Granted -- -- 25,000 $40.00 -- --
Exercised (19,865) $14.00 (8,964) $14.77 -- --
Forfeited (178,236) $16.36 (35,335) $15.19 (16,000) $15.00
--------- ------- --------
Options outstanding -
September 30 1,023,600 $15.62 826,201 $16.09 247,500 $14.90
========= ======= ========
Options Exercisable at
September 30 272,495 $14.88 66,535 $14.85 -- --
========= =======
Weighted average fair
value of options granted
during the year $ 6.76 $ 6.58 --
</TABLE>
The following table summarizes information about stock options outstanding at
September 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Range of Shares Remaining Exercise Shares Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
---------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$13.31 to $20.50 973,600 8.4 years $14.75 272,495 $14.88
$25.00 25,000 8.1 years $25.00 -- $25.00
$40.00 25,000 8.1 years $40.00 -- $40.00
--------- -------
1,023,600 272,495
========= =======
</TABLE>
Employees generally vest in stock options over a period of three to five
years. As of September 30, 1997, the Company had reserved 1,362,073
shares of common stock for the exercise of options.
43
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share amounts)
The option plan also provides for the issuance of stock appreciation
rights and restricted stock awards under which shares of common stock
may be issued to eligible employees. No such awards have been made.
Employee Stock Purchase Plan
In 1994, the Company adopted an employee stock purchase plan and
reserved 526,813 shares of common stock for issuance thereunder. Under
the stock purchase plan, the Company's employees may purchase shares of
common stock at a price per share that is the lesser of the common stock
fair market value on the first business day of the purchase period or
90% of the common stock fair market value on the last day of the
purchase period, but in no event less than 85% of the common stock fair
market value on either the option grant date or option exercise date.
Through September 30, 1997, 31,326 shares have been issued and 495,487
shares are reserved for future issuance under this plan.
Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock-Issued to Employees" and related interpretations
in accounting for its stock based compensation plans. Accordingly, no
compensation cost has been recognized for the stock option and employee
stock purchase plans. The Company has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation".
Had compensation cost for the Company's stock option plan and employee
stock purchase plan been determined based on the fair value at the grant
date for awards in fiscal 1997 and 1996 consistent with the provisions
of SFAS No. 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below.
September 30,
1997 1996
Net income - as reported $ 3,834 $12,129
Net income - pro forma $ 2,934 $11,632
Earnings per share - as reported $ 0.36 $ 1.15
Earnings per share - pro forma $ 0.28 $ 1.10
The fair value of each option grant is estimated on the date of the
grant using the "Black-Sholes option-pricing model" with the following
weighted average assumptions used for grants for the years ended
September 30, 1997 and 1996; zero dividend yield; expected volatility of
50%; a weighted average risk-free interest rate of 6.03% in fiscal 1997
and 5.95% in fiscal 1996; and expected lives of 4 years.
44
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share amounts)
9. Commitments and Contingencies:
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 $1,300,
to fulfill obligations under the Tax Agreement.
Operating Leases
The Company has entered into various operating leases for real estate,
equipment and automobiles.
Rental expenses under operating leases (excluding rentals on vacant
facilities) were $6,431, $6,513 and $5,587 for the years ended September
30, 1997, 1996 and 1995, respectively. Future minimum annual rental
payments required under noncancellable operating leases (including
rentals on vacant facilities) at September 30, 1997 are as follows:
1998 $ 5,261
1999 3,867
2000 3,249
2001 2,880
2002 2,446
Thereafter 2,884
-------
$20,587
=======
45
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share amounts)
The Company has accrued for the minimum annual rental and estimated
building operating costs under noncancellable operating leases for
vacated facilities. These leases extend through May 1998. The liability
was approximately $500 and $1,200 at September 30, 1997 and 1996,
respectively.
Capital Leases
IXnet has entered into capital lease agreements for certain network
switching equipment. Additionally, the Company has entered into lease
agreements for certain computer equipment and software. Future minimum
lease payments required under noncancellable capital leases at September
30, 1997 are as follows:
1998 $ 4,186
1999 4,062
2000 3,854
2001 3,116
2002 1,106
-------
16,324
Less, amount representing interest 3,001
-------
Present value of net minimum lease payments under capital leases $13,323
=======
Employment Agreements
The Company has executed employment contracts for future services, that
vary in length up to 5 years, with certain senior executives for which
the Company has a minimum commitment aggregating approximately $4,300 at
September 30, 1997.
10. Related Party Transactions:
Services Provided
Affiliated companies performed various services and provided certain
equipment to the Company. Services and/or equipment provided by
affiliates are billed to the Company and settled through a periodic cash
transfer to the respective affiliate.
Effective October 1, 1993, the Company formalized in writing existing
arrangements with KEC and KEC-NJ with respect to a pool of field
technicians utilized by all three companies. KEC and KEC-NJ are
responsible for administering the payroll and related services for these
technical and clerical workers and the Company reimburses all
compensation and benefits paid by KEC and KEC-NJ attributable to
services performed for the Company plus a fee equal to 2.5% of such
costs. Effective for the fiscal year 1997, the parties amended these
agreements to provide a fixed fee payment of $50 per month in lieu of
the fee payment of 2.5%. Approximately $52,653, $52,592 and $38,666 of
technical labor, and $2,221, $2,327 and $2,083 of administrative labor
was provided through agreements with KEC and KEC-NJ during the years
ended September 30, 1997, 1996 and 1995, respectively.
For the years ended September 30, 1997, 1996 and 1995, KEC and KEC-NJ
billed the Company payroll administrative services of $600, $1,374 and
$1,024, respectively. Included in prepaid
46
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share amounts)
expenses and other current assets is a net related party receivable of
$2,092 and $920 as of September 30, 1997 and 1996, respectively.
A portion of the Company's New York branch operation was co-located with
KEC in a building owned by the Principal Stockholders. For each of the
years ended September 30, 1997, 1996 and 1995, the Company was charged
approximately $189, $430 and $430 for rent expense. For the years ended
September 30, 1996 and 1995, the Company rented on a month-to-month
basis, two other facilities from entities controlled by the Principal
Stockholders for which the Company was charged approximately $30 and
$55, respectively.
Equipment Rentals
There were no equipment rentals from an affiliated company during fiscal
year ended September 30, 1997. Equipment rentals were $898 and $975 for
the years ended September 30, 1996 and 1995, respectively.
Subcontracts and Other
The Company and other companies controlled by the Principal Stockholders
periodically subcontract certain work to one another. Amounts charged to
companies controlled by the Principal Stockholders under subcontracts
with IPC for the years ended September 30, 1997, 1996 and 1995 were
approximately $66, $993 and $2,220, respectively, while amounts charged
to IPC under subcontracts with companies controlled by the Principal
Stockholders were approximately $265, $703 and $587, respectively.
In addition to the foregoing, the Company, KEC and KEC-NJ entered into a
twenty-year agreement dated May 9, 1994, with respect to business
opportunities regarding cabling of communication infrastructures. KEC
and KEC-NJ have agreed not to bid for or accept cabling jobs in
competition with the Company, if it intends to bid or accept such work.
In addition, because the Company is not a licensed electrical
contractor, it has agreed to refrain from bidding for or accepting
without the consent of KEC or KEC-NJ, as the case may be, all
opportunities that combine both electrical and cabling work. The Company
has also agreed to continue to refer to KEC and KEC-NJ certain
electrical contracting bid opportunities identified from time to time.
Pursuant to such agreement, all estimates for cabling work shall be
generated by the Company on behalf of KEC, and KEC will pay the Company
a nominal amount for preparing such estimates.
The Company and companies controlled by the Principal Stockholders also
charge each other certain miscellaneous expenses, including, but not
limited to, office equipment rentals and certain other administrative
expenses.
11. Income Taxes:
Pretax earnings consisted of the following:
For the year ended September 30,
--------------------------------
1997 1996 1995
------- ------- -------
United States $ 1,689 $10,020 $17,158
Foreign 6,425 10,101 5,328
------- ------- -------
Total pretax earnings $ 8,114 $20,121 $22,486
======= ======= =======
47
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share amounts)
The provision (benefit) for income taxes consisted of the following:
For the year ended September 30,
--------------------------------
1997 1996 1995
------- ------- -------
Current:
Federal $ (182) $ 1,844 $ 5,887
State and local 2,037 1,967 2,558
Foreign 2,342 3,507 1,858
------- -------- --------
4,197 7,318 10,303
------- -------- --------
Deferred:
Federal 323 513 (673)
State and local 9 207 (359)
Foreign (249) (46) (52)
------- -------- --------
83 674 (1,084)
------- -------- --------
Income tax provision $ 4,280 $ 7,992 $ 9,219
======= ======== ========
The components of net deferred tax assets are as follows:
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------------------------
1997 1996
---------------------------------- ------------------------------
US Foreign Total US Foreign Total
------- ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Excess of book over tax
depreciation $ 819 $ 213 $ 1,032 $ 917 $ 59 $ 976
Amortization of intangibles 247 -- 247 66 -- 66
Inventory and receivables 2,035 432 2,467 2,172 221 2,393
Accrued expenses 1,459 152 1,611 1,228 5 1,233
------- ------- ------- ------ ------ ------
Total deferred tax assets 4,560 797 5,357 4,383 285 4,668
------- ------- ------- ------ ------ ------
Deferred tax liabilities:
Excess of tax over book
depreciation (508) (264) (772) -- -- --
------- ------- ------- ------ ------ ------
Net deferred tax assets $ 4,052 $ 533 $ 4,585 $4,383 $ 285 $4,668
======= ======= ======= ====== ====== ======
</TABLE>
These net deferred tax assets arise from temporary differences between
financial versus tax reporting purposes related to depreciation, the
amortization of intangible assets, the allowance for doubtful accounts,
inventory valuation and the Company's various accruals. No valuation
allowance was required at September 30, 1997 and 1996.
48
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share amounts)
A reconciliation between the statutory US federal income tax rate and
the Company's effective tax rate, excluding minority interest, is as
follows:
For the year ended September 30,
--------------------------------
1997 1996
---- ----
Statutory US federal tax rate 35.0% 35.0%
State and local income taxes,
net of federal benefit 16.4 6.8
Other, net 1.4 (2.1)
---- ----
52.8% 39.7%
==== ====
12. Operations by Geographic Areas:
Information about the Company's operations by geographic area is as
follows:
For the year ended September 30,
----------------------------------------
1997 1996 1995
-------- -------- --------
Revenues:
United States $219,274 $202,926 $186,355
United Kingdom 51,049 46,582 19,899
-------- -------- --------
$270,323 $249,508 $206,254
======== ======== ========
Operating Profits:
United States $ 15,243 $ 24,485 $ 30,714
United Kingdom 6,537 9,745 4,192
Corporate (12,239) (14,022) (12,879)
-------- -------- --------
$ 9,541 $ 20,208 $ 22,027
======== ======== ========
Identifiable Assets:
United States $ 97,438 $112,749 $ 98,228
United Kingdom 38,789 17,547 25,417
Corporate 22,135 11,581 4,391
-------- -------- --------
$158,362 $141,877 $128,036
======== ======== ========
Included in the United States revenues are export sales to unaffiliated
customers of $13,264, $16,126 and $17,063 for the years ended September
30, 1997, 1996 and 1995, respectively. Transfers from the United States
to the United Kingdom, eliminated in consolidation, were $15,156,
$12,681 and $7,999 for the years ended September 30, 1997, 1996 and
1995, respectively.
For the year ended September 30, 1997, no single customer accounted for
10% or more of total revenues. For the year ended September 30, 1996,
approximately 13% of total revenues were from one customer. Corporate
assets are principally prepaids, intangibles and other assets.
49
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share amounts)
13. Subsequent Event:
On December 18, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") by and between the Company and Arizona
Acquisition Corp., a Delaware corporation ("AAC") pursuant to which AAC
will be merged with and into the Company, with the Company being the
surviving corporation (the "Merger"). AAC is a subsidiary owned by Cable
Systems Holding, LLC, a Delaware limited liability company ("CSH LLC")
and its subsidiaries, including Cable Systems International, Inc., a
Delaware corporation ("CSI"). CSH LLC is a Delaware limited liability
company, a majority of whose membership interests are owned by Citicorp
Venture Capital, Ltd., a New York corporation ("CVC"), officers and
employees thereof, and members of management of CSH LLC and CSI.
The Merger will be accounted for as a leveraged recapitalization. The
Merger Agreement is subject to regulatory review and approval by
stockholders representing a majority of outstanding shares at a meeting
of stockholders to be held during, or shortly after, the second fiscal
quarter ending March 31, 1998. In accordance therewith, stockholders may
elect to retain shares in the surviving company (subject to a maximum
aggregate share retention of 46% of outstanding shares as of an election
date to be determined) or to receive $21.00 cash for each outstanding
share. Not more than 90% of outstanding shares may receive cash
consideration and the maximum total cash consideration to stockholders,
assuming no change to shares outstanding as of the December 18, 1997,
will be $202,516.
At the Merger, in accordance with certain commitments to the Company and
assuming the maximum stock for cash election, ACC will be capitalized
with $72,000 (the "Equity Financing Commitments"), to be funded by CVC
(together with affiliates) to purchase securities of CSH LLC and then
invested by CSH LLC into AAC. The Company will also raise $157,000
through the issuance of senior debt securities and up to $75,000 through
a revolving credit facility. Morgan Stanley & Co. Incorporated and
Morgan Stanley Senior Funding, Inc. have committed to CVC and AAC to
provide the senior debt securities and revolving credit facilities,
respectively, subject to certain terms and conditions (collectively, the
"Debt Financing Commitments"). The Debt Financing Commitments will be
assigned to the Company which will borrow these funds to consummate this
transaction. The proceeds of the Debt Financing Commitments and the
Equity Financing Commitment will be used in part to pay stockholders who
elect to receive cash and will also provide working capital for the
Company after the Merger.
In connection with the execution of the Merger Agreement, AAC entered
into a Stockholders Agreement with Richard P. Kleinknecht, Peter J.
Kleinknecht, Russell G. Kleinknecht and certain family members and
trusts controlled by said persons, pursuant to which these individuals
and trusts, subject to certain conditions, have agreed to vote all of
the 6,952,768 shares of Company common stock owned or controlled by them
in favor of the transaction and against certain actions which can
reasonably be expected to impede or adversely affect the Merger. The
6,952,768 shares represent approximately 64.9% of the 10,715,119 shares
of Company common stock outstanding on December 18, 1997.
50
<PAGE>
IPC INFORMATION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollar amounts in thousands, except per share amounts)
14.
Quarterly Financial Information (unaudited):
The following tables set forth unaudited quarterly financial information
for the years ended September 30, 1997 and 1996:
Quarter Ended
-------------------------------------------------
December 31 March 31 June 30 September 30
----------- -------- ------- ------------
Year Ended
September 30, 1997:
Net Revenues $59,411 $66,182 $68,882 $75,848
Gross Profit 17,574 20,814 20,725 21,101
Net Earnings 566 1,241 1,187 840
Earnings per Share $ 0.05 $ 0.12 $ 0.11 $ 0.08
Year Ended
September 30, 1996:
Net Revenues $59,750 $62,198 $69,424 $58,136
Gross Profit 18,537 19,279 20,740 18,262
Net earnings 3,482 3,641 3,701 1,305
Earnings per Share $ 0.33 $ 0.34 $ 0.35 $ 0.12
The quarterly earnings per share information is computed separately for
each period. Therefore, the sum of such quarterly per share amounts may
differ from the total for the year.
51
<PAGE>
Schedule II
IPC INFORMATION SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
----------------------------------------------------------------------------------------------------------------------------
Balance
at Additions
--------------------------------
Beginning Charged to Costs Charged to Balance at End
Description of Period and Expenses Other Accounts Deductions of Period
----------- --------- ---------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
For the Year Ended September 30, 1995:
Provision for Doubtful Accounts .......... $1,331 $ 861 -- $ 620(1) $1,572
====== ====== ======= ====== ======
Provision for Inventory
Obsolescence .......................... $5,560 $3,052 -- $1,123(2) $7,489
====== ====== ======= ====== ======
For the Year Ended September 30, 1996:
Provision for Doubtful Accounts .......... $1,572 $ 240 -- $ 291(1) $1,521
====== ====== ======= ====== ======
Provision for Inventory
Obsolescence .......................... $7,489 $1,143 -- $2,267(2) $6,365
====== ====== ======= ====== ======
For the Year Ended September 30, 1997:
Provision for Doubtful Accounts .......... $1,521 $ 338 -- $ 344(1) $1,515
====== ====== ======= ====== ======
Provision for Inventory
Obsolescence .......................... $6,365 $2,106 -- $1,965(2) $6,506
====== ====== ======= ====== ======
</TABLE>
(1) Doubtful Accounts Written Off, Net of Cash Recovered
(2) Inventory Written Off
52
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
EFFECTIVE AS OF OCTOBER 17, 1995 ("AGREEMENT")
BETWEEN
IPC INFORMATION SYSTEMS, INC. ("IPC" or the "COMPANY")
AND STEVEN TERRELL CLONTZ
1. Term of Agreement. In accordance with a resolution of the Board of
Directors of the Company unanimously approved at a meeting held August 8, 1996,
Section 2 of the Agreement is modified and amended by deleting therefrom
"through December 2, 1997" and substituting therefor "through December 2, 1998."
2. Compensation. In accordance with a resolution of the Compensation
Committee of the Board of Directors of the Company unanimously approved at a
meeting held November 26, 1996, Section 3.1 of the Agreement is hereby further
modified and amended, effective as of December 3, 1996, by deleting therefrom
"Three Hundred Thousand ($300,000.00)" and substituting therefor "Three Hundred
Thirty Thousand ($330,000.00)."
3. Termination at Will. Section 9.4 of the Agreement is hereby further
modified and amended by the insertion of the following after the second sentence
thereof:
"Notwithstanding any other provision of this Agreement, in the event that Mr.
Clontz's employment with the Company is terminated (a) during the Term of this
Agreement and at or following a Change in Control (as defined in Section 22 (b)
of this Agreement) of the Company occurring during the period commencing August
1, 1997 and ending July 31, 1998 and (b) either (i) by resignation or discharge
other than for cause, following the failure of the Company to extend the Term to
December 2, 1999 or (ii) other than for death, disability or Due Cause (in which
event, the provisions of Sections 9.1, 9.2 or 9.3, respectively, shall apply),
the Company shall pay to Mr. Clontz, in lieu of payments with respect to
compensation otherwise due hereunder, severance pay in an amount equal to 240%
of Mr. Clontz's Base Salary. Such amount shall be payable in eighteen (18) equal
monthly installments, without interest, on the last day of each calendar month
in the period of eighteen (18) consecutive calendar months that begins on or
immediately following the date of termination. The Company and Mr. Clontz hereby
stipulate that the damages which may be incurred by Mr. Clontz as a consequence
of any such termination of employment are not capable of accurate measurement as
of the date first above written and that the benefits and payments provided for
in this Agreement constitute a reasonable estimate under the circumstances of
all damages sustained as a consequence of any such termination of employment.
The Company and Mr. Clontz agree that the benefits provided hereunder constitute
reasonable damages under the circumstances and shall be
<PAGE>
payable without any requirement of proof of actual damage and without regard to
Mr. Clontz's efforts, if any, to mitigate damages. The Company and Mr. Clontz
further agree that the Company may condition the payments and benefits (if any)
due under this section on (x) the receipt of Mr. Clontz's resignation from any
and all positions which he holds as an officer, director or committee member
with respect to the Company or any subsidiary or affiliate of it and (y) Mr.
Clontz's execution and delivery within twenty-one (21) days after any such
termination of employment, and the non-retraction during any statutory waiting
periods, of a release in favor of the Company, in the form of the attached
Appendix A."
4. New Section. The Agreement is hereby further modified by the addition of a
new Section 22, as follows:
"22. Change in Control Transaction.
(a) So long as Mr. Clontz is not otherwise in breach of this Agreement,
upon the occurrence during the period commencing August 1, 1997 and ending July
31, 1998 of a Change of Control (as defined in Section 22 (b) of this Agreement)
of the Company, Mr. Clontz shall become eligible for and the Company will pay to
Mr. Clontz an incentive payment (the "Incentive Payment") calculated by
multiplying the sum of Two Hundred Eighty Seven Thousand Dollars ($287,000.00)
times an adjustment factor, as specified herein.
The adjustment factor shall be based on the price realized by the Company and/or
the stockholders by virtue of the Change of Control, where "X" equals Eighteen
($18.00) dollars per share.
- --------------------------------------------------------------------------------
Change of Control Price Adjustment Factor
- --------------------------------------------------------------------------------
Transaction - Less than or equal to "X" 0.70
- --------------------------------------------------------------------------------
Transaction - 116.67% "X" 1.25
- --------------------------------------------------------------------------------
Transaction - 133.33% "X" 1.75
- --------------------------------------------------------------------------------
Transaction - 150.00% "X" 2.50
- --------------------------------------------------------------------------------
For amounts which fall between the percentages specified in the foregoing table,
the Company shall use a straight-line interpolation to determine the adjustment
factor hereunder.
The amount, if any, computed under this Paragraph 13 (a) shall be payable in
three (3) annual installments, the first occurring on the fifteenth (15th) day
after the date of the closing of the transaction and the subsequent payments
occurring on the first two anniversaries of the closing date; provided, however,
that if Mr. Clontz's employment terminates due to death, disability, expiration
of this Agreement or Mr. Clontz's discharge without cause prior to the second
anniversary of such closing date, any
<PAGE>
remaining installments shall be due and payable upon termination of employment.
If on any such payment date, any portion of the Loan remains outstanding, then
in addition to any payments required under Section 8.3 hereof, one-third of the
outstanding principal plus all accrued interest (or, if less, the entire amount
of outstanding principal and all accrued interest) shall be due and payable to
the Company on the payment date for each installment.
(b) For all purposes of this Agreement a "Change in Control" of IPC
shall be deemed to have occurred upon the happening of any of the following
events:
(i) the closing of a transaction that would result in the
reorganization, merger or consolidation of IPC, respectively, with one or more
other persons in which IPC is not the surviving entity;
(ii) the acquisition of substantially all of the assets of IPC or
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 35% or more of the outstanding securities of IPC entitled to
vote generally in the election of directors by any person or by any persons
acting in concert;
(iii) a complete liquidation or dissolution of IPC; or
(iv) the occurrence of any event in connection with an actual or
threatened election contest or other actual or threatened solicitation of
proxies or consents (all within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) if, immediately following such event, at
least fifty percent (50% of the members of the board of directors of IPC are not
individuals who were members of the board of directors of IPC on the date of
this Agreement.
In no event, however, shall a Change of Control of IPC be deemed to have
occurred as a result of any acquisition of securities or assets of IPC or any of
its subsidiaries by IPC or any subsidiary of IPC. For purposes of this section,
the term "person" shall have the meaning assigned to it under sections 13(d)(3)
or 14(d)(2) of the Exchange Act."
5. New Section. The Agreement is hereby further modified by the addition of a
new Section 23, as follows:
"23. Payment in Excess of Basic Amount.
If, in connection with a change in ownership of effective control or a change in
ownership of a substantial portion of the assets of the Company (within the
meaning of section 280G of the Internal Revenue Code of 1986 (the "Code")), Mr.
Clontz would, in the absence of this Section 23, receive payments and benefits
in the nature of compensation (whether pursuant to this Agreement or otherwise)
(the "Total Payments") that constitute "excess parachute payments" (within the
meaning of section 280G of the Code), then:
(a) the Company shall pay to Mr. Clontz the maximum amount of the Total
Payments that may be paid to him without giving rise to an excise tax under
section 280G of the Code (the "Basic Amount"); and
<PAGE>
(b) the Company shall pay the amount by which the Total Payments exceed
the Basic Amount (the "Excess Amount"), to whichever of the following parties it
shall select: (i) Mr. Clontz; and (ii) equally among (A) the Children's Cancer
Fund, (B) the Valerie Fund, Monmouth Medical Center and (C) Share, Inc.,
Atlanta; provided, however, that the Company shall indemnify Mr. Clontz on a net
after-tax basis against liability for any taxes (whether state, federal, local
or foreign, and whether denominated as income, employment, excise or other
taxes) that may be assessed with respect to any payment made pursuant to Section
23 (b)(ii), it being intended that this indemnity place Mr. Clontz in the same
net after-tax financial position that he would have been in if he had not been
liable for any taxes of any nature with respect to such payment. The Company and
Mr. Clontz agree that the Children's Cancer Fund, the Valerie Fund, Monmouth
Medical Center and Share, Inc., Atlanta shall be deemed third-party
beneficiaries of this Agreement for purposes of enforcing any rights that it may
have to receive the Excess Amount.
Any determination of the Basic Amount and any determination of any tax
indemnification payment shall be made by independent United States tax counsel
selected by the Company or the independent auditors regularly retained to audit
the Company's books and records in the United States, and such determinations
shall be conclusive in the absence of manifest error or a determination to the
contrary in a judicial, administrative or arbitral proceeding. If the Total
Payments shall consist of more than one component, Mr. Clontz, in his sole and
absolute discretion, shall select which components shall be applied to the
payment of the Basic Amount and which shall be applied to the payment of the
Excess Amount.
All other terms and conditions of the Agreement shall remain in full force and
effect.
Accepted and Agreed, as of this 1st day of August, 1997:
IPC INFORMATION SYSTEMS, INC. STEVEN TERRELL CLONTZ
/s/ Richard P. Kleinknecht /s/ Steven T. Clontz
- ----------------------------- -----------------------------
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of April 20, 1995, between IPC Bridge,
Inc., a New York corporation (the "Employer"), and Gerald E. Starr (the
"Employee").
WHEREAS:
(a) Employer is the successor by merger to Bridge Electronics
Inc.,("Bridge"), Employee's prior employer; and
(b) Employer desires to retain the services of Employee on
the terms and conditions hereinafter set forth; and
(c) Employee desires to furnish his services on such terms
and conditions;
NOW, THEREFORE, in consideration of the premises and the respective
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, agree as follows:
1. Employment and Duties. Employee is hereby employed by Employer
with such duties as previously were performed by him for Bridge. Employee will
have the title of President. In the performance of his duties, Employee shall
report to the Board of Directors.
During his employment by Employer, Employee will work
exclusively for Employer, will use his best efforts, skill, expertise, knowledge
and experience in connection with his employment, and will devote his full time
and attention to his duties hereunder and to furthering and promoting the
interests of the Employer (and, as directed, any parent corporation, subsidiary
or affiliate of Employer). The foregoing shall not be construed to prevent the
Employee from making passive investment of his assets in any business so long as
such business does not compete with that of the Employer, so long as Employee
does not engage in performance of services in the operation or affairs of such
business, and so long as such investment by Employee does not otherwise conflict
with the terms of this Agreement.
The Employer acknowledges Employee's continued ownership in
Lazer Inc. ("Lazer") and agrees that, provided that (i) his continued activity
on Lazer's behalf does not interfere with the performance of his duties for and
his obligation of loyalty to the Employer and (ii) Lazer's business is not
competitive with or otherwise contrary to the interests of Employer, then
neither such ownership nor such activity or business shall be deemed to
constitute a breach or violation of the foregoing provisions of this Section 1.
<PAGE>
2. Term. The Employee's employment with the Employer will be for
a period of five (5) years commencing as of April 24, 1995, subject to
termination as set forth in Section 6, and otherwise upon the terms and
conditions of this Agreement.
3. Compensation; Expenses.
(a) As Base Compensation for Employee's performance of this
Agreement, Employee shall receive a salary at the rate of One Hundred Fifty
Thousand ($ 150,000.00) Dollars) per annum, payable in accordance with
Employer's standard payroll practices and subject to usual payroll deductions.
(b) Employer shall pay or reimburse Employee for all
reasonable travel (excluding commutation) and other expenses paid or incurred by
him in the performance of his duties under this Agreement, provided that he
first properly accounts therefor in accordance with Employer's policies. In
addition, Employer shall lease and insure (bearing up to $550 per month of the
cost thereof) a car for Employee's use, which use shall conform to Employer's
reasonable rules and restrictions.
4. Benefits.
(a) As an employee of a subsidiary of IPC Information
Systems, Inc., there will be available to you insurance, medical insurance,
vacation, and incentive compensation programs such as IPC's Stock Option and
Incentive Plan, together with such other benefits as may from time to time be
available to similarly situated IPC employees subject, however, to the usual
requirements of application and eligibility.
(b) Employee shall be entitled to four weeks vacation per
year, and at such time or times, as is in accordance with Employer's standard
practices.
(c) In order to assist the Employee in paying Federal and
New York State income taxes which may arise out of his receipt on January 3,
1996 of "IPC Stock", being the common stock, $0.01 par value, of IPC Information
Systems, inc., Employer agrees to loan to Employee an amount equal to the result
of multiplying (a) thirty-seven and one half (37 1/2 %) percent of the Closing
Price (as defined below) per share of IPC Stock on such date by (b) the number
of shares of IPC Stock so received by the Employee. As used above, "Closing
Price" shall mean the closing price per share on the NASDAQ National Market of
IPC Stock on the date of determination. Any such loan shall be advanced on April
8, 1996, shall be evidenced by a Promissory Note in the form of Exhibit A hereto
and shall be
2
<PAGE>
on the terms set forth in such Promissory Note.
5. Confidentiality. As an integral part of the employment
relationship established by this Agreement, Employee is signing and delivering,
with this Agreement, the confidentiality/noncompetition/proprietary information
agreement attached hereto.
6. Termination and Related Matters.
(a) Death or Disability. This Agreement shall terminate in
the event of the death or, at the Employer's sole option, disability of the
Employee, in which case no compensation or benefits shall be payable under this
Agreement, except for unpaid Base Compensation pro rated for that portion of the
year during which the Employee was actually employed by the Employer. For
purposes hereof, the Employee shall be deemed to be disabled if he is unable
substantially to perform his duties hereunder for a period of six (6)
consecutive months because of physical or mental illness. During such six (6)
month period the Employee shall receive his normal compensation and benefits.
(b) Termination for Cause. The Employer may terminate the
Employee's employment hereunder for "Cause." Such termination shall be effective
immediately upon notice of termination, provided that the Employer shall have
given fifteen (15) days' prior notice to the Employee of its intention to so
terminate the Employee's employment hereunder, stating the Cause therefor, and
the Employee shall not have cured such Cause prior to delivery of notice of
termination by the Employer.
For purposes of this Agreement, "Cause" shall mean and include
a determination by the Board of Directors of the Employer of the Employee's:
refusal or failure in any material respect to perform, or to comply in any
material respect with his duties and obligations hereunder, refusal to follow
directions commensurate with his office or other substantial breach of the
substantive provisions of this Agreement, dishonesty, disloyalty, other conduct
contrary to the interests or policies of the Employer or IPC (including drug or
alcohol abuse, sexual abuse or harassment), or his conviction of a crime.
In the event that the Employee's employment hereunder shall
terminate for Cause, the Employee shall relinquish all rights to any
compensation or benefits whatsoever hereunder, except for unpaid Base
Compensation pro rated for that portion of the year during which the Employee
was actually employed by the Employer, and subject to offset for any moneys or
benefits wrongfully derived, received or obtained by the Employee from any
source as a result of any event constituting Cause hereunder.
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7. Notices. Notices and other communications required or
permitted under this Agreement shall be in writing and directed as follows:
(a) To Employer in care of:
IPC INFORMATION SYSTEMS, INC.
88 Pine Street, 15th Floor
New York, New York 10005
Attn: Office of the Corporate Secretary
(b) To Employee:
Mr. Gerald E. Starr
4 Vivian Place
Suffern, New York 11901
With copy to:
EATON & VAN WINKLE
600 Third Avenue
New York, New York 10016
Attn: Clement B. Wood, Esq.
The parties may designate by notice to each other any new
address for the purpose of notice under this Agreement. All notices shall be
effective and deemed delivered when mailed postage prepaid by Registered or
Certified Mail, return receipt requested. Notice shall be effective
notwithstanding the addressee's refusal to execute a return receipt.
8. Waiver of Breach. The waiver by Employer of a particular
breach by Employee of any provision of this Agreement shall not operate or be
construed as a continuing waiver or as a waiver of any subsequent or other
breach.
9. Binding Effect; No Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties hereto, the related entities and
affiliates referred to hereinabove, and their respective heirs, executors,
administrators, successors and assigns. Neither this Agreement nor any rights
hereunder may be assigned by Employee without the prior written consent of
Employer.
10. Entire Agreement. This Agreement contains the entire agreement
of the parties with respect to the subject matter hereof, and supersedes and
replaces all prior negotiations, commitments, writings, agreements and
understandings between the parties, oral or written, with respect to the subject
matter hereof. It may not be changed orally but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought. Neither party has relied on
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any representation, warranty, covenant or agreement not expressly set forth
herein. Employee acknowledges that he has been represented by independent
counsel of his choice in connection with this Agreement.
11. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
12. Headings. The headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
any provision or provisions of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Employment
Agreement as of the day and first year above written.
IPC BRIDGE, INC.
By: /s/ Daniel Utevsky
-------------------------------------
/s/ Gerald E. Starr
--------------------------------------
Gerald E. Starr
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EMPLOYEE/CONSULTANT INVENTION,
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
IPC Information Systems, Inc.
88 Pine Street
New York, New York 10005
Gentlemen/Madams:
IPC Information Systems, Inc. and its subsidiaries including IPC
Bridge Inc. (collectively, the "Company") are engaged in a business which
depends to a great extent on proprietary and confidential systems and
information. I am engaged as a consultant or employee of the Company. I
understand that the Company maintains a Company policy concerning inventions,
confidentiality and certain other matters relating to engagement by the Company.
I understand it is a condition to my engagement at the Company to abide by that
policy. Therefore, I agree:
1. I will devote my time, skill, labor and knowledge to the
advancement of the Company's interests by performing such duties as may have
been or may be assigned to me by the Company.
2. During my engagement and at all times thereafter I will hold
in confidence and not disclose to third parties all information, matters and
things related to the business or prospective business of the Company of a
confidential or secret nature which I may acquire during my engagement. I will
not, without the consent of the Company, use any such matter or thing or
disclose to others any matter or thing related to the business or prospective
business of the Company where such disclosure might possibly be contrary to the
best interests of the Company. I agree that all information relating to the
product design and structure, schematics, software, uses and sources of system
components and processes of the Company, as well as customer identity and
equipment configurations offered or sold to customers, are intended to be
confidential.
3. I will not, for a period of two years following any
termination of my engagement by the Company, solicit any customer or employee of
the Company to become a customer or employee of (or consultant to or agent for)
any person engaged in business activity competitive with the business of the
Company.
4. The Company has all right to possession of, and all title in
and to, all information, papers and documents (including drawings), in whatever
medium stored, and copies, abstracts and summaries thereof, which I may
originate or which may come into my possession during my engagement and which
relate to the business or prospective business of the Company.
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I will deliver all such things promptly to the Company on termination of my
engagement or at any time the Company may request.
5. I will fully disclose to the Company all inventions, software,
design or systems architecture relating in any way to the business or
prospective business of the Company which I make or conceive of during my
engagement by the Company and for three months thereafter, except if and while
actively employed pursuant to an arms' length engagement by an unrelated and
nonaffiliated individual or entity. I hereby assign all my right, title and
interest in and to such items, any patents thereon, patent rights or patentable
material relating thereto (together, the "Proprietary Material") to the Company.
6. As an employee of Bridge Electronics Inc., the predecessor to
Bridge IPC, I acknowledge that the Proprietary Material which I have had made or
conceived during my employment by Bridge Electronics belonged to Bridge
Electronics and to the extent not previously assigned to Bridge Electronics I
hereby assign to Bridge IPC all of my right, title and interest in such
Material.
7. I will, on request of the Company, at any time during or
following my engagement, execute specific assignments (prepared by the Company)
reflecting the assignment to the Company or its nominee of the Proprietary
Material, applicable to the United States and to any and all foreign countries,
as well as execute all patent applications and papers relating thereto, and take
all other lawful acts, upon reasonable notice and at the Company's expense,
which the Company deems reasonably necessary or advisable in connection
therewith, including the giving of testimony.
8. I agree that while in the engagement of the Company, and, for
a period of up to two years thereafter, I will not, directly or indirectly, own,
manage, operate, participate as a principal in or be employed by or otherwise be
interested financially in, or connected in any commercial manner with, any
business competitive with that conducted by the Company; provided, however, that
following the termination of my engagement at the Company, the provisions of
this paragraph 8 will apply only so long as the Company continues to pay me my
base salary at the level in effect on the date of the termination of my
engagement.
9. The salary and/or fees and charges paid me or the firm with
which I am associated constitute full and complete compensation to me for all my
obligations and services and for all general and specific assignments under this
Agreement. Nothing contained in this Agreement is intended to or shall create
any right to employment, engagement, salary, benefits or other compensation not
otherwise agreed to by the Company in writing.
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10. It is understood that my undertakings in Paragraphs 2 through
8 shall be binding upon me both during my engagement by the Company and
subsequent thereto (for so long as stated in the applicable paragraph), and upon
my heirs, successors, personal representatives and assigns, and that this entire
Agreement shall inure to the benefit of the Company and its successors and
assigns. I agree that my breach of any of the agreements contained herein may
cause injury to the Company not remedied by mere payment of money damages;
therefore, I agree, in aid of arbitration, to submit to the equitable remedies
of a federal or state court sitting in New York State to prevent me from
engaging in activities which could result in the use of Proprietary Material or
confidential information by persons other than the Company.
11. In the event of any litigation arising out of or under this
confidentiality, etc. agreement, the prevailing party shall be entitled to
recover its reasonable costs and expenses including attorneys' fees.
12. Any dispute or controversy between or among the parties hereto
relating to or arising out of this Agreement, or any amendment or modification
thereof, or the breach thereof, shall be settled by binding arbitration in New
York, New York pursuant to the rules then obtaining of the American Arbitration
Association. No legal measures shall be taken except to obtain an injunction,
restraining order or other preliminary relief in aid of arbitration and to
enforce such arbitration and the award of the arbitrators. The parties agree
that the relief which the arbitrators shall have the power to award to any party
in any such arbitration shall include, without limitation, injunctive relief,
damages and specific performance. The parties consent to the jurisdiction of the
courts of the State of New York located in the County of New York for purposes
of issuance of an injunction, restraining order or other preliminary relief in
aid of arbitration, enforcement of the arbitration agreement and proceeding, and
the entry of a judgment on any award, and further consent that any process or
notice of motion or other application to a court or to a judge thereof may be
served by registered or certified mail.
/s/ Gerald E. Starr
---------------------------------------
Gerald E. Starr
IPC BRIDGE, INC.
By: /s/ Daniel Utevsky
-----------------------------------
Dated: April 20, 1995
8
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
BETWEEN
IPC BRIDGE, INC.
AND GERALD E. STARR ("AGREEMENT")
Paragraph 3 (a) of the Agreement is hereby modified and amended by deleting
therefrom "One Hundred and Fifty Thousand ($150,000.00)" and substituting
therefor "Two Hundred Thousand ($200,000.00)."
All other terms and conditions of the Agreement shall remain in full force and
effect.
Accepted and Agreed, as of this 21st day of May, 1996:
IPC BRIDGE, INC. GERALD E. STARR
/s/ Daniel Utevsky /s/ Gerald E. Starr
- ------------------------------------ ----------------------------------
SECOND AMENDMENT TO
EMPLOYMENT AGREEMENT
BETWEEN
IPC BRIDGE, INC.
AND GERALD E. STARR ("AGREEMENT")
1. Compensation. Effective as of January 13, 1997, paragraph 3 (a) of the
Agreement is hereby modified and amended by deleting therefrom "Two Hundred
Thousand ($200,000.00)" and substituting therefor "Two Hundred Twenty Five
Thousand ($225,000.00)."
2. New Paragraphs. The Agreement is hereby modified by the addition of new
Paragraphs 13 and 14, as follows:
"13. Change in Control Transaction.
(a) So long as Employee is not otherwise in breach of this Agreement,
upon the occurrence during the period commencing August 1, 1997 and ending July
31, 1998 of a Change of Control (as hereinafter defined) of IPC Information
Systems, Inc. (hereinafter, "IPC"), Employee shall become eligible for and the
Employer will pay to the Employee an incentive payment (the "Incentive Payment")
calculated by multiplying the sum of One Hundred Ninety Six Thousand Dollars
($196,000.00) times an adjustment factor, as specified herein.
The adjustment factor shall be based on the price realized by IPC and/or IPC's
stockholders by virtue of the Change of Control, where "X" equals Eighteen
($18.00) dollars per share.
- --------------------------------------------------------------------------------
Change of Control Price Adjustment Factor
- --------------------------------------------------------------------------------
Transaction - Less than or equal to "X" 0.70
- --------------------------------------------------------------------------------
Transaction - 116.67% "X" 1.00
- --------------------------------------------------------------------------------
Transaction - 133.33% "X" 1.50
- --------------------------------------------------------------------------------
Transaction - 150.00% "X" 2.00
- --------------------------------------------------------------------------------
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For amounts which fall between the percentages specified in the foregoing table,
Employer shall use a straight-line interpolation to determine the adjustment
factor hereunder.
The amount, if any, computed under this Paragraph 13 (a) shall be payable in
three (3) annual installments on the fifteenth (15th) day after the date of the
closing of the transaction and on each of the first two anniversaries of the
closing date; provided, however, that if the Employee's employment terminates
due to death, disability, expiration of this Agreement or the Employee's
discharge without cause prior to the second anniversary of such closing date,
any remaining installments shall be due and payable upon termination of
employment.
(b) For all purposes of this Agreement a "Change in Control" of IPC
shall be deemed to have occurred upon the happening of any of the following
events:
(i) the closing of a transaction that would result in the
reorganization, merger or consolidation of IPC, respectively, with one or more
other persons in which IPC is not the surviving entity;
(ii) the acquisition of substantially all of the assets of IPC or
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 35% or more of the outstanding securities of IPC entitled to
vote generally in the election of directors by any person or by any persons
acting in concert;
(iii) a complete liquidation or dissolution of IPC; or
(iv) the occurrence of any event in connection with an actual or
threatened election contest or other actual or threatened solicitation of
proxies or consents (all within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) if, immediately following such event, at
least fifty percent (50% of the members of the board of directors of IPC are not
individuals who were members of the board of directors of IPC on the date of
this Agreement.
In no event, however, shall a Change of Control of IPC be deemed to have
occurred as a result of any acquisition of securities or assets of IPC or any of
its subsidiaries by IPC or any subsidiary of IPC. For purposes of this section,
the term "person" shall have the meaning assigned to it under sections 13(d)(3)
or 14(d)(2) of the Exchange Act."
"14. Termination of Employee without Cause. In the event that
(1) during the term of this Agreement (the "Term") or any extended Term,
the Employee's employment with the Employer is terminated (a) at or following a
"Change
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in Control" of IPC occurring during the period commencing August 1, 1997 and
ending July 31, 1998 and (b) other than by (i) expiration of the Term, or any
extended Term, (ii) death or disability or (iii) for "Cause," and
(2) in connection with such termination of employment, the Employee
releases the Employer from any and all liability for contract damages by virtue
of a termination of employment prior to the expiration of the Term (other than
liability for amounts due under Section 13 hereof),
then the Employer shall pay to the Employee severance pay in an amount
equal to 225% of the Employee's Base Compensation. Such amount shall be payable
in eighteen equal monthly installments, without interest, on the last day of
each calendar month in the period of eighteen consecutive calendar months that
begins on or immediately following the date of termination. The Employer and
Employee hereby stipulate that, if the last sentence of this Section 14 is not
applicable, the damages which may be incurred by Employee as a consequence of
any such termination of employment are not capable of accurate measurement and
that the payment contemplated by this Section 14 constitutes a reasonable
estimate of such damages under the circumstances. The Employer and the Employee
agree that, if the last sentence of this Section 14 is not applicable, the
benefits provided under this Section 14 constitute reasonable damages under the
circumstances and shall be payable without any requirement of proof of actual
damage and without regard to the Employee's efforts, if any, to mitigate
damages. The Employer and the Employee further agree that the Employer may
condition the payments and benefits (if any) due under this Section 14 on (x)
the receipt of the Employee's resignation from any and all positions which he
holds as an officer, director or committee member with respect to the Employer
or any subsidiary or affiliate of it, (y) the Employee's execution and delivery
of a release (in the form of the attached Appendix B) in favor of the Employer
with respect to the matters set forth in clause (2) of this Section 14 and (z)
the Employee's execution and delivery within twenty-one (21) days after any such
termination of employment, and the non-retraction during any statutory waiting
periods, of a release in favor of the Employer, in the form of the attached
Appendix A. In the event the Employee's employment with the Employer or any
subsidiary is terminated under the circumstances set forth in clause (1) of this
Section 14 and the Employee fails, within five (5) business days (with respect
to clauses (x) and (y) and within the statutory release and retraction periods
with respect to clause (z)) after demand therefor, to satisfy any of the
conditions set forth in clause (x), (y) and (z) of the preceding sentence which
may be applicable to the receipt of benefits under this Section 14, this
Agreement shall be construed and interpreted as though this Section 14 did not
exist; and any right or remedy which the Employee may have in respect of such
termination under other provisions of this Agreement or otherwise under this
Agreement (construed as though this Section 14 did not exist) shall be preserved
and remain in full force and effect."
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All other terms and conditions of the Agreement shall remain in full force and
effect.
Accepted and Agreed, as of this 1st day of August, 1997:
IPC BRIDGE, INC. GERALD E. STARR
/s/ Daniel Utevsky /s/ Gerald E. Starr
- ---------------------------------- ------------------------------------
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5
<PAGE>
APPENDIX B
RELEASE OF CONTRACT DAMAGES
In consideration of $ _____________ [225% of Base Compensation], to be paid
in accordance with Section 14 of the Employment Agreement between IPC Bridge,
Inc. and me, I, Gerald E. Starr, hereby waive my rights to contract damages due
to me under New York law as a result of the Employer's breach (by termination,
prior to the expiration of the Term) of that certain Employment Agreement
between myself and IPC Bridge, Inc. (the "Agreement") in favor of liquidated
damages in accordance with Section 14 of the Second Amendment to the Agreement.
This waiver shall not affect Section 13 of the Agreement.
- -------------------------------- ---------------------------------
Witness Gerald E. Starr
STATE OF )
: ss.:
COUNTY OF )
On this ____ day of _____________________, 199___, before me personally came
Gerald E. Starr, to me known, who did depose and say that he resides at
_______________________________________, that (s)he is the person who signed the
foregoing Release, and that he signed the foregoing Release as his free act and
deed.
--------------------------------
Notary Public
EMPLOYMENT AND NONCOMPETITION AGREEMENT
THIS AGREEMENT (this "Agreement"), made as of the 1st day of
October, 1997, by and between Russell G. Kleinknecht (the "Executive") and IPC
Information Systems, Inc., a Delaware corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the Executive is a stockholder and executive officer of the
Company;
WHEREAS, the Executive is expected to make a major contribution to
the growth, profitability and financial strength of the Company; and
WHEREAS, the Company desires to continue to employ the Executive,
and the Executive desires to continue to be employed by the Company, pursuant to
the terms and conditions hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein contained and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Employment; Term. The Company hereby employs the Executive, and the
Executive hereby accepts such employment by the Company, on the terms and
conditions set forth herein. The term of this Agreement shall be the period
commencing October 1, 1997 (the "Commencement Date") and terminating on
September 30, 1999 (the "Initial Term"), unless sooner terminated in the manner
hereinafter provided, and thereafter as herein provided. This Agreement may be
extended for subsequent one (1) year terms by the occurrence of the following
events: (i) the Company's giving written notice of the affirmative vote of a
majority of the Company's Board of Directors that the Company desires to extend,
including in such notice any proposed modifications to the terms and conditions
hereof; (ii) within thirty (30) days of the Executive's receipt of such notice,
the Executive shall give written notice to the Company of his acceptance or
rejection of said extension, under the proposed modified terms; (iii) upon
receipt by the Company of written notice of acceptance, the Agreement shall be
deemed extended. Upon
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receipt of written notice of rejection, or upon the failure of Executive to
respond within the required thirty (30) day period, the offer of extension shall
terminate without extension of the term. Failure of the Company to deliver
notice of extension by September 30, 1998, or any later date which is one year
prior to the expiration date of any extended term, shall be deemed to constitute
a decision that the Agreement not be further extended. If, at any time, the term
of the Agreement shall, by action or inaction on the part of the Company or the
Executive, fail to be extended prior to the date which is one year prior to the
date on which the Agreement is then scheduled to expire, the Agreement shall
expire on such scheduled expiration date and shall not be, or deemed to be,
extended further. The Company shall have no obligation to provide written notice
of such a decision.
2. Duties.
2.1 Office. During the term of this Agreement, the Executive shall
serve as an executive officer of the Company, reporting directly to the
President and Chief Executive Officer. Nothing contained herein shall preclude
the Company, by direction of the President and Chief Executive Officer, from
restructuring or reorganizing the functional responsibilities and/or
organizational or reporting position of various executive officers of the
Company, including the Executive. Subject always to the supervision and
direction of the President and Chief Executive Officer of the Company, or such
executive officer as the President and Chief Executive Officer shall designate,
the Executive shall, from time to time, have the duties and responsibilities
consistent with his position as an executive officer.
2.2 Full Working Time. During the term of this Agreement, the
Executive shall devote his full working time and his best efforts, and apply all
of his skill and experience, to the proper performance of his duties hereunder
and to the business and affairs of the Company. The Executive, without the prior
written approval of the Board of Directors of the Company, shall not, either
directly or indirectly, engage in any business other than that specified herein
or accept any employment or business office whatsoever (including but not
limited to serving as a director) from any other person, firm, corporation or
entity (but the foregoing shall not preclude the Executive, except as provided
in Section 5.1 hereof, from (i) serving as a director of any non-
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profit or charitable organization, or (ii) making an investment in any other
business, so long as in any such case the Executive does not actively
participate in such other business or organization and such activity does not
interfere with the Executive's ability to perform his duties hereunder and does
not constitute a conflict of interest with the Company or any of its affiliates
in the reasonable opinion of the Board of Directors of the Company).
3. Salary and Benefits.
3.1 Salary. The Company shall pay the Executive during the term of this
Agreement a base salary at an annual rate of Two Hundred Fifty Thousand Dollars
($250,000) per annum, payable in accordance with the standard payroll practices
of the Company ("Base Salary"). It is understood that the Base Salary shall be
the Executive's minimum annual compensation during his employment with the
Company. The Base Salary shall be reviewed annually by the Compensation
Committee of the Board and may be increased at its discretion.
3.2 Management Incentive Plan. For each fiscal year of IPC ending during
the term of this Agreement (including, but not limited to, the fiscal year in
which this Agreement is executed), the Executive shall be eligible to
participate in the Management Incentive Plan of IPC, under which the Executive
will be assigned a target bonus of not less than 50% of the Executive's Base
Salary. The terms and conditions of such bonus and the actual amount of any
bonus which may be payable shall be determined according to the terms of such
Management Incentive Plan.
3.3 Benefits. The Executive may participate, to the extent that he is
eligible therefor and subject to the terms and conditions thereof, in any plans
or programs which may be maintained by the Company or its affiliates for their
employees and/or senior executives generally, providing insurance, medical
benefits, retirement benefits, or other like fringe benefits.
3.4 Other Benefits. (a) The Executive shall be provided with an
automobile, in accordance with the Company's policy therefor. (b) The Executive
shall be entitled to five (5) weeks annual paid vacation each year of the term
of employment. (c) The Executive shall be provided with life insurance (in
addition to coverage provided under any group-term insurance
3
<PAGE>
plan paid for by the Company) providing (i) whole-life insurance in the amount
of $1,000,000, of which the Company shall own and control (by split-dollar
arrangement, collateral assignment or otherwise) the cash surrender value, if
any, of the policy providing such coverage and, for so long as it shall own and
control such cash surrender value, shall be entitled (A) upon the Executive's
death to receive a portion of the death benefit proceeds equal to the greater of
such cash surrender value immediately prior to the time of death or the
aggregate amount of its premiums paid and (B) upon the termination of the
Executive's employment, other than by death, the Executive shall purchase said
policy from the Company by the payment of an amount equal to, the greater of
such cash surrender value immediately prior to the termination of employment or
the aggregate amount of its premiums paid; and (ii) term life insurance in such
amounts as the Executive may acquire for annual premium payments not to exceed
$7,000. Executive and Company shall agree to execute such documents as may be
necessary to ensure the partial assignment of benefits to the Company and the
Executive's repurchase obligations under the aforementioned split-dollar
insurance policy and to otherwise give effect to the intent and purpose of this
Section 3.4 (c).
3.5 Expenses. The Company shall pay or reimburse the Executive for
reasonable business expenses actually incurred or paid by the Executive during
the term of his employment under this Agreement, in the performance of his
services hereunder, provided such expenses are consistent with Company policy.
Such payment or reimbursement shall be made upon presentation of expense
statements or vouchers or other supporting information acceptable to the Company
and otherwise in accordance with Company policy then in effect.
3.6 Deductions. The Company shall deduct from all compensation
payable hereunder such payroll and withholding taxes as may be required by law.
3.7 Bonus Payable Upon Execution. In consideration for the
execution of this Agreement and the covenants contained in Section 6, hereof,
the Company will pay to Executive a signing bonus of Two Hundred Fifty Thousand
Dollars ($250,000.00), such payment to be made upon or as soon as practicable
following the parties' execution of this Agreement.
3.8 Options Granted Upon Execution.
(a) Upon execution of this Agreement, the Company shall grant to
the
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Executive non-qualified stock options under the Company's 1994 Stock Option and
Incentive Plan, as amended (the "1994 Option Plan") in the following amounts and
under the following conditions:
i) 50,000 vesting, contingent upon continued employment on
the earliest date on which the last sales price for a share of
common stock of the Company on the principal national
securities exchange (including as a national securities
exchange for this purpose, the NASDAQ Stock Market) on which
shares of the Company's common stock are listed or admitted to
trading equals or exceeds $25.00 on each of ninety (90)
consecutive trading days;
ii) 50,000 vesting, contingent (except as provided in
Section 3.8 (c)) upon continued employment on the fifth
anniversary of the effective date (9/30/01) provided, however,
that on or prior to such date, the last sales price for a
share of common stock of the Company on the principal national
securities exchange (including as a national securities
exchange for this purpose, the NASDAQ Stock Market) on which
shares of the Company's common stock are listed or admitted to
trading shall have equaled or exceeded $25.00 on each of
ninety (90) consecutive trading days.
(b) The Exercise Price of options granted in accordance with this
Section 3.8 shall be equal to $25.00 per share.
(c) Change in Control Provisions. With respect to options granted in
accordance with this Section 3.8, upon the occurrence of a change in control of
the Company, as such term is defined in the 1994 Option Plan, the vesting of the
options granted under Section 3.8 (a) (ii) would remain contingent upon the
Executive's agreement to enter into and fully perform under a two-year
employment contract with the Company or successor company, under substantially
comparable compensation terms as are then current, provided, however, that said
options would immediately vest upon the
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Company's or successor company's termination without cause of said employment
contract or failure to agree to such an extension prior to the date of the
change in control. In the event that, as a result of the aforementioned change
in control, there no longer exists a public market for the Company's securities,
the stock issued upon exercise of the options referenced in the preceding
sentence would, upon vesting and exercise, be immediately purchased by the
Company or successor company at the Change in Control Price, as defined in the
1994 Option Plan or, if greater, the fair value of the stock determined by the
Company in good faith, such purchase price to be payable in cash in immediately
available funds. The Company shall have the obligation to buy, and the Executive
shall have the obligation to sell the stock covered by this Section 3.8 at the
time and on the terms set forth herein.
3.9 Change in Control Transaction.
(a) In the event of a closing, during the period commencing August 1,
1997 and ending July 31, 1998, of a transaction that includes a "Change in
Control" of IPC and so long as Employee is not otherwise in breach of this
Agreement, the Company will pay to the Executive a guaranteed bonus computed as
follows:
An incentive payment (the "Incentive Payment") calculated by
multiplying the sum of Two Hundred Eighteen Thousand Dollars ($218,000.00) times
an adjustment factor (as hereinafter specified) based on the price realized by
the Company and/or the stockholders by virtue of the Change of Control, where
"X" equals Eighteen ($18.00) dollars per share.
- --------------------------------------------------------------------------------
Change of Control Price Adjustment Factor
- --------------------------------------------------------------------------------
Transaction - Less than or equal to "X" 0.70
- --------------------------------------------------------------------------------
Transaction - 116.67% "X" 1.00
- --------------------------------------------------------------------------------
Transaction - 133.33% "X" 1.50
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
Transaction - 150.00% "X" 2.00
- --------------------------------------------------------------------------------
For amounts which fall between the percentages specified in the foregoing
table, Company shall use a straight-line interpolation to determine the
adjustment factor hereunder.
The amount, if any, computed under Section 3.9(a) shall be payable in
three (3) annual installments on the date fifteen (15) days following the date
of closing of the transaction and upon each of the first two anniversaries of
the closing date; provided, however, that if the Executive's employment
terminates due to death, disability or discharge without cause prior to the
second anniversary of such closing date, any remaining installments shall be due
and payable upon termination of employment.
(b) For all purposes of this Agreement except Section 3.8, a "Change in
Control" of IPC shall be deemed to have occurred upon the happening of any of
the following events:
(i) the closing of a transaction that would result in the
reorganization, merger or consolidation of IPC, respectively, with one or
more other persons in which IPC is not the surviving entity;
(ii) the acquisition of substantially all of the assets of IPC or
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 35% or more of the outstanding securities of IPC
entitled to vote generally in the election of directors by any person or
by any persons acting in concert; or
(iii) a complete liquidation or dissolution of IPC; or
(iv) the occurrence of any event in connection with an actual or
threatened election contest or other actual or threatened solicitation of
proxies or consents (all within the meaning of Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) if, immediately following such
event, at least fifty percent (50% of the members of the board of
directors of IPC are not individuals who were members of the board of
directors of
7
<PAGE>
IPC on the date of this Agreement.
In no event, however, shall a Change of Control of IPC be deemed to have
occurred as a result of any acquisition of securities or assets of IPC or any of
its subsidiaries by IPC or any subsidiary of IPC. For purposes of this section,
the term "person" shall have the meaning assigned to it under sections 13(d)(3)
or 14(d)(2) of the Exchange Act.
3.10 Option Vesting Upon Expiration of Agreement. In the event (i) the
Executive's employment is terminated during the Initial Term by the Company
without cause or (ii) this Agreement shall not be extended beyond its Initial
Term at the Company's discretion in accordance with Section 1, hereof, and shall
therefore expire on September 30, 1999 (the "Expiration Date"), any stock
options granted to Executive prior to the date of this Agreement which are not
vested but would have otherwise vested within sixty (60) days of the Expiration
Date shall vest on such date as shall be determined to be Executive's last date
of employ (regardless of Company's obligation, if any, to provide additional
compensation hereunder). Executive shall thereafter have such period of time as
is provided in the applicable option plan document to exercise said options. All
options which are not exercised within the prescribed period(s) shall thereafter
be canceled. Any other termination of Executive's employment, except as
specified in this paragraph, shall not serve to accelerate the vesting of
otherwise unvested options.
4. Termination.
4.1 Early Termination. The Company shall always have the right to
terminate the employment of Executive for "cause" (as hereinafter defined). In
the event Executive's employment with the Company is terminated prior to the
expiration of the term of this Agreement on account of (i) the Executive's
resignation, death or disability, (ii) the Executive's discharge by the Company
without cause or (iii) the Executive's discharge by the Company for "cause" (any
of (i), (ii) or (iii), an "Early Termination"), all compensation and benefits
described in Section 3 of this Agreement shall terminate as of the date of such
termination.
8
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4.2 Discharge for Cause. For purposes of this Agreement, "cause" shall
mean an omission, act or action or series of omissions, acts or actions of the
Executive which constitute(s), cause(s) or result(s) in:
(a) the Executive's material dishonesty (e.g., theft, fraud,
embezzlement, material financial misrepresentation or other similar behavior or
action) in his dealings with or with respect to the Company or any affiliate
thereof or entity with which the Company, a subsidiary or affiliate thereof,
shall be engaged in or be attempting to engage in commerce;
(b) the conviction of the Executive for, or the Executive's entry
of a plea of guilty or nolo contendere to, the commission of a felony; or
(c) the repeated and willful refusal of the Executive to follow
the policies or directives of the officer to whom the Executive may from time to
time report, as determined by the Board of Directors of the Company; provided
that discharge pursuant to clause (a) or (c) shall not constitute discharge for
"cause" unless (x) the Executive shall have first received written notice from
the Board of Directors of the Company stating with specificity the nature of
such breach, refusal or failure and affording the Executive an opportunity to
cure fully the acts or omissions complained of within thirty (30) days of actual
receipt by the Executive of notice thereof, and (y) the final determination of
the discharge of the Executive for cause shall be made by a majority of the
non-management directors ofthe Company.
4.3. Death or Disability. The term of employment of the Executive shall
terminate forthwith in the event of the death of the Executive, or, at the
option of the Company, in the event that the Executive shall fail to render and
perform the services required of him under this Agreement because of
"disability" (as hereinafter defined). In the event of such a termination, all
compensation and benefits described in Section 3 of this Agreement shall
terminate as of the date of such termination. For purposes of this Agreement,
"disability" shall mean the inability of the Executive to perform his duties and
obligations for the Company as required by this Agreement, because of a
disability which is not of an apparently temporary nature, which results from
mental or bodily
9
<PAGE>
injury, sickness or disease or any combination thereof, and which has lasted a
period of more than one hundred eighty (180) consecutive days or more than one
hundred eighty (180) days within any period of 365 consecutive days.
4.4 Termination by Company without Cause. Notwithstanding anything to
the contrary in this Agreement, in the event that the Executive's employment
with the Company is terminated by the Company other than (i) by expiration of
the Term, or any extended Term, in which event no further payments shall be due,
or (ii) for "Cause" during the term of this Agreement (including any extensions
thereof) and at or following a "Change in Control," the Company shall pay to the
Executive severance pay in an amount equal to 225% of the Executive's Base
Salary. Such amount shall be payable in eighteen equal monthly installments,
without interest, on the last day of each calendar month in the period of
eighteen consecutive calendar months that begins on or immediately following the
date of termination. The Company and Executive hereby stipulate that the damages
which may be incurred by Executive as a consequence of any such termination of
employment are not capable of accurate measurement as of the date first above
written and that the benefits and payments provided for in this Agreement
constitute a reasonable estimate under the circumstances of all damages
sustained as a consequence of any such termination of employment. The Company
and the Executive agree that the benefits provided hereunder constitute
reasonable damages under the circumstances and shall be payable without any
requirement of proof of actual damage and without regard to the Executive's
efforts, if any, to mitigate damages. The Company and the Executive further
agree that the Company may condition the payments and benefits (if any) due
under this section on (i) the receipt of the Executive's resignation from any
and all positions which he holds as an officer, director or committee member
with respect to the Company or any subsidiary or affiliate of it and (ii) the
Executive's execution and delivery within twenty-one (21) days after any such
termination of employment, and the non-retraction during any statutory waiting
periods, of a release in favor of the Company, in the form of the attached
Appendix A.
4.5. Excise Tax-Related Provision. If any payment received or to be
received
10
<PAGE>
by the Executive in connection with a Change of Control of the Company or the
termination of the Executive's employment (whether payable pursuant to the terms
of this Agreement or any other plan, arrangement or agreement with the Company,
any person whose actions result in a Change of Control of the Company, or any
person affiliated with the Company or such person (together with the severance
payment, the "total payment")) would not be deductible by the Company (in whole
or in part) as a result of Section 280G of the Internal Revenue Code of 1986
(the "Code"), the severance payment will be reduced until no portion of the
total payment is not deductible as a result of Section 280G of the Code, or the
severance payment is reduced to zero, whichever occurs first. Provided, however,
that the severance payment will not be reduced if the net after tax benefit to
the Executive resulting from the receipt of the total payments (without
reduction of the severance payment) exceeds the net after-tax benefit to the
Executive resulting from the receipt of the total payments (after reduction of
the severance amount). All such determinations shall be made by the independent
auditor or outside tax counsel retained by the Company, as the Company shall
select, and all such determinations shall be final and binding upon the parties.
5. Proprietary Information.
5.1 Disclosure to Company. The Executive shall promptly disclose to the
Company in such form and manner as the Company may reasonably require (a) all
operations, systems, services, methods, developments, inventions, improvements
and other information or data pertaining to the business or activities of the
Company as are conceived, originated, discovered or developed by Executive
(whether or not copyrighted or patented or capable of being copyrighted or
patented) during the term of his employment with the Company (whether before or
after the Commencement Date), and (b) such information and data pertaining to
the business, operations, personnel, activities, financial affairs, and other
information relating to the Company and its customers, suppliers, employees and
other persons having business dealings with the Company as may be reasonably
required for the Company to operate its business. It is understood that
11
<PAGE>
such information is proprietary in nature and shall (as between the Company and
Executive) be for the exclusive use and benefit of the Company and shall be and
remain the property of the Company both during the term of this Agreement and
thereafter. If so requested by the Company, the Executive shall execute and
deliver to the Company any instrument as the Company may reasonably request to
effectuate the assignment of any such proprietary information to the Company.
Without limiting the generality of the foregoing, the Executive hereby releases
and waives and assigns to the Company any and all claims and rights which he has
against any of the Company or any of the technology, "know-how," licenses or
other proprietary rights or processes of the Company.
5.2 Post-Employment. In the event that the Executive leaves the employ
of the Company for any reason, including, without limitation, the expiration of
the term of this Agreement, the Executive shall deliver to the Company (and
shall not keep in his possession, recreate or deliver to anyone other than the
Company) any and all devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, together with all copies thereof (in
whatever medium recorded) belonging to the Company, its successors or assigns.
6. Non-Competition and Non-Solicitation.
6.1 Covenant. The Executive acknowledges that: the business of the
Company is (i) the manufacture and sale of telecommunications equipment (trading
turrets), (ii) the sale and installation of communications cabling systems and
datacom hardware, and (iii) the development and marketing of a private
international telecommunications network, all to the financial services industry
(the "Business"); the Business is multinational in scope; his work with respect
to the Business has brought and will continue to bring him into close contact
with many confidential affairs not readily available to the public; and the
Company will suffer substantial and irreparable harm in the event the Executive
should enter into competition with the Company or disclose any of the affairs of
the Company to any third parties. Accordingly, and in order to induce the
12
<PAGE>
Company to enter into this Agreement, the Executive hereby agrees as follows:
(a) during the term of this Agreement (including any renewal or
extension hereof) and for a period of eighteen (18) months after the
expiration or termination of this Agreement for any reason whatsoever, the
Executive will not, directly or indirectly, engage, whether as an officer,
director, consultant, agent, employee, partner, shareholder, participant,
owner or otherwise, in an enterprise engaged in the Business or any part
thereof, where the Employee's area of responsibility existed during, and
for the one year period prior to, this Agreement (but the foregoing shall
not preclude investments by the Executive in publicly traded companies in
which the Executive does not own more than one percent (1%) of the
outstanding equity and does not actively participate in the business in
which such investment is made); or
(b) for a period running concurrently with, and extending during,
the term of this Agreement (including any renewal or extension thereof)
and for a period of one (1) year after the expiration of the restriction
contained in clause (a) above, the Executive will not, directly or
indirectly, use Company-proprietary knowledge or information obtained
during the course of Executive's employment with Company with the
intention to, or which a reasonable person would construe to (A) interfere
with or disrupt any present or prospective relationship, contractual or
otherwise, between the Company and any customer, supplier, employee,
consultant or other person having business dealings with the Company, or
(B) employ or solicit the employment or engagement by others of any
employee or consultant of the Company who was such an employee or
consultant at the time of termination of the Executive's employment
hereunder or within one (1) year prior thereto.
6.2 Reasonableness. The Executive acknowledges that the restricted
period of time and geographical area under Section 6.1 hereof are reasonable, in
view of the nature of the business in which the Company is engaged and the
Executive's knowledge of the Company's business, and the fact that the Executive
expects to receive substantial
13
<PAGE>
compensation pursuant to this Agreement. Notwithstanding the foregoing, if any
provision, or any part thereof, of Section 6.1 is held to be unenforceable
because of the duration thereof or the area covered thereby, the parties agree
that the court making the determination shall have the power to reduce the
duration or the area of such provision, or to delete specific words or phrases,
and in its reduced or amended form such provision shall then be enforceable and
be enforced.
6.3 Enforcement. The Executive intends to, and does hereby, confer
jurisdiction to enforce the covenants contained in this Section 6 upon the
courts of (i) any jurisdiction within the States of Delaware and New York or
(ii) if Executive is alleged to be competing with the Company in violation of
this Section 6 in any other jurisdiction, then in any other jurisdiction in
which such alleged competition takes place. If the courts of any one or more of
such jurisdictions shall hold such covenants wholly unenforceable by reason of
the breadth of such scope or otherwise, such determination shall not bar or in
any way affect the right of the Company to the relief provided above in the
courts of any other jurisdiction in which such covenants may be enforced as
provided herein, as to breaches of such covenants in such other respective
jurisdictions, the above covenants as they relate to each jurisdiction being,
for this purpose, severable into diverse and independent covenants.
7. Nondisclosure. Except with the prior written consent of the Company in
each instance or as may be necessary to perform the Executive's services
hereunder, the Executive shall not disclose, use, publish, or in any other
manner reveal, directly or indirectly, at any time during or after the term of
this Agreement, any confidential information relating to the Company or any
subsidiary or affiliate thereof acquired by him prior to, during the course of,
or incident to, his employment hereunder. Such confidential information shall
include, but shall not be limited to, information relating to (a) the business,
operations, systems, services, know-how, trade secrets, customer lists, pricing
policies, operational methods, market plans, product development plans,
acquisition plans, design and design projects, inventions and research projects
and all
14
<PAGE>
other plans and processes of the Company, and (b) the business, operations,
personnel, activities, financial affairs, and other information relating to the
Company and its customers, suppliers, employees, consultants, officers,
directors, stockholders and other persons having business dealings with the
Company. In the event Executive is required (by oral questions, interrogatories,
requests for information or documents in legal proceedings, subpoenas, civil
investigative demand or similar process) to disclose any such confidential
information, the Executive shall provide the Company with prompt written notice
of such requirement so that the Company may seek a protective order or other
appropriate remedy and/or waive compliance with the provisions of this Section.
If, in the absence of such a protective order or other appropriate remedy or
receipt of a compliance waiver by the Company, the Executive is nonetheless
advised by his legal counsel that he is legally compelled to disclose such
confidential information, the Executive may, without liability hereunder,
disclose only that portion of such confidential information which such counsel
advises is legally required to be disclosed, provided that the Executive
exercises his best efforts to preserve the confidentiality of the information,
including, without limitation, by cooperating with the Company to obtain an
appropriate protective order or other reliable assurance that confidential
treatment will be accorded the confidential information.
8. Remedies for Certain Breaches. If the Executive commits a breach, or
threatens to commit a breach, of any of the provisions of Sections 5, 6 and/or
7, the Company shall have the following rights and remedies, each of which
rights and remedies shall be independent of the others, and shall be severally
enforceable, and all of which rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available under law or in equity
to the Company:
(i) the right and remedy to have the provisions of Sections 5, 6
and/or 7 enforced by any court of competent jurisdiction by injunction,
restraining order, specific performance or other equitable relief in favor
of the Company, it being
15
<PAGE>
acknowledged and agreed that any breach or threatened breach of Sections
5, 6 and/or 7 by the Executive will cause irreparable injury to the
Company and that money damages will not provide an adequate remedy to the
Company; and
(ii) the right and remedy to require the Executive to account for
and pay over to the Company all compensation, profits, moneys, accruals,
increments or other benefits (collectively, "Benefits") derived or
received by the Executive as the result of any transaction constituting a
breach of any of the provisions of Sections 5,6 and/or 7, and the
Executive hereby agrees to account for such Benefits and pay over all such
Benefits to the Company.
9. Absence of Restrictions. No provision of this Agreement shall be deemed to
restrict the absolute right of the Company at any time to sell or dispose of all
or any part of the assets of the Company, or to reconstitute the same in any one
or more other entities, or to merge, consolidate, sell or liquidate or otherwise
abandon or cease the active conduct of its business, but none of the foregoing
shall relieve the Company of its obligations hereunder. Provided the Executive
has not breached any of its obligations hereunder, in the event the Company
shall liquidate or cease the active conduct of its business, other than in
connection with a sale or disposition of all or substantially all of the assets
of the Company or a merger or consolidation of the Company, the Executive shall
be relieved of any further obligation or restriction under Section 6 hereof,
commencing as of the date of such liquidation or cessation of business.
10. Arbitration. Any dispute, controversy or claim, at any time arising out of
this or relating to this Agreement, or the breach, termination or invalidity
thereof (other than any dispute, controversy or claim pursuant to Sections 5, 6,
7, and/or 8 hereof, which may, at the option of the Company, be submitted to any
court having jurisdiction), shall be referred to final and binding arbitration
by a single arbitrator appointed by mutual
16
<PAGE>
agreement of the parties, but in the absence of mutual agreement, selected by
the Chief Judge of the Federal District Court for the Southern District of New
York. The place of arbitration shall be New York City. Costs shall be borne as
the arbitrators shall determine. Any arbitral award may be entered as a judgment
in any court of competent jurisdiction.
11. Notices. Any notice required or permitted under this Agreement shall be
given in writing and shall be deemed effectively given upon personal delivery to
the party to be notified, on the next business day after delivery to a
nationally recognized overnight courier service, upon receipt of a facsimile
transmission or five days after deposit with the United States Post Office, by
registered or certified mail, postage prepaid, and addressed to the party to be
notified at the address or facsimile number (if any) indicated below for such
party, or at such other address as such party may designate upon written notice
to the other parties (except that notice of change of address shall be deemed
given upon receipt).
If to the Executive:
Russell G. Kleinknecht
4 Conklin Court
Allendale, NJ 07401
Facsimile No.: 201-818-1124
If to the Company:
IPC Information Systems, Inc.
Wall Street Plaza
88 Pine Street - 15th Floor
New York, NY 10005
Facsimile No.: (212) 858-7959
Attn: General Counsel
12. Miscellaneous.
12.1 Entire Agreement. This Agreement constitutes the entire agreement
17
<PAGE>
between the Executive and the Company with respect to the Company's employment
of the Executive and supersedes all prior agreements and understandings, written
or oral, with respect thereto.
12.2 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only by
(a) an instrument in writing and signed by the party against whom such amendment
or waiver is sought to be enforced, and (b) in the case of the Company, such
amendment or waiver also must be duly authorized by an appropriate resolution of
the Board of Directors of the Company.
12.3 Successors and Assigns. The Company shall have the right to assign
its rights under this Agreement in connection with any sale or disposition of
all or substantially all of the assets of the Company or any merger or
consolidation by the Company. This Agreement calls for the personal services of
the Executive and no part of his rights or obligations hereunder may be
assigned, transferred, pledged or encumbered by the Executive. This Agreement
shall inure to the benefit of, and be binding upon (a) the parties hereto, (b)
the heirs, administrators, executors and personal representatives of the
Executive and (c) the successors and assigns of the Company, as provided for
herein.
12.4 Governing Law. This Agreement, including the validity hereof and the
rights and obligations of the parties hereunder, and all amendments and
supplements hereof and all waivers and consents hereunder, shall be construed in
accordance with and governed by the domestic substantive laws of the State of
New York without giving effect to any choice of law or conflicts of law
provision or rule that would cause the application of the domestic substantive
laws of any other jurisdiction.
12.5 Severability. If any provisions of this Agreement as applied to any
part or to any circumstance shall be adjudged by a court to be invalid or
unenforceable, the same shall in no way affect any other provision of this
Agreement, the application of such provision in any other circumstances or the
validity or enforceability of this Agreement.
12.6 Survival. The rights of the Company and obligations of the Executive
18
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pursuant to Sections 4, 5, 6, 7, 8 and 10 shall survive the termination of the
Executive's employment with the Company and the expiration of the term of this
Agreement.
12.7 Affiliates. For purposes of Sections 3, 5, 6, 7, and 8, the
"Company" shall be deemed to include the Company and its subsidiaries and
affiliates.
12.8 Captions. The headings and captions used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement.
12.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by its duly authorized officer and the Executive has executed this Agreement on
the day and year first above written.
EXECUTIVE:
--------------------------------
Russell G. Kleinknecht
COMPANY:
IPC Information Systems, Inc.
By:
-----------------------------
Name:
Title:
19
<PAGE>
Appendix A - RELEASE
IMPORTANT NOTICE
Your employment with the IPC Information Systems, Inc. (the "Company") is being
terminated. In this regard, the Company is prepared to pay you severance
benefits, but will do so only if you give up your rights to bring or participate
in certain types of lawsuits. By signing this Release, you will give up those
rights, and the Company will pay you severance benefits. YOU SHOULD THOROUGHLY
REVIEW AND UNDERSTAND THE TERMS, CONDITIONS AND EFFECT OF THIS RELEASE.
THEREFORE, PLEASE CONSIDER IT FOR AT LEAST TWENTY-ONE (21) DAYS BEFORE SIGNING
IT. YOU ARE ADVISED TO CONSULT WITH AN ATTORNEY BEFORE YOU SIGN.
In consideration of the mutual terms and conditions and covenants and
understandings set forth in that certain Employment and Noncompetition Agreement
made as of the 1st day of October, 1997, by and between the Company and Russell
G. Kleinknecht, on behalf of myself and also on behalf of any other person or
persons claiming or deriving a right from me, unconditionally and irrevocably
forever release and discharge IPC Information Systems, Inc. and its agents,
servants, employees, directors, officers, affiliates and/or subsidiaries, and
any agents, servants, employees, directors and/or officers of all such
affiliates and/or subsidiaries and their respective heirs, successors and
assigns (collectively, "the Releasees") from any and all charges, complaints,
claims, liabilities, obligations, promises, agreements, controversies, actions,
demands, debts, costs, expenses, damages, injuries or causes of action
("Claims") which I now have, or ever have had, against any one or more of the
Releasees arising out of my employment with, or termination of my employment
with, the Company, up to and including the date on which I sign this Release,
whether arising in equity or pursuant to any law, rule or regulation, including
any Claims of which I am not aware or do not suspect to exist as of the date on
which I sign this Agreement. This release includes, but is not limited to, any
Claims that I (or any person or persons claiming or deriving a right from me)
may have based on discrimination due to age, race, sex, religion or national
origin, or any other claims pursuant to the Age Discrimination in Employment Act
of 1967, as amended, the National Labor Relations Act, Title VII of the Civil
Rights Act of 1964, the Civil Rights Act of 1866, the Family and Medical Leave
Act, the Rehabilitation Act of 1973, the Americans with Disabilities Act, the
Equal Pay Act, the Fair Labor Standards Act, the Employee Retirement Income
Security Act of 1974, as amended, the Internal Revenue Code of 1986, Executive
Orders Nos. 11246 and 11141, the New York Human Rights Law, the New York Equal
Pay Law, the New York Equal Rights Law, and any other federal, state or local
statute, rule, constitutional provision, regulation, ordinance or common law,
including, but not limited to, those for wrongful discharge, fraud, intentional
or negligent infliction of emotional distress and breach of any expressed or
implied covenant of good faith and fair dealing, and including but not limited
to, any Claims for recovery of attorney's fees. I UNDERSTAND THAT BY SIGNING
THIS RELEASE, I AM GIVING UP ALL RIGHTS THAT I HAVE UNDER THESE AND OTHER LAWS.
I acknowledge that: (a) the payment referred to above is in consideration for
the release contained herein and is in addition to any other payments or
benefits to which I am otherwise entitled from the Company; (b) I have received,
read and understood an information sheet ("Information Sheet"), if applicable,
specifying (1) the constituencies of the Company considered for any group
termination program in which I am included, (2) the eligibility factors for such
program, (3) the applicable time limits for such program, (4) the job titles and
ages of all individuals eligible or selected for such program, and (5) the ages
of all individuals who were neither eligible nor selected, but were in the same
job classifications or organizational units as those chosen; (c) I have had the
opportunity to consider this Agreement and the Information Sheet for at least 21
days; (d) I have read this document in its entirety, understand its terms, and
knowingly and voluntarily consent to its terms and conditions; (e) I have signed
this document knowingly and voluntarily, and without coercion by the Company or
any of the Releasees; and (f) I remain bound by any confidentiality,
non-solicitation, non-compete or other restrictive covenants that I have
previously agreed to.
This Release will become effective and enforceable seven (7) days after
___________, 199___. During this 7-day period, this Release may be revoked by
me, by written notice delivered to the General Counsel of the Company, 88 Pine
Street, New York, New York; thereafter, it may not be changed or revoked by me
without the prior written
<PAGE>
consent of the Company. I will not receive any payment until this seven day
period has expired.
(L.S.)
-----------------------------
STATE OF )
: ss.:
COUNTY OF )
On this ____ day of _______________, 199___, before me personally came
__________________, to me known, who did depose and say that (s)he resides at
_____________________________________________________, that (s)he is the person
who signed the foregoing Release, and that (s)he signed the foregoing Release as
his/her free act and deed.
-----------------------------------
Notary Public
As of the 1st day of October, 1997
Russell Kleinknecht
4 Conklin Court
Allendale, NJ 07401
Re: Letter Agreement regarding Employee Loan
Dear Mr. Kleinknecht:
This letter agreement shall document the status of certain loans and employee
advances made by IPC Information Systems, Inc. ("IPC" or the "Company") to you
during the course of your employment (or made to you by your prior employer,
Kleinknecht Electric Company and transferred to IPC for value).
Employee Loans and Advances. As of the date of this Letter Agreement, the
Company has made loans and/or advances to you in the amount of $276,738.84,
inclusive of accrued interest ("Employee Loan"), which are your obligations to
repay to the Company and which shall be your obligation to repay as hereinafter
provided and which have and shall continue to bear interest at the rate of 6%
per annum.
Repayment of Employee Loan.
(i) If, at any time on or after the date hereof, a bonus is payable to you in
accordance with Section 3.2 of the Employment and Noncompetition Agreement,
entered into between IPC and you of even date hereof (the "Agreement"),
five-eighths (5/8ths) of such bonus shall be retained by the Company and applied
to the payment of accrued interest and principal on the Employee Loan; provided,
however, that the maximum amount which you shall be required to repay from
bonuses payable under Section 3.2 of the Agreement during any fiscal year of the
Company shall be the lesser of (a) Fifty Thousand Dollars ($50,000) or the
entire outstanding amount of principal and accrued interest; and
(ii) If, at any time on or after the date hereof, a bonus is payable to you in
accordance with Section 3.9 of the Agreement and on any such payment date any
portion of the Employee Loan remains outstanding, then in addition to any
Employee Loan payments required under paragraph (i), above, an amount equal to
one-third of the then-outstanding principal of the Employee Loan plus all
accrued interest (or, if the entire amount of principal and interest then
remaining due shall be less, the entire amount of outstanding principal and all
accrued interest) shall be payable, provided, however, that such amount payable
hereby shall not exceed five-eighths (5/8ths) of the total bonus payable to you
on said date.
<PAGE>
Notwithstanding the foregoing, the Employee Loan (which shall also mean any
additional loans and/or advances which may be made to you, in the Company's sole
discretion, except for any amounts which may be paid by the Company in
accordance with Section 3.4 (c) with respect to "split-dollar" life insurance,
which repayments to the Company shall be made in accordance therewith) and all
accrued interest shall be repaid to the Company in full not later than the
earlier to occur of (i) the expiration of the Initial Term of the Agreement and
(ii) the sixtieth (60th) day after the termination of the Agreement for any
reason
Any amounts payable by you under paragraphs (i) and (ii), above may be deducted
by the Company from any bonus payments due on said payment dates and shall be
applied to the payment of accrued interest and principal (in that order of
priority) on the Employee Loan.
Yours sincerely,
IPC Information Systems, Inc.
By:
-------------------------------
S. T. Clontz, President and CEO
Please indicate your agreement to and acceptance of the terms of this Letter
Agreement by signing below:
Accepted and Agreed:
- ---------------------------------- ---------------------------------
Russell G. Kleinknecht Witness
Date:
-----------------------------
Exhibit 21.3
Subsidiaries of
IPC Information Systems, Inc.
Name: Place of Incorporation:
- ----- -----------------------
IPC Information Systems United Kingdom
Dealerphone, Ltd. United Kingdom
HNG Corp. Delaware
RIE Corp. Delaware
IPC Information Systems Far East, Inc. Delaware
IPC Information Systems Canada, Inc. Canada
IPC Information Systems Asia Pacific, Limited Hong Kong
IPC Bridge, Inc. New York
International Exchange Networks, Ltd. Delaware
International Exchange Network Corp. Delaware
IXNET LTD. United Kingdom
IXNET Japan Co., Ltd. Japan
IXNET PTE LTD. Singapore
International Exchange Networks (Hong Kong) Limited Hong Kong
International Exchange Network SAS France
International Exchange Network GmbH Germany
IXNET Brasil Comercio E Participacoes Ltda. Brazil
International Exchange Networks (Mexico), S.A. de C.V. Mexico
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (File Nos. 33-93134, 33-93135 and 33-93136) 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., which report is included in this
Annual Report on Form 10-K for the fiscal year 1997.
COOPERS & LYBRAND L.L.P.
New York, New York
January 9, 1998
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0
0
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