SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended September 30, 1998 Commission file number 0-25492
IPC INFORMATION SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 58-1636502
----------------------------------------- -------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
Wall Street Plaza
88 Pine Street
New York, New York 10005
----------------------------------------- -------------------
(Address of Principal Executive Offices) Zip Code
(212) 825-9060
- --------------------------------------------------------------------------------
(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, 1998 was approximately $8.2 million based upon the
last sale price reported for such date on the American Stock Exchange.
The number of shares of the Registrant's Common Stock outstanding as of November
30, 1998 was 8,076,188.
DOCUMENTS INCORPORATED BY REFERENCE - None.
<PAGE>
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Director
Name Age (1) Position Since
- ---- --- -------- -----
<S> <C> <C> <C>
Peter Woog (3) (4) 56 Chairman and Director 1998
Richard P. Kleinknecht (5) 60 Vice Chairman and Director 1991
Richard M. Cashin, Jr. (3) (4) 46 Director 1998
David Y. Howe (2) (5) 34 Director 1998
Richard Smith (2) (3) (4) 46 Director 1998
Kilin To (5) 55 Former Director (6) 1998
Robert J. McInerney (2) 53 Director 1994
Terry Clontz (4) 48 Former CEO and President and Director (6) 1995
David A. Walsh (4) 37 Executive Vice President, IXnet and Director 1998
Gerald E. Starr (4) 45 CEO and President and Director (7) 1998
Brian L. Reach 43 Vice President, Chief Financial Officer and Director (7) 1998
Daniel Utevsky 48 Vice President, General Counsel and Secretary N/A
</TABLE>
- ----------
(1) As of December 31, 1998.
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Executive Committee
(5) Member of the Nominating Committee
(6) Resigned from Board of Directors and Committees effective December 3, 1998
(7) Appointed to fill Board of Directors and Committee vacancies effective
December 3, 1998
PETER WOOG has been the Chairman and a Director of the Company since April
30, 1998. Mr. Woog is President and Chief Executive Officer of Cable Systems
International, Inc. ("CSI") where he has been employed since 1995. He also
serves on the Board of Directors of Cable Systems Holding Company ("CSHC"), CSI,
LoDan Electronics, Inc. ("LoDan"), the Arizona Association of Industries and the
Samaritan Health System. He is also a trustee and chairman for the Arizona
Science Center.
Richard P. Kleinknecht has been the Vice Chairman of the Company since
April 30, 1998 and, until that date, served as Chairman and a Director of the
Company since its acquisition from Contel Corporation in October 1991. Prior to
the appointment of Mr. Clontz on December 3, 1995, Mr. Kleinknecht also served
as Chief Executive Officer of the Company. Mr. Kleinknecht has also served as
Chairman of various companies (collectively, the "Kleinknecht Organization")
since 1968 and has worked for the Kleinknecht Organization since 1960.
RICHARD M. CASHIN, JR. has been employed by Citicorp Venture Capital, Ltd.
("CVC") since 1980 and has been President since 1994. Mr. Cashin is a director
of Levitz Furniture Incorporated, Furnishings International, Inc., Euromax and
Titan Wheel International.
DAVID Y. HOWE is a Vice President of CVC where he has been employed since
1993. He is also a director of American-Italian Pasta Company, Aetna Industries,
Inc., Bob's Stores, Inc., C&H Sugar Company, CSI, CSHC, Formica Corp., Insilco
Holding Co., Pen-Tab Industries, Inc., and several private companies.
RICHARD SMITH is General Partner of the general partner of Allegra Capital
Partners III, L.P. (formerly known as Lawrence, Smith & Horey III, L.P. and
hereinafter "Allegra"), Lawrence, Tyrrell, Ortale & Smith and Lawrence, Tyrrell,
Ortale & Smith II, L.P. He is also a director of Best Friends Pet Care, Silvon
Software, Signius Corporation and CommSite International. He has participated in
the private equity industry since 1979.
KILIN TO is a Managing Partner of Sycamore Ventures, a U.S. based venture
capital firm and prior to its founding was a vice president of CVC which he
joined in 1984. He is also a director of Premier Pacific Pharmaceutical
Industries Limited, ASIA Ltd., Celadon Group, Inc., LogicVision, Inc., and
2
<PAGE>
International Media Group. Mr. To resigned from the Company's Board of Directors
effective December 3, 1998.
ROBERT J. McINERNEY has been employed since February of 1997 by Merisel,
Inc., a leading distributor of computer hardware, networking equipment and
software, where he is responsible for U.S. and Canadian operations. He was
previously employed as Executive Vice President of United Capital Corporation, a
multi-national holding corporation and parent to Dorne & Margolin, Ancom
Corporation, Metex Corporation and AFP Corporation from 1995. Prior to joining
United Capital Corporation, from 1981 Mr. McInerney was employed by Arrow
Electronics, Inc., the largest electronic component distributor in the world,
and served as President of Arrow's Commercial Systems Group from 1987 to 1994.
DAVID A. WALSH has served as President and Chief Executive Officer of
IXnet and a Director of the Company since April 30, 1998. Prior to that, he was
President of IXnet since its founding in 1993 and an employee of the Company
since the Company's acquisition of IXnet in June of 1995. Previously, Mr. Walsh
served as a technology consultant to the New York Commodities Exchange and had
been employed by Garban, Garvin Guybutler and Drexel Burnham Lambert Trading.
TERRY CLONTZ joined the Company in December, 1995 as President and Chief
Executive Officer and Director. From 1992 through December, 1995, Mr. Clontz
served as President of BellSouth International's Asia/Pacific Region and a
director of BellSouth's ventures in Australia, Singapore, India, New Zealand and
the People's Republic of China. Mr. Clontz was employed by BellSouth Corporation
and its affiliates for a total of 23 years, including 1987 to 1990 as Vice
President of International Business Development and 1990 to 1992 as Vice
President - Business Development and Operations. Mr. Clontz resigned from the
Company and the Board of Directors effective December 3, 1998.
GERALD E. STARR has served as President and Chief Executive Officer and
Director since December 3, 1998. Prior to that he was Executive Vice President,
Turret Systems from January of 1997 and had been Vice President of Manufacturing
and Engineering from February of 1996. Since April 1995, he has also served as
President of IPC Bridge, Inc., a wholly-owned subsidiary which acquired the
assets of Bridge Electronics, Inc. Mr. Starr founded Bridge Electronics, Inc. in
1987 and built it into the leading provider of digital open line speaker systems
to the foreign exchange trading industry. Previously, Mr. Starr founded Turret
Equipment Corporation ("TEC") in 1980 and sold TEC to Tie Communications in
1984, where he remained until 1990.
BRIAN L. REACH joined the Company in May of 1997 as Chief Financial
Officer and in November of 1997 was named a Vice President. Effective
December 3, 1998, Mr. Reach was appointed to fill a vacancy on the Company's
Board. Prior to joining IPC, from 1993 through April 1997, Mr. Reach was
employed by the Celadon Group Inc., an international transportation company, as
its Chief Financial Officer through April 1996 and Vice President - Special
Projects through April 1997. From 1990 through 1993, he was employed by Cantel
Industries, Inc., an international distributor of medical and scientific
products and ergonomic seating as the Chief Financial Officer. Mr. Reach is a
Certified Public Accountant.
DANIEL UTEVSKY has been employed by the Company since July 1993, has
served as General Counsel and Corporate Secretary since May 1994 and was named a
Vice President in October of 1996. Mr. Utevsky has 21 years experience in the
telecommunications industry, including 15 years as an attorney.
Board Meetings and Committees
In fiscal 1998, the Company's Board of Directors met in person or by
teleconference on nine occasions, the Audit Committee met twice and the
Compensation Committee met twice. Each director attended, in person or by
telephone, not less than 75% of the meetings of the Board of Directors and the
committees of which he was a member.
The Audit Committee reviews with the Company's management and independent
auditors the financial statements and internal financial reporting system and
controls of the Company, reports to the Board of Directors on the results of its
examination and makes recommendations to the Board of Directors regarding the
employment of accountants and independent auditors.
3
<PAGE>
The Compensation Committee oversees the development, implementation and
conduct of the Company's employment and personnel practices, including the
administration of the Company's compensation and benefit programs. The
Compensation Committee also makes recommendations to the Board of Directors
concerning executive officers' compensation and the granting of stock options.
The Executive Committee has the power and authority of the Board of
Directors to act in accordance with and subject to Section 141(c)(1) of the
Delaware General Corporation Law.
The Nominating Committee reviews and considers nominations to fill Board
and Committee vacancies and to recommend nominees for consideration by the Board
of Directors.
Directors Compensation
Mr. McInerney receives compensation for his services as a director and
attendance at board and committee meetings. Each other member of the Board of
Directors is either an employee of the Company or a principal of a signatory of
the Investors Agreement (as hereinafter defined) and has forgone director's
compensation. Payment to Mr. McInerney consists of an annual retainer of $5,000
contingent upon attending at least 75% of the aggregate total number of meetings
of the Board and of each committee of which he is a member. Additionally, he
receives a fee of $3,000 for each day in which he attends a Board or committee
meeting. There are no provisions in the Company's Restated Certificate of
Incorporation or Bylaws that have the effect of, nor has the Board adopted any
policy that has the effect of, imposing a maximum limitation on the total
compensation payable in any year to any director.
Compensation Committee Interlock and Insider Participation
The Compensation Committee of the Board of Directors consists of Messrs.
Woog, Smith and Cashin. There is no insider participation on the Compensation
Committee.
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT
Under the securities laws of the United States, the Company's directors,
executive officers and any person holding more than ten percent of the Company's
Common Stock are required to file initial reports of ownership of the Company's
Common Stock and reports of changes in that ownership at the Securities and
Exchange Commission and the National Association of Securities Dealers, Inc.
Specific due dates for these reports have been established, and the Company is
required to disclose in this Proxy Statement any failure to file by these dates.
Form 3s are required to be filed within ten days after the event by which
an individual becomes a reporting person. Form 4s are required to be filed
within ten days after the end of the reporting month. Form 5s are required to be
filed on or before the forty-fifth day after the end of the issuer's fiscal
year. Based upon information available to it, the Company believes that, except
with respect to Form 3s of Messrs. Woog, Cashin, Howe, Smith and To, all Form
3s, Form 4s and Form 5s required to be filed during the fiscal year ended
September 30, 1998 were filed on a timely basis.
4
<PAGE>
ITEM 11. Executive Compensation
The following table provides certain summary information concerning all
compensation earned by the Company's chief executive officer and (i) each of the
other four most highly compensated executive officers of the Company who were
serving as executive officers at the end of the last completed fiscal year and
whose aggregate salary plus bonus for the fiscal year ended September 30, 1998
was at least $100,000 and (ii) two additional former executive officers for whom
disclosure would have been provided but for the fact that such individual was
not serving as an executive officer as of September 30, 1998 (collectively, the
"Named Executive Officers") whose total annual salary and bonus for the fiscal
year ended September 30, 1998 exceeded $100,000 in the aggregate.
Summary Compensation Table
Annual Compensation
<TABLE>
<CAPTION>
Securities
Underlying
Fiscal Other Annual Options/SARs All Other
Name and Principal Position Year Salary (1) Bonus Compensation (2) Granted Compensation (3)
- --------------------------- ---- ------ ----- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Richard P. Kleinknecht 1998 $420,000 -- -- 115,440 $ 94,814
Vice Chairman 1997 420,000 -- -- -- 87,250
1996 420,000 -- -- -- 26,540
Peter J. Kleinknecht 1998 420,000 -- -- 115,440 25,548
Former Vice Chairman 1997 420,000 -- -- -- 13,400
1996 420,000 -- -- -- 13,200
Terry Clontz (4) 1998 330,000 $568,630 $ 8,400 (5) 92,352 17,357
President and Chief 1997 324,692 60,000 82,529 (5) 25,000 15,756
Executive Officer 1996 255,006 150,000 133,300 (5) 200,000 12,871
Gerald E. Starr 1998 225,000 484,750 -- 92,352 4,800
Exec. Vice President 1997 217,789 28,325 -- 40,000 3,200
Turret Systems 1996 183,077 25,000 -- -- --
Russell G. Kleinknecht 1998 168,269 468,000 -- 46,176 --
Former Executive Vice 1997 250,000 31,250 -- 40,000 7,670
President I.T.S. 1996 220,000 160,000 -- 100,000 10,773
David A. Walsh 1998 199,423 281,250 -- 184,704 44,746
Executive Vice President, 1997 190,000 -- -- -- --
IXnet And Director 1996 190,000 128,938 -- -- --
Brian L. Reach 1998 186,153 370,000 8,400 (5) 92,352 4,800
V.P., Chief Financial 1997 58,462 23,100 2,000 (5) -- 2,000
Officer and Director 1996 -- -- -- -- --
</TABLE>
- ----------
(1) Includes amounts, if any, deferred by the named individual for the period in
question pursuant to Section 401(k) of the Internal Revenue Code under the
IPC Information Systems, Inc. Retirement Savings Plan and Trust (the "401(k)
Plan").
(2) Does not include certain perquisites and other personal benefits, securities
or property received by the Named Executive Officers when the aggregate
value does not exceed the lesser of $50,000 or 10% of any such officer's
salary and bonus disclosed in this table.
(3) Consists of (i) premiums paid by the Company for term or other life
insurance coverage under contracts affording the named individual
dispositive control over the death benefit proceeds and (ii) amounts paid by
the Company as matching and/or profit sharing contributions to the 401(k)
Plan.
(4) Mr. Clontz was employed by the Company as President & Chief Executive
Officer as of Dec. 3, 1995. Mr. Clontz resigned from the Company as of
December 3, 1998.
(5) With respect to Mr. Clontz: for fiscal year 1998, consists of payments for
automobile allowance; for fiscal year 1997, consists of $71,429 ($40,000 for
moving expenses and $31,429 tax gross-up on said payment) and $11,400
related to housing costs; for fiscal year 1996, consists of $100,000 hiring
bonus, in accordance with Mr. Clontz's Employment Agreement and $33,300
related to housing costs. With respect to Mr. Reach, consists of payments
for automobile allowance.
5
<PAGE>
Employment Agreements
Richard P. Kleinknecht. As of December 18, 1997, Richard P. Kleinknecht
entered into an Amended and Restated Employment Agreement, which became
effective as of April 30, 1998 upon the closing of the Merger and which
superceded Mr. Kleinknecht's pre-existing Employment Agreement. The Amended and
Restated Employment Agreement provides for an initial term of two (2) years of
employment, which shall be automatically extended for successive one year terms
unless either party gives the other 90 days prior notice of non-extension. Under
this Agreement, Mr. Kleinknecht serves as Vice-Chairman of the Board of
Directors, reporting to the Board and the Chairman, devotes his full working
time and his best efforts to the performance of his duties and receives a
minimum base salary of $420,000 per annum. He may also receive, at the
discretion of the Board, a bonus based upon his performance and the performance
of the Company. Mr. Kleinknecht was also granted 57,720 stock options (adjusted
to 115,440 stock options as a result of the stock split by way of a stock
dividend, distributed June 24, 1998), pursuant to the Stock Incentive Plan. The
Agreement shall terminate if Mr. Kleinknecht's employment terminates by reason
of resignation, death, disability or his discharge for cause, as defined
therein.
Peter J. Kleinknecht. As of December 18, 1997, Peter J. Kleinknecht
entered into an Amended and Restated Employment Agreement, which became
effective as of April 30, 1998 upon the closing of the Merger and which
superceded Mr. Kleinknecht's pre-existing Employment Agreement. The Amended and
Restated Employment Agreement provides for a term of two (2) years of employment
whereby Mr. Kleinknecht serves as an employee on an "as-needed" basis, performs
such duties as may be assigned to him from time to time (consistent with duties
previously performed) and receives a minimum base salary of $420,000 per annum.
He may also receive, at the discretion of the Board, a bonus based upon his
performance and the performance of the Company. Mr. Kleinknecht was also granted
57,720 stock options (adjusted to 115,440 stock options as a result of the stock
split by way of a stock dividend, distributed June 24, 1998), pursuant to the
Stock Incentive Plan. The Agreement shall terminate if Mr. Kleinknecht's
employment terminates by reason of resignation or his discharge for cause, as
defined therein.
Terry Clontz. Effective as of December 3, 1998, the Company and Mr. Clontz
entered into a Separation Agreement and Release whereby Mr. Clontz terminated
his employment with the Company as of said date and providing (i) a lump sum
payment of $164,333 (representing the unpaid balance of a previously earned
incentive bonus) less the outstanding balance on his residential loan and (ii) a
lump sum payment of $800,000, payable upon the occurrence of certain specified
events but not later than December 31, 2001. The Separation Agreement also
provides certain indemnities, mutual releases, and covenants relating to Company
confidential information and trade secrets, non-solicitation and
non-competition.
Russell G. Kleinknecht. Effective as of May 29, 1998, the Company and Mr.
Kleinknecht entered into a Resignation Agreement and Release whereby Mr.
Kleinknecht terminated his employment with the Company as of June 1, 1998. See
Item 13, Certain Relationships and Related Transactions.
Gerald E. Starr. As of April 20, 1995 and coincident with the acquisition
of assets of Bridge Electronics, Inc., IPC Bridge, Inc., a wholly-owned
subsidiary of the Company, entered into an Employment Agreement with Gerald E.
Starr, providing an employment term of five years, a minimum base salary of
$150,000 and other benefits. The Agreement provided for its termination, with no
further liability to the Company in the event of Mr. Starr's death, disability
or his termination for Cause (as defined therein). The Agreement also contains
provisions regarding the Company's ownership of inventions which he may make
during its term, and certain confidentiality and non-competition provisions.
Effective as of May 21, 1996, the parties entered into a First Amendment to the
Employment Agreement, providing an increase in the base salary to $200,000. As
of August 1, 1997, the parties entered into a Second Amendment to the Employment
Agreement, providing: (i) documentation of an increase in Mr. Starr's base
salary to $225,000 (effective as of January 13, 1997); (ii) an additional
provision providing, upon the occurrence prior to July 31, 1998 of a change of
control transaction involving the Company, payment to Mr. Starr of incentive
payments (ranging from $137,200 to $392,000, depending upon the price realized
by the Company and/or its stockholders in said transaction); and (iii) a
termination at will clause which provides that in the event of his termination
without cause, at or following a change of control (as defined therein) of the
Company prior to July 31, 1998, the Company would make severance payments to Mr.
Starr in an amount equal to 225% of his then current base salary.
6
<PAGE>
David A. Walsh. David Walsh has entered into an Amended and Restated
Employment Agreement with IXnet, dated as of December 18, 1997 and which became
effective as of April 30, 1998 upon the consummation of the Merger, under which
he is to be employed on a full time basis for a five-year term as Chief
Executive Officer of IXnet and Chairman of the IXnet Board of Directors
reporting only to the full IXnet Board or the IPC Board. Under the employment
agreement, Walsh will receive $225,000 in base salary plus a discretionary bonus
with a minimum bonus target of $175,000 and benefits consistent with past
practice. He will also receive options to purchase 2% of the fully diluted
shares of the Company and a "springing" option grant equal to 3% of the shares
of IXnet (with an additional 2% reserved for grants to other employees) in the
event of a public offering or spin-off of IXnet stock within 2 years. He is
entitled to lump sum severance payments payable if he is terminated "without
cause" or if he resigns for "good reason," equal to his base salary, plus his
average bonus, for a period equal to the greater of three (3) years or the
number of years in his then-remaining term of employment. Walsh's benefits under
his employment agreement will continue during such severance period. During the
term and for 2.5 years thereafter, Walsh is subject to restrictions on (i)
competition and (ii) the solicitation of customers and employees, and for all
periods during and after the term, he is subject to nondisclosure and
confidentiality restrictions relating to the confidential information and trade
secrets of the Company and its affiliates.
Other. As of August 1, 1997, the Company entered into Employee Retention
and Incentive Agreements with eight senior officers, including two Executive
Officers, Brian Reach and Daniel Utevsky, who were not Named Executive Officers.
Upon the occurrence of a change of control, as defined therein, of the Company
prior to July 31, 1998, these Agreements provided for the payment to said
officers of (i) incentive bonus payments of $60,000 and $63,000, respectively
and (ii) additional payments equal to $204,000 and $40,000, respectively,
representing authorized but ungranted stock options. Additionally, in the event
that these individuals' employment with the Company is terminated without cause
prior to April 30, 1999, the Company will make severance payments equal to such
employee's target bonus plus base salary through April 30, 1999 but not less
than six months plus one week for each year of service.
7
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
By Management. The following table sets forth certain information, as of
December 31, 1998, with respect to the beneficial ownership of the Company's
Common Stock by: (i) each director; (ii) each of the named executive officers;
and (iii) all executive officers and directors as a group. Unless indicated
otherwise, each person listed has sole voting and investment power over the
shares beneficially owned. [Note: All share amounts reflect the stock split by
way of a stock dividend distributed to shareholders on June 24, 1998.]
<TABLE>
<CAPTION>
Amount & Nature of Approximate
Name of Beneficial Owner Beneficial Ownership(1) Percent of Class(2)
- ------------------------ ----------------------- -------------------
<S> <C> <C>
Peter A. Woog 1,520,190 (3) (4) 18.8%
Richard M. Cashin, Jr. 0 (4) 0%
David Y. Howe 0 (4) 0%
Richard P. Kleinknecht 761,904 (5) 9.4%
Richard Smith 285,714 (6) 3.5%
David A. Walsh 262,094 (7) 3.2%
S. Terry Clontz 6,000 *
Brian L. Reach 4,000 *
Kilin To 0 0%
Robert J. McInerney 0 0%
Gerald E. Starr 0 0%
Daniel H. Utevsky 0 0%
Peter J. Kleinknecht 0 0%
Russell G. Kleinknecht 0 0%
All executive officers and
directors as a group (14 persons) 2,839,902 35.2%
</TABLE>
- ------------------------
* Less than 1%
(1) Based upon information supplied by officers and directors, and filings
under Sections 13 and 16 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
(2) Percentage of ownership is based on 8,076,188 shares of Common Stock
outstanding on December 31, 1998.
(3) Includes 4,000 shares directly owned by Peter A. Woog and 1,516,190 shares
beneficially owned as follows: 1,516,190 shares directly owned by Cable
Systems International, Inc ("CSI"). Does not include 4,910,342 shares owned
by other signatories of the Amended and Restated Investors Agreement, dated
as of April 9, 1998, among the Company, Cable Systems Holding, LLC ("CSH
LLC"), CSI, Allegra, Richard P. Kleinknecht, David Walsh and Anthony
Servidio (the "Investors Agreement").
(4) Based on Amendment No. 3 to Schedule 13D, filed May 22, 1998.
(5) Includes 761,904 shares directly owned by Richard P. Kleinknecht. Does not
include 5,668,628 shares owned by other signatories of the Investors
Agreement.
(6) Includes 285,714 shares beneficially owned by Allegra. Does not include
6,144,818 shares owned by other signatories of the Investors Agreement.
(7) Includes 262,094 shares directly owned by David A. Walsh. Does not include
6,168,438 shares owned by other signatories of the Investors Agreement.
By Others:
On May 22, 1998, Amendment No. 3 to Schedule 13D was filed by a group consisting
of Arizona Acquisition Corp. ("AAC"), Cable Systems Holding Company, CSH LLC,
CSI, David Kirby, John O'Mara, Peter W. Woog and Woog Family Limited
Partnership. This amendment indicated that, as of April 30, 1998, CSH LLC
beneficially owns and has sole voting and sole dispositive power with respect to
3,409,584 shares, Cable Systems Holding Company beneficially owns and has sole
voting and dispositive power with respect to 1,516,190 shares, CSI beneficially
owns and has sole voting and dispositive power with respect to 1,516,190 shares,
Peter A. Woog beneficially owns and has sole voting and dispositive power with
respect to 1,516,190 shares, the Woog Family Limited Partnership beneficially
owns and has
8
<PAGE>
sole voting and dispositive power with respect to 1,516,190 shares and David
Kirby, John O'Mara and AAC beneficially own and have voting and dispositive
power with respect to 0 shares. The address of each of Cable Systems Holding
Company, CSH LLC, and CSI is 505 North 51st Avenue, Phoenix, Arizona 85043-2701.
The address of Peter A. Woog is c/o CSI, 505 North 51st Avenue, Phoenix, Arizona
85043-2701. The address of the Woog Family Limited Partnership is c/o Peter
Woog, 505 North 51st Avenue, Phoenix, Arizona 85043-2701. The address of David
Kirby is 24 Father Peter's Lane, New Canaan, CT 06840. The address of John
O'Mara is 623 Lake Avenue, Greenwich, CT 06840. AAC merged into the Company on
April 30, 1998 with the Company surviving.
On May 13, 1998, the Company received notice, by copy of an SEC Form 3 (Initial
Statement of Beneficial Ownership of Securities) filed on behalf of a group
consisting of Chesapeake Partners Management Co., Inc. ("CPMC"), Chesapeake
Partners Limited Partnership ("CPLP") and Chesapeake Institutional Fund Limited
Partnership ("CIF"), that said group beneficially owned 927,400. Of the current
shareholdings, 896,000 shares were beneficially owned by CPLP and 31,400 shares
were beneficially owned by CIF. CPMC also has indirect beneficial ownership over
the total of 927,400 shares as it exercises voting power as the sole general
partner of CPLP and CIF. The address of CPMC, CPLP and CIF is 1829 Reisterstown
Road, Suite 220, Baltimore, MD 21208.
New Stock Incentive Plan - General Plan Information
The Company has adopted a New Stock Incentive Plan. The following table sets
forth certain information with respect to options granted under the New Stock
Incentive Plan during the fiscal year ended September 30, 1998 to the Named
Executive Officers of the Company:
Option/SAR Grants in Fiscal Year Ended September 30, 1998
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates
of Share Price
Appreciation for
Individual Grants Option Term (1)
----------------- ---------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Number of Options/
Securities SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration 5% 10%
Name Granted Fiscal Year ($/Share) Date ($) ($)
---- ------- ----------- --------- ---- --- ---
<S> <C> <C> <C> <C> <C> <C>
Richard P. Kleinknecht 115,440 10.4% $10.50 4/30/08 $761,904 $1,931,311
Peter J. Kleinknecht 115,440 10.4 10.50 4/30/08 761,904 1,931,311
Terry Clontz 92,352 8.3 10.50 4/30/08 609,523 1,545,049
Gerald E. Starr 92,352 8.3 10.50 4/30/08 609,523 1,545,049
Russell Kleinknecht 46,176 4.2 10.50 4/30/08 304,762 772,524
David A. Walsh 184,704 16.7 10.50 4/30/08 1,219,046 3,090,098
Brian L. Reach 92,352 8.3 10.50 4/30/08 609,523 1,545,049
</TABLE>
Note: All Options granted under the New Stock Incentive Plan during the fiscal
year ended September 30, 1998 provided a ten-year term, vest in equal amounts on
the first five anniversaries of their grant date and are exercisable at the fair
market value of the Company's Common Stock on the date of grant.
(1) Represents the potential value of options granted at assumed 5% and 10%
rates of compounded annual stock appreciation for ten years from the date of
grant of each such option.
9
<PAGE>
As of April 30, 1998, upon consummation of the Merger, all options
previously granted under and in accordance with the IPC 1994 Stock Option and
Incentive Plan (the "Former Option Plan") and which had not previously been
either exercised or cancelled vested upon the change in control and were
cancelled and the holders thereof received, with respect to each option, a cash
payment which, prior to deduction for applicable withholding taxes, was an
amount equal to the product of (i) the excess, if any, of $21.00 over the per
share exercise price of such option and (ii) the number of shares of IPC common
stock subject to such option. During the fiscal year ended September 30, 1998,
no options granted under the New Stock Incentive Plan vested or otherwise became
exercisable and therefore, none were exercised.
The following table sets forth certain information with respect to options
granted under the Former Option Plan which were cancelled and for which cash
payments, as described in the immediately prior paragraph, were made during the
fiscal year ended September 30, 1998 to the Named Executive Officers of the
Company:
Aggregated Option/SAR Exercises In Last Fiscal Year
and Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Options Number of Securities Underlying Value of Unexercised In-the-
Cancelled Value Unexercised Options/SARs at Fiscal Money Options/SARs at Fiscal
under Former Realized on Year-End Year-End
Option Plan Cancellation (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- --- --- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Richard P. Kleinknecht 0 0 0/115,440 0/0
Peter J. Kleinknecht 0 0 0/115,440 0/0
Terry Clontz 175,000 $1,193,750 0/92,352 0/0
Gerald E. Starr 40,000 283,750 0/92,352 0/0
Russell G. Kleinknecht 147,000 989,500 0/0 (1) 0/0
David A. Walsh 30,000 195,000 0/184,704 0/0
Brian L. Reach 0 0 0/92,352 0/0
</TABLE>
- ----------
Except for such deemed exercises resulting in cash-out payments, no Named
Executive Officer exercised any stock options or SARs during the fiscal year
ended September 30, 1998.
(1) Options granted to Named Executive Officer during the Fiscal Year ended
September 30, 1998 were cancelled upon grantee's termination of employment as of
June 1, 1998.
10
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Richard P. Kleinknecht, the Company's Vice Chairman and his brother, Peter
J. Kleinknecht, the Company's former Vice Chairman, are controlling stockholders
and executive officers of several other entities that do business from time to
time with the Company and certain of its customers. These entities include
Kleinknecht Electric Company, Inc., a New York company ("KEC-NY"), Kleinknecht
Electric Company, Inc., a New Jersey company ("KEC-NJ"), both electrical
services companies, and Humaco Leasing & Holding Corporation ("Humaco"), a tool
and vehicle leasing company.
As of October 1, 1993, the Company and KEC-NY entered into a 20-year
contract with respect to a pool of field technicians and administrative
employees, who are members of the International Brotherhood of Electrical
Workers ("IBEW"), Local 3 and are utilized by either the Company or KEC-NY on an
ongoing or per project basis. The Company and KEC-NJ also entered into a
comparable 20-year agreement with respect to a similar pool of employees who are
members of IBEW, Local 164T. Effective April 30, 1998, the Company and KEC-NY
and KEC-NJ entered into amended and restated agreements with respect to these
labor pools. The Company, KEC-NY and KEC-NJ have benefited from these
arrangements by allowing each company to draw from a larger pool of field
technicians and retaining the more highly trained and skilled technicians for a
broader range of projects. KEC-NY and KEC-NJ are responsible for administering
the payroll and related services for Company employees in these pools. The
Company pays all such compensation and benefits by reimbursement to KEC-NY or
KEC-NJ, as appropriate, plus an administration fee equal to 2.5% of such costs.
Effective October 3, 1996, the parties agreed to amend this agreement to provide
for a flat administrative fee of $50,000 per month (apportioned between KEC-NY
and KEC-NJ). The total amounts paid by the Company for compensation and benefits
under these arrangements in the fiscal years ended September 30, 1998, 1997 and
1996 were $53.7, $54.9 and $54.9 million, respectively. In addition, the Company
paid $0.6, $0.6 and $1.4 million in the fiscal years ended September 30, 1998,
1997 and 1996, respectively, in related administrative fees.
The Company periodically subcontracts certain work to KEC-NY or KEC-NJ.
Amounts charged to these companies under subcontracts with the Company for the
years ended September 30, 1998, 1997 and 1996 were approximately $2.9, $0.1 and
$1.0 million, respectively, while amounts charged to the Company under
subcontracts with these companies were approximately $0.2, $0.3 and $0.7
million, respectively.
The Company, KEC-NY and KEC-NJ entered into a 20-year agreement dated as
of May 9, 1994, and amended and restated as of April 30, 1998, with respect to
corporate opportunities regarding electrical and communications cable
infrastructures. KEC-NY and KEC-NJ have agreed not to bid for or accept any
communications cabling jobs in competition with the Company, if the Company
intends to bid or accept such work. The Company, which is not a licensed
electrical contractor, has agreed to refrain from bidding for or accepting,
without the consent of KEC-NY or KEC-NJ, opportunities that combine both
electrical and communications cabling work. IPC has also agreed to continue to
refer to KEC-NY and KEC-NJ certain electrical contracting bid opportunities
which may arise.
The Company has from time to time rented certain equipment from Humaco.
There were no equipment rentals from affiliated companies during fiscal 1998 or
1997. During the year ended September 30, 1996, approximately $0.9 million of
equipment rentals were utilized. The Company, under month to month arrangements,
has, in prior fiscal years, rented facilities from entities controlled by
Richard P. and Peter J. Kleinknecht. For the years ended September 30, 1997 and
1996, approximately $0.2 and $0.5 million, respectively, of such lease expense
was incurred.
Effective as of June 1, 1998, the Company entered into a Consulting
Agreement with Little Knight Music, Inc., a corporation controlled by Russell G.
Kleinknecht (a former executive officer of the Company), for a term of eighteen
(18) months under which Mr. Kleinknecht may be required to perform certain
consulting services. In consideration of such consulting services, the Company
has and will make monthly payments equaling $37,324 and totaling $707,832. As of
the effective date of this agreement, Mr. Kleinknecht owed the Company a total
of $267,893 (consisting of employee loans, advances and accrued interest
thereon). Payments under the Consulting Agreement were offset by the Company
against such outstanding loans, which loans were paid in full prior to December
31, 1998. In addition to the foregoing, the Company agreed to reimburse Mr.
Kleinknecht for a portion of the costs incurred by him for continuation of
medical, dental and hospitalization benefits during the term of such agreement.
11
<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 amendment to the
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized.
IPC INFORMATION SYSTEMS, INC.
Date: January 28, 1999 By:/s/ Gerald E. Starr
-------------------
Gerald E. Starr
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment to the Report on Form 10-K has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ RICHARD P. KLEINKNECHT Vice Chairman January 28, 1999
- ------------------------------------ ------------------------------
Richard P. Kleinknecht
/s/ DAVID Y. HOWE Director January 28, 1999
- ------------------------------------ ------------------------------
David Y. Howe
/s/ GERALD E. STARR Chief Executive Officer, January 28, 1999
- ------------------------------------ ------------------------------
Gerald E. Starr President and Director
(Principal Executive Officer)
/s/ BRIAN L. REACH Chief Financial Officer January 28, 1999
- ------------------------------------ ------------------------------
Brian L. Reach (Principal Financial Officer)
(Principal Accounting Officer)
/s/ DAVID A. WALSH Director January 28, 1999
- ------------------------------------ ------------------------------
David A. Walsh
/s/ RICHARD SMITH Director January 28, 1999
- ------------------------------------ ------------------------------
Richard Smith
/s/ ROBERT J. MCINERNEY Director January 28, 1999
- ------------------------------------ ------------------------------
Robert J. Mcinerney
</TABLE>
12
