SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ ]
Filed by a party other than the Registrant [X]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to section 240.14a-11(c) or section 240.14a-12
TECHNICAL COMMUNICATIONS CORPORATION
(Name of Registrant as Specified In Its Charter)
M. Mahmud Awan
Philip A. Phalon
Robert B. Bregman
William C. Martindale, Jr
(Name of person(s) filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
__________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
__________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
__________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
__________________________________________________________________________
5) Total fee paid:
__________________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
__________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
__________________________________________________________________________
3) Filing party:
__________________________________________________________________________
4) Date Filed:
__________________________________________________________________________
June ____, 1998
Dear Fellow Technical Communications Corporation Stockholders:
Philip A. Phalon, M. Mahmud Awan, Robert B. Bregman and William C.
Martindale, Jr. (the "Phalon Group"), stockholders of Technical Communications
Corporation who collectively own 17.2% of the outstanding Common Stock of the
Company, have formed a group for purposes of conducting a proxy context in order
to replace at least a majority of the Board of Directors of Technical
Communications Corporation.
We seek your support for our slate of five nominees for election to the
Board of Directors at the July 17, 1998 Annual Meeting.
PLEASE READ THE ENCLOSED PROXY STATEMENT AND
VOTE THE PROXY FOR THE ELECTION OF
THE GROUP'S NOMINEES FOR DIRECTORS
READ OUR PROXY STATEMENT AND
VOTE THE PROXY TODAY!
On behalf of the Phalon Group
Sincerely,
Philip A. Phalon
M. Mahmud Awan
If you have any questions or desire assistance in voting your shares, please
call:
MACKENZIE PARTNERS, INC.
156 Fifth Avenue, 9th Floor
New York, NY 10010
(212) 929-5500 (collect)
or
CALL TOLL-FREE (800) 322-2885
PROXY STATEMENT IN OPPOSITION TO THE BOARD OF DIRECTORS
OF TECHNICAL COMMUNICATIONS CORPORATION
Annual Meeting of Stockholders
July 17, 1998
This Proxy Statement is furnished to holders ("Stockholders") of the common
stock, par value $.10 per share (the "Common Stock"), of Technical
Communications Corporation ("TCC" or the "Company") in connection with the
solicitation of proxies by Philip A. Phalon, M. Mahmud Awan, Robert B. Bregman
and William C. Martindale, Jr. (the "Phalon Group") to be used at the Annual
Meeting of Stockholders of the Company (the "Annual Meeting") and all
adjournments thereof, which is scheduled at 10:00 a.m. Eastern Time on Friday,
July 17, 1998, at the principal offices of the Company at 100 Domino Drive,
Concord, Massachusetts.
Only Stockholders of record on May 29, 1998 (the "Record Date") are
entitled to vote at the Annual Meeting. The Company has advised the Phalon Group
that there were 1,283,238 shares of Common Stock outstanding at the close of
business on the Record Date, of which 1,247,506 are entitled to vote at the
Annual Meeting. As of May 29, 1998, the Phalon Group beneficially owned 220,328
shares of Common Stock, or 17.2% of the outstanding shares of Common Stock of
the Company, which constitutes 17.5% of the shares of Common Stock entitled to
vote at the Annual Meeting based upon information provided by the Company. Each
share entitles the holder of record to one vote with respect to the election of
directors to be elected at the Annual Meeting and the Stockholder Proposal. See
"GROUP NOMINEES" and "STOCKHOLDER PROPOSAL," below. This Proxy Statement and the
related proxy card are first being mailed to Stockholders on or about June ___,
1998. The principal executive offices of the Company are located at 100 Domino
Drive, Concord, Massachusetts 01742 and its phone number is (978) 287-5100.
The Phalon Group is conducting this solicitation to elect a slate of five
nominees to serve as directors of the Company (the "Group Nominees") until their
successors are duly elected and qualified. As a result of a ruling by the
Massachusetts Superior Court, which was upheld by the Massachusetts Appeals
Court, see "LITIGATION," below, all eight directors are to be elected at the
Annual Meeting. The Phalon Group by soliciting proxies on behalf of the Group
Nominees is seeking to elect at least a majority of the directors and effect a
change in control of the Company, because of its belief that Arnold McCalmont,
Hebert Lerner, Robert Lessard and Carl Guild have acted for their own personal
benefit at the expense of the Stockholders and thereby breached fiduciary duties
owed to the Stockholders, all as more fully described in "LITIGATION," below.
Accordingly, the Phalon Group believes that the incumbents should no longer be
permitted to remain in control of the business and affairs of the Company. The
eight candidates receiving the greatest number of votes at the Annual Meeting
will be elected. The Phalon Group urges you to sign, date and return the
enclosed proxy card so that the Phalon Group may represent and vote your shares
at the Annual Meeting for the election of the Group Nominees as directors. In
order to provide a convenient means by which your shares can be voted for the
Group Nominees at the Annual Meeting, the enclosed proxy card authorizes
representatives of the Phalon Group with full powers of substitution and
resubstitution to vote your shares at the Annual Meeting and any adjournments
thereof, including on any other matters presented that were not known to the
Phalon Group before a reasonable time prior to this solicitation, on the
approval of minutes but not actions at TCC's previous annual meeting, on the
election of persons in place of any nominee named in a proxy statement unable or
for good cause unwilling to serve, or on matters that are incident to the
conduct of the Annual Meeting. If you have signed the proxy provided by the
Company, you may revoke it at any time by signing and dating the enclosed proxy,
which must be dated after the date that you signed the Company's proxy. You may
revoke your proxy at any time before it is exercised by filing with the Phalon
Group, c/o Mackenzie Partners Inc., 156 Fifth Avenue, 9th Floor, New York, New
York 10010, or with the Clerk of the Company at its principal executive offices,
a letter revoking it or a duly executed proxy bearing a later date, or by
appearing in person and voting at the Annual Meeting. All proxies will be voted
in accordance with instructions thereon. ANY PROXY WHICH HAS BEEN EXECUTED BUT
UPON WHICH NO INSTRUCTION HAS BEEN INDICATED WILL BE VOTED "FOR" THE ELECTION OF
THE GROUP NOMINEES AND "FOR" THE STOCKHOLDER PROPOSAL.
IMPORTANT
Carefully review this Proxy Statement and the enclosed materials. YOUR
PROXY IS IMPORTANT. IF YOU ARE UNABLE TO ATTEND THE ANNUAL MEETING IN PERSON
YOUR PROXY IS THE ONLY MEANS AVAILABLE FOR YOU TO VOTE FOR ANY NOMINEE FOR
DIRECTOR. No matter how may or how few shares you own, please vote FOR the Group
Nominees and FOR the Stockholder Proposal by so indicating and by signing,
dating and mailing the enclosed proxy card promptly. If you already have signed
the Company's proxy for its nominees, you may still sign the Phalon Group's
proxy. The proxy with the latest date will be counted.
If you own shares of Common Stock of the Company but your stock certificate
is held for you by a brokerage firm, bank or other institution, it is very
likely that the stock certificate is actually in the name of such brokerage
firm, bank or other institution. If so, only they can execute a proxy card and
vote yours shares of Common Stock. The brokerage firm, bank, or other
institution holding the shares for you is required to forward proxy materials to
you and solicit your instructions with respect to the granting of proxies. The
brokerage firm, bank, or other institution holding the stock for you cannot vote
your shares unless they receive your specific instructions.
IF YOU HAVE ANY QUESTIONS OR DESIRE ASSISTANCE IN VOTING YOUR PROXY, PLEASE
CONTACT A MEMBER OF THE PHALON GROUP BY CALLING PHILIP A. PHALON AT (781)
246-9199 OR CALL:
MACKENZIE PARTNERS, INC.
156 Fifth Avenue, 9th Floor
New York, NY 10010
CALL TOLL-FREE (800) 322-2885
or
(212) 929-5500 COLLECT
INTEREST OF PARTICIPANTS IN ELECTION OF DIRECTORS
The members of the Phalon Group entered into an Agreement (the "Agreement")
dated as of April 3, 1998, whereby they agreed to file a joint Schedule 13D with
respect to the shares of Common Stock beneficially owned by each member of the
Phalon Group. The members of the Phalon Group agreed that, in the event that a
member of the Phalon Group desires to sell his shares of Common Stock, each
other member of the Phalon Group shall have a right of first refusal with
respect to the purchase of such selling member's shares of Common Stock. The
Agreement was filed with the Securities and Exchange Commission (the
"Commission") as an exhibit to the Phalon Group's statement on Schedule 13D,
which was filed with the Commission on April 3, 1998.
GROUP NOMINEES
Certain information concerning each Group Nominee for director of the
Company is set forth below. Each of the Group Nominees has consented to serve as
a director if elected and intends to discharge his duties as a director in
compliance with all applicable legal requirements, including the general
fiduciary obligations imposed upon corporate directors. The Group Nominees have
no plans or proposals relating to the Company should they be elected as
directors. Except as described in this Proxy Statement, there are no
arrangements or understandings between any Group Nominee and any other person
pursuant to which he was selected as a nominee. The Group Nominees will not bear
any portion of the expenses of this proxy solicitation and the Phalon Group has
agreed to reimburse all out-of-pocket expenses incurred by the Group Nominees
and to indemnify each Group Nominee for any liability incurred in connection
with the Phalon Group's solicitation of proxies. All information contained in
this Proxy Statement concerning each Group Nominee has been furnished by each
such Group Nominee.
Beneficial
Name, Age and Ownership Background and
Business Address of Shares Present Occupation
Philip A. Phalon (69) 2,250 (1) Self-employed international marketing and
40 Salem Street business consultant and private investor
Lynnfield, MA 01940 from October 1990 to the present. Interim
President of the Company from May 1994
to March 1995. Director of the Company
from August 1994 to the present.
M. Mahmud Awan (46) 138,378 (2) Chairman and Chief Executive Officer of
240 Sturbridge Road TechMan International Corporation, a
Charlton City, MA 01506 manufacturer of fiber optic medical
devices and communications systems, from
September 1982 to the present.
Joseph J. Hansen (64) 0 (3) President of Lexington Strategic
221 Follen Road Associates, a strategic management
Lexington, MA 02173-5502 consulting firm, from October 1992 to
the present; Senior Lecturer in
mathematics at Northeastern University
from 1986 to the present.
Ernest R. Fenton (51) 0 Self-employed business consultant
4 Johns Lane specializing in turnaround of
Lexington, MA 02173 underperforming international businesses,
from 1992 to the present.
David A.B. Brown (54) 0 President of the Windsor Group, Inc., a
One Boston Place business consulting firm focused on the
Boston, MA 02108 oil industry and international operations,
from 1984 to the present. Mr. Brown is a
director of BTU International, Inc.
(thermal processing equipment and
controls), EMCOR Group, Inc. (electrical
and mechanical engineering) and The Marine
Drilling Companies (owner and operator of
offshore drilling rigs).
_____________________________
(1) Mr. Phalon beneficially owns 2,250 shares of Common Stock of which 500
shares are owned directly by Mr. Phalon, and 1,750 shares are issuable upon
exercise of currently exercisable stock options.
(2) Dr. Awan owns 138,378 shares of Common Stock (of which 78,000 are owned by
Dr. Awan directly and 60,378 of which are owned of record by TechMan
International Corporation, which is wholly owned by Dr. Awan).
(3) Mr. Hansen holds a revocable proxy to vote 50 shares of Common Stock owned
of record by Frederick A. Kinch, a former employee of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the Company's fiscal year ended September 27, 1997 ("Fiscal 1997"), no
Group Nominee had any contractual or other relationship with the Company, other
than Mr. Phalon, who served as a director of the Company, and Dr. Awan, through
his wholly-owned company, TechMan International Corporation ("TechMan"). Mr.
Phalon served on the Board's Audit Committee and Compensation Committee during
Fiscal 1997, and on the Compensation Committee during the Company's fiscal years
ended September 28, 1996 ("Fiscal 1996") and September 30, 1995 ("Fiscal 1995").
During Fiscal 1997, Mr. Phalon received $10,000 for his services as director,
earned at the standard non-employee director remuneration rate of $1,000 for the
November 1966 Board meeting and $1,200 per Board meeting thereafter, and $500
per committee meeting. During Fiscal 1996, Mr. Phalon received $9,500 for his
services, earned as director at the standard non-employee director remuneration
rate of $1,000 per Board meeting and $500 per committee meeting. During Fiscal
1995, Mr. Phalon received $10,000 for his services, earned at the standard
non-employee director remuneration rate of $1,000 per Board meeting and $500 per
committee meeting, and received an additional $28,000 for his services as
interim president of the Company. Prior to formation of the Phalon Group, Mr.
Phalon advised the other directors that he would decline to stand for reelection
with the incumbent Board because of his belief that it was mismanaging the
Company and certain of its directors and officers had breached and would
continue to breach their fiduciary duties to Stockholders. TechMan and the
Company were parties to a certain one year sales representative agreement that
ended September 30, 1997, under which TechMan acted as the Company's
non-exclusive sales representative in Pakistan. During Fiscal 1997, the Company
paid TechMan approximately $45,000 in the aggregate under the agreement. Mr.
Phalon and Dr. Awan are adverse parties to the Company and certain of its
directors in a proceeding in the Massachusetts Superior Court. See "LITIGATION,"
below.
LITIGATION
As previously disclosed by the Company in a Current Report on Form 8-K,
filed January 27, 1998, after an internal review of certain historical foreign
contracts, the Company announced certain remedial measures including formation
of a committee to recommend changes in its financial control and accounting
procedures and the adoption of a code of ethics and a compliance program. In the
same announcement, the Company disclosed that James McCalmont had resigned from
the Board of Directors and that Arnold McCalmont, Chairman of the Board, would
not seek re-nomination. At a meeting of the Board on January 26, 1998, Mr.
Phalon informed the Board that he was considering proposing a new slate of
director nominees and that he would not seek reelection with the current Board.
On April 8, 1998, Mr. Phalon demanded from the Company a list of Stockholders
and related materials.
As of May 22, 1998, the Stockholder list and related materials requested by
Mr. Phalon on April 8, 1998 had not been provided by the Company. On May 22,
1998, Mr. Phalon and Dr. Awan initiated a lawsuit against the Company and its
directors (other than Mr. Phalon) in the Massachusetts Superior Court, Middlesex
County, entitled Philip A. Phalon, and M. Mahmud Awan v. Technical
Communications Corporation, Arnold McCalmont, Herbert A. Lerner, Robert T.
Lessard, Carl H. Guild, Mitchell B. Briskin, Donald Lake and Thomas B. Peoples,
Civil Action No. 98-2553. The complaint alleges that the individual director
defendants: (i) breached their fiduciary duties to the Stockholders of the
Company by engaging in self-dealing transactions, including but not limited to
the historical foreign contracts which gave rise to the internal review; (ii)
engaged in concealment of illegal and possibly criminal conduct by officers and
directors of the Company; (iii) denied Mr. Phalon access to the Company's
Stockholder list and related material in violation of state and federal law; and
(iv) illegally acted to entrench themselves as the Company's Board of Directors
by actions taken at the April 30, 1998 Board meeting. Mr. Phalon and Dr. Awan
sought injunctive relief: (i) requiring the Company to produce the Stockholder
list and related materials; (ii) rescinding and revoking the by-law amendment
adopted by the Board at its April 30, 1998 meeting which creates a classified
Board of Directors consisting of three classes elected for staggered three year
terms; and (iii) enjoining other similar actions until after the Annual Meeting.
Mr. Phalon and Dr. Awan are also seeking a declaratory judgment that the by-law
amendment classifying the Board adopted at the April 30, 1998 meeting is
invalid, null and void. A copy of the Verified Complaint commencing the lawsuit
was filed with the Commission on May 22, 1998 as an exhibit to the Phalon
Group's Amendment No. 2 to its statement on Schedule 13D.
On June 10, 1998, following a hearing in Middlesex Superior Court on the
Plaintiffs' motion for preliminary injunctive relief to obtain the list of
Stockholders and to invalidate the April 30, 1998 action of the Board of
Directors to adopt a staggered Board scheme, the Court entered a Memorandum of
Decision and Order. The Court found that the "Plaintiffs demonstrated a
reasonable likelihood of success on their claim that the By-law change voted on
April 29 [sic], 1998 was a `manipulative device' designed to prevent a
meaningful proxy contest by dissenting shareholders in willful disregard of the
rights of other shareholders" and that "[t]o allow the By-Law to control the
proceedings at the next annual meeting would `substantially chill, if not freeze
in its tracks, any continued' proxy contest or inquiring into the control and
governance of TCC by dissenting shareholders." The Court ordered, among other
things, that the "defendants shall be enjoined from implementing the votes taken
at the meeting held on April 30, 1998 adopting the provisions of GL. c. 156B,
ss. 50A and restructuring the terms of the Board of Directors to staggered
terms" and that the Company "shall mail a copy of the proxy statement submitted
by the [Phalon Group] to each and every stockholder of the corporation..." On
June 12, 1998, the Memorandum of Decision and the Order became final upon the
Court's denial of Arnold McCalmont's motion for reconsideration. On June 18,
1998, following a hearing, the Massachusetts Appeals Court denied the Company's
appeal of the June 10, 1998 Order of the Superior Court. The Memorandum of
Decision and Order, and the Order denying the Company's appeal are included in
their entirety as Exhibit A to this Proxy Statement and are incorporated herein
by reference.
STOCKHOLDER PROPOSAL
By letter dated May 8, 1998, Graham R. Briggs, the former Chief Financial
Officer of the Company, gave notice to the Company pursuant to Rule 14a-8 under
the Securities and Exchange Act of 1934 (the "Exchange Act") that he intended to
appear, in person or by duly authorized representative, at the 1998 Annual
Meeting of Stockholders of the Company to present a proposal to the effect that
the Board's actions taken on April 30, 1998 to classify the Board into three
classes having staggered terms be invalidated. The Company, by letter dated May
28, 1998 opposed the inclusion of the Proposal in its proxy materials
principally on the basis that the Proposal would be violative of state law. The
Proponent, through counsel, disputed the Company's argument for excluding the
Shareholder Proposal. On June 10, 1998, the Commission stated that it "does not
believe that [the Stockholder Proposal] may be omitted from the Company's proxy
materials..." The Phalon Group supports the Stockholder Proposal as being in the
best interest of the Stockholders. For the texts of Mr. Brigg's Proposal and his
statement in support and the Company's statement in opposition please refer to
the Company's proxy statement.
The Phalon Group urges each Stockholder to vote FOR the Stockholder
Proposal on the Proxy Card.
INCLUSION OF STOCKHOLDER PROPOSALS IN THE COMPANY'S PROXY STATEMENT
The Annual Meeting to be held on July 17, 1998 comes almost six months
later than the date required by the Company's by-laws and more than three months
later than the date required by Massachusetts corporate law. In conformity with
the requirements of the by-laws, and in satisfaction of state law, the Company
usually holds its annual meeting on the second Monday in February. If the Group
Nominees are elected to the Board, the Phalon Group anticipates the next annual
meeting will be held February 8, 1999, and the related proxy statement would be
mailed on or about December 24, 1998. Accordingly, the latest date for
Stockholders to submit proposals for inclusion in the Company's proxy statement
will be August 25, 1998.
OTHER BUSINESS OF THE ANNUAL MEETING
The Phalon Group is not aware of any matters to come before the Annual
Meeting other than those stated in this Proxy Statement. In the event that other
matters properly come before the Annual Meeting or any adjournment thereof, it
is intended that the persons named in the accompanying proxy and acting
thereunder will vote in accordance with their best judgment.
OTHER INFORMATION REGARDING THE PHALON GROUP
As of the date hereof, except for the Phalon Group, there are no other
persons other than the Group Nominees who may be considered participants in this
proxy solicitation pursuant to the rules and regulations of the Commission.
Copies of the joint statement of the Phalon Group on Schedule 13D are available
for inspection and copies may be obtained from the Commission at the same place
and in the same manner as set forth under the caption "ADDITIONAL INFORMATION."
Except as otherwise described in this Proxy Statement, no member of the
Phalon Group, nor any associate of any such person, nor to the best of the
knowledge of the Phalon Group, any of the Group Nominees or any of their
associates, (i) beneficially owns or has any right to acquire any equity
securities of the Company, (ii) owns any securities of the Company of record but
not beneficially or (iii) owns beneficially any securities of any parent or
subsidiary of the Company. Except as set forth on Schedule II to this Proxy
Statement, no member of the Phalon Group nor, to the best of the knowledge of
the Phalon Group, any of the Group Nominees or the other persons referred to
above, has effected any transactions in such equity securities during the past
two years.
Except as otherwise set forth in this Proxy Statement, no member of the
Phalon Group, the Group Nominees or any of the associates of any such persons
has any contract, arrangement, understanding or relationship with another person
with respect to any securities of the Company, including, but not limited to,
any contract, arrangement, or option arrangements, puts or calls, guarantees of
loans, guarantees against loss or guarantees of profits, division of losses or
profits or the giving or withholding of proxies. No member of the Phalon Group,
nor to the best of the knowledge of the Phalon Group, any of the Group Nominees
or any associate of such person, has (i) since May 1, 1996 had any transaction
with the Company or any of its executive officers, directors or affiliates that
would require disclosure under the rules of the Commission, (ii) any agreement,
arrangement or understanding with respect to future employment by the Company,
and (iii) any arrangement or understanding with respect to any future
transactions to which the Company will or may be a party, except as otherwise
disclosed herein. Except as set forth herein, there have been no contacts,
negotiations or transactions since May 1, 1996 between the Phalon Group or any
member of the Phalon Group, nor to the best of the knowledge of the Phalon
Group, any of the Group Nominees or any associate of such person and the Company
or its subsidiaries, concerning a merger, consolidation or acquisition, a tender
offer or other acquisition of securities, an election of directors, or a sale or
other transfer of a material amount of assets.
ADDITIONAL INFORMATION
For information concerning the beneficial ownership of securities of the
Company by the Company's management and the principal holders of such securities
and certain other matters relevant to this proxy solicitation, reference is made
to the Company's proxy statement.
The information concerning the Company contained in this Proxy Statement
has been taken from or based upon publicly available annual, quarterly and
current reports, proxy statements and other reports and documents on file with
the Commission and other public sources. Documents filed with the Commission may
be inspected and copied at the public reference facilities maintained by the
Commission located at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material can also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Certain reports and other information may also be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006. The Company's filings with
the Commission can be accessed at the Commission's web site on the Internet at
"www.sec.gov".
GENERAL INFORMATION
Proxies will be solicited by mail, telephone, telegraph, telex, facsimile
transmission and in person. Proxies may be solicited by the members of the
Phalon Group and by the Group Nominees. No such person will receive additional
compensation for such solicitation.
In addition, the Phalon Group has retained Mackenzie Partners Inc. for
communications, solicitation and advisory services in connection with this proxy
solicitation, for which it will be paid a fee not to exceed $50,000 and will be
reimbursed for its reasonable expenses. Mackenzie Partners Inc. will solicit
proxies from individuals, brokers, banks' nominees and other institutional
holders. It is anticipated that Mackenzie Partners Inc. will use approximately
twenty-five persons in this proxy solicitation.
Banks, brokerage houses and other custodians, nominees and other
custodians, nominees and fiduciaries have been requested to forward the
solicitation materials to the beneficial owners of shares of Common Stock and
the Phalon Group will reimburse them for their reasonable and customary fees and
out-of-pocket expenses.
The total expenditures relating to this proxy solicitation will be borne by
the Phalon Group. Such expenditures, including fees for attorneys, advertising,
printing, transportation, and other costs incidental to the solicitation are
estimated to be approximately $300,000. Of this amount, approximately $120,000
of costs and expenses have been incurred to date. The Phalon Group intends to
seek reimbursement from the Company for its costs and expenses incurred in
connection with this proxy solicitation if the Group Nominees are elected to the
Board of Directors, and the Phalon Group believes such reimbursement does not
require a vote of Stockholders.
VOTING OF PROXY CARDS
Each share of Common Stock of the Company entitles the holder thereof to
one vote on each proposal and slate of candidates and no votes may be cumulated.
Unless otherwise noted in this Proxy Statement, all matters to come before the
Annual Meeting require the affirmative vote of a majority of those shares,
present in person or by proxy and voting at the Annual Meeting, to be adopted,
assuming that a quorum is present. A majority of the outstanding shares entitled
to vote must be present in person or represented by proxy at the Annual Meeting
to constitute a quorum. Abstentions and broker non-votes will be treated as
shares which are present and entitled to vote for purposes of determining a
quorum but those shares will not be treated as having been voted for purposes of
determining the approval of any matter submitted to the Stockholders, which may
have the effect of permitting less than a majority of the shares deemed present
for quorum purposes to act on a matter at the Annual Meeting.
Shares of Common Stock represented by properly executed proxy cards will be
voted at the Annual Meeting as marked, and in the absence of specific
instructions will be voted "FOR" the Group Nominees and "FOR" the Stockholder
Proposal and, in the discretion of the persons named as proxies on all other
matters as may properly come before the Annual Meeting and of which the Phalon
Group was not aware a reasonable time before the date thereof, that are to be
presented at the Annual Meeting, including all motions for adjournment of the
Annual Meeting, unless otherwise indicated in this Proxy Statement. Because the
Phalon Group is soliciting for only five of the eight director positions to be
filled at the Annual Meeting, nominees of the Board of Directors are likely to
be elected to fill the remaining positions. The Phalon Group anticipates that
the eight nominees from both slates receiving the greatest number of votes will
be deemed elected as directors.
REVOCABILITY OF SIGNED PROXIES
A proxy executed by a holder of shares of Common Stock may be revoked at
any time before its exercise by sending a written revocation, by submitting
another proxy with a later date or by appearing in person at the Annual Meeting
and voting. A written revocation must clearly state that the proxy to which it
relates is no longer effective and must be executed and delivered prior to the
time that the action authorized by the executed proxy is taken. The revocation
may be delivered either to the Phalon Group, care of Philip A. Phalon, 40 Salem
Street, Lynnfield, MA 01940, or to the Company at 100 Domino Drive, Concord, MA
01742, or to Mackenzie Partners Inc. at the address set forth in this Proxy
Statement. Although a revocation or a later dated proxy delivered only to the
Company will be effective, the Phalon Group requests that if a revocation or
subsequent proxy is delivered to the Company a photostatic copy of the
revocation or subsequent proxy also be delivered to the Phalon Group so that it
will be aware of such revocation.
THE RETURN OF A SIGNED AND DATED PROXY CARD WILL FULLY REVOKE ANY
PREVIOUSLY DATED PROXY CARD YOU MAY HAVE RETURNED. THE LATEST DATED PROXY CARD
IS THE ONLY ONE THAT COUNTS.
OTHER MATTERS
The Phalon Group is not aware of any matters, other than those discussed
herein, to be considered at the Annual Meeting. However, if any other matters
properly come before the Annual Meeting, including any motion to adjourn the
Annual Meeting prior to taking of a vote on the Group Nominees, the persons
named in the proxy card, or their substitutes, will vote in their discretion all
shares of Common Stock covered by proxy cards with respect to such matters
unless such discretionary authority of the named proxies is limited by Rule
14a-4(c)(5) of the Exchange Act to matters incident to the conduct of the
meeting.
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD
PROMPTLY IN THE PREPAID POSTAGE ENVELOPE PROVIDED.
Dated: June ___, 1998
On behalf of the Phalon Group,
Philip A. Phalon
M. Mahmud Awan
Schedule I
Set forth below is the name, business address, present principal occupation
and place of employment of each of the participants in this solicitation.
(Please refer to the notes to Schedule II for information on the participants'
beneficial interests in the Common Stock of the Company.)
Present
Name of Participant Business Address Principal Occupation
Philip A. Phalon (1) 40 Salem Street Self-employed
Lynnfield, MA 01940 international marketing
and business consultant
and private investor
M. Mahmud Awan 240 Sturbridge Road Chairman and Chief
Charlton City, MA 01506 Executive Officer of
TechMan International
Corporation, a
manufacturer of fiber
optic medical devices
and communications
systems
Robert B. Bregman 46 Raydon Road Ext. Sales consultant-
York, ME 03109-1625 Nissan of Exeter, NH
William C. Martindale, Jr. 200 Four Falls Chief Executive Officer
Corporate Ctr. of Martindale Andres
Suite 200 & Company, Inc., an
W. Conshohocken, investment management
PA 19428-2960 firm
Joseph J. Hansen 221 Follen Road President of Lexington
Lexington, MA 02173-5802 Strategic Associates, a
strategic management
consulting firm
Ernest R. Fenton 4 Johns Lane Self-employed business
Lexington, MA 02173 consultant specializing
in turnaround of
underperforming
international
businesses
David A.B. Brown One Boston Place President of the
Boston, MA 02108 Windsor Group, Inc., a
business consulting
firm focused on the
oil industry and
international
operations
________________
(1) Currently serves as a director of the Company.
Schedule II
The following table sets forth information with respect to all purchases
and sales of the Common Stock of the Company by each of the members of the
Phalon Group and the Group Nominees, or any associate of any such person, during
the past two years.
Name and Date Number of Shares of Common
Stock Purchased (Sold) within 2 years
Philip A. Phalon (1)
2/22/95.............................................500
M. Mahmud Awan (2)
8/14/97.............................................100
8/14/97.............................................100
8/15/97...........................................1,000
8/21/97...........................................1,000
8/29/97...........................................3,000
9/8/97...........................................2,200
9/9/97...........................................1,500
9/12/97...........................................1,000
9/16/97...........................................1,000
9/18/97...........................................1,000
10/1/97...........................................1,500
10/1/97...........................................1,500
10/2/97...........................................1,000
10/3/97.............................................300
10/3/97...........................................2,000
10/22/97.............................................500
11/13/97.............................................500
11/14/97.............................................500
11/19/97...........................................1,000
11/24/97...........................................1,000
12/1/97...........................................1,000
12/4/97...........................................1,000
12/8/97...........................................1,000
12/10/97...........................................1,000
12/15/97...........................................1,000
12/16/97...........................................1,000
12/18/97...........................................2,500
12/18/97...........................................3,000
12/19/97...........................................3,000
12/19/97...........................................1,000
12/22/97...........................................2,500
12/24/97...........................................1,000
12/26/97...........................................1,000
12/26/97...........................................1,000
1/2/98...........................................1,000
1/2/98...........................................1,000
1/2/98...........................................1,000
1/6/98.............................................200
1/6/98...........................................1,000
1/7/98...........................................1,000
1/7/98...........................................2,000
1/7/98...........................................1,000
1/9/98.............................................274
1/12/98...........................................1,074
1/13/98...........................................1,500
1/22/98...........................................1,000
1/22/98...........................................1,500
1/23/98...........................................1,000
1/26/98...........................................1,000
1/26/98...........................................1,500
1/28/98.............................................730
1/29/98...........................................3,000
1/30/98...........................................2,000
1/30/98...........................................2,000
2/3/98...........................................1,000 (3)
2/3/98...........................................2,000 (3)
2/5/98...........................................2,000 (3)
2/6/98...........................................1,000 (3)
2/11/98...........................................2,000
2/11/98...........................................3,000
2/17/98...........................................1,000
2/18/98...........................................2,000
2/18/98...........................................1,000 (3)
2/19/98...........................................1,000 (3)
2/20/98...........................................1,000 (3)
2/23/98...........................................2,000 (3)
2/23/98...........................................2,000 (3)
2/24/98...........................................2,000 (3)
2/24/98...........................................1,500 (3)
2/24/98...........................................1,500 (3)
2/25/98.............................................200 (3)
2/25/98...........................................2,000 (3)
2/26/98.............................................500 (3)
2/27/98...........................................1,000 (3)
3/16/98.............................................100 (3)
3/16/98...........................................1,000 (3)
3/18/98...........................................1,000 (3)
3/23/98...........................................1,000 (3)
3/24/98...........................................1,000 (3)
3/25/98...........................................1,000 (3)
3/26/98.............................................500 (3)
3/26/98...........................................1,000 (3)
4/2/98...........................................3,000 (3)
4/7/98...........................................3,000
4/24/98...........................................1,000
4/28/98...........................................1,000
4/28/98...........................................1,000
4/29/98...........................................2,000
4/30/98...........................................1,000
4/30/98...........................................1,000
4/30/98...........................................1,000
5/1/98...........................................1,000
5/2/98...........................................2,000
5/4/98...........................................1,000
5/11/98...........................................1,000
5/12/98.............................................100
5/12/98.............................................100
5/14/98.............................................200
5/18/98...........................................2,000
5/18/98.............................................100
5/26/98...........................................1,000
5/20/98...........................................3,000 (3)
5/28/98...........................................3,000
5/29/98.............................................400
Robert B. Bregman (4).......................................0
William C. Martindale, Jr. (5)
12/19/96...........................................2,000
Joseph J. Hansen (6)........................................0
Ernest R. Fenton (7)........................................0
David A.B. Brown (7)........................................0
_________________________
(1) Mr. Phalon beneficially owns 2,250 shares of Common Stock of which 500
shares are owned directly by Mr. Phalon, and 1,750 shares are issuable upon
exercise currently exercisable stock options.
(2) Dr. Awan owns 138,378 shares of Common Stock (of which 78,000 are owned by
Dr. Awan directly and 60,378 of which are owned of record by TechMan
International Corporation, which is wholly owned by Dr. Awan).
(3) Indicates date of trade (as compared to settlement date).
(4) Mr. Bregman beneficially owns 2,500 shares of Common Stock indirectly (his
wife, Susan J. Pape, is the owner of record of such shares; Mr. Bregman has
voting and dispositive power).
(5) Mr. Martindale owns 10,000 shares of Common Stock (of which 6,100 he holds
directly, 3,700 he holds in his individual retirement account and 200 are owned
by his wife) and, through discretion over client accounts, shares the power to
vote an additional 67,000 shares as to which he disclaims beneficial ownership.
(6) Mr. Hansen holds a revocable proxy to vote 50 shares of Common Stock owned
of record by Frederick A. Kinch, a former employee of the Company, and otherwise
has no beneficial ownership of any Common Stock of the Company.
(7) Mr. Fenton and Mr. Brown have no beneficial ownership of any Common Stock of
the Company.
EXHIBIT A
COMMONWEALTH OF MASSACHUSETTS
COUNTY OF MIDDLESEX
THE SUPERIOR COURT
CIVIL DOCKET #MICV98-02553
Phalon (IMPOUNDED) et al,
Plaintiff(s)
vs.
Technical Communications Corp. et al,
Defendant(s)
TEMPORARY INJUNCTION
TO:
Agents, Attorneys and Counselors, and each and every of them,
GREETING:
WHEREAS, it has been represented unto us in our SUPERIOR COURT, by Philip
A. Phalon (IMPOUNDED) M. Mahmud Awan (IMPOUNDED) plaintiff(s), that he, said
plaintiff(s), has filed a complaint in our said Court against you, the said
defendant(s) Technical Communications Corp. pray for a Writ of Injunction
against you, to restrain you and the persons before named from doing certain
acts and things in said complaint set forth, and hereinafter particularly
specified and mentioned.
We, therefore, in consideration of the premises, do strictly enjoin and
command you the said defendant(s), and all and every the persons before named,
be and hereby are ordered to mail a copy of the proxy statement submitted by the
plaintiffs to the SEC to each and every stockholder of the corporation on or
before June 17, 1998 and further that it shall not provide the plaintiffs with a
copy of the shareholder list but shall maintain a full and complete list of all
shareholders to whom the proxy statement has been sent and shall file an
affidavit of compliance with this order on or before July 3, 1998 and further
the cost of the mailing and copying shall be born by the plaintiffs; and further
we command you said defendants from implementing the votes taken at the meeting
held on April 30, 1998 adopting the provisions of GL c 156B, ss.50A and
restructing the terms of the Board of Directors to staggered terms and further
this order is continued upon the plaintiffs posting a bond in the amount of Ten
Thousand Dollars or in lieu thereof, depositing the amount with the Clerk of
court, until the further order of our Court, or some Justice thereof.
Witness, Robert A. Mulligan, at Cambridge, this 10th day of June, in the
year of our Lord 1998.
/s/ Clerk
Clerk.
COMMONWEALTH OF MASSACHUSETTS
MIDDLESEX, ss. CIVIL ACTION
No. 98-2553
PHILIP A. PHALON et al.
Plaintiffs
v.
TECHNICAL COMMUNICATIONS CORPORATION et al.
Defendants
MEMORANDUM OF DECISION AND ORDER ON
PLAINTIFF'S APPLICATION FOR A PRELIMINARY INJUNCTION
In this action, the plaintiffs Philip A. Phalon and M. Mahmud Awan are
seeking injunctive and declaratory relief. The plaintiff Phalon is a stockholder
and director of the defendant Technical Communications Corporation (TCC), a
publicly held Massachusetts corporation; the plaintiff Awan is a stockholder.
The defendants Arnold McCalmont, Herbert A. Lerner, Robert T. Lessard, Carl H.
Guild, Mitchell B. Briskin, Donald Lake and Thomas B. Peoples are directors of
TCC.
In their complaint, the plaintiffs allege in Count I a breach of fiduciary
duty resulting from By-Law changes alleged to entrench themselves in control of
TCC; in Count II breach of fiduciary duty in refusing to provide a stockholder
list; in Count III violation of Securities & Exchange Commission (SEC) Rule
14a-7, 24 CFR ss.240.14a-7 and in Count IV seeking a declaration invalidating
actions of a majority of the Board of Directors on April 30, 1998. The
plaintiffs are seeking a preliminary injunction 1) restraining the defendants
from implementing By-Law changes voted at the April 30th meeting, 2) directing
the defendant to reconvene and rescind the By-Law changes votes at the April
30th meeting, 3) restraining the defendants from filling any vacancies on the
board and/or from taking any action to amend the By-Laws or Articles of
Organization prior to the stockholders meeting, and 4) directing the defendants
to produce the stockholder list to the plaintiff.
The defendants TCC, Arnold McCalmont, Herbert A. Lerner, Carl H. Guild,
Mitchell B. Briskin, and Donald Lake1 strenuously oppose issuance of a
preliminary injunction on the grounds that 1) they have "so delayed coming to
this Court that it would be inappropriate to grant interim relief'" and 2) that
substantively, the plaintiffs cannot demonstrate a likelihood of success on the
merits with respect to their request for shareholder information and with
respect to their claims relating to staggered terms, 3) the plaintiff's have
failed to articulate any harm and 4) the harm to the defendants outweighs any
harm to the plaintiffs. The defendants further assert that "[i]t is
fundamentally unfair and unlawful for Mr. Phalon, a current director of TCC with
a clear fiduciary duty and duty of loyalty to TCC, to be seeking to attack it in
this way." The defendants noted that "Mr. Phalon has flouted his duty under
federal securities laws to maintain the confidentiality of this non-public
information."2
The plaintiff's Allegations
According to the verified complaint, TCC was founded by the defendant
Arnold McCalmont. The plaintiff Phalon asserts that McCalmont has maintained
pervasive control of TCC's board of directors and that he, Phalon, is the lone
dissenting director. According to the complaint, McCalmont's control over TCC is
reflected by the fact that McCalmont's sons James and Marc were employed by TCC
and, until recently, James had been a director. According to the complaint,
McCalmont arranged for TCC to invest in Net2Net Corporation, a business founded
by his son Stephen.3
In late 1997, Gadsby & Hannah was retained by the board of directors of TCC
to investigate certain individual officers, directors and employees of TCC
relating to matters occurring in 1988. As a result of that investigation, a
report was submitted to the directors at its meetings on December 11, 1997 and
on January 8, 1998. A written report known as the Slavitt report was made
available to the directors at the January 11th meeting. However, individual
directors were not permitted to retain a copy. According to Phalon, the Slavitt
report included findings of improprieties and recommendations which included
seeking restitution from James and/or Arnold McCalmont for the cost of the
investigation, removal of Arnold McCalmont as a director, removal of James
McCalmont as a director, and disclosure of the results of the investigation as
legally required.
At the January 8th meeting, a majority of the board voted to approve
granting a release to Arnold McCalmont conditioned upon his agreement not to
stand for re-election as a director. Arnold McCalmont was one of the directors
voting in favor of the release. The plaintiff Phalon and one other board member
voted against it. At a board meeting on January 9, 1998, a majority of the board
voted to accept the resignation of James McCalmont as an officer and director
upon terms and conditions which included the condition that TCC give James
McCalmont a limited release from liability covering the matters referred to in
the Slavitt report. The defendant Arnold McCalmont voted in favor of accepting
the resignation and its terms and conditions. The plaintiff Phalon and one other
board member voted against it.
According to the Phalon affidavit, a draft 1997 annual report on Form 10-K
was prepared and circulated. TCC's President and Chief Financial Officer refused
to sign the Form 10-K because it did not adequately disclose findings and
recommendations included in the Slavitt report. The Chief Financial Officer
stated he would not sign the Form 10-K unless he was afforded an opportunity to
review the Slavitt report. His review of the Slavitt report was conditioned upon
his signing a confidentiality agreement. The Chief Financial Officer refused to
sign the agreement. On January 14, 1998, a majority of the board voted to
terminate the employment of the Chief Financial Officer.4 The plaintiff Phalon
and one board member voted against the termination. On January 26, 1998, the
plaintiff refused to sign the Form 10-K. After some discussion, the president
did sign the Form 10-K.5 At a meeting on February 13, 1998, a majority of the
board voted to terminate the president. The plaintiff Phalon voted against this
termination as well.
At the meeting on January 26, 1998, the plaintiff Phalon after advising the
board of his objection to actions taken by the board informed the board members
that he would not stand for re-election with the incumbent board.
On April 3, 1998, the plaintiffs Phalon and Awan and two others filed a
joint statement with the Securities & Exchange Commission (SEC) disclosing that
they had formed a group to consider the costs and benefits of a proxy contest to
replace at least a majority of the board with nominees selected by the group. On
April 8, 1998, the plaintiff Phalon wrote to TCC, attention of Edward E. Hicks,
Clerk, demanding pursuant to G.L. c. 156B, ss. 32, to inspect and copy TCC's
stock and transfer records including its most recent list of stockholders.
According to his letter, "[t]he purpose of this demand is to enable me to
identify and communicate with my fellow stockholders on matters relating to
their investment in the Company and the affairs of the Company, including the
solicitation of written proxies from stockholders pursuant to Rule 14a-11 under
the 1934 Act6." By letter dated April 13, 1998, Edward E. Hicks, as clerk,
requested clarification of Phalon's request as to the capacity in which he was
requesting the list, i.e. as a stockholder or director. Phalon was also reminded
"as a director of the Corporation [you] have broad ranging fiduciary duties that
include duties of care, loyalty, and in significant respects, confidentiality."
Hicks continued, "We would expect that any information provided to you would be
delivered in confidence and would be utilized by you in your fiduciary capacity,
keeping in mind your duties to stockholders generally rather than to a separate
group with its own interests and agenda." Hicks stated that the Corporation
would probably require a confidentiality agreement be executed. Hicks concluded,
"Of course, in this instance, you and we also would want to consider whether
your actions in a non-fiduciary capacity are consistent with your continuing
fiduciary obligations to the corporation." Under cover of letter dated April 24,
1998, a proposed confidentiality agreement was sent to Phalon's counsel.
Phalon's counsel notified TCC's counsel that although Phalon acknowledged that
he would only use the list for a proper purpose, the proposed agreement was
objected to and regarded as interference with Phalon's "absolute" right of
access to the stockholder list. Phalon did not execute the confidentiality
agreement. The stockholder list has not been provided.
On April 29, 1998, the plaintiffs wrote to TCC demanding that a date be set
for the annual stockholders meeting. TCC's By-Laws provide that the annual
meeting of stockholders be held on the second Monday in February. The meeting
had not been held and an annual meeting had not been scheduled as of the date of
the plaintiffs' demand. On April 30, 1998, at a regular meeting of the board,
the board voted to hold the annual meeting on July 17, 19987 with notice to
stockholders of record as of May 29, 1998. At the same meeting, a majority of
the board voted to adopt By-Law amendments adopting a classified Board of
Directors with three classes of Directors whose staggered three year terms would
expire in 1998, 1999 and 2000 respectively.8 The plaintiff Phalon voted against
these By-Law changes. As a result of that vote, Phalon's term expires in 1998
and McCalmont's expires in 1999. The board also voted to adopt a By-Law "opting
into" GL. c. 156B, ss. 50A requiring a vote of 40% of the outstanding shares to
hold a special meeting. Three director vacancies were filled with the election
of the defendants Briskin, Lake and Peoples, all of whom, according to Phalon,
have business relationships with the defendant McCalmont.
Following filing of this action, the plaintiff's submitted a proxy
statement pursuant to Section 14(a) of the Securities & Exchange Act of 1934, a
copy of which was filed with the court.
The Defendants' Response
The defendants respond that the events dating back to 1988 are irrelevant
to the demand for injunctive relief, the new directors are "truly independent"
and the plaintiffs' attempt to portray them otherwise is based on hearsay and
unsubstantiated rumor and should be disregarded. Furthermore, TCC has reported
all evidence of possible wrongdoing to the SEC and the plaintiff has committed
"serious acts of indiscretion by revealing confidential, non-public information
he obtained as a Director."
Discussion
"[W]hen asked to grant a preliminary injunction, the judge initially
evaluates in combination the moving party's claim of injury and chance of
success on the merits. If the judge is convinced that failure to issue the
injunction would subject the moving party to a substantial risk of irreparable
harm, the judge must then balance this risk against any similar risk of
irreparable harm which granting the injunction would create for the opposing
party. What matters as to each party is not the raw amount of irreparable harm
the party might conceivably suffer, but rather the risk of such harm in light of
the party's chance of success on the merits. Only where the balance between
these risks cuts in favor of the moving party may a preliminary injunction
properly issue." Packaging Indus. Group, Inc. v. Cheney, 380 Mass. 609, 617
(1980). Accord Planned Parenthood League of Mass., Inc. v. Operatzon Resctie,
406 Mass. 701, 710 (1990)." Ashford v. Massachusetts Bay Transp. Authority, 421
Mass. 563, 564 n.3 (1995).
Stockholder List
General Laws c. 156B, ss. 32, as inserted by St.1964, c. 723, Sec. 1,
provides, in pertinent part:
If any officer or agent of a corporation having charge of ... [the
corporation's stock and transfer records] refuses or neglects to . . .
produce for examination a list of stockholders with the record address
and amount of stock owned by each, he or the corporation shall be
liable to any stockholder for all actual damages sustained by reason of
such refusal or neglect, but in an action for damages or a proceeding
in equity under this section for neglect or refusal to exhibit for
inspection the stock and transfer records, it shall be a defen[s]e that
the actual purpose and reason for the inspection sought are to secure a
list of stockholders or other information for the purpose of selling
said list or information or copies thereof or of using the same for a
purpose other than in the interest of the applicant, as a stockholder,
relative to the affairs of the corporation.
The plaintiff Phalon's right to a stockholder list is not "absolute" under GL.
c. 156B, ss.32 but rather is limited to the interest of the stockholder
"relative to the affairs of the corporation." Shabshelowitz v. Fall River Gas
Co., 412 Mass. 259, 265 (1992) affirming Shabshelowitz v. Fall River Gas Co., 30
Mass.App.Ct. 769, 771 (1991). In Shabshelowitz, the stockholder sought access to
the stockholder list solely for private investment concerns, i.e. to solicit
other shareholders to sell their stock. In this instance, the plaintiffs have
demonstrated that the demand for access to stockholder information was related
to their dispute with the control and governance of the corporation and for the
purpose of soliciting proxies.
Similarly, Rule 14a-7 does not confer an "absolute" right to stockholder
information. As noted at pages 10-l l of TCC's opposition, Rule 14a-7(a)
requires that certain pre-requisites are met. Two of those requirements are
acknowledged to have been met in this case (i.e the company is in the process of
a proxy solicitation and Phalon owns a class of shares which can vote at the
upcoming meeting). The third is more problematic to the plaintiff since
materials to be sent to shareholders were not made available to TCC. Recognizing
the deficiency, the plaintiff has sought to cure the same by filing a proxy
statement with the SEC.
The plaintiffs have demonstrated a reasonable likelihood of success on
their demand for access to the list of current stockholders. Delay in granting
relief would foreclose the plaintiffs from communication with stockholders
concerning solicitations for their proxies and for consideration as an alternate
recipient of stockholder proxies. Any remedy at law would be unable to redress
such a loss. See Modern Continental Const. Co., Inc. v. Braintree Housing
Authority, 391 Mass. 829 (1984); E.R. Holdings, Inc. v. Norton Co., 735 F.Supp.
1094, 1100 (D. Mass. 1990). Potential harm to the defendant TCC from the
disclosure of the list of stockholders can be obviated by requiring that proxy
materials submitted by the plaintiff be mailed to stockholders by TCC.
By-Law Amendments
As disputed the facts and motivations may be, there are significant facts
which are not disputed. There was an investigation. There were improprieties
involving the son of the defendant McCalmont. As a director, McCalmont voted for
measures directly affecting himself and his son. The plaintiff Phalon refused to
vote in favor of the measures in dispute. Phalon refused to sign the Form 10-K.
The Chief Financial Officer who refused to sign the Form 10-Kwas terminated. The
Form 10-K includes disclosure of the review contained in the Slavitt report
which is minimal at best. Phalon, together with other dissatisfied stockholders,
is challenging the present control and governance of TCC. It was in this context
that the board voted to reverse the 1990 vote opting out of GL. c. 156B, ss.50A
and to reconstitute TCC's board. Significantly, under the reconstituted board,
Phalon's term expires in 1998 while McCalmont's does not expire until 1999.
Section 50A clearly expresses a preference for staggered boards. Equally as
clear and undisputed is the fact that the TCC board voted on May 24, 1990 not to
have a board with staggered terms, a decision authorized expressly in ss. 50A.
Faced with a dissenting director and rumblings of a shareholder proxy challenge,
the majority of the board sought refuge in a staggered board as voted on April
29, 1998. The context compromises the validity of the vote particularly since
there are a series of votes in which at least one director voted concerning
matters directly affecting himself and his son. That context does not disappear
because the statute authorized the vote taken.
"Under Massachusetts law, officers and directors owe a fiduciary duty to
protect the interests of the corporation they serve. Cecconi v. Cecco, Inc., 739
F.Supp. 41, 45 (D.Mass.1990). Senior executives are considered to be corporate
fiduciaries and to owe their company a duty of loyalty. Chelsea Indus. v.
Gaffney, 389 Mass. 1, 11 - 12 (1983). Corporate fiduciaries are required to be
loyal to the corporation and to refrain from promoting their own interests in a
manner injurious to the corporation. Seder v. Gibbs, 333 Mass. 445, 453 (1956).
Johnson v. Withowski, 30 Mass.App.Ct. 697, 705 (1991). Orsi v. Sunshine Art
Studios, Inc., 874 F.Supp. 471, 475 (D.Mass.1995). See Pepper v. Litton,
308-U.S. 295, 311 (1939). The prohibition against self-dealing on the part of
corporate fiduciaries requires that the corporation receive the full benefit of
transactions in which an officer engages on the corporation's behalf, without
thought to personal gain; this is part of the bargain upon which investors rely
when they purchase a corporation's stock. See Enstar Group, Inc. v. Grassgreen,
812 F.Supp. 1562, 1570-1571 (M.D.Ala.1993). For that reason, a contract for
personal gain which could cause a corporate fiduciary to breach his or her
fiduciary duty of loyalty to the corporation is generally held to be
unenforceable as against public policy. See Colonial Operating Co. v. Poorvu,
306 Mass. 104, 107-108, 27 N.E.2d 704 (1940); Odman v. Oleson, 319 Mass. 24, 26
(1946); Dynan v. Fritz, 400 Mass. 230, 242-243 (1987); Childs v. RIC Group,
Inc., 331 F.Supp. 1078, 1084 (N.D.Ga.1970). See also Restatement (Second) of
Contracts ss. 193 (1981) ("A promise by a fiduciary to violate his fiduciary
duty or a promise that tends to induce such a violation is unenforceable on
grounds of public policy"). Accordingly, Massachusetts courts vigorously
scrutinize self-interested transactions involving corporate fiduciaries. Boston
Children's Heart Foundation, Inc. v. Nadal-Ginard, 73 F.3d 429, 433 (1st
Cir.1996)...." Geller v. Allied-Lyons PLC, 42 Mass.App.Ct. 120, 122-123 (1997).
Directors cannot take advantage of their official position to manipulate the
corporation in order to secure or perpetuate their control. See Andersen v.
Albert & J.M. Anderson Mfg Co., 325 Mass. 343, 347 (1950) (Manipulation of
stock). "Such action constitutes a breach of their fiduciary obligations to the
corporation and a willful disregard of the rights of the other stockholders."
Id. and cases cited.
The plaintiffs have demonstrated a reasonable likelihood of success on
their claim that the By-Law change voted on April 29, 1998 was a "manipulative
device" designed to prevent a meaningful proxy contest by dissenting
shareholders in willful-disregard of the rights of other shareholders.
Allowing the By Law to remain in effect pending a final determination of
the merits of the plaintiffs claim would result in irreparable harm to the
plaintiffs. To allow the By Law to control the proceedings at the next annual
meeting would "substantially chill, if not freeze in its tracks, any continued"
proxy contest or inquiring into the control and governance of TCC by dissenting
shareholders. See San Francisco Real Estate Investors v. Real Estate Investment
Trust, 701 F.2d 1000, 1002 (1S' Cir., 1983). The defendants have failed to
demonstrate that they will suffer comparable or greater harm if implementation
of the By-Law is delayed.
Delay in Seeking Relief
"Unexplained delay in seeking relief for allegedly wrongful conduct may
indicate an absence of irreparable harm and may make an injunction[21
Mass.App.Ct. 495] based upon that conduct inappropriate. See USAchem, Inc. v.
Goldstein, 512 F.2d 163, 168- 169 (2d Cir.1975); KlauberBros. v. Lady Marlene
Brassiere Corp., 285 F.Supp. 806, 808 (S.D.N.Y.1968); 11 Wright & Miller,
Federal Practice & Procedure: Civil Sec. 2948, at 438 (1973)." Alexander &
Alexander, Inc. v. Danahy, 21 Mass.App.Ct. 488, 495 (1986). Phalon's demand for
access to the stockholder list was made on April 8, 1998. Although advised that
TCC would require a confidentiality agreement, that agreement was not forwarded
to the plaintiff until April 24, 1998. "The delay here was not without
justification, however." Id. "[W]hat delay there was not so egregious as to form
the basis for denial of any injunctive relief. Parties to a business dispute
deserve praise, not penalty, for attempting to negotiate their differences
before knocking on the courthouse door." Id.
Order
For the foregoing reasons, the plaintiff's application for a preliminary
injunction is ALLOWED. Pending further order of this court:
1. The defendant Technical Communication Corporation shall mail a copy of
the proxy statement submitted by the plaintiffs to the SEC to each and
every stockholder of the corporation on or before June 17, 1998;
2. The defendant Technical Communication Corporation shall not provide
the plaintiffs with a copy of the shareholder list but shall maintain
a full and complete list of all shareholders to whom the proxy
statement has been sent and shall file an affidavit of compliance with
this order on or before July 3, 1998;
3. The cost of the mailing and copying shall be born by the plaintiffs;
and
4. The defendants shall be enjoined from implementing the votes taken at
the meeting held on April 30, 1998 adopting the provisions of GL c.
156B, ss.50A and restructuring the terms of the Board of Directors to
staggered terms.
5. This order is conditioned upon the plaintiffs posting a bond in the
amount of Ten Thousand Dollars or, in lieu thereof, depositing that
amount with the Clerk of Court.
/s/ Regina L. Quinlan
Regina L. Quinlan
Associate Justice of the Superior
Court
Date: June 9, 1998
__________________________
1 The defendants Briskin, Peoples and Lessard were not represented at the
hearing on the plaintiff's application for a preliminary injunction.
2 Documents submitted in this action were, given the nature of the allegations,
impounded. The parties have agreed that the impoundment order should continue.
3 The investment in Net2Net and relationship between its president and the
defendant McCalmont is disclosed at page AR-18 of TCC's Form 10-K.
4 According to the SEC filing Form 8-K of TCC, the Chief Financial Officer was
terminated on January 14, 1998 and the defendant Lerner, a director and TCC's
Treasurer assumed the duties of the Chief Financial Officer until a successor
was chosen.
5 The Form 10-K includes the following disclosure at page 10:
On December 12, 1997, the Board of Directors announced that it has
undertaken an internal review of certain of its historical service
contracts. On January 13, 1998 the Company announced that the results
from its internal review concluded that certain of the Company's
internal approval and control procedures were not followed in
connection with such contracts. However, the Company does not believe
that this will result in a material liability or asset impairment to
the Company or otherwise have any material effect on the financial
position or results of operations of the Company.
The Form 10-K was signed by Roland S. Gerard as President and Chief Executive
Officer and by the defendants McCalmont, Guild, Lessard and Lerner.
6 Securities Exchange Act of 1934.
7 According to the Phalon Affidavit, the meeting was scheduled for July 14th.
Parties agreed the meeting is scheduled for July 17th.
8 According to a corporate vote taken on May 24, 1990, TCC's directors voted to
exempt TCC from the provisions of the then newly enacted GL. c. 156B, ss. 50A.
COMMONWEALTH OF MASSACHUSETTS
APPEALS COURT
98-J-436
PHILIP A. PHALON & another
vs.
TECHNICAL COMMUNICATIONS CORPORATION, & others.
ORDER
After reviewing those papers presented which I deemed pertinent and hearing
argument of the parties, I conclude that the petitioners' request for relief
should be denied. The preliminary injunction is not based upon an erroneous
refusal to recognize the petitioners' rights under G. L. c. 156B, section
50A(a). Rather, injunctive relief was granted on the basis of a showing of
circumstances which give rise to serious question concerning the validity of the
vote by which the petitioners sought to bring themselves within the provisions
of section 50A(a). Accordingly, the petition for relief brought under G. L.
c.231, section 118, first par., is denied.
By the Court (Perretta, J.)
/s/Assistant Clerk
Assistant Clerk
Entered: June 18, 1998
TECHNICAL COMMUNICATIONS CORPORATION
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
July 17, 1998
THIS PROXY IS SOLICITED ON BEHALF OF PHILIP A. PHALON, M. MAHMUD AWAN,
ROBERT B. BREGMAN AND WILLIAM C. MARTINDALE, JR.
The undersigned hereby authorizes and appoints Philip A. Phalon and M.
Mahmud Awan, and each of them, as proxies with full power of substitution, to
vote all shares of Common Stock of TECHNICAL COMMUNICATIONS CORPORATION held of
record on May 29, 1998 by the undersigned at the Annual Meeting of Stockholders
to be held at 10:00 a.m. Eastern Time on July 17, 1998, and any adjournment or
postponement thereof.
This proxy when properly executed will be voted (i) as directed below, or,
in the absence of such direction, this proxy will be voted FOR the specified
nominees in Proposal 1 and FOR the Stockholder Proposal in Proposal 2 and (ii)
in accordance with the judgment of the proxies upon other matters that may
properly come before said meeting or any adjournments or postponements thereof.
A VOTE FOR PROPOSALS NO. 1 AND NO. 2 IS STRONGLY RECOMMENDED.
(Continued and to be signed on reverse side)
___________________________________________________________________________
PROPOSAL 1 - Election of Philip A. Phalon, M. Mahmud Awan, Joseph J. Hansen,
Ernest R. Fenton and David A.B. Brown as directors
___ FOR all nominees listed ___ WITHHOLD AUTHORITY to vote
as follows:
(INSTRUCTION: To withhold authority to vote Nominees:
for any individual nominee(s), write the name(s) Philip A. Phalon
of such nominee(s) on the line below.) M. Mahmud Awan
Joseph J. Hansen
Ernest R. Fenton
____________________________________ David A.B. Brown
_______________________________________________________________________________
PROPOSAL 2 - Stockholder Proposal (to revoke the Board of Director's action to
classify the Board into three (3) classes having staggered terms)
___ FOR ___ AGAINST ___ABSTAIN
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
This Proxy must be signed exactly as Dated: _____________, 1998
the name of the Stockholder(s) appears
on this card. Signature:____________________
Signature:____________________
(if held jointly)