SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14A--INFORMATION REQUIRED
IN PROXY STATEMENT
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. 1)
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Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
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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 Materials Pursuant to ss. 240.14a-12
FIRECOM, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
common stock, $.01 par value per share ("Common Stock"), Class A
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common stock, $.01 par value per share ("Class A Common Stock") and
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options to purchase Common Stock
--------------------------------
2) Aggregate number of securities to which transaction applies:
2,095,252 shares of Common Stock, 1,263,280 shares of Class A Common
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Stock and 1,222,000 options to purchase Common Stock
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth amount on which the
filing fee is calculated and state how it was determined):
$0.80 per share of Common Stock, $0.80 per shares of Class A Common
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Stock and difference between $0.80 and exercise price of option per
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option to purchase Common Stock
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4) Proposed maximum aggregate value of transaction: $2,845,988.80
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5) Total fee paid: $569.20
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[X] 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:
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2) Form, Schedule or Registration Statement No:
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3) Filing Party:
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4) Date Filed:
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FIRECOM, INC.
39-27 59TH STREET,
WOODSIDE, NEW YORK 11377
______, 2001
Dear Shareholder:
You are invited to attend a special meeting of the shareholders of Firecom, Inc.
("Firecom") to be held at 40 West 57th Street, 28th floor, New York, New York
10019 on ______, 2001 at 10:00 a.m., local time.
At the special meeting you will be asked to consider and vote upon a proposal to
approve an Agreement and Plan of Merger (the "Merger Agreement") providing for
the merger (the "Merger") of ALRM Acquisition Inc., a New York corporation (the
"Purchaser"), with and into Firecom, following which the separate corporate
existence of the Purchaser will cease. The Purchaser was formed and at the
effective time of the merger will be owned by a group led by Paul Mendez,
Firecom's Chairman of the Board of Directors, President and Chief Executive
Officer. Upon the consummation of the Merger, each share of common stock of
Firecom ("Common Stock") and each share of Class A common stock of Firecom
("Class A Common Stock" and, together with the Common Stock, the "Firecom
Stock") outstanding immediately prior to the Merger, other than shares of
Firecom Stock held by Firecom or the Purchaser, will be converted into the right
to receive $0.80 in cash.
Pursuant to a Shareholders and Voting Agreement (the "Voting Agreement"), dated
as of January 24, 2001 as amended, among Paul Mendez and certain other persons
(collectively, the "Proponents"), shareholders who, collectively, beneficially
own or control shares of Firecom Stock which represent more than 74% of the
voting rights and 68.8% of the ownership rights in respect of Firecom, have
granted to Paul Mendez a proxy to vote such shares in favor of the Merger
Agreement and to vote against any competing transaction that might be proposed
by a third party prior to the Merger. Paul Mendez intends to vote all shares
subject to the Voting Agreement in favor of the Merger.
Burnham Securities Inc., the investment banking firm retained by the independent
committee of the Board of Directors of Firecom in connection with the Merger,
has rendered its opinion dated April 3, 2001 that, as of such date, the $0.80 in
cash per share of Firecom Stock to be received by the unaffiliated holders of
shares of Firecom Stock pursuant to the Merger Agreement is fair from a
financial point of view to such holders. A copy of the opinion is attached to
the enclosed Proxy Statement as Annex B and should be read in its entirety.
YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT, THE MERGER AND THE
TRANSACTIONS RELATED THERETO AND HAS DETERMINED THAT THEY ARE FAIR TO AND IN THE
BEST INTERESTS OF FIRECOM AND ITS SHAREHOLDERS. AFTER CAREFUL CONSIDERATION,
YOUR BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE MERGER
AGREEMENT AND THE MERGER AS DESCRIBED IN THE ENCLOSED PROXY STATEMENT.
Certain members of the Board of Directors have conflicts of interest with
respect to the Merger. See "SPECIAL FACTORS--Conflicts of Interest" in the
enclosed Proxy Statement.
If the Merger is consummated, holders of Firecom Stock who do not vote in favor
of approval of the Merger Agreement and the Merger and who otherwise comply with
the requirements of Section 623 of the Business Corporation Law of New York will
be entitled to statutory appraisal rights.
In the materials accompanying this letter, you will find a Notice of Special
Meeting of Shareholders, a Proxy Statement relating to the actions to be taken
by shareholders of Firecom at the special meeting and a proxy card. The Proxy
Statement more fully describes the proposed Merger and includes information
about Firecom and the Purchaser. Shareholders are urged to read carefully the
Proxy Statement and Notice and to consider the information included therein
carefully. Firecom, the Purchaser, and certain affiliates of the Company, who
include certain members of the management of Firecom, certain members of
Firecom's Board of Directors and members of their respective immediate families
who are also Firecom shareholders, have filed a Schedule 13E-3 with the
Securities and Exchange Commission. Shareholders are also urged to read
carefully the Schedule 13E-3 and to consider the information therein carefully.
ALL SHAREHOLDERS ARE INVITED TO ATTEND THE SPECIAL MEETING IN PERSON. WHETHER OR
NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN, DATE AND
RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. IF YOU ATTEND THE SPECIAL MEETING,
YOU MAY VOTE IN PERSON IF YOU WISH, EVEN THOUGH YOU HAVE PREVIOUSLY RETURNED
YOUR PROXY. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE
SPECIAL MEETING.
Sincerely,
Paul Mendez
Chairman of the Board of Directors, President and
Chief Executive Officer
2
FIRECOM, INC.
39-27 59TH STREET
WOODSIDE, NEW YORK 11377
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ________, 2001
Woodside, New York
_________, 2001
To the shareholders of Firecom, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Firecom, Inc., a New York corporation ("Firecom"), will be held at
40 West 57th Street, 28th floor, New York, New York 10019, on ____________,
_____________, 2001, at 10:00 a.m., local time, for the following purposes as
more fully described in the accompanying Proxy Statement:
o To consider and act upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated April 3, 2001 (the "Merger Agreement"),
between Firecom and ALRM Acquisition Inc., a New York corporation (the
"Purchaser"), providing for the merger of the Purchaser with and into
Firecom (the "Merger"), whereupon the separate corporate existence of
the Purchaser shall cease, Firecom will continue as the surviving
corporation, and the shareholders of Firecom (other than the
Purchaser) will receive cash consideration of $0.80 per share, without
interest; and
o To transact such other business as may properly come before the
Special Meeting or any postponements or adjournments thereof.
Only shareholders of record at the close of business on __________, 2001, are
entitled to notice of and to vote at the Special Meeting and any postponements
or adjournments thereof. The affirmative vote of the holders of shares of the
common stock of Firecom (the "Common Stock") and the Class A common stock (the
"Class A Common Stock" and, together with the Common Stock, the "Firecom Stock")
representing two-thirds of the voting power of the outstanding shares of the
Common Stock and the Class A Common Stock entitled to vote at the Special
Meeting, in person or by proxy, is required to approve the Merger Agreement and
the Merger. Each share of Common Stock is entitled to one vote and each share of
Class A Common Stock is entitled to 30 votes. The Common Stock and Class A
Common Stock will vote together on the Merger.
If the Merger is consummated, holders of Firecom Stock who do not vote in favor
of approval of the Merger Agreement and the Merger and who otherwise comply with
the requirements of Section 623 of the Business Corporation Law of New York
shall be entitled to statutory appraisal rights.
A complete list of shareholders entitled to vote at the Special Meeting will be
available for examination at Firecom's principal executive offices, located at
39-27 59th Street, Woodside, New York 11377, for any purpose germane to the
Special Meeting, during ordinary business hours, for a period of at least 10
days prior to the Special Meeting and will also be available for inspection at
the Special Meeting.
IMPORTANT
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN. WHETHER
OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND RETURN IT WITHOUT DELAY IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF MAILED IN THE UNITED STATES.
YOU MAY REVOKE YOUR PROXY BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME.
Sincerely,
Paul Mendez
Chairman of the Board of Directors, President and
Chief Executive Officer
2
FIRECOM, INC.
39-27 59TH STREET
WOODSIDE, NEW YORK 11377
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PROXY STATEMENT
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SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ___________, 2001
This Proxy Statement is being furnished to the holders of shares of common
stock, $.01 par value, and the Class A common stock, $.01 par value, of Firecom,
Inc., a New York corporation ("Firecom"), in connection with the solicitation of
proxies by and on behalf of the Board of Directors of Firecom for use at the
Special Meeting of Shareholders of Firecom to be held on __________, __________,
2001, at 10:00 a.m., local time, at 40 West 57th Street, 28th floor, New York,
New York 10019 and at any postponements or adjournments thereof.
This solicitation of proxies is made by and on behalf of the Board of Directors.
In addition to mailing copies of this Proxy Statement and the accompanying
Notice of Special Meeting of Shareholders and proxy to all shareholders of
record on __________, 2001, Firecom will request brokers, custodians, nominees
and other fiduciaries to forward copies of this material to persons for whom
they hold shares of Firecom's stock in order that such shares may be voted.
Solicitation may also be made by Firecom's officers and regular employees
personally or by telephone. In addition, while Firecom has no present intention
to retain anyone to assist in soliciting proxies, Firecom may do so if it deems
such action necessary. The cost of the solicitation of proxies will be borne by
Firecom.
At the Special Meeting, Firecom's shareholders will be asked to consider and
vote upon a proposal to approve and adopt the Agreement and Plan of Merger,
dated April 3, 2001, between Firecom and ALRM Acquisition Inc., a New York
corporation (the "Purchaser"), and the transactions contemplated thereby. A copy
of this merger agreement is attached to this Proxy Statement as Annex A. The
-------
Purchaser was formed and will be owned, at the effective time of the merger, by
three members of Firecom's Board of Directors, including Paul Mendez, the
Chairman of the Board of Directors, President and Chief Executive Officer of
Firecom, and/ or certain members of the immediate families of such individuals.
The merger agreement that the shareholders are being asked to consider provides
for the merger of the Purchaser with and into Firecom. At the effective time of
the proposed merger:
o the separate corporate existence of the Purchaser will cease,
o Firecom will continue as the surviving corporation of the proposed
merger, and
o each share of Firecom Stock outstanding immediately prior to the
merger (other than shares of Firecom's stock held by the Purchaser or
shareholders of Firecom who have perfected and not withdrawn their
right to seek appraisal of their shares under applicable New York law)
will be converted into the right to receive $0.80 per share in cash,
without interest.
See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Conversion and Cancellation of
Firecom Stock" and "SPECIAL FACTORS--Appraisal Rights."
In addition, each holder of Firecom stock options will be entitled to receive
immediately after the effective time of the proposed merger an amount in cash
equal to $0.80 per share minus the per share exercise price of such option. All
stock options are either vested or will vest at or immediately prior to the
effective time of this merger. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Treatment of Stock Options."
Any proxy may be revoked at any time before it is exercised. The casting of a
ballot at the Meeting by a shareholder who may have previously given a proxy
will have the effect of revoking that proxy.
The information contained in this Proxy Statement is qualified in its entirety
by the annexes hereto, each of which is important and should be carefully
reviewed in its entirety.
This Proxy Statement, the accompanying Notice of Special Meeting of Shareholders
and the accompanying proxy are first being mailed to shareholders of Firecom on
or about __________, 2001.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE
PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
The date of this Proxy Statement is __________, 2001.
ii
INDEX
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SUMMARY TERM SHEET............................................................1
Special Meeting of the Shareholders......................................1
The Merger...............................................................3
INTRODUCTION.................................................................11
WHERE YOU CAN FIND MORE INFORMATION..........................................12
PARTIES TO THE MERGER........................................................12
Firecom.................................................................12
The Purchaser...........................................................15
VOTING AND PROXIES...........................................................15
Date, Time and Place of Special Meeting.................................15
Record Date and Outstanding Shares......................................15
Voting Proxies..........................................................15
Vote Required...........................................................16
Solicitation of Proxies; Expenses.......................................17
SPECIAL FACTORS..............................................................17
Background of the Merger................................................17
Reasons for and Fairness of the Merger..................................22
Reasons and Purposes of the Purchaser and the Proponents for the
Merger..................................................................25
Position of the Purchaser, the Proponents as to the Fairness of
the Merger..............................................................26
Reasons and Purposes of Messrs. Kogen and Sayour for the Merger.........27
Position of Messrs. Kogen and Sayour on the Fairness of the Merger......28
Opinion of Financial Advisor............................................30
Conflicts of Interest...................................................37
Certain Effects of the Merger...........................................40
Treatment of Stock Options..............................................44
Voting Agreement........................................................44
Appraisal Rights........................................................45
Federal Income Tax Considerations.......................................49
Regulatory Approvals....................................................50
CERTAIN PROVISIONS OF THE MERGER AGREEMENT...................................50
Prior to the Effective Time of the Merger...............................50
Effective Time of the Merger............................................50
Conversion and Cancellation of Firecom Stock............................51
Purchaser Stock.........................................................51
Treatment of Stock Options..............................................51
Exchange Procedures.....................................................52
Interim Operations of Firecom; Conduct Pending Merger...................52
Alternative Proposals...................................................54
Indemnification.........................................................56
iii
Conditions to the Merger................................................57
Termination.............................................................59
Expenses and Termination Payments.......................................61
Amendment...............................................................62
FUNDING OF THE MERGER........................................................62
Expenses of the Merger..................................................62
THE PURCHASER................................................................62
OTHER PARTIES ENGAGING IN THE TRANSACTION....................................63
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.....................65
SELECTED FINANCIAL DATA......................................................65
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS................................................................67
Cautionary Statement....................................................67
Overview................................................................67
Results Of Operations...................................................67
Liquidity and Capital Resources.........................................70
The Business............................................................71
Property................................................................73
Legal Proceedings.......................................................74
MANAGEMENT OF FIRECOM........................................................75
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............77
INDEPENDENT PUBLIC ACCOUNTANTS...............................................80
OTHER MATTERS................................................................80
2001 ANNUAL MEETING OF SHAREHOLDERS..........................................80
INDEX TO FINANCIAL STATEMENTS...............................................F-1
Annex A: Agreement and Plan of Merger
Annex B: Opinion Letter of Financial Advisor
Annex C: Dissenters' Rights Provisions of the New York Business Corporation
Law Section 623 and Section 910
iv
SUMMARY TERM SHEET
This summary term sheet presents the most material terms relating to the
Special Meeting of the Shareholders of Firecom, Inc. ("Firecom") and the
proposed merger that are more fully described in the Proxy Statement. The
following is intended as a summary of the most material terms contained in this
Proxy Statement, is not intended to be a complete statement of all material
features of the proposal to be voted on and is quhalified in its entirety by the
more detailed information appearing elsewhere in this Proxy Statement. To
understand the merger and the transactions contemplated by this Proxy Statement,
you should carefully read this entire document, including the annexes and the
documents to which this summary refers you.
Special Meeting of the Shareholders
When and where is the Special Meeting? The Special Meeting will be held on
__________, __________, 2001, at 10:00
a.m., local time, at 40 West 57th
Street, 28th floor, New York, New York
10019.
Who is entitled to this notice and to You must have been a holder of record of
vote at the Special Meeting? shares of Firecom's stock at the close
of business on June 1, 2001 to be
entitled to this notice and to be
allowed to vote at the Special Meeting
and at any postponements or adjournments
thereof.
What is the purpose of the Special The purpose of the Special Meeting is to
Meeting? consider and vote upon a proposal to
approve and adopt an agreement and plan
of the merger between Firecom and ALRM
Acquisition, Inc. (the "Purchaser"). The
merger agreement provides that, when the
merger occurs, the separate corporate
existence of the Purchaser will cease,
Firecom will continue as the surviving
corporation, and each outstanding share
of Firecom's stock immediately prior to
the merger (other than shares owned by
the Purchaser and shares as to which
appraisal rights are properly perfected
and not withdrawn) will be converted
into the right to receive $0.80 in cash,
without interest.
How many shares are outstanding as of At the close of business on March 31,
the record date for the Special 2001, there were 5,789,685 shares of
Meeting? common stock outstanding, each such
share of which is entitled to one vote,
and there were 4,957,713 shares of Class
A common stock outstanding, each such
share of which is entitled to 30 votes.
The holders of common stock and Class A
1
common stock will vote together on the
merger.
What vote is required to approve the Approval of the merger agreement and
proposed merger? the transactions contemplated thereby
requires the affirmative vote of the
holders of common stock and Class A
common stock representing, collectively,
two-thirds of the voting power of the
outstanding shares of the common stock
and the Class A common stock entitled to
vote at the Special Meeting. Certain
shareholders of Firecom, holding in the
aggregate 74% of the combined voting
power associated with the outstanding
shares of common stock and Class A
common stock eligible to be voted at the
Special Meeting, have entered into a
voting agreement pursuant to which Paul
Mendez, the Chairman of the Board of
Directors, President and Chief Executive
Officer of Firecom, has been granted a
proxy to vote such shares in favor of
the proposed merger and to vote against
any competing transaction that might be
proposed by a third party prior to
consummation of the proposed merger, and
will vote in favor of the proposed
merger. None of the shares of common
stock outstanding and none of the shares
of the Class A common stock outstanding
that are not subject to this voting
agreement, representing approximately
26% of the voting rights associated with
the shares eligible to be voted, need be
voted in favor of the merger in order
for the merger to be approved by the
shareholders. Neither the approval of
two-thirds of holders of common stock or
Class A common stock, voting as a class,
nor the approval by holders of the
shares representing two-thirds of the
voting power of the common stock and
Class A common stock that is held by
shareholders that are not affiliated
with the Purchaser, is required. See
"SPECIAL FACTORS--Voting Agreement."
Do I have to attend the Special If you return your proxy card, included
Meeting in order to vote for or with this Proxy Statement, properly
against the proposed merger? signed and dated, your shares will be
voted in accordance with the
instructions on the proxy card. If you
fail to attend the Special Meeting or
send a proxy card, or your broker fails
to vote on your behalf, your shares will
not be voted and will therefore be
counted as if you voted against the
proposed merger. IF YOU SEND IN YOUR
PROXY CARD BUT DO NOT SPECIFY YOUR
CHOICE, YOUR SHARES REPRESENTED BY THAT
2
PROXY CARD WILL NOT BE VOTED AND WILL
THEREFORE BE COUNTED AS IF YOU VOTED
AGAINST THE PROPOSED MERGER. See "VOTING
AND PROXIES."
THE MERGER
Who are the parties to the proposed Firecom is a New York corporation.
merger? Through its Fire Controls division,
Firecom designs, manufactures and
distributes, under the Firecom(TM)brand
name, safety and security systems for
high rise office buildings, hotels,
apartment buildings and other large
commercial buildings. This division also
distributes life safety and other
electronic building systems manufactured
by other companies. Subsidiaries of
Firecom are also engaged in the
maintenance of systems sold by Firecom
and others. The principal executive
offices of Firecom are located at 39-27
59th Street, Woodside, New York 11377,
and the telephone number is (718)
899-6100. Firecom is a filing person of
the Schedule 13E-3. See "WHERE YOU CAN
FIND MORE INFORMATION" and "PARTIES TO
THE MERGER--Firecom."
The Purchaser, ALRM Acquisition Inc., is
a New York corporation. The Purchaser
was formed by a group led by the
Chairman of the Board of Directors,
President and Chief Executive Officer of
Firecom, Paul Mendez, for the purpose of
effecting the proposed merger. The
Purchaser has no prior business or
operating history, and shall cease to
exist as a separate corporate entity
upon the consummation of the proposed
merger. The principal executive offices
and telephone number of the Purchaser
are the same as those of Firecom. See
"PARTIES TO THE MERGER--The Purchaser."
What would happen in the proposed Pursuant to the terms of the merger
merger? agreement, when the proposed merger
occurs (i) the Purchaser will be merged
with and into Firecom and will cease to
exist as a separate entity; (ii)
Firecom, as the surviving corporation in
the merger, will continue; and (iii)
each outstanding share of Firecom's
stock (other than shares owned by the
Purchaser and shares as to which
appraisal rights are properly perfected
and not withdrawn) will be converted
into the right to receive $0.80 in cash,
3
without interest. See "SPECIAL
FACTORS--Certain Effects of the Merger."
In addition, all outstanding stock
options are vested or will vest at or
immediately prior to the effective time
of the merger and will be converted into
the right to receive a cash payment at
the effective time of the merger equal
to the difference between $0.80 and the
exercise price of such option, as
described below in this summary under
"--What will happen to stock options?"
See "SPECIAL FACTORS--Treatment of Stock
Options."
What is the background of the proposed The proponents of the merger, including
the merger between the Purchaser Paul Mendez, Firecom Chairman of the
and Firecom? Board of Directors, President and Chief
Executive Officer, Orhan Sadik-Khan, a
member of the Firecom Board of
Directors, Peter Barotz, a member of the
Firecom Board of Directors, along with
members of their immediate families who
were shareholders of Firecom (namely,
Carol Mendez, Naomi Pollack, Nathan
Barotz, Celia Barotz, Karim Sadik-Khan,
Janette Sadik-Khan, Jan Sadik-Khan, and
the Sadik-Khan Family Trust), who
collectively owned 68.8% of the
outstanding shares of the capital stock
of Firecom, made an offer to acquire
Firecom, by a letter from Paul Mendez to
the Board of Directors of Firecom dated
January 24, 2001, for $0.70 per share.
Following negotiations with the
Independent Committee, Paul Mendez
raised this initial offer to $0.80 per
share. See "SPECIAL FACTORS--Background
of the Merger."
Who is the Independent Committee? Firecom's Board of Directors appointed
an Independent Committee of the Board of
Directors, which excludes those
directors who are parties to the
proponents' voting agreement or who are
related to any such parties or
who are employees of Firecom. The
members of the Independent Committee are
Ronald A. Levin, Harry B. Levine and
Richard G. Scurry, Jr. The Independent
Committee was engaged to act solely on
4
behalf of unaffiliated shareholders of
Firecom in negotiating the Merger. The
Independent Committee engaged Burnham
Securities Inc. as financial advisor on
February 8, 2001. See "SPECIAL
FACTORS--Background of the Merger."
What was the Independent Committee's The Independent Committee has informed
recommendation with respect to the the Board of Directors that the merger
proposed merger? agreement and the proposed merger are
fair to, and in the best interests of
Firecom shareholders unaffiliated with
the merger's proponents or the
Purchaser. In reaching this conclusion,
the Independent Committee has considered
a number of factors relating to the
business and prospects of Firecom, the
industry it serves and its customers,
the advice of its advisors, and the
terms of the merger agreement. For a
more detailed discussion of these
matters, see "SPECIAL
FACTORS--Background of the Merger,"
"SPECIAL FACTORS--Reasons for and
Fairness of the Merger" and "SPECIAL
FACTORS--Opinion of Financial Advisor."
What was the opinion of the Burnham Securities Inc. has delivered
Independent Committee's financial its written opinion to the Independent
advisor? Committee and to the Board of Directors
of Firecom that, as of April 3, 2001,
the $0.80 in cash per share of Firecom's
stock to be received by the unaffiliated
holders of shares of Firecom's stock
pursuant to the merger agreement in the
proposed merger is fair to such
unaffiliated holders from a financial
point of view. The full text of the
written opinion of Burnham Securities,
which sets forth assumptions made,
matters considered and limitations on
the review undertaken in connection with
the opinion, is attached hereto as
Annex B and is incorporated herein by
-------
reference. HOLDERS OF SHARES OF
FIRECOM'S STOCK ARE URGED TO, AND
SHOULD, READ SUCH OPINION IN ITS
ENTIRETY. See "SPECIAL FACTORS--Opinion
of Financial Advisor."
How should I vote on the proposed The Board of Directors has unanimously
merger? approved the proposed merger and the
merger agreement. THE BOARD OF DIRECTORS
FOLLOWING THE RECOMMENDATION OF THE
INDEPENDENT COMMITTEE RECOMMENDS THAT
THE SHAREHOLDERS OF FIRECOM VOTE IN
FAVOR OF THE APPROVAL OF THE PROPOSED
MERGER AND THE MERGER AGREEMENT. See
"SPECIAL FACTORS--Conflicts of
Interest."
5
If approved, when will the proposed The proposed merger will be effective
merger be effective? the later of the time and date when the
Certificate of Merger is accepted for
filing by the Department of State of the
State of New York and the merger thereby
becomes effective or such later time
established by the Certificate of
Merger. See "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT--Effective Time of the
Merger," "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT--Conditions to the
Merger" and "SPECIAL FACTORS--Regulatory
Approvals."
Are there any conditions to the The respective obligations of Firecom
completion of the proposed merger? and the Purchaser to consummate the
proposed merger are subject to certain
conditions, including, among others, the
approval of the merger agreement by the
affirmative vote of the holders of
Firecom's stock representing,
collectively, two-thirds of the voting
power of the outstanding shares of
Firecom's stock entitled to vote at the
Special Meeting. Paul Mendez holds
proxies for more than the necessary
votes. Mr. Mendez has indicated that he
intends to vote in favor of the merger.
See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Conditions to the Merger" and
"SPECIAL FACTORS."
What else have Firecom and the In the merger agreement, Firecom has
Purchaser agreed to do in connection agreed, among other things, that (i)
with the proposed merger? Firecom will conduct business only in
the ordinary and usual course and (ii)
Firecom will not, nor will Firecom
permit its officers, directors,
employees, agents and representatives
to, initiate, solicit or knowingly
encourage, directly or indirectly, any
inquiries or the making or
implementation of any proposal or offer
with respect to a merger, acquisition,
consolidation or similar transaction
involving, or any purchase of any equity
securities of, Firecom or all or any
significant portion of the assets of
Firecom (an "Alternative Proposal");
provided, however, that the Board of
Directors of Firecom is not prohibited
from (A) furnishing information to, or
entering into discussions or
negotiations with, any person or entity
that makes an unsolicited, bona fide
Alternative Proposal that the Board of
Directors of Firecom determines, in good
faith, represents a financially superior
transaction for the shareholders of
Firecom as compared to the Merger, if,
6
and only to the extent that, (1) the
Board of Directors of Firecom, based
upon the advice of outside counsel,
determines in good faith that such
action is required for the Board of
Directors to comply with its fiduciary
duties to shareholders imposed by law,
and (2) prior to furnishing such
information to, or entering into
discussions or negotiations with, such
person or entity, Firecom provides
written notice to the Purchaser to the
effect that it is furnishing information
to, or entering into discussions or
negotiations with, such person or
entity; and (B) to the extent
applicable, complying with Rule 14e-2
promulgated under the Securities
Exchange Act of 1934 with regard to an
Alternative Proposal. See "CERTAIN
PROVISIONS OF THE MERGER
AGREEMENT--Interim Operations of
Firecom; Conduct Pending Merger" and
"CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Alternative Proposals."
Can the agreement between Firecom and The merger agreement may be terminated
the Purchaser be terminated? at any time before the merger becomes
effective, before or after the approval
of the merger agreement by the
shareholders of Firecom, by mutual
consent of Firecom and the Purchaser or
by either Firecom or the Purchaser if,
among other things, (i) the proposed
merger has not been consummated by
August 15, 2001, (ii) a United States
federal or state court of competent
jurisdiction issues an order, judgment
or decree (other than a temporary
restraining order) restraining,
enjoining or otherwise prohibiting the
proposed merger and such order, judgment
or decree has become final, or (iii) the
approval of the proposed merger by the
shareholders has not been obtained at
the Special Meeting.
Firecom may terminate the merger
agreement if (i) there is an uncured or
incurable material breach or
nonperformance by the Purchaser which
has resulted in or could reasonably be
expected to result in a failure of a
condition to closing under the merger
agreement, or (ii) there is an
Alternative Proposal and the Board of
Directors of Firecom in good faith
determines (in consultation with its
financial advisors) that such
Alternative Proposal represents a
superior proposal for the shareholders
of Firecom and in the exercise of its
good faith judgment as to its fiduciary
7
duties to its shareholders imposed by
law, as advised by outside counsel, the
Board of Directors of Firecom determines
that such termination is required by
reason of such Alternative Proposal
being made.
In addition, the merger agreement may be
terminated by the Purchaser if, among
other things, (i) there is an uncured or
incurable material breach or
nonperformance by Firecom which has
resulted in or could reasonably be
expected to have resulted in a failure
of a condition to closing under the
merger agreement, or (ii) the Board of
Directors of Firecom withdraws or
modifies in a manner materially adverse
to the Purchaser the Board's approval or
recommendation of the proposed merger or
recommends an Alternative Proposal to
Firecom's shareholders. The merger
agreement may be amended by action taken
by their respective Board of Directors
of Firecom and the Purchaser. See
"CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Termination" and "CERTAIN
PROVISIONS OF THE MERGER
AGREEMENT--Amendment."
Do certain officers or directors of In considering the recommendation of the
Firecom have interests in the Board of Directors of Firecom with
proposed merger that are different respect to the proposed merger,
from the interests of unaffiliated shareholders should be aware that
shareholders? certain officers and directors of
Firecom have interests in connection
with the proposed merger. Specifically,
the Chairman of the Board of Directors,
President and Chief Executive Officer,
and two other directors of Firecom, are,
or represent, substantial equity holders
in the Purchaser. In addition, each
member of the Board of Directors other
than Paul Mendez, Peter Barotz and Orhan
Sadik-Khan will receive, upon
consummation of the proposed merger, the
cash value of the stock appreciation
rights held by such director, equal to
the difference between $0.80 per share
and the price of the common stock at the
time such right was awarded (ranging
from approximately $0.14 to $0.60 per
share), and each such director currently
holds 40,000 of such rights. However, no
member of the Independent Committee has
any interest in connection with the
proposed merger, in addition to his
holdings of stock appreciation rights,
other than as a shareholder of Firecom.
8
See "SPECIAL FACTORS--Conflicts of
Interest."
How would the expenses of the proposed Funding of the proposed merger will
merger be paid? require approximately $3.0 million to
pay the $0.80 per share of the stock of
Firecom converted as a result of the
proposed merger and to pay the fees and
expenses in connection with the proposed
merger. These funds are expected to be
provided from Firecom's available
working capital. See "FUNDING OF THE
MERGER."
What would be the federal income tax In general, each shareholder, including
consequences of the proposed merger? shareholders who exercise appraisal
rights, will recognize gain or loss per
share equal to the difference between
the cash received for the shareholder's
shares and the shareholder's tax basis
per share. Such gain or loss generally
will be treated as capital gain or loss
if a shareholder's shares of Firecom's
stock were held as capital assets at the
time of the Merger. The foregoing tax
discussion is based upon present law.
You should carefully review the more
detailed description contained in
"SPECIAL FACTORS--Federal Income Tax
Considerations" and consult your own tax
advisor as to the specific tax
consequences of the proposed merger to
you.
What will happen if the proposed As a result of the merger, only
merger is completed? shareholders of Firecom who are the
proponents of the merger (Paul Mendez,
Carol Mendez, Naomi Pollack, Nathan
Barotz, Celia Barotz, Orhan Sadik-Khan,
Karim Sadik-Khan, Janette Sadik-Khan,
Jan Sadik-Khan, and the Sadik-Khan
Family Trust) will retain an interest in
Firecom after the proposed merger occurs
as a result of their ownership at the
time of the merger of the Purchaser. All
other Firecom shareholders will cease to
have any ownership interest in Firecom
and will cease to participate in future
earnings and growth, if any, of Firecom.
Moreover, if the merger is consummated,
public trading of the common stock of
Firecom will cease, the registration of
the common stock under the Securities
Exchange Act of 1934 will be terminated
and Firecom will cease filing reports
with the Securities and Exchange
Commission. See "SPECIAL
FACTORS--Certain Effects of the Merger."
9
What will happen to stock options? If you hold stock options, you will be
entitled to receive immediately after
the merger becomes effective an amount
in cash equal to $0.80 minus the per
share exercise price of each of your
options. There are (i) 1,122,000 options
outstanding under Firecom's Incentive
and Non-Qualified Stock Option Plan,
which have exercise prices ranging from
$0.15 to $0.63 per share, all of which
are vested or shall vest prior to the
effective time of the merger, and (ii)
31,068 options outstanding under
Firecom's Distributors Stock Option
Plan, which have an exercise price of
$0.55 per share, all of which are
vested. See "SPECIAL FACTORS--Treatment
of Stock Options."
What rights do I have if I oppose If you do not vote in favor of the
the proposed merger? proposed merger and you fully comply
with the applicable provisions of
Section 623 of the Business Corporation
Law of New York, you may have the right
to require Firecom as the surviving
corporation of the merger to purchase
your shares of Firecom's stock for cash
at the fair value of those shares as
determined in accordance with New York
law. See "SPECIAL FACTORS--Appraisal
Rights" and Annex C attached hereto.
At what price has Firecom's stock Immediately prior to the initial
been traded for recently? announcement of the proposed merger,
Firecom's common stock was trading at
$0.44. On _______, Firecom's common
stock was trading at $___. See "MARKET
FOR COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS."
10
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation by
Firecom, Inc., a New York corporation ("Firecom"), of proxies to be voted at a
Special Meeting of Shareholders of Firecom to be held on __________, __________,
2001 (the "Special Meeting"). This Proxy Statement is first being mailed to
shareholders of Firecom on or about __________, 2001.
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve an agreement and plan of merger (the "Merger Agreement") by and
between Firecom and ALRM Acquisition Inc. (the "Purchaser"), a New York
corporation recently formed by Paul Mendez and two other members of the Board of
Directors of Firecom and/or certain of their family members (the "Proponents")
pursuant to which, among other things:
o the Purchaser will be merged with and into Firecom and the separate
corporate existence of the Purchaser will cease (the "Merger"),
o Firecom will continue as the surviving corporation of the Merger (the
"Surviving Corporation"), and
o each share of the common stock, $0.01 par value, of Firecom (the
"Common Stock"), and the Class A common stock, $0.01 par value, of
Firecom (the "Class A Common Stock" and, together with the Common
Stock, the "Firecom Stock") outstanding immediately prior to the
Merger (other than shares held by the Purchaser or by shareholders who
have perfected and not withdrawn their rights to seek appraisal of
their shares under applicable New York law) will be converted into the
right to receive $0.80 in cash, without interest.
In addition, each holder of a stock option to acquire shares of Common
Stock will, immediately after the effective time of the Merger (the "Effective
Time"), become entitled to receive a cash payment equal to $0.80 less the per
share exercise price under such option for each share of Common Stock covered by
such option. All stock options are either vested or will vest at or immediately
prior to the Effective Time.
Upon the consummation of the Merger, the separate corporate existence of
the Purchaser will cease, all of the rights, privileges, powers, franchises,
properties, assets, liabilities and obligations of the Purchaser will be vested
in Firecom and Firecom will continue as the surviving corporation. See "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT."
THE BOARD OF DIRECTORS OF FIRECOM, FOLLOWING THE RECOMMENDATION OF THE
INDEPENDENT COMMITTEE OF THE BOARD OF DIRECTORS, HAS DETERMINED THAT THE MERGER
AGREEMENT, THE MERGER AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE REASONABLE,
FAIR TO, AND IN THE BEST INTERESTS OF, THE FIRECOM SHAREHOLDERS WHO ARE NOT
AFFILIATED WITH THE PURCHASER OR THE PROPONENTS AND RECOMMENDS THAT THE
SHAREHOLDERS OF FIRECOM APPROVE THE MERGER AGREEMENT AND THE MERGER. Certain
members of the Board of Directors, have conflicts of interest with respect to
the Merger. See "SPECIAL FACTORS--Conflicts of Interest."
11
WHERE YOU CAN FIND MORE INFORMATION
Firecom files annual, quarterly and other reports and other information
with the SEC. You can read and copy any information filed by Firecom with the
Securities and Exchange Commission (the "SEC") at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain
additional information about the Public Reference Room by calling the SEC at
1-800-SEC-0330.
In addition, the SEC maintains an Internet site (http://www.sec.gov) that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC, including Firecom.
Firecom, the Purchaser, Paul Mendez and other proponents of the proposed
Merger have filed with the SEC a Rule 13e-3 Transaction Statement (including any
amendments thereto, the "Schedule 13E-3") under the Securities Exchange Act of
1934 (the "Exchange Act") with respect to the Merger. This Proxy Statement does
not contain all of the information set forth in the Schedule 13E-3 and exhibits
thereto, certain parts of which are omitted in accordance with the rules and
regulations of the SEC.
PARTIES TO THE MERGER
FIRECOM
Firecom was formed as a New York corporation in March 1978 to acquire the
business and operating assets of Fire Controls, Inc and Commercial Radio-Sound
Corp., which were engaged in the design and manufacture of custom fire
detection, communications and control systems for commercial buildings and
commercial audio-visual systems. The acquisition was completed in May 1978.
Through its Fire Controls division, Firecom designs, manufactures and
distributes, under the Firecom(TM) brand name, safety and security systems for
high rise office buildings, hotels, apartment buildings and other large
commercial buildings. This division also distributes life safety and other
electronic building systems manufactured by other companies. Subsidiaries handle
the maintenance of systems sold by Firecom and others.
The fire alarm and communication systems or "life safety systems" designed,
assembled and sold by Firecom have the following functions:
o sensing and reporting fires,
o sounding alarms in the event of a fire,
o notifying the fire department of a fire through a "central station"
connection,
o controlling basic building functions to prevent the spread of fire and
smoke, and
o allowing building-wide communication between fire fighters and
building occupants.
12
Firecom designs systems for both new and existing buildings. Firecom
manufactures the manual fire alarm station, floor warden stations, remote data
gathering panels and the main fire command station which is typically located in
the building's lobby. Firecom purchases the sensing devices and speakers used in
the system from other manufacturers. Once the system has been installed by
independent electrical contractors, Firecom tests and services the system.
During the fiscal year ended April 30, 2000, revenues from the sale of fire
alarm, communication systems and other building systems constituted
approximately 57% of Firecom's consolidated revenues.
The LSN 2000 System is Firecom's latest product in life safety equipment.
The Firecom LSN 2000 System integrates addressable and intelligent fire alarm
sensing devices such as smoke detectors, manual fire alarm stations and
sprinkler waterflow switches, and displays the status of these devices. The LSN
2000 System includes a communication system consisting of amplifiers and
loudspeakers for sounding alarms and paging from either a floor warden station
or a fire command station. The LSN 2000 fire alarm and communication system is
completely retrofittable with the older Firecom 8500 System as well as designed
to meet the needs of the national market.
Firecom designs, assembles and markets fire control systems other than the
Firecom LSN 2000 System and the Firecom 8500 System. Firecom does not
manufacture the control unit for these other systems.
SERVICE
-------
Firecom's life safety systems are covered by a one-year warranty. Firecom
offers service contracts covering such systems during and after the warranty
period. Other companies compete with Firecom for the servicing business.
Firecom's subsidiaries handle maintenance services for Firecom's products as
well as products of other life safety equipment manufacturers.
For the fiscal year ended April 30, 2000, revenues earned from servicing
systems constituted approximately 43% of Firecom's consolidated revenues.
MARKETING
---------
Firecom's fire alarm, communication and other building systems are sold in
the New York City area through an in-house sales and marketing department. Much
of Firecom's new business arises because building owners, electrical contractors
and professional engineers in the New York City area who are familiar with
Firecom generally include Firecom on project bidding lists.
Firecom began marketing the LSN 2000 System in January of 1997. Firecom
markets the LSN 2000 System through a network of subsidiaries, regional
managers, sales representatives and distributors.
Firecom's service contracts are sold through an in-house sales and
marketing department.
CUSTOMERS AND SUPPLIERS
-----------------------
The principal customers for Firecom's fire alarm and communications systems
are building owners and electrical contractors who install such systems.
13
Firecom purchases parts for its systems from a variety of suppliers.
Firecom believes that such parts or alternate parts are available from several
sources. Firecom is not currently experiencing any material difficulty in
obtaining supplies.
REGULATIONS
-----------
Firecom believes that it currently complies with all applicable building
codes, zoning ordinances, occupational safety and hazard standards and other
applicable federal, state and local ordinances and regulations.
COMPETITION
-----------
Firecom's businesses are highly competitive, with the price of products and
warranty terms offered by competitors being very similar to those of Firecom.
Firecom believes that its products perform as well or better than those of its
competitors. Some of Firecom's competitors offer a broader line of products and
are better financed than Firecom. Additionally, Firecom faces competition in the
servicing of systems which Firecom sells.
PATENT AND TRADEMARKS
---------------------
Firecom holds three patents and has one patent pending on its fire alarm
products. One patent covers the parallel binary system and a second covers the
upgrade of the parallel system to a serial system. The serial system collects
data from all sensors (emergency, energy or security) within the building,
continuously monitoring and recording the data on a hard copy printer. The
serial system could be used in facilities other than buildings, including oil
refineries, mining facilities and cable TV stations, for site security, to
prevent off-the-wire theft of services and to monitor interruptions in service.
In addition, the system can monitor mechanical and electrical systems on board
naval and merchant vessels. The third patent on Firecom's multiplex system
covers an integrated alarm, security building management and communication
system. This integrated system provides voice communication to all emergency
areas, monitors all fire alarms, security functions--such as card access, door
control, intrusion and surveillance--and controls all lights, pumps and other
building functions.
Firecom has a patent pending on its LSN 2000 System.
Firecom has several trademarks, including the name "Firecom" and
"Technology Protecting Life," that are registered with the United States Patent
and Trademark Office.
EMPLOYEES
---------
As of March 31, 2001, Firecom employed approximately 137 full-time
employees, 37 of whom are salaried and 100 of whom are paid on an hourly basis.
Firecom has 22 employees who work outside of the Woodside, New York facility, of
which 13 employees work for subsidiaries outside of New York. The majority of
remaining employees are research and development employees. Firecom believes
that its relationship with its employees is satisfactory. Firecom suffered a
strike with its union personnel from July 1, 1999 through July 9, 1999, as part
of an action with the industry bargaining group. The new collective bargaining
agreement entered into following such strike will run for three years.
14
BACKLOG
-------
Firecom's backlog for its life safety and other systems totaled $3,267,000
at January 31, 2001 as compared to $2,548,000 at April 30, 2000. Due to
fluctuations in Firecom's backlog, management does not make predictions about
revenue in the fiscal year.
THE PURCHASER
The Purchaser, a New York corporation, was formed by the Proponents, Paul
Mendez, the Chairman of the Board of Directors, President and Chief Executive
Officer of Firecom, Orhan Sadik-Khan, a director of Firecom, and members of
their immediate families and members of the immediate family of Peter Barotz, a
director of Firecom, on January 10, 2001 to effect the Merger and has had no
prior business or operating history.
Upon consummation of the Merger, the Purchaser will be merged with and into
Firecom, and the Purchaser's separate corporate existence will thereupon cease.
VOTING AND PROXIES
DATE, TIME AND PLACE OF SPECIAL MEETING
The Special Meeting is scheduled to be held at 10:00 a.m., local time, on
__________, __________, 2001, at 40 West 57th Street, 28th floor, New York, New
York 10019.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of shares of Common Stock or Class A Common Stock at
the close of business on __________, 2001 (the "Record Date") are entitled to
notice of, and may vote at, the Special Meeting or at any adjournments or
postponements thereof. As of the Record Date, there were 5,789,685 shares of
Common Stock outstanding, and 4,957,713 shares of Class A Common Stock
outstanding, the only classes of securities of Firecom entitled to vote at the
Special Meeting. As of such date, there were 272 record holders of Common Stock
and 367 record holders of Class A Common Stock. Each Common Stock shareholder is
entitled to one vote for each such share registered in the shareholder's name on
the Record Date, and each Class A Stock shareholder is entitled to 30 votes for
each such share registered in such shareholder's name on the Record Date. The
Common Stock and Class A Common Stock will vote together on the Merger.
VOTING PROXIES
Many of Firecom's shareholders may be unable to attend the Special Meeting.
Therefore, Firecom's Board of Directors is soliciting proxies so that each
shareholder has the opportunity to vote on the proposals to be considered at the
Special Meeting. When a proxy card is returned properly signed and dated, the
shares represented thereby will be voted in accordance with the instructions on
the proxy card. However, if a shareholder does not return a signed proxy card,
his shares will not be voted by the proxies. Shareholders are urged to mark the
boxes on the proxy card to indicate how their shares are to be voted. IF A
SHAREHOLDER RETURNS A SIGNED PROXY CARD AND A CHOICE IS NOT SPECIFIED, THE
SHARES REPRESENTED BY THAT PROXY CARD WILL NOT BE VOTED IN FAVOR OF THE MERGER
(AND THEREFORE WILL BE COUNTED AS IF SUCH SHAREHOLDER VOTED AGAINST THE MERGER)
15
BUT MAY BE VOTED IN THE PROXY HOLDER'S DISCRETION ON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF,
EXCEPT THAT SHARES REPRESENTED BY PROXIES WHICH DO NOT SPECIFY A VOTE OR WHICH
HAVE BEEN VOTED "AGAINST" THE MERGER AGREEMENT AND THE MERGER WILL NOT BE USED
TO VOTE "FOR" POSTPONEMENT OR ADJOURNMENT OF THE SPECIAL MEETING FOR THE PURPOSE
OF ALLOWING ADDITIONAL TIME FOR SOLICITING ADDITIONAL VOTES "FOR" THE MERGER
AGREEMENT AND THE MERGER. See "VOTING AND PROXIES--Vote Required" and "OTHER
MATTERS."
Shareholders of Firecom who execute proxies retain the right to revoke them
at any time before they are voted. Any proxy given by a shareholder may be
revoked (i) by duly executing and delivering a later proxy prior to the exercise
of such proxy, (ii) by giving notice of revocation in writing to the Secretary
of Firecom prior to the meeting at 39-27 59th Street, Woodside, New York 11377
or (iii) by attending the Special Meeting and voting in person.
VOTE REQUIRED
A quorum for the transaction of business at the Special Meeting consists of
the holders of Common Stock and Class A Common Stock representing, collectively,
two-thirds of the voting power of the outstanding shares of the Common Stock and
the Class A Common Stock, present in person or by proxy. Mr. Mendez holds a
proxy for sufficient shares to constitute a quorum. In the unlikely event that
outstanding shares of Firecom Stock representing, collectively, less than
two-thirds of the voting power of the shares of Firecom Stock outstanding as of
the record date are present at the Special Meeting, either in person or by
proxy, a majority of the shares so represented may vote to adjourn the Special
Meeting from time to time without further notice, other than announcement at the
Special Meeting, until a quorum shall be present or represented.
The affirmative vote of holders of Firecom Stock representing,
collectively, at least two-thirds of the voting power of the outstanding shares
of Firecom Stock as of the Record Date is required to approve and adopt the
Merger Agreement, the Merger and the transactions contemplated thereby. The
Proponents, holding in the aggregate 3,694,433 shares of Common Stock and
3,694,433 shares of Class A Common Stock, or approximately 63.9% and 74.5%,
respectively, of the outstanding shares of Common Stock and Class A Common Stock
on the Record Date, have entered into a Voting Agreement pursuant to which Paul
Mendez has been granted a proxy to vote such shares in favor of the Merger and
to vote against any competing transaction that might be proposed by a third
party prior to the consummation of the Merger, and will vote in favor of the
Merger. The shares of Firecom Stock owned by the Proponents represent 74% of the
combined voting power of such shares. Of the 3,694,433 shares of Common Stock
and the 3,694,33 shares of Class A Common Stock subject to the Voting Agreement,
2,413,502 shares of Common Stock and 2,413,502 shares of Class A Common Stock
are beneficially owned by Mr. Mendez and his wife. None of the 2,095,252 shares
of Common Stock or the 1,263,280 shares of Class A Common Stock outstanding as
of the Record Date that are not subject to the Voting Agreement, representing
approximately 26% of the voting rights associated with the outstanding shares on
the Record Date, need be voted in favor of the Merger in order for the Merger to
be approved by the shareholders. Neither the approval of two-thirds of holders
of Common Stock or Class A Common Stock, voting as a class, nor the approval by
holders of the shares representing two-thirds of the voting power of the Common
Stock and Class A Common Stock that is held by shareholders that are not
affiliated with the Purchaser, is required. Under the New York Business
Corporation Law (the "NYBCL"), in determining whether the proposal regarding the
adoption of the Merger Agreement has received the requisite number of
16
affirmative votes, abstentions and broker non-votes will be counted and will
have the same effect as a vote against such proposal.
SOLICITATION OF PROXIES; EXPENSES
The cost of solicitation, including the cost of preparing and mailing the
Notice of the Special Meeting of Shareholders and this Proxy Statement, will be
borne by Firecom. Solicitation will be made primarily by mailing this Proxy
Statement to all shareholders entitled to vote at the Special Meeting. In
addition, Firecom will request brokers, custodians, nominees and other
fiduciaries to forward copies of such materials to persons for whom they hold
shares of Firecom Stock in order that such shares may be voted. Proxies may be
solicited by officers and regular employees, personally or by telephone, but at
no compensation in addition to their regular compensation as employees. Firecom
may reimburse brokers, custodians, nominees and other fiduciaries holding shares
in their names for third parties, for the cost of forwarding the Proxy Statement
to and obtaining proxies from third parties. In addition, while Firecom has no
present intention to retain anyone to assist in soliciting proxies, Firecom may
do so if it deems such action necessary.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
On July 24, 2000, Paul Mendez, Firecom's Chairman of the Board of
Directors, President and Chief Executive Officer and a significant shareholder
of Firecom, met with Orhan Sadik-Khan and Peter Barotz, both members of
Firecom's Board of Directors, the immediate families of whom are significant
shareholders of Firecom. Messrs. Barotz and Sadik-Khan indicated that they were
disappointed with the performance and prospects of Firecom as a public company
in a market environment that seemed to disfavor investment in companies with low
market values. They urged Mr. Mendez to consider exploring either a sale of
Firecom or taking it private. Mr. Mendez indicated then that he had no interest
in selling his interest in Firecom and that in any case he was skeptical of
being able to secure any attractive offers to sell Firecom and accordingly did
not want to subject Firecom to the turmoil that results from a sale process. He
indicated that he would evaluate a going private transaction.
Between July 24 and September 14, 2000, there were some telephone
conversations among Messrs. Mendez, Barotz and Sadik-Khan, discussing potential
parameters of a going private transaction and whether the families of Messrs.
Barotz and Sadik-Khan wanted to participate.
On September 14, Mr. Mendez supplied Mr. Barotz and Mr. Sadik-Khan with a
draft of the Voting Agreement setting forth the broad outlines of the
transaction which resulted eventually in the January 24, 2001 proposal made to
the Board of Directors to purchase the shares of Firecom Stock of the
unaffiliated shareholders.
Messrs. Mendez, Barotz and Sadik-Khan met again on December 14, following a
regularly scheduled Firecom Board Meeting, and on December 21 and January 12,
2001. At each of these meetings they discussed the concepts set forth in the
Voting Agreement, finalizing the same on January 12, with the exception of the
price which would be offered to the unaffiliated public shareholders. The price
17
to be offered was finalized on January 24, 2001 prior to the Firecom Board
Meeting at which the offer was made.
On January 24, 2001, a Special Meeting of the Firecom Board of Directors
was convened by Paul Mendez, as Chairman of the Board of Directors, to discuss
the recent performance and prospects of Firecom and to consider a proposal of
Mendez, acting on behalf of himself and the other Proponents, to merge the
Purchaser with and into Firecom that would result in the shareholders of Firecom
unaffiliated with the Proponents or the Purchaser ceasing to hold equity
interests in Firecom. The meeting of the Board of Directors commenced with
discussion of Firecom's recent and expected performance, recent trends affecting
Firecom, including the reduction in Firecom's market share of new construction
and intense competitive conditions, and Firecom's recent performance as well as
the performance of its stock, and the apparent lack of realistic strategic
alternatives for maximizing value for shareholders. Mr. Mendez indicated that he
did not want to sell his shares of Firecom Stock, that he did not think that
Firecom was an attractive acquisition target for others because of its relative
small size and that he did not want to subject Firecom to the disruption
resulting from an effort to solicit potential buyers. The meeting was presided
over by Mendez, as Chairman of the Board of Directors.
Paul Mendez noted that revenues from the current fiscal year ending April
30, 2001 should be approximately $21 million, an increase of $2 million over the
prior year. He projected that profits should be at the same level as last year.
Mr. Mendez also described trends that he saw affecting the Company,
including:
- Reduction in the Company's market share of new construction
- Extraordinarily competitive conditions.
Mr. Mendez also indicated that revenues outside New York had decreased from
$3 million in the prior fiscal year to $1 million in the current year. He
indicated that the efforts to obtain additional sales in Los Angeles have not
been successful and that the Company was starting to lose money in San
Francisco. Chicago sales were below budget.
Paul Mendez submitted a written proposal, on behalf of a group comprised of
himself, his wife, Carol Mendez, Orhan Sadik-Khan and Peter Barotz, each members
of the Board of Directors of Firecom, and members of such persons' immediate
families who were shareholders of Firecom, collectively owning approximately
68.8% of all of the outstanding shares of Firecom, to enter into a transaction
in which the group would continue as shareholders of Firecom and the other
shareholders would receive $0.70 per share in cash. Such proposal also called
for holders of vested stock options to receive cash in an amount per share equal
to the difference between $0.70 and the exercise price of any such option. Paul
Mendez also indicated that the aforementioned group may offer other members of
Firecom's senior management the opportunity to participate in the ownership of
Firecom.
Paul Mendez indicated that cash to be distributed under the proposal to
shareholders who would not continue as shareholders of the surviving corporation
of the Merger was available from cash on hand. The Board of Directors considered
statements of Paul Mendez indicating that the proposal would provide a liquidity
opportunity to Firecom shareholders not available in the public market. Mr.
Mendez indicated that in the year 2000, shares of the Common Stock traded on
only 70 days.
18
Paul Mendez stated that Firecom's shareholders were receiving no benefit
from Firecom being a public company. Firecom was not covered by any Wall Street
analysts. Firecom had not shown high growth or high margin, was in a very mature
industry, faced declining profit margins reflecting severe competition, and it
was unlikely that an active trading market for Firecom's stock would ever
develop. Paul Mendez further stated that Firecom's efforts to grow though
acquisition had proven futile in recent years in that good acquisition targets
were not available at reasonable prices.
Paul Mendez noted that Firecom had not been successful in expanding its
sales base beyond its historical New York City markets with the LSN 2000 product
line, so that additional capital would not likely be required to finance future
growth. Paul Mendez also reminded the Board of Directors that while Firecom had
been seeking strategic acquisitions in new markets for at least three years,
which efforts Paul Mendez had described at meetings of the Board of Directors
during such period, opportunities for such acquisitions appeared limited, given
the competition with larger companies who have deeper pockets and/or could pay
in stock which would be more attractive than Firecom Stock to potential
acquisition targets.
As a result of such factors, Mr. Mendez told the other members of the Board
of Directors that the best value available for the public or unaffiliated
shareholders could be obtained if Firecom were to cease being a public company
at this time.
The Board of Directors, following general discussion of the proposal and
accepting the rationale of Paul Mendez for the consideration of the proposed
transaction at such time, considering its duties to all of the shareholders of
Firecom and its desire for a result in the best interests of and fair to all of
the shareholders that were not among or affiliated with those offering the
proposal, determined that such results would be best obtained by the formation
of an independent committee of the Board of Directors, composed of directors of
Firecom who were not officers or directors of the Purchaser or any affiliate of
the Purchaser, who had no financial interest in the proposed transaction
different from other shareholders generally, who were not employed in any
capacity by or on behalf of the Purchaser and who were free from any material
relationship that would interfere with the exercise of their independent
judgment as members of such committee. The Board of Directors then established
the Independent Committee, comprised of the three independent members of the
Board of Directors, namely, Ronald A. Levin, Richard G. Scurry, Jr. and Harry B.
Levine.
The Board of Directors authorized the Independent Committee to:
o evaluate and recommend to the Board of Directors the terms of the
proposed Merger or other transaction with the Purchaser, which, in the
exercise of the Independent Committee's independent judgment, is fair
to and in the best interests of the shareholders of Firecom not part
of or affiliated with the Proponents;
o conduct arm's length negotiations with representatives of the
Purchaser regarding the terms of the proposed Merger or other
transaction;
o assuming the Board of Directors approves the terms of the proposed
Merger agreement or other transaction agreement with the Purchaser,
oversee the consummation of the proposed Merger or other transaction;
19
o select and retain the services as required of (i) an independent
financial advisor to assist in the evaluation of the proposed Merger
or other transaction and its terms and to render a fairness opinion
and (ii) an outside counsel to advise it as to the legal aspects of
the duties of the members of the Independent Committee and with
respect to the proposed Merger or other transaction; and
o generally, do all that is necessary and desirable in the Independent
Committee's judgment, with such independent advice and counsel as it
may seek, to properly accomplish the foregoing.
The Board of Directors did not grant the Independent Committee any
authority, or impose upon it any obligation, to seek or solicit competing
proposals or offers from any other parties, because the Board of Directors did
not believe that Firecom could realistically be sold, for several reasons.
First, the Board of Directors noted that, as opined by Paul Mendez, Firecom was
not an attractive target for potential purchasers in view of its small size.
Second, the Board of Directors noted that Paul Mendez had indicated that neither
he nor his wife, collectively owning 48.8% of the outstanding shares of Firecom,
representing almost 60% of the voting rights associated with Firecom's
outstanding stock, had any intention of selling their shares of Firecom.
Furthermore, given the small likelihood of attracting an attractive competing
proposal, the Board of Directors determined that permitting such a solicitation
process would be unduly disruptive and demoralizing for Firecom's workforce and
customer base.
Immediately after the January 24, 2001 Board of Directors meeting, the
Independent Committee held its first meeting. At that meeting, Richard G.
Scurry, Jr. was elected Chairperson of the Independent Committee and the
Independent Committee reviewed its mandate from the Board of Directors, the
offer made by the Proponents and the necessity for it to retain independent
legal counsel and an independent financial advisor. The Independent Committee
then interviewed two candidates for the position of independent legal counsel,
and selected the law firm of Squadron, Ellenoff, Plesent & Sheinfeld, LLP.
On January 30, 2001, the Independent Committee interviewed three potential
independent financial advisors, and questioned each of them about their relevant
experience and qualifications, proposed staffing and fees. After completing the
interview of the three potential financial advisors, the Independent Committee
selected Burnham Securities, subject only to verifying Burnham Securities'
independence from Firecom and the Proponents.
On February 22, 2001, the Independent Committee met with its legal counsel
who discussed in detail the Independent Committee's legal responsibilities and
obligations in connection with the proposed Merger or other transaction. At this
meeting, the Chairperson gave a report which substantiated the independence of
Burnham Securities from Firecom and the Proponents, whereupon the Independent
Committee ratified the choice of Burnham Securities as financial advisor to the
Independent Committee. Representatives of Burnham Securities then joined the
meeting and gave a preliminary report on their financial due diligence on
Firecom and preliminary ideas concerning the value of shares of Firecom Stock.
On March 6, 2001, the Independent Committee met again with Burnham
Securities and discussed the financial due diligence and financial analyses and
valuations of Firecom which Burnham Securities was preparing with a view towards
determining whether the financial terms of the proposed Merger or other
20
transaction which had been communicated by the Proponents on January 24, 2001
were fair to and in the best interests of Firecom shareholders not forming a
part of or affiliated with the Proponents. The Independent Committee determined
that, at an appropriate per share cash price, the proposed Merger or other
transaction would be fair to and in the best interests of Firecom shareholders
not forming part of or affiliated with the Proponents, but that the Proponents'
offer of $0.70 per share was inadequate. At the conclusion of this meeting, the
Independent Committee made a counter-proposal to Mr. Mendez of $0.92 per share.
The $0.92 per share asking price represented what the Independent Committee
understood to be the upper range of valuation by Burnham Securities and was
intended to elicit a higher offer from Mr. Mendez. The argument presented by the
Independent Committee in support of the $0.92 per share counterproposal was that
an analysis of market multiples at the high end of this valuation range, and of
comparable transactions, would support this price.
That counter-proposal was rejected, but the parties agreed to continue
negotiations.
On March 21, 2001, the Independent Committee met for several hours with
representatives of Burnham Securities and Messrs. Mendez, Barotz and Sadik-Khan
who were acting as representatives of the Proponents. The Independent Committee
presented its proposal of $0.92 per share of Firecom and with the assistance of
Burnham Securities presented arguments in support of their proposed price. After
lengthy negotiations and discussion with the representatives of the Proponents,
the Independent Committee reduced its proposal to $0.85 per share of Firecom
Stock. The Independent Committee determined to reduce its proposal to $0.85 per
share on the basis of the rejection by Mr. Mendez of the $0.92 counterproposal
and the Independent Committee's view that an offer of $0.85 per share range
would approximate the weighted average valuation determined by Burnham
Securities. The Proponents increased their offer to $0.75 per share of Firecom
Stock. At this meeting, Mr. Mendez first informed the Independent Committee and
representatives of Burnham Securities that a preliminary determination had been
made that approximately $500,000 would need to be spent to replace certain
potentially defective components of installed systems. The meeting concluded
without an agreement on price.
The Independent Committee, together with representatives of Burnham
Securities, met again with Messrs. Mendez, Barotz and Sadik-Khan on March 26,
2001 and continued negotiations over the appropriate per share purchase price
for shares of Firecom Stock held by persons not affiliated with the Purchaser or
the Proponents. Burnham Securities updated the Independent Committee on its
financial analyses of Firecom and its valuation of shares of Firecom Stock. In
the course of the discussions and negotiations of this meeting, the Independent
Committee decided that it should base its recommendation to the Firecom Board of
Directors concerning the per share cash price of Firecom Stock on the analyses
performed by Burnham Securities and the other factors it deemed to be relevant.
At the conclusion of this meeting, the representatives of the Proponents agreed
to increase their offer for shares of Firecom Stock to $0.80 per share. Taking
into consideration, among other things, the $500,000 in anticipated component
replacement costs, Burnham Securities indicated a willingness to deliver its
opinion that $0.80 per share of Firecom Stock was fair from a financial point of
view to the holders of Firecom Stock not forming a part of the Proponents or
affiliated with the Proponents. After discussion among its members, the
Independent Committee determined that it would recommend to the full Firecom
Board of Directors that it agree to a per share of Firecom Stock cash purchase
price of $0.80 as being fair and in the best interests of Firecom shareholders
who are not Proponents or affiliates thereof.
21
Between March 27 and April 3, 2001, legal counsel for the Independent
Committee and legal counsel for the Proponents completed negotiations of a
Merger Agreement which reflected the agreed upon per share cash purchase price
of Firecom.
On April 3, 2001, the Independent Committee convened. At this meeting,
Burnham Securities delivered to the Independent Committee its written opinion to
the effect that, as of April 3, 2001 and subject to the limitations and
qualifications set forth in the opinion, the $0.80 per share of Firecom Stock
purchase price was fair from a financial point of view to the holders of Firecom
Stock other than the Proponents and their affiliates. Legal counsel for the
Independent Committee then reviewed the Merger Agreement with the Independent
Committee. At this meeting, the members of the Independent Committee voted
unanimously to recommend to the entire Firecom Board of Directors that it
approve and adopt the Merger Agreement and the transactions contemplated
thereby, at a per share cash purchase price of $0.80 per Firecom share.
Following the meeting of the Independent Committee on April 3, 2001, the
entire Board of Directors met. At this meeting, the chairperson of the
Independent Committee, Mr. Scurry, made a presentation to the Board of Directors
stating that the Independent Committee had unanimously determined that the $0.80
per share of Firecom Stock purchase price was fair from a financial point of
view to, and in the best interests of, the holders of Firecom Stock not
affiliated with the Purchaser or the Proponents, and that the Independent
Committee had voted unanimously to recommend to the Board of Directors that the
Board of Directors approve and adopt the Merger Agreement. Burnham Securities
made a presentation to the Board of Directors with respect to its written
opinion. Thereafter, the entire Board of Directors voted unanimously to accept
the recommendation of the Independent Committee that the $0.80 per share of
Firecom Stock cash purchase price offered by the Proponents was fair to the
holders of Firecom Stock not affiliated with the Proponents or the Purchaser and
that the Merger is fair to and in the best interests of the shareholders of
Firecom not part of or affiliated with the Proponents or the Purchaser, and to
approve and adopt the Merger Agreement as recommended by the Independent
Committee. Immediately following the meeting of the Board of Directors, the
Merger Agreement was executed by both Firecom and the Purchaser.
The Board of Directors and the Independent Committee considered a number of
factors in determining the fairness of the transaction, including current and
historical market prices of Firecom Stock, net book value of Firecom's assets,
going concern values based, among other things, on market multiples, discounted
free cash flows, stock buy-backs and comparable transactions. In addition, the
Board of Directors and the Independent Committee reviewed the trends in the
market in which Firecom operates. Neither the Board of Directors or the
Independent Committee analyzed the liquidation value of Firecom, because of the
view that Firecom's going concern value far exceeded the likely liquidation
value, or recent offers to purchase Firecom, because, to the knowledge of the
Board of Directors and the Independent Committee, there had been none. Certain
of the quantitative factors referred to above were considered by Burnham
Securities in its report. See "--Opinion of the Financial Advisor."
REASONS FOR AND FAIRNESS OF THE MERGER
Firecom's Board of Directors, following the recommendation of the
Independent Committee, believes that the Merger Agreement and the Merger are
advisable and fair to and in the best interests of the holders of Firecom Stock
not part of or affiliated with the Proponents or the Purchaser and has
unanimously approved the Merger Agreement and the Merger. ACCORDINGLY, THE BOARD
22
OF DIRECTORS, FOLLOWING THE RECOMMENDATION OF THE INDEPENDENT COMMITTEE,
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF FIRECOM VOTE FOR APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE MERGER. See "SPECIAL FACTORS--Conflicts
of Interest."
In reaching its unanimous determination that the Merger Agreement and the
Merger are fair to and in the best interests of holders of Firecom Stock not
part of or affiliated with the Proponents or the Purchaser, the Independent
Committee considered a number of factors, including, without limitation, the
following, which constitute all the material factors considered by the
Independent Committee:
o the relationship of the Merger Consideration to the current market
stock price (an 82% premium over the price for which Firecom's Common
Stock traded immediately prior to the announcement of the proposal)
and the historical stock price for the Common Stock, as analyzed for
these purposes by Burnham Securities (see "--Opinion of Financial
Advisor"). The historical prices were reviewed over a three year
period. During such period (except for a period during March, 2000
which the Board of Directors and Independent Committee believes was
aberrational), the stock price ranged from $0.50 per share to $0.95
per share with the stock price remaining consistently below $0.80 per
share since June 2000;
o information relating to the financial condition and results of
operations of Firecom including management's estimates of the
prospects of Firecom (and the range of going concern values, derived
by Burnham Securities therefrom of $0.49 to $0.95 per share, with a
weighted average valuation of $0.80 per share, based on market
multiples, discounted cash flows, stock buy-backs and comparable
transaction analyses (See "--Opinion of Financial Advisor")), which,
in the Independent Committee's view, supported a determination that
the Merger Consideration for the Common Stock was fair to Firecom's
unaffiliated shareholders;
o that approximately 68.8% of the outstanding Common Stock and Class A
Common Stock is held by entities controlled by the Chairman of
Firecom, and hence there is not an active trading market for Firecom's
Common Stock and, consequently, there is generally a lack of liquidity
for Firecom's shareholders; and
o the presentation and opinion of Burnham Securities, including the
related financial analyses, to the effect that, as of the date of the
opinion and based upon and subject to the matters stated in the
opinion, the cash purchase price of $0.80 per share is fair from a
financial point of view to the holders of Firecom stock other than the
Proponents and their affiliates. A copy of the Burnham Securities
opinion is attached hereto as Annex B to this ------- Proxy Statement
and, together with the financial analyses material to the opinion, is
described in "--Opinion of the Financial Advisor."
The main negative factor considered by the Independent Committee was that
the unaffiliated shareholders of Firecom would not have a continuing interest in
Firecom and thus would not be able to participate in any future growth or
financial success of Firecom. The Independent Committee was not authorized to
consider alternative transactions.
23
The Independent Committee did not consider it important that the Merger be
structured so that approval of at least two-thirds of the voting power of the
shares of Common Stock and Class A Common Stock held by unaffiliated holders be
required because Firecom, under certain circumstances, has the flexibility to
accept a superior Alternative Proposal for a competing transaction and to
terminate the Merger Agreement and because the Independent Committee did not
include the Proponents or members of such shareholders' immediate families but
instead was comprised of unaffiliated directors of Firecom who are not employed
by Firecom and who had no interest in the Purchaser and no interest in the
proposed Merger, other than, in the case of Mr. Levine, as a shareholder of
Firecom, and their holdings of stock appreciation rights. The Independent
Committee did not consider the liquidation value of Firecom, since Firecom was a
viable going concern for which a fair price would be a more appropriate
valuation. The Independent Committee, considered that the Merger Consideration
exceeded the current and historical book value per share of Firecom, although it
did not consider this to be an important factor for the same reason.
The Independent Committee had been advised that the Board of Directors had
not authorized it to seek alternate proposals to acquire Firecom, because Mr.
Mendez and his affiliates controlled approximately 68% of Firecom Stock and
would not have approved a transaction that involved a sale to a third party. The
Independent Committee determined, however, that it could form a judgment as to
the fairness of the transaction in the absence of seeking alternate proposals
for acquiring Firecom by considering the factors described above. The
Independent Committee was also aware that seeking alternate proposals and
negotiating arrangements with any third parties would likely take a considerable
period of time and would adversely affect the morale of employees as well as
customer relations. Also, considering the increasing pricing pressures on
Firecom's products, the Independent Committee felt that the passage of time
could have resulted in obtaining even lower price offers from Mr. Mendez or any
third party who might have submitted an alternate proposal,
The Independent Committee determined that the Board of Directors' decision
not to authorize the Independent Committee to solicit competing offers to
purchase Firecom did not affect the fairness of the proposed Merger and the
Merger Consideration for several reasons. First, it did not consider it likely
that the Independent Committee would have received an attractive competing
proposal even if Paul and Carol Mendez had been willing to sell their shares and
the Board of Directors had authorized such solicitation, because no other party
had expressed any interest in making such a competing proposal since the
announcement of the Mendez proposal on January 24, 2001. Balanced against the
disruptive and demoralizing effects of a solicitation of such kind on the
workforce of Firecom and the resulting expense, furthermore, the Independent
Committee did not believe that such a solicitation would have achieved greater
value for the shareholders of Firecom unaffiliated with the Proponents or the
Purchaser. In addition, the Independent Committee considered the fact that
Firecom was free to terminate the Merger Agreement in the event that it received
a superior proposal, under the terms of the proposed Merger Agreement.
The Independent Committee did not conduct a specific analysis of each of
the foregoing supporting and detracting factors. The members of the Independent
Committee are knowledgeable of Firecom's business due to their service as
members of the Board of Directors for several years. The Independent Committee
was aware of and considered the interests of Messrs. Mendez, Sadik-Khan and
Barotz in the Merger as described under "--Conflicts of Interest" below. For the
reasons noted above, the Independent Committee did not consider these interests
to be an unfavorable factor in evaluating the Merger. See "--Background of the
Merger." The Independent Committee did not consider the tax consequences of the
24
Merger to shareholders as a material factor in evaluating the Merger since the
Merger could have different consequences to each shareholder based on each
shareholder's individual tax position. See "--Federal Income Tax
Considerations." The Independent Committee did not perform its own valuation or
analysis of Firecom.
The foregoing discussion of the information and factors discussed by the
Independent Committee is not meant to be exhaustive, but includes material
factors considered by the Independent Committee. The Independent Committee did
not quantify or attach any particular weight to the various factors that it
considered in reaching its determination that the Merger is fair to and in the
best interests of holders of Firecom Stock not part of or affiliated with the
Proponents or the Purchaser.
No unaffiliated representative was retained by the Independent Committee to
act on behalf of unaffiliated shareholders. The Independent Committee determined
that this was not necessary in light of the fact that all of the members of
Independent Committee are non-employee directors. Each of these non-employee
directors has voted in favor of recommending the adoption of the Merger
Agreement and the consummation of the transactions contemplated thereby.
REASONS AND PURPOSES OF THE PURCHASER AND THE PROPONENTS FOR THE MERGER
The reasons of Paul Mendez and the Purchaser, controlled by Mendez, for
engaging in this transaction at this time include the reasons discussed by Paul
Mendez with the Board of Directors at its January 24, 2001 meeting. See
"--Background of the Merger." Peter Barotz and Orhan Sadik-Khan, who were also
present for such discussions, wish to undertake the transaction for the same
reasons discussed by Paul Mendez. In addition, while the other Proponents,
including Carol Mendez, Naomi Pollack, Nathan Barotz, Celia Barotz, Karim
Sadik-Khan, Janette Sadik-Khan, Jan Sadik-Khan and the Sadik-Khan Family Trust
were not present at such discussions and have taken a passive role in the
promotion and negotiation of the Merger, they have indicated that they are in
agreement with the rationale provided by Mr. Mendez for the transaction and have
further specifically authorized him to engage in all negotiations of such
transaction on their behalf, pursuant to the Voting Agreement.
In light of the conditions discussed above, the Proponents are undertaking
this transaction first in order to benefit from Firecom's ability following the
Merger to elect to become an "S corporation" as the term is defined under
Section 1361 of the Internal Revenue Code and under Section 208(1-A) of the Tax
Law of New York. Such elections, which are not available to companies with more
than 75 shareholders, will permit Firecom's earnings to be taxed on a flow
through basis to its shareholders as individuals. As a result, earnings of
Firecom would no longer be taxed twice (as corporate earnings and, when
distributed, as ordinary income to the shareholders). Pursuant to the terms of
the Voting Agreement, the Proponents intend to cause Firecom to be managed with
a view toward making periodic distributions to its shareholders sufficient to
cover their resulting tax liabilities. Second, the Proponents hope to benefit as
shareholders after the Effective Time from reductions in operating costs that
may be achieved as a result of the Firecom becoming a private company. Finally,
perceiving a decline in the valuation of Firecom as a public company, with
limited growth in the sales base and few opportunities to use retained earnings
or borrowings to finance growth through strategic acquisitions, the Proponents
see no reason to delay the benefits to be achieved by them through the
consummation of this transaction.
25
POSITION OF THE PURCHASER, THE PROPONENTS AS TO THE FAIRNESS OF THE MERGER
None of Mr. Mendez, the controlling person of the Purchaser, Mr. Sadik-Khan
nor Mr. Barotz, directors and shareholders (or relatives of shareholders) of the
Purchaser, nor any of the other Proponents, participated in the deliberations of
the Independent Committee of Firecom regarding, or received advice from the
Independent Committee's financial advisor as to, the fairness to holders of
Firecom Stock not part of or affiliated with the Proponents or the Purchaser of
the Merger. As a result, such persons are not in a position to specifically
adopt the conclusions of the Independent Committee with respect to such matters
and do not make any recommendations hereby to the shareholders of Firecom.
However, considering
o the premium of the Merger Consideration over the recent and average
historical market prices for shares of Common Stock,
o the premium of the cash Merger Consideration over the closing price on
January 23, 2001,
o the extent of the evaluation process described in "--Background of the
Merger,"
o the receipt by the Independent Committee of the Board of Directors of
the written opinion of its independent financial advisor,
o information relating to the financial condition, including net book
value, and results of operations of Firecom, (and the average going
concern valuations derived by Burnham Securities therefrom of $0.49 to
$0.95 per share, with a weighted average valuation of $0.80 per share,
based on market multiples, discounted free cash flows, stock buy back,
and comparable transactions analyses (See "--Opinion of Financial
Advisor--Discounted Cash Flow Analysis"), and
o the arm's-length nature of the negotiations between the Independent
Committee and the Purchaser,
the Purchaser and Messrs. Mendez, Barotz and Sadik-Khan believe that the Merger
is fair to and in the best interests of the holders of Firecom Stock not part of
or affiliated with the Proponents or the Purchaser. The foregoing constitute all
the material factors considered by the Purchaser and Messrs. Mendez, Barotz and
Sadik-Khan in making this determination. This belief should not, however, be
construed as a recommendation to Firecom's shareholders by the Purchaser or
Messrs. Mendez, Barotz or Sadik-Khan to vote to approve the Merger Agreement.
Neither the Purchaser nor any of Messrs. Mendez, Barotz or Sadik-Khan
considered relevant to their respective determinations as to the fairness of the
Merger
o conflicts of interest, because the Independent Committee had no
conflicts of interest,
o tax consequences, because the Merger could have different consequences
to each shareholder based on each shareholder's individual tax
position,
26
o that the transaction was not structured to require the approval of at
two-thirds of the voting power of the shares of Common Stock and Class
A Common Stock held by unaffiliated holders, nor that the Independent
Committee did not retain an unaffiliated representative to act solely
on behalf of unaffiliated shareholders, because the Independent
Committee is comprised of non-employee, unaffiliated directors, or
o any prior purchase prices paid by Messrs. Mendez, Sadik-Khan or
Barotz, or members of their immediate families, for the Common Stock
or Class A Common Stock held by Firecom's shareholders since no such
transactions has occurred during the two-year period prior to any
discussion of the Merger.
The Purchaser and Messrs. Mendez, Barotz and Sadik-Khan also considered that the
main disadvantage of the transaction to unaffiliated shareholders is that
unaffiliated shareholders will not have a continuing interest in Firecom and
thus will not be able to participate in any future growth or financial success
of Firecom.
The Purchaser and Messrs. Mendez, Barotz and Sadik-Khan determined that the
Board of Directors' decision not to authorize the Independent Committee to
solicit competing offers to purchase Firecom did not affect the fairness of the
proposed Merger and the Merger Consideration for the same reasons that the
Independent Committee reached this determination: first, it was unlikely that
the Independent Committee would have received an attractive competing proposal,
for the reasons discussed by Paul Mendez at the January 24, 2001 meeting of the
Board of Directors and because no other party had expressed any interest in
making such a competing proposal since the announcement of the Proponent's
proposal on January 24, 2001; second, because of the disruptive and demoralizing
effects of a solicitation of such kind on the workforce and customer base of
Firecom and the resulting expense, such a solicitation likely would not have
achieved greater value for the unaffiliated shareholders; and third, Firecom was
free to terminate the Merger Agreement in the event that it received a superior
proposal, under the terms of the proposed Merger Agreement.
Neither the Purchaser nor any of Messrs. Mendez, Barotz or Sadik-Khan has
undertaken any formal evaluation of the fairness of the Merger to the
shareholders of Firecom or has assigned specific relative weights to the factors
considered by them.
None of the Proponents, other than Messrs. Mendez, Barotz or Sadik-Khan,
have actively participated in the negotiation of Merger, since they granted to
Mr. Mendez, pursuant to the Voting Agreement, the right to negotiate on their
behalf to effect the Merger. As largely passive participants in the transaction
who are each a close family member of one of the active participants,
furthermore, such other Proponents have relied primarily upon the positions
expressed by Messrs. Mendez, Barotz and Sadik-Khan with regard to the fairness
of the Merger and purposes of the Merger. Each of the Proponents adopts the
position and reasons therefor set forth herein of the Purchaser and Messrs.
Mendez, Barotz and Sadik-Khan that the Merger is fair to and in the best
interests of the holders of Firecom Stock not part of or affiliated with the
Proponents or the Purchaser.
REASONS AND PURPOSES OF MESSRS. KOGEN AND SAYOUR FOR THE MERGER
Messrs. Kogen and Sayour, as executive officers of Firecom with no prior
agreement to act in cooperation with the Proponents, were not party to the
discussions of the Board of Directors or among the Purchaser and Proponents
27
concerning reasons for the Merger. However, as current shareholders of Firecom
who would receive the Merger Consideration for their shares of Firecom Stock
held immediately prior to the Merger, and as employees of Firecom who may be
offered the opportunity to continue to participate in the equity of the
Surviving Corporation of the Merger while continuing to serve as executive
officers thereof, Messrs. Kogen and Sayour have considered and agree with the
reasons for the Merger discussed by Paul Mendez with the Board of Directors at
its January 24, 2001 meeting. See "--Background of the Merger." In addition,
Messrs. Kogen and Sayour are in agreement with the Proponents' purposes in
effecting the Merger - to cause Firecom to elect to become an "S corporation" as
the term is defined under Section 1361 of the Internal Revenue Code and under
Section 208(1-A) of the Tax Law of New York, thus preventing two-layer taxation
of Firecom's earnings, and to reduce Firecom's operating costs. See "--Reasons
and Purposes of the Purchaser and the Proponents for the Merger."
POSITION OF MESSRS. KOGEN AND SAYOUR ON THE FAIRNESS OF THE MERGER
As executive officers and holders of insignificant minority interests in
the equity of Firecom, neither Mr. Kogen nor Mr. Sayour participated in the
deliberations of the Independent Committee or the Board of Directors of Firecom
regarding, or received advice from the Independent Committee's financial advisor
as to, the fairness to holders of Firecom Stock not part of or affiliated with
the Proponents or the Purchaser of the Merger. As a result, neither Mr. Kogen
nor Mr. Sayour is in a position to specifically adopt the conclusions of the
Independent Committee with respect to such matters and do not make any
recommendations hereby to the shareholders of Firecom. Mr. Kogen and Mr. Sayour
have nonetheless independently considered the following factors:
o the premium of the Merger Consideration over the recent and average
historical market prices for shares of Common Stock,
o the premium of the cash Merger Consideration over the closing price on
January 23, 2001,
o the extent of the evaluation process of the Independent Committee
described in "--Background of the Merger," and the Independent
Committee's ultimate determination that the Merger is fair to and in
the best interests of the holders of Firecom Stock not part of or
affiliated with the Proponents or the Purchaser,
o information available to Messrs. Kogen and Sayour as executive
officers of Firecom relating to the financial condition, including net
book value, and results of operations of Firecom, and
o the arm's-length nature of the negotiations between the Independent
Committee and the Purchaser,
Messrs. Kogen and Sayour believe that the Merger is fair to and in the best
interests of the holders of Firecom Stock not part of or affiliated with the
Proponents or the Purchaser. The foregoing constitute all the material factors
considered by the Purchaser and Messrs. Mendez, Barotz and Sadik-Khan in making
this determination. This belief should not, however, be construed as a
recommendation to Firecom's shareholders by Messrs. Kogen or Sayour to vote to
approve the Merger Agreement.
28
Neither Mr. Kogen nor Mr. Sayour considered relevant to their respective
determinations as to the fairness of the Merger
o conflicts of interest of certain members of the Board of Directors of
Firecom, because the Independent Committee had no conflicts of
interest,
o tax consequences, because the Merger could have different consequences
to each shareholder based on each shareholder's individual tax
position,
o that the transaction was not structured to require the approval of at
two-thirds of the voting power of the shares of Common Stock and Class
A Common Stock held by unaffiliated holders, nor that the Independent
Committee did not retain an unaffiliated representative to act solely
on behalf of unaffiliated shareholders, because the Independent
Committee is comprised of non-employee, unaffiliated directors,
o any prior purchase prices paid by Messrs. Mendez, Sadik-Khan or
Barotz, or members of their immediate families, for the Common Stock
or Class A Common Stock held by Firecom's shareholders since no such
transactions has occurred during the two-year period prior to any
discussion of the Merger; or
o their own conflicts of interest with respect to the Merger (see
"--Treatment of Stock Options"), since neither Mr. Kogen nor Mr.
Sayour participated in any of the negotiations regarding the Merger
Consideration attempted to influence the members of the Independent
Committee or of members of the Board of Directors with respect to
their determination of the fairness of the Merger to unaffiliated
shareholders of Firecom.
Messrs. Kogen and Sayour determined that the Board of Directors' decision
not to authorize the Independent Committee to solicit competing offers to
purchase Firecom did not affect the fairness of the proposed Merger and the
Merger Consideration, concurring with the reasoning of the Independent Committee
as well as the Proponents for this determination. Messrs. Kogen and Sayour
believed that it was unlikely likely that the Independent Committee would have
received an attractive competing proposal, for the reasons discussed by Paul
Mendez at the January 24, 2001 meeting of the Board of Directors and because no
other party had expressed any interest in making such a competing proposal since
the announcement of the Proponent's proposal on January 24, 2001. Messrs. Kogen
and Sayour also believed that a solicitation of this kind would be disruptive
and demoralizing to the workforce and customer base of Firecom and that,
considering the resulting expense, such a solicitation likely would not have
achieved greater value for the unaffiliated shareholders. Messrs. Kogen and
Sayour also considered in this determination the fact that Firecom was free to
terminate the Merger Agreement in the event that it received a superior
proposal, under the terms of the proposed Merger Agreement.
Messrs. Kogen and Sayour considered that the main disadvantage of the
transaction to unaffiliated shareholders is that unaffiliated shareholders will
not have a continuing interest in Firecom and thus will not be able to
participate in any future growth or financial success of Firecom. Neither Mr.
Kogen nor Mr. Sayour has undertaken any formal evaluation of the fairness of the
Merger to the shareholders of Firecom or has assigned specific relative weights
to the factors considered by them.
29
OPINION OF FINANCIAL ADVISOR
GENERAL
-------
Pursuant to an engagement letter dated February 8, 2001, the Independent
Committee retained Burnham Securities as its financial advisor in connection
with its consideration of a possible acquisition by the Purchaser of the shares
of Firecom Stock held persons not part of or affiliated with the Proponents or
the Purchaser. Burnham Securities is a nationally recognized firm and, as part
of its investment banking activities, is regularly engaged in the valuation of
businesses and their securities in connection with merger transactions and other
types of acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. The Independent Committee selected Burnham Securities as its
financial advisor on the basis of its experience and expertise in transactions
similar to the Merger. Burnham Securities was not retained to, nor did it,
advise Firecom or the Independent Committee with respect to alternatives to the
Merger or the Board of Director's underlying decision to proceed with or effect
the Merger. Furthermore, Burnham Securities was not requested to, nor did it,
solicit or assist Firecom in soliciting indications of interest for all or part
of Firecom.
On April 3, 2001, Burnham Securities rendered its oral and written opinion
to the Independent Committee, that as of such date the consideration to be
received by the unaffiliated public shareholders of Firecom in the Merger was
fair from a financial point of view to the unaffiliated public shareholders of
Firecom, as of the date thereof. No limitations were imposed by the Independent
Committee on the scope of Burnham Securities' investigation or the procedures to
be followed by Burnham Securities in rendering its opinion. Burnham Securities
did not determine the form or amount of consideration to be offered to
shareholders in the Merger, which was agreed to as a result of negotiations
between the Independent Committee and the Purchaser.
THE FULL TEXT OF BURNHAM SECURITIES' WRITTEN OPINION TO THE INDEPENDENT
COMMITTEE AND TO THE BOARD OF DIRECTORS WHICH SETS FORTH ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH
THE OPINION IS ATTACHED HERETO AS ANNEX B AND IS INCORPORATED HEREIN BY
REFERENCE. THE FOLLOWING SUMMARY OF BURNHAM SECURITIES' OPINION IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. BURNHAM SECURITIES'
OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY
THE UNAFFILIATED PUBLIC SHAREHOLDERS OF FIRECOM IN THE MERGER FROM A FINANCIAL
POINT OF VIEW, AND HAS BEEN PROVIDED FOR THE USE OF THE INDEPENDENT COMMITTEE IN
THEIR EVALUATION OF THE MERGER, AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE
MERGER. BURNHAM SECURITIES' OPINION IS ADDRESSED TO THE INDEPENDENT COMMITTEE
AND TO THE BOARD OF DIRECTORS ONLY AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY SHAREHOLDER AS TO WHETHER TO ACCEPT THE CONSIDERATION BEING OFFERED TO SUCH
SHAREHOLDER PURSUANT TO THE OFFER OR AS TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH
RESPECT TO THE MERGER.
ANALYSIS OF BURNHAM SECURITIES
------------------------------
Burnham Securities, in undertaking the analysis of the proposed Merger,
relied on traditional valuation techniques. In the course of such analysis,
Burnham Securities:
o reviewed publicly available financial statements and SEC filings of
Firecom issued from April 30, 1996 through the date of its opinion;
30
o analyzed certain financial statements and other financial and
operating data concerning Firecom prepared by the management of
Firecom;
o analyzed the historical trading history of Firecom Common Stock;
o analyzed the current year's budget prepared by the management of
Firecom with regard to its business prospects and actual results
through January 31, 2001;
o discussed the past and current operations and financial condition and
the prospects of Firecom with senior executives of Firecom;
o visited the Woodside, New York facility of Firecom and engaged in
discussions with management;
o compared the financial performance of Firecom and the prices and
trading activity of Firecom Common Stock with that of certain other
comparable publicly-traded companies and their securities;
o compared the proposed Merger with other transactions involving public
and private companies that it deemed to be comparable;
o analyzed the terms of two acquisitions by Firecom of companies located
in Minneapolis, Minnesota and San Francisco, California;
o reviewed prior purchases by Firecom of Firecom Stock owned by
unaffiliated investors;
o considered the competitive nature of Firecom's business and the dearth
of interest from other companies in acquiring Firecom;
o as they became available, reviewed drafts of the Merger Agreement, and
Schedule 13D and Form 8-K filings, and certain related documents; and
o conducted other financial studies and analyses and performed such
other investigations and took into account such other factors as
Burnham Securities deemed necessary or appropriate for purposes of its
opinion.
Burnham Securities assumed and relied upon, without independent
verification, the accuracy and completeness of all of the financial and other
information which it reviewed and analyzed in connection with its opinion. With
respect to the current year's budget and business prospects of Firecom, Burnham
Securities assumed that such information had been reasonably prepared on a
consistent basis with prior practice and that such information reflected the
best currently available estimates and judgments of Firecom's management as to
expected financial performance. In addition, Burnham Securities did not make an
independent evaluation or appraisal of the assets or liabilities of Firecom
although it was furnished with a 1999 limited appraisal in narrative summary
format of Firecom's Woodside, New York facility. Burnham Securities' opinion was
based on economic, market and other conditions as existed and as could be
evaluated as of the date of its opinion. Burnham Securities was not requested to
opine upon, and its opinion did not in any manner address, Firecom's underlying
31
business decision to proceed with the Merger. Burnham Securities was not
requested to solicit or entertain any other offers for the purchase of the stock
or assets of Firecom or any other transaction involving Firecom. The opinion of
Burnham Securities was provided for the information and assistance of the
Independent Committee and the Board of Directors in connection with their
consideration of the proposed Merger and is not a recommendation as to how any
holder of Firecom Stock should vote.
Set forth below is a summary of the material financial analyses considered
by Burnham Securities in connection with providing its written opinion to the
Independent Committee and to the Board of Directors. This summary does not
purport to be a complete description of the analyses performed by Burnham
Securities or of the presentation by Burnham Securities to the Independent
Committee and the Board of Directors on April 3, 2001. Burnham Securities
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and the factors considered by it, without considering
all factors and analyses, could create an incomplete or misleading view of the
process underlying its opinion.
1. MARKET MULTIPLE ANALYSIS OF PUBLICLY TRADED REFERENCE COMPANIES.
Burnham Securities compared the historical financial, operating and stock market
performances of certain publicly traded companies that it considered relevant
with the historical financial and operating performance of Firecom based upon
publicly available financial information to that of the following four publicly
traded companies:
o Firetector Inc. which designs, manufactures, markets and sells its own
proprietary life safety and communication systems and also engineers,
markets and sells systems and products manufactured by other parties.
These systems have been installed in approximately 100 buildings in
New York City;
o Napco Security Systems Inc. which develops, manufactures, distributes
and sells security alarm products and door security devices for
commercial and residential installations;
o International Electronics Inc. which designs, manufactures, markets
and sells electronic products for the security industry and other
commercial applications; and
o Interlogix Inc. which designs, manufactures, and markets electronic
intrusion and fire protection systems as well as electronic access
control systems for the residential and commercial marketplace.
With the exception of Firetector, none of these companies closely
replicates Firecom. However, Burnham Securities selected these companies as
comparable because they are publicly traded companies that provide products and
services to the electronic alarm and security industry and that for the purposes
of analysis may be considered comparable to Firecom, in one or more respects.
Burnham Securities analyzed, among other things, the market values and certain
other financial data for these companies, including their revenues, earnings
before interest, taxes, depreciation and amortization, or EBITDA, earnings per
share, enterprise value (market value of equity plus net debt) and all other
relevant financial information, in each case for the most recent 12-month period
for which information was available.
32
Burnham Securities calculated and compared various financial multiples and
ratios. The multiples of Firecom were calculated using a price of $0.80 per
share. Each market multiple used by Burnham Securities in its analyses was
calculated and represents an average of comparable companies.
--------------------------- --------------------- -------------------
Ratio Composite Average Firecom
=========================== ===================== ===================
Price to Sales 0.33 0.47
Enterprise Value to EBITDA 6.53 5.59
Price to Earnings 6.71 8.88
Price to Cash Flow 4.58 12.50
Price to Book 0.85 1.17
--------------------------- --------------------- -------------------
Using the market multiple method, Burnham Securities derived a valuation
range from $1.2 to $10.7 million. This valuation range, on a weighted average
price per share, is $0.10 to $0.90, respectively.
2. STOCK BUY-BACK ANALYSIS. Burnham Securities analyzed and reviewed
Firecom's three separate buy-backs of large blocks of Firecom Stock from the May
family and the Norwood Group in 1995, 1997 and 1998. Firecom's management
provided Burnham Securities with the financial details of each stock buy-back
and the resulting multiples adjusted for the year in which the transactions
occurred. These multiples (i.e., price to sales, price to EBITDA, price to
earnings, and price to book value) are based on the price that Firecom paid, per
share, at the time of each respective stock buy-back and Firecom's corresponding
financial operating results. Burnham Securities took an average of these
multiples for the purpose of this analysis. These multiples were applied against
management's operating statistics to derive an estimated value for each
parameter. In order to arrive at an average valuation, Burnham Securities took
the weighted average value based on these buy-backs' multiples. The three
buy-backs reflected the following multiples:
------------------ -----------------
Ratio Average
================== =================
Price to Sales 0.45
Price to EBITDA 2.43
Price to Earnings 4.35
Price to Book 1.26
------------------ -----------------
Burnham Securities derived a valuation range from $3.2 million to
$10.5 million based on this analysis. This valuation range, on a weighted
average price per share, is $0.27 to $0.88, respectively.
3. COMPARABLE TRANSACTIONS ANALYSIS. Burnham Securities analyzed
certain information relating to acquisitions deemed comparable to the proposed
Merger, including:
o the size of the transaction less than $50 million not including
assumption of liabilities and debt;
o the transactions involved companies in similar business sectors;
33
o the transactions were announced since January 1, 1999; and
o they all included closely held companies.
The seven transactions analyzed by Burnham Securities are:
o Tyco International Ltd.'s acquisition of Alarmguard Holdings, Inc.
which sells and installs burglar and fire alarm systems and provides
security-monitoring services;
o Group Maintenance America Corp.'s acquisition of Air Systems, Inc.
that provides heating, ventilation, air conditioning, plumbing, and
electrical services;
o The ServiceMaster Company's acquisition of American Residential
Services, Inc. which provides maintenance, repair, and replacement
services for heating, air conditioning, plumbing, and electrical
systems;
o Group Maintenance America Corp.'s acquisition of Cardinal Contracting
Group that provides heating, ventilation, air conditioning, plumbing,
and electrical services;
o Colonial Commercial Corp.'s acquisition of Universal Supply Group,
that distributes heating and air conditioning equipment and climate
controls;
o Rentokil Initial PLC's acquisition of TruGreen Interior Plantcare from
The ServiceMaster Company which maintains plants for businesses; and
o Robert Bosch GmbH's acquisition of Detection Systems, Inc. that makes
electronic detection, control and communications equipment for
security, fire protection and access control.
Burnham Securities compared multiples for the Merger implied by the Merger
Consideration and certain financial data of Firecom to the corresponding
multiples in the selected merger and acquisition transactions. In this portion
of its analysis, Burnham Securities focused on (i) total invested capital (the
total amount of capital including debt and equity offered in the transaction) to
sales for the respective transaction as a multiple of revenues for the latest
twelve months preceding the transaction and (ii) total invested capital as a
multiple of EBITDA for the last twelve months preceding the respective
transaction. Burnham Securities used the total invested capital to sales and
total invested capital to EBITDA because only the sales and EBITDA figures of
the acquired companies in the analysis were publicly disclosed. Without having
access to the net income of the acquired companies, it is possible that such
entities may have experienced operating or net losses in the year of their
acquisition, thereby nullifying a multiple based on income. Likewise, book value
and enterprise value information was not publicly available for Burnham
Securities' consideration.
While the universe of comparable transactions selected by Burnham
Securities is limited, over 600 transactions were considered by Burnham
Securities in arriving at its selection of the seven used in its analysis.
Furthermore, the acquirers appearing in Burnham Securities' selection of
comparable transactions were involved in approximately two dozen transactions in
the aggregate, suggesting that these entities paid, or received, fair market
values in the transactions selected by Burnham Securities.
34
Burnham Securities considered that the acquirers may have been executing
strategic, or roll-up strategies, and may have paid premiums in support of their
goals. While none of the comparable transactions represent a "going private"
event, each represents a transaction between willing and knowledgeable buyers
and sellers concluded within the most recent two years.
The criteria that Burnham Securities emphasized when selecting transactions
from a universe of more than 600 were: industry similarities, service
orientation, size of transaction, closely held companies and date of
transaction.
Burnham Securities applied these multiplies against management's operating
statistics to derive an estimated value for each parameter. In order to arrive
at an average valuation, Burnham took the average value based upon the
comparable transactions' multiples.
--------------------------------- ----------- ------------------
Ratio Average Firecom
================================= =========== ==================
Total Invested Capital to Sales 0.65 0.46
Total Invested Capital to EBITDA 9.25 5.71
--------------------------------- ----------- ------------------
Using this method, Burnham Securities derived a valuation range from $13.2
million to $15.3 million. This valuation range, on a weighted average price per
share, is $1.11 to $1.29, respectively.
4. DISCOUNTED CASH FLOW ANALYSIS. In order to produce a meaningful
discounted cash flow analysis, Burnham Securities believed that consideration
must be given to the most recent five year's actual results and the prospective
five year's projections. The management of Firecom has never prepared five year
projections. Firecom's annual budgeting process has been effective and accurate.
The most significant factor impacting historical results for Firecom and the
industry has been the general condition of the New York City real estate market.
More activity in the market positively impacts fire alarm and safety
participants. The opposite is also true.
Burnham Securities did not think it would be prudent to impose on Firecom
management an exercise in forecasting five years hence. Instead, Burnham
Securities accepted Firecom's projected April 30, 2001 results and (for purposes
of the discounted cash flow model) assumed a 4% per annum revenue growth rate
and a 2% terminal growth rate to arrive at its results. While Burnham Securities
believed that this is realistic based upon a consensus of economic predictors,
Burnham Securities, nonetheless, diminished the weighting of the discounted cash
flow analysis in arriving at its valuation for Firecom.
Historical results were also considered as a frame of reference. After-tax
free cash flows were discounted for each year using Firecom's weighted average
cost of capital ("WACC" or "discount rate") of 9.28%. The WACC was computed
using the following data: a cost of equity of 9.9% and an after tax cost of debt
of 6.1%. The cost of equity was computed using a risk free rate of 4.8% (the 10
year Treasury note as of March 20, 2001), a beta (3 year) of 0.51 and a risk
premium of 10.0% (based on a 14.8% average return for the S&P 500 from
1991-2000). After-tax free cash flows are defined as earnings before interest
and taxes, or EBIT, multiplied by one minus the effective tax rate adjusted for
depreciation and amortization, capital expenditures and changes in working
capital available to stakeholders: both creditors and equity holders.
35
Utilizing these methods and assumptions, Burnham Securities computed an
implied equity value for Firecom of $0.76 per share and derived a valuation of
$9.05 million.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
consideration of the analyses as a whole, could create an incomplete view of the
processes underlying Burnham Securities' opinion. In arriving at its fairness
determination, Burnham Securities considered the results of all such analyses.
No company or transaction used in the above analyses as a comparison is directly
comparable to Firecom or the contemplated transaction.
After arriving at its valuations with respect to each of the above four
listed factors, Burnham Securities then weighted each of those factors according
to its relative importance. The following weights were applied for each method:
Market Multiple 30%, Stock Buy-back Multiple 30%, Comparable Transaction 20% and
Discounted Cash Flow 20%. Burnham Securities assigned the Market Multiple and
the Stock Buy-back Multiple greater weightings than the other methods because
Burnham Securities believed that the public markets and what Firecom has paid
for its stock in recent transactions are more significant barometers in
evaluating the proposed transaction than the Discounted Cash Flow (since Firecom
does not make 5 year projections) or Comparable Transactions.
OTHER CONSIDERATIONS. Immediately prior to the initial announcement by the
Purchaser of its offer to acquire all outstanding shares of Firecom at $0.70,
the Common Stock was trading at $0.44, a 37% discount from the initial offer
price. Reciprocally stated, the initial offer price represented a 59% premium to
the last sale of Firecom Common Stock prior to the announcement. Subsequent to
negotiations between the Independent Committee and the Purchaser, a payment of
$0.80 per share was agreed upon between the parties. This negotiated price
represents an 82% premium over the last price at which Firecom traded prior to
the initial announcement.
Burnham Securities also analyzed and considered the trading history of
Firecom's Common Stock over the last three years. During the four week period
from March 3, 2000 to March 24, 2000 Firecom's Common Stock jumped from its
average 2 month closing price of $0.66 to a high of $1.10 on March 17, 2000.
Burnham Securities believes this was an aberration and was influenced by an
artificial boost in the stock of a Firecom competitor, namely Firetector. As
reported in The New York Times Magazine (February 25, 2001), Firetector's Common
---------------------------
Stock was part of an illegal "pump and dump" scheme by a high school student
from New Jersey, who has since been convicted. Burnham Securities suspects this
activity affected Firecom's stock during the month of March 2000.
Furthermore, the stock market, in general, and the "dot com" stocks in
particular reached bull market highs in the late winter of 2000. Burnham
Securities believes that the stock of Firecom could have been purchased by day
traders unfamiliar with Firecom's business who were attracted by the last three
letters of Firecom's name.
The analyses were prepared solely for purposes of Burnham Securities
providing its opinion to the Independent Committee and the Board of Directors as
to the fairness from a financial point of view of the cash consideration to be
received by the holders of Firecom Stock not part of or affiliated with the
Proponents or the Purchaser and do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
36
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties or their respective advisors, none of Firecom, Burnham Securities,
nor any other person assumes responsibility if future results are materially
different from those forecast.
ENGAGEMENT TERMS
----------------
As compensation for its services as financial advisor, Firecom has agreed
to pay Burnham Securities a total of $55,000, all of which has been paid as of
the date hereof, plus expenses. The $55,000 fee was payable as follows: $25,000
was due on February 8, 2001 upon the signing of the engagement agreement and
$30,000 was due on April 3, 2001 upon delivery of Burnham Securities' opinion.
Firecom also has agreed to reimburse Burnham Securities for its expenses and to
indemnify Burnham Securities against certain liabilities arising out of its
services.
CONFLICTS OF INTEREST
In considering the recommendation of the Independent Committee with respect
to the Merger, shareholders should be aware that certain officers and directors
of Firecom, including Paul Mendez, the Chairman of the Board of Directors,
President and Chief Executive Officer and a director of Firecom, and Orhan
Sadik-Khan, a director of Firecom, are directors and/or officers of and will be,
as of the Effective Time, substantial equity holders in the Purchaser. In
addition, members of the immediate family of a third director of Firecom, also a
director of the Purchaser, Peter Barotz, will be, as of the Effective Time,
substantial equity holders in the Purchaser. Furthermore, under the Voting
Agreement, if the Merger were consummated, Messrs. Sadik-Khan and Barotz would
each receive annual fees of $65,000 for providing consulting services to the
Surviving Corporation. None of these directors were members of the Independent
Committee.
Pursuant to an agreement being negotiated between Firecom and each of
Howard L. Kogen, Firecom's Chief Operating Officer and Executive Vice President,
and Antoine J. Sayour, Firecom's Senior Vice President to ensure the continued
service of such executive officers following the Merger, such officers may be
offered the opportunity to participate in ownership of the Surviving Corporation
by reinvesting the cash payment with respect to the Stock Options held by each
as a result of the Merger. See "--Treatment of Stock Options." Mr. Kogen has
400,000 options to acquire shares of Firecom Stock and Mr. Sayour has 300,000
options to acquire Firecom Common Stock, all of which are vested. If either of
these officers elects to reinvest the Stock Option cash payment he receives as a
result of the treatment of his Stock Options in the Merger, the Surviving
Corporation may loan such senior officer an amount equal to the difference
between such cash payment and the Merger Consideration so that such senior
officer will be able to purchase such shares of the Surviving Corporation for
$0.80 per share. In addition, the Surviving Corporation may also loan to each of
these senior officers cash in an amount sufficient to pay taxes due as a result
of the difference between the exercise price and the Merger Consideration, at or
prior to the time that such taxes become due. These loans will bear interest at
the lowest applicable federal rate and will be collateralized by shares of stock
in the Surviving Corporation. The loans will, absent sale of the shares, not
require principal payments for six years. In addition, pursuant to the
agreements being negotiated, such officers would be entitled to participate on
the same pro rata terms as any of the Proponents in any sale by a controlling
shareholder of the Surviving Corporation of an interest of 50% or more in the
Surviving Corporation to any third party, provided that such officers would also
37
be obligated to participate in any such sale in which the consideration offered
is in excess of $0.80 per share.
Separately, Firecom has amended its employment agreements with each of
Messrs. Kogen and Sayour to provide for their extension for four years beyond
the current term in the event that the Merger is consummated.
The following table summarizes the equity interests in each of the
Purchaser and Firecom of the Proponents and the other directors and executive
officers of the Firecom immediately prior to the Effective Time (in the case of
the Purchaser, after giving effect to the agreements of the Proponents set forth
in the Voting Agreement) and in Firecom immediately following the Effective
Time, based on the terms of the Merger Agreement and the Voting Agreement and
assuming the effectiveness of the above-referenced agreement between Firecom and
each of Messrs. Kogen and Sayour. Directors and executive officers are indicated
by italics:
Name Pre-Merger: Pre-Merger: Pre-Merger: Post-Merger:
----------- ----------- ------------ ------------
Percentage of total Percentage of total Percentage of voting Percentage of total
-------------------- -------------------- --------------------- -------------------
shares and voting power shares of Firecom* power of Firecom* shares and voting power
------------------------ ------------------ ----------------- -----------------------
of Purchaser of Firecom
------------- ----------
Paul Mendez (President, Chief 33.8% 23.2% 25.1% 30.9%
Executive Officer and Chairman of
the Board)
Carol Mendez 31.5% 21.7% 23.4% 28.8%
Total Mendez Group 65.3% 44.9% 48.4% 59.7%
Peter Barotz (Director) 0.0% - - -
Naomi Pollack 4.8% 3.3% 3.5% 4.4%
Nathan Barotz 4.8% 3.3% 3.5% 4.4%
Celia Barotz 4.8% 3.3% 3.5% 4.4%
Total Barotz Group 14.3% 9.9% 10.6% 13.1%
Orhan Sadik-Khan (Director) 11.0% 7.5% 8.1% 10.0%
Karim Sadik-Khan 1.5% 1.0% 1.1% 1.4%
Janette Sadik-Khan 1.5% 1.0% 1.1% 1.4%
Jan Sadik-Khan 1.5% 1.0% 1.1% 1.4%
Sadik-Khan Family Trust 4.9% 3.3% 3.6% 4.4%
Total Sadik-Khan Group 20.3% 14.0% 15.1% 18.6%
Total "Proponents" 100.0% 68.8% 74.1% 91.3%
Howard L. Kogen (Chief Operating - 0.4% 0.4% 4.9%
Officer/ Executive Vice President)
Antoine J. Sayour (Senior Vice - 0.4% 0.4% 3.7%
President)
Jeffrey Cohen (5) (Vice President - - - -
- - Finance)
Richard G. Scurry, Jr. (Director) - - - -
Ronald A. Levin (Director) - - - -
38
Harry B. Levine (Director) - 0.1% 0.0% -
Total Proponents, Officers and 100.0% 69.6% 74.9% 100.0%
Directors
Total Unaffiliated Shareholders - 30.4% 25.1% 0.0%
*Total shares includes shares of Common Stock and shares of Class A Common Stock
owned as of March 31, 2001; total does not include presently exercisable options
to acquire Common Stock.
Paul Mendez is a party to an employment agreement with Firecom which has
been extended through April 30, 2002 (the "Mendez Employment Agreement") which
provides, among other things, that Mr. Mendez, in consideration for his services
as Chairman of the Board and Chief Executive Officer of Firecom, will be paid a
base salary at the rate of $300,000 per annum and incentive compensation equal
to a percentage of the annual earnings, before interest and taxes (as adjusted
by the Board of Directors for certain extraordinary and other non-recurring
events and as more fully described in the Mendez Employment Agreement)
("Adjusted EBIT") of Firecom. Generally, Mr. Mendez is entitled to receive an
amount equal to 6% of Adjusted EBIT if Firecom's Adjusted EBIT for any fiscal
year is between $500,000 and $1 million and 8% of the Adjusted EBIT if Firecom's
Adjusted EBIT for any fiscal year is greater than $1 million. In addition, Mr.
Mendez is entitled to participate, at no cost or expense to him, in all employee
benefit programs maintained by Firecom to the extent that such programs are
available generally to executive officers, provided that the aggregate annual
value to Mr. Mendez of such benefits does not exceed $41,000. To the extent that
the aggregate value of such benefits does not exceed $41,000, Mr. Mendez may
elect to receive the differential in cash or applied to other fringe benefits of
his selection.
Paul Mendez and his family also own Multiplex Electrical Services, Inc.
("Multiplex"), which is a distributor of Firecom's LSN 2000. During the fiscal
year 2000, Firecom had sales of approximately $260,000 to Multiplex. Sale of the
products to Multiplex was on the same terms as to other distributors. Firecom
also purchased approximately $41,000 of product and engineering services from
Multiplex during the 2000 fiscal year. Firecom believes the terms and conditions
of such transactions were fair and reasonable.
Upon the effectiveness of the Merger, all members of the Board of
Directors, other than Paul Mendez, Orhan Sadik-Khan and Peter Barotz have the
right to receive a cash payment, with respect to certain stock appreciation
rights, equal to the increase in value of 40,000 shares of Common Stock from the
date of their first election or appointment to the Board. Although Firecom may,
at its sole option, defer payment for a maximum of 24 months from the date of a
valid notice of exercise of these rights, Firecom does not intend to do so.
Directors who are members of the Independent Committee, Richard G. Scurry, Jr.,
Ronald A. Levin and Harry B. Levine, would be entitled to receive, respectively,
$9,600, $26,375 and $7,937 as a result of the Merger since none of the members
of the Independent Committee will serve as a member of the Board of Directors
following the Merger. Paul Mendez, Orhan Sadik-Khan and Peter Barotz who,
respectively, hold stock appreciation rights with respect to 1,000,000, 40,000
and 40,000 shares of Common Stock, will not be entitled to any cash payment for
such rights on account of the Merger.
39
Other than the aforementioned appreciation rights, no member of the
Independent Committee has any interest in connection with the Merger, other
than, in the case of Mr. Levine, as a shareholder of Firecom. The members of the
Independent Committee received fees for their service to Firecom as members of
the Independent Committee in aggregate of $25,000, which fees were not
contingent upon a recommendation to the shareholders with regard to the Merger,
the approval of the Merger Agreement or the consummation of the Merger.
The Purchaser has agreed that after the Effective Time it will, and will
cause the Surviving Corporation to, indemnify and hold harmless all past and
present officers and directors of Firecom to the full extent such persons may be
indemnified by Firecom pursuant to Firecom's Certificate of Incorporation and
Bylaws as in effect on the date of the Merger Agreement for acts and omissions
occurring at or prior to the Effective Time. The Purchaser has also agreed not
to amend such indemnification provisions for a period of six years from the
Effective Time and to use reasonable commercial efforts to maintain in effect
for six years from the Effective Time directors' and officers' "tail" liability
insurance covering those persons who are currently covered by Firecom's
directors' and officers' liability insurance policy on terms comparable to
existing coverage. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Indemnification."
While the Independent Committee does not consider ownership by each of its
members of stock appreciation rights and by one of its members of shares of
Firecom Stock as raising a conflicts of interest issue, shareholders in their
evaluation of the recommendation of the Board of Directors following the
recommendation of the Independent Committee may want to consider such ownership
and the benefits realizable from the cash consideration to be received from the
disposition of such ownership as a result of the Merger. See "SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, Firecom's shareholders (other than the
Purchaser and those shareholders who have perfected and have not withdrawn their
right to seek appraisal of their shares under applicable New York law) will have
the right to receive $0.80 in cash, without interest, for each share of Firecom
Stock held immediately prior to the Effective Time. At the Effective Time, all
outstanding shares of Firecom Stock, other than those shares owned by the
Purchaser, will be canceled and retired. As a result of the Merger, such
shareholders will cease to have any ownership interest in Firecom and will cease
to participate in future earnings and growth, if any, of Firecom. Moreover, if
the Merger is consummated, public trading of the Common Stock under the Exchange
Act will be terminated. Since Firecom will no longer be a reporting company
under the Exchange Act, it will not be subject to the periodic reporting
obligations of the Exchange Act, the short swing profit provisions of Section 16
of the Exchange Act and the going-private disclosure obligations of Rule 13e-3
under the Exchange Act.
Among the benefits to Firecom and its affiliates is that Firecom will not
be required to incur the expenses of filing periodic reports under the Exchange
Act, or to comply with other reporting obligations, including under Section 16,
which currently aggregate, on an annual basis, approximately $40,000. Other
expenses that Firecom will no longer incur are the fees for transfer agents,
printing and similar fees aggregating approximately $10,000 per year. Similarly,
Firecom will not be required to purchase directors and officers insurance, which
currently costs Firecom $19,000 per year, although it will be required to pay
40
approximately $6,500 per year in "tail" premiums. An additional benefit to the
affiliates of Firecom who are also equity holders of the Purchaser is that
future earnings and growth of Firecom will be for the benefit of the Purchaser
and its shareholders and not for the current public shareholders of Firecom. The
detriments to Firecom and its affiliates who are also equity holders of the
Purchaser are the lack of liquidity for the Common Stock of Firecom following
the Merger and the payment of approximately $3.0 million to fund the Merger.
Another significant benefit to Firecom and its affiliates and to those
shareholders who will be equity holders in the Purchaser immediately prior to
the Merger is that, once the Merger occurs, Firecom can elect to become an "S
corporation" as the term is defined under Section 1361 of the Internal Revenue
Code and under Section 208(1-A) of the Tax Law of New York. Such elections,
which are not available to companies with more than 75 shareholders, will permit
Firecom's earnings to be taxed on a flow through basis to its shareholders as
individuals. Earnings of Firecom will no longer be taxed twice (as corporate
earnings and, when distributed, as ordinary income to the shareholders). Under
the Voting Agreement, the shareholders of the Purchaser would cause Firecom to
be managed with a view toward making periodic distributions to its shareholders
sufficient to cover their resulting tax liabilities.
The only benefit to unaffiliated holders of Firecom Stock is the right to
receive the Merger Consideration. The detriments are that such shareholders will
cease to participate in future earnings and growth, if any, of Firecom and that
the receipt of the Merger Consideration will be a taxable transaction for
federal income tax purposes. Each shareholder's gain or loss per share will be
equal to the difference between $0.80 and the shareholder's tax basis per share
in the Firecom Stock. If a shareholder holds Firecom Stock as a capital asset,
the gain or loss from the exchange will be a capital gain or loss. The gain or
loss will be long term if the shareholder's holding period is more than one
year. See "--Federal Income Tax Considerations."
As a result of the Merger, directors of Firecom, other than Mr. Mendez, Mr.
Sadik-Khan and Mr. Barotz, will be entitled to cash payments of $43,912 in the
aggregate in respect of stock appreciation rights. No other "change of control,"
termination, resignation or similar payments will be made to managers.
The Merger Agreement provides that the current directors of Firecom will be
replaced by the directors of the Purchaser, the appointment of whom shall be
determined in accordance with the Voting Agreement. The current executive
managers of Firecom are expected to remain the managers of the Surviving
Corporation. Pursuant to amendments to the employment agreements between Firecom
and each of Howard L. Kogen and Antoine J. Sayour dated as of _______, 2001 (the
"Kogen/Sayour Amendments"), if the Merger is consummated, the term of employment
of such officers will be extended to the date that is four years beyond the
termination date set forth in the current employment agreements, with each such
officer to be entitled to increase of $5,000 per year in base compensation.
It is currently anticipated that the Surviving Corporation will be operated
after the Merger in a manner substantially the same as Firecom's current
operations.
Based on the aggregate percentage of ownership of 68.8% of the outstanding
Firecom Stock of Messrs. Mendez, Sadik-Khan and Barotz and the other Proponents,
their aggregate interest in Firecom's net book value was approximately $5.0
million at April 30, 2000 and $5.6 million at January 31, 2001. The aggregate
interest in Firecom's net book value of Messrs. Mendez, Sadik-Khan and Barotz
41
and members of their respective immediate families (hereinafter, the "Mendez
Group," the "Sadik-Khan Group" and the "Barotz Group") was approximately $3.3
million, $1.0 million and $0.7 million, respectively, at April 30, 2000 and $3.7
million, $1.1 million and $0.8 million, respectively, at January 31, 2001. The
aggregate interest in Firecom's net earnings of the Mendez Group, the
Sadik-KhanGroup and the Barotz Group was approximately $0.8 million for the year
ended April 30, 2000 and $0.5 million for the nine months ended January 31,
2001. The interest in Firecom's net earnings of the Mendez Group, the Sadik-Khan
Group and the Barotz Group was approximately $0.5 million, $0.2 million and $0.1
million for the year ended April 30, 2000 and $0.3 million, $0.1 million and
$0.1 million for the nine months ended January 31, 2001, respectively.
Assuming the Merger had occurred on April 30, 2000 and January 31, 2001,
respectively, and the Purchaser had owned all Firecom's outstanding Common Stock
and Class A Common Stock as of such date, the Purchaser's pro forma interest in
Firecom's net book value at April 30, 2000 and January 31, 2001 would have been
$7.3 million and $8.1 million, respectively, without taking account of any
decision that may be made by Messrs. Kogen or Sayour to become shareholders of
the Surviving Corporation. See "--Treatment of Stock Options." The aggregate pro
forma interest in Firecom's net book value of the Mendez Group, the Sadik-Khan
Group and the Barotz Group would be approximately $4.8 million, $1.5 million and
$1.1 million, respectively, at April 30, 2000 and $5.3 million, $1.7 million and
$1.2 million, respectively, at January 31, 2001. The Purchaser's pro forma
interest in Firecom's net earnings would be approximately $1.2 million for the
year ended April 30, 2000 and $0.7 million for the nine months ended January 31,
2001. The pro forma interest in Firecom's net earnings of the Mendez Group, the
Sadik-Khan Group and the Barotz Group, would be approximately $0.8 million, $0.2
million and $0.2 million for the year ended April 30, 2000 and $0.4 million,
$0.1 million and $0.1 million for the nine months ended January 31, 2001,
respectively.
The interests in the book value of Firecom after giving effect to the
transactions discussed herein, as discussed above, are set forth for each of the
Purchaser, the individual Proponents, Mr. Kogen and Mr. Sayour (assuming Messrs.
Kogen and Sayour elect to purchase, respectively, 400,000 and 300,000 shares of
Common Stock of the Surviving Corporation as described under "--Treatment of
Stock Options") in the table below:
Name Pro forma Interest in Net Interest in Net Interest in Net Interest in Net
---------- --------------- --------------- ---------------- ---------------
Percentage of Book Value, if Book Value, if Earnings, if Earnings, if Merger
-------------- -------------- -------------- ------------ --------------------
total shares Merger Occurred Merger Occurred at Merger Occurred at Occurred at
------------- --------------- ------------------ ------------------ -----------
and voting power at April 30, 2000 January 31, 2001 April 30, 2000 January 31, 2001
---------------- ----------------- ---------------- -------------- ----------------
Paul Mendez (President, Chief 30.9% $2,267,810.64 $2,511,209.55 $367,260.54 $211,892.96
Executive Officer and Chairman of
the Board)
Carol Mendez 28.8% $2,113,503.55 $2,340,341.03 $342,271.28 $197,475.27
Total Mendez Group 59.7% $4,381,314.19 $4,851,550.58 $709,531.81 $409,368.23
Peter Barotz (Director) - $0.00 $0.00 $0.00 $0.00
Naomi Pollack 4.4% $320,677.08 $355,094.61 $51,932.04 $29,962.47
Nathan Barotz 4.4% $320,678.89 $355,096.62 $51,932.34 $29,962.64
Celia Barotz 4.4% $320,677.08 $355,094.61 $51,932.04 $29,962.47
Total Barotz Group 13.1% $962,033.05 $1,065,285.85 $155,796.42 $89,887.59
42
Orhan Sadik-Khan (Director) 10.0% $734,909.25 $813,785.37 $119,014.86 $68,666.27
Karim Sadik-Khan 1.4% $99,905.14 $110,627.72 $16,179.13 $9,334.64
Janette Sadik-Khan 1.4% $99,723.60 $110,426.71 $16,149.74 $9,317.68
Jan Sadik-Khan 1.4% $102,083.54 $113,039.93 $16,531.92 $9,538.18
Sadik-Khan Family Trust 4.4% $326,664.05 $361,724.16 $52,901.60 $30,521.87
Total Sadik-Khan Group 18.6% $1,363,285.58 $1,509,603.89 $220,777.25 $127,378.63
Total "Proponents" 91.3% $6,706,632.82 $7,426,440.32 $1,086,105.48 $626,634.45
Howard L. Kogen (Chief Operating 4.9% $363,066.96 $402,034.10 $58,796.87 $33,923.17
Officer/ Executive Vice President)
Antoine J. Sayour (Senior Vice 3.7% $272,300.22 $301,525.58 $44,097.65 $25,442.38
President)
Total 100.0% $7,342,000.00 $8,130,000.00 $1,189,000.00 $686,000.00
Immediately prior to the Effective Time, the Purchaser will own
approximately 68.8% percent of the equity interest in Firecom.
Separately, the Orhan Sadik-Khan and the Sadik-Khan Family Trust have
agreed with the other Proponents pursuant to the May 24, 2001 amendment to the
Voting Agreement, to cause the Surviving Corporation to repurchase, on December
31, 2001, the shares of Common Stock held by the Sadik-Khan Family Trust
immediately following the Effective Time (359,894, giving effect to the
agreements set forth in the Voting Agreement) for a price of $0.80 per share,
plus 140,106 shares of Common Stock held by Orhan Sadik-Khan immediately
following the Effective Time (giving effect to the agreements set forth in the
Voting Agreement) for a price of $0.80 per share, with the aggregate cash
payment to be received by the Sadik-Khan Family Trust and Orhan Sadik-Khan at
such time to be equal to $287,915 and $112,085, respectively. The effect of
these repurchases (collectively referred to hereinafter as the "Sadik-Khan
Repurchases") is not shown in the table above because they will not occur
immediately after the Effective Time, but on December 31, 2001. The effect of
the Sadik-Khan Repurchases, if they occur as agreed, would be to increase the
interest in the Surviving Corporation of the Mendez Group from 59.7% immediately
after the Effective Time to 63.6% as of such date; to increase the interest of
the Barotz Group from 13.1% immediately after the Effective Time to 14% as of
such date; to increase the respective interests of Messrs. Kogen and Sayour from
5% and 3.7% immediately after the Effective Time to 5.3% and 4%; and to decrease
the interest of the Sadik-Khan Group from 18.6% immediately after the Effective
Time to 13.2% as of such date.
The purpose of the transaction for Firecom is to maximize shareholder
value. See "--Background of the Merger."
The purposes of the transaction for the Purchaser, the Proponents and each
of Mr. Kogen and Mr. Sayour is to permit Firecom to elect to become an "S
corporation" as the term is defined under Section 1361 of the Internal Revenue
Code and under Section 208(1-A) of the Tax Law of New York, thus reducing the
collective tax burden of the Surviving Corporation and its remaining
shareholders, to avoid the additional costs entailed in the operation of a
corporation which is publicly traded, to provide a liquidity opportunity for
unaffiliated shareholders, and to retain control of Firecom. See "--Reasons for
43
and Purpose of the Purchaser and the Proponents for the Merger" and "--Reasons
for and Purpose of Messrs. Kogen and Sayour for the Merger"
TREATMENT OF STOCK OPTIONS
Each holder of Firecom stock options ("Stock Options") shall be entitled to
receive immediately after the Effective Time an amount in cash equal to the
Merger Consideration minus the per share exercise price of such Stock Option for
each of such holder's Stock Options.
There are (i) 1,122,000 options outstanding under Firecom's Incentive and
Non-Qualified Stock Option Plan, which have exercise prices ranging from $0.15
to $0.63 per share, all of which are vested or shall vest prior to the Effective
Time, and (ii) 31,068 options outstanding under Firecom's Distributors Stock
Option Plan, which have an exercise price of $0.55 per share, all of which are
vested.
The Purchaser will offer Howard L. Kogen, Chief Operating Officer and
Executive Vice President of Firecom, and Antoine J. Sayour, Senior Vice
President of Firecom, the opportunity to participate in ownership of the
Surviving Corporation by reinvesting the cash payment with respect to the Stock
Options held by each. Mr. Kogen has 400,000 options to acquire shares of Firecom
Stock and Mr. Sayour has 300,000 options to acquire Firecom Common Stock, all of
which are vested. If either of these senior officers elects to reinvest the
Stock Option cash payment received by each, the Surviving Corporation may loan
such senior officer an amount equal to the difference between the cash payment
and the Merger Consideration so that such senior officer will be able to
purchase such shares of the Surviving Corporation for $0.80 per share. In
addition the Surviving Corporation may also loan to each of these senior
officers cash in an amount sufficient to pay taxes due as a result of the
difference between the exercise price and the Merger Consideration, at or prior
to the time that such taxes become due. These loans will bear interest at the
lowest applicable federal rate and will be collateralized by shares of stock in
the Surviving Corporation. The loans will, absent sale of the shares, not
require principal payments for six years. In the event that either of these
senior officers elects to reinvest the Stock Option cash payment received by
each, such senior officer will be required to enter into an agreement pursuant
to which the Surviving Corporation will repurchase such shares upon the
termination of such executive's termination of employment, disability or death.
In addition such agreements will also provide that such officers would be
entitled to participate on the same pro rata terms as any of the Proponents in
any sale by a controlling shareholder of the Surviving Corporation of an
interest of 50% or more in the Surviving Corporation to any third party,
provided that such officers would also be obligated to participate in any such
sale in which the consideration offered is in excess of $0.80 per share.
VOTING AGREEMENT
Paul Mendez, Carol Mendez, Naomi Pollack, Nathan Barotz, Celia Barotz,
Orhan Sadik-Khan, Karim Sadik-Khan, Janette Sadik-Khan, Jan Sadik-Khan and the
Sadik-Khan Family Trust entered into the Voting Agreement on January 24, 2001.
Pursuant to the Voting Agreement, the Proponents have agreed to restrict their
ability to sell or otherwise transfer their shares and have further agreed to
appoint Paul Mendez as their attorney and proxy to vote such shares at, among
other things, every special meeting of Firecom's shareholders, in his sole
discretion, for the transaction of any and all business that may come before the
shareholders of Firecom, including the Merger, giving and granting to Mr. Mendez
full power and authority to do each and every act and thing whether necessary or
desirable to be done in respect of the affairs of Firecom and the Purchaser and
44
in his judgment consistent with the purposes of the Voting Agreement, thereby
ratifying and confirming all that Mr. Mendez shall do and cause to be done by
virtue of such appointment. Pursuant to the Voting Agreement, the Proponents
have agreed to transfer their shares of Firecom Stock to the Purchaser in
exchange for shares of the common stock of the Purchaser immediately prior to
the Effective Time.
On May 24, 2001, Proponents amended the Voting Agreement to reflect their
agreement that, if the Merger is consummated, the Sadik-Khan Family Trust will
sell to the Surviving Corporation the 359,894 shares of Common Stock that will
be owned by it immediately following the Effective Time and Orhan Sadik-Khan
will sell to the Surviving Corporation 140,106 of the shares of Common Stock
that will be owned by him immediately following the Effective Time, and the
Proponents shall cause the Surviving Corporation to purchase such shares from
such persons, on December 31, 2001, for a price of $0.80 per share, with the
aggregate cash payment to be received at such time by the Sadik-Khan Family
Trust and Orhan Sadik-Khan at such time to be equal to $287,915 and $112,085,
respectively. Such amendment does not affect the interests in the securities of
Firecom or the Purchaser prior to or immediately following the Effective Time of
the Merger.
The Voting Agreement covers a total of 3,694,433 shares of Common Stock and
3,694,433 shares of Class A Common Stock, representing approximately 68.8% of
the outstanding shares and 74% of the voting rights associated therewith on the
Record Date. Paul Mendez intends to vote such shares in favor of the Merger.
APPRAISAL RIGHTS
For purposes of this section, "Firecom" will be deemed to refer also to the
Surviving Corporation with respect to actions taken after the Effective Time.
Pursuant to the Merger Agreement and the NYBCL, the owners of Firecom Stock
will have dissenters' rights in connection with the Merger under Section 623 of
the NYBCL ("Section 623"), a copy of which (as well as a copy of Section 910 of
the NYBCL) is included in this Proxy Statement as Annex C, and may object to the
-------
Merger Agreement and demand in writing that Firecom pay the fair value of their
Firecom Stock.
If any holders of Firecom Stock properly exercise dissenters rights of
appraisal in connection with the Merger under Section 623 of the NYBCL (a
"Dissenting Shareholder"), any shares held by such holders will not be converted
into the right to receive $0.80 per share, but instead will be converted into
the right to receive the "fair value" of such shares pursuant to Section 623 of
the NYBCL. THE FOLLOWING SUMMARY SETS FORTH ALL MATERIAL PROCEDURES TO BE
FOLLOWED BY HOLDERS OF FIRECOM STOCK WISHING TO DEMAND APPRAISAL OF THEIR SHARES
UNDER THE NYBCL. THE FOLLOWING SUMMARY OF THE PROVISIONS OF SECTION 623 IS NOT
INTENDED TO BE A COMPLETE STATEMENT OF SUCH PROVISIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SECTION 623, A COPY OF WHICH (AS WELL
AS A COPY OF SECTION 910 OF THE NYBCL) IS ATTACHED TO THIS PROXY STATEMENT AS
ANNEX C AND INCORPORATED HEREIN BY REFERENCE. Firecom will not give any notice
- -------
of the following requirements other than as described in this Proxy Statement
and as required by the NYBCL.
SHAREHOLDERS OF FIRECOM SHOULD NOTE THAT, UNLESS ALL THE REQUIRED
PROCEDURES FOR CLAIMING DISSENTER'S RIGHTS ARE FOLLOWED WITH PARTICULARITY,
DISSENTER'S RIGHTS WOULD BE LOST. VOTING AGAINST APPROVAL AND ADOPTION OF THE
45
MERGER AGREEMENT, WHETHER IN PERSON OR BY PROXY, IS NOT SUFFICIENT NOTICE TO
PERFECT DISSENTERS RIGHTS. A VOTE TO APPROVE THE MERGER WILL EFFECTIVELY WAIVE A
SHAREHOLDER'S APPRAISAL RIGHTS.
RIGHTS OF DISSENTING SHAREHOLDERS. Sections 623 and 910 of the NYBCL give
---------------------------------
to any Dissenting Shareholder of record who wishes to object to the Merger the
right to receive from Firecom in cash, the "fair value" of his shares, unless
the Merger Agreement is abandoned or fails to be adopted and authorized, and
provided, further, that the following procedure is carefully followed. The
Dissenting Shareholders' shares will not be converted into Merger Consideration
and the Dissenting Shareholders will receive only the cash to which they are
entitled pursuant to the statutory procedure. Beneficial holders should instruct
their nominees and fiduciaries to dissent on their behalf. WE URGE YOU TO
CONTACT YOUR OWN ATTORNEY IF YOU ARE INTERESTED IN DISSENTING.
The New York statute establishing appraisal rights provides that appraisal
rights are the exclusive remedy available to shareholders that have those
rights, except that those shareholders may challenge a merger if the merger is
unlawful or fraudulent.
In order to dissent and have the value of your shares determined by a
court, the following procedures must be carefully followed:
(a) The Dissenting Shareholder must not vote in favor of adoption of the
Merger Agreement.
(b) Before the proposal to adopt the Merger Agreement is submitted to a
vote at the Special Meeting, the Dissenting Shareholder must file with
Firecom a notice of dissent stating his intention to demand payment
for his shares of Firecom Stock (the "Notice of Dissent"). The Notice
of Dissent should be sent to Jeffrey Cohen, Chief Financial Officer,
Firecom, Inc., 39-27 59th Street, Woodside, New York 11377. We
recommend that this Notice of Dissent be sent by registered mail,
return receipt requested. The Notice of Dissent may also be submitted
at the Special Meeting so long as it is submitted before a vote is
taken on the Merger Agreement. The Notice of Dissent must include:
- a notice of election to dissent;
- the Dissenting Shareholder's name and residence address;
- the number of shares of Firecom Stock as to which the Dissenting
Shareholder dissents; and
- a demand for payment of the fair value of the Dissenting
Shareholder's shares of Firecom Stock if the Merger is
effectuated.
(c) A Dissenting Shareholder may not dissent as to less than all of the
shares as to which he has a right to dissent, held by him of record
and that he owns beneficially. A nominee or fiduciary may not dissent
on behalf of any beneficial owner as to less than all of the shares of
Firecom Stock as to which such person is beneficial owner, as to which
such nominee or fiduciary has a right to dissent, held of record by
such nominee or fiduciary.
46
(d) Within 10 days after the date of the Special Meeting, Firecom must
give written notice to each Dissenting Shareholder that the Merger
Agreement has been authorized by the vote of Firecom's shareholders.
(e) Together with the Notice of Dissent or within one month thereafter,
the Dissenting Shareholder must submit the stock certificates
representing all of his shares of Firecom Stock to Firecom for the
purpose of having a notation affixed to such stock certificates
indicating that a demand for payment has been made. We recommend that
stock certificates be sent by registered mail, return receipt
requested. Dissenting Shareholders should also consider obtaining
insurance. After the notation is made on the stock certificates, the
stock certificates will be returned to the Dissenting Shareholder. If
the Dissenting Shareholder fails to so submit the stock certificates
to Firecom with the Notice of Dissent or within one month thereafter,
Firecom has the option, exercisable by written notice given within 45
days from the date of filing of the Notice of Dissent, to eliminate
such Dissenting Shareholder's right to dissent, unless a court, for
good cause shown, otherwise directs.
(f) Within 15 days after the later of the Effective Time and the last day
of the period during which Notices of Dissent may be made (but in no
case later than 90 days after the date of the Special Meeting), the
NYBCL requires Firecom (or the Surviving Corporation, as the case may
be) to make an offer (the "Company Offer") by registered mail to the
Dissenting Shareholders to pay the Dissenting Shareholders for their
Dissenting Shareholders' shares at a specified price (the "Offering
Price") which the Surviving Corporation considers to be their fair
value. Such Company Offer will be accompanied by a statement setting
forth the aggregate number of shares of Firecom Stock with respect to
which Notices of Dissent have been received and the aggregate number
of holders of such shares. If the Merger has been effectuated at the
time of such Company Offer, Firecom Offer will also be accompanied by
(i) the advance payment to each Dissenting Shareholder who has
submitted to Firecom his stock certificates as described in
paragraph (e) above of an amount equal to 80% of the amount of
such Offering Price multiplied by the number of shares
represented by such stock certificates, and
(ii) as to each Dissenting Shareholder who has not yet submitted his
stock certificates, a statement that the Surviving Corporation
will make an advance payment to him of an amount equal to 80% of
the amount of such Offering Price multiplied by the number of
shares represented by his stock certificates promptly upon
submission of such stock certificates.
Every advance payment or statement regarding advance payments will
advise the Dissenting Shareholders that acceptance of such payment
does not constitute a waiver of any Dissenting Shareholders' rights.
All Company Offers will be made at the same Offering Price to all
Dissenting Shareholders.
(g) If, within 30 days after the Surviving Corporation's making such
Company Offer, a Dissenting Shareholder and the Surviving Corporation
agree upon the price to be paid for such Dissenting Shareholder's
47
shares, payment must be made by the Surviving Corporation, upon the
surrender of the stock certificates representing such Dissenting
Shareholder's shares of Firecom Stock, within 60 days of the later of
the date of the making of such Company Offer and the Effective Time.
(h) If the Surviving Corporation fails to make an Company Offer as
described in paragraph (f) above within the period provided therein or
if the Dissenting Shareholder and the Surviving Corporation fail to
agree upon the price to be paid within 30 days of the date of Firecom
Offer, the Surviving Corporation will, within 20 days after the
expiration of the applicable time period, institute a special
proceeding in the Supreme Court of the State of New York, County of
Queens to determine the rights of the Dissenting Shareholder and to
fix the fair value of his shares of Firecom Stock.
(i) If the Surviving Corporation fails to institute such special
proceeding the Dissenting Shareholder may do so within 30 days after
the expiration of such 20 day period. Failure of the Dissenting
Shareholder to institute such proceedings will result in the loss of
his objector's rights unless the court, for good cause shown,
otherwise directs.
(j) The court will determine the fair value of the shares of Firecom
Stock, which will be the appraised value as of the close of business
on the day prior to the Special Meeting. In fixing the value of the
shares of Firecom Stock, the court will consider the nature of the
Merger and its effects on Firecom and its shareholders, the concepts
and methods then customary in the relevant securities and financial
markets for determining fair value of shares of a corporation engaging
in a similar transaction under comparable circumstances and all other
relevant factors. The court will determine the fair value of the
shares of Firecom Stock without a jury and without referral to an
appraiser or referee.
(k) The final order will include an allowance for interest at such rate as
the court finds to be equitable, from the date the Merger was
effectuated to the date of payment. If the court finds that the
refusal of any Dissenting Shareholder to accept Company Offer for his
shares of Firecom Stock was arbitrary, vexatious or otherwise not in
good faith, no interest will be allowed to him.
(l) Each party to such proceeding will bear its own costs and expenses,
including the fees and expenses of its counsel and of any experts
employed by it. Notwithstanding the foregoing, the court may, in its
discretion, apportion and assess all or any part of the costs,
expenses and fees incurred by the Surviving Corporation against any or
all of the Dissenting Shareholders who are parties to the proceeding
if the court finds that their refusal to accept Company Offer was
arbitrary, vexatious or otherwise not in good faith. The court may in
its discretion, apportion and assess all or any part of the costs,
expenses and fees incurred by any or all of the Dissenting
Shareholders who are parties to the proceeding against the Surviving
Corporation if the court finds any of the following:
(i) that the appraised value of the shares of Firecom Stock as
determined materially exceeds the Offering Price;
48
(ii) that no Company Offer or required advance payment (as described
by paragraph (f) above) was made by the Surviving Corporation;
(iii) that the Surviving Corporation failed to institute the special
proceeding (as described in paragraph (h) above) within the
period specified therefor; or
(iv) that the action of the Surviving Corporation in complying with
its obligations as provided in this section was arbitrary,
vexatious or otherwise not in good faith.
(m) Within 60 days after the final determination of the special
proceeding, the Surviving Corporation will pay to each Dissenting
Shareholder party to such proceeding the amount found to be due him,
upon surrender of the stock certificates representing his shares of
Firecom Common Stock.
A negative vote on the Merger Agreement does not constitute a "written
objection" required to be filed by a Dissenting Shareholder.
The foregoing summary does not purport to be a complete statement of the
provisions of Section 623 of NYBCL, and is qualified in its entirety by
reference to a copy of Section 623 of the NYBCL which is attached as Annex C. If
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you object to the Merger and wish to examine your rights further, you should
consult your legal counsel at your expense. None of Firecom, the Purchaser, or
the Proponents has made any provision to reimburse you for any of your legal
expenses or for any expenses for any appraisal services you may obtain in
separately evaluating the Merger.
Shareholders' right to examine certain Firecom's corporate records is
described in "WHERE YOU CAN FIND MORE INFORMATION."
The Board of Directors recommends that shareholders vote "FOR" the proposal
to approve and adopt the Merger Agreement.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations relevant to the Merger that are generally applicable to holders
of Firecom Stock. This discussion is based on currently existing provisions of
the Internal Revenue Code of 1986, as amended, existing and proposed Treasury
Regulations thereunder and current administrative rulings and court decisions,
all of which are subject to change. Any such change, which may or may not be
retroactive, could alter the tax consequences to Firecom's shareholders as
described herein.
The receipt by the shareholders of cash, in the Merger or through the
exercise of appraisal rights, for shares of Firecom Stock will be a taxable
transaction for federal income tax purposes. Each shareholder's gain or loss per
share will be equal to the difference between $0.80 and the shareholder's tax
basis per share in the Firecom Stock. If a shareholder holds Firecom Stock as a
capital asset, the gain or loss from the exchange will be a capital gain or
loss. This gain or loss will be long term if the shareholder's holding period is
more than one year.
Shares of Firecom Stock which were acquired through the exercise of stock
options and which have not been held for a period of two years since the option
49
was granted and a period of one year since the option was exercised are not
treated as capital assets and gain on such shares will be subject to federal
income tax at ordinary income tax rates.
THE FOREGOING TAX DISCUSSION IS BASED UPON PRESENT LAW. EACH SHAREHOLDER
SHOULD CONSULT SUCH SHAREHOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO SUCH SHAREHOLDER, INCLUDING THE APPLICATION AND
EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS AND THE POSSIBLE EFFECT OF
CHANGES IN SUCH TAX LAWS. SPECIAL RULES APPLY TO FIRECOM STOCK RECEIVED PURSUANT
TO THE EXERCISE OF STOCK OPTIONS OR OTHERWISE AS COMPENSATION.
REGULATORY APPROVALS
Neither Firecom nor the Purchaser is aware of any regulatory approvals that
must be obtained in order to consummate the Merger, including any regulatory
approvals from antitrust authorities.
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The discussion in this Proxy Statement of the Merger and the description of
all the material terms of the Merger Agreement are subject to and qualified in
their entirety by reference to the Merger Agreement, a copy of which is attached
hereto as Annex A and is incorporated herein by reference, and to each of the
-------
other annexes to this Proxy Statement.
PRIOR TO THE EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that after the approval of the Merger
Agreement by the shareholders of Firecom and the Purchaser in accordance with
the NYBCL and immediately prior to the consummation of the Merger contemplated
thereby, the Proponents shall transfer to the Purchaser all of their shares of
Firecom Stock.
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that the Purchaser will be merged with and
into Firecom and that following the Merger, the separate existence of the
Purchaser will cease and Firecom will continue as the Surviving Corporation. The
Effective Time will be the later of the time and date when the Certificate of
Merger is accepted for filing by the Department of State of the State of New
York and the Merger thereby becomes effective or such later time established by
the Certificate of Merger upon the filing of the Certificate of Merger in
accordance with the NYBCL. The Merger Agreement provides that the Effective Time
of the Merger will be as soon as practicable after all conditions to the Merger
have been fulfilled or waived, which is anticipated to be on or about the date
of the Special Meeting. The Merger Agreement also provides that
o the Certificate of Incorporation of Firecom in effect immediately
prior to the Effective Time, as amended by the Certificate of Merger,
shall be the Certificate of Incorporation of the Surviving
Corporation;
o the Bylaws of Firecom as in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation;
50
o the directors of the Purchaser shall be the initial directors of the
Surviving Corporation;
o the officers of Firecom and such other persons as designated by the
Purchaser shall be the initial officers of the Surviving Corporation;
and
o the Merger shall, from and after the Effective Time, have all the
effects provided by the NYBCL.
CONVERSION AND CANCELLATION OF FIRECOM STOCK
Upon the consummation of the Merger, each outstanding share of Common Stock
and Class A Common Stock (other than shares owned by the Purchaser immediately
prior to the Merger and shares, if any, that are held by shareholders exercising
appraisal rights in accordance with the NYBCL ("Dissenting Shares"')) will be
converted into, and become exchangeable for, $0.80 in cash without interest (the
"Merger Consideration"). At the Effective Time, all such shares of Common Stock
and Class A Common Stock will no longer be outstanding and will be canceled and
retired and will cease to exist, and each certificate representing any shares of
Firecom Stock will thereafter represent only the right to receive the Merger
Consideration, or the right, if any, to receive payment from the Surviving
Corporation of the "fair value" of such shares as determined in accordance with
Section 623 of the NYBCL. See "SPECIAL FACTORS--Appraisal Rights."
PURCHASER STOCK
At the Effective Time, each share of common stock of the Purchaser
outstanding immediately prior to the Effective Time shall be converted into and
become one share of common stock, par value $.01 per share, of the Surviving
Corporation, and each certificate theretofore representing any such shares
shall, without any action on the part of the holder thereof, be deemed to
represent the same number of shares of the Surviving Corporation.
TREATMENT OF STOCK OPTIONS
At or prior to the Effective Time, Firecom shall have made arrangements,
the effect of which shall be that no shares of Common Stock, Class A Common
Stock or other capital stock of Firecom or the Surviving Corporation shall be
issuable pursuant to options or warrants to purchase shares, or securities
convertible into shares, of Common Stock ("Stock Options"). Firecom shall (i)
cause its Incentive and Non-Qualified Stock Option Plan (the "Stock Plan") to
terminate as of the Effective Time, (ii) grant no additional Stock Options after
the date of the Merger Agreement and (iii) accelerate the vesting of all Stock
Options issued under the Stock Plan at or prior to the Effective Time. Firecom
shall take all such actions under the Stock Plan necessary so that each Stock
Option shall be converted into the right to receive in exchange therefor from
the Surviving Corporation an amount in cash per Stock Option equal to the Merger
Consideration minus the per share exercise price of such Stock Option (the
result of any such Calculation being the "Redemption Price").
Payment of the Redemption Price shall be contingent upon consummation of
the Merger and shall be subject to applicable withholding of income and other
taxes. Payment of the Redemption Price shall be made by the Surviving
Corporation to the holders of the Stock Options at or as promptly as practicable
after the Effective Time, without interest.
51
EXCHANGE PROCEDURES
Prior to the Effective Time, the Purchaser will appoint American Stock
Transfer and Trust Company to act as paying agent, or such other bank or trust
company as the Purchaser and Firecom may mutually select (the "Paying Agent")
for the payment of the Merger Consideration upon surrender of stock
certificates.
The Purchaser is required to take all steps necessary to enable and cause
the Surviving Corporation to provide the Paying Agent with cash in amounts
necessary to pay the Merger Consideration, when and as such amounts are needed
by the Paying Agent.
As soon as reasonably practicable after the Effective Time, but within 20
days of such time, the Paying Agent will mail to each holder of record of
Firecom Stock immediately prior to the Effective Time (excluding any Dissenting
Shares):
o a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the stock certificates shall
pass, only upon delivery of such stock certificates to the Paying
Agent and shall be in such form and have such other provisions as the
Purchaser shall reasonably specify); and
o instructions for the use thereof in effecting the surrender of the
stock certificates in exchange for the Merger Consideration.
Upon surrender of a stock certificate for cancellation to the Paying Agent or to
such other agent or agents as may be appointed by the Surviving Corporation,
together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Paying Agent, the holder of such
stock certificate will be entitled to receive in exchange therefor an amount of
cash equal to $0.80 multiplied by the number of shares of Firecom Stock
represented by such stock certificate. No interest will be paid or will accrue
on the cash payable upon the surrender of any stock certificate. If payment is
to be made to a person other than the person in whose name the stock certificate
so surrendered is registered, it will be a condition of payment that such stock
certificate be properly endorsed or otherwise in proper form of transfer and
that the person requesting such payment will pay any transfer or other taxes
required by reason of the transfer of such stock certificate or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable. STOCK CERTIFICATES SHOULD NOT BE SURRENDERED BY THE HOLDERS OF
FIRECOM STOCK UNTIL SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL.
Until surrendered as contemplated by the Merger Agreement, each stock
certificate (other than stock certificates representing Dissenting Shares) will
be deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the amount of cash, without interest, into which the
shares of Firecom Stock theretofore represented by such stock certificate shall
have been converted pursuant to the Merger Agreement.
INTERIM OPERATIONS OF FIRECOM; CONDUCT PENDING MERGER
From and after the date of the Merger Agreement until the Effective Time,
except as contemplated by any other provision of the Merger Agreement, unless
the Purchaser has consented in writing thereto, Firecom has agreed:
52
(i) to conduct its operations according to its usual, regular and
ordinary course in substantially the same manner as theretofore conducted;
(ii) to use its reasonable efforts to preserve intact its
business organization and goodwill, keep available the services of its officers
and employees and maintain satisfactory relationships with those persons having
business relationships with it;
(iii) to refrain from amending its Certificate of Incorporation or
Bylaws or comparable governing instruments;
(iv) to promptly notify the Purchaser of any breach of any
representation or warranty contained in the Merger Agreement or any event that
is materially adverse to the business, assets, financial condition or results of
operations of Firecom;
(v) to promptly deliver to the Purchaser true and correct copies of
any report, statement or schedule filed with the SEC subsequent to the date of
the Merger Agreement;
(vi) (A) to refrain from, except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the date of
the Merger Agreement and disclosed pursuant to the Merger Agreement, issuing any
shares of its capital stock, effecting any stock split or otherwise changing its
capitalization as it existed on the date of the Merger Agreement and (B) to
refrain from (x) granting, conferring or awarding any option, warrant,
conversion right or other right not existing on the date of the Merger Agreement
to acquire any shares of its capital stock or granting, conferring or awarding
any bonuses or other forms of cash incentives to any officer, director or key
employee, (y) except in the ordinary course of business consistent with past
practice, increasing any compensation with any present or future officers,
directors or key employees, granting any severance or termination pay to, or
entering into any employment or severance agreement with any officer, director
or key employee or amending any such existing agreement in any material respect
(other than pursuant to severance agreements previously delivered to the
Purchaser), or (z) adopting any new employee benefit plan (including any stock
option, stock benefit or stock purchase plan) or amending any existing employee
benefit plan in any material respect;
(vii) to refrain from (a) declaring, setting aside or paying any
dividend or making any other distribution or payment with respect to any shares
of its capital stock or other ownership interests or (b) directly or indirectly
redeeming, purchasing or otherwise acquiring any shares of its capital stock or
making any commitment for any such action;
(viii) to refrain from selling, leasing, abandoning or otherwise
disposing of any of its assets or acquiring by merging or consolidating with, or
by purchasing a substantial portion of the assets of or equity in, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquiring any assets,
except in the ordinary course of business consistent with past practice;
(ix) to refrain from incurring or guarantying any indebtedness for
borrowed money or making any loans, advances or capital contributions to, or
investments in, any other person, or issuing or selling any debt securities
other than borrowings under existing lines of credit and usual and customary
advancements of expenses in the ordinary course of business;
53
(x) to refrain from mortgaging or otherwise encumbering or subjecting
to any Lien (as defined in the Merger Agreement) any of its properties or
assets;
(xi) to refrain from making any change to its accounting (including
tax accounting) methods, principles or practices, except as may be required by
generally accepted accounting principles and except, in the case of tax
accounting methods, principles or practices, in the ordinary course of business
of Firecom;
(xii) to refrain from making any commitment or entering into any
contract or agreement or making any capital expenditure except for (x) customer
purchase orders and purchases of raw materials used in the business of Firecom
agreed to or made in the ordinary course of business consistent with past
practice, (y) any other commitment, contract and agreement involving aggregate
payments to or by Firecom not in excess of $100,000, providing for termination
without notice by Firecom on 90 or fewer days' notice, and made by Firecom in
the ordinary course of business consistent with past practice or (z) capital
expenditures that individually or in the aggregate do not exceed $100,000;
(xiii) to refrain from revaluing any of its assets, including, without
limitation, writing down the value of its inventory or writing off notes or
accounts receivable, other than in the ordinary course of business;
(xiv) to refrain from making any tax election except consistent with
past practice or settling or compromising any material income tax liability;
(xv) to refrain from settling or compromising any pending or
threatened suit, action or claim relating to the transactions contemplated by
the Merger Agreement;
(xvi) to refrain from paying, discharging or satisfying any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise) other than the payment, discharge or satisfaction in
the ordinary course of business of liabilities reflected or reserved against in,
or contemplated by, the financial statements (or the notes thereto) of Firecom
or incurred in the ordinary course of business consistent with past practice;
and
(xvii) to refrain from agreeing or otherwise committing to take any of
the foregoing actions or taking, or agreeing to take, any action which would
result in a failure of the condition to closing set forth in Section 6.3(a) of
the Merger Agreement.
ALTERNATIVE PROPOSALS
Firecom has agreed, pursuant to the Merger Agreement, that prior to the
Effective Time, Firecom will not, nor will it permit its officers, directors,
employees, agents and representatives (including, without limitation, any
investment banker, attorney or accountant retained by it) to, initiate, solicit
or knowingly encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its shareholders) with respect to a merger, acquisition,
consolidation or similar transaction involving, or any purchase of any equity
securities of, Firecom or all or any significant portion of the assets of
Firecom (any such proposal or offer being hereinafter referred to as an
"Alternative Proposal") or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person or
entity relating to an Alternative Proposal or otherwise take an action to
knowingly facilitate any effort or attempt to make or implement an Alternative
54
Proposal; that it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any person or entity conducted
prior to the date of the Merger Agreement with respect to any of the foregoing
and will take the necessary steps to inform any such person or entity of
Firecom's foregoing obligations; and that it will notify the Purchaser
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it; provided, however, that the Board
of Directors of Firecom may
o furnish information to or enter into discussions or negotiations with,
any person or entity that makes an unsolicited, bona fide, Alternative
Proposal which would yield to shareholders a price that the Board of
Directors of Firecom in good faith determines (in consultation with
its financial advisors) represents a financially superior transaction
for the shareholders of Firecom as compared to the Merger, if, and
only to the extent that,
- the Board of Directors of Firecom, based upon the advice of
outside counsel, determines in good faith that such action is
required for the Board of Directors to comply with its fiduciary
duties imposed by law,
- prior to furnishing such information to, or entering into
discussions or negotiations with, such person or entity, Firecom
provides written notice to the Purchaser to the effect that it is
furnishing information to, or entering into discussions or
negotiations with, such person or entity, and
o to the extent applicable, comply with Rule 14e-2 promulgated under the
Exchange Act with regard to an Alternative Proposal.
Firecom may not enter into any agreement with respect to an Alternative Proposal
for as long as the Merger Agreement remains in effect unless Firecom shall have
given the Purchaser five days' prior written notice of its intent to terminate
the Merger Agreement during which period the Purchaser will have the opportunity
to match the consideration offered by any such Alternative Proposal (if the
Purchaser offers to match such consideration, the Merger Agreement will be
amended to increase the consideration and, if necessary, to extend time periods
to permit proxy recirculation). An "Alternative Proposal" is one where the
prospective acquirer through its possession of one or more of
o marketable securities, cash and cash equivalents,
o undrawn lines of credit from reputable financial institutions and
o commitment letters from one or more reputable institutions (which may
only be subject to completion of due diligence and other standard
conditions), has sufficient financing to pay in full the consideration
provided for in such Alternative Proposal and any termination payments
payable (see "--Expenses and Termination Payments").
An Alternative Proposal may be subject to the reasonable due diligence of the
prospective acquirer.
55
INDEMNIFICATION
The Merger Agreement provides that from and after the Effective Time, the
Purchaser will, and will cause the Surviving Corporation to, indemnify and hold
harmless all past and present officers and directors of Firecom, including
directors acting as members of a committee of the Board of Directors, (the
"Indemnified Parties") to the full extent such persons may be indemnified by
Firecom pursuant to Firecom's Certificate of Incorporation and Bylaws as in
effect as of the date of the Merger Agreement for acts and omissions occurring
at or prior to the Effective Time and will advance reasonable litigation
expenses incurred by such persons in connection with defending any action
arising out of such acts or omissions, provided that such persons provide the
requisite affirmations and undertakings, as required by applicable law or set
forth in Firecom's Certificate of Incorporation or Bylaws as in effect prior to
the Effective Time.
The Merger Agreement further provides that any Indemnified Party will
promptly notify the Purchaser and the Surviving Corporation of any claim,
action, suit, proceeding or investigation for which such party may seek
indemnification under such provision; provided, however, that the failure to
furnish any such notice shall not relieve the Purchaser or the Surviving
Corporation from any indemnification obligation under the Merger Agreement
except to the extent the Purchaser or the Surviving Corporation is prejudiced
thereby. In the event of any such claim, action, suit, proceeding, or
investigation,
o the Surviving Corporation will have the right to assume the defense
thereof by counsel reasonably acceptable to the Indemnified Parties,
and the Surviving Corporation will not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred thereafter by such Indemnified Parties in
connection with the defense thereof, except that all Indemnified
Parties (as a group) will have the right to retain one separate
counsel, reasonably acceptable to such Indemnified Parties and the
Purchaser, at the expense of the indemnifying party if the named
parties to any such proceeding include both the Indemnified Parties
and the Surviving Corporation and the representation of such parties
by the same counsel would be inappropriate due to a conflict of
interest between them,
o the Indemnified Parties will cooperate in the defense of any such
matter, and
o the Surviving Corporation will not be liable for any settlement
effected without its prior written consent.
In addition, the Merger Agreement states that the Certificate of
Incorporation and Bylaws of the Surviving Corporation shall contain provisions
that are no less favorable to the past and present officers and directors of
Firecom than those set forth as of the date of the Merger Agreement in the
Certificate of Incorporation and the Bylaws of Firecom, which provisions shall
not be amended, repealed or otherwise modified for a period of six years from
the Effective Time in any manner that would affect adversely the rights
56
thereunder of individuals who at or at any time prior to the Effective Time were
entitled to indemnification therein.
Moreover, the Surviving Corporation has agreed to use reasonable commercial
efforts to maintain in effect for six years from the Effective Time directors'
and officers' "tail" liability insurance covering those persons who are
currently covered by Firecom's directors' and officers' liability insurance
policy on terms comparable to the existing coverage.
CONDITIONS TO THE MERGER
Each party's respective obligation to effect the Merger is subject to the
fulfillment at or prior to the date of the closing of the transactions
contemplated by the Merger Agreement (the "Closing Date") of the following
conditions:
o the Merger Agreement and the transactions contemplated therein shall
have been approved, in the manner required by applicable law or by the
applicable regulations of any stock exchange or other regulatory body,
as the case may be, by the holders of the issued and outstanding
shares of capital stock of Firecom,
o neither of the parties to the Merger Agreement shall be subject to any
order or injunction of a court of competent jurisdiction which
prohibits the consummation of the transactions contemplated by the
Merger Agreement, and
o all consents, authorizations, orders and approvals of (or filings or
registrations with) any governmental entity required in connection
with the execution, delivery and performance of the Merger Agreement
shall have been obtained or made, except for filings in connection
with the Merger and any other documents required to be filed after the
Effective Time and except where the failure to have obtained or made
any such consent, authorization, order, approval, filing or
registration would not have a material adverse effect on the business,
assets, financial condition or results of operations of either the
Purchaser or Firecom.
The obligations of Firecom to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of each of the following conditions,
unless waived by Firecom:
(i) the Purchaser shall have performed in all material respects its
agreements contained in the Merger Agreement required to be
performed on or prior to the Closing Date, and the
representations and warranties of the Purchaser contained in the
Merger Agreement and in any document delivered in connection
therewith shall be true and correct as of the Closing Date,
except
- for changes specifically permitted by the Merger Agreement or
otherwise accepted in writing by Firecom,
- for non-performance or breaches which, separately or in the
aggregate, would not have a material adverse effect on the
business, assets, financial condition or results of operations of
the Purchaser or on the ability of the parties to consummate the
transactions contemplated by the Merger Agreement and
- that those representations and warranties which address matters
only as of a particular date shall remain true and correct, in
all material respects, as of such date,
57
(ii) Firecom shall have received a certificate of the President or a
Vice President of the Purchaser, dated the Closing Date,
certifying to the effect of the preceding clause (i),
(iii) the Board of Directors of Firecom shall have received a
certificate of the President and the Chief Financial Officer of
Firecom, dated the Closing Date, certifying as to the correctness
in all material respects of the representations and warranties of
Firecom contained in the Merger Agreement or in any document
delivered in connection therewith, and
(iv) there shall not have been any action taken, or any statute, rule,
regulation, order, judgment or decree proposed, enacted,
promulgated, entered, issued, or enforced by any foreign or
United States federal, state or local governmental entity, and
there shall be no action, suit or proceeding pending (with a
reasonable likelihood of success), which
- makes the Merger Agreement, the Merger, or any of the other
transactions contemplated by the Merger Agreement illegal or
imposes or may impose material damages or penalties in connection
therewith, or
- otherwise prohibits, restricts, or delays consummation of the
Merger or any of the other transactions contemplated by the
Merger Agreement in any material respect.
The obligations of the Purchaser to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions,
unless waived by the Purchaser:
(i) Firecom shall have performed in all material respects its
agreements contained in the Merger Agreement required to be
performed on or prior to the Closing Date, and the
representations and warranties of Firecom contained in the Merger
Agreement and in any document delivered in connection therewith
shall be true and correct as of the Closing Date, except
- for changes specifically permitted by the Merger Agreement or
other accepted writing by the Purchaser,
- for non-performance or breaches which, separately or in the
aggregate, would not have a material adverse effect on the
business, assets, financial condition or results of operations of
the Purchaser or Firecom or on the ability of the parties to
consummate the transactions contemplated by the Merger Agreement
and
- that those representations and warranties which address matters
only as of a particular date shall remain true and correct, in
all material respects, as of such date
(ii) the Purchaser shall have received a certificate of the President
or a Vice President of Firecom, dated the Closing Date,
certifying to the effect of the preceding clause (i),
(iii) from the date of the Merger Agreement through the Effective
Time, there shall not have occurred any change or effect, either
individually or in the aggregate, that is materially adverse to
58
the business, assets, financial condition, or results of
operations of Firecom,
(iv) after the Effective Time, no person shall have any right under
the Stock Plan or other plan, program or arrangement to acquire
any equity securities of Firecom,
(v) there shall not have been any action taken, or any statute, rule,
regulation, order, judgment or decree proposed, enacted,
promulgated, entered, issued, or enforced by any foreign or
United States federal, state or local governmental entity, and
there shall be no action, suit or proceeding pending (with a
reasonable likelihood of success), which
- makes the Merger Agreement, the Merger, or any of the other
transactions contemplated by the Merger Agreement illegal or
imposes or may impose material damages or penalties in connection
therewith,
- requires the divestiture of a material portion of the business of
the Purchaser, Firecom or of the Surviving Corporation taken as a
whole,
- imposes material limitations on the ability of the Purchaser
effectively to exercise full rights of ownership of shares of
capital stock of the Surviving Corporation (including the right
to vote such shares on all matters properly presented to the
shareholders of the Surviving Corporation) or makes the holding
by the Purchaser of any such shares illegal or subject to any
materially burdensome requirement or condition,
- requires the Purchaser, Firecom, the Surviving Corporation or any
of their respective material subsidiaries or affiliates to cease
or refrain from engaging in any material business, or
- otherwise prohibits, restricts, or delays consummation of the
Merger or any of the other transactions contemplated by the
Merger Agreement in any material respect or increases or may
increase in any material respect the liabilities or obligations
of the Purchaser or the Surviving Corporation arising out of the
Merger Agreement, the Merger, or any of the other transactions
contemplated by the Merger Agreement, and
(vii) not more than 10% of the outstanding shares of Firecom Stock
entitled to vote at the Special Meeting shall have perfected
appraisal rights in respect of the Merger.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, before or after the approval of the Merger
Agreement by the shareholders of Firecom, by the mutual consent of the Purchaser
and Firecom. In addition, the Merger Agreement may be terminated and the Merger
may be abandoned by action of the Board of Directors of either the Purchaser or
Firecom if
(i) the Merger shall not have been consummated by August 15, 2001
(the "Termination Date"),
59
(ii) the approval of Firecom's shareholders required by the Merger
Agreement shall not have been obtained at a meeting duly convened
therefor or at any adjournment thereof, or
(iii) a United States federal or state court of competent jurisdiction
or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an order,
decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by the Merger Agreement and such order, decree,
ruling or other action shall have become final and nonappealable;
provided, that the party seeking to terminate the Merger Agreement pursuant to
clause (iii) shall have used all reasonable efforts to remove such injunction,
order or decree; and provided, in the case of a termination pursuant to clause
(i), that the terminating party shall not have breached in any material respect
its obligations under the Merger Agreement in any manner that shall have
proximately contributed to the failure to consummate the Merger by the
Termination Date.
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, before or after the adoption and approval
by the shareholders of Firecom, by action of the Board of Directors of Firecom,
if
o there is an Alternative Proposal that the Board of Directors of
Firecom in good faith determines (in consultation with its financial
advisors) represents a financially superior transaction for the
shareholders of Firecom as compared to the Merger and in the exercise
of its good faith judgment as to its fiduciary duties to its
shareholders imposed by law, as advised by outside counsel, the Board
of Directors of Firecom determines that such termination is required
by reason of such Alternative Proposal being made; provided that
Firecom must notify the Purchaser promptly of its intention to
terminate the Merger Agreement or enter into a definitive agreement
with respect to any Alternative Proposal (which notice shall describe
the material terms of such definitive agreement) and give the
Purchaser five days to increase the consideration payable under the
Merger Agreement to that payable pursuant to the Alternative Proposal
(if so increased, the Merger Agreement may not be terminated) but in
no event shall such notice be given less than 48 hours prior to the
public announcement of Firecom's proposed termination of the Merger
Agreement; and provided further that the right to terminate the Merger
Agreement pursuant to this clause will not be available if there has
been a nonperformance or breach by Firecom which has or would
reasonably be expected to have resulted in a failure of a condition to
closing under the Merger Agreement, or
o there has been a nonperformance or breach by the Purchaser which has
or would reasonably be expected to have resulted in a failure of a
condition to closing under the Merger Agreement, which nonperformance
or breach is not curable or, if curable, is not cured within 30 days
after written notice of such nonperformance or breach is given by
Firecom to the Purchaser.
60
Firecom's ability to terminate the Merger Agreement pursuant to these provisions
is conditioned in certain circumstances upon the prior payment by Firecom of any
termination payments owed by it to the Purchaser pursuant to the Merger
Agreement. See "--Expenses and Termination Payments."
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, before or after the approval by the
shareholders of Firecom, by action of the Board of Directors of the Purchaser,
if
o the Board of Directors of Firecom shall have withdrawn or modified in
a manner materially adverse to the Purchaser its approval or
recommendation of the Merger Agreement or the Merger or shall have
recommended an Alternative Proposal to Firecom's shareholders, or
o there has been a nonperformance or breach by Firecom which has or
would reasonably be expected to have resulted in a failure of a
condition to closing under the Merger Agreement, which nonperformance
or breach is not curable or, if curable, is not cured within 30 days
after written notice of such nonperformance or breach is given by the
Purchaser to Firecom.
EXPENSES AND TERMINATION PAYMENTS
Whether or not the Merger is consummated, all costs and expenses incurred
in connection with the Merger Agreement and the transactions contemplated
thereby (including, without limitation, the fees and expenses of advisers,
accountants and legal counsel) will be paid by the party incurring such expense,
except as further described below. In the event that any person shall have made
an Alternative Proposal for Firecom and
(i) thereafter the Merger Agreement is terminated by Firecom in
response to an Alternative Proposal or by the Purchaser if the
Board of Directors of Firecom withdraws or modifies in a manner
materially adverse to the Purchaser the Board's approval or
recommendation of the Merger or recommends an Alternative
Proposal to Firecom's shareholders or
(ii) the Merger Agreement is terminated for any other reason (other
than the breach of the Merger Agreement by the Purchaser) and, in
the case of this clause (ii) only, a transaction contemplated by
an Alternative Proposal is consummated within one year after such
termination,
then Firecom must pay the Purchaser its reasonably and appropriately documented
costs and expenses incurred in connection with the Merger. If Firecom fails to
promptly pay such sum, and, in order to obtain such payment, the Purchaser
commences a suit which results in a judgment against Firecom for such amount,
Firecom must also pay to the Purchaser its costs and expenses (including
attorneys' fees) in connection with such suit, together with interest on the
amount of the fee at the prime rate as reported in The Wall Street Journal on
the date of such judgment.
61
AMENDMENT
The Merger Agreement may be amended by the Purchaser and Firecom, by action
taken by their respective Boards of Directors, at any time before or after
approval of the Merger by the shareholders of Firecom, but after any such
shareholder approval, no amendment may be made which by law requires the further
approval of shareholders unless such further approval is obtained.
FUNDING OF THE MERGER
Funding of the Merger will require approximately $3.0 million to pay the
Merger Consideration of $0.80 per share and to pay the fees and expenses in
connection with the Merger. These funds are expected to be provided from
Firecom's working capital. Firecom's working capital was approximately
$8,477,000 as of March 31, 2001. Cash and cash equivalents were approximately
$4,500,000 as of April 30, 2001.
EXPENSES OF THE MERGER
The Merger Agreement provides that Firecom and the Purchaser will bear
their respective expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby, whether or not the Merger is consummated,
except in certain circumstances specified in the Merger Agreement relating to
the termination thereof. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Expenses and Termination Payments." The total fees and expenses of
the Merger are expected to be approximately $325,000, with the respective
obligations of the Purchaser and Firecom as set forth on the following table:
The Purchaser Firecom
------------- -------
Independent Committee Compensation $ 0 $ 25,000
Financial advisory fees 0 55,000
Legal fees 50,000 175,000
Accounting fees 0 5,000
SEC filing fees 0 569.20
Printing and mailing 0 15,000
Miscellaneous $ $
----------- -------------
Total $ 50,000 $ 275,569
THE PURCHASER
The Purchaser was recently incorporated under the laws of the State of New
York for the purpose of consummating the Merger.
The Purchaser has not conducted any business other than the transactions
described herein. The Purchaser will not have any assets or liabilities other
than those arising under the Merger Agreement or in connection with the Merger,
or engage in any activities other than those incident to its formation and
capitalization and the Merger. The principal business office of the Purchaser is
39-27 59th Street, Woodside, New York 11377 and the telephone number is (718)
899-6100.
62
Paul Mendez, a United States citizen, is Chairman of the Board of Directors
of the Purchaser, President, Treasurer and Secretary of the Purchaser. Paul
Mendez was elected a Director, Chairman of the Board of Directors, President and
Chief Executive Officer of Firecom on July 19, 1991 and has served in those
positions since that time. He is also a principal and employed as Vice President
of Multiplex Electrical Services, Inc., a company which is engaged in the
business of manufacturing, installing and servicing fire alarm systems in New
York City, and is a distributor of the LSN 2000 System. During the last five
years, Mr. Mendez, the sole executive officer and director of the Purchaser, has
not been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors). During the last five years, Mr. Mendez, the sole
executive officer and director of the Purchaser, has not been a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and as
a result of such proceeding was or is subject to a judgment, decree or final
order enjoining future violations of, or prohibiting or mandating activities
subject to, federal or state securities laws or finding any violation with
respect to such laws.
OTHER PARTIES ENGAGING IN THE TRANSACTION
Information relating to other parties engaging in the transactions
described by this Proxy Statement is set forth below:
o Carol Mendez is married to Paul Mendez. Ms. Mendez's principal
occupation during the last five years has been as a housewife. Ms.
Mendez's principal business address and phone, are c/o Paul Mendez.
o Mr. Barotz is a member of the Board of Directors of Firecom. Mr.
Barotz's principal occupation during the last five years has been as a
private investor. Mr. Barotz has also served as President of Panda
Capital Corp., a New Rochelle, New York based business engaged in the
investment business, and a director of General Bearing Corp. Mr.
Barotz's principal business address is 116 Overlook Road, New
Rochelle, New York.
o Naomi Pollack is a member of the immediate family of Peter Barotz. Ms.
Barotz's principal occupation during the last five years has been as a
housewife. Ms. Barotz's principal business address and phone are c/o
Peter Barotz.
o Nathan Barotz is a member of the immediate family of Peter Barotz.
Since February, 2001, Mr. Barotz has been employed as an attorney in
private practice. From January 1996 until such time, Mr. Barotz was
employed as Counsel to Sterling Royce, Ltd. Mr. Barotz's principal
business address and phone are 52 Vanderbilt Avenue, 14th Floor, New
York, NY 10017, and (212) 905-6536.
o Celia Barotz is a member of the immediate family of Peter Barotz. Ms.
Barotz has been self-employed as an environmental consultant since
August, 1997. From February 1996 until August 1997, Ms. Barotz was
employed as the Regional Development Director for The Wilderness
Society, a nonprofit conservation organization, in its
California/Nevada Regional Office in San Francisco. Ms. Barotz's
principal business address and phone are is 414 West Oak Street #5,
Flagstaff, AZ 86001, (520) 556-9488.
63
o Orhan Sadik-Khan is a member of the Firecom Board of Directors. Mr.
Sadik-Khan's has been employed principally during the past five years
as Chairman of ADI Corporation. Mr. Sadik-Khan's principal business
address and phone are is 41 Binney Lane, Old Greenwich, CT 06870, and
(203) 637-5545.
o Karim Sadik-Khan is a member of the immediate family of Orhan
Sadik-Khan. Mr. Sadik-Khan's principal occupation since May 1999 has
been as a graduate student. From January 1997 until May 1999, Mr.
Sadik-Khan served as the executive director of the Old Greenwich
Riverside Community Center in Old Greenwich, Connecticut. Prior to
January 1997, Mr. Sadik-Khan was principally a student and did not
hold any other significant position. Mr. Sadik-Khan's principal
business address and phone are c/o Orhan Sadik-Khan.
o Janette Sadik-Khan is a member of the immediate family of Orhan
Sadik-Khan. Ms. Sadik-Khan has been employed principally since March
1997 as Senior Vice-President, Parsons Brinckerhoff Inc. Ms.
Sadik-Khan has held no other significant positions during the past
five years. Ms. Sadik-Khan's principal business address and phone are
One Penn Plaza, New York, NY 10119, and (212) 465-5185.
o Jan Sadik-Khan is a member of the immediate family of Orhan
Sadik-Khan. Mr. Sadik-Khan has been employed principally since
September 1994 as Managing Director of SG Cowen Securities
Corporation. Mr. Sadik-Khan's principal business address and phone are
1221 Avenue of the Americas, New York, NY 10020, and (212) 278-6873.
o Sadik-Khan Family Trust is a trust organized in Delaware, the
principal business of which is investments, which was established by
Orhan Sadik-Khan for the benefit of certain of his children. Its
address and phone are 31 Brookside Drive, Greenwich, CT 06836, and
(203) 622-9360. Neither the trustee nor any of the beneficiaries of
the Trust has, during the last five years, been convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors). Neither the trustee nor any of the beneficiaries of the
Trust, during the last five years, was a party to any civil proceeding
of a judicial or administrative body of competent jurisdiction a
result of which he was or is subject to a judgment, decree or final
order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
Each of Carol Mendez, Peter Barotz, Naomi Pollack, Nathan Barotz, Celia
Barotz, Orhan Sadik-Khan, Karim Sadik-Khan, Janette Sadik-Khan and Jan
Sadik-Khan is a citizen of the United States. None of the aforementioned persons
has been convicted, during the last five years, in a criminal proceeding
(excluding traffic violations or similar misdemeanors). None of the
aforementioned parties has been a party, during the last five years, to any
civil proceeding of a judicial or administrative body of competent jurisdiction
a result of which he was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities subject
to, federal or state securities laws or finding any violation with respect to
such laws. In addition, each of Howard L. Kogen and Antoine J. Sayour, who have
been principally employed by Firecom in their respective present offices for the
past five years, is a citizen of the United States. See "MANAGEMENT OF FIRECOM"
and "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Neither
64
Mr. Kogen nor Mr. Sayour has been convicted, during the last five years, in a
criminal proceeding (excluding traffic violations or similar misdemeanors).
Neither Mr. Kogen nor Mr. Sayour has been a party, during the last five years,
to any civil proceeding of a judicial or administrative body of competent
jurisdiction a result of which he was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding any violation
with respect to such laws.
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Firecom's Common Stock is traded in the over-the-counter market. Firecom's
ticker symbol on the over-the-counter bulletin board is FRCM.OB. As of
_________, 2001, there were ___ record holders of Firecom's Common Stock, and
___ record holders of Firecom's Class A Common Stock. The closing bid and asked
prices for Firecom's Common Stock on January 23, 2001, the date prior to the
announcement of the offer by the Purchaser, were $0.44 and $0.5625 respectively.
The following table shows the high and low bid quotations for Firecom's
Common Stock for the quarters indicated. These quotations were obtained from
stockbrokers and represent prices between dealers, do not include retail
markups, markdowns or commissions and may not necessarily represent actual
transactions.
Closing Bid
-----------
Quarter ended High Low
- ------------- ---- ---
January 31, 1999 $0.565 $0.46
April 30, 1999 0.48 0.43
July 31, 1999 0.53 0.46
October 31, 1999 0.61 0.52
January 31, 2000 0.65 0.61
April 30, 2000 1.02 0.65
July 31, 2000 0.71875 0.65
October 31, 2000 0.6875 0.65625
Through January 23, 2001 (the date prior 0.63 0.44
to the announcement
of the offer by the Purchaser)
Firecom has not paid any cash dividends on its Common Stock to date.
Firecom's loan agreements and the Merger Agreement currently prevent it from
paying dividends. Under the Voting Agreement, the shareholders of the Purchaser
intend to cause Firecom to be managed with a view toward making periodic
distributions to its shareholders sufficient to cover their resulting tax
liabilities if Firecom is converted to an S-Corporation after the Merger.
Firecom's future dividend policy will also depend on the earnings, capital
requirements, financial condition and other factors considered relevant by
Firecom's Board of Directors.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
Firecom's Financial Statements and the Notes thereto and "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
65
included elsewhere in this Proxy Statement. The selected income statement and
balance sheet data as of the end of, and for, each of the years in the two-year
period ended April 30, 2000 are derived from the financial statements of Firecom
included elsewhere in this Proxy Statement which were audited by Rothstein, Kass
& Company, P.C. The selected income statement data for the nine months ended
January 31, 2000 and January 31, 2001 and the balance sheet data as of January
31, 2001 have been prepared on the same basis as the audited financial
statements of Firecom included herein and, in the opinion of Firecom, include
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the information set forth therein. The results for the nine
months ended January 31, 2001 are not necessarily indicative of the results to
be achieved for the full fiscal year.
Year Ended April 30, Nine Months Ended January 31,
-------------------- -----------------------------
audited unaudited
1999 2000 2000 2001
---- ---- ---- ----
Basic earnings per share:
Net income applicable to common
shareholders:..................... $ 1,104,000 $ 1,189,000 $ 673,000 $ 686,000
Net income per share................... 0.10 0.11 0.06 0.06
Diluted earnings per share:
Net income applicable to common
shareholders:..................... 1,104,000 1,189,000 673,000 686,000
Net income per share................... 0.10 0.10 0.06 0.06
Shares used in calculating
earnings per share:
Basic ............................... 11,111,000 10,743,000 10,743,000 10,744,000
Diluted 11,549,000 11,451,000 11,316,000 11,335,000
Year Ended April 30, Nine Months Ended January 31,
-------------------- -----------------------------
audited unaudited
1999 2000 2000 2001
---- ---- ---- ----
Balance sheet data:
Working capital........................ $ 6,706,000 $ 7,576,000 $ 7,226,000 $ 8,188,000
Total assets........................... 11,191,000 12,288,000 11,955,000 12,620,000
Long-term debt, including
current portion.................... 1,421,000 1,063,000 1,124,000 757,000
Shareholders' equity................... 6,038,000 7,342,000 6,723,000 8,130,000
Book value per share................... 0.54 0.68 0.63 0.76
Tangible book value per share.......... 0.48 0.59 0.56 0.66
Firecom's ratio of earnings to fixed charges for the years ended April 30,
1999 and 2000 and for the nine months ended January 31, 2001 is to 9.35, 10.74,
and 10.20, respectively.
Firecom has not provided any pro forma data giving effect to the proposed
merger. Firecom does not believe such information is material to its
unaffiliated shareholders in evaluating the Merger Agreement and the Merger
since:
66
o the Merger Consideration is all cash; and
o if the Merger is completed, Firecom Stock would cease to be publicly
traded and the holders of Firecom Stock (other than the Purchaser)
would not retain or receive a continuing interest in Firecom's
business.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Firecom's Financial Statements and related Notes thereto. All references to
fiscal years are references to Firecom's fiscal year ended April 30.
CAUTIONARY STATEMENT
This Proxy Statement and information or statements provided by Firecom from
time to time contain certain "forward-looking information" relating to such
matters as liquidity, projected sales and anticipated margins. Firecom cautions
readers that any forward-looking information provided by Firecom is not a
guarantee of future performance and that actual results may differ materially
from those in the forward-looking information as a result of various factors,
including but not limited to the acceptance in what is a new market for Firecom,
the national market (historically, the vast majority of Firecom's revenues have
been derived from the New York City market) of Firecom's newest line of safety
products for the national market. The principal manufacturers against whom
Firecom expects to compete in the national market are generally better financed,
have products accepted in the market and have long-established distribution and
servicing networks. Firecom's future growth is to a large extent dependent on
being able to complete successfully against these competitors.
OVERVIEW
RESULTS OF OPERATIONS
NINE MONTHS ENDED JANUARY 31, 2001 AND 2000
-------------------------------------------
Consolidated sales and net income for the quarter ended January 31, 2001
were $5,178,000 and $296,000 respectively as compared to $5,346,000 and $261,000
for the quarter ended January 31, 2000. Consolidated sales and net income for
the nine months ended January 31, 2001 were $15,431,000 and $686,000
respectively as compared to $14,160,000 and $673,000 for the nine months ended
January 31, 2000. Sales increased by 9% during the nine months ended January 31,
2001 versus the same period last year. The increase in sales reflects the
increase in product sales versus the same period in 2000, offsetting a decrease
in service revenue due to the completion of a project in the 2000 period with
substantial service revenue.
Gross profit percentage for the three months ended January 31, 2001 was
38.0% as compared to 39.4% for the three months ended January 31, 2000. Gross
profit percentage for the nine months ended January 31, 2001 was 37.8% as
compared to 38.8% for the nine months ended January 31, 2000. The decrease in
gross profit percentage was primarily due to the completion of a project in the
2000 period that had high gross profit.
67
Operating income for the nine months ended January 31, 2001 was $1,120,000
as compared to $1,264,000 for the nine months ended January 31, 2000. As a
percentage of revenue, the operating income for the nine months ended January
31, 2001 was 7.3% versus 8.9% in the same period in 2000. The decrease in
operating income and its percentage to revenue was primarily due to a non-cash
compensation charge of $308,000, which reflects an employment agreement with an
executive of Firecom, which provides for the executive, upon the expiration of
his agreement, with the option to sell his stock and stock options back to
Firecom ($208,000), and a charge for an extension of stock options to recognize
the difference between the fair market value of the underlying stock at the date
of the extension and the stock options' exercise prices ($100,000), which was
partially offset by a reduction in stock appreciation charges of approximately
$175,000 between 2001 and 2000.
Firecom has decided to close an office in the Midwest. The results of
operation for the nine months ended January 31, 2001 included a net loss of
approximately $162,000, which includes the operating loss and cost to close that
subsidiary.
Significant changes in balance sheet items from April 30, 2000 to January
31, 2001 are highlighted as follows:
(1) cash increased primarily due to income from operations;
(2) accounts receivable decreased due to increased reserves;
(3) prepaid expenses and other current assets increased due to an increase
in prepaid income taxes;
(4) accounts payable and accrued expenses decreased due to shorter payment
cycles;
(5) long-term debt decreased due to payments made on current maturities of
the long-term debt; and
(6) accrued compensation increased due to a charge that reflects an
employment agreement with an executive of Firecom, which provides for
the executive, upon the expiration of his employment agreement, with
the option to sell his stock and stock options back to Firecom, which
was partially offset by stock appreciation rights income.
YEARS ENDED APRIL 30, 2000 AND 1999
-----------------------------------
Consolidated sales for Firecom's operations increased by approximately 11%
for the year ended April 30, 2000 as compared to the year ended April 30, 1999.
The higher sales reflect an increase in service revenue.
68
The following table sets forth items in the Consolidated Statements of
Income as a percentage of sales:
Relationship to Net Sales
For the Years Ended April 30,
-----------------------------
2000 1999
---- ----
Net Sales 100.0% 100.0%
Cost of Sales 58.2 62.3
Selling, General and Administrative Expenses 27.0 21.9
Research & Development 4.9 4.0
------ ------
Operating Income 9.9 11.8
Other (Income) Expense, net (0.1) 0.2
Income Tax Expense 3.9 5.2
------ ------
Net Income 6.1 6.4
====== ======
The backlog for Firecom's life safety and other systems totaled $2,548,000
at April 30, 2000, an increase of $128,000 from the backlog of April 30, 1999.
Due to fluctuations in Firecom's backlog for the year ended April 30, 2000,
management does not make predictions about revenue in the next fiscal year.
Orders continue to be booked for Firecom's fire safety system being marketed
outside of New York City, and management is encouraged about future growth in
this product category.
Selling, general and administrative expenses for the year ended April 30,
2000 increased approximately $1,416,000 as compared to the year ended April 30,
1999 primarily due to increases in stockholders appreciation rights, bad debt
expenses, profit sharing and employee stock option expense.
Research and development costs were $945,000 for the year ended April 30,
2000 as compared to $702,000 in the year ended April 30, 1999. The increase of
$243,000 is primarily due to increases in labor, inventory used for research and
development and Underwriter Laboratories costs. These expenditures primarily
reflect the development of the LSN 2000 System and Firecom's commitment to
provide its customers with state-of-the-art fire and life safety systems.
Operating income for the 2000 fiscal year was $1,916,000 as compared to
$2,044,000 for fiscal 1999. The decrease in operating income of 6% resulted from
the increase in sales and gross profit percentage, offset by an increase in
selling, general and administrative expenses and research and development costs.
The increase in gross profit percentage was primarily due to an increase in
service revenue that has a higher gross profit percentage than product sales.
Significant changes in balance sheet items from April 30, 1999 to April 30,
2000 are highlighted as follows:
(1) cash increased by $317,000 (8%) primarily due to profits earned during
fiscal 2000;
(2) accounts receivable increased by $447,000 (12%) primarily due to
increased sales;
(3) inventories increased by $130,000 (7%) primarily due to the material
requirements for the LSN 2000 System;
69
(4) deferred tax asset, net of deferred tax liability, increased by
$312,000 (48%) due to an increase in expenses that are not currently
tax deductible;
(5) prepaid expenses and other current assets decreased by $31,000 (13%),
due to a decrease in prepaid insurance;
(6) intangible assets decreased due to the amortization of certain assets
acquired from BRD Systems, Inc;
(7) notes payable (both current and long-term) decreased $358,000 (25%)
resulting from reductions in debt from scheduled payments;
(8) accounts payable, accrued expenses and other current liabilities
decreased by $43,000 (2%);
(9) accrued compensation increased $254,000 (108%) due to an increase in
value of stock appreciation rights; and
(10) the increase in stockholders' equity of $1,304,000 (22%) primarily is
due to the net income after taxes.
Interest expense for fiscal 2000 was $187,000, 18% less than fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the nine months ended January 31, 2001
was $561,000. The increase in prepaid expenses, other current assets and
accounts payable were partially offset by the non-cash adjustments to net
income. Net cash provided from operations in the fiscal year ended April 30,
2000 was $881,000. After taking into account funds used for the repayment of
debt ($358,000) and capital expenditures ($206,000), this resulted in a net
increase in cash of $317,000 over the prior fiscal year.
Firecom has a revolving line of credit up to a maximum of $5,000,000
($800,000 outstanding balance at January 31, 2001). The line of credit is
collateralized by substantially all of Firecom's assets excluding real estate,
and is subject to certain covenants. There are restrictions on the payment of
dividends in Firecom's loan documents.
During fiscal 2001, Firecom intends to spend approximately $1,000,000 on
research to develop new fire alarm and communication systems. These research and
development expenditures will be financed from Firecom's working capital and/or
its line of credit.
Firecom's net working capital was approximately $8,188,000 at January 31,
2001.
Management believes that it will be able to maintain adequate working
capital and cash balances to meet its current needs.
70
INFLATION
The impact of inflation on Firecom's contracts is not material since
Firecom's labor contracts are normally controlled by union contracts covering a
period of two or more years. The current union contract expires July 9, 2002.
THE BUSINESS
GENERAL
-------
Firecom was formed as a New York corporation in March 1978 to acquire the
business and operating assets of Fire Controls, Inc and Commercial Radio-Sound
Corp., which were engaged in the design and manufacture of custom fire
detection, communications and control systems for commercial buildings and
commercial audio-visual systems. The acquisition was completed in May 1978.
Through its Fire Controls division, Firecom designs, manufactures and
distributes, under the Firecom(TM) brand name, safety and security systems for
high rise office buildings, hotels, apartment buildings and other large
commercial buildings. This division also distributes life safety and other
electronic building systems manufactured by other companies. Subsidiaries handle
the maintenance of systems sold by Firecom and others.
Firecom's principal executive office is located at 39-27 59th Street,
Woodside, New York 11377 and its telephone number is (718) 899-6100.
FIRE ALARM AND COMMUNICATIONS SYSTEMS
-------------------------------------
The fire alarm and communication systems or "life safety systems" designed,
assembled and sold by Firecom have the following functions: (i) sensing and
reporting fires, (ii) sounding alarms in the event of a fire, (iii) notifying
the Fire Department of a fire through a "central station" connection, (iv)
controlling basic building functions to prevent the spread of fire and smoke,
and (v) allowing building-wide communication between fire fighters and building
occupants. Firecom designs systems for both new and existing buildings. Firecom
manufactures the manual fire alarm station, floor warden stations, remote data
gathering panels and the main fire command station which is typically located in
the building's lobby. Firecom purchases the sensing devices and speakers used in
the system from other manufacturers. Once the system has been installed by
independent electrical contractors, Firecom tests and services the system.
During the fiscal year ended April 30, 2000, revenues from the sale of fire
alarm, communication systems and other building systems constituted
approximately 57% of Firecom's consolidated revenues.
The LSN 2000 System is Firecom's latest product in life safety equipment.
The LSN 2000 System integrates addressable and intelligent fire alarm sensing
devices such as smoke detectors, manual fire alarm stations and sprinkler
waterflow switches, and displays the status of these devices. This LSN 2000
System includes a communication system consisting of amplifiers and loudspeakers
for sounding alarms and paging from either a floor warden station or a fire
command station. The LSN 2000 fire alarm and communication system is completely
retrofittable with the older Firecom 8500 System as well as designed to meet the
needs of the national market.
71
Firecom designs, assembles and markets fire control systems other than the
Firecom LSN 2000 System and the Firecom 8500 System. Firecom does not
manufacture the control unit for these other systems.
SERVICE
-------
Firecom's life safety systems are covered by a one-year warranty. Firecom
offers service contracts covering such systems during and after the warranty
period. Other companies compete with Firecom for the servicing business.
Firecom's subsidiaries handle maintenance services for Firecom's products as
well as products of other life safety equipment manufacturers.
For the fiscal year ended April 30, 2000, revenues earned from servicing
systems constituted approximately 43% of Firecom's consolidated revenues.
MARKETING
---------
Firecom's fire alarm, communication and other building systems are sold in
the New York area through an in-house sales and marketing department. Much of
Firecom's new business arises because building owners, electrical contractors
and professional engineers in the New York City area who are familiar with
Firecom generally include Firecom on project bidding lists.
Firecom began marketing the LSN 2000 System in January of 1997. Firecom
markets the LSN 2000 through a network of subsidiaries, regional managers, sales
representatives and distributors.
Firecom's service contracts are sold through an in-house sales and
marketing department.
CUSTOMERS AND SUPPLIERS
-----------------------
The principal customers for Firecom's fire alarm and communications systems
are building owners and electrical contractors who install such systems.
Firecom purchases parts for its systems from a variety of suppliers.
Firecom believes that such parts or alternate parts are available from several
sources. Firecom is not currently experiencing any material difficulty in
obtaining supplies.
REGULATIONS
-----------
Firecom believes that it currently complies with all applicable building
codes, zoning ordinances, occupational safety and hazard standards and other
applicable federal, state and local ordinances and regulations.
COMPETITION
-----------
Firecom's businesses are highly competitive, with the price of products and
warranty terms offered by competitors being very similar to those of Firecom.
Firecom believes that its products perform as well or better than those of its
competitors. Some of Firecom's competitors offer a broader line of products and
are better financed than Firecom. Additionally, Firecom faces competition in the
servicing of systems which Firecom sells.
72
PATENT AND TRADEMARKS
---------------------
Firecom holds four patents on its fire alarm products. One patent covers
the parallel binary system and a second covers the upgrades the parallel system
to a serial system. The serial system collects data from all sensors (emergency,
energy or security) within the building, continuously monitoring and recording
the data on a hard copy printer. The serial system could be used in facilities
other than buildings, including oil refineries, mining facilities and cable TV
stations, for site security, to prevent off-the-wire theft of services and to
monitor interruptions in service. In addition, the system can monitor mechanical
and electrical systems on board naval and merchant vessels. The third patent on
Firecom's multiplex system covers an integrated alarm, security building
management and communication system. This integrated system provides voice
communication to all emergency areas, monitors all fire alarms, security
functions--such as card access, door control, intrusion and surveillance--and
controls all lights, pumps and other building functions.
Firecom has a patent pending on its LSN 2000 System.
Firecom has several trademarks, including the name "Firecom" and
"Technology Protecting Life," that are registered with the United States Patent
and Trademark Office.
EMPLOYEES
---------
As of June 30, 2000, Firecom employed approximately 137 full-time
employees, 37 of whom are salaried and 100 of whom are paid on an hourly basis.
Firecom has 27 employees who work outside of the Woodside, New York facility, of
which 17 employees work for subsidiaries outside of New York. The majority of
remaining employees are regional managers for the LSN 2000 System and research
and development employees. Firecom believes that its relationship with its
employees is satisfactory. Firecom suffered a strike with its union personnel
from July 1, 1999 through July 9, 1999, as part of an action with the industry
bargaining group. The new collective bargaining agreement entered into following
such strike will run for three years.
BACKLOG
-------
Firecom's backlog for its life safety and other systems totaled $3,267,000
at January 31, 2001 as compared to $2,548,000 at April 30, 2000. Due to
fluctuations in Firecom's backlog, management does not make predictions about
revenue in the fiscal year.
PROPERTY
Firecom owns property and a building in Woodside, New York where it
maintains manufacturing, sales, service and engineering operations. The
two-story building is fire resistant and approximately 15,000 square feet. The
underlying property is approximately one acre.
As a result of the accounting treatment of the original bargain purchase of
Firecom, the value of the building and property is not reflected on Firecom's
Balance Sheet. A 1999 independent appraisal indicated a current value of the
property of approximately $850,000. Firecom leases various locations, with an
aggregate annual rental charge of approximately $176,000.
73
LEGAL PROCEEDINGS
Intellisec, a California corporation v. Firecom, Inc., a purported
------------------------------------------------------------------
corporation; Rosendin Electric. Inc., a purported corporation; Does 1
---------------------------------------------------------------------
through 25, Inclusive, Case No. BC 216249
-----------------------------------------
The complaint was filed on September 3, 1999, in the Los Angeles Superior
Court, Central District. The principal parties are Intellisec, Rosendin and
Firecom. L.A. Arena Company, Ltd., a limited partnership has been added as a
defendant. Rosendin is a contractor for a construction project in Los Angeles,
California. On or about August 28, 1998, Intellisec entered into a written
Subcontract Agreement to furnish and install complete and operational fire life
safety, smoke control and mechanical test panel systems for the project.
Intellisec alleges that, with respect to Rosendin, there were substantial delays
caused by failure of other contractors and/or subcontractors as well as change
orders such that Rosendin owes Intellisec in excess of $1,000,000. Intellisec
also claims that Rosendin and Firecom agreed and conspired between themselves to
take over the work from Intellisec and to prevent Intellisec from obtaining a
contract for maintenance services for the systems and equipment upon completion
of the project.
Firecom denies there was any such conspiracy or arrangement and contends
that Intellisec failed to pay for product delivered to it, failed to have the
necessary manpower or trained technicians for the project and that the removal
of Intellisec from the job by Rosendin was done solely by Rosendin and was the
result of Intellisec's own actions or inaction. The complaint seeks compensatory
damages against Firecom based on information and belief in an amount in excess
of $1,000,000, interest thereon and costs of suit. In addition, the complaint
seeks punitive or exemplary damages from Firecom (in California a plaintiff may
not allege a specific amount for punitive damages). On October 29, 1999, Firecom
filed an answer denying liability and a cross-complaint against Intellisec. The
cross-complaint seeks compensatory damages for breach of contract and money had
and received in an amount in excess of $200,000 together with interest and costs
of suit.
Based on three orders staying each of the California actions as to Firecom,
on June 16, 2000, Intellisec filed an action in the United States District
Court, Eastern District of New York, entitled Intellisec, Aria Kozak and Donna
Kozak, Plaintiffs v. Firecom, Inc., Defendant, Case No. 00-3557.
The complaint contains claims for relief for declaratory relief, breach of
contract/ specific performance, breach of contract/ damages, breach of the
implied covenant of good faith and fair dealing, intentional interference with
contract and intentional interference with prospective economic advantage,
violation of California Civil Code sections 1790 et seq. negligent
misrepresentation, implied indemnity, equitable indemnity, contribution and
injunctive relief. The claims set forth in the complaint relate to the three
actions filed by Intellisec in California and, in addition to equitable relief,
seek compensatory, punitive and exemplary damages in an undetermined amount. On
February 1, 2001, the court dismissed Intellisec's claims for violation of
California Civil Code sections 1790 et seq., implied indemnity, equitable
indemnity, contribution, and intentional interference with contract and
intentional interference with prospective economic advantage, in part. Firecom
denies any liability to Intellisec and intends to file a counterclaim seeking
damages from Intellisec.
In November 2000, Rosendin filed a cross-complaint which added Firecom as a
cross-defendant. The cross-complaint asserts causes of actions against Firecom
for implied contractual indemnity, equitable indemnity, breach of contract,
74
unjust enrichment, breach of express warranties and breach of implied warranties
and seeks damages according to proof.
On March 8, 2001, Firecom filed an answer to the cross-complaint denying
any liability to Rosendin and also filed a cross-complaint. The cross-complaint
asserts several causes of action against Rosendin and seeks compensatory damages
in excess of $300,000 and a declaration of the court that Rosendin is obligated
to indemnify Firecom.
MANAGEMENT OF FIRECOM
Set forth below is the background of the directors and executive officers
of Firecom, including Mr. Mendez. Each person listed below is a citizen of the
United States:
o Paul Mendez, Chairman of the Board of Directors, President, Chief
-------------------------------------------------------------------
Executive Officer and Director. Paul Mendez was elected a Director,
------------------------------
Chairman of the Board of Directors, President and Chief Executive
Officer on July 19, 1991. He is also a principal and employed as Vice
President of Multiplex Electrical Services, Inc., a company which is
engaged in the business of manufacturing, installing and servicing
fire alarm systems in New York City, and is a distributor of the LSN
2000 System.
o Howard L. Kogen, Chief Operating Officer/ Executive Vice President.
------------------------------------------------------------------
Howard L. Kogen joined Firecom as Vice President-Sales and Marketing
in March 1984. He was appointed Executive Vice President and Chief
Operating Officer in 1990.
o Antoine J. Sayour, Senior Vice President. Antoine J. Sayour joined
----------------------------------------
Firecom as Chief Engineer in 1984. He is now Senior Vice President of
Firecom and President of the Fire Service Subsidiary.
o Jeffrey Cohen, Vice President-Finance. Jeffrey Cohen joined Firecom as
-------------------------------------
Vice President-Finance in September 1997. Prior to joining Firecom,
Mr. Cohen had been the Chief Financial Officer, for more than eight
years, of an apparel manufacturing company headquartered in New
Jersey.
o Peter Barotz, Director. Peter Barotz was elected a director of Firecom
----------------------
in April 1993 and previously served as a director from 1979 through
1989. Mr. Barotz, for more than the last five years, has been engaged
primarily as a private investor. Mr. Barotz has also served as
President of Panda Capital Corp., a New Rochelle, New York based
business engaged in the investment business, and a director of General
Bearing Corp. Mr. Barotz's principal business address is 116 Overlook
Road, New Rochelle, New York.
o Orhan I. Sadik-Khan, Director. Orhan Sadik-Khan was elected a director
-----------------------------
of Firecom in April 1993 and previously served as a director from 1978
through 1989. Mr. Sadik-Khan has served as Chairman of ADI Corporation
for more than five years. Mr. Sadik-Khan also serves as Chairman of
New England Business Group and Mideastonline.com. Mr. Sadik-Kahn is
also a Director of Imagine Tile. Mr. Sadik-Khan's principal business
address is 41 Binney Lane, Old Greenwich, Connecticut.
75
o Ronald A. Levin, Director. Ronald A. Levin was elected as a director
-------------------------
of Firecom in April 1993. Mr. Levin has been a partner since 1991 in
the certified public accounting firm of Levin, Bartlett & Co.,
Franklin Lakes, New Jersey. Mr. Levin's principal business address is
c/o Levin, Bartlett & Co., 795 Franklin Avenue, Franklin Lakes, New
Jersey.
o Richard G. Scurry, Jr., Director. Richard G. Scurry, Jr. was elected
--------------------------------
as a director of Firecom in October 1999 and previously served as a
director from 1991 through 1996. Mr. Scurry is a partner in Jefferson
Financial Partners, working as an Investment Manager since 2000.
Previously, Mr. Scurry was employed as a registered broker with
Sanford C. Bernstein & Co., Inc., working in the Investment Management
and Research Department since 1996. Mr. Scurry's principal business
address is 1158 Fifth Avenue, New York, New York.
o Harry B. Levine, Director. Harry B. Levine was elected as a director
-------------------------
of Firecom in November 1996. Mr. Levine has served as President of
Levine Securities, Inc. for more than seven years. His firm is a
member of the New York Stock Exchange. Mr. Levine's principal business
address is c/o Levine Securities, 3 Drummond Terrace, Livingston, New
Jersey.
Directors hold office for a period of two years from the Annual Meeting of
Shareholders at which they are elected or until their successors are duly
elected and qualified. At the 1998 Annual Meeting, Mr. Sadik-Khan, Mr. Levin and
Mr. Levine were elected to serve until the 2000 Annual Meeting. At the 1999
Annual Meeting, Mr. Mendez, Mr. Barotz and Mr. Scurry were elected to serve
until the 2001 Annual Meeting. Firecom did not hold an annual meeting in 2000.
During the last five years, neither Firecom, nor to the best knowledge of
Firecom, any of its executive officer or director of Firecom has been convicted
in a criminal proceeding (excluding traffic violations or similar misdemeanors).
During the last five years, neither Firecom, nor to the best knowledge of
Firecom, any of its executive officer or director of Firecom has been a party to
a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or finding any
violation with respect to such laws.
There are no family relationships between any director or officer and any
other director or officer.
The Board of Directors has an Audit Committee comprised of Mr. Levin and a
Compensation Committee comprised of Messrs. Scurry, Barotz and Sadik-Kahn.
76
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information as of March 31, 2001 regarding
(i) persons known to the management of Firecom to be the beneficial owners of
more than 5% of Firecom's Common Stock or Class A Common Stock on such date,
(ii) the ownership interest of each director of Firecom, (iii) the ownership
interest of the chief executive officer and other officers of Firecom whose
total annual salary and bonus exceeded $100,000 during the fiscal year ended
April 30, 2000 and (iv) the ownership interest of all executive officers and
directors as a group.
On March 31, 2001, 5,789,685 shares of Common Stock and 4,957,713 shares of
Class A Common Stock were outstanding. In the following table, shares of Common
Stock that a person has the right to acquire pursuant to Stock Options vested as
of March 31, 2001 are deemed to represent outstanding shares of Common Stock for
the purpose of computing the percentage ownership of such person but are not
deemed outstanding for the purpose of computing the percentage ownership of any
other person listed in the table.
Each Common Stock shareholder is entitled to one vote for each such share
registered in the shareholder's name on the Record Date, and each Class A Stock
shareholder is entitled to 30 votes for each such share registered in such
shareholder's name on the Record Date. The holders of Common Stock and Class A
Common Stock will vote together on the Merger.
77
COMMON STOCK
- ------------------------------------------------------------------------------------------------------------
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
---------------------------------
NAME AND ADDRESS OF BENEFICIAL POSITION WITH SHARES PERCENTAGE
OWNER FIRECOM
- ------------------------------------------------------------------------------------------------------------
Paul Mendez (1) Chairman of the Board of Directors, 3,694,433(2) 63.8%
President, Chief Executive Officer and
Director
Carol Mendez (1) None 1,164,250(2) 20.1%
Orhan I. Sadik-Kahn Director 404,834(2) 7.0%
41 Binney Lane
Old Greenwich, CT 06870
Howard L. Kogen (1) Chief Operating Officer/ Executive Vice 419,300(3) 6.8%
President
Antoine J. Sayour (1) Senior Vice President 320,300(4) 5.3%
Jeffrey Cohen (1) Vice President-Finance 48,000(5) *
Richard G. Scurry, Jr. Director -0- -
1158 Fifth Avenue
New York, NY 10029
Ronald A. Levin Director -0- -
c/o Levin, Bartlett & Co.
795 Franklin Avenue
Franklin Lakes, NJ 07417
Peter Barotz Director -0-(2) -
116 Overlook Road
New Rochelle, NY 10804
Harry B. Levine Director 10,000 *
c/o Levine Securities
3 Drummond Terrace
Livingston, NJ 07039
Purchaser None -0- (6) _
39-27 59th Street
Woodside, NY 11377
All executive officers and 4,492,033 68.8%
directors as a group (9 persons) (2)(3)(4)(5)
* less than 1%
(1) The beneficial owner's business address is c/o Firecom, Inc., 39-27 59th
Street, Woodside, New York 11377.
(2) Pursuant to the Voting Agreement, the Proponents have restricted their
rights to sell such shares of Firecom Stock and have granted to Mr. Mendez
a proxy to vote such shares in favor of the Merger and to vote against any
competing transaction that might be proposed by a third party prior to the
Merger; Mr. Mendez intends to vote all shares subject to the Voting
Agreement in favor of the Merger.
(3) Includes 19,300 shares of Common Stock beneficially owned by Mr. Kogen with
his wife as joint tenants and 400,000 shares of Common Stock underlying
presently exercisable options.
(4) Includes 20,300 shares of Common Stock beneficially owned by Mr. Sayour
with his wife as joint tenants and 300,000 shares of Common Stock
underlying presently exercisable options.
(5) Includes 48,000 shares of Common Stock underlying presently exercisable
options.
(6) Pursuant to the Voting Agreement, the Proponents have agreed to transfer
their shares of Firecom Stock to the Purchaser immediately prior to the
Merger.
78
CLASS A COMMON STOCK
- ------------------------------------------------------------------------------------------------------------
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
---------------------------------
NAME AND ADDRESS OF BENEFICIAL POSITION WITH SHARES PERCENTAGE
OWNER FIRECOM
- ------------------------------------------------------------------------------------------------------------
Paul Mendez (1) Chairman of the Board of Directors, Chief 3,694,433(2) 74.5%
Executive Officer, President and Director
Carol Mendez (1) None 1,164,250(2) 23.0%
Orhan I. Sadik-Kahn Director 404,834(2) 8.2%
41 Binney Lane
Old Greenwich, CT 06870
Howard L. Kogen (1) Chief Operating Officer/ Executive Vice 19,300(3) *
President
Antoine J. Sayour (1) Senior Vice President 20,300(4) *
Jeffrey Cohen (1) Vice President-Finance -0- -
Richard G. Scurry, Jr. Director -0- -
1158 Fifth Avenue
New York, NY 10029
Ronald A. Levin Director -0- -
c/o Levin, Bartlett & Co.
795 Franklin Avenue
Franklin Lakes, NJ 07417
Peter Barotz Director -0-(2) -
116 Overlook Road
New Rochelle, NY 10804
Harry B. Levine Director -0- -
c/o Levine Securities
3 Drummond Terrace
Livingston, NJ 07039
Purchaser None -0- (5) _
39-27 59th Street
Woodside, NY 11377
All executive officers and 3,734,033 75.3%
directors as a group (9 persons) (2)(3)(4)
* less than 1%
(1) The beneficial owner's business address is c/o Firecom, Inc., 39-27 59th
Street, Woodside, New York 11377.
(2) Pursuant the Voting Agreement, the Proponents have restricted their rights
to sell such shares of Firecom Stock and have granted to Mr. Mendez a proxy
to vote such shares in favor of the Merger and to vote against any
competing transaction that might be proposed by a third party prior to the
Merger; Mr. Mendez intends to vote all shares subject to the Voting
Agreement in favor of the Merger.
(3) Includes 19,300 shares of Class A Common Stock beneficially owned by Mr.
Kogen with his wife as joint tenants.
(4) Includes 20,300 shares of Class A Common Stock beneficially owned by Mr.
Sayour with his wife as joint tenants.
(5) Pursuant to the Voting Agreement, the Proponents have agreed to transfer
their shares of Firecom Stock to the Purchaser immediately prior to the
Merger.
79
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of Firecom as of and for the two
years ended April 30, 2000, included in this Proxy Statement, have been audited
by Rothstein, Kass & Company, P.C., independent public accountants, as stated in
their reports appearing herein. A representative of Rothstein, Kass & Company,
P.C. will be at the Special Meeting to answer questions by shareholders and will
have the opportunity to make a statement, if so desired.
OTHER MATTERS
At the time of preparation of this Proxy Statement, the Board knows of no
other matters which will be acted upon at the Special Meeting other than the
approval of the Merger Agreement and the transactions contemplated thereby. If
any other matters are presented for action at the Special Meeting or at any
adjournment or adjournments thereof, it is intended that the proxies will be
voted with respect thereto in accordance with the best judgment and in the
discretion of the proxy holders.
2001 ANNUAL MEETING OF SHAREHOLDERS
Firecom does not plan to hold an annual meeting of shareholders during 2001
unless the Merger is not consummated. If the Merger is not consummated,
shareholder proposals must have been received by the Secretary of Firecom in a
timely manner in order to be considered for inclusion in the proxy materials for
Firecom's 2001 Annual Meeting of Shareholders.
80
FIRECOM, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of April 30, 2000 F-3
Consolidated Statements of Income for the years ended April 30, 2000 F-4
and April 30, 1999
Consolidated Statements of Stockholders' Equity for the years ended F-5
April 30, 2000 and April 30, 1999
Consolidated Statements of Cash Flows for the years ended F-6
April 30, 2000 and April 30, 1999
Notes to Consolidated Financial Statements F-8
Consolidated Interim Financial Statements:
Consolidated Balance Sheet as of January 31, 2001 (unaudited) F-18
Consolidated Statements of Income for the three and nine months ended F-20
January 31, 2001 (unaudited) and January 31, 2000 (unaudited)
Consolidated Statements of Cash Flows for the three and nine months F-21
ended January 31, 2001 (unaudited) and January 31, 2000 (unaudited)
Notes to Consolidated Financial Statements F-23
F-1
ROTHSTEIN, KASS & COMPANY, P.C.
- --------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Firecom, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Firecom, Inc. and
Subsidiaries as of April 30, 2000, and the related consolidated statements of
income, stockholders' equity and cash flows for the years ended April 30, 2000
and 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Firecom, Inc. and Subsidiaries as of April 30, 2000, and the consolidated
results of their operations and their cash flows for the years ended April 30,
2000 and 1999, in conformity with generally accepted accounting principles.
/S/ ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
June 19, 2000
F-2
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
April 30, 2000
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,378,000
Accounts receivable, less allowance for
doubtful accounts of $400,000 4,025,000
Inventories 2,042,000
Deferred tax asset 681,000
Prepaid expenses and other current assets 207,000
--------------
Total current assets 11,333,000
PROPERTY, PLANT AND EQUIPMENT, net 630,000
DEFERRED TAX ASSET 283,000
INTANGIBLE ASSETS, less accumulated amortization of $130,000 42,000
---------------
$ 12,288,000
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 363,000
Line of credit borrowing 800,000
Accounts payable 859,000
Accrued expenses and other current liabilities 1,735,000
--------------
Total current liabilities 3,757,000
LONG-TERM LIABILITIES:
Notes payable, less current portion 700,000
Accrued compensation 489,000
--------------
Total long-term liabilities 1,189,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $1,
authorized 1,000,000 shares, none issued
Common Stock, par value $.01,
authorized 30,000,000 shares,
issued 7,342,774, outstanding 5,775,285 73,000
Class A Common Stock, par value $.01,
authorized 10,000,000 shares,
issued 5,999,107 outstanding 4,968,113 60,000
Capital in excess of par value 2,896,000
Retained earnings 5,539,000
--------------
8,568,000
Less treasury stock, at cost, 1,567,489 shares
of Common Stock and 1,030,994 shares of Class
A Common Stock 1,226,000
--------------
Total stockholders' equity 7,342,000
---------------
$ 12,288,000
===============
See accompanying notes to consolidated financial statements
F-3
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended April 30, 2000 and 1999
2000 1999
-------------- --------------
NET SALES:
Product $ 11,020,000 $ 10,830,000
Services 8,288,000 6,540,000
-------------- --------------
19,308,000 17,370,000
-------------- --------------
COST OF SALES:
Product 7,219,000 6,899,000
Services 4,011,000 3,924,000
-------------- --------------
11,230,000 10,823,000
-------------- --------------
GROSS PROFIT 8,078,000 6,547,000
-------------- --------------
OPERATING EXPENSES:
Selling, general and administrative 5,217,000 3,801,000
Research and development 945,000 702,000
-------------- --------------
Total operating expenses 6,162,000 4,503,000
-------------- --------------
INCOME FROM OPERATIONS 1,916,000 2,044,000
-------------- --------------
OTHER INCOME (EXPENSE):
Interest income 210,000 189,000
Interest expense (187,000) (228,000)
Other - (2,000)
-------------- --------------
23,000 (41,000)
-------------- --------------
INCOME BEFORE INCOME TAX EXPENSE 1,939,000 2,003,000
INCOME TAX EXPENSE 750,000 899,000
-------------- --------------
NET INCOME $ 1,189,000 $ 1,104,000
============== ==============
NET INCOME PER COMMON SHARE
Basic $ 0.11 $ 0.10
============== ==============
Diluted $ 0.10 $ 0.10
============== ==============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES USED IN
COMPUTING NET INCOME PER COMMON SHARE
Basic 10,743,000 11,111,000
============== ==============
Diluted 11,451,000 11,549,000
============== ==============
See accompanying notes to consolidated financial statements
F-4
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended April 30, 2000 and 1999
Common Stock Class A Common Stock Capital in
------------------------- ------------------------- Excess of Retained
Shares Amount Shares Amount Par Value Earnings
------------ ------------ ------------ ----------- ----------- ------------
BALANCES, April 30, 1998 7,140,113 $ 71,000 6,738,263 $ 67,000 $ 2,764,000 $ 3,267,000
CONVERSION OF CLASS A
COMMON STOCK TO
COMMON STOCK 141,311 2,000 (141,311) (2,000)
PURCHASE OF MAY FAMILY
STOCK PURSUANT TO
OPTION AND ESCROW
AGREEMENT (SEE NOTE 9) (536,495) (5,000) (21,000)
EFFECT OF DISTRIBUTOR
STOCK OPTIONS 17,000
NET INCOME 1,104,000
------------ ------------ ------------ ----------- ----------- ------------
BALANCES, April 30, 1999 7,281,424 73,000 6,060,457 60,000 2,781,000 4,350,000
CONVERSION OF CLASS A
COMMON STOCK TO
COMMON STOCK 61,350 (61,350)
EFFECT OF DISTRIBUTOR
STOCK OPTIONS (8,000)
EFFECT OF EMPLOYEE
STOCK OPTIONS 123,000
NET INCOME 1,189,000
------------ ------------ ------------ ----------- ----------- ------------
BALANCES, April 30, 2000 7,342,774 $ 73,000 5,999,107 $ 60,000 $ 2,896,000 $ 5,539,000
============ ============ ============ =========== =========== ============
Treasury Stock
Shares Amount Total
----------- ------------ -----------
BALANCES, April 30, 1998 2,061,988 $(1,226,000) $4,943,000
CONVERSION OF CLASS A
COMMON STOCK TO
COMMON STOCK
PURCHASE OF MAY FAMILY
STOCK PURSUANT TO
OPTION AND ESCROW
AGREEMENT (SEE NOTE 9) 536,495 (26,000)
EFFECT OF DISTRIBUTOR
STOCK OPTIONS 17,000
NET INCOME 1,104,000
----------- ------------ -----------
BALANCES, April 30, 1999 2,598,483 (1,226,000) 6,038,000
CONVERSION OF CLASS A
COMMON STOCK TO
COMMON STOCK
EFFECT OF DISTRIBUTOR
STOCK OPTIONS (8,000)
EFFECT OF EMPLOYEE
STOCK OPTIONS 123,000
NET INCOME 1,189,000
----------- ------------ -----------
BALANCES, April 30, 2000 2,598,483 $(1,226,000) $7,342,000
=========== ============ ===========
See accompanying notes to consolidated financial statements
F-5
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended April 30, 2000 and 1999
2000 1999
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,189,000 $ 1,104,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 224,000 229,000
Provision for doubtful accounts 278,000 (55,000)
Deferred income tax credit (312,000) (46,000)
Other miscellaneous credits (15,000)
Employee stock option expense 123,000
Distributor stock option expense (credit) (8,000) 17,000
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Accounts receivable (725,000) (779,000)
Inventories (130,000) (411,000)
Prepaid expenses and other current assets 31,000 (98,000)
Accounts payable (181,000) 284,000
Accrued expenses and other current liabilities 138,000 483,000
Accrued compensation 254,000 (108,000)
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 881,000 605,000
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES,
purchases of property, plant and equipment (206,000) (132,000)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable (358,000) (608,000)
Payments on line of credit borrowing (500,000)
Proceeds from line of credit borrowing 800,000
Payments on purchase of redeemable stock (308,000)
-------------- --------------
NET CASH USED IN FINANCING ACTIVITIES (358,000) (616,000)
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 317,000 (143,000)
CASH AND CASH EQUIVALENTS:
Beginning of year 4,061,000 4,204,000
-------------- --------------
End of year $ 4,378,000 $ 4,061,000
============== ==============
See accompanying notes to consolidated financial statements
F-6
FIRECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Years Ended April 30, 2000 and 1999
2000 1999
-------------- --------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest during the years $ 196,000 $ 224,000
============== ==============
Cash paid for income taxes during the years $ 1,121,000 $ 964,000
============== ==============
SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND
FINANCING ACTIVITIES:
Notes payable issued for the purchase of May Family
stock, pursuant to Option and Escrow Agreement $ - $ 308,000
============== ==============
See accompanying notes to consolidated financial statements
F-7
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS - Firecom, Inc. and Subsidiaries (the "Company")
are engaged in the design, manufacture and service of fire safety
systems and products. The Company sells its products and services to a
variety of end users (i.e., building owners and managers) and
contractors, primarily in the New York metropolitan area, as well as
other areas of the United States for which subsidiary operations have
been established to sell to and service end users. None of the
Company's customers exceed 10% of consolidated net sales. The majority
of the Company's employees are covered by a union contract.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Firecom, Inc. and its wholly-owned
subsidiaries, Fire Service, Inc., FRCM Case-Acme, Inc., BRD FRCM
Service, Inc., Firecom West, Inc. and Firecom Minnesota, Inc. All
intercompany balances and transactions have been eliminated in
consolidation.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of the Company's
assets and liabilities, which qualify as financial instruments under
Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments," approximates the carrying
amounts presented in the consolidated balance sheet.
CASH EQUIVALENTS - Cash equivalents include all highly liquid
instruments having a maturity of less than three months from the
purchase date. Cash equivalents include investment commercial paper.
INVENTORIES - Inventories, which are comprised of raw materials, are
stated at the lower of cost or market, with cost determined on the
first-in, first-out (FIFO) method.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company periodically assesses
the recoverability of the carrying amounts of long-lived assets,
including intangible assets. A loss is recognized when expected
undiscounted future cash flows are less than the carrying amount of
the asset. The impairment loss is the difference by which the carrying
amount of the asset exceeds its fair value.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
stated at cost and are being depreciated and amortized using the
straight-line method over the estimated useful lives of the assets
ranging from 3 to 15 years.
INTANGIBLE ASSETS - Customer lists, software, drawings and design
approvals are amortized using the straight-line method over the
estimated useful lives of the assets ranging from three to five years.
ADVERTISING COSTS - The Company expenses costs of advertising and
promotion as incurred. Advertising expenses, included in selling,
general and administrative expenses for the years ended April 30, 2000
and 1999, were approximately $145,000 and $182,000, respectively.
F-8
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
INCOME TAXES - The Company complies with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which
requires an asset and liability approach to financial reporting of
income taxes. Deferred income tax assets and liabilities are computed
for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future, based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable
income. Valuation allowances are established, when necessary, to
reduce the deferred income tax assets to the amount expected to be
realized.
REVENUE RECOGNITION - Revenues related to manufacturing operations are
recognized when goods are shipped. Revenues related to service
contracts are recognized on a straight-line basis over the contract
period.
The Company uses the percentage-of-completion method of accounting to
determine income on its fire safety system contracts. The
percentage-of-completion is determined by relating the total costs
incurred to date to management's estimate of total contract costs.
Revisions in estimates and projected losses on contracts are
recognized in the period in which they become known.
NET INCOME PER COMMON SHARE - Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" requires dual presentation of
basic and diluted income per share for all periods presented. Basic
income per share excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of
common shares outstanding during the period. Diluted income per share
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then
shared in the income of the Company.
A reconciliation of the income, weighted-average shares and earnings
per share (EPS) shares used in both calculations follows:
YEAR ENDED APRIL 30, 2000
INCOME SHARES EPS
------ ------ ---
Basic EPS
Net income applicable to common
shareholders $ 1,189,000 10,743,000 $ 0.11
Effect of stock options 708,000 (0.01)
-------------- ------------- -------------
Diluted EPS
Net income applicable to common
shareholders $ 1,189,000 11,451,000 $ 0.10
============== ============= =============
F-9
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED):
YEAR ENDED APRIL 30, 1999
INCOME SHARES EPS
------ ------ ---
Basic EPS
Net income applicable to common
shareholders $ 1,104,000 11,111,000 $ 0.10
Effect of stock options and
warrants 438,000
-------------- ------------- -------------
Diluted EPS
Net income applicable to common
shareholders $ 1,104,000 11,549,000 $ 0.10
============== ============= =============
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following at April 30,
2000:
Leasehold improvements $ 348,000
Machinery and equipment 832,000
Furniture and fixtures 580,000
------------
1,760,000
Less accumulated depreciations and amortization 1,130,000
------------
$ 630,000
============
The Company owns its headquarters building located in Woodside, New
York. The building is approximately 15,000 square feet. Because of
purchase accounting, it is carried at no value on the books of the
Company.
F-10
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consist of the
following at April 30, 2000:
Vacation pay $ 304,000
Incentive compensation 246,000
Payroll 151,000
Fringe benefits 306,000
Deferred revenues 94,000
Other 634,000
------------
$ 1,735,000
============
NOTE 4 - NOTES PAYABLE:
Notes payable consist of the following at April 30, 2000:
Interest
Rate
-----------
Note payable to May Family, pursuant to
Stock Purchase Agreement, in annual
installments of $61,679, plus interest,
through July 2000 12% $ 62,000
Note payable to Norwood Venture Corp.,
pursuant to Stock Purchase Agreement, in
quarterly installments of $71,755,
including interest, through March 2003 10% 736,000
Notes payable to May Family, pursuant to the
Option and Escrow Agreement, in annual
installments of $61,697, plus interest, through
September 2003, collaterialized by shares of the
Company's Common Stock held in escrow 11.55% 247,000
Note payable to BRD Systemes, Inc., pursuant to
acquisition of certain assets, in quarterly
installments of $9,586, including interest,
through August 2000 10% 18,000
------------
1,063,000
363,000
------------
$ 700,000
============
F-11
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - NOTES PAYABLE (CONTINUED):
Aggregate future principal payments are as follows:
Year ended April 30:
2001 $ 363,000
2002 306,000
2003 332,000
2004 62,000
------------
$ 1,063,000
============
The Company maintains a line of credit with a bank. Under the line of
credit, the Company may borrow up to $5,000,000, with interest, at the
bank's agreed rate (6.31% at April 30, 2000) plus 1 3/4%. Borrowings
under the line of credit are collateralized by substantially all of
the Company's assets, excluding real estate. Any borrowings under the
line of credit outstanding in April 2001, which have been drawn upon
for acquisition purposes (as defined in the line of credit agreement),
will be converted into a 5-year term note payable in monthly
installments, plus interest. In April 2002, any borrowings outstanding
that are not repaid in full, will be converted into a 4-year term
note, payable in monthly installments, plus interest. Borrowings under
the line of credit at April 30, 2000 were $800,000.
The line of credit contains certain financial covenants.
NOTE 5 - STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND WARRANTS:
STOCK OPTIONS - The Company maintains a stock option plan (the "Plan")
which expires April 30, 2008. The Common Stock reserved for issuance
under the Plan is 1,700,000 shares. Information relating to the stock
options under the Plan during the years ended April 30, 2000 and 1999
is as follows:
Number Per Share
of Shares Option Price
------------ -------------
Outstanding at April 30, 1998 1,114,000 $ .15-.625
Granted 40,000 0.50
------------ -------------
Outstanding at April 30, 1999 1,154,000 .15-.625
Granted 20,000 0.56
Cancelled (28,000) .375-.625
------------ -------------
Outstanding at April 30, 2000 1,146,000 .15-.625
============ =============
Exercisable at April 30, 2000 996,000 $ .15-.625
============ =============
The weighted average exercise price of outstanding options, as of
April 30, 2000 was $.31 an option.
F-12
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND WARRANTS (CONTINUED):
At May 1, 1999, 442,000 stock options issued to certain officers of
the Company were due to expire. In connection with a one-year
extension of these officers' employment contracts, they were granted a
one-year extension to exercise their stock options. Under the
provisions of Accounting Principles Board Opinion No. 25 (APB No. 25)
"Accounting for Stock Issued to Employees" compensation expense of
approximately $123,000 was recorded for the year ended April 30, 2000
to recognize the difference between the fair market value of the
underlying stock at the date of the extension and the stock options'
exercise prices.
Effective May 1, 2000 the employment agreements of two officers of the
Company were extended for a term of five years. Under the terms of the
extended employment agreements, the stock options held by the officers
under the Plan were extended for a period of seven years. Accordingly
under the provisions of APB No. 25, compensation expense will be
recorded for the year ended April 30, 2001 for the difference between
the fair market value of the underlying stock and the stock options'
exercise prices.
The Company has adopted the disclosure-only requirements of Statement
of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting
for Stock-Based Compensation" when accounting for equity transactions
with employees. The Company applies APB No. 25 and related
interpretations in accounting for its plans. Had compensation cost for
the plan been determined based on the fair value of the options at the
grant dates, consistent with SFAS No. 123, the Company's net income
applicable to common shareholders and net income per share applicable
to common shareholders would have been adjusted to the pro-forma
amounts indicated below:
Year Ended April 30,
-----------------------------
2000 1999
-------------- --------------
Net income applicable to common shareholders:
As reported $ 1,189,000 $ 1,104,000
Pro forma 1,176,000 1,092,000
Net income per share applicable to common shareholders:
Basic, as reported 0.11 0.10
Diluted, as reported 0.10 0.10
Basic, pro forma 0.11 0.10
Diluted, pro forma 0.10 0.09
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes Option Pricing Model with the following
weighted average assumptions used for grants in 2000 and 1999
respectively: risk-free interest rate of 5%; no dividend yield;
expected lives of 10 years; and expected volatility of 36% and 29%,
respectively.
F-13
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5- STOCK OPTIONS, STOCK APPRECIATION RIGHTS AND WARRANTS (CONTINUED):
STOCK APPRECIATION RIGHTS - The Company has stock appreciation rights
agreements (SARs) with certain officers and directors, which grants
them the right to receive in cash the excess of the fair market value
(FMV) of a common share over the base price (as defined in the
agreements). The following summarizes the SARs at April 30, 2000:
Rights Rights Base
Granted Excersable Price FMV
----------- -------------- ------------- ------------
(A) 400,000 400,000 $ 0.125 $ 0.75
(A) 200,000 200,000 0.25 0.75
(A) 200,000 200,000 0.50 0.75
(A) 200,000 200,000 0.75 0.75
(B) 40,000 40,000 0.56 0.75
(B) 40,000 40,000 0.60 0.75
(B) 120,000 120,000 0.14 0.75
(A) These rights have been granted pursuant to an agreement with the
Chairman of the Board of the Company and are exercisable in
pro-rata installments over a five-year period. All unexercised
rights will expire in December 2002.
(B) These rights have been granted to directors upon their being
elected to the Board of Directors.
Selling, general and administrative expenses include a charge
(credit) of approximately $254,000 and ($108,000) for the years
ended April 30, 2000 and 1999, respectively, for compensation as
a result of the SARs. At April 30, 2000, the Company has accrued
compensation of $489,000 as a result of the SARs.
NOTE 6- COMMON STOCK:
On June 21, 1995, the Company signed a Stock Purchase Agreement to
purchase 1,072,988 shares of the Company's $.01 par value Common Stock
held by certain members of the May Family at $.45 per share. Terms of
the Agreement provided for a cash payment in the amount of $174,448
and a five-year note in the amount of $308,397, bearing interest at
12% per annum. Interest is to be paid monthly. The principal is to be
paid in five annual installments of $61,679. The Company's obligation
under the note is collateralized by a pledge by the Company to the
noteholder of 685,326 shares of the Company's Common Stock held in its
treasury.
On March 27, 1997, the Company purchased 1,166,662 shares of the
Company's $.01 par value Common Stock at $.70 per share and 1,500,004
warrants at $.525 per warrant held by Norwood Venture Corp. The terms
of the agreement provide for a cash payment in the amount of $320,833
and a six-year subordinated promissory note for $1,283,332, bearing
interest at 10% per annum. Principal and interest totaling $71,755 is
paid quarterly through March 2003. The note also contains certain
financial covenants.
F-14
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - COMMON STOCK (CONTINUED):
In September 1998, pursuant to a related agreement with the May
Family, the Company repurchased 536,495 shares of its Common Stock and
536,495 shares of its Class A Common Stock (which were retired) at an
agreed upon price of $.575 per share. Pursuant to the agreement a cash
payment of $308,485 was paid and the Company issued five, five-year
notes, aggregating $308,485, bearing interest at 11.5% per annum were
issued. Principal payments on the notes will be made in five
installments aggregating $61,697. Interest on the notes is to be paid
monthly. The notes are collateralized by the repurchased shares of the
Company's Common Stock, which are held in escrow.
NOTE 7 - PENSION PLAN AND PROFIT SHARING PLAN CONTRIBUTIONS:
The Company makes contributions to a union-sponsored multi-employer
defined contribution pension plan based on the wages paid to union
employees covered under union contracts. Contributions to the
multi-employer plan amounted to approximately $137,000 and $129,000 in
2000 and 1999, respectively. The Company has no intention of
withdrawing from the plan nor has the Company been informed that there
is any intention to terminate the plan.
In fiscal 2000, the Company established a defined contribution profit
sharing plan, which covers all non-union employees who meet certain
eligibility requirements. Contributions to the plan are made at the
discretion of the Board of Directors. For the year ended April 30,
2000, the Company accrued contributions to the plan of approximately
$77,000.
NOTE 8 - INCOME TAXES:
The provision for income taxes consists of the following:
Year Ended April 30,
---------------------------------
2000 1999
-------------- ------------
Current:
Federal $ 690,000 $ 562,000
State and City 372,000 383,000
-------------- ------------
1,062,000 945,000
-------------- ------------
Deferred:
Federal (212,000) (27,000)
State and City (100,000) (19,000)
-------------- ------------
(312,000) (46,000)
-------------- ------------
Total $ 750,000 $ 899,000
============== ============
F-15
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - INCOME TAXES (CONTINUED):
The following reconciles the Federal statutory rate to the effective
income tax rate:
2000 1999
------------ ------------
Computed tax expense at Federal statutory rate 34 % 34 %
State and City provision, net of Federal tax 12 12
Increasing research activities tax credit (5) (3)
Other (2) 2
------------ ------------
39 % 45 %
============ ============
The components of the Company's deferred tax asset and liability at
April 30, 2000 are as follows:
Deferred tax assets:
Allowance for doubtful accounts $ 185,000
Stock appreciation rights 226,000
Accrued incentive compensation 60,000
Inventories 155,000
Vacation and other fringe benefits 218,000
Research and development credit 63,000
Other 107,000
--------------
Deferred tax asset 1,014,000
Deferred tax liability, tax depreciation
in excess of book depreciation 50,000
--------------
Net deferred tax asset $ 964,000
==============
No valuation allowance was deemed necessary at April 30, 2000 as the
Company believes that it is more likely than not that the deferred tax
asset will be fully realized based on current projections of future
taxable income.
NOTE 9 - COMMITMENTS AND CONTINGENCIES:
The Company rents various warehouse facilities under noncancellable
operating leases expiring through December 2003. The following are the
aggregate future minimum rental payments, as of April 30, 2000:
YEAR ENDING APRIL 30,
2001 $ 93,000
2002 63,000
2003 27,000
2004 18,000
--------------
$ 201,000
F-16
FIRECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
Rent expense for the years ended April 30, 2000 and 1999 amounted to
$152,000 and $94,000, respectively.
The Company has certain employment agreements with key executives
expiring through April 2005. Aggregate annual compensation under these
agreements approximates $655,000.
An employment agreement with an executive of the Company, which goes
into effect May 1, 2000, provides for the executive, upon the
expiration of his employment agreement, with the option to sell his
stock and stock options back to the Company. The purchase price of the
stock and stock options will be at a price equal to the difference
between the exercise price of the stock options and the fair market
value of the underlying stock. The agreement provides for a fair
market value floor of $.75 and a fair market value ceiling of $1.25.
The purchase price is to be paid on a deferred basis over 3 years.
In connection with the acquisition of certain assets, the Company
entered into a Consulting and Non-competition Agreement with the
President of the company from whom the assets were acquired, and has
continuing payment requirements of $25,000 per quarter through
September 2000.
In order to increase the distribution of its products and services on
a national level, the Company has established a stock option plan for
distributors of its products. The plan provides for the issuance of
stock options to purchase the Company's common stock, at a
pre-determined price ($.55, which approximated the fair market value
of the common stock at the inception of the plan), provided that the
distributor purchases a specified dollar amount of the Company's
product over a three-year period.
Various lawsuits and claims arising in the ordinary course of business
have been instituted against the Company. While the ultimate effects
of such litigation cannot be determined at the present time, it is
management's opinion, based on the advice of legal counsel, that any
liabilities resulting from the actions would not have a material
effect on the Company's financial position, results of operations or
cash flows.
NOTE 10 - PURCHASE CONCENTRATIONS:
For the year ended April 30, 2000 the Company had net purchases of
13%, 13%, and 11% from three vendors, respectively. For the year ended
April 30, 1999 the Company had net purchases of 14% and 11% from two
vendors, respectively. In Management's opinion, the loss of any of
these vendors should not materially affect the operations of the
Company, as other sources of supplies are available.
NOTE 11 - CONCENTRATION OF CREDIT RISK:
The Company's cash and cash equivalents, including commercial
investment paper, of $4,061,000, are maintained in a financial
institution, and at times exceed the Federal Deposit Insurance
Corporation coverage of $100,000. Management regularly monitors the
financial condition of the financial institution in order to keep the
potential risk of loss to a minimum.
F-17
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED BALANCE SHEET
(unaudited)
JANUARY 31, 2001
----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,449,000
Accounts receivable, net of allowance for doubtful
accounts 3,915,000
Inventories 2,063,000
Deferred tax asset 681,000
Prepaid expenses and other current assets 467,000
-----------
Total current assets $11,575,000
-----------
FIXED ASSETS
PROPERTY, PLANT AND EQUIPMENT $ 1,946,000
Less: Accumulated Depreciation & Amortization 1,288,000
-----------
Total Fixed Assets $ 658,000
-----------
OTHER ASSETS
Deferred tax asset $ 361,000
Intangible assets, less accumulated amortization $ 26,000
-----------
TOTAL ASSETS $12,620,000
===========
F-18
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED BALANCE SHEET
(unaudited)
JANUARY 31, 2001
----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable $ 300,000
Accounts payable 406,000
Line of credit borrowing 800,000
Accrued expenses 1,881,000
-----------
Total current liabilities $ 3,387,000
LONG-TERM LIABILITIES:
Notes payable, less current portion 457,000
Accrued compensation 646,000
-----------
Total Long-Term liabilities $ 1,103,000
-----------
SHAREHOLDERS' EQUITY
Preferred Stock, par value $1; authorized 1,000,000 shares,
none issued $ -0-
Common Stock, par value $.01: Authorized 30,000,000 shares.
Issued: 7,012,011 Outstanding: 5,787,185 70,000
Class A Common Stock, par value $.01: Authorized 10,000,000 shares.
Issued: 5,648,544 Outstanding: 4,960,213 57,000
Additional Paid-In Capital 3,004,000
Retained Earnings 6,225,000
-----------
Sub-Total $ 9,356,000
Less: Treasury Stock, at cost, 1,224,826 shares of Common Stock
and 688,331 shares of Class A Common Stock 1,226,000
-----------
Total Shareholders' Equity $ 8,130,000
-----------
TOTAL LIABILITIES & EQUITY $12,620,000
===========
F-19
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------------------------
JANUARY 31 JANUARY 31
---------- ----------
2001 2000 2001 2000
---- ---- ---- ----
NET SALES:
Product $ 3,542,000 $ 3,030,000 $10,257,000 $ 7,983,000
Service 1,636,000 2,316,000 5,174,000 6,177,000
----------- ----------- ----------- -----------
Total Sales 5,178,000 5,346,000 15,431,000 14,160,000
----------- ----------- ----------- -----------
COST OF SALES:
Product 2,146,000 2,171,000 6,557,000 5,750,000
Service 1,064,000 1,069,000 3,041,000 2,917,000
----------- ----------- ----------- -----------
Total Cost of Sales 3,210,000 3,240,000 9,598,000 8,667,000
----------- ----------- ----------- -----------
GROSS PROFIT 1,968,000 2,106,000 5,833,000 5,493,000
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling, general and administrative 1,252,000 1,399,000 4,052,000 3,612,000
Research and development 239,000 226,000 661,000 617,000
----------- ----------- ----------- -----------
Total operating expenses 1,491,000 1,625,000 4,713,000 4,229,000
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 477,000 481,000 1,120,000 1,264,000
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 71,000 57,000 206,000 150,000
Interest expense (37,000) (45,000) (121,000) (142,000)
----------- ----------- ----------- -----------
Total Other Income (Expense) 34,000 12,000 85,000 8,000
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX 511,000 493,000 1,205,000 1,272,000
INCOME TAX EXPENSE 215,000 232,000 519,000 599,000
NET INCOME $ 296,000 $ 261,000 $ 686,000 $ 673,000
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE:
Basic $ .03 $ .02 $ .06 $ .06
Diluted $ .03 $ .02 $ .06 $ .06
WEIGHTED AVERAGE NUMBER OF
SHARES USED IN COMPUTING EPS:
Basic 10,745,000 10,743,000 10,744,000 10,743,000
Diluted 11,282,000 11,355,000 11,335,000 11,316,000
F-20
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED
-----------------
JANUARY 31
----------
2001 2000
---- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 686,000 $ 673,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 174,000 178,000
Provision for doubtful accounts 187,000 260,000
Deferred income tax credit (78,000)
Employee stock option expense 100,000
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Accounts receivable (77,000) (787,000)
Inventories (21,000) 71,000
Prepaid expenses and other (260,000) (21,000)
Accounts payable (453,000) 118,000
Accrued expenses 146,000 138,000
Accrued compensation 157,000 120,000
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 561,000 750,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business -0- (123,000)
Capital expenditures (186,000) (92,000)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (186,000) (215,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (306,000) (297,000)
Sale of stock 2,000 -0-
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (304,000) (297,000)
---------- ----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 71,000 238,000
CASH AND CASH EQUIVALENTS:
Beginning of period 4,378,000 4,061,000
---------- ----------
End of period $4,449,000 $4,299,000
========== ==========
F-21
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(unaudited)
NINE MONTHS ENDED
-----------------
JANUARY 31
----------
2001 2000
---- -----
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for interest during the period $128,000 $150,000
======== ========
Cash paid for income taxes during the period $848,000 $675,000
======== ========
F-22
FIRECOM, INC. AND SUBSIDIARIES
------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1: ACCOUNTING POLICIES:
The accounting policies followed by the Company are set forth in Note 1 of the
Company's consolidated financial statements on Form 10-KSB for the fiscal year
ended April 30, 2000.
In the opinion of management the accompanying consolidated financial statements
contain the necessary adjustments, all of which are of a normal and recurring
nature, to present fairly Firecom Inc. and its subsidiaries' consolidated
financial position at January 31, 2001 and the consolidated results of
operations for the three and nine months ended January 31, 2001 and 2000, and
consolidated cash flows for the nine months ended January 31, 2001 and 2000.
Certain reclassifications were made in the 2000 financial statements to conform
to the classifications used in the 2001 financial statements.
NOTE 2: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at January 31, 2001:
Building improvements $ 480,000
Machinery and equipment 882,000
Furniture and fixtures 584,000
----------
$1,946,000
Less accumulated depreciation and amortization 1,288,000
----------
$ 658,000
==========
NOTE 3: NOTES PAYABLE
The Company's long-term debt consists of the following at January 31, 2001:
Notes payable to banks and other:
Note payable to Norwood Venture $ 572,000
Note payable to May Family (second transaction) 185,000
----------
$ 757,000
Less current portion 300,000
----------
$ 457,000
==========
NOTE 4: INCOME PER COMMON SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
requires dual presentation of basic and diluted earnings per share for all
periods presented. Basic earnings per share excludes dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
F-23
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity.
A reconciliation of the income and weighted-average shares used in both
calculations follows:
Periods ended January 31, 2001
------------------------------
Three Months Nine Months
--------------------------------- ---------------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic EPS $296,000 10,745,000 $.03 $686,000 10,744,000 $.06
Effect of
Stock options - 537,000 -0- - 591,000 -0-
-------- ---------- ---- -------- ---------- ----
Diluted EPS $296,000 11,282,000 $.03 $686,000 11,335,000 $.06
-------- ---------- ---- -------- ---------- ----
Periods ended January 31, 2000
------------------------------
Three Months Nine Months
--------------------------------- ---------------------------------
Income Shares EPS Income Shares EPS
------ ------ --- ------ ------ ---
Basic EPS $261,000 10,743,000 $.02 $673,000 10,743,000 $.06
Effect of
Stock options - 612,000 -0- - 573,000 -0-
-------- ---------- ---- -------- ---------- ----
Diluted EPS $261,000 11,355,000 $.02 $673,000 11,316,000 $.06
-------- ---------- ---- -------- ---------- ----
Unexercised employee stock options to purchase 160,660 shares of the Company's
common stock for the three months ended January 31, 2001 were not included in
the computation of diluted EPS because the options' exercise prices were greater
than the average market price of the Company's common stock during the
respective periods.
4,000 stock options were exercised in November, 2000.
NOTE 5: MANAGEMENT BUYOUT OFFER:
On January 24, 2001, Firecom, Inc. (the "Company") issued a press release
announcing that it received a proposal from a management group led by the
Company's President and Chief Executive Officer, Paul Mendez, and including
other principal shareholders of the Company, to acquire for a cash price of $.70
per share all outstanding shares of the Company not already held by the group.
The group currently holds 68.8% of all outstanding shares of the Company.
F-24
FIRECOM, INC.
-------------
PROXY FOR THE SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD __________, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
-----------------------------------------------------------
The undersigned shareholder of Firecom, Inc., a New York corporation
("Firecom"), acknowledges receipt of the Notice of Special Meeting of
Shareholders and the Proxy Statement dated _________, 2001, and, revoking all
prior proxies, hereby appoint(s) ____________ and ___________, and each of them,
with full power of substitution, as proxies to represent and vote all shares of
Common Stock and Class A Common Stock of Firecom, which the undersigned would be
entitled to vote if present in person at the Special Meeting of Shareholders
(the "Meeting") of Firecom to be held on ____________, 2001 at 10:00 a.m., local
time, and at any adjournment or adjournments thereof (the "Meeting"). These
proxies are authorized to vote in their discretion upon such other matters as
may properly come before the Meeting.
PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE
[X] Votes must be indicated, as in example to the left, in black or blue ink.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL.
The undersigned hereby instructs said proxies or their substitutes to vote
as specified below on the following matter and in accordance with their judgment
on any other matters which may properly come before the meeting.
1. Agreement and Plan of Merger and transactions contemplated thereby.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is given, this proxy will
ABSTAIN from voting on the above proposal.
Please mark, sign, date and return this proxy card promptly using the
enclosed envelope.
Date: , 2001
-------------------
Signed:
-------------------------------------------------------------------
SIGNATURE:
----------------------------------------------------------------
SIGNATURE IF HELD JOINTLY:
------------------------------------------------
Please sign exactly as name(s) appear on your stock certificates. If your
stock certificate is registered in the names of two or more persons, each should
sign. Executors, administrators, trustees, guardians, attorneys, and corporate
officers should add their titles.
ANNEX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
ALRM ACQUISITION INC.
AND
FIRECOM, INC.
DATED APRIL 3, 2001
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 The Merger..........................................................1
1.1 The Merger...........................................................1
1.2 Effective Time.......................................................1
1.3 Effects of the Merger................................................2
1.4 Certificate of Incorporation and Bylaws; Directors and Officers......2
1.5 The Closing..........................................................2
ARTICLE 2 Effect of the Merger on Securities of the Company...................2
2.1 Purchaser Stock......................................................2
2.2 Conversion of Firecom Stock..........................................3
2.3 Exchange of Certificates.............................................4
2.4 Closing of Transfer Books............................................5
2.5 No Further Ownership Rights in Firecom Stock.........................5
ARTICLE 3 Representations and Warranties of the Company.......................5
3.1 Organization, Standing and Power.....................................5
3.2 Capital Structure....................................................6
3.3 Authority; Non-Contravention.........................................6
3.4 SEC Documents........................................................8
3.5 Absence of Certain Events............................................9
3.6 Litigation...........................................................9
3.7 Compliance with Applicable Law.......................................9
3.8 Taxes...............................................................10
3.9 Brokers.............................................................10
3.10 Opinion of Financial Advisor........................................10
ARTICLE 4 Representations and Warranties of the Purchaser....................11
4.1 Organization, Standing and Power....................................11
4.2 Authority; Non-Contravention........................................11
4.3 Brokers.............................................................12
4.4 Litigation..........................................................12
ARTICLE 5 Covenants..........................................................12
5.1 Alternative Proposals...............................................12
5.2 Interim Operations of the Company...................................13
5.3 Meeting of the Company's Shareholders...............................15
5.4 Filings, Other Action...............................................15
5.5 Inspection of Records...............................................16
5.6 Publicity...........................................................16
5.7 Proxy Statement.....................................................16
5.8 Further Action......................................................17
5.9 Expenses............................................................17
5.10 Indemnification.....................................................17
5.11 Takeover Statute....................................................18
5.12 Conduct of Business by Purchaser Pending the Merger.................19
5.13 Conveyance Taxes....................................................19
ARTICLE 6 Conditions to Merger...............................................19
i
6.1 Conditions to Each Party's Obligation to Effect the Merger..........19
6.2 Conditions to Obligation of Company to Effect the Merger............20
6.3 Conditions to Obligation of Purchaser to Effect the Merger..........20
ARTICLE 7 Termination........................................................22
7.1 Termination by Mutual Consent.......................................22
7.2 Termination by Either Purchaser or Company..........................22
7.3 Termination by Company..............................................22
7.4 Termination by Purchaser............................................23
7.5 Effect of Termination and Abandonment...............................24
7.6 Extension, Waiver...................................................24
ARTICLE 8 General Provisions.................................................25
8.1 Nonsurvival of Representations, Warranties and Agreements...........25
8.2 Notices.............................................................25
8.3 Assignment; Binding Effect..........................................25
8.4 Entire Agreement....................................................26
8.5 Amendment...........................................................26
8.6 Governing Law.......................................................26
8.7 Counterparts........................................................26
8.8 Headings............................................................26
8.9 Interpretation......................................................26
8.10 Waivers.............................................................26
8.11 Incorporation of Exhibits and Schedules.............................27
8.12 Severability........................................................27
8.13 Confidentiality.....................................................27
8.14 Enforcement of Agreement............................................27
ii
DEFINITIONS
Agreement.....................................................................1
Alternative Proposal.........................................................12
Certificate of Merger.........................................................1
Certificates..................................................................3
Class A Common Stock..........................................................1
Closing.......................................................................2
Closing Date..................................................................2
Code.........................................................................10
Common Stock..................................................................1
Company.......................................................................1
Company Options...............................................................6
Company Permits...............................................................9
Company SEC Documents.........................................................8
Department of State...........................................................1
Dissenting Shares.............................................................3
Effective Time................................................................1
Evaluation Material..........................................................27
Exchange Act..................................................................8
Firecom Stock.................................................................1
Governmental Entity...........................................................7
Indemnified Parties..........................................................17
Instrument....................................................................7
Material Adverse Change.......................................................6
Material Adverse Effect.......................................................6
Meeting of Shareholders......................................................15
Merger........................................................................1
Merger Consideration..........................................................3
NYBCL.........................................................................1
Paying Agent..................................................................4
Preferred Stock...............................................................6
Proponents...................................................................20
Proxy Statement..............................................................16
Purchaser.....................................................................1
Purchaser Stock...............................................................1
Redemption Price..............................................................4
Retained Shares...............................................................1
Schedules.....................................................................5
SEC...........................................................................8
Securities Act................................................................8
Stock Plan....................................................................6
Surviving Corporation.........................................................1
Tax..........................................................................10
Tax Return...................................................................10
iii
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated April 3, 2001,
between ALRM ACQUISITION INC., a New York corporation (the "Purchaser"), and
FIRECOM, INC., a New York corporation (and together with its subsidiaries, the
"Company").
RECITALS
--------
A. The Boards of Directors of the Purchaser and the Company have
approved, and deem it advisable and in the best interests of their respective
companies and shareholders to consummate a merger (the "Merger") of the
Purchaser, with and into the Company, wherein each issued and outstanding share
of Common Stock, par value $.01 per share, of the Company (the "Common Stock")
and each issued and outstanding share of Class A Common Stock, par value $.01
per share, of the Company (the "Class A Common Stock" and, together with the
Common Stock, the "Firecom Stock"), except shares of Firecom Stock held by
holders who comply with the provisions of New York law regarding the right of
shareholders to dissent from the Merger and require appraisal of their shares of
Firecom Stock and shares of Firecom Stock held by the Purchaser (the "Retained
Shares"), will be converted into the right to receive $0.80 per share, in cash,
without interest, and each issued and outstanding share of Common Stock, par
value $.01 per share, of the Purchaser (the "Purchaser Stock") shall be
converted into a share of common stock in the Surviving Corporation (as
hereinafter defined).
B. The Purchaser and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
transactions contemplated hereby.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions hereof, and
----------
in accordance with the Business Corporation Law of New York ("NYBCL"), the
Purchaser shall be merged with and into the Company at the Effective Time (as
hereinafter defined). Following the Merger, the separate corporate existence of
the Purchaser shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation") and shall succeed to and assume all
the rights and obligations of the Purchaser in accordance with the NYBCL.
1.2 Effective Time. Subject to the provisions of this Agreement, the
--------------
Merger shall become effective when the Certificate of Merger (the "Certificate
of Merger"), executed in accordance with the relevant provisions of the NYBCL,
is filed with the Department of State of the State of New York (the "Department
of State"). When used in this Agreement, the term "Effective Time" shall mean
the later of the date and time at which the Certificate of Merger is filed with
the Department of State or such later time established by the Certificate of
Merger. The filing of the Certificate of Merger shall be made as soon as
reasonably practicable (but not later than the first business day) after the
satisfaction or waiver of the conditions to the Merger set forth herein.
1.3 Effects of the Merger. The Merger shall have the effects set forth in
---------------------
the NYBCL.
1.4 Certificate of Incorporation and Bylaws; Directors and Officers.
---------------------------------------------------------------
(a) Subject to the terms of Section 5.10, the Certificate of
Incorporation and the Bylaws of the Company, as in effect immediately prior to
the Effective Time, shall be amended by the Certificate of Merger to make such
changes regarding the capitalization of the Surviving Corporation as the
Purchaser may request and, as so amended, the Certificate of Incorporation and
the Bylaws of the Company shall be the Certificate of Incorporation and the
Bylaws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
(b) The directors of the Purchaser at the Effective Time shall, from
and after the Effective Time, be the initial directors of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal, in accordance
with the Surviving Corporation's Certificate of Incorporation and Bylaws.
(c) The officers of the Company at the Effective Time and such other
persons as designated by the Purchaser shall, from and after the Effective Time,
be the initial officers of the Surviving Corporation until their successors have
been duly elected or appointed and qualified or until their earlier death,
resignation or removal, in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
1.5 The Closing. Subject to the terms and conditions of this
-----------
Agreement, the closing of the transactions contemplated by this Agreement (the
"Closing") shall take place (a) at the offices of Thelen Reid & Priest LLP, 40
West 57th Street, New York, NY 10019, at 10:00 a.m., local time, on the first
business day following the day on which the last to be fulfilled or waived of
the conditions set forth in Article 6 shall be fulfilled or waived in accordance
herewith or (b) at such other time, date or place as the Purchaser and the
Company may agree. The date on which the Closing occurs is hereinafter referred
to as the "Closing Date."
ARTICLE 2
EFFECT OF THE MERGER ON SECURITIES
OF THE COMPANY
2.1 Purchaser Stock. At the Effective Time, each share of Purchaser
---------------
Stock outstanding immediately prior to the Effective Time shall be converted
into and become one share of common stock, par value $.01 per share, of the
Surviving Corporation, and each certificate theretofore representing any such
shares shall, without any action on the part of the holder thereof, be deemed to
represent the same number of shares of the Surviving Corporation.
2
2.2 Conversion of Firecom Stock.
---------------------------
(a) Subject to Section 2.2(b), at the Effective Time each issued and
outstanding share of Firecom Stock (other than shares of Firecom Stock held by
the Purchaser) shall be converted into the right to receive $0.80, in cash,
without interest (the "Merger Consideration"). All such shares of Firecom Stock,
when so converted, shall cease to be outstanding, shall be canceled and retired
and shall cease to exist, and each holder of a certificate or certificates (the
"Certificates") representing any such shares of Firecom Stock shall thereafter
cease to have any rights with respect thereto, except the right to receive the
Merger Consideration.
(b) Notwithstanding any provision of this Agreement to the contrary,
if required by the NYBCL but only to the extent required thereby, shares of
Firecom Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by holders of such shares of Firecom Stock who
have properly exercised appraisal rights with respect thereto in accordance with
the NYBCL (the "Dissenting Shares") will not be exchangeable for the right to
receive the Merger Consideration, and holders of such shares of Firecom Stock
will be entitled to receive payment of the appraised value of such shares of
Firecom Stock in accordance with the provisions of the NYBCL unless and until
such holders shall fail to perfect or shall effectively withdraw or shall have
lost their rights to appraisal and payment under the NYBCL. If, after the
Effective Time, any such holder fails to perfect or effectively withdraws or
loses such right, such shares of Firecom Stock will thereupon be treated as if
they had been converted into and have become exchangeable for, at the Effective
Time, the right to receive the Merger Consideration, without any interest
thereon. The Company will give the Purchaser prompt notice of any demands
received by the Company for appraisals of shares of Firecom Stock. The Company
shall not, except with the prior written consent of the Purchaser, make any
payment with respect to any demands for appraisal or offer to settle or settle
any such demands.
(c) At or prior to the Effective Time, the Company shall have made
arrangements, the effect of which shall be that no shares of Common Stock, Class
A Common Stock or other capital stock of the Company or the Surviving
Corporation shall be issuable pursuant to options or warrants to purchase
shares, or securities convertible into shares, of Common Stock. The Company
shall (i) cause the Stock Plan (as defined in Section 3.2) to terminate as of
the Effective Time, (ii) grant no additional Company Options (as defined in
Section 3.2) after the date of this Agreement and (iii) accelerate the vesting
of all options issued under the Stock Plan at or prior to the Effective Time.
The Company shall take all such actions under the Stock Plan necessary so that
each Company Option shall be converted into the right to receive in exchange
therefor from the Surviving Corporation, to be paid an amount in cash per
Company Option equal to the Merger Consideration minus the per share exercise
price of such Company Option as of the date hereof (the result of any such
calculation being the "Redemption Price").
(d) Payment of the Redemption Price in accordance with Section 2.2(c)
above shall be contingent upon consummation of the Merger and shall be subject
to applicable withholding of income and other taxes. Payment of the Redemption
Price shall be made by the Surviving Corporation to the holders of the Company
3
Options at or as promptly as practicable after the Effective Time, without
interest.
2.3 Exchange of Certificates.
------------------------
(a) Prior to the Effective Time, the Purchaser shall appoint a bank
or trust company to act as paying agent hereunder, which shall be American Stock
Transfer and Trust Company, or such other entity as the Purchaser and the
Company may mutually select (the "Paying Agent") for the payment of the Merger
Consideration upon surrender of Certificates. All of the fees and expenses of
the Paying Agent shall be borne by the Surviving Corporation.
(b) The Purchaser shall take all steps necessary to enable and cause
the Surviving Corporation to provide the Paying Agent with cash in amounts
necessary to pay the Merger Consideration, when and as such amounts are needed
by the Paying Agent.
(c) As soon as reasonably practicable after the Effective Time but
within 20 days of such time, the Paying Agent shall mail to each holder of
record of Firecom Stock immediately prior to the Effective Time (excluding any
Dissenting Shares) (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of such Certificates to the Paying Agent and shall be
in such form and have such other provisions as the Purchaser shall reasonably
specify) and (ii) instructions for the use thereof in effecting the surrender of
the Certificates in exchange for the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Paying Agent or to such other agent or
agents as may be appointed by the Surviving Corporation, together with such
letter of transmittal, duly executed, and such other documents as may reasonably
be required by the Paying Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor a bank check in the amount of cash into
which the shares of Firecom Stock theretofore represented by such Certificate
shall have been converted pursuant to Section 2.2, and the Certificates so
surrendered shall forthwith be canceled. No interest will be paid or will accrue
on the cash payable upon the surrender of any Certificate. If payment is to be
made to a person other than the person in whose name the Certificate so
surrendered is registered, it shall be a condition of payment that such
Certificate shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the transfer of such Certificate or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable.
Until surrendered as contemplated by this Section 2.3, each Certificate
(other than Certificates representing Dissenting Shares) shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the amount of cash, without interest, into which the shares of Firecom
Stock theretofore represented by such Certificate shall have been converted
pursuant to Section 2.2.
(d) None of the Purchaser, the Company, the Surviving Corporation,
the Paying Agent or any other person shall be liable to any former holder of
shares of Firecom Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
4
(e) In the event that any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Purchaser, the posting by such person of a bond in such reasonable amount as the
Purchaser may direct as indemnity against any claim that may be made against it
with respect to such Certificate, the Paying Agent will issue in exchange for
such lost, stolen or destroyed Certificate the Merger Consideration, deliverable
in respect thereof pursuant to this Agreement.
2.4 Closing of Transfer Books. At or after the Effective Time, there
-------------------------
shall be no transfers on the stock transfer books of the Company of the shares
of Firecom Stock which were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for the consideration
deliverable in respect thereof pursuant to this Agreement in accordance with the
procedures set forth in this Article 2.
2.5 No Further Ownership Rights in Firecom Stock. From and after the
--------------------------------------------
Effective Time, the holders of shares of Firecom Stock which were outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such shares of Firecom Stock except as otherwise provided in this
Agreement or by applicable law. All cash paid upon the surrender of Certificates
in accordance with the terms hereof shall be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of Firecom Stock.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser that, except as set
forth in schedules hereto specifically referring to the Sections hereof intended
to be so qualified (the "Schedules"):
3.1 Organization, Standing and Power. The Company is a corporation
--------------------------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
and authority to carry on its business as now being conducted. The Company is
duly qualified to do business, and is in good standing, in each jurisdiction
where the character of its properties owned or held under lease or the nature of
its activities makes such qualification necessary, except where the failure to
be so qualified and in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. For purposes of this
Agreement, "Material Adverse Change" or "Material Adverse Effect" means, when
used with respect to the Purchaser or the Company, as the case may be, any
change or effect, either individually or in the aggregate, that is materially
adverse to the business, assets, financial condition or results of operations of
the Purchaser, or the Company, as the case may be.
3.2 Capital Structure. The authorized capital stock of the Company
-----------------
consists of 41,000,000 million shares, of which 30,000,000 shares are designated
as Common Stock, 10,000,000 of which are designated as Class A Common Stock and
1,000,000 million shares of which are designated as Preferred Stock, par value
$1.00 per share ("Preferred Stock").
5
At the date hereof (i) 5,789,685 shares of Common Stock were issued and
outstanding, and 4,957,713 shares of Class A Common Stock were issued and
outstanding, and (ii) 1,224,826 shares of Common Stock and 688,331 shares of
Class A Common Stock are held by the Company in its treasury. As of the date
hereof there are no shares of Preferred Stock outstanding. All outstanding
shares of capital stock of the Company are validly issued, fully paid and
nonassessable and not subject to preemptive rights.
At the date hereof there are (i) Company Options outstanding under the
Company's Incentive and Non-Qualified Stock Option Plan (the "Stock Plan" to
acquire 1,122,000 shares of the Company's Common Stock, all of which are vested
on the date hereof or shall vest prior to the Effective Time, and (ii) 31,068
Company Options outstanding under the Company Distributors Stock Option Plan,
all of which are vested on the date hereof (collectively, the "Company
Options").
Except for such Company Options, there are no options, warrants, rights,
commitments, agreements, arrangements or undertakings of any kind to which the
Company is a party or by which it is bound obligating the Company to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of the Company. Schedule 3.2 sets forth
the name of each holder of a Company Option, the number of shares of Common
Stock for which such Company Option is exercisable and the exercise price per
share of Common Stock subject to such Company Option. Since October 22, 1999, no
shares of the Company's capital stock have been issued other than pursuant to
the exercise of Company Options already in existence on such date and the
Company has not granted any stock options for any capital stock or other voting
securities of the Company.
3.3 Authority; Non-Contravention.
----------------------------
(a) The Board of Directors of the Company has approved this Agreement
and determined that the Merger is fair and in the best interests of the Company
and its shareholders, and the Company has all requisite corporate power and
authority to enter into this Agreement and, subject to approval of the Merger by
the shareholders of the Company, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company,
subject to such approval of the Merger by the shareholders of the Company. This
Agreement has been duly executed and delivered by the Company and (assuming the
valid authorization, execution and delivery of this Agreement by the Purchaser)
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms. Other than as set forth on Schedule
3.3(a), the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation,
contractually require any offer to purchase or any prepayment of any debt,
contractually require the payment of (or result in the vesting of) any
severance, golden parachute, change of control or similar type of payment, or
give rise to the loss of a material benefit under, or result in the creation of
any lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company under, any provision of:
6
(i) the Certificate of Incorporation or Bylaws of the Company,
(ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, concession, franchise or
license (any of the foregoing, an "Instrument") applicable to the Company (other
than Instruments involving aggregate payments by or to the Company of $100,000
or less), or
(iii) subject to the governmental filings and other matters
referred to in Section 3.3(b) and approval of this Agreement by the Company's
shareholders, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to, or Company Permit (as defined in Section 3.7) of or
relating to, the Company or any of its properties or assets, other than, in the
case of clauses (ii) or (iii), any such conflicts, violations, defaults, rights,
offers, prepayments, payments, losses or liens, that, individually or in the
aggregate, would not have a Material Adverse Effect on the Company, materially
impair the ability of the Company to perform its obligations hereunder or
prevent the consummation of any of the transactions contemplated hereby.
Schedule 3.3(b) lists the amounts payable or that will or may become payable to
directors, officers or employees or former directors, officers or employees of
the Company as a result of the execution and delivery by the Company of this
Agreement or the consummation of the transactions contemplated hereby. Copies of
all contracts, agreements, instruments or other documents referred to in
Schedule 3.3(a) and (b) have been furnished to the Purchaser.
(b) No filing or registration with, or authorization, consent or
approval of, any domestic (federal and state), foreign or supranational court,
commission, governmental body, regulatory or administrative agency, authority or
tribunal (a "Governmental Entity") is required by or with respect to the Company
in connection with the execution and delivery of this Agreement by the Company
or the consummation by the Company of the transactions contemplated hereby,
except for (i) in connection or in compliance with the provisions of the
Securities Exchange Act of 1934, as amended (including the rules and regulations
promulgated thereunder, the "Exchange Act"), (ii) the filing of the Certificate
of Merger with the Department of State and appropriate documents with the
relevant authorities of other states in which the Company is qualified to do
business, (iii) such filings and approvals as may be required by any applicable
state securities or "blue sky" laws or state takeover laws, and (iv) such other
consents, orders, authorizations, registrations, approvals, declarations and
filings the failure of which to be obtained or made would not, individually or
in the aggregate, have a Material Adverse Effect on the Company, materially
impair the ability of the Company to perform its obligations hereunder or
prevent the consummation of any of the transactions contemplated hereby.
3.4 SEC Documents.
-------------
(a) Since May 1, 1998, the Company has filed all documents with the
Securities and Exchange Commission ("SEC") required to be filed under the
Securities Act of 1933, as amended (including the rules and regulations
promulgated thereunder) (the "Securities Act"), or the Exchange Act (such
documents filed with the SEC on or before the date of this Agreement being the
"Company SEC Documents"). As of their respective dates, (i) the Company SEC
Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and (ii) none of the
7
Company SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the Company SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited statements
contained in Quarterly Reports on Form 10-QSB of the Company, as permitted by
the Exchange Act) applied on a consistent basis during the periods involved
(except as may be indicated therein or in the notes thereto) and fairly present
in all material respects the financial position of the Company as at the dates
thereof and the results of its operations and changes in shareholders' equity
and cash flow for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments and to any other adjustments
described therein).
(b) Except as set forth in the Company SEC Documents, the Company has
no liability or obligation of any nature (whether accrued, absolute, contingent
or otherwise) which would be required to be reflected on a balance sheet, or in
the notes thereto, prepared in accordance with generally accepted accounting
principles, except for liabilities and obligations incurred in the ordinary
course of business consistent with past practice since January 31, 2001 which
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company.
(c) To the extent there are such and to the extent permitted by
applicable law, the Company has heretofore made available to the Purchaser a
complete and correct copy of any amendments or modifications which have not yet
been filed with the SEC to agreements, documents or other instruments which
previously have been filed with the SEC pursuant to the Exchange Act.
3.5 Absence of Certain Events. Other than a reserve of approximately
-------------------------
$500,000 that the Company may incur in connection with certain warranty items,
since January 31, 2001, the Company has operated its business only in the
ordinary course consistent with past practice and, except as contemplated by
this Agreement or disclosed in the Company SEC Documents, there has not occurred
(i) any Material Adverse Change in the Company; (ii) any change by the Company
in its accounting methods, principles or practices; (iii) any amendments or
changes in the Certificate of Incorporation or Bylaws of the Company; (iv) any
revaluation by the Company of any of its assets, including, without limitation,
write-offs of accounts receivable or write-offs or write-downs of inventory,
other than in the ordinary course of the Company's business consistent with past
practices; (v) any damage, destruction or loss with respect to property or
assets of the Company having a book value, individually or in the aggregate, of
in excess of $100,000; (vi) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
the Company, or any repurchase, redemption or other acquisition by the Company
of any outstanding shares of capital stock or other securities of, or other
ownership interests in, the Company; (vii) any grant of any severance or
termination pay to any director, officer or key employee of the Company; (viii)
any entry into any employment, deferred compensation or other similar agreement
(or any amendment to any such existing agreement) with any director, officer or
key employee of the Company; (ix) any increase in benefits payable under any
existing severance or termination pay policies or employment agreements with any
8
director, officer or key employee of the Company except in the ordinary course
of business consistent with past practice; or (x) any increase in compensation,
bonus or other benefits payable to directors, officers or key employees of the
Company except in the ordinary course of business consistent with past practice.
3.6 Litigation. Except as set forth in the Company SEC Documents,
----------
there are no actions, suits, proceedings, investigations or reviews pending
against the Company or, to the knowledge of the Company, threatened against the
Company, at law or in equity, or before or by any federal or state commission,
board, bureau, agency, regulatory or administrative instrumentality or other
Governmental Entity or any arbitrator or arbitration tribunal.
3.7 Compliance with Applicable Law. The Company holds all permits,
------------------------------
licenses, variances, exceptions, orders and approvals of all Governmental
Entities necessary for the lawful conduct of its business (the "Company
Permits"), except where the failure to hold any Company Permit, individually or
in the aggregate, is not reasonably likely to result in a Material Adverse
Effect on the Company. The Company is conducting its business in compliance in
all material respects with the terms of the Company Permits. The business of the
Company is not being, and has not been, conducted in violation in any material
respect of any law, Company Permit, ordinance or regulation of any Governmental
Entity.
3.8 Taxes. (i) The Company has filed all material Tax Returns required
-----
to have been filed on or before the date hereof, which returns are true and
complete in all material respects and all Taxes shown due thereon have been
paid; (ii) no issues that have been raised by the relevant taxing authority in
connection with the examination of the Tax Returns referred to in clause (i) are
currently pending; (iii) all deficiencies asserted or assessments made as a
result of any examination of the Tax Returns referred to in clause (i) by a
taxing authority have been paid in full or are being contested in good faith by
the Company; and (iv) a reserve which the Company reasonably believes to be
adequate has been set up for the payment of all such Taxes anticipated to be
payable in respect of periods through the date hereof. The Company has disclosed
on its federal income Tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income Tax within the meaning of
Section 6662 of the Internal Revenue Code of 1986, as amended (the "Code"). The
Company is not a party to any Tax allocation or sharing agreement. The Company
does not have any liability for the Taxes of any person under Treas. Reg. (ss.)
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise. Neither the Company nor the
Surviving Corporation will be obligated to make a payment to an individual that
would be a "parachute payment" to a "disqualified individual," as those terms
are defined in Section 280G of the Code, without regard to whether such payment
is to be made in the future. For purposes of this Agreement, (a) "Tax" (and,
with correlative meaning, "Taxes" and "Taxable") means any federal, state, local
or foreign income, gross receipts, property, sales, use, license, excise,
franchise, employment, payroll, premium, withholding, alternative or added
minimum, ad valorem, transfer or excise tax, or any other tax, custom duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty, imposed by any governmental authority,
and (b) "Tax Return" means any return, report or similar statement required to
be filed with respect to any Tax (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
9
3.9 Brokers. No broker, investment banker or other person is entitled
-------
to any broker's, finder's or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of the Company.
3.10 Opinion of Financial Advisor. The Special Committee and the Board
----------------------------
of Directors of the Company have received the opinion of Burnham Securities Inc.
to the effect that, as of the date hereof, the Merger Consideration in cash to
be received by the holders of shares of Firecom Stock and the holders of Company
Options is fair to such holders from a financial point of view.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER
The Purchaser represents and warrants to the Company as follows:
4.1 Organization, Standing and Power. The Purchaser is a corporation
--------------------------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
and authority to carry on its business as now being conducted.
4.2 Authority; Non-Contravention.
----------------------------
(a) The Purchaser has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Purchaser and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on its part. This Agreement has
been duly executed and delivered by the Purchaser and (assuming the valid
authorization, execution and delivery of this Agreement by the Company)
constitutes a valid and binding obligation of the Purchaser enforceable against
the Purchaser in accordance with its terms. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
and compliance with the provisions hereof will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or give rise to the loss of a material benefit under, or result
in the creation of any lien upon any of the properties or assets of the
Purchaser under, any provision of:
(i) the Certificate of Incorporation or Bylaws of the Purchaser,
(ii) any Instrument applicable to the Purchaser, or
(iii) subject to the governmental filings and other matters
referred to in Section 4.2(b), any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Purchaser or any of its
properties or assets, other than, in the case of clauses (ii) or (iii), any such
conflicts, violations, defaults, rights, offers, prepayments, payments, losses
or liens, that, individually or in the aggregate, would not have a Material
Adverse Effect on the Purchaser, materially impair the ability of the Purchaser
to perform its obligations hereunder or prevent the consummation of any of the
transactions contemplated hereby.
10
(b) No filing or registration with, or authorization, consent or
approval of, any Governmental Entity is required by or with respect to the
Purchaser in connection with the execution and delivery of this Agreement by the
Purchaser or the consummation by the Purchaser of the transactions contemplated
hereby, except for (i) in connection with or in compliance with the provisions
of the Exchange Act, (ii) the filing of the Certificate of Merger with the
Department of State and appropriate documents with the relevant authorities of
other states in which the Purchaser is qualified to do business, (iii) such
filings and approvals as may be required by any applicable state securities or
"blue sky" laws or state takeover laws, and (iv) such other consents, orders,
authorizations, registrations, approvals, declarations and filings the failure
of which to be obtained or made would not, individually or in the aggregate,
have a Material Adverse Effect on the Purchaser, materially impair the ability
of the Purchaser to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby.
4.3 Brokers. No broker, investment banker or other person is entitled
-------
to any broker's, finder's or other similar fee or commission in connection with
the transactions contemplated by this Agreement based upon arrangements made by
or on behalf of the Purchaser.
4.4 Litigation. There are no actions, suits, proceedings,
----------
investigations or reviews pending against the Purchaser or, to the knowledge of
the Purchaser, threatened against the Purchaser, at law or in equity, or before
or by any federal or state commission, board, bureau, agency, regulatory or
administrative instrumentality or other Governmental Entity or any arbitrator or
arbitration tribunal.
ARTICLE 5
COVENANTS
5.1 Alternative Proposals. Prior to the Effective Time, the Company
---------------------
agrees:
(a) that it shall not, nor shall it permit its officers, directors,
employees, agents and representatives (including, without limitation, any
investment banker, attorney or accountant retained by it) to, initiate, solicit
or knowingly encourage, directly or indirectly, any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its shareholders) with respect to a merger, acquisition,
consolidation or similar transaction involving, or any purchase of any equity
securities of, the Company or all or any significant portion of the assets of
the Company (any such proposal or offer being hereinafter referred to as an
"Alternative Proposal") or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person or
entity relating to an Alternative Proposal or otherwise take any action to
knowingly facilitate any effort or attempt to make or implement an Alternative
Proposal;
(b) that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any person or entity
conducted heretofore with respect to any of the foregoing and will take the
necessary steps to inform any such person or entity of the Company's obligations
under this Section 5.1; and
11
(c) that it will notify the Purchaser immediately if any such
inquiries or proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with, it; provided, however, that nothing contained in this Section 5.1 shall
prohibit the Board of Directors of the Company from (i) furnishing information
to or entering into discussions or negotiations with, any person or entity that
makes an unsolicited, bona fide Alternative Proposal that the Board of Directors
of the Company in good faith determines (in consultation with its financial
advisors) represents a financially superior transaction for the shareholders of
the Company as compared to the Merger, if, and only to the extent that, (A) the
Board of Directors of the Company, based upon the advice of outside counsel,
determines in good faith that such action is required for the Board of Directors
to comply with its fiduciary duties imposed by law and (B) prior to furnishing
such information to, or entering into discussions or negotiations with, such
person or entity, the Company provides written notice to the Purchaser to the
effect that it is furnishing information to, or entering into discussions or
negotiations with, such person or entity; and (ii) to the extent applicable,
complying with Rule 14e-2 promulgated under the Exchange Act with regard to an
Alternative Proposal. Nothing in this Section 5.1 shall (A) permit the Company
to terminate this Agreement (except as specifically provided in Article 7
hereof), (B) permit the Company to enter into any agreement with respect to an
Alternative Proposal for as long as this Agreement remains in effect unless the
Company shall have given the Purchaser 5 days' prior written notice of its
intent to terminate the Agreement during which period the Purchaser will have
the opportunity to match the consideration offered by any such Alternative
Proposal (if the Purchaser offers to match such consideration, the Agreement
shall be amended to increase the consideration and, if necessary, to extend time
periods to permit proxy recirculation (it being agreed that for as long as this
Agreement remains in effect, the Company shall not enter into any agreement with
any person that provides for, or in any way facilitates, an Alternative
Proposal), or (C) affect any other obligation of the Company under this
Agreement.
5.2 Interim Operations of the Company.
---------------------------------
(a) From and after the date of this Agreement until the Effective
Time, except as contemplated by any other provision of this Agreement, unless
the Purchaser has consented in writing thereto, the Company:
(i) shall conduct its operations according to its usual, regular
and ordinary course in substantially the same manner as heretofore conducted;
(ii) shall use its reasonable efforts to preserve intact its
business organization and goodwill, keep available the services of its officers
and employees and maintain satisfactory relationships with those persons having
business relationships with it;
(iii) shall not amend its Certificate of Incorporation or Bylaws
or comparable governing instruments;
(iv) shall promptly notify the Purchaser of any breach of any
representation or warranty contained herein or any Material Adverse Change with
respect to the Company;
12
(v) shall promptly deliver to the Purchaser true and correct
copies of any report, statement or schedule filed with the SEC subsequent to the
date of this Agreement;
(vi) (A) shall not, except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the date
hereof and disclosed pursuant to this Agreement, issue any shares of its capital
stock, effect any stock split or otherwise change its capitalization as it
existed on the date hereof and (B) shall not (x) grant, confer or award any
option, warrant, conversion right or other right not existing on the date hereof
to acquire any shares of its capital stock or grant, confer or award any bonuses
or other forms of cash incentives to any officer, director or key employee, (y)
except in the ordinary course of business consistent with past practice,
increase any compensation with any present or future officers, directors or key
employees, grant any severance or termination pay to, or enter into any
employment or severance agreement with any officer, director or key employee or
amend any such existing agreement in any material respect (other than pursuant
to severance agreements previously delivered to the Purchaser), or (z) adopt any
new employee benefit plan (including any stock option, stock benefit or stock
purchase plan) or amend any existing employee benefit plan in any material
respect;
(vii) shall not (i) declare, set aside or pay any dividend or
make any other distribution or payment with respect to any shares of its capital
stock or other ownership interests or (ii) directly or indirectly redeem,
purchase or otherwise acquire any shares of its capital stock or make any
commitment for any such action;
(viii) shall not sell, lease, abandon or otherwise dispose of any
of its assets or acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of or equity in, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire any assets, except in the
ordinary course of business consistent with past practice;
(ix) shall not incur or guarantee any indebtedness for borrowed
money or make any loans, advances or capital contributions to, or investments
in, any other person, or issue or sell any debt securities other than borrowings
under existing lines of credit and usual and customary advancement of expenses
in the ordinary course of business;
(x) shall not mortgage or otherwise encumber or subject to any
lien any of its properties or assets;
(xi) shall not make any change to its accounting (including tax
accounting) methods, principles or practices, except as may be required by
generally accepted accounting principles and except, in the case of tax
accounting methods, principles or practices, in the ordinary course of business
of the Company;
(xii) shall not make any commitment or enter into any contract or
agreement or make any capital expenditure except for (x) customer purchase
orders and purchases of raw materials used in the business of the Company agreed
to or made in the ordinary course of business consistent with past practice, (y)
any other commitment, contract and agreement involving aggregate payments to or
by the Company not in excess of $100,000, providing for termination without
13
notice by the Company on 90 or fewer days' notice, and made by the Company in
the ordinary course of business consistent with past practice or (z) capital
expenditures that individually or in the aggregate do not exceed $100,000;
(xiii) shall not revalue any of its assets, including, without
limitation, writing down the value of its inventory or writing off notes or
accounts receivable, other than in the ordinary course of business;
(xiv) shall not make any tax election except consistent with past
practice or settle or compromise any material income tax liability;
(xv) shall not settle or compromise any pending or threatened
suit, action or claim relating to the transactions contemplated hereby;
(xvi) shall not pay, discharge or satisfy any claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business of liabilities reflected or reserved against in, or
contemplated by, the financial statements (or the notes thereto) of the Company
or incurred in the ordinary course of business consistent with past practice; or
(xvii) shall not agree or otherwise commit to take any of the
foregoing actions or take, or agree to take, any action which would result in a
failure of the condition to Closing set forth in Section 6.3(a).
5.3 Meeting of the Company's Shareholders. The Company will take all
-------------------------------------
action necessary in accordance with applicable law and its Certificate of
Incorporation and Bylaws to convene a meeting of its shareholders (the "Meeting
of Shareholders") as promptly as practicable to consider and vote upon the
approval of this Agreement and the Merger. The Board of Directors of the Company
shall recommend such approval and the Purchaser and the Company shall each take
all lawful action to solicit such approval, including, without limitation,
timely mailing the Proxy Statement (as defined in Section 5.7); provided,
however, that such recommendation or solicitation is subject to any action
(including any withdrawal or change of its recommendation) taken (but only in
compliance with the proviso in Section 5.1(c)) by, or upon authority of, the
Board of Directors of the Company in the exercise of its good faith judgment
based upon the advice of outside counsel as to its fiduciary duties imposed by
law.
5.4 Filings, Other Action. Subject to the terms and conditions herein
---------------------
provided, the Company and the Purchaser shall:
(a) use all reasonable efforts to cooperate with one another in (i)
determining which filings are required to be made prior to the Effective Time
with, and which consents, approvals, permits or authorizations are required to
be obtained prior to the Effective Time from, any Governmental Entity in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and (ii) timely making all
such filings and timely seeking all such consents, approvals, permits or
authorizations; and
(b) use all reasonable efforts to take, or cause to be taken, all
other action and do, or cause to be done, all other things necessary, proper or
appropriate to consummate and make effective the transactions contemplated by
14
this Agreement. If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purpose of this Agreement, the proper
officers and directors of the Purchaser and the Company shall take all such
necessary action.
5.5 Inspection of Records. From the date hereof to the Effective Time,
---------------------
the Company shall (i) allow all designated officers, attorneys, accountants and
other representatives of the Purchaser reasonable access at all reasonable times
upon reasonable notice to the offices, records and files, correspondence, audits
and properties, as well as to all information relating to commitments,
contracts, titles and financial position, or otherwise pertaining to the
business and affairs, of the Company, (ii) furnish to the Purchaser's counsel,
financial advisors, auditors and other authorized representatives such financial
and operating data and other information as such persons may reasonably request,
(iii) instruct its employees, counsel and financial advisors to cooperate with
the Purchaser in the Purchaser's investigation of the business of the Company,
and (iv) make its management personnel available for discussions with
representatives of the Purchaser at mutually convenient times.
5.6 Publicity. The initial press release relating to this Agreement
---------
shall be a joint press release and thereafter the Company and the Purchaser
shall, subject to their respective legal obligations (including requirements of
stock exchanges and other similar regulatory bodies), consult with each other,
and use all reasonable efforts to agree upon the text of any press release,
before issuing any such press release or otherwise making public statements with
respect to the transactions contemplated hereby and in making any filings with
any Governmental Entity or with any national securities exchange (or other
similar regulatory body) with respect thereto.
5.7 Proxy Statement.
---------------
(a) The Company shall prepare and file with the SEC as soon as
practicable a preliminary form of the proxy statement (the "Proxy Statement") to
be mailed to the holders of Firecom Stock in connection with the Meeting of
Shareholders. The Company will cause the Proxy Statement to comply as to form in
all material respects with the applicable provisions of the Exchange Act. The
Company will use its reasonable best efforts to respond to any comments of the
SEC or its staff and to cause the Proxy Statement to be cleared by the SEC. The
Company will notify the Purchaser of the receipt of any comments from the SEC or
its staff and of any request by the SEC or its staff for amendments or
supplements to the Proxy Statement or for additional information and will supply
the Purchaser with copies of all correspondence between the Company or any of
its representatives, on the one hand, and the SEC or its staff, on the other
hand, with respect to the Proxy Statement prior to its being filed with the SEC
and shall give the Purchaser and its counsel the opportunity to review all
amendments and supplements to the Proxy Statement and all responses to requests
for additional information and replies to comments prior to their being filed
with, or sent to, the SEC. Each of the Company and the Purchaser agrees to use
its reasonable best efforts, after consultation with the other parties hereto,
to respond promptly to all such comments of and requests by the SEC. As promptly
as practicable after the Proxy Statement has been cleared by the SEC, the
Company shall mail the Proxy Statement to the shareholders of the Company. If at
any time prior to the approval of this Agreement by the Company's shareholders
15
there shall occur any event that should be set forth in an amendment or
supplement to the Proxy Statement, the Company will prepare and mail to its
shareholders such an amendment or supplement.
(b) The Company agrees that the Proxy Statement and each amendment or
supplement thereto at the time of mailing thereof and at the time of the Meeting
of Shareholders will not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing shall not apply to the
extent that any such untrue statement of a material fact or omission to state a
material fact was made by the Company in reliance upon and in conformity with
written information concerning the Purchaser furnished to the Company by the
Purchaser specifically for use in the Proxy Statement. The Purchaser agrees that
the information concerning the Purchaser provided by it in writing for inclusion
in the Proxy Statement and each amendment or supplement thereto, at the time of
mailing thereof and at the time of the Meeting of Shareholders will not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
5.8 Further Action. Each party hereto shall, subject to the
--------------
fulfillment at or before the Effective Time of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may be reasonably required to effect the Merger.
5.9 Expenses. Whether or not the Merger is consummated, all costs and
--------
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses except as
expressly provided herein.
5.10 Indemnification.
---------------
(a) From and after the Effective Time, the Purchaser agrees to, and
to cause the Surviving Corporation to, indemnify and hold harmless all past and
present officers and directors of the Company, including directors acting as
members of a committee of the Board of Directors (the "Indemnified Parties") to
the full extent such persons may be indemnified by the Company pursuant to the
Company's Certificate of Incorporation and Bylaws as in effect as of the date
hereof for acts and omissions occurring at or prior to the Effective Time and
shall advance reasonable litigation expenses incurred by such persons in
connection with defending any action arising out of such acts or omissions,
provided that such persons provide the requisite affirmations and undertakings,
as required by applicable law or set forth in the Company's Certificate of
Incorporation or Bylaws as in effect prior to the Effective Time.
(b) Any Indemnified Party will promptly notify the Purchaser and the
Surviving Corporation of any claim, action, suit, proceeding or investigation
for which such party may seek indemnification under this Section; provided,
however, that the failure to furnish any such notice shall not relieve the
Purchaser or the Surviving Corporation from any indemnification obligation under
this Section except to the extent the Purchaser or the Surviving Corporation is
prejudiced thereby. In the event of any such claim, action, suit, proceeding, or
investigation, (x) the Surviving Corporation will have the right to assume the
16
defense thereof by counsel reasonably acceptable to the Indemnified Parties, and
the Surviving Corporation will not be liable to such Indemnified Parties for any
legal expenses of other counsel or any other expenses subsequently incurred
thereafter by such Indemnified Parties in connection with the defense thereof,
except that all Indemnified Parties (as a group) will have the right to retain
one separate counsel, reasonably acceptable to such Indemnified Parties and the
Purchaser, at the expense of the indemnifying party if the named parties to any
such proceeding include both the Indemnified Parties and the Surviving
Corporation and the representation of such parties by the same counsel would be
inappropriate due to a conflict of interest between them, (y) the Indemnified
Parties will cooperate in the defense of any such matter, and (z) the Surviving
Corporation will not be liable for any settlement effected without its prior
written consent.
(c) The Certificate of Incorporation and Bylaws of the Surviving
Corporation shall contain provisions that are no less favorable to the past and
present officers and directors of the Company than those set forth as of the
date hereof in the Certificate of Incorporation of the Company and the Bylaws of
the Company, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would affect adversely the rights thereunder of individuals who at or at any
time prior to the Effective Time were entitled to indemnification thereunder.
(d) The Surviving Corporation shall use reasonable commercial efforts
to maintain in effect for six years from the Effective Time directors' and
officers' "tail" liability insurance covering those persons who are currently
covered by the Company's directors' and officers' liability insurance policy on
terms comparable to the existing coverage.
(e) This Section 5.10 is intended to benefit the Indemnified Parties
and shall be binding on all successors and assigns of the Purchaser, the Company
and the Surviving Corporation. The Purchaser hereby guarantees the performance
by the Surviving Corporation of the indemnified obligations pursuant to this
Section 5.10.
5.11 Takeover Statute. If any "fair price", "moratorium", "control share
----------------
acquisition" or other form of anti-takeover statute or regulation shall become
applicable to the transactions contemplated hereby, the Company and the members
of the Board of Directors of the Company shall grant such approvals and take
such actions as are reasonably necessary so that the transactions contemplated
hereby may be consummated as promptly as practicable on the terms contemplated
hereby and otherwise act to eliminate or minimize the effects of such statute or
regulation on the transactions contemplated hereby.
5.12 Conduct of Business by Purchaser Pending the Merger. Prior to the
---------------------------------------------------
Effective Time and subject to any applicable regulatory approvals, the Purchaser
shall (a) perform its obligations under this Agreement in accordance with the
terms hereof and thereof and take all other actions necessary or appropriate for
the consummation of the transactions contemplated hereby and (b) not engage
directly or indirectly in any business or activities of any type or kind
whatsoever and not enter into any agreements or arrangements with any person or
entity, or be subject to or be bound by any obligation or undertaking which is
not contemplated by this Agreement.
17
5.13 Conveyance Taxes. The Company and the Purchaser shall cooperate in the
----------------
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time.
ARTICLE 6
CONDITIONS TO MERGER
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
----------------------------------------------------------
respective obligation of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall
have been approved, in the manner required by applicable law or by the
applicable regulations of any stock exchange or other regulatory body, as the
case may be, by the holders of the issued and outstanding shares of capital
stock of the Company.
(b) Neither of the parties hereto shall be subject to any order or
injunction of a court of competent jurisdiction which prohibits the consummation
of the transactions contemplated by this Agreement. In the event any such order
or injunction shall have been issued, each party agrees to use its reasonable
efforts to have any such injunction lifted.
(c) All consents, authorizations, orders and approvals of (or filings
or registrations with) any Governmental Entity required in connection with the
execution, delivery and performance of this Agreement shall have been obtained
or made, except for filings in connection with the Merger and any other
documents required to be filed after the Effective Time and except where the
failure to have obtained or made any such consent, authorization, order,
approval, filing or registration would not have a Material Adverse Effect on the
Purchaser or the Company following the Effective Time.
6.2 Conditions to Obligation of Company to Effect the Merger. The
--------------------------------------------------------
obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The Purchaser shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Closing Date, and the representations and warranties of the Purchaser
contained in this Agreement and in any document delivered in connection herewith
shall be true and correct as of the Closing Date, except (i) for changes
specifically permitted by this Agreement or otherwise accepted in writing by the
Company, (ii) for non-performance or breaches which, separately or in the
aggregate, would not have a Material Adverse Effect on the Purchaser or on the
ability of the parties to consummate the transactions contemplated by this
Agreement and (iii) that those representations and warranties which address
matters only as of a particular date shall remain true and correct, in all
material respects, as of such date.
18
(b) The Company shall have received a certificate of the President or
a Vice President of the Purchaser, dated the Closing Date, certifying to the
effect of the preceding clause (a).
(c) The Board of Directors of the Company shall have received a
certificate of the President and the Chief Financial Officer of the Company,
dated that Closing Date, certifying to the effect of clause (a) of Section 6.3
insofar as it relates to the representations and warranties of the Company
contained in this Agreement or in any document delivered in connection herewith.
(d) There shall not have been any action taken, or any statute, rule,
regulation, order, judgment or decree proposed, enacted, promulgated, entered,
issued, or enforced by any Governmental Entity, and there shall be no action,
suit or proceeding pending (with a reasonable likelihood of success), which (i)
makes this Agreement, the Merger, or any of the other transactions contemplated
by this Agreement illegal or imposes or may impose material damages or penalties
in connection therewith, or (ii) otherwise prohibits, restricts, or delays
consummation of the Merger or any of the other transactions contemplated by this
Agreement in any material respect.
(e) Paul Mendez, Carol Mendez, Naomi Pollack, Nathan Barotz, Celia
Barotz, Orhan Sadik-Khan, Karim Sadik-Khan, Janette Sadik-Khan, Jan Sadik-Khan,
and the Sadik-Khan Family Trust (collectively, the "Proponents") shall have
transferred their shares of Firecom Stock to the Purchaser.
6.3 Conditions to Obligation of Purchaser to Effect the Merger. The
----------------------------------------------------------
obligation of the Purchaser to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Closing Date, and the representations and warranties of the Company
contained in this Agreement and in any document delivered in connection herewith
shall be true and correct as of the Closing Date, except (i) for changes
specifically permitted by this Agreement or otherwise accepted in writing by the
Purchaser, (ii) for non-performance or breaches which, separately or in the
aggregate, would not have a Material Adverse Effect on the Company or the
Purchaser or on the ability of the parties to consummate the transactions
contemplated by this Agreement and (iii) that those representations and
warranties which address matters only as of a particular date shall remain true
and correct, in all material respects, as of such date. The failure of the
Company to obtain the consent to any contract or agreement set forth on Schedule
3.3(a) shall not be a condition to the obligation of the Purchaser to effect the
Merger.
(b) The Purchaser shall have received a certificate of the President
or a Vice President of the Company, dated the Closing Date, certifying to the
effect of the preceding clause (a).
(c) From the date of this Agreement through the Effective Time, there
shall not have occurred any Material Adverse Change with respect to the Company.
19
(d) After the Effective Time, no person shall have any right under
any Stock Plan (or any Company Option granted thereunder) or other plan, program
or arrangement to acquire any equity securities of the Company.
(e) There shall not have been any action taken, or any statute, rule,
regulation, order, judgment or decree proposed, enacted, promulgated, entered,
issued, or enforced by any Governmental Entity, and there shall be no action,
suit or proceeding pending (with a reasonable likelihood of success), which (i)
makes this Agreement, the Merger, or any of the other transactions contemplated
by this Agreement illegal or imposes or may impose material damages or penalties
in connection therewith, (ii) requires the divestiture of a material portion of
the business of the Purchaser, or of the Company or of the Surviving Corporation
taken as a whole, (iii) imposes material limitations on the ability of the
Purchaser effectively to exercise full rights of ownership of shares of capital
stock of the Surviving Corporation (including the right to vote such shares on
all matters properly presented to the shareholders of the Surviving Corporation)
or makes the holding by the Purchaser of any such shares illegal or subject to
any materially burdensome requirement or condition, (iv) requires the Purchaser,
the Company, the Surviving Corporation or any of their respective material
affiliates to cease or refrain from engaging in any material business, or (v)
otherwise prohibits, restricts, or delays consummation of the Merger or any of
the other transactions contemplated by this Agreement in any material respect or
increases or may increase in any material respect the liabilities or obligations
of the Purchaser or the Surviving Corporation arising out of this Agreement, the
Merger, or any of the other transactions contemplated by this Agreement.
(f) The Proponents shall have transferred their shares of Firecom
Stock to the Purchaser.
(g) Not more than 10% of the outstanding shares of the Company
entitled to vote at the Meeting of Shareholders shall have perfected appraisal
rights in respect of the Merger.
ARTICLE 7
TERMINATION
7.1 Termination by Mutual Consent. This Agreement may be terminated
-----------------------------
and the Merger may be abandoned at any time prior to the Effective Time, before
or after the approval of this Agreement by the shareholders of the Company, by
the mutual consent of the Purchaser and the Company.
7.2 Termination by Either Purchaser or Company. This Agreement may be
------------------------------------------
terminated and the Merger may be abandoned by action of the Board of Directors
of either the Purchaser or the Company if (a) the Merger shall not have been
consummated by August 15, 2001, (b) the approval of the Company's shareholders
required by Section 6.1(a) shall not have been obtained at a meeting duly
convened therefor or at any adjournment thereof or (c) a United States federal
or state court of competent jurisdiction or United States federal or state
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
20
this Agreement and such order, decree, ruling or other action shall have become
final and non-appealable; provided, that the party seeking to terminate this
Agreement pursuant to this clause (c) shall have used all reasonable efforts to
remove such injunction, order or decree; and provided, in the case of a
termination pursuant to clause (a) above, that the terminating party shall not
have breached in any material respect its obligations under this Agreement in
any manner that shall have proximately contributed to the failure to consummate
the Merger by August 15, 2001.
7.3 Termination by Company. This Agreement may be terminated and the
----------------------
Merger may be abandoned at any time prior to the Effective Time, before or after
the adoption and approval by the shareholders of the Company referred to in
Section 6.1(a), by action of the Board of Directors of the Company, if (a) there
is an Alternative Proposal that the Board of Directors of the Company in good
faith determines (in consultation with its financial advisors) represents a
financially superior transaction for the shareholders of the Company as compared
to the Merger and in the exercise of its good faith judgment as to its fiduciary
duties imposed by law, as advised by outside counsel, the Board of Directors of
the Company determines that such termination is required by reason of such being
made; provided that the Company shall (i) notify the Purchaser promptly of its
intention to terminate this Agreement or to enter into a definitive agreement
with respect to any such Alternative Proposal (which notice shall describe the
material terms of such definitive agreement), and (ii) give the Purchaser 5 days
to increase the consideration payable hereunder to that payable pursuant to the
Alternative Proposal (if so increased this Agreement may not be terminated) but
in no event shall such notice be given less than 48 hours prior to the public
announcement of the Company's proposed termination of this Agreement; and
provided further that the right to terminate this Agreement pursuant to this
clause shall not be available if there has been a non-performance or breach by
the Company which has or would reasonably be expected to have resulted in a
failure of condition under Section 6.3(a) hereof, or (b) there has been a
non-performance or breach by the Purchaser which has or would reasonably be
expected to have resulted in a failure of condition under Section 6.2, which
non-performance or breach is not curable or, if curable, is not cured within 30
days after written notice of such non-performance or breach is given by the
Company to the Purchaser. Notwithstanding the foregoing, the Company's ability
to terminate this Agreement pursuant to Section 7.2 or this Section 7.3 is
conditioned upon the payment by the Company of any amounts owed by it pursuant
to Section 7.5(a) to the extent owed thereunder.
7.4 Termination by Purchaser. This Agreement may be terminated and the
------------------------
Merger may be abandoned at any time prior to the Effective Time, before or after
the approval by the shareholders of the Company referred to in Section 6.1(a),
by action of the Board of Directors of the Purchaser, if (i) the Board of
Directors of the Company shall have withdrawn or modified in a manner materially
adverse to the Purchaser its approval or recommendation of this Agreement or the
Merger or shall have recommended an Alternative Proposal to the Company's
shareholders, or (ii) there has been a non-performance or breach by the Company
which has or would reasonably be expected to have resulted in a failure of
condition under Section 6.3, which non-performance or breach is not curable or,
if curable, is not cured within 30 days after written notice of such
non-performance or breach is given by the Purchaser to the Company.
21
7.5 Effect of Termination and Abandonment.
-------------------------------------
(a) In the event that any person shall have made an Alternative
Proposal for the Company and (i) thereafter this Agreement is terminated
pursuant to Section 7.3(a) or clause (i) of Section 7.4 or (ii) this Agreement
is terminated for any other reason (other than the breach of this Agreement by
the Purchaser) and, in the case of this clause (ii) only, a transaction
contemplated by such Alternative Proposal is consummated within one year after
such termination (either of the foregoing events being called a "Payment
Event"), then the Company shall reimburse to the Purchaser its reasonably and
appropriately documented costs and expenses incurred in connection with the
Merger which amount shall be payable by wire transfer of same day funds either
on the date contemplated in the last sentence of Section 7.3 if applicable or,
otherwise, within two business days after such amount becomes due. The Company
acknowledges that the agreements contained in this Section 7.5(a) are an
integral part of the transactions contemplated in this Agreement, and that,
without these agreements, the Purchaser would not enter into this Agreement;
accordingly, if the Company fails to promptly pay the amount due pursuant to
this Section 7.5(a), and, in order to obtain such payment, the Purchaser
commences a suit which results in a judgment against the Company for the fee set
forth in this Section 7.5(a), the Company shall pay to the Purchaser its costs
and expenses (including attorneys' fees) in connection with such suit, together
with interest on the original amount at the prime rate as reported in The Wall
Street Journal on the date of such judgment.
(b) In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this Article 7, all obligations of the parties hereto
shall terminate, except the obligations of the parties pursuant to this Section
7.5 and except for the provisions of Sections 5.9, 8.3, 8.4, 8.6, 8.8, 8.9, 8.12
and 8.13. Moreover, in the event of termination of this Agreement pursuant to
Sections 7.2, 7.3 or 7.4, nothing herein shall prejudice the ability of the
non-breaching party from seeking damages from any other party for any willful
breach of any material provision of this Agreement, including without
limitation, attorneys' fees and the right to pursue any remedy at law or in
equity.
7.6 Extension, Waiver.
-----------------
At any time prior to the Effective Time, any party hereto, by action taken
by its Board of Directors, may, to the extent legally allowed, (i) extend the
time for the performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
22
ARTICLE 8
GENERAL PROVISIONS
8.1 Nonsurvival of Representations, Warranties and Agreements. All
---------------------------------------------------------
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall be deemed to the extent
expressly provided herein to be conditions to the Merger and shall not survive
the Merger, provided, however, that the agreements contained in Article 2 shall
survive the Merger.
8.2 Notices. Any notice required to be given hereunder shall be sufficient
-------
if in writing, and sent by courier service (with proof of service), hand
delivery or certified or registered mail (return receipt requested and
first-class postage prepaid), addressed as follows:
If to the Purchaser: If to the Company:
Mr. Paul Mendez Mr. Richard G. Scurry
ALRM Acquisition Inc. Chairman, Special Committee
c/o Firecom, Inc. Firecom, Inc.
39-27 59th Street 39-27 59th Street
Woodside, New York 11377 Woodside, New York 11377
With copies to: With copies to:
Thelen Reid & Priest LLP Squadron, Elenoff, Plesent & Sheinfeld, LLP
40 West 57th Street 551 Fifth Avenue
New York, NY 10019 New York, NY 10176
Attention: Gregory Katz, Esq. Attention: Jeffrey W. Rubin, Esq.
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
personally delivered or mailed.
8.3 Assignment; Binding Effect. Neither this Agreement nor any of the
--------------------------
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, except for the provisions of
Section 5.10, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
8.4 Entire Agreement. This Agreement, the Schedules, and any documents
----------------
delivered by the parties in connection herewith constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
23
prior agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
8.5 Amendment. This Agreement may be amended by the parties hereto, by
---------
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
shareholders of the Company, but after any such shareholder approval, no
amendment shall be made which by law requires the further approval of
shareholders without obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
8.6 Governing Law. This Agreement shall be governed by, and construed in
-------------
accordance with the laws of New York applicable to contracts executed and to be
performed entirely within that State without regard to the conflicts of laws
principles thereof.
8.7 Counterparts. This Agreement may be executed by the parties hereto in
------------
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
8.8 Headings. Headings of the Articles and Sections of this Agreement are
--------
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
8.9 Interpretation. In this Agreement, unless the context otherwise
--------------
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
8.10 Waivers. Except as provided in this Agreement, no action taken
-------
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
8.11 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
---------------------------------------
attached hereto and referred to herein are hereby incorporated herein and made a
part hereof for all purposes as if fully set forth herein.
8.12 Severability. Any term or provision of this Agreement which is invalid
------------
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
24
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
8.13 Confidentiality. The Purchaser agrees to treat confidentially all
---------------
non-public confidential information, trade secrets and proprietary business
practices and concepts (the "Evaluation Material"), disclosed by the Company to
the Purchaser at any time prior to the Closing Date. The Purchaser agrees to
transmit the Evaluation Material only to its employees, agents, financing
sources or partners, and others who need to know such information and who shall
be advised by the Purchaser of this provision and agree to be bound by the terms
hereof. In the event that the Purchaser is required (by oral questions,
interrogatories, requests for information or document subpoena, civil
investigative demand or similar process) to disclose any of the Evaluation
Material, it will provide the Company with prompt notice of such request(s) so
that the Company may seek an appropriate protective order and/or waive the
Purchaser's compliance with these provisions. It is further agreed that if, in
the absence of a protective order or the receipt of a waiver hereunder, the
Purchaser is nonetheless, in the opinion of its counsel, compelled to disclose
any of the Evaluation Material to any tribunal or else stand liable for contempt
or suffer other censure or penalty, the Purchaser may disclose such Evaluation
Material to such tribunal without liability hereunder. In the event that the
Merger is not effected after the Purchaser has been furnished with Evaluation
Material, it will promptly upon the request of the Company deliver to the
Company the Evaluation Material, without retaining any copy thereof. The term
"Evaluation Material does not include information which (i) becomes or has been
generally available to the public other than as a result of a disclosure by the
Purchaser or its representatives, (ii) was available to the Purchaser on a
non-confidential basis prior to its disclosure to the Purchaser by the Company
or its representatives, or (iii) becomes available to the Purchaser on a
non-confidential basis from a source other than the Company or its
representatives, provided, however, that such source is not bound by a
confidentiality agreement with the Company or its representatives.
8.14 Enforcement of Agreement. The parties hereto agree that irreparable
------------------------
damage would occur in the event any provision of this Agreement was not
performed in accordance with its specific terms or was otherwise breached. It is
accordingly agreed that the parties shall be entitled to obtain an injunction or
injunctions to prevent breaches of this Agreement, this being in addition to any
other remedy to which they are entitled at law or in equity. By each party's
execution and delivery hereof, such party hereby irrevocably submits to the
jurisdiction of any such court in connection with any such suit or proceeding,
irrevocably waives any objection, including any objection to the laying of venue
or based on the grounds of forum non conveniens, which it may now or hereafter
have to the bringing of any action or proceeding in such jurisdiction in respect
of this Agreement or any document related hereto and each waives personal
service of any summons, complaint or other process which may be made by any
other means permitted by New York law. The parties hereto irrevocably consent to
service of process in the manner described in Section 8.2 hereof, AND EACH PARTY
HERETO IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY SUIT OR PROCEEDING
BROUGHT TO ENFORCE OR INTERPRET THIS AGREEMENT.
25
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
FIRECOM, INC.
By: /s/ Paul Mendez
--------------------------------
Paul Mendez
President
ALRM ACQUISITION INC.
By: /s/ Paul Mendez
--------------------------------
Paul Mendez
President
26
ANNEX B
BURNHAM
SECURITIES INC.
April 3, 2001
Independent Committee and
The Board of Directors
Firecom, Inc.
39-27 59th Street
Woodside, NY 11377
Gentlemen:
We understand that Firecom, Inc. ("Firecom" or the "Company") has entered into a
Merger Agreement with ALRM Acquisition Inc., hereinafter, (the "Purchaser"),
which provides for, among other things, each share of Common Stock, $.01 par
value per share and each share of Class A Common Stock, $.01 par value per
share, of the Company, (other than those shares of the Company held by the
Purchaser) to be cancelled and extinguished and be automatically converted into
and become a right to receive $0.80 per share in cash upon surrender of the
certificate that evidenced the Shares and for each existing and vested option to
purchase shares of capital stock of the Company to be redeemed for an amount in
cash equal to $0.80 per share minus the exercise price of such option at the
date of the Merger Agreement (the "Proposed Transaction").
You have asked our opinion as investment bankers as to the fairness, from a
financial point of view, to the unaffiliated public shareholders of the Company
of the consideration to be received by them in the Proposed Transaction. As used
in this opinion, the term "unaffiliated public shareholders of the Company"
means shareholders of the Company other than Paul Mendez, Carol Mendez, Naomi
Pollack, Nathan Barotz, Celia Barotz, Orhan Sadik-Khan, Karim Sadik-Khan,
Janette Sadik-Khan, Jan Sadik-Khan and the Sadik-Khan Family Trust
(collectively, the "Offering Group") and the affiliates of the Offering Group.
In the course of our engagement, we have, among other things:
1) reviewed publicly available financial statements and SEC filings of Firecom
issued from 4/30/96 through the date of this opinion;
2) analyzed certain financial statements and other financial and operating
data concerning Firecom prepared by the management of the Company;
3) analyzed the historical trading history of the common stock of Firecom;
4) analyzed the current year's budget and actual results through 1/31/01
prepared by the management of Firecom with regard to its business
prospects;
5) discussed the past and current operations and financial condition and the
prospects of Firecom with senior executives of the Company;
6) visited the Woodside, NY facility of Firecom and engaged in discussions
with management;
7) compared the financial performance of Firecom and the prices and trading
activity of Firecom Common Stock with that of certain other comparable
publicly-traded companies and their securities;
8) compared the Proposed Transaction with other transactions involving public
and private companies that we deemed to be comparable;
9) analyzed the terms of two acquisitions closed by Firecom of companies
located in Minneapolis and San Francisco;
BURNHAM SECURITIES INC. PHONE: 212-262-3100, 800-881-6543
1325 Avenue of the Americas FAX: 212-603-7538
26th Floor EMAIL: info@bsibam.com
New York, NY 10019 www.burnhamfinancial.com
Independent Committee and
The Board of Directors
Firecom, Inc.
April 3, 2001
Page Two
10) reviewed prior purchases by Firecom of stock owned by unaffiliated
investors;
11) considered the competitive nature of Firecom's business and the dearth of
interest from other companies in acquiring Firecom;
12) as they became available, we reviewed drafts of the Merger Agreement, and
13D and 8K filings, and certain related documents; and
13) conducted other financial studies and analyses and performed such other
investigations and took into account such other factors as we deemed
necessary or appropriate for purposes of the opinion expressed herein.
In preparing our opinion, we have assumed and relied upon, without independent
verification, the accuracy and completeness of all of the financial and other
information, which we reviewed and analyzed in connection with this opinion.
With respect to the current year's budget and business prospects, we have
assumed that such information has been reasonably prepared on a consistent basis
with prior practice and that such information reflects the best currently
available estimates and judgments of the Company's management as to expected
financial performance. In addition, we have not made an independent evaluation
or appraisal of the assets or liabilities of Firecom. We were furnished with a
1999 Limited Appraisal in narrative summary format of the Company's Fee Simple
Estate at 39-27 59th Street, Woodside, NY. Our opinion is necessarily based on
economic, market and other conditions as they exist and as they can be evaluated
as of the date of this opinion. We have not been requested to opine upon, and
our opinion does not in any manner address Firecom's underlying business
decision to proceed with the Proposed Transaction. Furthermore, we have not been
requested to solicit or entertain any other offers of the purchase of the stock
or the assets of the Company or any other transaction involving the Company.
We have acted as financial advisor to the Independent Committee of the Board of
Directors of the Company in connection with this transaction and will receive a
fee for our services. The Company has agreed to indemnify us from certain
liabilities arising out of our engagement. Prior to this engagement, Burnham
Securities Inc. has provided no financial advisory or financing services to the
Company, nor has it received any fees from the Company, or any of its
affiliates.
It is understood that this letter is for the information of the Independent
Committee and the Board of Directors of the Company in its consideration of the
fairness of the Proposed Transaction to the unaffiliated public shareholders of
the Company, from a financial point of view. Our opinion does not constitute a
recommendation as to how any member of the Board of Directors or any stockholder
should vote on the Proposed Transaction and is not to be quoted or referred to,
in whole or in part, in any document, nor shall it be used for any other purpose
without our prior written consent, except that we hereby consent to the
inclusion of this opinion in its entirety in any filing made by the Company with
the Securities and Exchange Commission with respect to the Proposed Transaction.
Subject to the foregoing, on the basis of our review and analyses and such other
factors as we deemed relevant, it is our opinion that as of the date hereof the
consideration to be received by the unaffiliated public shareholders of Firecom
in the Proposed Transaction is fair from a financial point of view to the
unaffiliated public shareholders of the Company.
Very truly yours,
BURNHAM SECURITIES INC.
By: /s/ Richard Lewisohn, III
-------------------------------
Richard Lewisohn, III
Senior Managing Director
ANNEX C
DISSENTERS' RIGHTS PROVISIONS OF THE NEW YORK BUSINESS CORPORATION LAW
SS. 623. PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR SHARES
(a) A shareholder intending to enforce his right under a section of this
chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents and a demand for payment of
the fair value of his shares if the action is taken. Such objection is not
required from any shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to the
proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any shareholder
from whom written objection was not required and who elects to dissent shall
file with the corporation a written notice of such election, stating his name
and residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares. Any shareholder who
elects to dissent from a merger under section 905 (Merger of subsidiary
corporation) or paragraph (c) of section 907 (Merger or consolidation of
domestic and foreign corporations) or from a share exchange under paragraph (g)
of section 913 (Share exchanges) shall file a written notice of such election to
dissent within twenty days after the giving to him of a copy of the plan of
merger or exchange or an outline of the material features thereof under section
905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in paragraph (g),
but in no case later than sixty days from the date of consummation of the
corporate action except that if the corporation fails to make a timely offer, as
provided in paragraph (g), the time for withdrawing a notice of election shall
be extended until sixty days from the date an offer is made. Upon expiration of
such time, withdrawal of a notice of election shall require the written consent
of the corporation. In order to be effective, withdrawal of a notice of election
must be accompanied by the return to the corporation of any advance payment made
to the shareholder as provided in paragraph (g). If a notice of election is
withdrawn, or the corporate action is rescinded, or a court shall determine that
the shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares and he shall be reinstated to all his
rights as a shareholder as of the consummation of the corporate action,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than in cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
shareholder who has filed such notice of election to pay for his shares at a
specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his shares
to the corporation, as provided in paragraph (f), of an amount equal to eighty
percent of the amount of such offer, or (2) as to each shareholder who has not
yet submitted his certificates a statement that advance payment to him of an
amount equal to eighty percent of the amount of such offer will be made by the
corporation promptly upon submission of his certificates. If the corporate
action has not been consummated at the time of the making of the offer, such
advance payment or statement as to advance payment shall be sent to each
shareholder entitled thereto forthwith upon consummation of the corporate
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does not
2
constitute a waiver of any dissenters' rights. If the corporate action has not
been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statements to any shareholder to whom such balance sheet or
profit and loss statement or statements were previously furnished, nor if in
connection with obtaining the shareholders' authorization for or consent to the
proposed corporate action the shareholders were furnished with a proxy or
information statement, which included financial statements, pursuant to
Regulation 14A or Regulation 14C of the United States Securities and Exchange
Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment therefor shall be made within sixty days after the
making of such offer or the consummation of the proposed corporate action,
whichever is later, upon the surrender of the certificates for any such shares
represented by certificates.
(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and any
dissenting shareholder or shareholders fail to agree with it within the period
of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a special
proceeding in the supreme court in the judicial district in which the office of
the corporation is located to determine the rights of dissenting shareholders
and to fix the fair value of their shares. If, in the case of merger or
consolidation, the surviving or new corporation is a foreign corporation without
an office in this state, such proceeding shall be brought in the county where
the office of the domestic corporation, whose shares are to be valued, was
located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such proceeding
for the same purpose not later than thirty days after the expiration of such
twenty day period. If such proceeding is not instituted within such thirty day
period, all dissenter's rights shall be lost unless the supreme court, for good
cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid for
their shares, shall be made parties to such proceeding, which shall have the
effect of an action quasi in rem against their shares. The corporation shall
serve a copy of the petition in such proceeding upon each dissenting shareholder
who is a resident of this state in the manner provided by law for the service of
a summons, and upon each nonresident dissenting shareholder either by registered
3
mail and publication, or in such other manner as is permitted by law. The
jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as
to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not request
any such determination or if the court finds that any dissenting shareholder is
so entitled, it shall proceed to fix the value of the shares, which, for the
purposes of this section, shall be the fair value as of the close of business on
the day prior to the shareholders' authorization date. In fixing the fair value
of the shares, the court shall consider the nature of the transaction giving
rise to the shareholder's right to receive payment for shares and its effects on
the corporation and its shareholders, the concepts and methods then customary in
the relevant securities and financial markets for determining fair value of
shares of a corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall determine the fair
value of the shares without a jury and without referral to an appraiser or
referee. Upon application by the corporation or by any shareholder who is a
party to the proceeding, the court may, in its discretion, permit pretrial
disclosure, including, but not limited to, disclosure of any expert's reports
relating to the fair value of the shares whether or not intended for use at the
trial in the proceeding and notwithstanding subdivision (d) of section 3101 of
the civil practice law and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at such
rate as the court finds to be equitable, from the date the corporate action was
consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest which
the corporation would have had to pay to borrow money during the pendency of the
proceeding. If the court finds that the refusal of any shareholder to accept the
corporate offer of payment for his shares was arbitrary, vexatious or otherwise
not in good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs and
expenses, including the fees and expenses of its counsel and of any experts
employed by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees incurred by
the corporation against any or all of the dissenting shareholders who are
parties to the proceeding, including any who have withdrawn their notices of
election as provided in paragraph (e), if the court finds that their refusal to
accept the corporate offer was arbitrary, vexatious or otherwise not in good
faith. The court may, in its discretion, apportion and assess all or any part of
the costs, expenses and fees incurred by any or all of the dissenting
shareholders who are parties to the proceeding against the corporation if the
court finds any of the following: (A) that the fair value of the shares as
determined materially exceeds the amount which the corporation offered to pay;
(B) that no offer or required advance payment was made by the corporation; (C)
that the corporation failed to institute the special proceeding within the
period specified therefor; or (D) that the action of the corporation in
complying with its obligations as provided in this section was arbitrary,
vexatious or otherwise not in good faith. In making any determination as
4
provided in clause (A), the court may consider the dollar amount or the
percentage, or both, by which the fair value of the shares as determined exceeds
the corporate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be due
him, upon surrender of the certificates for any such shares represented by
certificates.
(i) Shares acquired by the corporation upon the payment of the agreed value
therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this section
at a time when the corporation is insolvent or when such payment would make it
insolvent. In such event, the dissenting shareholder shall, at his option:
(1) Withdraw his notice of election, which shall in such event be
deemed withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it
is liquidated, be subordinated to the rights of creditors of the corporation,
but have rights superior to the non-dissenting shareholders, and if it is not
liquidated, retain his right to be paid for his shares, which right the
corporation shall be obliged to satisfy when the restrictions of this paragraph
do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment for
his shares cannot be made because of the restrictions of this paragraph. If the
dissenting shareholder fails to exercise such option as provided, the
corporation shall exercise the option by written notice given to him within
twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment for
his shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in paragraph (e), and except that this
section shall not exclude the right of such shareholder to bring or maintain an
appropriate action to obtain relief on the ground that such corporate action
will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice to
be given by a corporation to a shareholder under this section shall be given in
the manner provided in section 605 (Notice of meetings of shareholders).
5
(m) This section shall not apply to foreign corporations except as provided
in subparagraph (e)(2) of section 907 (Merger or consolidation of domestic and
foreign corporations).
6
SS. 910. RIGHT OF SHAREHOLDER TO RECEIVE PAYMENT FOR SHARES UPON MERGER OR
CONSOLIDATION, OR SALE, LEASE, EXCHANGE OR OTHER DISPOSITION OF ASSETS, OR SHARE
EXCHANGE
(a) A shareholder of a domestic corporation shall, subject to and by
complying with section 623 (Procedure to enforce shareholder's right to receive
payment for shares), have the right to receive payment of the fair value of his
shares and the other rights and benefits provided by such section, in the
following cases:
(1) Any shareholder entitled to vote who does not assent to the taking
of an action specified in clauses (A), (B) and (C).
(A) Any plan of merger or consolidation to which the corporation is a
party; except that the right to receive payment of the fair value of his shares
shall not be available:
(i) To a shareholder of the parent corporation in a merger
authorized by section 905 (Merger of parent and subsidiary corporations), or
paragraph (c) of section 907 (Merger or consolidation of domestic and foreign
corporations); or
(ii) To a shareholder of the surviving corporation in a merger
authorized by this article, other than a merger specified in subclause (i),
unless such merger effects one or more of the changes specified in subparagraph
(b) (6) of section 806 (Provisions as to certain proceedings) in the rights of
the shares held by such shareholder; or
(iii) Notwithstanding subclause (ii) of this clause, to a
shareholder for the shares of any class or series of stock, which shares or
depository receipts in respect thereof, at the record date fixed to determine
the shareholders entitled to receive notice of the meeting of shareholders to
vote upon the plan of merger or consolidation, were listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc.
(B) Any sale, lease, exchange or other disposition of all or
substantially all of the assets of a corporation which requires shareholder
approval under section 909 (Sale, lease, exchange or other disposition of
assets) other than a transaction wholly for cash where the shareholders'
approval thereof is conditioned upon the dissolution of the corporation and the
distribution of substantially all of its net assets to the shareholders in
accordance with their respective interests within one year after the date of
such transaction.
(C) Any share exchange authorized by section 913 in which the
corporation is participating as a subject corporation; except that the right to
receive payment of the fair value of his shares shall not be available to a
shareholder whose shares have not been acquired in the exchange or to a
shareholder for the shares of any class or series of stock, which shares or
depository receipt in respect thereof, at the record date fixed to determine the
shareholders entitled to receive notice of the meeting of shareholders to vote
upon the plan of exchange, were listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
(2) Any shareholder of the subsidiary corporation in a merger
authorized by section 905 or paragraph (c) of section 907, or in a share
exchange authorized by paragraph (g) of section 913, who files with the
corporation a written notice of election to dissent as provided in paragraph (c)
of section 623.
(3) Any shareholder, not entitled to vote with respect to a plan of
merger or consolidation to which the corporation is a party, whose shares will
be cancelled or exchanged in the merger or consolidation for cash or other
consideration other than shares of the surviving or consolidated corporation or
another corporation.
2