SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
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 Section 240.14a-11(c)
or Section 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):
[ X ] No fee required.
[ ] 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:
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2) Aggregate number of securities to which
transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] 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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<PAGE>
FIRECOM, INC.
-----------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of Firecom, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Shareholders (the "Meeting") of FIRECOM, INC., a New York
corporation (the "Company"), will be held on Tuesday, November
18, 1997 at 2:00 P.M., at Chase Manhattan Bank, 11th Floor,
Conference Room C, 270 Park Avenue, New York, New York 10019 for
the following purposes:
1. To elect three of the Company's six directors to
serve until the 1999 Annual Meeting of Shareholders and until
their successors have been duly elected and qualified;
2. To act upon a proposal to approve an amendment to
the Company's Certificate of Incorporation to (i) authorize a new
class of common stock consisting of 10,000,000 shares and having
thirty votes per share and (ii) increase the aggregate number of
shares of the Common Stock the Company is authorized to issue
from 10,000,000 shares to 30,000,000 shares; and
3. To transact such other business as may properly
come before the Meeting or at any adjournment thereof.
Only holders of record of the Company's Common Stock,
$.01 par value, at the close of business on September 30, 1997,
which has been fixed as the record date for the Meeting, shall be
entitled to notice of, and to vote at, the Meeting and any
adjournments thereof.
Shareholders are cordially invited to attend the
Meeting in person. Whether or not you plan to attend the
Meeting, please sign, date and return the enclosed proxy card to
ensure that your shares are represented at the Meeting.
Shareholders who attend the Meeting may vote their shares
personally, even though they have sent in their proxies.
October 10, 1997
Paul Mendez, Chairman of the Board
IMPORTANT
THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. A
SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO
POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
<PAGE>
FIRECOM, INC.
----------------------
PROXY STATEMENT
Annual Meeting of Shareholders
November 18, 1997
----------------------
GENERAL
This Proxy Statement is furnished in connection with
the solicitation of proxies by the Board of Directors of FIRECOM,
INC., a New York corporation (the "Company"), to be voted at the
Annual Meeting of Shareholders of the Company (the "Meeting")
which will be held at Chase Manhattan Bank, 11th Floor,
Conference Room C, 270 Park Avenue, New York, New York 10019 on
November 18, 1997, at 2:00 P.M., local time, and at any
adjournment or adjournments thereof, for the purposes set forth
in the accompanying Notice of Annual Meeting of Shareholders and
in this Proxy Statement.
The principal executive offices of the Company are
located at 3927 59th Street, Woodside, New York 11377. The
approximate date on which this Proxy Statement and accompanying
Proxy will first be sent or given to shareholders is October 10,
1997.
VOTING SECURITIES AND VOTE REQUIRED
Only shareholders of record as of the close of business
on September 30, 1997 (the "Record Date") will be entitled to
notice of, and to vote at, the Meeting and at any adjournments
thereof. On the Record Date, there were outstanding 5,908,194
shares of the Company's common stock, $.01 par value (the "Common
Stock"). Each holder of Common Stock is entitled to one vote for
each share held by such holder. The presence, in person or by
proxy, of the holders of a majority of the outstanding shares of
Common Stock is necessary to constitute a quorum at the Meeting.
The election of directors requires the affirmative vote of a
plurality of the shares of Common Stock present and voting at the
Meeting or at any adjournment thereof. The approval of the
amendment to the Company's Certificate of Incorporation requires
the affirmative vote of the holders of a majority of all
outstanding shares of Common Stock.
VOTING OF PROXIES
A Proxy, in the accompanying form, which is properly
executed, duly returned to the Company and not revoked will be
voted in accordance with the instructions contained therein. If
no specification is indicated on the Proxy, the shares
represented thereby will be voted FOR the election of the three
directors and the approval of the amendment to the Certificate of
Incorporation. Each such Proxy granted may be revoked at any
time thereafter by execution and delivery of a subsequent Proxy
or by attendance and voting in person at the Meeting, except as
to any matter or matters upon which, prior to such revocation, a
vote shall have been cast pursuant to the authority conferred by
such Proxy. Mr. Paul Mendez, Chairman of the Board, President
and Chief Executive Officer of the Company, controls the vote of
approximately 73.6% of the outstanding Common Stock with respect
to the matters scheduled to come before the Meeting (see
"Security Ownership" and "Related Transactions"). Mr. Mendez has
advised the Company that he intends to vote all shares of Common
Stock controlled by him for the proposals stated herein, thereby
assuring the election of the three directors and the amendment of
the Certificate of Incorporation of the Company.
SECURITY OWNERSHIP
The following table sets forth certain information as of
September 30, 1997 regarding (i) the ownership of Common Stock of
the Company by each person who is known to the management of the
Company to have been the beneficial owner of more than 5% of the
outstanding shares of the Company's Common Stock, (ii) the
ownership interests of each present director, (iii) the ownership
interests of the Chief Executive Officer and other executive
officers of the Company whose total annual salary and bonus
exceeded $100,000 during the fiscal year ended April 30, 1997 and
(iv) the ownership interests of all directors and executive
officers of the Company as a group.
Name and Address of Position Amount and
Title of Beneficial with Nature of % of
Class Owner Company Beneficial Class
---------------------------- ----------- Ownership ----
-------------
Common Paul Mendez Chairman of the 4,351,289 73.6%
Stock 13 Coventry Road Board (1)(2)
$.01 par Livingston, NJ Chief Executive
value Officer and
Director
Ildar Idris None 353,354(1) 6.0%
15 Horvath Strasse
Grfeling 8032
West Germany
Carol Mendez None 1,164,250(1) 19.7%
13 Coventry Road
Livingston, NJ
Howard L. Kogen Executive Vice 179,500(3) 3.0%
President
Antoine J. Sayour Senior Vice 132,500(4) 2.2%
President
Orhan I. Sadik-Khan Director 757,370(1)(5) 12.8%
Hilary B. Miller Director 0 -
Ronald A. Levin Director 0 -
Peter Barotz Director 529,948(1)(6) 9.0%
Harry B. Levine Director 5,000 -
All executive 4,668,289 79.0%
officers (1)(2)(3)(4)
and directors as a
group (8 persons)
(1) Pursuant to a voting agreement with certain shareholders of
the Company, Paul Mendez, Carol Mendez and the other parties
thereto agreed that all shares of Common Stock held by Naomi
Pollack, Nathan Barotz, Celia Barotz and Lam Investment Co. (the
"Barotz Group"), Orhan Sadik-Khan, Dr. Ildar Idris, Karim Sadik-
Khan, Janette Sadik-Khan, Karen Sadik-Khan, Jan Sadik-Khan,
Kadria Sadik-Khan and the Sadik-Khan Family Trust (the "Sadik-
Khan Group"), Carol Mendez and Mr. Mendez shall be voted so that
(i) the Certificate of Incorporation shall be amended as proposed
herein and (ii) the Board of Directors of the Company shall
consist of six persons elected by the holders of the Common Stock
as follows: Mr. Sadik-Khan (or his designee), Mr. Barotz (or his
designee), Mr. Mendez and three persons designated by Mr. Mendez.
Currently, Mr. Mendez has a proxy to vote 2,565,543 shares of
Common Stock under such agreement.
(2) Includes 536,494 shares (the "Option Shares") for which Paul
Mendez has an irrevocable proxy to vote pursuant to an Option and
Escrow Agreement, dated as of July 18, 1995 (the "Option and
Escrow Agreement") between the Company and certain members of the
May family (the "Selling Shareholders"). Under the terms of the
Option and Escrow Agreement, each Selling Shareholder has the
right, but no the obligation, to require the Company to purchase,
on September 1, 1998, his or her Option Shares at a price of
$1.10 per share. At any time under the Option and Escrow
Agreement, the Company shall have the right, but not the
obligation, to purchase all of the Option Shares at a purchase
price of $1.25 per share. Under the terms of the Option and
Escrow Agreement, Mr. Mendez has an irrevocable proxy to vote the
Option Shares until the termination of the agreement. See
"Related Transactions."
(3) Includes 19,100 shares of Common Stock beneficially owned by
Mr. Kogen with his wife as joint tenants and 160,400 shares of
Common Stock underlying presently exercisable options.
(4) These shares include 20,300 shares of Common Stock
beneficially owned by Mr. Sayour with his wife as joint tenants
and 112,200 of Common Stock underlying presently exercisable
options.
(5) Includes shares of Common Stock beneficially owned by the
Sadik-Khan Group. See Note (1).
(6) Includes shares of Common Stock beneficially owned by the
Barotz Group. See Note (1).
PROPOSAL I
ELECTION OF DIRECTORS
---------------------
A total of three directors (Class A Directors) are to
be elected by the holders of the Company's Common Stock at the
Meeting to serve until the 1999 Annual Meeting of Shareholders.
Three other directors (Class B Directors) namely, Orhan I. Sadik-
Khan, Ronald A. Levin and Harry B. Levine, will be up for re-
election at the 1998 Annual Meeting of Shareholders.
A vacancy existed on the Board of Directors as a result
of the death of Robert E. Daly, a Class A Director elected at the
1995 Annual Meeting. On September 11, 1997, the Board of
Directors elected Mr. Hilary B. Miller to fill this vacancy. Mr.
Miller had previously served as a director representing holders
of the Company's Series A Preferred Stock, the holder of which
had the right to elect the Company's seventh director. On July
22, 1997, the Preferred Stock was exchanged for shares of Common
Stock. Consequently, the Board of Directors reduced the number
of directors to six pursuant to Article VIII, Section A(a) of the
Certificate of Incorporation.
There were four (4) meetings of the Board of Directors
of the Company held during the fiscal year ended April 30, 1997.
All directors attended 75% or more of the meetings of the Board.
Prior to July 1, 1995, directors of the Company who are not also
executive officers of the Company received an annual retainer of
$6,000 plus $1,000 for each Board meeting they attended. After
July 1, 1995, such directors receive an annual retainer of
$12,000 plus $1,000 for each Board meeting they attend. In
addition, each director, other than Mr. Mendez, is granted the
right to receive a cash payment equal to the increase in value of
20,000 shares of the Company's Common Stock from the date of
their first election or appointment to the Board, and payable
upon, the earliest to occur of various qualifying events. The
Company 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.
Directors shall be elected by a plurality of the votes
cast at the Meeting. The names of the nominees and certain
information with regard to each nominee follows:
CLASS A DIRECTORS (TO SERVE UNTIL THE 1999
ANNUAL MEETING OF SHAREHOLDERS)
HAS SERVED
AS DIRECTOR POSITION(S) WITH THE
NAME AGE SINCE COMPANY
---- --- ----------- ---------------------
Paul Mendez 54 1991 Chairman of the Board,
President, Chief Executive
Officer and Director
Peter Barotz 68 1993 Director
Hilary B.
Miller 47 1996 Director
Paul Mendez was elected director, Chairman of the Board
and President of the Company in July 1991. Since 1977,
Mr. Mendez has also been employed as Vice President of Multiplex
Electrical Services, Inc. ("Multiplex"), a company which is
engaged in the business of manufacturing, installing and
servicing fire alarm systems.
Peter Barotz was elected director of the Company in
April 1993. For more than the last five years, he 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 company engaged in the import-export business.
Hilary B. Miller was elected director of the Company in
September 1996 by Firecom Holdings, the sole holder of shares of
the Company's Series A Preferred Stock. Following the exchange
of the Preferred Stock for Common Stock in July 1997, Mr. Miller
was elected to the Board of Class A Directors. Since 1987, Mr.
Miller has served as President of Stanger, Miller, Inc., an
investment firm. Mr. Miller is also an attorney and has his own
law practice.
<PAGE>
Other Directors and Executive Officers
Set forth below is certain information regarding the
other directors and executive officers of the Company:
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
Howard L. Kogen 57 Executive Vice President
Antoine P. Sayour 47 Senior Vice President
William J. Lazich 53 Vice President--Finance, Chief
Financial Officer
Orhan I. Sadik-Khan 67 Director
Ronald A. Levin 54 Director
Harry B. Levine 61 Director
Howard L. Kogen joined the Company as Vice President--
Sales and Marketing in March 1984. Since April 1990, Mr. Kogen
has served as the Company's Executive Vice President and Chief
Operating Officer.
Antoine P. Sayour joined the Company as Chief Engineer
in 1984. Since 1990, Mr. Sayour has served the Company as its
Senior Vice President. For more than the past five years,
Mr. Sayour has also served as President of Fire Service, Inc., a
subsidiary of the Company.
William J. Lazich has served as the Company's Vice
President--Finance and Chief Financial Officer since joining the
Company is July 1997. From 1984 to immediately prior to his
joining the Company, Mr. Lazich served as Controller for North
American Communications, Inc., a Pennsylvania-based integrated
direct marketing company, engaged primarily in the manufacture
and distribution of specialized mail pieces for companies
throughout the United States.
Orhan I. Sadik-Khan was elected a director of the
Company in April 1993. For more than the last five years, he has
served as a Managing/Advisory Director of PaineWebber
Incorporated, President of ADI Corporation, a private venture
capital and financial consulting firm, and Managing Director of
Russia Partners Company Fund.
Ronald A. Levin was elected a director of the Company
in April 1993. For more than the last five years, he has been a
partner in the certified public accounting firm of Levin,
Bartlett & Co., Franklin Lakes, New Jersey, or its predecessor
firms.
Harry B. Levine is the President of Levine Securities,
Inc. ("Levine Securities"), a floor broker and member firm of the
New York Stock Exchange, Inc. Mr. Levine has served in such
capacity since the inception of Levine Securities in 1980.
There are no family relationships between any present
director or officer and any other present director or officer.
The Board of Directors of the Company has no standing
committees.
The Company is not aware of any Section 16(a) filing
deficiencies.
COMPENSATION AND OTHER BENEFITS
Summary Compensation Table
The following table sets forth certain information with
respect to cash compensation and other benefits paid or accrued
by the Company for services rendered to the Company during the
Company's last three fiscal years to each of the executive
officers of the Company whose aggregate remuneration exceeds
$100,000.
Annual Compensation
-------------------
Long-Term
Compensation
Name and Principal Fiscal Options/SAR
Position Year Salary Bonus Awards
------------------ ------ ------ ----- -----------
Paul Mendez 1997 $200,000 $184,031 0
Chairman and 1996 200,000 223,731 0
President
1995 150,000 201,264 0
Howard L. Kogen 1997 $138,000 $47,186
Executive Vice 1996 132,000 54,203
President
1995 129,000 49,566 66,000shs(1)
Antoine J. Sayour 1997 $118,420 $32,267
Senior Vice 1996 110,430 39,694
President
1995 106,430 39,075 63,000shs(1)
(1) Stock Option Award under the Company's Option Plan.
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTION/SAR'S OPTIONS/SAR'S
SHARES AT FY-END (#) AT FY-END ($)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- ----------- -------- ------------- -------------
Paul Mendez 0 0 400,000/ $170,000/
100,000 $42,500
Howard L. 0 0 160,400/ $110,410/
Kogen 39,600 $20,790
Antoine J. 0 0 112,200/ $76,605/
Sayour 37,800 $19,845
Stock Options
-------------
The Company adopted an Incentive and Non-Qualified
Stock Option Plan (the "Plan") which provided for the granting of
not more than 600,000 shares of Common Stock. The Plan is open
to officers, directors and certain employees of the Company and
will expire on April 30, 2001. Subject to the provisions of the
Plan with respect to death, retirement and termination of
employment, the maximum period during which each Option may be
exercised may be fixed by the Board at the time each Option is
granted but shall in no event exceed ten (10) years. The price
at which shares may be purchased upon exercise of a particular
Option shall be not less than eighty-five percent (85%) of the
fair market value of such shares on the date such Option is
granted, as determined by the Board. Options for an aggregate of
506,670 shares of Common Stock at exercise prices ranging from
$0.30 to $0.75 were outstanding under the Plan as of April 30,
1997.
Included in the aggregate outstanding were options to
purchase 51,000 shares at $.75 per share issued during the fiscal
year ended April 30, 1997. During the fiscal year, no options
were exercised and 40,000 options expired.
Directors' Compensation and SAR Awards
--------------------------------------
Directors of the Company who are not also executive
officers of the Company receive an annual retainer of $12,000
plus $1,000 for each Board meeting they attend. In addition each
director, other than Mr. Mendez, is granted the right to receive
a cash payment equal to the increase in value of 20,000 shares of
the Company's Common Stock from the date of their first election
or appointment to the Board, and payable upon, the earliest to
occur of various qualifying events. The Company 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. The Company recorded
a total liability of approximately $55,000 as of April 30, 1997
(versus an accrual of $40,000 at April 30, 1996) in respect of
these rights.
Concurrently with the execution of Mr. Mendez'
Employment Agreement, and as additional consideration thereunder,
Mr. Mendez and the Company entered into a stock appreciation
rights agreement pursuant to which Mr. Mendez was granted the
right to receive, in cash, the appreciation value (the
"Appreciation Rights") with respect to 500,000 shares of Common
Stock. The Appreciation Rights are exercisable in pro rata
installments over a five-year period and have initial value
prices ("base prices") as follows: 200,000 Appreciation Rights
have a base price of $.25 per share; 100,000 Appreciation Rights
have a base price of $.50 per share; 100,000 Appreciation Rights
have a base price of $1.00 per share; and 100,000 Appreciation
Rights have a base price of $1.50 per share. Notwithstanding
anything in the above agreement, Mr. Mendez shall not be entitled
to receive any cash payment as a result of the exercise of Rights
under the Agreement prior to May 1, 1996. The Company recorded a
total liability of approximately $202,000 as of April 30, 1997
(versus an accrual of $64,000 at April 30, 1996) in respect of
these rights.
Employment Agreements
---------------------
On December 31, 1992, Mr. Mendez and the Company
entered into an employment agreement (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 the Company, will be paid a base
salary at the rate of $150,000 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 the Company. Generally, Mr. Mendez will be entitled to
receive an amount equal to 6% of Adjusted EBIT if the Company's
Adjusted EBIT for any fiscal year is between $500,000 and $1
million and 8% of the Adjusted EBIT if the Company'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
the Company 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
$30,000. To the extent that the aggregate value of such benefits
does not exceed $30,000, Mr. Mendez may elect to receive the
differential in cash or applied to other fringe benefits of his
selection.
The Mendez Employment Agreement also provides that Mr.
Mendez' employment is terminated by him for "Good Reason"(as
defined below) or by the Company without Mr. Mendez' consent and
without Cause (as defined in the Mendez Employment Agreement) and
not due to death or disability of Mr. Mendez, Mr. Mendez shall be
entitled to receive (in addition to continuation of his executive
benefits) his base salary for the greater of two full years from
the date of termination or the remainder of the Mendez Employment
Agreement and whatever incentive compensation he would otherwise
been entitled to receive for the fiscal year during which his
employment is terminated. Good Reason is defined as the
occurrence, without Mr. Mendez' prior consent of (i) a reduction
in rank or an assignment of duties materially inconsistent with
Mr. Mendez' positions as Chairman of the Board and Chief
Executive Officer of the Company, without any substantial failure
of Mr. Mendez to perform such duties properly and effectively;
(ii) a reduction by the Company in Mr. Mendez' annual base salary
or a material reduction or elimination of his perquisites of
office or a substantial reduction or elimination of his aggregate
available employee benefits as in effect at December 31, 1992 or
as the same may be increased from time to time;(iii) a change in
the location at which Mr. Mendez' services are to be regularly
performed to a location out of the 30-mile radius of the Empire
State Building, New York, New York, without a comparable change
for other executive officers of the Company, or any willful,
material breach by the Company of any provision of Mr. Mendez'
Employment Agreement not cured within a period of ten business
days after receipt by the Company of written notice from Mr.
Mendez of his intention to resign for Good Reason because of such
breach; or(iv) the merger or consolidation of the Company with or
into any other entity as a result of which Mr. Mendez is reduced
in rank or is assigned duties with the surviving entity that are
materially inconsistent with his then present position(s) with
the Company. In addition. the Mendez Employment Agreement
provides that in the event of termination of Mr. Mendez'
employment thereunder due to death or disability (as defined
therein), the Company shall pay Mr. Mendez (or his estate, as the
case may be) his annual base salary for one year following his
termination of employment and whatever incentive compensation Mr.
Mendez would otherwise been entitled to receive for the fiscal
year during which his employment is terminated. The Mendez
Employment Agreement expires on April 30, 2000.
The Mendez Employment Agreement acknowledges Mr.
Mendez' beneficial ownership and involvement in Multiplex and
permits Mr. Mendez to devote reasonable periods of time to the
business of Multiplex, provided that his involvement with
Multiplex' business does not interfere with the performance of
his duties and obligations under the Mendez Employment Agreement
and that Mr. Mendez at all times complies with the guidelines for
limiting conflicts of interest between the Company and Multiplex
as previously adopted by the Board of Directors of the Company
and accepted by Mr. Mendez.
On March 28, 1995, the Mendez Employment Agreement was
amended to (i) extend the term of the Agreement through April 30,
2000, (ii) increase Mr. Mendez's annual base salary to $200,000,
effective May 1. 1995, and (iii) to increase Mr. Mendez's annual
benefit value threshold from $30,000 to $37,000.
The Company entered into a new employment agreement
with Mr. Kogen effective May 1, 1994 and expiring April 30, 1999.
In consideration of his services as Executive Vice President and
Chief Operating Officer of the Company, (i) Mr. Kogen is to
receive an annual salary of $129,000 effective May 1, 1994 and
(ii) is entitled to annual increases of approximately 3% to a
total of $145,000 effective on May 1, 1998 and (iii) will receive
a bonus based on the Operating Income of the Company. Kogen's
employment agreement also contains a six-month non-competition
provision following the term of the agreement or any extension
thereof.
The Company entered into a new employment agreement
with Mr. Sayour effective May 1, 1994 and expiring April 30,
1999. In consideration of his services as Senior Vice President
of the Company, (i) Mr. Sayour is to receive an annual salary of
$106,430 and (ii) is entitled to annual increases of
approximately $4,000 per year to a total of $122,857 effective on
May 1, 1998 and (iii) will receive a bonus based on the Operating
Income of the Company. Sayour's employment agreement also
contains a six-month non-competition provision following the term
of the agreement or any extension thereof.
PROPOSAL NO. 2
APPROVAL OF AN AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION
----------------------------
Description of Amendment and Distribution
-----------------------------------------
At the Annual Meeting, the shareholders of
the Company will be asked to consider and act upon a proposal
(the "Proposal") to amend (the "Amendment") Article IV of the
Company's Certificate of Incorporation to (a) authorize a new
class of common stock to be designated as "Class A Common Stock"
(the "Class A Common Stock") consisting of 10,000,000 shares
having a par value of $.01 per share and having 30 votes per
share, some of which shares the Company's Board of Directors
currently intends to distribute (the "Distribution") to
shareholders as a 100% share dividend on the Company's Common
Stock (the "Common Stock"); (b) increase the number of shares of
the Common Stock the Company is authorized to issue from
10,000,000 shares to 30,000,000 shares; and (c) fix and establish
the relative rights, powers and limitations of the Company's
Common Stock and Class A Common Stock. The currently outstanding
shares of common stock would continue to be designated as "Common
Stock." The Board of Directors will continue to have the right
to establish and designate series of Preferred Stock, but the
Amendment would eliminate the class of stock previously
designated as Series A Preferred Stock.
The full text of Article IV, as proposed to
be amended, is set forth as Exhibit A to this Proxy Statement.
As more fully described below, the purpose of the Proposal is to
(1) provide the Company with the flexibility to issue shares for
financing, acquisition and compensation purposes without diluting
the voting interests of any shareholders; and (2) enable
shareholders of the Company to sell portions of their equity
interest in the Company without materially reducing their voting
interests in the Company, and thereby facilitate continued
control by the existing shareholders.
The Board of Directors believes the Amendment
and the Distribution are in the best interests of the Company and
its shareholders and has directed that the Amendment be submitted
to a vote of the shareholders. See "Recommendation of the Board
of Directors". Under New York law and the Company's Certificate
of Incorporation, in order to approve the Amendment, the number
of votes cast by the holders of the Common Stock favoring the
Amendment must equal a majority of all outstanding shares
entitled to vote thereon. Mr. Mendez has indicated that he is in
favor of the Amendment and that he will vote all of the shares of
Common Stock over which he has voting power in favor of the
Amendment. As of September 30, 1997, Mr. Mendez controlled the
voting power over 4,351,289 shares of Common Stock, representing
approximately 73.6% of the outstanding shares of the Common
Stock.
If the Amendment is adopted by the
shareholders pursuant to the foregoing requirements, the Board of
Directors intends to file a Certificate of Amendment to the
Certificate of Incorporation of the Company with the Secretary of
State of the State of New York amending the Certificate of
Incorporation in accordance with the Amendment. The Amendment
will be effective immediately upon acceptance of filing by the
Secretary of State of the State of New York. The Board of
Directors would then be free to cause the issuance of the Class A
Common Stock without any further action on the part of the
shareholders. Although the Board of Directors presently intends
to file the Certificate of Amendment if the Amendment is approved
by the shareholders, the Board of Directors reserves the right to
abandon the Proposal and not file such Certificate of Amendment
even if the Amendment is approved by the shareholders.
If the shareholders approve the Amendment, it
is the present intention of the Board of Directors to declare a
dividend on the Common Stock of the Company payable in Class A
Common Stock on the basis of one share of Class A Common Stock
for each share of Common Stock outstanding. The record date for
the Distribution (the "Distribution Record Date") is expected to
be established promptly after the Amendment is approved and
adopted by the shareholders, and the Distribution would be made
as soon thereafter as is practicable. Shareholder approval of
the Distribution is not required by New York law and is not being
solicited by this Proxy Statement. Although the Board of
Directors presently intends to make the Distribution, the Board
of Directors reserves the right not to make the Distribution even
if the Amendment is approved by the shareholders and a
Certificate of Amendment is filed with the Secretary of State of
the State of New York.
The Board of Directors believes the Amendment
is in the best interests of the Company and its shareholders and
recommends that the shareholders vote FOR the Amendment.
Description of the Class A Common Stock
---------------------------------------
Under the Proposal, a new class of common
stock to be designated as Class A Common Stock will be created.
The rights, powers and limitations of the Common Stock and the
Class A Common Stock are set forth in full in Article IV of the
Company's Certificate of Incorporation, as proposed to be
amended. The full text of Article IV as proposed to be amended
is set forth as Exhibit A to this Proxy Statement and is
incorporated herein by reference. The following summary should
be read in conjunction with, and is qualified in its entirety by
reference to, such Exhibit A. The table set forth below
summarizes certain of the relative rights, powers, preferences
and limitations of the Common Stock and the Class A Common Stock
as proposed:
Class A
Common Stock Common Stock
------------ ------------
Voting rights (per share) . 1 30
Cash dividend rights (per Pro rata share of Same as Common
share) . . . . . . . . . . dividends as Stock
determined by Board
of Directors
Transferability . . . . . . Freely transferable Unless converted to
Common Stock, may
only be transferred
to certain
transferees
Preemptive rights . . . . . None None
Liquidation rights . . . . Pro rata share of Same as Common
assets remaining Stock
after payment of
all liabilities
_________________________
* Certain Federal and state securities law restrictions apply
to directors, officers, other affiliates and persons holding
"restricted" stock.
Voting. On matters brought before the
------
shareholders of the Company, each holder of Common Stock will continue
to be entitled to one vote for each share of Common Stock held and
each holder of Class A Common Stock will be entitled to thirty votes
for each share of Class A Common Stock held.
After the Amendment and Distribution, actions
submitted to a vote of shareholders will generally be voted on
only by holders of Common Stock and Class A Common Stock, voting
together as a single class, except that the holders of Common
Stock and Class A Common Stock will vote separately as classes
with respect to such matters as may require class votes under the
New York Business Corporation Law.
Dividends; Liquidation Rights. Holders of
-----------------------------
Common Stock and Class A Common Stock will be entitled to receive
ratably all such dividends, payable in cash or otherwise, as may be
declared by the Board of Directors out of assets or funds legally
available therefor, except that in the event of a stock dividend
or stock split (which occurs after the Distribution), only shares
of Class A Common Stock may be distributed with respect to the
Class A Common Stock and only shares of Common Stock may be
distributed with respect to the Common Stock.
The declaration and payment of cash dividends
is solely within the discretion of the Board of Directors, and
there can be no assurance that such dividends will be declared
and paid with any regularity. The Company has never paid any
dividend on its Common Stock and payment of such dividends is
restricted by the loan agreements with the Company's lenders.
The Board does not presently intend to declare cash dividends.
Holders of Common Stock and Class A Common
Stock will be equal and have the same rights with respect to
distributions in connection with a partial or complete
liquidation of the Company.
Transferability. The Common Stock will
---------------
continue to be freely transferable, and except for federal and
state securities law restrictions on directors, officers and
other affiliates of the Company and on persons holding
"restricted" stock, the Company's shareholders will not be
restricted in their ability to sell or transfer shares of Common
Stock. Holders of Class A Common Stock will be substantially
restricted in their ability to transfer Class A Common Stock
without converting the same to Common Stock (see
"Convertibility").
Mergers and Consolidations. Each holder of
--------------------------
Common Stock and Class A Common Stock will be entitled to receive
the same per share consideration in a merger or consolidation of
the Company (whether or not the Company is the surviving
corporation).
Convertibility. The Class A Common Stock
--------------
will be freely convertible at any time into Common Stock on a
share-for-share basis. If at any time the aggregate number of
outstanding shares of Class A Common Stock as reflected on the
stock transfer books of the Company falls below 1% of the
aggregate number of outstanding shares of Common Stock and
Class A Common Stock, then, immediately upon the occurrence of
such event, all the outstanding shares of Class A Common Stock
shall be automatically converted into shares of Common Stock, on
a shareforshare basis. For purposes of the immediately preceding
sentence, any shares of stock repurchased by the Company shall no
longer be deemed "outstanding" from and after the date of
repurchase.
In the event of any such conversion of the
Class A Common Stock, certificates which formerly represented
outstanding shares of Class A Common Stock will thereafter be
deemed to represent a like number of shares of Common Stock.
Preemptive Rights. Neither the Common Stock
-----------------
nor the Class A Common Stock will carry any preemptive rights
enabling a holder to subscribe for or receive shares of any class
of stock of the Company or any other securities convertible into
shares of any class of stock of the Company.
Recommendation of the Board of Directors
----------------------------------------
The Proposal was initially considered and
discussed at a meeting of the Board of Directors held on
September 11, 1997. The Proposal's terms, likely benefits and
possible disadvantages were discussed. During the September 11,
1997 meeting, the Board unanimously approved the Proposal and its
submission to the shareholders of the Company for their approval.
For the reasons described below under
"Reasons for the Proposal", the Board of Directors believes that
the Proposal offers a number of potential benefits and that
adoption of the Proposal is in the best interests of the Company
and all of its shareholders. Primarily, the Board believes the
Amendment should enable the Company to increase its financial
flexibility and provide for its long-term growth by providing the
Company the ability to issue shares of Common Stock or other debt
or equity securities convertible into Common Stock for financing,
acquisition and compensation purposes without significantly
diluting the voting power of existing shareholders. The Proposal
also provides shareholders with the flexibility to sell a portion
of their equity interest without diluting their voting power.
Any such dilution of the voting interest of Paul Mendez could, in
the opinion of the Board, adversely affect the continuity of the
Company's management and operating policies.
The Board of Directors believes that the
Amendment and the Distribution are in the best interests of the
Company and its shareholders and recommends that you vote FOR the
adoption of the Amendment. The Board of Directors suggests that
each shareholder carefully read and review the description of the
Amendment and the Distribution and certain effects thereof which
are set forth herein.
Reasons for the Proposal
------------------------
The Board believes that a capital structure
including the Class A Common Stock will offer a number of
potential benefits to the Company and its shareholders. These
benefits are described below.
Financing Flexibility. Implementation of the
---------------------
Proposal would provide the Company with increased flexibility in
the future to issue equity securities in connection with
acquisitions and existing and future employee benefit and
incentive plans, and to raise equity capital or to issue
convertible debt as a means to finance future growth, without
diluting the voting power of the Company's existing shareholders,
including Mr. Mendez. The Company has not heretofore generally
issued Common Stock to finance its operations or acquisitions.
Furthermore, Mr. Mendez has indicated to the Company's Board of
Directors that he would react negatively as a shareholder of the
Company toward the issuance of Common Stock under circumstances
which would materially dilute his voting control.
The Company has no present plans to issue
additional equity securities or convertible securities in any
acquisition or financing transaction after the implementation of
the Proposal. If the Company issues any shares for such
purposes, however, it is more likely that the shares issued would
be Common Stock. See "Certain Effects of the Proposal -- Effect
on Market Price."
Shareholder Flexibility. Under the Proposal,
-----------------------
shareholders desiring to maintain their voting positions will be
able to do so substantially even if they decide to sell or
otherwise dispose of up to 50% of their equity interest in the
Company. The Proposal thus gives all shareholders, including Mr.
Mendez, increased flexibility to dispose of a portion of their
equity interest in the Company without substantially affecting
their relative voting power. See "Continuity" below.
Shareholders who are interested in
maintaining their voting power in the Company might be less
reluctant to sell part of their holdings if the sales of shares
would not result in a substantial decrease in their relative
voting power. Sales by these shareholders could result in an
increase in trading of shares of the Company, thereby increasing
liquidity. Implementation of the Proposal would double the
number of outstanding shares of the Company's common stock,
including those in the hands of holders other than Mr. Mendez,
and therefore, would likely further improve the liquidity of an
investment in the Company.
Continuity. The Proposal would facilitate
----------
the Mendez family's continued ownership of a substantial portion
of the Company's voting securities even if it should find it
necessary to sell a significant block of stock for
diversification, for estate tax obligations or for other reasons,
and thereby enable the Company to continue to be managed based on
long-term objectives, which the Company's Board of Directors
considers to be a significant benefit to the Company and its
shareholders.
The Board of Directors continues to believe
the leadership of Mr. Mendez has been and continues to be an
important factor in the Company's growth and success. See
"Business Relationships." By providing a means by which
shareholders, including Mr. Mendez, may sell or otherwise dispose
of a portion of their equity interest without substantially
reducing their voting control, the Proposal also reduces the risk
that the Company could at some future date be compelled to
consider a potential acquisition of the Company in an environment
that could be dictated to the Company and the Board by the
financial circumstances of Paul Mendez or by third parties who
may be anticipating or speculating about such circumstances. The
Board of Directors believes this independence is necessary to
continue a long-term earnings growth posture.
Certain Effects of the Proposal
-------------------------------
Effect on Relative Ownership Interest and
Voting Power. -----------------------------------------
------------
Since the Distribution is to be made to all shareholders in
proportion to the number of shares of Common Stock owned on the
Distribution Record Date by each shareholder, the relative
ownership interest and voting power of each holder of a share of
Common Stock will be the same immediately after the Distribution
as it was immediately prior thereto. Under the Proposal,
shareholders who sell shares of Class A Common Stock after the
Distribution will lose a greater amount of voting control in
proportion to equity than they would have prior to the
Distribution. Conversely, shareholders who sell shares of Common
Stock after the Distribution will retain a greater amount of
voting control in proportion to equity. Shareholders desiring to
maintain a long-term investment in the Company will be free to
continue to hold the Common Stock and Class A Common Stock and
retain the benefits of the voting power attached to such classes
of common stock.
As of September 30, 1997, members of the Paul
Mendez Family had sole or shared voting or dispositive power over
an aggregate of 4,351,289 shares of Common Stock, including
2,565,543 shares over which Mr. Mendez has a proxy to vote with
respect to the amendment of the Certificate of Incorporation as
proposed herein and the election of the Company's directors. The
aggregate of 4,351,289 shares represent 73.6% of the voting power
of the Company. Accordingly, the Paul Mendez Family will receive
voting or dispositive power over an aggregate of approximately
4,351,289 shares of Class A Common Stock in connection with the
Amendment and the Distribution. If the Mendez Family, following
the Distribution, were to sell all of the shares of Common Stock,
the Mendez Family would still have at least 71% of the voting
power of the Company, assuming no other change. The foregoing is
for illustrative purposes only and is in no way intended to
suggest that the Mendez Family has any intention of selling any
or all of its shares of Common Stock following the Distribution.
It is the present intention of members of the Mendez Family to
hold the shares of Common Stock and Class A Common Stock.
Effect on Market Price. The market price of
----------------------
Common Stock and Class A Common Stock after the Distribution will
depend, as before the implementation of the Proposal, on many
factors including, among others, the future performance of the
Company, general market conditions and conditions relating to
corporations in industries similar to that of the Company.
Accordingly, the Company cannot predict the prices at which the
Common Stock will trade following the adoption of the Amendment
and the Distribution, just as the Company could not predict the
price at which the Common Stock would trade absent the Amendment
and the Distribution. It is expected, however, that the market
price of the Common Stock will reflect the effect of a two-for-
one stock split. Absent other factors, the Common Stock is
therefore expected to trade at approximately onehalf the price of
the Common Stock prior to implementation of the Proposal. On
September 30, 1997, the closing bid and asked price of the Common
Stock was $____ and ____ per share.
No assurance can be given that the Common
Stock will trade at the same price or within a narrow range of
prices. See "Dilutive Effect; Effect on Book Value and Earnings
Per Share."
Dilutive Effect; Effect on Book Value and
Earnings Per Share. -----------------------------------------
------------------
As noted above, the primary purpose of creating the Class A
Common Stock is to provide the Company with an alternative equity
financing vehicle which does not substantially dilute the voting
rights of the existing shareholders. The Distribution, which
would be made ratably to each holder of Common Stock, will not
dilute the voting or other economic interests of the holders of
the Common Stock.
Although the interests of each shareholder in
the total equity of the Company will remain unchanged as a result
of the Distribution, the issuance of the Class A Common Stock
pursuant to the Distribution will cause the book value and
earnings per share of the Company to be adjusted to reflect the
increased number of shares outstanding. Although implemented in
the form of a dividend, for accounting purposes the Distribution
will have the same effect as a two-for-one stock split.
Trading Market. Subsequent to the
--------------
Distribution, there will be issued and outstanding approximately
5,908,194 shares of Common Stock and 5,908,194 shares of Class A
Common Stock, respectively. In order to minimize dilution of the
voting power of the existing shareholders, the Company is more
likely to issue additional Common Stock than Class A Common Stock
in the future to raise equity, finance acquisitions or fund
employee benefit plans. Furthermore, members of the Mendez
family are more likely to sell Common Stock over time than
Class A Common Stock. Any such issuance of additional Common
Stock by the Company or sales of Common Stock by members of the
Mendez family or other major shareholders may serve to further
increase market activity in the Common Stock.
Federal Income Tax Consequences. Reid &
-------------------------------
Priest LLP, counsel to the Company, has advised the Company that,
in general, for federal income tax purposes, (i) the proposed
distribution of the Class A Common Stock will not be taxable to a
shareholder; (ii) the cost or other basis of the shares of Common
Stock held by a shareholder on the Distribution Record Date will
be apportioned between the shares of Common Stock and the shares
of Class A Common Stock received in the Distribution in
proportion to the fair market value of the shares of each class
of stock on the date that the Distribution is distributed; and
(iii) a shareholder's holding period for the shares of Class A
Common Stock received with respect to the dividend will be the
same as such shareholder's holding period for the shares of
Common Stock with respect to which the shares of Class A Common
Stock were received. The preceding sentence constitutes the
opinion of Reid & Priest LLP, counsel to the Company, regarding
the material federal income tax consequences of the Proposal.
Shareholders are urged to consult their tax advisors with
specific reference to their own tax situation.
Securities Act of 1933. The issuance of the
----------------------
Class A Common Stock as a stock dividend will not involve a
"sale" of a security under the Securities Act of 1933 (the
"Securities Act"). Consequently, the Company is not required to
register and will not register under the Securities Act of 1933
the issuance of Class A Common Stock. Since there will be no
sale of the Class A Common Stock, shareholders will not be deemed
to have purchased such shares separately from the Common Stock
under the Securities Act and Rule 144 thereunder. Shares of
Class A Common Stock received in the Distribution, other than any
such shares received by affiliates, or holders of restricted
securities as of the Distribution Record Date, of the Company
within the meaning of the Securities Act, may be offered for sale
and sold in the same manner as the Common Stock without
registration under the Securities Act. Affiliates of the
Company, including members of the Mendez Family, will continue to
be subject to the restrictions specified in Rule 144 under the
Securities Act, with each class of common stock considered
separately.
NASDAQ Criteria. The Common Stock is
---------------
currently traded in the over-the-counter market. The price and
distribution of the Company's Common Stock do not meet the
minimum listing qualifications of NASDAQ SmallCap Market
("NASDAQ"). The Amendment and the Distribution is likely to have
an adverse effect, similar to a two-for-one stock split, on the
price of the Common Stock, which may fall further below NASDAQ's
minimum price requirement. A reverse stock split may adjust the
possible decrease in the price of the Common Stock following the
Distribution, but would decrease the distribution of the Common
Stock. Thus, a reverse stock split is not likely to remedy the
potentially detrimental effect of the Distribution on the Common
Stock's ability to meet NASDAQ listing criteria. The Amendment
would also create classes of Common Stock with disparate voting
rights, upon which NASDAQ looks with disfavor; however, since the
Amendment and the Distribution would occur before the Company
makes an application for the Common Stock to be quoted on NASDAQ,
the Common Stock and the Class A Common Stock may qualify for a
"grandfather" exemption. There is no assurance that the
Company's Common Stock will be accepted for quotation on NASDAQ,
with or without the Amendment, or that such exemption would
apply.
Increase in Authorized Stock. The Amendment
----------------------------
would increase the number of shares of Common Stock which could
be issued from 10,000,000 shares to 30,000,000 shares. Of the
10,000,000 shares of Common Stock authorized, there are issued
and outstanding 5,908,194 shares of Common Stock. The Amendment
would, however, authorize 10,000,000 shares of Class A Common
Stock, of which approximately 5,908,194 shares of Class A Common
Stock would be issued in connection with the Distribution. The
remaining 4,091,806 shares of Common Stock and Class A Common
Stock could be issued by the Company from time to time without
further shareholder approval. The Board of Directors believes it
is desirable to have the additional shares of Common Stock and
Class A Common Stock available for possible future financing and
acquisition transactions, and other general corporate purposes.
The Board of Directors also believes that having such additional
authorized shares available for issuance in the future will give
the Company greater flexibility and may allow such shares to be
issued without the expense and delay of a special shareholder's
meeting. The Company does not presently have any agreement,
understanding, arrangement or plans that would result in the
issuance of any of the additional shares of Common Stock and
Class A Common Stock to be authorized, except pursuant to the
Distribution. Unissued shares of Common Stock and Class A Common
Stock could be issued in circumstances that would serve to
preserve control of the Company's then existing management.
Certain Potential Disadvantages of the Proposal
-----------------------------------------------
While the Board of Directors has determined
that implementation of the Proposal is in the best interests of
the Company and its shareholders, the Board recognizes that
implementation of the Proposal may result in certain
disadvantages, including the following.
AntiTakeover Effect. Under the
-------------------
present circumstances the Mendez family has the ability to
approve or disapprove any acquisition of the Company in a
transaction involving a merger, consolidation or sale of assets
because of the voting power of the shares held by them.
Virtually all corporate acquisitions take one of these three
forms except acquisitions in the form of a tender offer to buy
shares from the shareholders directly, a transaction that would
not be likely in the case of the Company because, unless the
members of the Mendez family tender their shares, the acquiror
could not obtain voting control through a tender offer. The
Amendment and the Distribution will not change the fact that the
Mendez Family has sufficient voting power to disapprove a merger,
consolidation or sale of assets of the Company, nor will the
Proposal immediately give the Mendez family any greater voting
control. However, by allowing the Company to issue a substantial
number of shares of Common Stock without causing a loss of the
special voting rights of the holders of the Class A Common Stock
and by enabling the holders of the Class A Common Stock to
dispose of up to onehalf of their investment in the Company
without substantially affecting their voting power, the Amendment
and the Distribution may continue to make the Company a less
attractive target for a takeover bid than it otherwise may have
been, or continue to render more difficult or discourage a merger
proposal, an unfriendly tender offer, a proxy contest or the
removal of incumbent directors or management, even if such
actions were favored by the shareholders of the Company other
than the Mendez family.
Although the Board of Directors considers it
to be in the best interests of all of the shareholders to put the
Company in a position where it can issue equity securities
without making itself more vulnerable to hostile takeovers, the
impeding of hostile takeovers could mean that shareholders will
lose a chance to sell their shares at a premium over prevailing
market prices since hostile takeovers frequently involve the
purchase of stock directly from shareholders at a premium price.
While the Board believes that this may be true, it also believes
that the advantages of the Amendment and the Distribution
significantly outweigh this disadvantage. See "Recommendation of
the Board of Directors;" "Reasons for the Proposal." Making the
Company less vulnerable to a hostile takeover also means that any
proposed acquisition of the Company would have to be negotiated
with its management, and this process could result in receipt of
an even greater premium. The Company is not aware of any
existing or planned effort on the part of any party to attempt an
acquisition of the Company. The Company has no present intention
of seeking any such transaction.
State Statutes. Some state
--------------
securities statutes contain provisions which, following the
issuance of shares of Class A Common Stock, may restrict
offerings of equity securities by the Company or the secondary
trading of its equity securities in such states. Because of the
availability of applicable exemptions from such restrictions and
because such restrictive provisions would only apply to offers or
sales made in a limited number of states, the Company does not
believe that such provisions will materially adversely affect the
aggregate amount of equity securities which the Company will be
able to offer, the price obtainable for its equity securities in
such offerings or the secondary trading market for its equity
securities.
Brokerage Costs; Security for Credit. As is
------------------------------------
typical in connection with any stock split, brokerage charges and
stock transfer taxes, if any, may be somewhat higher with respect
to purchases and sales of Common Stock after the Distribution,
assuming transactions of the same dollar amount, because of the
increased number of shares involved. The Company does not expect
that the adoption of the Amendment and the Distribution will
affect the ability of holders to use the Class A Common Stock or
Common Stock as security for the extension of credit by financial
institutions or securities brokers or dealers.
Interests of Certain Persons
----------------------------
The Mendez Family has an interest in the
implementation of the Proposal because, as noted above, the
Proposal may enhance the ability of members of the Mendez Family
to retain voting control of the Company even if they dispose of a
substantial portion of their shares of Common Stock. See "Reasons
for the Proposal;" "Certain Potential Disadvantages of the
Proposal."
Expenses
--------
The costs of proceeding with the Proposal
(such as transfer agent's fees, printing, engraving and mailing
costs and legal fees) will be charged against the Company's
pretax earnings. The approximate cost of proceeding with the
Proposal is estimated to be $15,000, inclusive of fees of legal
advisors.
THE BOARD OF DIRECTORS BELIEVES THAT THE
AMENDMENT IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS AND THEREFORE UNANIMOUSLY RECOMMENDS THAT THE
COMPANY'S SHAREHOLDERS VOTE FOR THE ADOPTION OF THE AMENDMENT.
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
On July 22, 1997, Firecom Holdings L.P. ("Holdings"), a
Delaware limited partnership, of which Mr. Mendez was the general
partner, acquired 1,149,600 shares of the Common Stock in
exchange for all of the outstanding shares of the Series A
Preferred Stock of the Company, having a liquidation value of
$1,437,000. Holdings also acquired 377,250 shares of the
Company's Common Stock in connection with the exercise of certain
warrants expiring on July 31, 1997. On September 26, 1997,
Holdings was liquidated and its assets (including 1,526,850
shares of the Company's Common Stock) were distributed to its
partners. In connection with these transactions, the Mendez
Family, the Sadik-Khan Group and the Barotz Group entered into a
voting agreement, providing among other terms that the parties to
such agreement will vote all shares of Common Stock which may be
held by them from time to time for the election of Paul Mendez
and three (3) other directors designated by Mr. Mendez, Orhan
Sadik-Khan (or designee) and Peter Barotz (or designee).
On June 21, 1995, the Company entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement") to purchase
536,494 shares of the Company's Common Stock held by certain
members of the May family (the "Selling Shareholders"), at $.90
per share. Terms of the Stock Purchase Agreement provide for an
aggregate cash payment by the Company in the amount of
$174,448.20 and issuance of one five (5) year note in the
principal amount of $308,396.40, bearing interest at 12% per
annum. Interest is to be paid monthly. Principal is to be
repaid in five equal annual installments of $61,679.28. The
Company's obligation under the note is to be secured by a pledge
by the Company to the noteholder of 342,663 shares of the
Company's Common Stock. The Company made the first of the five
annual payments of $61,679.28 in July 1996.
As of July 18, 1995, the Company and the Selling
Shareholders entered into the Option and Escrow Agreement with
respect to the Option Shares. Under the terms of the Option and
Escrow Agreement, on September 1, 1998 each Selling Shareholder
has the right, but not the obligation, to require the Company to
purchase, in whole or in part, his or her Option Shares at a
price of $1.10 per share. This "put" option is conditional upon
the Company meeting certain financial targets. At any time under
the Option and Escrow Agreement, the Company shall have the
right, but not the obligation, to purchase all of the Option
Shares, in whole or in part, at a purchase price of $1.25 per
share. Payment for the Option Shares upon exercise of the "put"
or "call" option shall be one-half (1/2) by cash and one-half
(1/2) by issuance of a five (5) year note bearing interest at
prime plus 3%. The note issued upon purchase of the Option
Shares will be secured by a pledge by the Company of shares of
its Common Stock. On execution of the Option and Escrow
Agreement, the Selling Shareholders delivered to the Company
irrevocable proxies to permit Mr. Mendez to vote the Option
Shares until the expiration of the Option and Escrow Agreement.
ANNUAL REPORT
All shareholders of record as of September 30, 1997
have either been sent or are concurrently being sent a copy of
the Company's 1997 Annual Report to Shareholders for the fiscal
year ended April 30, 1997 which contains audited financial
statements of the Company for the fiscal years ended April 30,
1997 and 1996.
OTHER MATTERS
Pursuant to the Company's ByLaws, as amended,
nominations or other business may be properly brought before an
annual meeting by a shareholder provided that the shareholder
gives timely notice thereof in writing to the Secretary of the
Company. To be timely, a shareholder's notice shall be delivered
to the Secretary at the principal executive offices of the
Company not less than sixty (60) days nor more than ninety (90)
days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced by more than thirty (30)
days or delayed by more than sixty (60) days from such
anniversary date, notice by the shareholder to be timely must be
so delivered not earlier than the ninetieth (90th) day prior to
such annual meeting and not later than the close of business on
the later of the sixtieth (60th) day prior to such annual meeting
or the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made.
As of the date of this Proxy Statement, the Board of
Directors of the Company does not know of any other matters to be
brought before the Meeting other than as set forth in this Proxy
Statement and the time for such matters to be presented by
shareholders expired on August 6, 1997. However, if any other
matters not mentioned in the Proxy Statement are properly brought
before the Meeting or any adjournments thereof, the persons named
in the enclosed Proxy or their substitutes will have
discretionary authority to vote proxies given in said form, or
otherwise act, in respect of such matters in accordance with
their best judgment.
The Company has selected Rothstein, Kass & Company,
P.C., the Company's auditors for the fiscal year ended April 30,
1997, to continue as independent certified public accountants of
the Company. Representatives of Rothstein, Kass & Company, P.C.
are expected to attend the Meeting and will be available to
respond to appropriate questions raised orally. Such
representatives will also be given an opportunity to make a
statement if they so desire.
All of the costs and expenses in connection with the
solicitation of proxies will be borne by the Company. In
addition to solicitation of proxies by use of mails, directors,
officers and employees (who will receive no compensation therefor
in addition to their regular remuneration) of the Company may
solicit the return of proxies by telephone, telegram or personal
interview.
It is important that proxies be returned promptly.
Shareholders are, therefore, urged to fill in, date, sign and
return the Proxy immediately. No postage need be affixed if
mailed in the enclosed envelope in the United States.
BY ORDER OF THE BOARD OF DIRECTORS
PAUL MENDEZ
Chairman of the Board
October 10, 1997
<PAGE>
DRAFT
PROPOSED ARTICLE IV
OF THE
CERTIFICATE OF INCORPORATION
OF
FIRECOM, INC.
FOURTH: A. Authorized Shares.
----------------- The total number of shares
of all classes of stock which the Corporation shall have
authority to issue is 41,000,000 shares, which shall consist of
(i) 1,000,000 shares, par value $1.00 per share, of a class
designated "Preferred Stock," (ii) 30,000,000 shares, par value
$.01 per share, of a class designated "Common Stock" and (iii)
10,000,000 shares, par value $.01 per share, of a class
designated "Class A Common Stock".
B. Preferred Stock.
--------------- Shares of the Preferred
Stock may be issued from time to time in series and the Board of
Directors of the Corporation is hereby authorized, subject to the
limitations provided by law, to establish and designate series of
the Preferred Stock, to fix the number of shares constituting
each series, and to fix the designations and the relative rights,
preferences and limitations of the shares of each series and the
variations and the relative rights, preferences and limitations
as between series, and to increase the number of shares
constituting each series. The authority of the Board of
Directors of the Corporation with respect to each series shall
include but shall not be limited to the authority to determine
the following:
I. The designation of such series.
II. The number of shares initially constituting
such series.
III. The increase of the number of shares
constituting such series theretofore fixed.
IV. The rate or rates and the times at which
dividends on the shares of such series shall be paid, and whether
or not such dividends shall be cumulative, and, if such dividends
shall be cumulative, the date or dates from and after which they
shall accumulate; provided, however, that if the stated dividends
are not paid in full, the shares of all series of the Preferred
Stock shall share ratably in the payment of dividends, including
accumulations, if any, in accordance with the sums which would be
payable on such shares if all dividends were declared and paid in
full.
V. Whether or not the shares of such series
shall be redeemable, and, if such shares shall be redeemable, the
terms and conditions of such redemption, including but not
limited to the date or dates upon or after which such shares
shall be redeemable and the amount per share which shall be
payable upon such redemption, which amount may vary under
different conditions and at different redemption dates.
VI. The amount payable on the shares of such
series in the event of the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided, however,
that the holders of such shares shall be entitled to be paid, or
to have set apart for payment, not less than $1.00 per share
before the holders of shares of the Common Stock or the holders
of any other class of stock ranking junior to the Preferred Stock
as to rights on liquidation shall be entitled to be paid any
amount or to have any amount set apart for payment; provided,
further, that, if the amounts payable on liquidation are not paid
in full, the shares of all series of the Preferred Stock shall
share ratably in any distribution of assets other than by way of
dividends in accordance with the sums which would be payable in
such distribution if all sums payable were discharged in full. A
liquidation, dissolution or winding up of the Corporation, as
such terms are used in this Paragraph VI, shall not be deemed to
be occasioned by or to include any consolidation or merger of the
Corporation with or into any other corporation or corporations or
a sale, lease or conveyance of all or a part of its assets.
VII. Whether or not the shares of such series
shall have voting rights, in addition to the voting rights
provided by law, and, if such shares shall have such voting
rights, the terms and conditions thereof, including but not
limited to the right of the holders of such shares to vote as
separate class either alone or with the holders of shares of one
or more other series of Preferred Stock and the right to have
more than one vote per share.
VIII. Whether or not a sinking fund shall be
provided for the redemption of the shares of such series, and, if
such a sinking fund shall be provided, the terms and conditions
thereof.
IX. Whether or not a purchase fund shall be
provided for the shares of such series, and, if such a purchase
fund shall be provided, the terms and conditions thereof.
X. Whether or not the shares of such series
shall have conversion privileges, and, if such shares shall have
conversion privileges, the terms and conditions of conversion,
including but not limited to any provision for the adjustment of
the conversion rate or the conversion price.
XI. Any other relative rights, preferences and
limitations.
C. Common Stock.
------------ Any and all shares of Common
Stock and Class A Common Stock constituting authorized but
unissued shares may be issued for such consideration, not less
than the par value thereof, as shall be fixed from time to time
by the Board of Directors. The powers, preferences, limitations
and relative rights of the Common Stock and the Class A Common
Stock shall be as follows:
1. Voting. Except as may otherwise be required
by law or except as may be expressly provided for herein, with
respect to all matters upon which shareholders are entitled to
vote or to which shareholders are entitled to give consent, the
holders of the outstanding shares of Common Stock and the holders
of the outstanding shares of Class A Common Stock shall vote
together as a single class, and every holder of an outstanding
share of Common Stock shall be entitled to cast thereon one (1)
vote in person or by proxy for each share of Common Stock
standing in his name on the stock transfer records of the
Corporation, and every holder of an outstanding share of Class A
Common Stock shall be entitled to cast thereon thirty (30) votes
in person or by proxy for each share of Class A Common Stock
standing in his name on the stock transfer records of the
Corporation.
2. Dividends and Distributions.
(a) Dividends. Holders of Common Stock and Class
A Common Stock shall be entitled to share ratably in all such
dividends, payable in cash or otherwise, as may be declared
thereon by the Board of Directors from time to time out of assets
or funds of the Corporation legally available therefor except
that in the case of dividends or other distributions payable in
stock of the Corporation, including distributions pursuant to
stock split-ups or divisions, which occur after the initial
distribution of the Class A Common Stock to holders of Common
Stock, only shares of Common Stock shall be distributed with
respect to the Common Stock, and only shares of Class A Common
Stock shall be distributed with respect to the Class A Common
Stock.
(b) Distributions. In the event the Corporation
shall be liquidated (either partial or complete), dissolved or
wound up, whether voluntarily or involuntarily, the holders of
the Common Stock and the Class A Common Stock shall be entitled
to share ratably, as a single class, in the remaining net assets
of the Corporation; that is, an equal amount of net assets for
each share of Common Stock and Class A Common Stock.
(c) Merger or Consolidation. In the event of a
merger or consolidation of the Corporation with or into another
entity whether or not the Corporation is the surviving entity),
the holders of Common Stock and Class A Common Stock shall be
entitled to receive the same per share consideration in such
merger or consolidation.
3. Restrictions on Transfer of the Class A
Common Stock.
(a) No beneficial owner (as hereinafter defined)
of shares of Class A Common Stock (hereinafter referred to as a
"Class A Shareholder") may transfer, and the Corporation shall
not register the transfer of, shares of Class A Common Stock of
such Class A Shareholder, whether by sale, assignment, gift,
bequest, appointment or otherwise, except to a Permitted
Transferee of such Class A Shareholder. A "Permitted Transferee"
shall be defined as (i) the Class A Shareholder; (ii) the spouse
of the Class A Shareholder; (iii) any parent and any lineal
descendant (including any adopted child) of any parent of the
Class A Shareholder or of the Class A Shareholder's spouse; (iv)
any trustee, guardian or custodian for, or any executor,
administrator or other legal representative of the estate of, any
of the foregoing Permitted Transferees; (v) the trustee of a
trust (including a voting trust) principally for the benefit of
such Class A Shareholder and/or any of his or her Permitted
Transferees; (vi) the beneficiary of a trust, individual
retirement account or other similar Class A Shareholder; and
(vii) any corporation, partnership or other entity if a majority
of the beneficial ownership thereof is held by the Class A
Shareholder and/or any of his or her Permitted Transferees. If a
Class A Shareholder and all of his or her Permitted Transferees
cease, for whatever reason, to hold a majority of the beneficial
ownership of any corporation, partnership or other entity
specified in clause (vi) above, then any and all shares of Class
A Common Stock held by such corporation, partnership or other
entity shall automatically, without further deed or action by or
on behalf of any party, be deemed to have been transferred to
other than a Permitted Transferee with the result that such
shares shall be deemed to have been converted into a like number
of shares of Common Stock.
(b) Notwithstanding anything to the contrary set
forth herein, any Class A Shareholder may pledge his shares of
Class A Common Stock to a pledgee pursuant to a bona fide pledge
of such shares as collateral security for indebtedness due to the
pledgee, provided that such shares shall not be transferred to or
registered in the name of the pledgee and shall remain subject to
the provisions of this Paragraph 3. In the event of foreclosure,
realization or other similar action by the pledgee, such pledged
shares of Class A Common Stock may only be transferred to a
Permitted Transferee of the pledgor or converted into shares of
Common Stock, as the pledgee may elect.
(c) Any purported transfer of shares of Class A
Common Stock not permitted hereunder shall be void and of no
effect. Any purported transferee of shares of Class A Common
Stock purported to be transferred in violation of this Paragraph
3 shall have no rights as a shareholder of the Corporation and no
other rights against, or with respect to, the Corporation, except
the right to receive shares of Common Stock upon the conversion
of his or her shares of Class A Common Stock into shares of
Common Stock. The Corporation and its transfer agent may, as a
condition to the transfer or the registration of a transfer of
shares of Class A Common Stock to a purported Permitted
Transferee, require the furnishing of such affidavits or other
proof as they deem necessary to establish that such transferee is
a Permitted Transferee.
(d) The Corporation shall note on the
certificates for shares of Class A Common Stock the restrictions
on transfer and registration of transfer imposed by this
Paragraph 3.
(e) Shares of Class A Common Stock shall be
registered in the name(s) of the beneficial owner(s) thereof (as
herein defined) and not in "street" or "nominee" names; provided,
however, certificates representing shares of Class A Common Stock
issued in the initial distribution thereof to holders of the
issued and outstanding Common Stock may be registered in the same
name and manner as the certificates representing the shares of
Common Stock with respect to which the shares of Class A Common
Stock are issued. Any shares of Class A Common Stock registered
in "street" or "nominee" name may be transferred to the
beneficial owner of such shares on the record date for such
initial distribution, upon proof satisfactory to the Corporation
and the Transfer Agent that such person was in fact the
beneficial owner of such shares on such record date.
(f) For the purpose of this Paragraph 3, the term
"beneficial owner(s)" of any shares of Class A Common Stock shall
mean a person or persons who, or entity or entities which, have
or share the power, either singly or jointly, to direct the
voting or disposition of such shares; for the avoidance of doubt
the beneficiary of an individual retirement account ("IRA") shall
be deemed the beneficial owner of any shares held by such IRA.
4. Conversion of the Class A Common Stock.
(a) Each share of Class A Common Stock may at
any time or from time to time, at the option of the record holder
thereof, be converted into one (1) fully paid and nonassessable
share of Common Stock. Such conversion right shall be exercised
by the surrender of the certificate representing such share of
Class A Common Stock to be converted to the Corporation at any
time during normal business hours at the principal executive
offices of the Corporation (to the attention of the Secretary of
the Corporation), or if an agent for the registration or transfer
of shares of Class A Common Stock is then duly appointed and
acting (said agent being referred to in this Article IV as the
"Transfer Agent"), then at the office of the Transfer Agent,
accompanied by a written notice of the election by the holder
thereof to convert and (if so required by the Corporation or the
Transfer Agent) by instruments of transfer, in form satisfactory
to the Corporation and to the Transfer Agent, duly executed by
such holder or his duly authorized attorney, and transfer tax
stamps or funds therefor, if required pursuant to Paragraph 4(e)
below.
(b) As promptly as practicable after the
surrender for conversion of a certificate representing shares of
Class A Common Stock in the manner provided in Paragraph 4(a)
above, and the payment in cash of any amount required by the
provisions of Paragraph 4(e), the Corporation will deliver or
cause to be delivered at the office of the Transfer Agent to, or
upon the written order of, the holder of such certificate, a
certificate or certificates representing the number of full
shares of Common Stock issuable upon such conversion, issued in
such name or names as such holder may direct. Such conversion
shall be deemed to have been made immediately prior to the close
of business on the date of the surrender of the certificate
representing shares of Class A Common Stock, and all rights of
the holder of such shares as such holder shall cease at such time
and the person or persons in whose name or names the certificate
or certificates representing the shares of Common Stock are to be
issued shall be treated for all purposes as having become the
record holder or holders of such shares of Common Stock at such
time; provided, however, that in the event any such surrender and
payment are made on any date when the stock transfer records of
the Corporation shall be closed, the person or persons in whose
name or names the certificate or certificates representing shares
of Common Stock are to be issued will become the record holder or
holders thereof for all purposes immediately prior to the close
of business on the next succeeding day on which such stock
transfer records are open.
(c) No adjustments in respect of dividends or
other distributions shall be made upon the conversion of any
share of Class A Common Stock; provided, however, that if a share
shall be converted subsequent to the record date for the payment
of a dividend or other distribution on shares of Class A Common
Stock but prior to such payment, the registered holder of such
share at the close of business on such record date shall be
entitled to receive the dividend or other distribution payable on
such share on the date set for payment of such dividend or other
distribution notwithstanding the conversion thereof or the
Corporation's default in payment of the dividend or distribution
due on such date.
(d) The Corporation covenants that it will at all
times reserve and keep available, solely for the purpose of
issuance upon conversion of the outstanding shares of Class A
Common Stock, such number of shares of Common Stock as shall be
issuable upon the conversion of all such outstanding shares;
provided, that nothing contained herein shall be construed to
preclude the Corporation from satisfying its obligations in
respect of the conversion of the outstanding shares of Class A
Common Stock by delivery of purchased shares of Common Stock
which are held in the treasury of the Corporation. The
Corporation covenants that if any shares of Common Stock required
to be reserved for purposes of conversion hereunder require
registration with or approval of any governmental authority under
any federal or state law before such shares of Common Stock may
be issued upon conversion, the Corporation will cause such shares
to be duly registered or approved, as the case may be. The
Corporation will endeavor to list the shares of Common Stock
required to be delivered upon conversion prior to such delivery
upon each national securities exchange or automated quotation
system, if any, upon which the outstanding Common Stock is listed
at the time of such delivery. The Corporation covenants that all
shares of Common Stock which shall be issued upon conversion of
the shares of Class A Common Stock will, upon issue, be fully
paid and nonassessable and not subject to any preemptive rights.
(e) The issuance of certificates for shares of
Common Stock upon conversion of shares of Class A Common Stock
shall be made without charge for any stamp or other similar tax
in respect of such issuance. However, if any such certificate is
to be issued in a name other than that of the record holder of
the share or shares of Class A Common Stock converted, the person
or persons requesting the issuance thereof shall pay to the
Corporation the amount of any tax which may be payable in respect
of any transfer involved in such issuance or shall establish to
the satisfaction of the Corporation that such tax has been paid.
(f) The outstanding shares of Class A Common
Stock shall be deemed without further act on anyone's part to be
immediately and automatically converted into shares of Common
Stock, and stock certificates formerly representing outstanding
shares of Class A Common Stock shall thereupon and thereafter be
deemed to represent a like number of shares of Common Stock if
and when the number of issued and outstanding shares of Class A
Common Stock is less than one percent (1%) of the aggregate
number of shares of Common Stock and Class A Common Stock then
outstanding.
5. Subsequent Issuances of Class A Common Stock.
Following the initial distribution of the Class A Common Stock to
the holders of the issued and outstanding Common Stock of the
Corporation, the Board of Directors may only issue shares of the
Class A Common Stock in the form of a distribution or
distributions pursuant to a stock dividend on or split-up of the
shares of the Class A Common Stock and only to the then record
holders of the issued and outstanding shares of the Class A
Common Stock in conjunction with and in the same ratio as a stock
dividend on or split-up of the shares of the Common Stock.
6. Preemptive Rights Denied. No holder of
shares of any class of stock of the Corporation shall possess any
preemptive right to acquire additional shares of any class or
treasury shares of the Corporation. or obligations of the
Corporation convertible into such shares. whether now or
hereafter authorized.
<PAGE>
PROXY CARD
FIRECOM, INC.
Annual Meeting of Shareholders November 18, 1997
The undersigned hereby appoints Paul Mendez and Howard L.
Kogen, and each of them, proxies with powers of substitution
each, for and in the name of the undersigned to vote all shares
of Common Stock of FIRECOM, INC., a New York corporation (the
"Company"), that the undersigned would be entitled to vote at the
Company's 1997 Annual Meeting of Shareholders (the "Meeting"),
and at any adjournments thereof, upon the matters set forth in
the Notice of Meeting as stated below, hereby revoking any proxy
heretofore given. In their discretion, the proxies are further
authorized to vote upon such other business as may properly come
before the Meeting.
The undersigned acknowledges receipt of the Notice of
Meeting and the accompanying Proxy Statement and Annual Report.
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS. THE
BOARD RECOMMENDS A VOTE "FOR" PROPOSAL 1 AND PROPOSAL 2.
1. Election of Class B Directors for all nominees listed
below (except as indicated).
/ / FOR / / WITHHOLD AUTHORITY
The nominees of the Board of Directors are:
Paul Mendez, Peter Barotz and Hilary B. Miller
INSTRUCTION: To withhold authority to vote for any
individual nominee, write the nominee's name on the
space provided below:
___________________________________________________________
2. Amendment of the Company's Certificate of Incorporation
to (i) authorize a new class of Common Stock consisting
of 10,000,000 shares and thirty votes per share and
(ii) increase the number of authorized shares of the
Common Stock from 10,000,000 shares to 30,000,000
shares.
/ / FOR / / AGAINST / / ABSTAIN
This Proxy, when properly executed, will be voted in the
manner directed herein by the undersigned shareholder. If no
direction is given, this Proxy, when properly executed and
returned, will be voted "FOR" the election of the three named
individuals as directors and the amendment of the Certificate of
Incorporation.
Dated:__________________________________________________
________________________________________________________
Signature
________________________________________________________
Name
Please sign your name exactly as it appears hereon. If the stock
is registered in more than one name, each joint owner should sign
personally. When signing as attorney, executor, administrator,
trustee or guardian, give your full title as it appears hereon.
Only authorized officers should sign for a corporation.
Please Sign, Date and Mail this Proxy immediately in the
Enclosed Envelope.
