<PAGE>
SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to section 240.14a-11(c) or section 240.14a-12
DUALSTAR TECHNOLOGIES CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
-------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------
5) Total fee paid:
-------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-------------------------------------------------
2) Form, Schedule or Registration Statement No.:
-------------------------------------------------
3) Filing Party:
-------------------------------------------------
4) Date Filed:
-------------------------------------------------
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION
11-30 47th Avenue
Long Island City, New York 11101
October 26, 1999
To the Holders of Common Stock:
The annual meeting of stockholders will be held at 10:30 a.m. (New York time) at
the Sheraton New York Hotel & Towers, 811 Seventh Avenue, New York, New York, on
Wednesday, December 8, 1999. A Notice of the Annual Meeting and Proxy Statement
are attached hereto.
Stockholders are urged to attend the meeting but may vote by proxy in lieu
thereof. Accordingly, whether or not you plan to attend the meeting, please
complete, sign and date the accompanying proxy and return it in the enclosed
envelope.
Prompt return of your voted proxy will reduce the cost of further mailings and
contacts. You may revoke your voted proxy at any time prior to the meeting or
vote in person if you attend the meeting.
I look forward to greeting as many of you as possible at the meeting.
Gregory Cuneo
Chairman, President and
Chief Executive Officer
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION
11-30 47th Avenue
Long Island City, New York 11101
Notice of Annual Meeting
October 26, 1999
To the Holders of Common Stock:
NOTICE IS HEREBY GIVEN that the annual meeting of the stockholders of DualStar
Technologies Corporation, a Delaware corporation (the "Corporation"), will be
held at the Sheraton New York Hotel & Towers, 811 Seventh Avenue, New York, New
York, on Wednesday, December 8, 1999 at 10:30 a.m. (New York time), for the
following purposes:
1) To elect directors for the ensuing year;
2) To consider and act upon a transaction between the Corporation and
Blackacre Capital Management, L.L.C. as described in the proxy
statement;
3) To consider and act upon a proposal to amend the 1994 Stock Option
Plan for the purpose of increasing the number of shares available for
grant under the 1994 Plan;
4) To ratify the appointment of Grant Thornton LLP as independent
certified public accountants for the 2000 fiscal year; and
5) To take action upon any other matters that may properly come before
the meeting.
Only stockholders of record at the close of business on October 19, 1999 are
entitled to notice of and to vote at the meeting or any adjournments thereof.
By Order of the Board of Directors,
Stephen J. Yager
Secretary
<PAGE>
PROXY STATEMENT
The enclosed proxy is being solicited by the Board of Directors of DualStar
Technologies Corporation (the "Corporation" or "DualStar") for use in connection
with the 1999 annual meeting of stockholders to be held on December 8, 1999.
This proxy statement and enclosed proxy are first being sent to the stockholders
on or about October 26, 1999. The mailing address of the principal executive
office of the Corporation is 11-30 47th Avenue, Long Island City, New York
11101. The cost of preparing, printing and mailing the notice of meeting, proxy
statement, proxy and annual report will be borne by the Corporation. Proxy
solicitation other than by use of the mail may be made by regular employees of
the Corporation by telephone and personal solicitation. Banks, brokerage houses,
custodians, nominees and fiduciaries are being requested to forward the
soliciting material to their principals and to obtain authorization for the
execution of proxies, and may be reimbursed for their reasonable out-of-pocket
expenses incurred in that connection. Any stockholder giving the enclosed proxy
has the right to revoke it at any time before it is voted. To revoke a proxy,
the stockholder must file with the Secretary of the Corporation either a written
revocation or a duly executed proxy bearing a later date, or must vote in person
at the meeting.
The record date for stockholders entitled to notice of, and to vote at, the
annual meeting is the close of business on October 19, 1999. At that date, the
Corporation had outstanding 10,791,000 shares of Common Stock ($.01 par value)
("Common Stock"). Each share of Common Stock is entitled to one vote. No other
class of securities is entitled to vote at this meeting.
The proxies given pursuant to this solicitation will be voted at the meeting or
any adjournment thereof. Abstentions and broker non-votes are voted neither
"for" nor "against," and have no effect on the vote, but are counted in the
determination of a quorum.
2
<PAGE>
ELECTION OF DIRECTORS
Nine (9) directors are to be elected by a plurality of the votes of the shares
of Common Stock present in person or represented by proxy at the annual meeting
of stockholders by holders of shares entitled to vote. Such directors shall hold
office until the next annual meeting of stockholders or until their successors
are duly elected and qualify. The Board of Directors proposes the following
nominees, and recommends a vote in favor thereof:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS
EXPERIENCE FOR PAST FIVE YEARS DIRECTOR
NAME AND AGE (WITH THE CORPORATION UNLESS OTHERWISE NOTED) SINCE
- ------------ --------------------------------------------- -----
<S> <C> <C>
Gregory Cuneo Chairman (since December 1998), President and August 1994
Chief Executive Officer (since August 1994).
40 Chairman of Starrett Corporation (since
August 1999). Mr. Cuneo and Mr. Birnbach are
first cousins.
Stephen J. Yager Executive Vice President and Secretary (since August 1994
August 1994), and Chief Financial Officer
47 (from August 1994 until November 1996).
Ronald Fregara Executive Vice President (since December August 1994
1996), Vice President (from August 1994 until
50 December 1996).
Robert J. Birnbach Executive Vice President (since July 1999), September 1999
Chief Financial Officer (since December
34 1996), Vice President (from December 1996
until July 1999) and Director of Corporate
Development (from August 1994 until December
1996). Mr. Birnbach and Mr. Cuneo are first
cousins.
Michael J. Abatemarco Practicing certified public accountant (since October 1997
1983) and attorney (since 1982) specializing
43 in the areas of real estate, taxation and
business counseling; associate professor of
taxation, accounting and law at Long Island
University/C.W. Post campus (since 1985).
Jared E. Abbruzzese Chairman, Chief Executive Officer, and September 1999
Founder of CAI Wireless Systems, Inc. ("CAI")
45 (from August 1991 until August 1999) (CAI was
acquired by MCI WorldCom in August 1999).
Co-founder of Crest Communications, LLC, a
private communications fund; member of the
governing board of VenInfoTel LLC, a
Venezuelan telephone and cable TV company.
CAI voluntarily filed a petition under
Chapter 11 of the U.S. Bankruptcy Code in
July 1998 and emerged from bankruptcy in
October 1998.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS
EXPERIENCE FOR PAST FIVE YEARS DIRECTOR
NAME AND AGE (WITH THE CORPORATION UNLESS OTHERWISE NOTED) SINCE
- ------------ --------------------------------------------- -----
<S> <C> <C>
Lloyd I. Miller, III Registered investment advisor; member of February 1999
Technology Investors Group, LLC; member of
45 the Chicago Board of Trade, the Chicago Stock
Exchange and the COMEX Division of the New
York Mercantile Exchange. Director of Porta
Systems Corp.
Raymond L. Steele Retired. Executive Vice President of December 1998
Pacholder Associates, Inc. (from August 1990
64 until September 1993); Executive Advisor at
the Nickert Group (from 1989 through 1990);
Vice President, Trust Officer and Chief
Investment Officer of the Provident Bank
(from 1984 through 1988). Director of I.C.H.
Corporation and Video Services Corp.
Michael F. Whalen, Jr. Vice President, Finance and Acquisitions September 1999
(from 1994 through 1999), of People's Choice
33 TV Corp., a wireless broadband data and video
services company (which recently agreed to be
acquired by Sprint Corporation).
</TABLE>
Mr. Miller is the nominee of Technology Investors Group, LLC pursuant to a
stockholders agreement with the Corporation and certain stockholders. Mr. Whalen
is the nominee of Blackacre Capital Management, L.L.C. (see Proposal No. 1).
IT IS THE INTENTION OF THE PERSONS NAMED IN THE PROXY FORM TO VOTE SUCH PROXIES
FOR THE ELECTION AS DIRECTORS OF THE NOMINEES NAMED ABOVE. ALTHOUGH THE BOARD OF
DIRECTORS DOES NOT CONTEMPLATE THAT ANY OF THE NOMINEES WILL BE UNABLE TO SERVE,
SHOULD SUCH A SITUATION ARISE PRIOR TO THE MEETING, THE PROXIES WILL BE VOTED IN
ACCORDANCE WITH THE BEST JUDGMENT OF THE PERSONS ACTING THEREUNDER.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table lists as of October 19, 1999, the number of shares of the
Corporation's Common Stock beneficially owned by each of the directors, nominees
for election as directors, each executive officer listed in the table under the
caption "Executive Compensation", each person who is known by the Corporation to
own beneficially more than five percent of the Corporation's Common Stock and by
all directors and executive officers of the Corporation as a group. The
following calculations were based upon 10,791,000 shares of the Corporation's
Common Stock issued and outstanding as of October 19, 1999.
Name and Address(1) Amount and Nature of % of Class
- ------------------- Beneficial Ownership ----------
--------------------
Gregory Cuneo 435,000(2) 4.03
Stephen J. Yager 435,000(2) 4.03
Ronald Fregara 435,000(2) 4.03
Michael J. Abatemarco 69,400(3) *
Raymond L. Steele 15,000(4) *
Lloyd I. Miller, III 1,806,000(5) 16.71
Jared E. Abbruzzese - -
Robert J. Birnbach 646,000(6) 5.65
Michael F. Whalen, Jr. 9,500(7) *
Technology Investors Group, LLC 1,791,000 16.59
All Officers and Directors as a
Group (10 persons)(8) 4,140,900 35.13
- -----------
(1) The address of each stockholder listed is in care of DualStar
Technologies Corporation, 11-30 47th Avenue, Long Island City,
New York 11101.
(2) Does not include 200,000 shares which the director has the right
to acquire upon exercise of stock options, currently unvested.
(3) Includes 30,000 shares which Mr. Abatemarco has the right to
acquire upon exercise of vested stock options and includes,
respectively, 21,200 and 18,200 shares owned as Co-Trustee of
each of the following two trusts: (i) F/B/O Joseph T. Spaziani et
al.; (ii) F/B/O Anthony T. Spaziani et al.
(4) Includes 15,000 shares which Mr. Steele has the right to acquire
upon exercise of vested stock options.
(5) Includes 15,000 shares which Mr. Miller has the right to acquire
upon exercise of vested stock options and 1,791,000 shares owned
by Technology Investors Group, LLC ("TIG"), of which Mr. Miller
is a member. Mr. Miller disclaims beneficial ownership of the TIG
shares.
(6) Includes 641,000 shares which Mr. Birnbach has the right to
acquire upon exercise of vested stock options and 2,000 shares
Mr. Birnbach has the right to acquire upon exercise of Class A
warrants.
(7) Includes 5,000 shares Mr. Whalen has the right to acquire upon
exercise of Class A warrants.
(8) Includes 250,000 shares an officer has the right to acquire upon
exercise of vested stock options and 40,000 shares upon exercise
of Class A warrants.
* indicates less than 1%.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's
officers, directors and certain beneficial owners to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission ("SEC"). Such persons are required by
5
<PAGE>
SEC regulations to furnish the Corporation with copies of all Section
16(a) forms they file. Based solely on a review of the copies of such
forms furnished to the Corporation and written representations from
the Corporation's officers and directors, and without making any
inquiry or investigation regarding delinquent Section 16(a) filings,
the Corporation believes that, during the fiscal year ended June 30,
1999, all such reports were filed on a timely basis, except for a late
Form 3 by Mr. Steele.
6
<PAGE>
BOARD OF DIRECTORS AND COMMITTEES
Meetings and Attendance
- -----------------------
During the fiscal year ended June 30, 1999, there were three meetings of the
Board of Directors. The Board of Directors during such fiscal year acted by
unanimous written consent one time.
Compensation Committee
- ----------------------
The members of the Compensation Committee are Messrs. Abatemarco, Miller, Steele
and Yager. The Compensation Committee met once with respect to the fiscal year
ended June 30, 1999. The Committee makes bonus compensation determinations under
the Employment Agreements described below under the caption "Employment
Agreements" for the key executives of the Corporation.
Stock Award Committee
- ---------------------
The members of the Stock Award Committee are Messrs. Abatemarco, Fregara, Miller
and Steele. The Committee did not meet during the fiscal year. The Committee
administers the Corporation's 1994 Stock Option Plan, as amended ("1994 Plan").
Under the 1994 Plan, the Committee has the authority to grant "Awards" (as such
term is defined in the 1994 Plan) to officers, employees, directors and
consultants of the Corporation or an "Affiliate" (as such term is defined in the
1994 Plan), and to determine the various terms and conditions of such Awards.
The Committee also has the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the 1994 Plan as it
shall, from time to time, deem advisable to interpret the terms and provisions
of the 1994 Plan and any Award issued under the 1994 Plan (and any agreement
relating thereto) and to otherwise supervise the administration of the 1994
Plan.
Audit Committee
- ---------------
The members of the Audit Committee are Messrs. Abatemarco, Miller and Steele.
The Committee met once during the fiscal year. The Committee is responsible for
considering management's recommendation of independent certified public
accountants for each fiscal year, recommending the appointment or discharge of
independent accountants to the Board of Directors and confirming the
independence of the accountants. It is also responsible for reviewing and
approving the scope of the planned audit, the results of the audit and the
accountants' compensation for performing such audit; reviewing the Corporation's
audited financial statements; and reviewing and approving the Corporation's
internal accounting controls and discussing such controls with the independent
accountants.
Nominating Committee
- --------------------
The members of the Nominating Committee are Messrs. Abatemarco, Cuneo, Fregara,
Miller and Yager. The Nominating Committee is responsible for soliciting
recommendations for candidates for the Board of Directors; developing and
reviewing background information for candidates; and making recommendations to
the Board regarding such candidates. The Nominating Committee, which was formed
on February 11, 1999, did not meet in fiscal 1999.
Remuneration of Directors
- -------------------------
Each member of the Board of Directors is entitled to receive reasonable expenses
incurred in attending meetings of the Board of Directors of the Corporation. Mr.
Abatemarco received $20,000 in directors' fees in fiscal 1999.
7
<PAGE>
EXECUTIVE COMPENSATION
The Summary Compensation Table set forth below for the fiscal years ended June
30, 1999, 1998 and 1997 includes compensation information with respect to the
Chief Executive Officer of the Corporation and each of the Corporation's four
most highly compensated executive officers whose salary in the last fiscal year
exceeded $100,000.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Annual Compensation
-------------------
Other
Name and Principal Position Year Salary Bonus Annual Compensation(1)
- --------------------------- ---- ------ ----- ----------------------
<S> <C> <C> <C> <C>
Gregory Cuneo, Chairman of the 1999 $150,000 $67,500 $5,794
Board, President and Chief Executive 1998 150,000 0 5,901
Officer(2) 1997 150,000 0 7,187
Stephen J. Yager, Executive 1999 $150,000 $67,500 $6,655
Vice President and 1998 150,000 0 5,453
Secretary 1997 150,000 0 8,761
Ronald Fregara, 1999 $150,000 $67,500 $5,991
Executive Vice President 1998 150,000 0 6,017
1997 150,000 0 7,443
Armando Spaziani, Executive Vice 1999 $144,231 $0 $210,288
President and Chief 1998 150,000 0 51,993
Operating Officer(3) 1997 150,000 0 51,854
Elven M. Tangel, Chairman of
the Board, executive 1999 $118,272 $0 $119,124
officer (4) 1998 150,000 0 3,165
1997 150,000 0 15,639
</TABLE>
- --------------
(1) Includes the value of personal benefits, such as life insurance, disability
insurance and automobile expenses, pursuant to each officer's employment
agreement. Includes buyout consideration for Messrs. Tangel and Spaziani.
See "Employment Agreements."
(2) Mr. Cuneo became Chairman of the Board on December 16, 1998.
(3) Mr. Spaziani retired on June 15, 1999. See "Employment Agreements."
(4) Mr. Tangel was Chairman of the Board in fiscal 1997, fiscal 1998, and until
December 16, 1998. Thereafter, until his retirement on June 1, 1999, Mr.
Tangel remained with the Corporation as an executive officer. See
"Employment Agreements."
Employment Agreements
- ---------------------
Effective August 1994, the Corporation entered into employment agreements
("Agreements") with Messrs. Tangel, Cuneo, Yager, Spaziani and Fregara. The
Agreements expired in August 1997 and were renewed for an additional three years
through August 2000. On June 1, 1999, Mr.
8
<PAGE>
Tangel retired and received $116,000 in consideration of the buyout of his
employment agreement. On June 15, 1999, Mr. Spaziani retired and received
$206,000 in consideration of the buyout of his employment agreement. Effective
as of July 1, 1999, the Board and the Compensation Committee increased the
salary and bonuses for Messrs. Cuneo, Fregara and Yager. (Each had received a
salary of $150,000 with eligibility to receive an annual bonus of up to 45% of
the salary provided under their respective Agreements as determined by the
Corporation's Compensation Committee.) Mr. Cuneo's current salary is $275,000,
with a guaranteed minimum bonus of $25,000, up to a maximum of $100,000 based on
certain performance objectives which are to be determined by the Board and the
Compensation Committee. Messrs. Fregara and Yager's current salaries are each
$235,000, with a guaranteed minimum bonus of $25,000, up to a maximum of
$100,000 based on certain performance objectives which are to be determined by
the Board and the Compensation Committee. The salaries under the Agreements, as
amended, may be increased to reflect annual cost of living increases and may be
supplemented by discretionary merit and performance increases as determined by
the Compensation Committee of the Corporation.
The Agreements provide, among other things, for participation in an equitable
manner in any profit-sharing or retirement plan for employees or executives and
for participation in other employee benefits applicable to employees and
executives of the Corporation. The Agreements provide that the Corporation will
establish a performance incentive bonus plan providing each executive the
opportunity to earn an annual bonus of up to five percent of the increase, if
any, in the Corporation's pretax income, based upon the attainment of
performance goals to be established by the Compensation Committee of the
Corporation. The Agreements further provide for the use of an automobile and
other fringe benefits commensurate with their duties and responsibilities. The
Agreements also provide for benefits in the event of disability.
Pursuant to the Agreements, employment may be terminated by the Corporation with
cause or by the executive with or without good reason. Termination by the
Corporation without cause, or by the executive for good reason, would subject
the Corporation to liability for liquidated damages in an amount equal to the
terminated executive's current salary for the remainder of the scheduled term of
employment and bonuses for the remainder of the scheduled term of employment
based upon the prior year's annual bonus and the maximum incentive bonus
payable. Such amounts shall be payable in equal monthly installments, without
any set-off for compensation received from any new employment. In addition, the
terminated executive would be entitled to continue to participate in and accrue
benefits under all employee benefit plans and to receive supplemental retirement
benefits to replace benefits under any qualified plan for the remaining term of
the Agreements to the extent permitted by law.
The Agreements provide for the purchase by the Corporation of insurance policies
in the amount of $1,000,000 on the lives of each of Messrs. Cuneo, Yager and
Fregara, respectively. The Corporation will pay the premiums under these
policies, and a portion of the payment will be treated as taxable income to the
insured executive. Upon the death of any of the insureds, the Corporation would
be paid from the insurance proceeds an amount equal to the total premiums it
paid under the policy, with the remaining proceeds to be paid to the deceased
executive's designated beneficiary. To date, Messrs. Cuneo, Yager and Fregara,
respectively, have declined to have the Corporation purchase such insurance.
9
<PAGE>
The 1994 Stock Option Plan
- --------------------------
On October 17, 1994, the Board of Directors adopted, and the stockholders
subsequently approved and amended, the 1994 Stock Option Plan (as amended, the
"1994 Plan") pursuant to which officers, directors, employees and consultants of
the Corporation and its affiliates are eligible to be granted stock option
awards ("Awards"). Stockholders approved the amendments to the 1994 Plan at the
1998 Annual Meeting of Stockholders. The 1994 Plan is currently being
administered by the Stock Award Committee, which has the authority to grant
awards, including Stock Options, Stock Appreciation Rights, Restricted Stock, or
any combination of the foregoing, and to determine the terms and conditions of
the Awards.
Options under the 1994 Plan generally shall be exercisable for a term fixed by
the Committee, not to exceed 10 years from date of grant, unless any such
options are terminated earlier pursuant to the terms of the 1994 Plan. The total
number of shares of Common Stock presently reserved for such Awards and
available for distribution under the 1994 Plan is 3,500,000. As of October 19,
1999, 2,505,000 options are outstanding under the 1994 Plan and have exercise
prices ranging from $0.75 to $4.00 per share. No stock options were exercised by
any executive officer during fiscal 1999. On October 25, 1999, subject to
stockholder approval (see Proposal No. 2), the Board of Directors approved an
amendment to the 1994 Plan to increase the number of shares reserved and
available for distribution as Awards under the 1994 Plan.
If Proposal No. 2 is adopted by the stockholders, the total number of shares of
Common Stock available for distribution as Awards under the 1994 Plan, as
amended, will be 5,500,000.
Compensation Committee Interlocks
- ---------------------------------
No Compensation Committee interlock relationships existed during the fiscal year
ended June 30, 1999.
Board of Directors Report on Executive Compensation
- ---------------------------------------------------
Except as noted below, the Corporation's compensation policies are determined by
its Board of Directors. The Corporation's executive compensation practices are
designed to support its business goals of fostering profitable growth and
increasing stockholder value. The Corporation seeks to align the interests of
its executives and its stockholders through the use of stock-based compensation
plans. To this end, the Corporation has adopted the 1994 Stock Option Plan.
The compensation of Messrs. Cuneo, Yager and Fregara is governed by their
employment agreements, as amended. (See "Employment Agreements," above.) The
Board of Directors' determination as to the level of compensation under the
Agreements, as amended, was based upon the prior levels of compensation of the
key executives and the Board's judgment.
Under the Agreements as amended, determination as to the amounts of bonus
compensation to be awarded to the key executives has been delegated to the
Compensation Committee of the Board of Directors. For the fiscal year ended June
30, 1999, the Agreements as amended provided that each of the key executives was
eligible to receive an annual bonus of up to 45% of his annual salary ($150,000
in each case) or $67,500, as determined by the Compensation Committee. Messrs.
Cuneo, Fregara and Yager each received an annual bonus of $67,500 in fiscal
1999.
10
<PAGE>
The Agreements also provide that the Corporation will establish a performance
incentive bonus plan which will provide each executive the opportunity to earn
an annual bonus of up to five percent of the increase in the Corporation's
pretax income, if any, based upon the attainment of performance goals to be
established by the Compensation Committee. Such an incentive bonus plan has not
yet been adopted by the Board of Directors.
Gregory Cuneo
Stephen J. Yager
Ronald Fregara
Robert J. Birnbach
Michael J. Abatemarco
Jared E. Abbruzzese
Lloyd I. Miller, III
Raymond L. Steele
Michael F. Whalen, Jr.
11
<PAGE>
PERFORMANCE GRAPH
The line graph set forth below provides a comparison of the Corporation's
cumulative total stockholder return on its Common Stock with the Russell 2000
Index and with the Nasdaq Non-Financial Index. Such stockholder return is the
sum of any dividends paid and the change in the market price of the stock.
[Chart to be provided]
12
<PAGE>
CERTAIN TRANSACTIONS
A subsidiary of the Corporation leases shop and office space on a month-to-month
basis from a company in which Messrs. Spaziani, Fregara and Cuneo each own a 20
percent interest. Rent expense for the year ended June 30, 1999 was $46,000.
In October 1997, Mr. Tangel loaned a subsidiary of the Corporation $185,000. The
principal and interest on the loan were repaid in full in June 1999.
BOARD OF DIRECTORS PROPOSALS
PROPOSAL NO. 1
APPROVAL OF CONVERTIBLE NOTE TRANSACTION
WITH BLACKACRE CAPITAL MANAGEMENT, L.L.C.
The stockholders of the Corporation are being asked to approve a proposed
transaction between Blackacre Capital Management, L.L.C. and certain of its
affiliates (collectively, "Blackacre") and the Corporation, under which
Blackacre will invest $10 million in DualStar through the purchase of a
convertible note (the "Convertible Note"). Under the Convertible Note, Blackacre
will lend DualStar $10 million for ten (10) years, at an annual interest rate of
3%, subject to certain conditions and secured by certain assets of the
Corporation and/or its affiliates. The loan shall be convertible, at the option
of Blackacre, into DualStar Common Stock at a conversion price of $5.15 per
share. DualStar expects to use the net proceeds from the Convertible Note sale
to expand its communications and related businesses and for general corporate
purposes. If Blackacre converts the principal amount of the Convertible Note
into Common Stock, and assuming Blackacre exercises the New Class B Warrants
(identified below) and holds the New Common Stock (identified below), Blackacre
will then own approximately 26.76% of the Corporation's then-outstanding Common
Stock (based on 14,732,748 shares outstanding at that time), or 36.53% of the
Corporation's outstanding Common Stock (based on 10,791,000 shares outstanding
as of October 19, 1999).
In a related transaction among the Corporation and Blackacre, for which
stockholder approval is not sought, in exchange for the new Class B Warrants,
Blackacre will grant DualStar residential, commercial and hotel access rights
nationwide. Under such grant, DualStar will have the right to sell
communications and related services to over 100,000 multiple dwelling units
("MDUs"), 2,000,000 square feet of commercial space, and 1,000 hotel room owned
or controlled by Blackacre. The services to be provided by DualStar includes
Internet access, cable and satellite television, telephone, and related
services. In exchange for such access rights, Blackacre will receive warrants to
purchase 1,000,000 shares of DualStar Common Stock at an exercise price of $0.10
per share (the "New Class B Warrants"). Blackacre also has agreed to purchase
1,000,000 shares of DualStar Common Stock at a price of $5.30 per share (the
"New Common Stock"). That agreement also provides for the designation by
Blackacre of one member to DualStar's Board of Directors, a stockholders
agreement and certain registration rights. (The stockholders agreement and
registration rights would likewise be applicable to the shares that would be
issued to Blackacre should it convert the Convertible Note, if the issuance of
the Convertible Note is approved by the Corporation's stockholders.)
13
<PAGE>
Upon Blackacre's purchase of the 1,000,000 shares of New Common Stock, Blackacre
will own approximately 8.48% of the Corporation's then-outstanding Common Stock
(based on 11,791,000 shares outstanding at that time), or 9.27% of the
Corporation's outstanding Common Stock (based on 10,791,000 shares outstanding
as of October 19,1999).
If Blackacre then also exercises the New Class B Warrants, Blackacre will own
approximately 15.64% of the Corporation's then-outstanding Common Stock (based
on 12,791,000 shares outstanding at that time), or 18.53% of the Corporation's
outstanding Common Stock (based on 10,791,000 shares outstanding as of October
19, 1999).
As indicated above, if the issuance of the Convertible Note is approved by the
Corporation's stockholders, and Blackacre thereafter converts the principal
amount of the Convertible Note into Common Stock, Blackacre would then own
approximately 26.76% of the Corporation's then-outstanding Common Stock (based
on 14,732,748 shares outstanding at that time), or 36.53% of the Corporation's
outstanding Common Stock (based on 10,791,000 shares outstanding as of October
19, 1999).
Michael F. Whalen, Jr., who is a nominee for director at the 1999 Annual
Meeting, is Blackacre's designee for nomination to the Board of Directors. In a
related matter, Gregory Cuneo, DualStar's Chairman, President and Chief
Executive Officer, has agreed to serve as Chairman of Starrett Corporation, an
affiliate of a portfolio company owned by Blackacre. DualStar anticipates that
Mr. Cuneo's current positions and role as DualStar's Chairman, President and CEO
will not be affected and that DualStar will benefit by his new position at
Starrett.
The Board of Directors of the Corporation has entered into an agreement with
Blackacre with respect to each of the foregoing transactions, which is subject
to the execution of a definitive agreement and certain conditions, including,
with respect to the Convertible Note, approval by the Corporation's
stockholders. The Corporation will proceed with transactions involving the sale
by the Corporation, and the purchase by Blackacre, of the New Common Stock and
the issuance of the New Class B Warrants in exchange for the access rights
described above, regardless of whether the Corporation's stockholders approve
the proposed Convertible Note transaction.
Approval of the foregoing Convertible Note proposal requires the affirmative
vote of a majority of the shares of the Corporation's Common Stock entitled to
vote and represented at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE FOREGOING
CONVERTIBLE NOTE PROPOSAL.
The unaudited condensed consolidated pro forma financial statements (shown
below) give effect to the proposed Convertible Note transaction between DualStar
and Blackacre, as discussed above.
The pro forma financial statements include adjustments to reflect (i) the
issuance of one million shares of New Common Stock at $5.30 per share, (ii) the
issuance of one million New Class B Warrants, exercisable for one million shares
of Common Stock at $0.10 per share in exchange for access rights, (iii) the
issuance of a $10 million Convertible Note, (iv) the amortization of the access
rights, and (v) the interest on the Convertible Note.
14
<PAGE>
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what the
Corporation's financial position or results of operations would actually have
been if such transactions, in fact, had occurred on those dates and are not
necessarily representative of the Corporation's financial position or results of
operations for any future periods.
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTED
------------ ----------- --------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash $ 583,995 $ 5,300,000 a $ 15,883,995
10,000,000 c
Contracts receivable - net of allowance for doubtful accounts 23,653,712 23,653,712
Retainage receivable 6,213,201 6,213,201
Other current assets 1,842,125 1,842,125
------------- -------------
Total current assets 32,293,033 47,593,033
Property and equipment - net of accumulated depreciation 3,147,068 3,147,068
Other Assets:
Access rights - 5,200,000 b 5,200,000
Other 3,154,486 3,154,486
------------- -------------
Total assets $ 38,594,587 $ 59,094,587
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 21,053,418 $ 21,053,418
Other current liabilities 7,421,504 7,421,504
------------- -------------
Total current liabilities 28,474,922 28,474,922
Convertible note - $ 10,000,000 c 10,000,000
Subordinated convertible note 2,500,000 2,500,000
Other liabilities 930,248 930,248
------------- -------------
Total liabilities 31,905,170 41,905,170
------------- -------------
Shareholders' Equity:
Common stock - par value, $.01 per share 90,000 10,000 a 100,000
Additional paid-in capital 14,995,836 5,290,000 a 25,485,836
5,200,000 b
Deficit (8,396,419) (8,396,419)
------------- -------------
Total shareholders' equity 6,689,417 17,189,417
------------- -------------
Total liabilities and shareholders' equity $ 38,594,587 $ 59,094,587
============= =============
</TABLE>
(a) Records the issuance of 1 million shares of common stock at $5.30 per
share.
(b) Records the issuance of 1 million warrants in exchange for access rights.
The warrants are exercisable for 1 million share of common stock at $0.10
per share.
(c) Records the issuance of a $10 million convertible note.
15
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS ADJUSTED
---------- ----------- --------
<S> <C> <C> <C>
Contract revenues earned $ 92,649,578 $ 92,649,578
Cost of revenues earned 82,281,340 $ 347,000 a 82,628,340
------------- ------------
Gross profit 10,368,238 10,021,238
General and administrative expenses 9,664,990 300,000 b 9,964,990
------------- ------------
Income before benefit for income taxes 703,248 56,248
Benefit for income taxes (619,000) (619,000)
------------- ------------
Net income $ 1,322,248 $ 675,248
============= ============
Pro forma basic net income per share:
Net income per share $0.07
Shares used in computing pro forma net income per share 10,000,000
Pro forma diluted net income per share:
Net income per share $0.07
Shares used in computing pro forma net income per share 14,935,608
</TABLE>
(a) Records the amortization of the access rights over fifteen years.
(b) Records the interest on the convertible note.
16
<PAGE>
PROPOSAL NO. 2
APPROVAL OF AMENDMENT TO
THE CORPORATION'S 1994 STOCK OPTION PLAN
Stockholders are being asked to approve an amendment to the Corporation's 1994
Stock Option Plan, as amended (the "1994 Plan"), for the purpose of increasing
the number of shares available for grant under the 1994 Plan. The Plan provides
for 3,500,000 shares of the Corporation's Common Stock to be reserved and
available for distribution as grants, of which options for 2,505,000 shares are
outstanding as of October 19, 1999. On October 25, 1999, subject to stockholder
approval, the Board of Directors approved an amendment to the 1994 Plan to
increase the number of shares reserved and available for distribution as Awards
under the 1994 Plan. The amendment will increase that number to 5,500,000
shares. The Board of Directors believes that it is advisable and in the best
interests of the Corporation to increase the number of shares available for
grant because the Corporation desires to continue to use stock grants to enable
the Corporation to attract and retain qualified personnel by offering them
proprietary interests in the Corporation.
The text of the proposed amendment is set forth in Appendix A attached hereto.
Approval of the proposed amendment to the 1994 Plan requires the affirmative
vote of a majority of the shares of the Corporation's Common Stock represented
at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE FOREGOING
AMENDMENT TO THE 1994 STOCK OPTION PLAN.
17
<PAGE>
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors has appointed the firm of Grant Thornton LLP ("Grant
Thornton") as independent certified public accountants for the 2000 fiscal year
and recommends to stockholders ratification of such appointment. Grant Thornton
served as principal accountant for the fiscal year most recently completed.
The appointment of the independent public accountants is approved annually by
the Board of Directors, which reviews the qualifications of independent
accountants and which reviews the audit scope, reasonableness of fees and also
the types of nonaudit services for the coming year.
Although not required to do so, the Board of Directors is submitting the
appointment of Grant Thornton for ratification by the stockholders. If this
action is not ratified, the Board of Directors will reconsider its appointment.
The affirmative vote of a majority of the shares of the Corporation's Common
Stock represented at the annual meeting is required to ratify this appointment.
Representatives of Grant Thornton will be present at the annual meeting of
stockholders and will have an opportunity to make a statement if they desire to
do so. They will be available to respond to appropriate questions.
DEADLINE FOR STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2000 annual meeting to
be included in the proxy material relating to that meeting must be received by
the Corporation at its principal executive office by June 22, 2000.
ANNUAL REPORT TO THE SEC; FORM 10-K
Stockholders may obtain, without charge, a copy of the Corporation's annual
report on Form 10-K, filed with the Securities and Exchange Commission, by
writing to DualStar Technologies Corporation, 11-30 47th Avenue, Long Island
City, NY 11101, Attn: Investor Relations, or by visiting the Corporation's Web
site (http://www.dualstar.com). Copies of exhibits to such annual report may be
obtained upon payment of the cost to the Corporation of copying and mailing such
exhibits.
18
<PAGE>
OTHER MATTERS
The Board of Directors does not know of any matters to be brought before the
meeting other than those referred to in the notice hereof. If any other matters
properly come before the meeting, it is the intention of the persons named in
the form of proxy to vote such proxy in their discretion in accordance with
their judgment on such matters.
By Order of the Board of Directors,
Stephen J. Yager
Secretary
October 26, 1999
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE FILL IN, SIGN AND DATE
THE PROXY SUBMITTED HEREWITH AND RETURN IT IN THE ENCLOSED STAMPED ENVELOPE. THE
GIVING OF SUCH PROXY WILL NOT AFFECT YOUR RIGHT TO REVOKE SUCH PROXY OR TO VOTE
IN PERSON SHOULD YOU LATER DECIDE TO ATTEND THE MEETING. THE ENCLOSED PROXY IS
BEING SOLICITED BY THE BOARD OF DIRECTORS.
<PAGE>
APPENDIX A
PROPOSAL NO. 2
The 1994 Stock Option Plan is proposed to be amended by deleting the first
paragraph of Section 4 in its entirety, and substituting the following in lieu
thereof:
The total number of shares of Stock reserved and available
for distribution pursuant to Awards under the Plan shall be
5,500,000 shares of Common Stock. Such shares may consist, in
whole or in part, of unauthorized and unissued shares or
treasury shares.
<PAGE>
DUALSTAR TECHNOLOGIES CORPORATION
PROXY FOR 1999 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Gregory Cuneo and Stephen J. Yager as Proxies,
each with the full power of substitution, and hereby authorizes each of them to
represent and vote, as designated on the reverse hereof, all shares of Common
Stock of DualStar Technologies Corporation (the "Corporation") held of record by
the undersigned on October 19, 1999, at the Annual Meeting of Stockholders to be
held on December 8, 1999, or any adjournment thereof, upon all such matters as
may properly come before the Meeting.
(THE PROXY CONTINUES AND MUST BE SIGNED ON THE REVERSE SIDE.)
<PAGE>
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
DUALSTAR TECHNOLOGIES CORPORATION
DECEMBER 8, 1999
<PAGE>
(Please detach and mail in the envelope provided)
[X] Please mark your votes
as in this example
FOR WITHHOLD AUTHORITY
all nominees to vote for all
listed (except as nominees
marked to the listed at left
contrary below)
1. ELECTION OF DIRECTORS [ ] [ ]
Instruction: To withhold authority to Nominees:
vote for any individual nominee, write that Michael J. Abatemarco
nominee's name in the space provided. Jared E. Abbruzzese
Robert J. Birnbach
- ---------------------------- Gregory Cuneo
Ronald Fregara
Lloyd I. Miller, III
Raymond L. Steele
Stephen J. Yager
Michael F. Whalen, Jr.
2. Proposal to approve the Convertible Note Transaction with
Blackacre Capital Management, L.L.C.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(The Board of Directors recommends a vote "FOR" approval.)
3. Proposal to amend the 1994 Stock Option Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(The Board of Directors recommends a vote "FOR" approval.
4. Ratification of appointment of Grant Thornton LLP as the
Corporation's independent public accountants for the fiscal year
ending June 30, 2000.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(The Board of Directors recommends a vote "FOR" approval.)
5. In their discretion upon such other business as may properly come
before the Annual Meeting or any postponement or adjournment
thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. THIS
PROXY, IF PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED; IN THE ABSENCE
OF DIRECTION, THIS PROXY WILL BE VOTED "FOR" ITEMS 1, 2, 3 AND 4.
Stockholders are urged to date, mark, sign and return this proxy
promptly in the envelope provided, which requires no postage if mailed
within the United States.
[ ]
If you plan to attend the Annual Meeting, place an X in this box.
<PAGE>
SIGNATURE: DATE:
----------------------------------- -------------------------
SIGNATURE: DATE:
----------------------------------- -------------------------
(Signature if jointly held)
NOTE: Please sign exactly as name or names appear on stock
certificate as indicated hereon. Joint owners each should
sign. When signing as an attorney, executor, administrator or
guardian, please give full title as such.
