UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 2)*
TECHNICAL COMMUNICATIONS CORPORATION
(Name of Issuer)
Common Stock, $0.10 par value per share
(Title of Class of Securities)
878 409 101
(CUSIP Number)
M. Mahmud Awan, Ph. D. Paul Bork, Esq.
TechMan International Corporation Hinckley, Allen & Snyder
240 Sturbridge Road 28 State Street
Charlton City, Massachusetts 01506 Boston, Massachusetts 02109
(508) 248-3211 617) 345-9000
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
May 22, 1998
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box / /.
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) for other
parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior coverage page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
1. Name of Reporting Person: M. Mahmud Awan
SS or IRS Identification Number of the Above Person:
2. Check the Appropriate Box if a Member of a Group: (a) /X/
(b) / /
3. SEC Use Only
4. Source of Funds: PF
5. Check Box if Disclosure of Legal Proceedings is Required Pursuant to Items
2(d) or 2(e): / /
6. Citizenship or Place of Organization: USA
7. Sole Voting Power: 131,978 shares
8. Shared Voting Power: 0 shares
9. Sole Dispositive Power: 131,978 shares
10. Shared Dispositive Power: 0 shares
11. Aggregate Amount Beneficially Owned by Each Reporting Person: 131,978
shares
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares: / /
13. Percent of Class Represented by Amount in Row (11): 10.3%
14. Type of Reporting Person: IN
<PAGE>
1. Name of Reporting Person: Philip A. Phalon
SS or IRS Identification Number of the Above Person:
2. Check the Appropriate Box if a Member of a Group: (a) /X/
(b) / /
3. SEC Use Only
4. Source of Funds: PF
5. Check Box if Disclosure of Legal Proceedings is Required Pursuant to Items
2(d) or 2(e): / /
6. Citizenship or Place of Organization: USA
7. Sole Voting Power: 2,250 shares
8. Shared Voting Power: 0 shares
9. Sole Dispositive Power: 2,250 shares
10. Shared Dispositive Power: 0 shares
11. Aggregate Amount Beneficially Owned by Each Reporting Person: 2,250 shares
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares: / /
13. Percent of Class Represented by Amount in Row (11): 0.2%
14. Type of Reporting Person: IN
<PAGE>
1. Name of Reporting Person: Robert B. Bregman
SS or IRS Identification Number of the Above Person:
2. Check the Appropriate Box if a Member of a Group: (a) /X/
(b) / /
3. SEC Use Only
4. Source of Funds: PF
5. Check Box if Disclosure of Legal Proceedings is Required Pursuant to Items
2(d) or 2(e): / /
6. Citizenship or Place of Organization: USA
7. Sole Voting Power: 2,700 shares
8. Shared Voting Power: 0 shares
9. Sole Dispositive Power: 2,700 shares
10. Shared Dispositive Power: 0 shares
11. Aggregate Amount Beneficially Owned by Each Reporting Person: 2,700 shares
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares: / /
13. Percent of Class Represented by Amount in Row (11): 0.2%
14. Type of Reporting Person: IN
<PAGE>
1. Name of Reporting Person: William C. Martindale, Jr.
SS or IRS Identification Number of the Above Person:
2. Check the Appropriate Box if a Member of a Group: (a) /X/
(b) / /
3. SEC Use Only
4. Source of Funds: PF
5. Check Box if Disclosure of Legal Proceedings is Required Pursuant to Items
2(d) or 2(e): / /
6. Citizenship or Place of Organization: USA
7. Sole Voting Power: 10,000 shares
8. Shared Voting Power: 67,000 shares
9. Sole Dispositive Power: 10,000 shares
10. Shared Dispositive Power: 67,000 shares
11. Aggregate Amount Beneficially Owned by Each Reporting Person: 77,000 shares
12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares: /X/
13. Percent of Class Represented by Amount in Row (11): 6.0%
14. Type of Reporting Person: IN
<PAGE>
Item 1.
The Statement of M. Mahmud Awan, Philip A. Phalon, Robert B. Bregman and
William C. Martindale, Jr. (the "Purchasing Group") on Schedule 13D dated April
3, 1998, as amended and supplement by Amendment No. 1 dated May 15, 1998, in
respect of the common stock, $0.10 par value ("Common Stock"), of Technical
Communications Corporation (the "Issuer") whose principal executive offices are
located at 100 Domino Drive, Concord, Massachusetts 01742, is hereby amended and
supplemented as follows:
Item 4. Purpose of Transaction
Item 4(d) is hereby amended and supplemented by the addition of the following
paragraph:
"On May 22, 1998, Awan and Phalon commenced an action against the
Issuer and certain of its directors in the Massachusetts Superior Court,
Middlesex County, entitled Philip A. Phalon, and M. Mahmud Awan v.
Technical Communications Corporation, Arnold McCalmont, Herbert A. Lerner,
Robert T. Lessard, Carl H. Guild, Mitchell B. Briskin, and Thomas B.
Peoples, Civil Action No. 98-2553. The Plaintiffs allege that the
individual director defendants: (i) breached their fiduciary duties to the
stockholders of the Issuer by engaging in self-dealing transactions; (ii)
engaged in concealment of illegal and possibly criminal conduct by certain
officers and directors of the Issuer; (iii) denied the Plaintiffs' access
to the Issuer's stockholder lists and related materials in violation of
state and federal law; and (iv) illegally acted to entrench themselves as
the Issuer's Board of Directors by actions taken at an April 30, 1998 Board
meeting. The Plaintiffs are seeking injunctive relief and a declaratory
judgment. A copy of the Verified Complaint is attached hereto as an Exhibit
an incorporated herein."
Item 5. Interest in Securities of the Issuer
Item 5 is hereby amended and supplemented by the addition of the following
paragraph:
"Below is a list of purchases of shares of Common Stock by the members
of the Purchasing Group since May 15, 1998, the date of the group's filing
of Amendment No. 1 on Schedule 13D, all of which were effected through
ordinary brokerage transactions in the Over-the-Counter-Market:
M. Mahmud Awan
Date No. of Shares Average Price Per Share
May 20, 1998 3,000 $5.875"
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: May 22, 1998 /s/M. Mahmud Awan
______________________________
M. Mahmud Awan
/s/ *
______________________________
Philip A. Phalon
/s/ *
______________________________
Robert B. Bregman
/s/ *
______________________________
William C. Martindale, Jr.
*/s/M. Mahmud Awan
______________________________
M. Mahmud Awan
Attorney - in - Fact
<PAGE>
COMMONWEALTH OF MASSACHUSETTS
MIDDLESEX, ss. Superior Court
Civil Action No. 98-2553
________________________________
)
PHILIP A. PHALON, and )
M. MAHMUD AWAN, )
)
Plaintiffs, )
)
v. )
)
TECHNICAL COMMUNICATIONS )
CORPORATION, ARNOLD MCCALMONT, )
HERBERT A. LERNER, ROBERT T. )
LESSARD, CARL H. GUILD, )
MITCHELL B. BRISKIN, DONALD )
LAKE, and THOMAS B. PEOPLES, )
)
Defendants. )
________________________________)
VERIFIED COMPLAINT
Introduction
This is an action to enjoin the unlawful conduct of Defendants, Arnold
McCalmont, Herbert A. Lerner, Robert T. Lessard, Carl H. Guild, Mitchell B.
Briskin, Donald Lake, and Thomas B. Peoples in (i) breaching their fiduciary
duties to the stockholders of the Defendant, Technical Communications
Corporation ("TCC") by engaging in self-dealing transactions; (ii) engaging in a
cover up of wrongful and possibly fraudulent or criminal conduct by certain TCC
officers and directors; (iii) intentionally obstructing the Plaintiffs' efforts
to communicate with other TCC stockholders regarding the affairs of TCC; and
(iv) illegally acting to entrench themselves as TCC's Board of Directors. The
Plaintiffs seek mandatory injunctive relief under Massachusetts and federal law
requiring the Defendants to provide them with a list of all stockholders of TCC.
The Plaintiffs also seek an order rescinding and invalidating certain actions
taken by the Defendants McCalmont, Guild, Lessard, and Lerner, a majority of
TCC's Board of Directors, at a meeting held on April 30, 1998, and a declaration
that the amendments to TCC's By-Laws adopted at that meeting are null and void.
Parties
1. The Plaintiff, Philip A. Phalon ("Phalon"), is an individual whose
business address is 40 Salem Street, Lynnfield, Essex County, Massachusetts. He
is a director of TCC and the holder of approximately 500 shares of common stock,
par value $.10 per share, of TCC ("TCC Shares") and options to purchase an
additional 1,750 TCC shares.
2. The Plaintiff, M. Mahmud Awan ("Awan"), is an individual whose business
address is 240 Sturbridge Road, Charlton City, Worcester County, Massachusetts.
He owns directly and indirectly through a wholly owned corporation approximately
132,000 TCC Shares.
3. The Defendant, TCC, is a Massachusetts corporation with a principal
place of business at 100 Domino Drive, Concord, Middlesex County, Massachusetts.
TCC is in the business of providing secure telecommunications and encryption
systems. TCC is a public company whose shares are traded on the Nasdaq Stock
Market. At September 27, 1997 the end of TCC's most recent fiscal year,
approximately 1,283,000 TCC Shares were outstanding. Upon information and
belief, TCC's stockholders are resident in several states.
4. Defendant, Arnold McCalmont, whose business address is 100 Domino Drive,
Concord, Massachusetts, is a Director and stockholder of TCC.
5. Defendant, Herbert A. Lerner, whose business address is 100 Domino
Drive, Concord, Massachusetts, is a Director, Chief Financial Officer, the
Treasurer and a stockholder of TCC.
6. Defendant, Robert T. Lessard, whose business address is 100 Domino
Drive, Concord, Massachusetts, is a Director of TCC.
7. Defendant, Carl H. Guild, whose business address is 100 Domino Drive,
Concord, Massachusetts, is a Director of TCC, Chairman of the Board, and TCC's
Chief Executive Officer.
8. Defendant, Mitchell B. Briskin, whose business address is 100 Domino
Drive, Concord, Massachusetts, is a Director of TCC.
9. Defendant, Donald Lake, whose business address is 100 Domino Drive,
Concord, Massachusetts, is a Director of TCC.
10. Defendant, Thomas E. Peoples, whose business address is 100 Domino
Drive, Concord, Massachusetts, is a Director of TCC.
Jurisdiction and Venue
11. This court has jurisdiction over the dispute between the parties
pursuant to M.G.L. c. 212 ss.4, c. 214 ss.1, c. 231A ss.1, and c. 156B ss. 32.
12. This court is the proper venue for this action pursuant to M.G.L. c.
223 ss.1.
Background Facts
13. At least since the time TCC became a public company, Arnold McCalmont,
the company's founder, has effectively controlled TCC's board. His control has
been so pervasive that he was able to secure for his son, James McCalmont, a
position as a TCC director and senior officer. He was also able to secure for
his son, Marc McCalmont, a position at TCC, and to arrange for TCC to make
substantial cash investments in Net2Net Corporation, a business founded by
Stephen A. McCalmont, another of his sons. Arnold McCalmont has seen to it that
TCC's directors, other than Phalon, are beholden to him, willing and able to
acquiesce to his preferences in connection with the management of TCC's business
affairs, thus assuring his control.
14. TCC's Board of Directors, controlled by Arnold McCalmont, is currently
attempting to continue to pilfer from TCC's treasury at the expense of TCC's
stockholders, by entering into certain contracts with themselves and a wasteful
severance agreement with James McCalmont, whose resignation came under a cloud
of legal scrutiny of his actions as an officer of TCC. These actions constitute
such egregious waste as to be a breach of the duty of loyalty owed by McCalmont,
Guild, Lessard, and Lerner to TCC and its stockholders.
15. In 1997, Phalon became aware that the law firm of Gadsby & Hannah
("G&H") had been retained by TCC to investigate whether certain individual
officers, directors, and employees of TCC had engaged in conduct violative of
federal law, in connection with certain international sales projects.
16. Upon information and belief, G&H conducted a lengthy investigation
during November and December of 1997 and compiled a report (the "Slavitt
Report") on its investigation which included recommendation of actions to be
taken by or on behalf of TCC. This report was made available to the Board of
Directors and discussed in detail with representatives of G&H at a board meeting
held on January 8, 1998 at G&H, at which Phalon was present. Some of the
findings and recommendations contained in the Slavitt Report are more fully
described in the Affidavit of Phalon, attached hereto as Exhibit A (hereinafter
the "Phalon Affidavit"). Neither the Slavitt Report nor its contents were made
available to TCC's stockholders.
17. The information contained in the Slavitt Report raised serious concerns
regarding possible illegal and otherwise wrongful conduct by certain TCC
officers and directors, particularly James McCalmont, who resigned as a
Director, Officer and employee following the January 8, 1998 meeting, Defendant
Arnold McCalmont, and Defendant Herbert Lerner .
18. The Slavitt Report contained the recommendations of G&H that the
Defendants take certain actions to address the wrongful conduct uncovered by the
investigation, and obtain restitution from James McCalmont and Arnold McCalmont
for the benefit of TCC and its stockholders.
19. Phalon reviewed the Slavitt Report. At the conclusion of the meeting,
G&H collected from the TCC directors and officers all copies of the Slavitt
Report for purpose of shredding them. Evan M. Slavitt, the G&H lawyer who
authored the Slavitt Report, advised the directors that all paper copies would
be destroyed and that the document would only be retrievable from G&H's computer
system.
20. Upon information and belief, the Defendants McCalmont, Guild, Lessard,
and Lerner (hereinafter referred to as the "McCalmont Group") declined to
implement the recommendations contained in the Slavitt Report.
21. Subsequently, as more fully described in the Phalon Affidavit, the
individual Defendants have intentionally endeavored to conceal the results of
the investigation conducted by G&H and the Slavitt Report from the Plaintiffs
and TCC's stockholders, in derogation of the recommendations of the Slavitt
Report. The McCalmont Group at Arnold McCalmont's insistence have also
authorized and directed TCC to enter into illegal transactions with James
McCalmont and Carl Guild, having the effect of transferring assets from TCC by
submitting to James McCalmont's demand for an improper indemnity agreement, and
also by providing Carl Guild with a lucrative employment arrangement involving
excessive stock options and salary.
22. The McCalmont Group terminated the employment of TCC's Chief Financial
Officer, Graham Briggs, on January 14, 1998, for refusing to execute a
confidentiality agreement regarding the Slavitt Report and for refusing to
participate in the effort to cover up self-dealing sponsored by Defendants
McCalmont, Guild, Lessard, and Lerner.
23. Following the January 14, 1998 board meeting, Mr. Phalon informed the
McCalmont Group that he would not stand for reelection with them, and that he
would consider supporting an opposition slate for election as directors.
24. The McCalmont Group terminated the employment of TCC's President,
Roland S. Gerard, on February 13, 1998, for refusing to participate in the
effort to cover up the wrongful conduct described in the Slavitt Report and the
self-dealing transactions sponsored by the Defendants McCalmont, Guild, Lessard,
and Lerner.
Formation of Shareholder Response
25. On April 3, 1998, the Plaintiffs, together with two other TCC
stockholders, Robert B. Bregman, and William C. Martindale, Jr., filed a Joint
Statement on Schedule 13D with the Securities Exchange Commission ("SEC") in
which they disclosed beneficial ownership in excess of 5% of TCC's then
outstanding shares and that they had formed a "group" (the "Group") within the
meaning of Section 13(d)(3) of the Securities and Exchange Act of 1934 (the
"Exchange Act"), 15 U.S.C., ss.78(d)(3). At that time, the Group disclosed that
it was considering the costs and benefits of conducting a proxy contest to
replace a majority of TCC's Board of Directors with nominees selected by the
Group, in response to certain business and financial problems plaguing TCC.
26. At the time it filed the Joint Statement on Schedule 13D, the Group, in
the aggregate, beneficially owned 197,228 TCC Shares representing approximately
15.4% of the outstanding TCC Shares.
Stockholder List Demand
27. Pursuant to M.G.L. c. 156B ss.32 and Article V(6) of TCC's By-Laws, TCC
is required to maintain and to make available for inspection for any proper
purpose its stock and transfer records, including the names, record address, and
amount of stock held by each stockholder.
28. In furtherance of his objective to communicate with other TCC
stockholders in connection with evaluating the costs and benefits of conducting
a proxy contest to elect the Group's nominees as directors at the 1998 Annual
Meeting, Mr. Phalon made a written demand (the "Demand Letter") to TCC on April
8, 1998, pursuant to M.G.L. c. l56B, ss.32 and principles of equity and common
law, to inspect TCC's stock and transfer records. A true and accurate copy of
the Demand Letter is attached hereto as Exhibit B. As set forth in the Demand
Letter, its purpose "is to enable [Mr. Phalon] to identify and communicate with
[his] fellow stockholders on matters relating to their investment in the Company
and the affairs of the Company."
29. Among the items requested by Mr. Phalon in the Demand Letter was a list
of TCC's stockholders (the "Stockholder List"), and a list of non-objecting
beneficial owners (the "NOBO List") which is available to TCC from brokers and
dealers and from banks pursuant to Rules 14b-1 and 14b-2 promulgated under the
Exchange Act. The NOBO List would include the names of those beneficial owners
of TCC stock, whose stock is held in "street" name by a broker, financial
institution or other fiduciary, and who do not object to their names being
disclosed. Mr. Phalon also requested that he be permitted to inspect the
following: (i) a complete list of TCC's stockholders as of the close of business
on April 1, 1998, and any later record date established for the next Annual
Meeting of Stockholders; (ii) a magnetic computer tape list of the holders of
TCC's Shares as of April 1, 1998 and such Record Date; (iii) all daily transfer
sheets showing changes in the list of TCC's stockholders from April 1, 1998 and
such Record Date to and including the date of the next Annual Meeting; (iv) all
information in TCC's possession concerning the number and identity of the actual
beneficial owners of TCC's Shares; and (v) a listing as of April 1, 1998 and
such Record Date of all stockholders owning 1,000 or more TCC Shares arranged in
descending order (collectively items (ii)-(v) are hereinafter referred to as the
"Related Materials").
30. Mr. Phalon's purpose in obtaining the Stockholder List, the NOBO List,
and the Related Materials is to permit him to communicate directly, more
expeditiously and more effectively with fellow TCC stockholders. Mr. Phalon does
not seek to secure this stockholder list information for the purpose of selling
the information or for any reason other than in his interest as a stockholder
with respect to the affairs of TCC.
31. On April 13, 1998, TCC's clerk replied to Mr. Phalon, stating only that
TCC was "considering how to best accommodate the scope and purpose of [Phalon's]
request under both federal and Massachusetts law and will respond shortly."
32. On April 24, 1998, more than two weeks after Mr. Phalon first demanded
access to the Stockholder List, the NOBO List, and the Related Materials, G&H
forwarded to Plaintiffs' counsel, a proposed Confidentiality and Nondisclosure
Agreement (the "Confidentiality Agreement"). Neither the Confidentiality
Agreement nor the accompanying letter from TCC's counsel responded to Mr.
Phalon's requests for the Stockholder List, the NOBO List, or the Related
Materials. A true and accurate copy of this Confidentiality and Nondisclosure
Agreement and the cover letter from G&H is attached hereto as Exhibit C.
33. The Confidentiality Agreement represented an improper restriction on
Mr. Phalon's access to the Stockholder List, well beyond the statutory
confidentiality and nondisclosure requirements imposed upon stockholders. In
particular, TCC insisted that Mr. Phalon not transfer or disseminate such list,
even to other TCC stockholders, unless the Confidentiality Agreement was signed
by the party to whom the list would be disclosed, and the signature page first
returned to G&H, notwithstanding that Mr. Phalon agreed to use the list solely
in the interest of himself as a stockholder, relative to the possible
solicitation of written proxies. The Confidentiality Agreement also sought to
impose upon Mr. Phalon liability for any and all costs, expenses, and attorneys
fees incurred by TCC in connection with any dispute with Mr. Phalon relative to
the Stockholder List.
34. On April 29, 1998, Mr. Phalon's counsel responded to G&H, indicating
that while Mr. Phalon was fully prepared to honor all lawful requirements with
respect to his use of the Stockholder List and Related Materials, Mr. Phalon
would not agree to otherwise restrict his use of the list as proposed by TCC.
35. The Defendants have not provided the Plaintiffs with access to the
Stockholder List, the NOBO List, or the Related Materials or made the
appropriate acknowledgments required under Rule 14a-7, promulgated under the
Exchange Act.
36. Upon information and belief, TCC caused the Confidentiality Agreement
to be forwarded to Plaintiffs' counsel for the purpose of delaying production of
the Stockholder List, the NOBO List, and the Related Materials, and in order to
illegally interfere with the Plaintiffs' ability to communicate with other TCC
stockholders regarding the affairs of TCC in violation of Massachusetts and
federal law.
Demand For Annual Meeting
37. Pursuant to Article I(1) of TCC's By-Laws, the annual meeting of
stockholders (the "Annual Meeting") must be held on the second Monday in
February of each year, making February 9, 1998 the Annual Meeting date for this
year. Article IV(4) of TCC's By-Laws requires the Board of Directors to fix in
advance a time, not more than sixty days preceding the date of any stockholder
meeting, as the record date for determining voting eligibility at any upcoming
stockholder meeting (a "Record Date").
38. Pursuant to M.G.L. c. 156B ss.33, TCC's Annual Meeting must occur
within six months of the end of its fiscal year. TCC's fiscal year ended on
September 27, 1997. Thus, TCC was required by statute to schedule the Annual
Meeting no later than March 26, 1998.
39. TCC failed to hold the Annual Meeting within the time required by
Section 33 of Chapter 156B, and also failed to hold the Annual Meeting as
required by TCC's By-Laws. As of April 29, 1998, no Record Date had been set,
the Annual Meeting had not been held, nor had any notice of same been
transmitted by TCC's clerk to stockholders entitled to vote thereat, as required
by Article I(3) of TCC's By-Laws and M.G.L. c. 156B, ss. 36.
40. On April 29, 1998, and in anticipation of a meeting of TCC's Board of
Directors scheduled for April 30, 1998, Plaintiffs made a written demand to TCC,
pursuant to Chapter 156B of the Massachusetts General Laws and principles of
equity and common law, that TCC's Board of Directors immediately act to
establish a Record Date for the 1998 Annual Meeting and establish a date for the
1998 Annual meeting (the "Second Demand Letter"). A true and accurate copy of
the Second Demand Letter is attached hereto as Exhibit D. The Second Demand
Letter also placed TCC and the McCalmont Group on notice that the Board's
failure to establish a Record Date in a timely fashion, as required by law,
constituted a breach of fiduciary duty owed to all TCC stockholders, and a
further act of entrenchment.
Entrenchment Actions
41. On April 30, 1998, a quorum of TCC's board of directors met (the "April
30th Meeting"). This meeting lasted only fifteen minutes, in contrast to typical
TCC board meetings, which usually lasted for hours. At this meeting, the
McCalmont Group without discussion and over the objection of Phalon, purported
to amend the By-Laws of TCC to provide for the creation of three classes of
directors and to create staggered terms for all directors by class, such that a
maximum of three directors would stand for reelection at any one time. Class One
Directors become eligible for reelection at the date of the first annual meeting
following the April 30th Meeting. Class Two Directors become eligible for
reelection at the date of the second annual meeting following the April 30th
Meeting. Class Three Directors become eligible for reelection at the date of the
third annual meeting following the April 30th Meeting. Mr. Phalon was designated
as a Class One Director.
42. At the April 30th Meeting the McCalmont Group purported to fill three
director vacancies with individuals never previously identified to the Board,
who are directly or indirectly personal friends and associates of Arnold
McCalmont and his cronies. Upon information and belief, Defendant Briskin is a
private investor who directly or indirectly has made a large investment in
Net2Net Corporation, a business created by Arnold McCalmont's son, Stephen;
Defendant Lake is a commercial banker who has handled Arnold and James
McCalmont's personal international banking transactions; and Defendant Peoples
was a former subordinate of Defendant Guild when both were at Raytheon Company.
Two of those three director vacancies were designated as Class Three Directors,
with terms which do not expire until the annual meeting of Stockholders to be
held in the year 2000. Only after taking these illegal entrenchment actions was
a Record Date of May 29, 1998 fixed, and the Annual Meeting scheduled for July
17, 1998.
43. As a result of the amendment of TCC's By-Laws at the April 30th
Meeting, TCC's stockholders were unilaterally deprived of the right to
determine, by simple majority as set forth in TCC's By-Laws, whether TCC should
adopt a staggered Board scheme. Any action by TCC's stockholders to return to a
non-staggered Board, and thereby to provide themselves with the power to replace
the existing Board in a single election, must now be decided by a 2/3
"supermajority" of voting eligible stockholders.
44. As a result of the actions taken by the McCalmont Group at the April
30th Meeting, the individual Defendants, with the exception of Defendant
Briskin, have unilaterally provided themselves with terms as directors, longer
than those to which they would otherwise have been entitled prior to the April
30th Meeting by more than doubling said terms, and have unilaterally deprived
TCC's stockholders of the opportunity to elect a new board at the 1998 Annual
Meeting. The McCalmont Group at Arnold McCalmont's direction, has taken these
actions without regard for TCC's stockholders, for the purpose of enabling
McCalmont, his family, and his cronies, including Defendant Guild, to continue
to line their pockets with pelf taken from the treasury of TCC.
45. Upon information and belief, the Defendants McCalmont, Guild, Lessard,
and Lerner have delayed and resisted in providing the Plaintiffs with
stockholder information, in order to prevent the Plaintiffs and TCC's
stockholders from discovering the truth about the wrongful conduct uncovered by
G&H and described in detail in the Slavitt Report, and to prevent the Plaintiffs
from undertaking any meaningful contest to replace the individual Defendants.
Given that the Group owns less than 20% of TCC's voting securities, any
impediments that the Defendants can create to the Plaintiffs' ability to
communicate directly with TCC stockholders will assist the individual Defendants
in ensuring their own entrenchment.
46. In the aggregate, the McCalmont Group has a small economic interest in
TCC which makes their entrenchment actions of April 30, 1998 so outrageous.
According to the TCC Proxy statement for the last meeting of its Stockholders
held in February 1997, Arnold McCalmont beneficially owned less than 12,000 TCC
Shares (less than 1% of the outstanding), excluding 22,727 beneficially owned by
sons James and Marc. Defendant Lerner beneficially owned 2,736 TCC Shares, and
Defendant Lessard owned no TCC Shares. Defendant Guild's ownership is unknown
but in the absence of an appropriate filing under the Exchange Act is assumed to
be less than 5% of the outstanding TCC Shares. Thus, the McCalmont Group, who in
the aggregate own less than 6% of the outstanding equity of TCC, are illegally
controlling the corporation.
COUNT I
(Breach of Fiduciary Duty/Injunctive Relief - Entrenchment)
47. Plaintiffs repeat and reallege paragraphs 1 through 46, above, with the
same force and effect as if set forth in full herein.
48. As Directors, the individual Defendants owed fiduciary duties to TCC's
Stockholders, including the Plaintiffs, not to cause the company to take actions
solely for their personal advantage or to the unique disadvantage of the
Plaintiffs or other TCC' stockholders.
49. By undertaking to entrench themselves in control of the Board of
Directors of TCC, the individual Defendants have violated their fiduciary duties
to the Plaintiffs by:
(a) using corporate processes for the sole purpose of illegally
maintaining their control over the affairs of TCC;
(b) entering into self-dealing transactions with the company for the
sole purpose of financially benefiting themselves;
(c) actively attempting to withhold the results of the investigation
conducted by G&H from the Plaintiffs and TCC's stockholders;
(d) amending TCC's By-Laws so as to deprive the Plaintiffs and TCC's
stockholders of the opportunity to decide by simple majority
whether TCC should have a staggered Board scheme; and
(e) unilaterally amending TCC's By-Laws to provide illegal extensions
of the terms in office of the Individual Defendants.
50. The individual Defendants have further violated their fiduciary duties
to the Plaintiffs and intend to do so in the future by, among other measures,
maintaining themselves and their nominees to TCC's Board of Directors and
establishing without consent of and notice to the stockholders supermajority
requirements in connection with certain stockholder votes.
51. The Plaintiffs have and will continue to suffer irreparable injury in
the absence of immediate injunctive relief in the form of an Order requiring the
individual Defendants to rescind and otherwise invalidate any and all amendments
to TCC's By-Laws which were voted upon at the April 30 Meeting.
52. Absent such an Order, the Plaintiffs and other TCC Stockholders will be
unable to reverse the wrongful and illegal actions of the individual Defendants
absent a supermajority vote by those stockholders entitled to vote at the Annual
Meeting.
53. The Plaintiffs have no adequate remedy at law.
COUNT II
(Breach of Fiduciary Duty/Injunctive Relief -
Production of Stockholder List, Pursuant to M.G.L. c. 156B ss.32)
54. Plaintiffs repeat and reallege paragraphs 1 through 53, above, with the
same force and effect as if set forth in full herein.
55. Pursuant to M.G.L. c. 156B, ss.32 and the common law, the Plaintiffs as
stockholders of TCC are entitled to inspect and copy all stockholder lists
maintained by or reasonably available to TCC, including, without limitation, the
Stockholder List, NOBO List, and the Related Materials.
56. TCC's refusal to make these lists available to the Plaintiffs violates
the Plaintiffs' statutory and common law rights.
57. The Plaintiffs will suffer irreparable injury in the absence of
immediate injunctive relief compelling the Defendants to produce a Stockholder
List and NOBO List to enable the Plaintiffs to communicate directly with their
fellow stockholders prior to the Annual Meeting, as well as the other materials
requested in the Demand Letter.
58. Absent these lists, the Plaintiffs are unable to communicate directly
with both record holders and non-objecting beneficial owners of TCC Shares.
Moreover, absent these lists, the Plaintiffs have no assurance that any proxy
solicitation materials or other communications will reach such beneficial
owners, whose shares are held in "street name" in a timely manner, if at all.
59. The Plaintiffs have no adequate remedy at law.
COUNT III
(Violation of SEC Rule 14a-7, 24 C.F.R. ss. 240.14a-7)
60. Plaintiffs repeat and reallege paragraphs 1 through 59, above, with the
same force and effect as if set forth in full herein.
61. Pursuant to Rule 14a-7 promulgated by the SEC under the Exchange Act,
as amended ("Rule 14a-7"), a registrant, such as TCC, intending to make a proxy
solicitation in connection with a stockholder meeting, upon the written request
by any record or beneficial holder of securities entitled to vote at said
meeting, must deliver to the requesting stockholder within five business days of
its receipt of the request notification as to whether the registrant has elected
to mail the stockholder's soliciting materials or provide a security holder
list, and a statement of the approximate number of record holders of the
registrant's securities separated by type of holder and class, and the estimated
cost of mailing a proxy statement, form of proxy, or other communication to the
registrant's stockholders.
62. On April 8, 1998, Mr. Phalon made written request to TCC that it
provide a list of security holders pursuant to Rule 14a-7.
63. At the April 30th Meeting, a Record Date of May 29, 1998 was set for
TCC's 1998 Annual Meeting.
64. Notwithstanding, the Plaintiffs' written request, TCC has failed: (i)
to notify the Plaintiffs as to whether it has elected to mail their soliciting
materials or related communications to its stockholders or provide a list of its
stockholders; (ii) to provide to the Plaintiffs a statement of the approximate
number of record and beneficial holders of TCC securities; and (iii) to provide
the Plaintiffs with the estimated cost of mailing a proxy statement, form of
proxy, or other communication, all as required by Rule 14a-7.
65. TCC's failure to comply with Rule 14a-7 violates the provisions of said
rule.
66. As a result of TCC's violation of Rule 14a-7, the Plaintiffs have been
and are continuing to be damaged. COUNT IV (Declaratory Judgment)
67. Plaintiffs repeat and reallege paragraphs 1 through 66, above, with the
same force and effect as if set forth in full herein.
68. The actions taken by a majority of TCC's Board of Directors at the
April 30th Meeting were illegal acts of entrenchment, motivated by the desire of
the McCalmont Group to secure their control of TCC.
69. An actual controversy has arisen between the Plaintiffs and the
Defendants regarding the validity of the actions taken by a majority of TCC's
Board of Directors at the April 30th Meeting.
70. Pursuant to M.G.L. c. 231A, the Plaintiffs are entitled to a
declaration that all amendments to TCC's By-Laws adopted at the April 30th
Meeting, and TCC's Amended and Restated By-Laws, are invalid, null, and void.
<PAGE>
WHEREFORE, Plaintiffs pray as follows:
1. For a preliminary and permanent injunction restraining and enjoining the
individual Defendants from taking or preventing any stockholder action to or by
reason of any amendments to TCC's By-Laws effectuated at the April 30th Meeting;
2. For a preliminary and permanent injunction compelling the individual
Defendants to immediately convene a quorum of TCC's Board of Directors and to
take any and all actions necessary to rescind and revoke all amendments to TCC's
By-Laws enacted at the April 30th Meeting, and to rescind the filling of
director vacancies carried out at the April 30th Meeting;
3. For a preliminary and permanent injunction restraining and enjoining the
individual Defendants from taking any action to fill director vacancies, and/or
amend TCC's By-Laws or Articles of Organization, until the 1998 Annual Meeting
has occurred;
4. For a preliminary and permanent injunction compelling the Defendants to
produce for Plaintiffs' inspection and copying the Stockholder List, the NOBO
List, and the Related Materials, as defined in greater detail in Paragraph 29 of
this Verified Complaint;
5. For a Declaration that all Amendments to TCC's By-Laws adopted by the
vote of the Directors at the April 30th Meeting, are invalid, null, and void;
6. For an order awarding the Plaintiffs their costs; and
<PAGE>
7. For such other and further relief as the Court deems just and proper.
Respectfully submitted,
PHILIP A. PHALON, and M. MAHMUD AWAN,
By their attorneys,
/s/Paul Bork
Paul Bork (BBO #541815)
William Grimm (BBO #212120)
Mark Resnick (BBO #559885)
HINCKLEY, ALLEN & SNYDER
28 State Street
Boston, Massachusetts 02109
(617) 345-9000
<PAGE>
VERIFICATION
I, Philip A. Phalon, state that I am a director and stockholder of
Technical Communications Corporation, that I have read the foregoing verified
complaint and am familiar with the contents thereof, and that the facts set
forth therein are true of my own personal knowledge, except those facts set
forth on information and belief, and as to those, I believe them to be true.
Signed under the penalties of perjury this 18th day of May, 1998.
/s/Philip A. Phalon
Philip A. Phalon
