<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Definitive proxy statement
/ / Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
TECHNICAL COMMUNICATIONS 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 transactions applies:
--------------------------------------------------------------
<PAGE>
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
--------------------------------------------------------------
(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:
--------------------------------------------------------------
- --------
1 Set forth the amount on which the filing fee is calculated and state how it
was determined.
2
<PAGE>
Technical Communications Corporation
[Letterhead]
June , 1998
Dear TCC Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders to be
held at the Company's offices in Concord, Massachusetts on _______, July __,
1998 at 10:00 A.M., Eastern Daylight Time. The meeting is for the purpose of
(i) electing two Class I directors for a term of three (3) years; provided,
however, that in the event that a court order (the "Order") issued in certain
litigation filed against the Company by certain individuals, defined herein
as the "Group Lawsuit," is not reversed or otherwise resolved in the
Company's favor, the Company shall nominate a total of seven (7) directors,
each to serve for a one (1) year term, (ii) ratifying the election of the
Company's independent auditors and (iii) conducting any other business that
may be brought before the meeting. In addition, you will be asked to consider
one stockholder proposal at the meeting.
PLEASE NOTE THAT THIS YEAR'S ANNUAL MEETING OF STOCKHOLDERS IS CRITICALLY
IMPORTANT AND WE URGE YOU TO READ THOROUGHLY THE ACCOMPANYING NOTICE OF
ANNUAL MEETING AND PROXY STATEMENT. You should know that the Company has been
informed that M. Mahmud Awan, Philip Phalon, Robert B. Bregman and William
Martindale, Jr. (collectively, the "Group"), who together hold approximately
17.2% of the Company's shares according to their filings with the Securities
and Exchange Commission, intend to solicit proxies for the election of two
(2) nominees in opposition to those nominated by the Company. If the Order is
not reversed or otherwise resolved in the Company's favor, the Group has
stated that it intends to nominate three (3) additional nominees of their
choosing for election. YOUR VOTE IS IMPORTANT AND WILL DETERMINE WHETHER THIS
GROUP OF FOUR STOCKHOLDERS WILL GAIN MAJORITY CONTROL OF YOUR BOARD AND THUS
DIRECT THE COMPANY'S ASSETS AND RESOURCES. For the reasons described herein,
the Company's Board of Directors urges you to vote AGAINST the Group's
nominees and AGAINST the stockholder proposal that is described in the Proxy
Statement.
Detailed information relating to the Company's activities and operating
performance during fiscal 1997 is contained in the Company's Annual Report to
stockholders furnished to you with this proxy.
It is important that your shares be represented at the meeting. Accordingly,
please promptly complete, date, sign and return the enclosed [WHITE] proxy
card in the enclosed postage-paid return envelope.
On behalf of the Board of Directors, thank you for your continued support.
Sincerely,
Carl H. Guild, Jr.
Chairman and
Chief Executive Officer
3
<PAGE>
TECHNICAL COMMUNICATIONS CORPORATION
Notice of 1998 Annual Meeting of Stockholders
To Be Held July __, 1998
To our Stockholders:
Notice is hereby given that the 1998 Annual Meeting of Stockholders (the
"Meeting") of Technical Communications Corporation, a Massachusetts
corporation (the "Company"), will be held at the Company's offices, 100
Domino Drive, Concord, Massachusetts 01742-2892 at 10:00 a.m. on _________,
July __, 1998:
1. To elect two (2) Class I Directors to serve for the ensuing three (3)
year term or until their respective successors have been duly elected
and qualified; provided, however, that in the event that a court order
(the "Order") issued in certain litigation, defined herein as the
"Group Lawsuit," is not reversed or otherwise resolved in the
Company's favor, the Company shall nominate a total of seven (7)
directors, each to serve for a one (1) year term or until their
respective successors have been duly elected and qualified;
2. To ratify the selection of the firm of Arthur Andersen LLP as auditors
for the Company for the fiscal year ending October 3, 1998;
3. To act upon a stockholder proposal as described in the accompanying
proxy statement; and
4. To consider and act upon such other business and matters or proposals
as may properly come before the Meeting or any adjournments thereof.
THE COMPANY REQUESTS THAT ALL STOCKHOLDERS READ THOROUGHLY THE ACCOMPANYING
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT. The Company has been informed
that M. Mahmud Awan, Philip Phalon, Robert B. Bregman and William Martindale,
Jr. (collectively, the "Group") intend to solicit proxies for the election of
two (2) nominees in opposition to those nominated by the Company. If the
Order is not reversed or otherwise resolved in the Company's favor, the Group
intends to nominate three (3) additional nominees of their choosing for
election. In such event, if the Group is able to elect five (5) directors to
the Board, then the Group would control a majority of the Board of Directors.
For the reasons described herein, the Company's Board of Directors urges you
to vote AGAINST the Group's nominees and AGAINST the stockholder proposal
that is described in the Proxy Statement.
Stockholders of record on the books of the Company at the close of business
on May 29, 1998, are entitled to notice of and to vote at the Meeting.
Whether or not you expect to attend the Meeting, please sign, date and return
the enclosed [WHITE] proxy in the enclosed envelope at your earliest
convenience. If you return your [WHITE] proxy, you may nevertheless attend
the Meeting, revoke your proxy, and vote your shares in person.
All stockholders are cordially invited to attend the Meeting.
By Order of the Board of Directors,
4
<PAGE>
Edward E. Hicks, Clerk
Concord, Massachusetts
June , 1998
It is important that your shares be represented at the Meeting. Whether or
not you plan to attend the Meeting, please sign, date and mail the enclosed
proxy in the enclosed envelope, which requires no postage if mailed in the
United States.
5
<PAGE>
TECHNICAL COMMUNICATIONS CORPORATION
PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF STOCKHOLDERS
July __, 1998
Proxies enclosed with this proxy statement are solicited by and on behalf of
the Board of Directors (the "Board of Directors") of Technical Communications
Corporation, a Massachusetts corporation (the "Company"), for use at the 1998
Annual Meeting of Stockholders (the "Meeting") to be held at the Company's
offices, 100 Domino Drive, Concord, Massachusetts, at 10:00 a.m. on _______,
July __, 1998, and at any adjournments thereof. On or about June 8, 1998, M.
Mahmud Awan, Philip A. Phalon, Robert B. Bregman and William C. Martindale,
Jr. (collectively, the "Group") filed a preliminary proxy statement (the
"Group Proxy") under the provisions of Regulation 14A of the Securities
Exchange Act of 1934. Under the Group Proxy, the Group intends to solicit
proxies for the election of two nominees in opposition to the two individual
nominated by the Company's Board of Directors at the Meeting. The individuals
named in the Group Proxy and their backgrounds, together with the reasons for
the Board's opposition to their election, are described herein. In the event
that a court order (the "Order") issued in the Group Lawsuit, as defined
herein, is not reversed or otherwise resolved in the Company's favor, then
the Company shall nominate a total of seven (7) directors, each to serve for
a one (1) year term, and the Group has indicated in their Group Proxy, that,
in such an event, they may nominate a total of five (5) directors. YOUR VOTE
IS IMPORTANT AND WILL DETERMINE WHETHER A SMALL GROUP OF FOUR STOCKHOLDERS
WILL GAIN MAJORITY CONTROL OF YOUR BOARD AND THUS DIRECT THE COMPANY'S ASSETS
AND RESOURCES. For the reasons described herein, your Board of Directors
urges you to vote AGAINST the Group's nominees and AGAINST the stockholder
proposal described in this Proxy Statement.
SHARES OUTSTANDING AND VOTING PROCEDURES
Only holders of record of outstanding shares of the Company's Common Stock as
of the close of business on May 29, 1998, are entitled to notice of and to
vote at the Meeting.
As of May 29, 1998, there are 1,283,238 shares of the Company's Common Stock
outstanding of which 1,247,506 are entitled to vote. The shares of Common
Stock are the only voting securities of the Company. Stockholders are
entitled to cast one vote for each share held of record.
Although the Technical Communications Corporation Employees' Stock Ownership
Plan (the "ESOP") was terminated October 1, 1997, until vested shares are
distributed, participants who execute proxies will have the shares allocated
to their accounts voted by the Trustees of the ESOP as they direct. The ESOP
also provides that the Trustees shall vote any shares allocated to
participants' accounts as to which they have not received voting instructions
in the same proportion as shares in participants' accounts as to which voting
instructions are received. The Trustee of the ESOP has indicated that he
intends to follow these pass-through voting provisions of the ESOP unless
doing so would conflict with the requirements of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), including but not limited
to the prudence requirements of ERISA. Participants in the ESOP will receive
proxies applicable to their holdings in the ESOP on which they are to
indicate their voting instructions to the Trustee.
If the enclosed [WHITE] proxy is properly marked, signed, and returned in
time to be voted at the Meeting, and is not subsequently revoked, the shares
represented by proxy will be voted in
6
<PAGE>
accordance with the instructions marked thereon. The proxy is in ballot form
so that a specification may be made (i) to grant or withhold authority to
vote for the election of Directors, (ii) to vote for or against, or abstain
from voting on, the ratification of the firm of Arthur Andersen LLP as the
Company's auditors, and (iii) to vote for or against, or abstain from voting
on the stockholder proposal. SIGNED PROXIES RETURNED TO THE COMPANY AND NOT
MARKED TO THE CONTRARY WILL BE VOTED IN FAVOR OF THE ELECTION OF THE TWO (2)
CLASS I DIRECTORS NOMINATED FOR ELECTION BY THE BOARD AND IN FAVOR OF THE
RATIFICATION OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS AND AGAINST THE
STOCKHOLDER PROPOSAL. In the event that the Order is not reversed or
otherwise resolved in the Company's favor and the Company nominates a total
of seven (7) directors, each to serve for a one (1) year term, then SIGNED
PROXIES RETURNED TO THE COMPANY AND NOT MARKED TO THE CONTRARY WILL BE VOTED
IN FAVOR OF THE ELECTION OF THE SEVEN (7) DIRECTORS NOMINATED BY THE BOARD
AND IN FAVOR OF THE RATIFICATION OF ARTHUR ANDERSEN LLP AS INDEPENDENT
AUDITORS AND AGAINST THE STOCKHOLDER PROPOSAL. Any stockholder may revoke a
proxy at any time prior to its exercise by filing a later-dated proxy or a
written notice of revocation with the Clerk of the Company. Stockholders
attending the Meeting may also revoke their proxies by voting in person at
the Meeting.
YOUR VOTE IS IMPORTANT AND WILL DETERMINE WHETHER A SMALL GROUP OF FOUR
STOCKHOLDERS WILL GAIN MAJORITY CONTROL OF YOUR BOARD AND THUS DIRECT THE
COMPANY'S ASSETS AND RESOURCES. In the event that a quorum cannot be
achieved, including both votes being cast in person and by proxy, it may be
necessary to adjourn the Meeting until such later date as when quorum may be
achieved, at additional cost and expense to the Company.
The Board of Directors knows of no other matter to be presented at the
Meeting. If any other matter should be presented at the Meeting upon which a
vote may be properly taken, shares represented by all proxies received by
Management of the Company will be voted with respect thereto in accordance
with the judgment of the persons named as attorneys in the proxies.
It is expected that this proxy statement and the accompanying proxy, and an
Annual Report to Stockholders, containing financial statements for the fiscal
year ended September 27, 1997, will be mailed to stockholders on or about
June , 1998.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of May 29, 1998, the ownership of Common Stock
of the Company by any person or group who is known to the Company to be the
beneficial owner of more than 5% of the Company's Common Stock outstanding
and entitled to vote as of such date:
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership Percent of
Name and Address (Number of Shares) (1) Class (1)
---------------- ---------------------- ---------
<S> <C> <C>
Herbert A. Lerner, Trustee 97,452 (2) 7.8% (2)
Technical Communications
Corporation Employees' Stock
Ownership Trust
100 Domino Drive
Concord, MA 01742-2892
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C>
Martindale Andres & Company, Inc. 77,000 (3) 6.2% (3)
200 Four Falls Corporate Center
Suite 200
West Conshohocken, PA 19428
Quest Advisory Corporation 127,200 (4) 10.2% (4)
c/o Charles M. Royce
1414 Avenue of the Americas
New York, NY 10019
M. Mahmud Awan 131,978 (3) 10.6% (3)
c/o TechMan International Corporation
240 Sturbridge Road
Charlton City, MA 01506
</TABLE>
- ----------
(1) Unless otherwise indicated, each of the persons named in the table has
sole voting and investment power with respect to the shares set forth
opposite such person's name. Information with respect to beneficial
ownership is based upon information furnished by each stockholder.
(2) Held as Trustee for the ESOP and represents shares that are allocated
to the participants. Until vested shares of the terminated plan are
distributed, each participant may direct the Trustee as to the manner
in which shares allocated to his or her account shall be voted. The
ESOP provides that the Trustee shall vote any shares allocated to
participants' accounts as to which they have not received voting
instructions in the same proportion as shares in participants'
accounts as to which voting instructions are received. Mr. Lerner
disclaims beneficial ownership of these 97,452 shares.
(3) The nature of ownership of Mr. Awan and Martindale Andres & Company
("MAC") as set forth herein is based upon their Schedule 13D, as
amended, on file with the SEC. The Schedule 13D was filed on behalf of
a "group" (as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) consisting of Mr. Awan, Philip A. Phalon,
Robert B. Bregman and William C. Martindale, Jr., principal of MAC.
The beneficial ownership of each member of the group is as follows:
Mr. Awan has beneficial ownership of 131,978 shares (10.6% of Class),
Mr. Phalon has beneficial ownership of 2,250 shares (0.2% of Class),
Mr. Bregman has beneficial ownership of 2,700 shares (0.2% of Class)
and Mr. Martindale in his capacity as investment advisor may be deemed
to have beneficial ownership of 77,000 shares (6.2% of Class), which
shares are owned by numerous clients of MAC. Of the 77,000 shares, Mr.
Martindale has sole dispositive and voting power over 10,000 shares
and shared dispositive and voting power over 67,000 shares.
(4) The nature of ownership of Quest Advisory Corporation ("Quest") as set
forth herein is based upon their Schedule 13G on file with the SEC.
Quest in its capacity as investment advisor may be deemed the
beneficial owner of the 127,200 shares indicated in the above table,
which shares are owned by numerous clients of Quest. Mr. Royce
disclaims beneficial ownership of the 127,200 shares owned by Quest.
I. ELECTION OF DIRECTORS
8
<PAGE>
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "FOR" THE ELECTION AS
DIRECTORS OF THE NOMINEES LISTED BELOW.
A. Number of and Nominees for Directors
The Company's stockholders are being asked to elect members of the Board of
Directors.
Currently, in accordance with the By-laws of the Company, the Board of
Directors is staggered into three (3) classes of directors and the Board is
composed of eight (8) directors. The term of office of those of the first
class ("Class I Directors"), which consists of two (2) directors, shall
expire at the Meeting or when their successors are duly elected and qualified
or when he sooner dies, resigns, is removed, or becomes disqualified; the
term of office of those of the second class ("Class II Directors"), which
consists of three (3) directors, shall expire at the 1999 Annual Meeting of
Stockholders or when their successors are duly elected and qualified or when
he sooner dies, resigns, is removed, or becomes disqualified; and the term of
office of those of the third class ("Class III Directors"), which consists of
three (3) directors, shall expire at the 2000 Annual Meeting of Stockholders
or when their successors are duly elected and qualified or when he sooner
dies, resigns, is removed, or becomes disqualified. At each Annual Meeting of
Stockholders, Directors chosen to succeed those whose terms then expire shall
be elected for a full term of office expiring at the third succeeding Annual
Meeting of Stockholders after their election or until their successors are
duly elected and qualified or until he sooner dies, resigns, is removed, or
becomes disqualified. Vacancies and newly created directorships, resulting
from any reason, may be filled solely by the affirmative vote of a majority
of the remaining directors then in office.
Stockholders should note however, that on May 22, 1998, one of the Company's
Directors, Philip Phalon, joined an individual named M. Mahmud Awan in a
lawsuit against the Company and its directors (other than Mr. Phalon), filed
in Massachusetts Superior Court, Middlesex County (the "Court"), entitled
Philip A. Phalon and M. Mahmud Awan v. Technical Communications Corporation,
Arnold McCalmont, Herbert A. Lerner, Robert T. Lessard, Carl H. Guild,
Mitchell B. Briskin, Donald Lake and Thomas B. Peoples, Civil Action No.
98-2553 (the "Group Lawsuit"). In the action, the plaintiffs, which include
Mr. Phalon, a long-time director and former acting President of the Company,
allege a breach of fiduciary duty by directors relating to actions of the
Board including improper denial of access to stockholder information. The
complaint also challenges the effectiveness of certain actions taken by the
Board of Directors on April 30, 1998 in creating staggered terms for the
Board. On June 10, 1998, the Court issued a decision and order (the "Order").
The Court denied the plaintiffs' request for stockholder information, but
ordered the Company to distribute plaintiffs' proxy materials, but only at
plaintiffs' expense. Also contained in the Order, the Court enjoined the
effectiveness of the Board's revocation of its earlier vote to exempt the
Company from the provisions of Massachusetts Law creating staggered terms for
boards of directors. The Company is appealing the Order.
IF THE ORDER IS NOT REVERSED OR OTHERWISE RESOLVED IN THE COMPANY'S FAVOR,
THEN THE BOARD SHALL NO LONGER BE STAGGERED INTO THREE CLASSES AS SET FORTH
HEREIN. INSTEAD, THE COMPANY SHALL NOMINATE SEVEN (7) INDIVIDUALS FOR
ELECTION TO ONE (1) YEAR TERMS AT THE
9
<PAGE>
MEETING. THESE INDIVIDUALS INCLUDE MESSRS. BRISKIN, GUILD, LAKE, LERNER,
LESSARD, PEOPLES AND RESNICK. MR. ARNOLD MCCALMONT, CURRENTLY A CLASS II
DIRECTOR, HAS INDICATED THAT HE WILL NOT STAND FOR REELECTION AS A DIRECTOR
IF THE ORDER IS NOT REVERSED OR OTHERWISE RESOLVED IN THE COMPANY'S FAVOR,
AND IF THE ORDER IS REVERSED OR OTHERWISE RESOLVED IN THE COMPANY'S FAVOR,
MR. MCCALMONT HAS INDICATED THAT HE WILL RESIGN AS A DIRECTOR IMMEDIATELY
FOLLOWING THE MEETING AND BEFORE ANY MEETING OF THE NEWLY ELECTED NOMINEES TO
THE BOARD OF DIRECTORS.
Philip Phalon, a current TCC Class I Director who is suing the Company,
advised the Company on January 26, 1998 that he will not seek another term on
a slate that includes the Company's current Board members. His decision
arises from his disagreement with TCC policies and procedures in several
respects. First, he believes that the TCC Board of Directors has failed to
manage the Company appropriately. His view arises from his disagreement with
certain transactions and from his perception that the Board caused Company
management to be inefficient or unproductive. Second, he believes that the
recently concluded independent internal review of certain foreign
transactions should have lead the Company to seek restitution of
investigation costs. Finally, he disagrees with the recent vote that rendered
the Company subject to the provisions of Massachusetts law c.156B, ss. 50A
("50A") which creates staggered terms for, or "classifies," the Board of
Directors.
Rather than work with the current Board, which now includes three new
independent members, to develop objectives for enhancing stockholder value,
Mr. Phalon has aligned himself with three other individuals and has sued the
Company to facilitate the Group's attempt to gain majority control of the
Board and thus direct the Company's assets and resources. The Board of
Directors concurs that the prior TCC management was deficient in several
respects. The current Board, however, believes that it has appropriately
supervised the operations of the Company, and notes that for some period of
time Mr. Phalon himself was acting President. The Board has made a considered
review of the results of the internal review and believes its response -
including the termination of all relationships with James McCalmont, a former
director and employee, and disclosure to relevant governmental agencies - was
appropriate and prudent. Further, the Board also notes that although no
specific amounts were allocated to restitution, it did satisfactorily resolve
all financial issues, including the waiver of substantial sales commissions
that are or may be due to James McCalmont. Finally, the Board believes that
bringing the Company within the scope of Massachusetts law c.156B, ss. 50A is
appropriate to preserve and enhance the long-term value at the Company to its
stockholders, and notes that Mr. Phalon has declared himself a part of an
insurgent group of four stockholders and accordingly he may have personal
motives that are not aligned with the best interests of the stockholders as a
whole. In the opinion of the Board of Directors, a staggered Board of
Directors facilitates continuity and stability of leadership and corporate
policy by permitting new directors to become familiar with the business of
the Company and to benefit from the experience of the continuing directors. A
staggered Board of Directors also encourages any person seeking to acquire
control of the Company to initiate action through arm's-length negotiations
with management and the Board of Directors, who are in a position to protect
stockholder value and negotiate a transaction that is fair to all
stockholders. The Board notes that the election of directors by classes is a
common practice that has been
10
<PAGE>
adopted by many large companies and that it is specifically permitted by the
laws of many states, including Massachusetts, the Company's state of
incorporation.
At the Meeting, unless the Order is not reversed or otherwise resolved in the
Company's favor and the Board of Directors is no longer staggered as set
forth above, the terms of the Class I Directors, currently consisting of
Philip A. Phalon and Mitchell B. Briskin, shall expire. It is the intention
of the persons named as proxies to vote the proxies, unless authority to vote
is specifically withheld, to elect as Class I Directors Mr. Briskin and Mr.
Resnick. The Class I Directors elected at the Meeting shall serve until the
2001 Annual Meeting of Stockholders or until their successors are duly
elected and qualified or until he sooner dies, resigns, is removed, or
becomes disqualified. If the Order is not reversed or otherwise resolved in
the Company's favor, then the Board shall no longer be staggered in into
three classes as set forth herein and it will be the intention of the persons
named as proxies to vote the proxies, unless authority to vote is
specifically withheld, to elect the seven (7) individuals nominated by the
Company, such individuals to include Messrs. Briskin, Guild, Lake, Lerner,
Lessard, Peoples and Resnick. In such an event, the directors so elected
shall serve until the 1999 Annual Meeting of Stockholders or until their
successors are duly elected and qualified or until he sooner dies, resigns,
is removed, or becomes disqualified. Mr. Arnold McCalmont, currently a Class
II Director, has indicated that he will not stand for reelection as a
director if the Order is not reversed or otherwise resolved in the Company's
favor, and if the Order is reversed or otherwise resolved in the Company's
favor, Mr. McCalmont has indicated that he will resign as a director
immediately following the Meeting and before any meeting of the newly elected
nominees to the Board of Directors.
The following table sets forth the year each director first became a
director, the position currently held by each director (or director nominee)
with the Company, the principal occupation of each of the directors during
the past five years, any other directorships held by such person in any
company subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended, or in any company registered as an investment company
under the Investment Company Act of 1940, as amended, the age of each
director (or director nominee), and the number of shares and percentage of
Common Stock outstanding and entitled to vote of the Company beneficially
owned by each director (or director nominee) and by all directors, director
nominees and officers as a group, as of May 15, 1998.
The following table also sets forth the names of all executive officers of
the Company, the year each first became an executive officer, the position
currently held by each officer of the Company, the principal occupation of
each officer during the past five years, the age of each officer, and the
number of shares and percentage of Common Stock outstanding and entitled to
vote of the Company beneficially owned by each officer as of May 15, 1998.
<TABLE>
<CAPTION>
Director's and Officer's Name Amount and Nature
and Year Positions and of Beneficial
First Became a Director or Offices with Ownership Percent of
Officer(2) the Company Age (# of shares) (1) Class (1)
---------- ----------- --- ----------------- ---------
<S> <C> <C> <C> <C>
Class I Directors (3)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Mitchell B. Briskin (4) Director 39 0 0%
1998
Bernard Resnick (5) Director nominee 72 0 0%
(director nominee)
Class II Directors
Herbert A. Lerner (6) Director, Treasurer, 71 3,936 (7) 0.3%
1961 CFO
Robert T. Lessard (8) Director 57 0 0%
1997
Arnold M. McCalmont (9) Director 68 11,007 (10) 0.9%
1961
Class III Directors
Carl H. Guild, Jr. (11) Director, 54 24,000 (12) 1.9%
1997 Chairman of
the Board of
Directors, CEO
Donald Lake (13) Director 53 0 0%
1998
Thomas E. Peoples (14) Director 49 0 0%
1998
Non-Director Officers
John I. Gill (15) Executive Vice 59 19,551 (16) 1.6%
1985 President
Dale G. Peterson (17) President 35 20,000 (18) 1.6%
1998
All directors, director
nominees and officers
as a group (10 persons) 78,494 (19) 6.3%
</TABLE>
- ----------
(1) Unless otherwise indicated, each of the persons named in the table has
sole voting and investment powers with respect to the shares set forth
opposite such person's
12
<PAGE>
name. With respect to each person or group, percentages are calculated
based on the number of shares beneficially owned plus shares that may
be acquired by such person or group within sixty days upon the
exercise of stock options.
(2) Roland Gerard resigned from the Board on February 13, 1998. Prior to
that time he served as the President and Chief Executive Officer.
James A. McCalmont resigned from the Board on January 13, 1998. On
April 30, 1998, Mr. Briskin, Mr. Lake and Mr. Peoples were all elected
by the Board to fill vacancies on the Board resulting from
resignations.
(3) Philip A. Phalon will not be continuing as a Director of the Company
following the Meeting. Mr. Phalon was Senior Vice-President for
Corporate Marketing for Raytheon Company from 1983 through September
1990. From May 1994 through June 1995, Mr. Phalon was the Company's
Acting President.
(4) Mitchell Briskin is a principal at Concord Investment Partners in
Concord, Massachusetts. In this capacity, he is responsible for all
aspects of private equity investing with a focus on creating value in
middle market companies through operational improvements. From 1990
until 1995, Mr. Briskin was General Manager at General Chemical
Corporation. In this role he managed operations and sales which
included full P&L responsibility, and he substantially improved the
Company's financial performance through expansions, turnaround
strategies and operating management. Prior to this, Mr. Briskin was a
lawyer with Patterson, Belknap, Webb & Tyler in New York City. He
holds a Masters in Business Administration from Harvard University
Graduate School of Business Administration. He was also awarded a
Juris Doctor degree from New York University School of Law, and a B.A.
from Wesleyan University.
(5) Bernard Resnick has 43 years experience in the communications products
industry. Most recently from to , Mr. Resnick was
Vice President and General Manager of the Mobile Subscriber Equipment
(MSE) Division of GTE Government Systems. In this role, he was
responsible for a multi-billion dollar communications program awarded
by the U.S. Army, as well as the worldwide marketing, logistics,
training and management of the division's communications business. He
was awarded several government awards as a result of the success of
the program including the Bronze Medal of the Order of Mercury. Prior
to this, Mr. Resnick was Director of Engineering for the Electronic
Systems Group at GTE-Eastern Division. Mr. Resnick was employed at GTE
from 1958 to 1993 and then retired. Mr. Resnick holds a BSEE from
Northeastern University and a MSEE from Yale University.
(6) Herbert A. Lerner has been a director of the Company since 1961, and
employed as Treasurer since 1961, with the exception of 1987. Mr.
Lerner has been serving as the Chief Financial Officer of the Company
since the termination of Graham R. Briggs on January 14, 1998. From
1990 until June 1, 1992, he was a Programs
13
<PAGE>
Business Manager with Raytheon Company. In addition to his duties at
the Company, Mr. Lerner is currently an independent consultant.
(7) Includes 3,750 shares that may be acquired by Mr. Lerner within sixty
(60) days upon exercise of stock options. Excludes 97,452 shares held
by the ESOP, which Mr. Lerner, as a trustee of the ESOP, may be deemed
to own beneficially. Mr. Lerner disclaims beneficial ownership of
these shares. With respect to shares now owned by him, Mr. Lerner
shares the voting and investment powers with his wife.
(8) Robert T. Lessard was employed in a variety of management positions
from 1966 through December 1995 at the U.S. National Security Agency
("NSA"), Department of Defense. During his final two years at NSA, Mr.
Lessard was the Group Chief in the Operations Directorate responsible
for communications and cryptographic technology. Since his retirement
in December 1995, he has represented the Director of the National
Security Agency on several special projects.
(9) Arnold M. McCalmont has been a director since 1961, and was President
of the Company from 1961 through August 22, 1993. Mr. McCalmont served
as Chairman of the Board from 1961 until 1998. Mr. McCalmont retired
as an employee of the Company in March 1998. Mr. McCalmont has
indicated that he will not stand for reelection as a director if the
Order is not reversed or otherwise resolved in the Company's favor,
and if the Order is reversed or otherwise resolved in the Company's
favor, Mr. McCalmont has indicated that he will resign as a
director immediately following the Meeting and before any meeting of
the newly elected nominees to the Board of Directors.
(10) The 11,007 shares are allocated to Arnold M. McCalmont under the
Company's ESOP.
(11) Carl H. Guild, Jr. was elected to the Board on May 1, 1997. Upon Mr.
Gerard's resignation from the Board on February 13, 1998, Mr. Guild
replaced Mr. Gerard as Chief Executive Officer and was elected
Chairman of the Board of Directors. From 1993 to 1997, he was a Senior
Vice President with Raytheon Engineers and Constructors, Inc., a unit
of Raytheon Company. Mr. Guild had been an independent consultant to
the Company from May 1, 1997 until February 13, 1998.
(12) Includes 24,000 shares that may be acquired by Mr. Guild within sixty
(60) days upon exercise of stock options.
(13) Donald Lake has been a financial consultant to various federal
government agencies since 1991. Before initiating his consulting
practice, from 1990 to 1991, Mr. Lake served as Director of the
International Banking Services Division of the American Security Bank
in Washington, D.C. Prior to this, Mr. Lake was the Managing Director
of the Maryland Bank International S.A. in Luxembourg. Mr. Lake holds
an M.S. from Texas Christian University and a B.A. from the
14
<PAGE>
University of Illinois. He is currently a Ph.D. candidate at George
Washington University.
(14) Thomas E. Peoples is the Vice President for International and
Washington Operations of Aerojet, a privately held aerospace and
defense contractor and has been employed by the Company since 1992.
Prior to his employment with Aerojet International, Inc., Mr. Peoples
served as Manager of Business Development for Smart Munitions
Programs, a privately held defense contractor. Prior to this, Mr.
Peoples served as Special Assistant to the Assistant Secretary of
Defense for Acquisition. Mr. Peoples holds an M.S. from Troy State
University and a B.A. from Benedictine College.
(15) John I. Gill has been employed by the Company since August 1983.
(16) Includes 9,551 shares currently allocated to Mr. Gill under the ESOP.
(17) Dale G. Peterson has been employed as President of the Company since
his re-employment in February, 1998. From 1996 to 1998, Mr. Peterson
served as Director of Business Development, Network Security, for
Racal Data Group, a subsidiary of Racal Electronics Plc, a public
company engaged in the production of telecommunications, defense
electronics and data products. Prior to this, Mr. Peterson was
employed by the Company in various sales and marketing roles from 1990
to 1996. Prior to this, Mr. Peterson was employed by the National
Security Agency from 1984 to 1990. Mr. Peterson holds a B.S. from the
University of Illinois.
(18) Includes 20,000 shares that may be acquired by Mr. Peterson within
sixty (60) days upon exercise of stock options.
(19) Includes 47,750 shares that the directors and officers have the right
to acquire within sixty (60) days of May 15, 1998, by the exercise of
stock options. Also includes an aggregate of 20,558 shares that are
allocated to the accounts of officers under the ESOP. For a discussion
of the voting and investment powers with respect to such shares, see
page 2 and footnote (1) on page 3.
A quorum being present, the affirmative vote of the holders of a plurality of
the shares of Common Stock voting in person or by proxy at the Meeting is
required to elect each Class I Director standing for election. The same is
true if the Order is not reversed or otherwise resolved in the Company's
favor and the Company nominates seven (7) directors to serve for one (1) year
terms instead. Thus, abstention or broker non-votes will not be included in
the totals and will have no effect on the outcome of the vote.
B. Meetings of the Board of Directors and Committees
The Board of Directors held five (5) meetings during the twelve months ended
September 27, 1997 ("Fiscal Year 1997"). Each of the directors attended at
least 75% of the aggregate of (a) the total number of meetings of the Board
of Directors he was eligible to attend, and (b) the total
15
<PAGE>
number of meetings of all committees of the Board of Directors on which he
served which were held during Fiscal Year 1997.
The Audit Committee of the Board, of which Messrs. Guild, Lerner, and Phalon
were members, held seven (7) meetings during Fiscal Year 1997. The Audit
Committee oversees the accounting and tax functions of the Company,
recommends to the Board the engagement of independent auditors for the year
subject to the approval by the stockholders of the Company, reviews with
management and the auditors the plan and scope of the audit engagement,
reviews the annual financial statements of the Company and any recommended
changes or modifications to control procedures and accounting practices and
policies, and monitors with management and the auditors the Company's systems
of internal controls and its accounting and reporting practices.
The Compensation Committee of the Board, of which Messrs. Lerner and Lessard
were members and of which James A. McCalmont was a member until January 13,
1998, held two (2) meetings during Fiscal Year 1997. The Compensation
Committee reviews and recommends to the Board compensation for the President,
the Chairman of the Board and outside directors. It also reviews and
recommends the adoption, amendment and implementation of incentive
compensation plans, stock option plans and other employee benefit plans and
programs for the Company and officers and directors of the Company.
C. Compensation of Directors
Directors who are not regular employees of the Company received a fee of
$1,000 for attendance at the November 1996 Board of Directors meeting, and
$1,200 for all meetings attended thereafter during Fiscal Year 1997. In
addition, beginning with its Annual Meeting held in February 1997, each
outside director is authorized an annual retainer of $2,800 paid in arrears
in quarterly increments of $700 starting February 1, 1997. During Fiscal Year
1997, outside directors also received a fee of $500 for each meeting of a
committee of the Board of Directors they attended. Mr. Lerner, who as the
Treasurer of the Company and a part-time Company employee, was also
authorized to receive the retainer and fees for attendance at meetings.
In addition, pursuant to the 1990 Non-Employee Director Stock Option Plan,
adopted by the Board of Directors in August 1990 and approved by the
stockholders at the 1991 Annual Meeting, each director who was not then an
employee, who attended at least 75% of Board Meetings held during the
previous fiscal year, and who was not otherwise ineligible, received on the
date of each Annual Meeting of Stockholders during the term of said plan an
option to purchase 750 shares of Common Stock at an exercise price of one
hundred percent (100%) of the fair market value of the Common Stock on the
date the option was granted. Each option had a term of five (5) years from
the date of grant and was exercisable in full or in part at any time or times
after the date of grant until the earlier of the expiration of such term or
sixty days after the optionee ceased to serve as a director of the Company.
Mr. Phalon, the then currently eligible director under the 1990 Non-Employee
Director Stock Option Plan, received an option to purchase 750 shares
following the 1997 Annual Meeting. The 1990 Non-Employee Director Stock
Option Plan was subsequently terminated by the Board in February 1997.
In February 1997, the Board approved additional director compensation that
will grant 1,000 share stock options under the Company's 1991 Stock Option
Plan to all directors effective as of the meeting of the Board of Directors
which will follow the Meeting. These shares will have a term of five (5)
years from the date of the grant and will have an exercise price equal to 85%
of the fair market value as of that date. In addition, all directors are to
receive a grant of 500 shares of Company stock at the meeting of the Board of
Directors which will follow the Meeting.
D. Certain Relationships and Related Transactions
16
<PAGE>
On November 17, 1989, the Company established the Technical Communications
Corporation Employees' Stock Ownership Trust (the "Trust") for the benefit of
its employees. The Trust purchased 190,350 shares of the Company's Common
Stock with borrowed funds, and the Company served as guarantor of the bank
loans. During Fiscal Year 1997, the Company provided two loans to the Trust
in order to pay off the bank loans. At its August 27, 1997 meeting, the Board
of Directors voted to terminate the ESOP, effective October 1, 1997.
Herbert A. Lerner, Company director, Chief Financial Officer and Treasurer,
is the Trustee of the Technical Communications Corporation Employees' Stock
Ownership Trust.
Edward E. Hicks, Esq., the Company's Secretary and Clerk, is a member of a
law firm that provides legal services to the Company.
Lawrence A. Kletter, Esq., who resigned as a director during Fiscal Year
1997, is a member of a law firm that provided legal services to the Company.
Carl H. Guild, Jr., elected to the Board of Directors effective May 1, 1997,
served as a consultant for the Board during Fiscal Year 1997, earning $52,500
in this capacity during that time.
During Fiscal Years 1997 and 1996, the Company incurred expenses of $116,038
and $96,360, respectively, to FutureComms, Inc., a privately held
telecommunications software consulting services company. FutureComms is owned
and operated by Michelle D. Gerard, the wife of the Company's former
President and Chief Executive Officer. FutureComms' work ended on August 29,
1997.
On June 27, 1995, the Company invested $250,800 for a minority interest in
Series B Preferred Stock of Net2Net Corporation ("Net2Net"), a privately held
company involved in the development of high performance management and
analysis systems for Asynchronous Transfer Mode (ATM) networks. The Company
also paid a deposit for inventory, purchased at a discounted price, valued at
$244,200 as well as entered into an eighteen month distribution agreement
with Net2Net that gave the Company the exclusive right to sell Net2Net
products to certain U.S. Government departments. As of September 27, 1997,
$144,283 of the inventory had been sold and the remaining amount of $99,917
has been either written-down or fully reserved. On May 15, 1998, a wholly
owned subsidiary of Visual Networks, Inc. ("Visual"), a public company,
merged with and into Net2Net. Under the terms of the merger, all outstanding
shares of Net2Net were exchanged for an aggregate of 2,250,000 shares of
Visual common stock. Net2Net's president was Stephen McCalmont, son of Arnold
M. McCalmont, and brother to former director James A. McCalmont. Arnold and
James McCalmont, as well as Herbert A. Lerner, also were investors in Net2Net
Corporation. This investment, which represented less than a 5% interest, was
accounted for using the cost method.
E. The Group's Nominees
The Group has nominated Mr. Phalon and Ernest R. Fenton for
election as directors. Listed below are the names and ages of the Group's
nominees, their business experience during the last five years and ownership
of Company stock. The information set forth below relating to the Group's
nominees is taken from the Group Proxy and has not been independently
verified or confirmed by the Company.
<TABLE>
<CAPTION>
Group Nominee Beneficial Ownership Background and
<S> <C> <C>
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Name, Age and of Shares Present Occupation
Business Address
<S> <C> <C>
Philip A. Phalon (69) 2,250 (1) Self-employed international marketing
40 Salem Street and business consultant and private
Lynnfield, MA 01940 investor from October 1990 to the
present. Interim President of the
Company from May 1994 to March 1995.
Director of the Company from August
1994 to the present.
Ernest R. Fenton (51) 0 Self-employed business consultant
4 Johns Lane specializing in turnaround of
Lexington, MA 02173 underperforming international
businesses, from __________ to the
present.
</TABLE>
(1) Mr. Phalon beneficially owns 2,250 shares of Common Stock of which 500
shares are owned directly by Mr. Phalon; 1,750 shares are issuable upon
exercise of stock options which are currently exercisable.
F. Board of Directors Response to The Group's Nominees
On April 30, 1998, the Board of Directors, after careful consideration of
past management deficiencies and performance, established specific goals to
move the Company forward in terms market share, technological innovation and
revenue growth. To these ends, the Board acted to enlarge the size of the
Board, to add qualified, experienced and independent new board members, and
to opt into the protections provided by Massachusetts state law under M.G.L.
c.156B, Section 50A, which provides for the continuity and efficiencies of a
staggered board. The Company's nominees Messrs. Briskin and Resnick are
committed to enhancing long term stockholder value.
YOUR BOARD OF DIRECTORS DOES NOT BELIEVE THAT THE BEST INTERESTS OF THE
COMPANY OR ITS STOCKHOLDERS WOULD BE SERVED BY ELECTING EITHER MR. PHALON OR
MR. FENTON, BOTH OF WHOM ARE NOMINEES OF A SMALL GROUP OF STOCKHOLDERS
ATTEMPTING TO GAIN MAJORITY CONTROL OF YOUR BOARD OF DIRECTORS AND THUS
DIRECT THE COMPANY'S ASSETS AND RESOURCES FOR THEIR OWN ENDS.
The Company believes that the Group's course of action and nomination of its
own slate of directors is motivated by a personal agenda that may not be
aligned with the interests of the stockholders as a whole.
The Board believes that its nominees, Mitchell B. Briskin and Bernard
Resnick, are extremely well qualified, capable and independent. Neither is an
employee of the Company and neither has been associated or affiliated with
the Company prior to April of 1998. Each of the Messrs. Briskin and Resnick
agreed to join the Company's Board of Directors after gaining an
18
<PAGE>
understanding of past management performance and reviewing management's
future goals for enhancing stockholder value. Both candidates have
substantial experience in corporate governance and are expected to offer
unbiased and independent insight into the affairs of the Company. Messrs.
Briskin and Resnick are also committed to moving the Company forward in terms
of market share, technological innovation and revenue growth. Mr. Briskin, an
experienced investment banker, has substantial operational experience and has
worked with a variety of underperforming companies, both public and private
in implementing turnaround and expansion strategies. Mr. Resnick has broad
and substantial experience in the communications industry, having served in
several senior management positions for GTE, a public company.
FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS BELIEVES THAT THE
ELECTION OF THE GROUP'S NOMINEES IS NOT IN THE BEST INTERESTS OF THE COMPANY
AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD RECOMMENDS THAT YOU VOTE FOR
MESSRS. BRISKIN AND RESNICK AS CLASS I DIRECTORS BY EXECUTING THE ENCLOSED
[WHITE] PROXY CARD. WE URGE YOU NOT TO SIGN ANY PROXY CARD FROM THE GROUP OR
ANY MEMBER OF THE GROUP. If you have mistakenly executed and delivered a
proxy card received from the Group and wish to vote for the slate of
directors recommended by the Company, you may revoke such proxy at any time
prior to its exercise by executing a later-dated [WHITE] proxy card and
returning it to the Company. Stockholders attending the Meeting may also
revoke their proxies by voting in person at the Meeting.
G. Executive Compensation and Other Information
Summary of Cash and Certain Other Compensation. The following tables set
forth certain summary information concerning compensation paid or accrued by
the Company during Fiscal Year 1997 to its Chief Executive Officer and the
other executive officers of the Company whose annual compensation during
Fiscal Year 1997 exceeded $100,000 (hereafter referred to as the "named
executive officers"):
SUMMARY COMPENSATION TABLE
Fiscal Year 1997 Compensation
<TABLE>
<CAPTION>
Fiscal All Other
Name and Principal Position Year Salary Bonus Compensation
- --------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Graham R. Briggs (1) 1997 $ 96,324 $ 11,171 (2) $ --
Vice President Finance 1996 $ 85,865 $ 1,500 (2) $ 1,747 (3)
1995 $ 87,233 $ 200 (2) $ 1,366 (3)
Roland S. Gerard (4) 1997 $ 158,708 $ 45,171 (5) $ 1,173 (6)
President and Chief 1996 $ 125,862 $ 15,000 (5) $ 4,233 (7)
Executive Officer 1995 $ 35,600 $ -- $ 25,644 (8)
John I. Gill 1997 $ 116,325 $ 18,171 (9) $ --
Executive Vice President 1996 $ 108,953 $ 1,500 (9) $ 2,209 (3)
1995 $ 111,660 $ 200 (9) $ 1,948 (3)
</TABLE>
- ----------
19
<PAGE>
(1) Mr. Briggs was employed by the Company until January 14, 1998. Mr.
Lerner is currently performing the duties of the Vice President of
Finance in his capacity as Treasurer and Chief Financial Officer of
the Company.
(2) These amounts of $11,171, $1,500, and $200 were paid to Mr. Briggs for
services rendered in fiscal years 1996, 1995, and 1994, respectively.
(3) Represents the Company's contribution for the account of the
respective executive officer under the Company's Profit-Sharing Plan,
a plan qualified under Section 401(k) of the Internal Revenue Code of
1986, as amended (the "Code"). The contribution is determined by the
Board of Directors in its sole discretion, but may not exceed 15% of
the Company's net profits before taxes for any given Plan year, nor
certain limits imposed by the Internal Revenue Code.
(4) Mr. Gerard was employed by Company as President from June 12, 1995
until February 13, 1998. Mr. Guild is currently serving as Chief
Executive Officer and Mr. Peterson is currently serving as President.
(5) These amounts of $45,171, and $15,000 were paid to Mr. Gerard for
services rendered in Fiscal Years 1996 and 1995, respectively.
(6) Represents the personal use portion of Mr. Gerard's automobile
allowance.
(7) Represents the Company's $3,625 contribution to Mr. Gerard under the
Company's Profit-Sharing Plan as described in note (3) above, plus
$608 for the personal use portion of Mr. Gerard's automobile
allowance.
(8) Consists entirely of relocation expenses.
(9) These amounts of $18,171, $1,500, and $200 were paid to Mr. Gill for
services rendered in fiscal years 1996, 1995, and 1994, respectively.
Stock Options. No stock options were granted to the named executive officers
during Fiscal Year 1997. The unexercised options held as of September 27,
1997 by the named executive officers are as follows:
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at Fiscal Year-End at Fiscal Year-End (1)
-------------------------- ----------------------
Name Exercisable Not Exercisable Exercisable Not Exercisable
- ---- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Roland S. Gerard (2) 40,000 (3) 60,000 -- --
Graham R. Briggs (4) 6,800 (5) -- -- --
</TABLE>
- ----------
(1) Value is based on the difference between the option exercise price and
the fair market value at September 27, 1997 ($6.75 per share)
multiplied by the number of shares underlying the in-the-money portion
of the option.
20
<PAGE>
(2) Mr. Gerard was employed by Company as President from June 12, 1995
until February 13, 1998. Mr. Guild is currently serving as Chief
Executive Officer and Mr. Peterson is currently serving as President.
(3) This option has subsequently expired due to the termination of Mr.
Gerard's employment with the Company.
(4) Mr. Briggs was employed by the Company until January 14, 1998. Mr.
Lerner is currently performing the duties of the Vice President of
Finance in his capacity as Treasurer and Chief Financial Officer of
the Company.
(5) This option has subsequently expired due to the termination of Mr.
Briggs' employment with the Company.
Compliance with Section 16(a) of the Securities Exchange Act. Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires the Company's
officers and directors, and persons who beneficially own more than ten
percent (10%) of the Company's stock, to file initial reports of ownership on
Form 3 and reports of changes in ownership on Form 4, and annual statements
of beneficial ownership on Form 5 with the SEC and any national securities
exchange on which the Company's securities are registered. Executive
officers, directors and greater than ten percent (10%) beneficial owners are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the Company
and written representations from the executive officers and directors that no
other reports were required, the Company believes that during Fiscal Year
1997, its executive officers, directors and greater than ten percent (10%)
beneficial owners complied with all applicable Section 16(a) filings.
II. RATIFICATION OF SELECTION OF AUDITORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE SELECTION
OF ARTHUR ANDERSEN LLP AS AUDITORS.
The Board of Directors has selected the firm of Arthur Andersen LLP,
independent certified public accountants, to serve as auditors for the fiscal
year ending October 3, 1998. Arthur Andersen LLP served as the Company's
auditors for Fiscal Year 1997. A quorum being present, the affirmative vote
of the holders of a majority of the shares of Common Stock voting in person
or by proxy on the appointment of the auditors shall be required for
approval. Thus, abstentions or broker non-votes will not be included in the
totals and will have no effect on the outcome of the vote.
It is expected that a member of the firm of Arthur Andersen LLP will be
present at the Meeting and will be available to respond to appropriate
questions.
III. STOCKHOLDER PROPOSAL
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THE STOCKHOLDER PROPOSAL.
Mr. Graham R. Briggs, 45 Hoover Road, Needham, MA 021194, formerly employed
by the Company as its Vice President-Finance until his termination earlier
this year, who states that he
21
<PAGE>
beneficially owns 5,461 shares of Common Stock, submitted the following proposal
(the "Proposal"):
"That the actions taken on April 30, 1998 by the Company's Board of
Directors to classify the Board into three (3) classes having staggered terms
be revoked."
STATEMENT OF MR. BRIGGS IN SUPPORT OF HIS PROPOSAL:
Pursuant to the Massachusetts Business Corporation Law and the Company's
by-laws, an annual meeting of stockholders for the year beginning September
28, 1997 should have occurred no later than March 31, 1998. In prior years,
such annual meeting has been held in February. On April 3, 1998, a group of
investors, including one Director of the Company, beneficially owning an
aggregate of 197,228 shares or approximately 15.4% of the outstanding shares
of Common Stock, filed a Schedule 13D stating that their shared purpose
included considering the costs and benefits of conducting a proxy contest to
replace at lease a majority of the Board. Still, no annual meeting was
scheduled. On Wednesday, April 29, 1998, Philip A. Phalon and Dr. M. Mahmud
Awan, two of the members of such group, sent a written demand to the Company
to set a record date and conduct an annual meeting, as required by law. At
its April 30, 1998 meeting, the Board finally established a record date and a
meeting date for the annual meeting. However, at the same time, the majority
of the incumbent Board members took action to entrench themselves (i) by
adopting a by-law amendment increasing from 10% to 40% the percentage of
outstanding shares necessary to call a special meeting of stockholders and
(ii) by "opting in" to a staggered board scheme previously eschewed by the
Company even though it has been available by statute to Massachusetts public
companies since 1990.
Under Massachusetts law and the by-laws of the Company, a simple majority of
the stockholders voting at the annual meeting could have approved the
adoption of the by-law amendment creating a staggered Board. However, under
statute, removing a validly adopted by-law provision creating a staggered
Board requires two-thirds of the stockholders voting at a meeting. By
amending the by-laws without waiting for a stockholder vote, the Board
extended the terms of the majority of the directors already serving by five
years in the aggregate and elected two out of three new Directors to serve an
aggregate of over four years. This presumptive action, taken ten weeks before
the next annual meeting, usurps the role of the stockholders, imposes a
majority of Directors not subject to re-election for an extended period and,
in the view of the proponent, breaches the duty of the Directors to the
stockholders. The actions taken on April 30, 1998 by the Company's Board of
Directors to classify the Board into three (3) classes having staggered terms
should be revoked, so that all Directors remain accountable to the
stockholders.
THE COMPANY'S STATEMENT IN OPPOSITION:
We believe that the Proposal is bad for the stockholders, vaguely and poorly
written, and if passed, of doubtful legality or effect.
Your Board of Directors believes that a staggered board WOULD PREVENT A SMALL
GROUP OF STOCKHOLDERS FROM IMMEDIATELY GAINING MAJORITY CONTROL OVER YOUR
BOARD OF DIRECTORS AND THUS DIRECTING THE COMPANY'S ASSETS AND RESOURCES to
suit their own personal agendas, motives and ends. In short, a
22
<PAGE>
staggered board, in conjunction with a 40% stock ownership requirement to
call a special meeting of the stockholders, could prevent precisely the kind
of abusive pressure tactics currently being used by the Group.
On April 30, 1998, the Board of Directors, after careful consideration of
past management deficiencies and performance, established specific goals to
move the Company forward in terms market share, technological innovation and
revenue growth. To these ends, the Board acted to enlarge the size of the
Board, to add qualified, experienced and independent new board members, and
to opt into the protections provided by Massachusetts state law under M.G.L.
c.156B, Section 50A, which provides for the continuity and efficiencies of a
staggered board. These actions were not undertaken for the purposes of
"entrenchment," but instead with the intent of bringing in outsiders whose
independence, experience and judgment would serve the interests of ALL
STOCKHOLDERS - INSTEAD OF THE UNSTATED PERSONAL AGENDA OF A SMALL GROUP.
In the opinion of the Board of Directors, a staggered Board of Directors
serves the best interests of a vast majority of the Company's stockholders. A
staggered Board of Directors facilitates continuity and stability of
leadership and corporate policy by permitting new directors to become
familiar with the business of the Company and to benefit from the experience
of the continuing directors. Dramatic shifts in the composition of the board
of directors of a corporation often lead to disarray at the board level since
the directors do not possess a clear and unified vision of future of the
corporation, nor do they comprehend the steps necessary to achieve the
desired goals.
Further, the Board of Directors believes that a staggered Board of Directors
would encourage any person or group seeking to acquire control of the Company
to do so through arm's-length negotiations with management and the Board of
Directors, who are in a position to protect stockholder value and negotiate a
transaction that is fair to all stockholders. Corporations which do not have
staggered boards present easy targets for those seeking control of a company
without paying a negotiated premium over market value. The Board notes that
the election of directors by classes is a common practice that has been
adopted by many large companies and that it is specifically permitted by the
laws of many states, including Massachusetts, the Company's state of
incorporation.
In summary, without a staggered board, the Company is subject to abusive and
substantial pressure from hostile groups interested in obtaining control of
the Company's resources to suit their own ends. In fact, you should know that
the subject of the Proposal, which is put forth by a former and now
disgruntled employee who has made demands upon the Company for severance
payments to which he is not entitled, is also at issue in ongoing litigation
filed by the Group. Specifically, on May 22, 1998, Mr. Philip Phalon, joined
an investor named M. Mahmud Awan in a lawsuit against the Company and its
directors (other than Mr. Phalon), filed in Massachusetts Superior Court,
Middlesex County (the "Court"), entitled Philip A. Phalon and M. Mahmud Awan
v. Technical Communications Corporation, Arnold McCalmont, Herbert A. Lerner,
Robert T. Lessard, Carl H. Guild, Mitchell B. Briskin, Donald Lake and Thomas
B. Peoples, Civil Action No. 98-2553. In the action, the plaintiffs, which
include Mr. Phalon, a longtime director and former acting President of the
Company, allege a breach of fiduciary duty
23
<PAGE>
by directors relating to actions of the Board including improper denial of
access to stockholder information. The complaint also challenges the
effectiveness of the vote taken by the Board of Directors on April 30, 1998,
creating staggered terms for the Board. On June 10, 1998, the Court issued a
decision and order. The Court denied the plaintiffs' request for stockholder
information, but issued an order (the "Order") compelling the Company to
distribute plaintiffs' proxy materials, but only at plaintiffs' expense. Also
contained in the Order, the Court enjoined the effectiveness of the Board's
revocation of its earlier vote to exempt the Company from 50A. The Company is
appealing the Order.
If the Company the Order is not reversed or otherwise resolved in the
Company's favor, the apparent intent of the Proposal--to "revoke" or undo the
actions of the Company's Board on April 30, 1998, as well as the goals of the
Group--shall be served: the Company shall be enjoined from opting into the
protections provided by Massachusetts state law under M.G.L. c.156B, Section
50A, which provides for the continuity and efficiencies of a staggered board.
THE GROUP WOULD THEN BE IN A POSITION TO NOMINATE INDIVIDUALS FOR ELECTION
AND OBTAIN MAJORITY CONTROL OF YOUR BOARD OF DIRECTORS AND THUS DIRECT THE
COMPANY'S ASSETS AND RESOURCES.
In addition to being bad for stockholders, the Proposal is also poorly and
vaguely written and if passed, of doubtful legality or effect. Under M.G.L.
c. 50A, which was passed in 1990, all Massachusetts corporations with a class
of shares registered under the Securities Exchange Act of 1934, must have a
staggered board of directors in which directors are divided into classes,
with each class carrying a separate three-year term. A Massachusetts
corporation subject to Section 50A may "opt out" of the statute and have a
board whose entire membership is elected annually by one of two means: (i) a
vote of its board of directors or (ii) a 2/3 vote of its outstanding shares.
After "opting out" by one of these two means, a corporation may "opt back in"
only by a vote of the same body (board or stockholders) that opted out in the
first place. The Company's Board of Directors opted out of the protections
afforded by Section 50A in 1990 and attempted to opt back in by the actions
of the Board on April 30, 1998.
To be sure, no published court cases interpreting the precise language of
Section 50A exist. However, the Proposal suggests that stockholders may vote
to "revoke" the Board's actions by some unarticulated means outside of the
plain language Section 50A, which states that an "opting out" of its
protections may be effected only by a Board vote or a 2/3 stockholder vote.
Nowhere in the Proposal does the proponent describe what the term "revoke"
means, from a legal or practical perspective, and at no point does the
proponent articulate how many votes he is seeking for his proposal or whether
it is intended to be binding or advisory or of some other legal effect. In
short, this lack of clarity and vagueness combined with what we believe is
the plain language of Section 50A provides little guidance to the thoughtful
stockholder who might ask "what am I voting on" and "what does my vote mean?"
We believe that the Proposal, if passed, would put the Company in the
position of choosing to comply with either the letter of the law in Section
50A or a vaguely articulated directive that would leave the Company's Board
structure vulnerable to legal challenge and substantial uncertainty.
24
<PAGE>
As your Board, we are committed to using all available resources of the
Company to enhance long term stockholder value. We believe that a staggered
board will serve you as we attempt to reach that overall goal. THE PROPOSAL
IS VAGUE, LIKELY UNENFORCEABLE AS A LEGAL MATTER, AND MOST IMPORTANTLY, WOULD
SEND THE WRONG MESSAGE TO HOSTILE GROUPS ATTEMPTING TO TAKEOVER THE COMPANY
OR USE ITS RESOURCES TO SERVE THEIR OWN PERSONAL MOTIVES. WE URGE YOU TO VOTE
"AGAINST" THE PROPOSAL.
IV. OTHER MATTERS
The Board of Directors of the Company is not aware of any matter, other than
those described above, that may come before the meeting. However, if any
matters are properly presented to the meeting for action, it is intended that
the persons named in the enclosed proxy will vote on such matters in
accordance with their best judgment.
PROPOSALS OF STOCKHOLDERS
It is currently contemplated that the 1999 Annual Meeting of Stockholders
will be held on February 22, 1999. Proposals of stockholders intended to be
present at that annual meeting of stockholders must be received by the
Company at its principal executive offices no later than September 2, 1998,
for inclusion in the Proxy Statement and Form of Proxy relating to that
meeting and must comply with the applicable requirements of federal securities
laws. The Company suggests that proponents submit their proposals by certified
mail, return receipt requested, to the General Counsel of the Company. All
proposals must comply with applicable SEC rules and regulations.
EXPENSES AND SOLICITATION OF PROXIES
The cost of the solicitation of proxies will be borne by the Company. Such
costs shall include the cost of engaging Shareholder Communications
Corporation, a proxy solicitation firm, anticipated to be $3,500. In light of
the proxy contest necessitated by the Group Proxy, the actual cost may far
exceed such estimate. Proxies will be solicited principally through the mails
or by telephone. Further solicitation of proxies from some stockholders may
be made by directors, officers, and regular employees of the Company,
personally, by telephone, telegraph, or special letter. No additional
compensation, except for reimbursement of reasonable out-of-pocket expenses,
will be paid for any such further solicitation. In addition, the Company may
request banks, brokers and their custodians, nominees and fiduciaries to
solicit customers of theirs who have shares of the Company registered in the
name of a nominee. The Company will reimburse any such persons for their
reasonable out-of-pocket costs.
TO AVOID THE NEED TO ADJOURN OR POSTPONE THE MEETING TO ALLOW TIME TO SOLICIT
ADDITIONAL PROXIES FOR A QUORUM, WHICH COULD RESULT IN ADDITIONAL COST AND
EXPENSE TO THE COMPANY, WE URGE ALL STOCKHOLDERS TO VOTE THEIR [WHITE] PROXY
AS SOON AS POSSIBLE.
ADDITIONAL INFORMATION
The Company will provide, without charge to each stockholder entitled to vote
at the meeting, a copy of the Company's Annual Report to the SEC on Form 10-K
for the fiscal year ending
25
<PAGE>
September 27, 1997. A request for copies of such report should be addressed to
the Company at 100 Domino Drive, Concord, Massachusetts 01742-2892, Attention:
Investor Relations.
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26
<PAGE>
TECHNICAL COMMUNICATIONS CORPORATION
100 Domino Drive
Concord, Massachusetts 01742-2892
Telephone: (978) 287-5100
NOTICE OF
ANNUAL MEETING
OF STOCKHOLDERS AND
PROXY STATEMENT
1998
Annual Meeting
of Stockholders
July __, 1998
27
<PAGE>
TECHNICAL COMMUNICATIONS CORPORATION
Proxy for Annual Meeting of Stockholders - July __, 1998
The undersigned hereby appoints CARL H. GUILD, Jr. and EDWARD E. HICKS, or
either of them, the action of both of them voting to be controlling,
attorneys of the undersigned with full powers of substitution, with all the
powers the undersigned would possess if personally present, to vote the stock
of the undersigned in TECHNICAL COMMUNICATIONS CORPORATION at the Annual
Meeting of Stockholders to be held at 10:00 a.m. on July __, 1998 and at any
adjournments thereof.
This proxy, if properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no direction is made, the proxy will be
voted FOR items 1 and 2 and AGAINST item 3.
Please vote, date and sign on the reverse side, and promptly return in the
enclosed envelope.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS. IT WILL BE VOTED AS
DIRECTED AND IF NO CHOICE IS INDICATED IT WILL BE VOTED FOR ITEMS 1, 2 AND 3
AND AGAINST ITEM 4:
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" THE ELECTION OF THE
NOMINEES LISTED BELOW.
1. Election of directors:
Nominees: Mitchell B. Briskin and Bernard Resnick
/ / FOR all nominees / / WITHHOLD from all nominees
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" THE RATIFICATION OF
ARTHUR ANDERSEN LLP AS THE COMPANY'S AUDITORS.
2. To ratify the selection of the firm of Arthur Andersen LLP as the
Company's auditors.
/ / FOR / / AGAINST / / ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "AGAINST" THE STOCKHOLDER
PROPOSAL.
3. To approve the Stockholder Proposal
/ / FOR / / AGAINST / / ABSTAIN
4. In their direction, the proxies are authorized to vote upon such
other business as may properly come before the meeting.
Please sign exactly as the name appears stenciled Date: ,1998
on this Proxy. When signing as attorney, executors,
administrators, trustee or guardian, please set forth
your full title. If the stockholder is a corporation,
the signature should be that of an authorized officer
who should indicate his or her title. --------------------
(Signature)
--------------------
(Signature)
