SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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[ ] Definitive Proxy Statement Confidential
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[ ] Soliciting Material Pursuant to section 240.14a-11(c) or section
240.14a-12
NOVAMETRIX MEDICAL SYSTEMS INC.
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(Name of Registrant as Specified In Its Charter)
...............................................................................
(Name of Person(s) Filing Proxy Statement if Other than the Registrant)
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Novametrix Medical Systems Inc.
Proxy Solicitation Discussion Points
BACKGROUND
Novametrix Medical Systems is the target of a proxy contest
waged by a stockholder group calling itself "The Novametrix
13D Shareholders Group". This dissident group is led by a
lawyer based in Lewiston, Maine named Paul Cote. Mr. Cote
and his 13D group own collectively 777,480 (10.2%) of the
company's 7,601,930 outstanding votes.
The Company's Annual meeting will be held on Monday
November, 25, 1996 at 2:00 pm at which time stockholders
will be asked to approve the following proposals: 1) A
merger agreement with Andros, Inc. 2) A 1996 Long Term
Incentive Plan. 3) Election of 2 Class A Directors and 4)
Appointment of independent auditors. Paul Cote and his 13D
group first distributed their proxy materials around August
30, 1996 and since then have been actively soliciting
Novametrix stockholders to elect the 13D group's own board
nominees, Dr. Vartan Ghugasian and Paul Cote, to replace
Novametrix' board nominees, Michael Needham and Joseph
Vincent. The 13D group has also proposed that the board
initiate a program to maximize stockholder value, and has
been urging stockholders to vote against the Company's
proposed merger with Andros, Inc.
Mr. Cote's 13D group along with a broker named Gary Hobbs,
who is based in Portland, Maine but who is not officially a
member of the 13D group, have claimed in conversations with
the Company that they have enough votes to defeat the merger
agreement and elect their own board nominees. Mr. Hobbs is
employed by a brokerage firm called Livada Securities (which
clears through Prudential Securities) and claims to have put
a large number of local Maine residents into Novametrix
stock over the years. The stockholder lists in fact
indicate a large concentration of shares in Maine and at
Prudential Securities.
13D GROUP'S ARGUMENTS
1. Paul Cote and his 13D group assert that they and
other stockholders are unhappy with Novametrix
management for the following reasons:
a)The 13D Group claims management reneged on
a promise to elect 3 class A directors in 1996 by
deciding amongst themselves that only 2 directors
would be elected. The 13D group is claiming that
the Company has manipulated the election process in
order to keep management control of Novametrix.
b)Claim that management is not being
truthful about the stock ownership of its directors.
The 13D group disputes management's assertion that
all directors own stock in the Company thereby
questioning the board's commitment to maximizing
stockholder value.
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c)The 13D group has stated that the Andros
merger "smells politically motivated" and is "just
another device [for management] to keep control".
d)They also claim management has made no
attempt to communicate the facts of the merger to
the 13D group. They claim that Andros has a high
level of existing debt ($42m) and this will burden a
currently almost debt-free Novametrix. Their
current claim is that the Andros merger will cut the
value of the Company in half, cause significant
dilution and make it harder to sell. The group
believes Novametrix can be sold for $8 to $10 per
share.
NOVAMETRIX MANAGEMENT ARGUMENTS
1. Management refutes the 13D Group's claim that
the composition of the board was manipulated.
a)The board was reconfigured in order to
eliminate the unequal distribution of Directors in
each class which resulted from prior Director
resignations. The Company's Certificate of
Incorporation calls for three classes of Directors
which are equal in size. Before being reconfigured,
the board had 3 Directors in one class, 2 Directors
in another class and only 1 Director in the third
class.
b)The reconfiguration of the board was NOT
made in response to a threatened proxy fight by the
13D group. The decision to conform the board to the
Company's Certificate of Incorporation was made on
May 20, 1996, prior to the time the board was
notified of Paul Cote's intention to nominate his
own directors.
2. Contrary to the 13D Group's statements, All
Novametrix Directors own stock in the Company.
a)The common stock ownership of each
director, excluding currently exercisable warrants
and options is the following: Thomas Haythe -
90,952; William Lacourciere - 348,990; Michael
Needham - 2,000; Photios Paulson - 5,500; Steven
Shulman - 6,000; Joseph Vincent - 50,716. The 13D
Group incorrectly states that the stockholder lists
do not contain share ownership information for
Michael Needham and Steven Shulman and therefore
they are not shareholders. This is completely false.
Both gentlemen have filed publicly available
statements of ownership with the SEC. Just because
a shareholder's name does not appear on the Company
shareholder list does not mean he has no ownership;
his shares could be registered in the name of a bank
or broker, which is a common practice.
3. Management believes the Andros merger will be
a unique opportunity to increase stockholder value
significantly.
a)Novametrix will issue to the stockholders
of Andros, and reserve for issuance to option and
warrant holders of Andros, the following:
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- Shares of Novametrix common stock
constituting 38% of the outstanding common stock
of Novametrix after giving effect to the merger;
- up to an additional 5% of the
shares of Novametrix Common Stock (based upon the
capitalization of Novametrix immediately after the
merger), in the event that Andros' revenues or the
combined company's consolidated earnings before
interest, taxes, depreciation and amortization for
the fiscal year ending May 3, 1998 exceed certain
targets, and,
- anti-dilution rights enabling the
holders to maintain (without additional payment)
such percentage ownership level as Novametrix
options and warrants outstanding at the time of
the merger are exercised, but without any
adjustments for other shares of Novametrix Common
Stock or other Novametrix options and warrants
issued after the merger.
b)Merger will create a worldwide leader in the
field of gas monitoring products and sensor
technology for medical applications.
c)Merger will result in an increase in size,
product line and distribution which will enable the
Company to realize significant cost savings and
revenue increases that neither company could achieve
independently.
d)The two companies have complementary
technologies as well as research and product
development synergies which will enable Novametrix
to introduce new products to market quickly and
provide more leverage when dealing with large
hospital chains and original equipment manufacturers
(OEM's) in today's competitive health care
environment.
e)The combined company would have sales of $66.8
million on a pro-forma basis for the fiscal year
ended April 28, 1996, almost triple the sales of
Novametrix as a stand-alone company in fiscal 1996.
f)Board of Novametrix believes that the best way
to enhance stockholder value is to increase earnings
per share ("EPS"). Board believes the Andros merger
offers a significant opportunity to enhance short
and long term earnings by:
- Expanding the company's
market presence by broadening its product
lines and technology base in existing and
complementary product areas.
- Increasing the company's
customer base through greater penetration of
the OEM market.
- Diversifying product line.
- Providing positive
financial contributions to revenue, operating
income per share and net income.
g) Contrary to the 13D group's claims, the
board of Novametrix believes the merger will be non-
dilutive.
- 6.2 million new shares
will be issued in the merger but earnings per
share
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are projected to increase on the greater
number of shares outstanding.
- For the Andros
stockholders to improve their ownership
position to 43%, revenues of the Andros
business would have to increase by 18% or
EBITDA (earnings before interest, taxes,
depreciation and amortization) of the combined
company would have to grow by 20%, in each
case over the projected results. Either case
should be non-dilutive.
4) The 13D group has stated it believes Andros'
present debt of $42 million will be detrimental to
Novametrix. However, Andros has significant positive
cash flow and a ratio of EBITDA to revenue of over 20%.
The combined company is projected to generate a ratio
of EBITDA to revenue of 20%, or approximately $16
million in fiscal 1998.
The ratio of combined debt to projected EBITDA is
approximately 3.0 to 1, a ratio considered attractive
to commercial lenders. Presently, two banks have
proposed to finance the new debt and to provide
Novametrix with a substantial credit line at attractive
interest rates. All earnings projections are
calculated after interest rate costs.
5) The 13D group also claims that the Novametrix
board has failed to address the concerns of the group.
Mr. Lacourciere and other directors have spent many
hours in discussions with Mr. Cote, including a visit
to Lewiston in April 1996. To date, Paul Cote has
refused to allow Novametrix Management to meet with the
members of his group to discuss the Company's strategy
and benefits of the Andros merger.
6) The 13D group's nominees for election to the
board of Novametrix, Dr. Vartan Ghugasian and Paul
Cote, have no experience in the medical instrumentation
business and have offered no concrete ideas on how to
increase Novametrix' stock price.
a) Mr. Ghugasian is a dentist from
Massachusetts and Mr. Cote is a lawyer from Maine.
b) By contrast, the company's nominees have
a combined total of 37 years experience in the
medical instrumentation business. Mr. Needham has
been a Novametrix director for 15 years and Mr.
Vincent has 22 years of diversified experience in
the medical equipment industry, including 13 years
with Novametrix.
7) The board of directors and management of
Novametrix believe they have presided over a remarkable
financial recovery over the past 5 years.
a) During this period debt has been reduced
from $24 million to approximately $5 million.
b) Stockholders' equity has increased from
less than $100,000 to more than $12 million.
c) Stock price rose from less than $1.00
per share to approximately $6.00 per share.
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A price of $6.00 per share represents a price/
earnings ratio of approximately 36 times earnings
per share for fiscal 1996 (calculated on a fully
taxed basis) while the average P/E ratio for the
industry is 22 times earnings.
8) Paul Cote's 13D group has also included a
proposal on its proxy to initiate a program to maximize
shareholder value, including engaging an investment
banker to evaluate whether the full value of the
company is fully reflected in its stock price and to
propose a course of action based on that evaluation.
a) The board is very much in favor of
enhancing stockholder value and has in fact
recommended the Andros merger as part of that
effort.
b) The company has already engaged an
investment banker with the purpose of enhancing
stockholder value and has outlined the following
strategic plan.
-Review business plans, assess
strategies for growth and acquisitions, present
financial options and assist in the development
and modeling of projections.
-Assist the company in the development
of an overall financial strategy to address the
company's plans to grow/maximize the value of
the company.
-Assist in the development of a plan to
broaden investor awareness of the company, which
will include strategies to expand the number of
market makers and institutional ownership.
-The company's management will soon
begin a period of visits and correspondence with
analysts, institutional buyers and retail
brokers with the goal of attracting additional
institutional sponsorship and analyst coverage.
The company believes that the significantly
larger size, critical mass and profitability of
the company after the Andros merger, in addition
to the expanded market capitalization, will help
further these goals.
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NOVAMETRIX MEDICAL SYSTEMS INC.
SOLICITATION INSTRUCTIONS
AND DISCUSSION POINTS
There is nothing mysterious about the solicitation process. All
you need is a knowledge of your subject, patience and a
comfortable telephone manner. Your attitude and tone of voice
should reflect a sense of friendliness, confidence and the
willingness to be of assistance. You will get results if you can
convey a feeling that you enjoy what you're doing. You should
never attempt to coerce a vote in favor of the transaction.
You should begin your calls by introducing yourself by name and
stating the purpose of your call. From this point on, the
conversation will vary according to the stockholder's response.
Some stockholders may become suspicious and will question you
further about your identity and the purpose of your call. Be
patient, answer all questions and provide whatever credentials
the stockholder demands. Since it is likely that the stockholder
has already received a call from Paul Cote's group (the
opposition), indicate as clearly as possible that you are not a
member of that group and that you are calling on behalf of the
management and board of Novametrix. If the stockholder refuses
to talk to you, do not persist. Simply note the response on your
solicitation records.
Once you have established your identity, the purpose of your call,
and the stockholder has expressed willingness to talk with you, you
should move quickly on to the basic questions: Has the stockholder
received the proxy material and had a chance to read it? Has the
stockholder made a voting decision and did he vote in favor of the
proposed transaction and the company's nominees?
If the stockholder has already voted in favor of the transaction
and Novametrix' board nominees, you should thank him for his vote.
If he expresses irritation, apologize and terminate the call as
gracefully as possible. If the stockholder has any questions you
should attempt to answer them or find someone who can. The
enclosed discussion points outline will serve as a useful guide for
answering questions.
If the stockholder has voted against the transaction and our
nominees, you should try to find out his reasons and discuss them
with him. Advise him of how Novametrix recommends that
shareholders vote. If you succeed in convincing the stockholder to
change his vote, offer to send him a new proxy card. In many
cases, you will find that negative votes result from a
misunderstanding of the proposals, or confusion over which group
they actually intend to support.
REMEMBER THAT THE INFORMATION YOU PROVIDE MUST BE LIMITED TO WHAT
APPEARS IN THE PROXY MATERIAL FILED WITH THE SEC. Whenever
possible, you should quote directly from the material in the
documents rather than paraphrasing it. However, you should avoid
being too stiff or formal on the telephone; try to develop a
relaxed conversational manner while sticking to the wording in the
printed documents. The easiest way to do this is to become
intimately familiar with the material through careful reading,
outlining and pre-call discussions.
If the stockholder has not yet signed his proxy, you should advise
him of the importance of every stockholder's vote and urge him to
send in his proxy promptly. You should answer any relevant
questions by directing the stockholder to the relevant quotes in
the material regarding just how Novametrix wishes stockholders to
vote. You may also remind him/her of the voting requirements for
approval of the proposal(s) / transaction and stress the importance
of every stockholder's vote.
You will find some stockholders may want to discuss the proposed
transaction at length. Answer the questions put to you, cover the
facts, refer to documents, but do not encourage lengthy
conversations. You should be careful not to antagonize any
stockholder. If you reach a stockholder who is strongly
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opposed to the transaction, try to get him to state his reasons.
If they are specific criticisms of the transaction, record them
and leave the door open for future contact.
If you are asked questions that you cannot answer, tell the
stockholder that you do not know the answer, but will find out the
answer for him and either call him back or have someone else
contact him as soon as possible. Then be certain that you do so
promptly.
IMPORTANT NOTE: If you are calling a stockholder at his place of
business, do not reveal the purpose of your call to anyone but the
stockholder or his secretary. Many people resent their associates
knowing about their personal investments. If you are calling a
stockholder at home, make sure you are speaking to a member of the
immediate family if you leave a message.
If the stockholder says that he has not received the proxy
material, tell him that you will send him a duplicate copy and do
so promptly. Urge the stockholder to give the documents his
immediate attention when they arrive, and tell him that you will
call him again to make sure he receives the material and
understands the proposals upon which he is to vote. If the
stockholder has thrown the documents away because he did not think
that they were important, send him a new set immediately and ask
him to return the proxy as soon as possible. At every opportunity
take time to stress to the stockholder the importance of his vote.
Sometimes you will find that a stockholder will want to talk about
entirely unrelated matters, such as the weather, politics, sports,
etc. You should always be polite while avoiding lengthy
conversations. It is none the less important to convince the
stockholder of your sincerity and interest. One of the most
effective methods to accomplish this objective is to establish a
friendly rapport with him.
On occasion, you will discover that the stockholder you are trying
to contact has died. When this occurs it is usually best to
apologize to the family member or friend for the intrusion, explain
briefly the reason for your call and suggest THAT THE ESTATE'S
ATTORNEY HANDLE THE PROXY VOTING. LEAVE YOUR NUMBER SHOULD THE
ATTORNEY WISH TO CALL YOU. In all cases, be sure to make note of
any change of address. Whatever the stockholder's response to your
inquiries, always be sure to thank him for taking the time to talk
to you.
Please note that if a stockholder tells you he or she has sold
his/her stock, explain to them that they are still the STOCKHOLDER
OF RECORD AND THE ONLY ONE ENTITLED TO VOTE THIS PROXY. Also, if a
stockholder indicates that he/she owns shares held in the name of a
broker (i.e. "Street name") please urge this person to return the
proxy card to the Brokerage firm.
LEGAL RESTRICTIONS
The primary Securities and Exchange Commission rule applicable to
telephone solicitations is Rule 14a-9. The following legal
restrictions apply in every solicitation you will work on:
1. Never make any statement which is false or
misleading.
2. Never predict the outcome of the proxy contest.
3. Never impugn anyone's character, integrity or
personal reputation; or make charges concerning improper,
illegal or immoral conduct or association; without
factual foundation and/or SEC clearance.
4. Never use any written material for solicitation
which has not been reviewed by the SEC.
5. Never predict future market values, earnings or
dividends other than statements made in the proxy
material.