<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
NOVAMETRIX MEDICAL SYSTEMS INC.
- --------------------------------------------------------------------------------
(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):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11:
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid:
------------------------------------------------------------------------
2) Form, schedule or registration statement no.:
------------------------------------------------------------------------
3) Filing party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
OCTOBER 23, 1996
To Our Stockholders:
Your Board of Directors has unanimously approved an Agreement and Plan of
Merger dated as of July 29, 1996, as amended as of October 18, 1996, whereby a
wholly owned subsidiary of Novametrix Medical Systems Inc. would combine with
Andros Holdings Inc. in a merger transaction (the "Merger") in which Andros
would become a wholly owned subsidiary of Novametrix. In the Merger, Novametrix
will issue to the stockholders of Andros, and reserve for issuance to option and
warrant holders of Andros, the following: (i) shares of Novametrix common stock
constituting 38% of the outstanding common stock of Novametrix after giving
effect to the Merger, (ii) 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 (iii)
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.
WE BELIEVE THE ANDROS MERGER IS A UNIQUE OPPORTUNITY TO INCREASE STOCKHOLDER
VALUE SIGNIFICANTLY.
Andros designs, manufactures and markets non-dispersive infrared ("NDIR")
gas analyzers and sub-systems and other sensor instrumentation for medical,
automotive and environmental applications. Andros is a 98% owned subsidiary of
Genstar Capital Partners II, L.P., a private investment fund that invests in
manufacturing and services businesses.
The Novametrix Board believes that the Merger represents an important
strategic opportunity for Novametrix to create a worldwide leader in the field
of gas monitoring products and sensor technology for medical applications. The
Merger will provide Novametrix with a complete line of gas monitoring products
for medical applications through the acquisition of Andros' anesthetic agent
technology and products and will give Novametrix access to a large installed
original equipment manufacturer ("OEM") customer base. Because of the resulting
increase in size, breadth of products and extent of distribution that Novametrix
will possess after the Merger, the Novametrix Board believes that Novametrix
will be able to realize significant revenue increases and cost savings which
neither company would achieve independently. The two companies' complementary
technologies and the sharing of basic research and product development resources
will increase Novametrix' ability to introduce new products to the market
quickly and provide more leverage when dealing with large hospital chains and
OEMs in today's competitive health care environment. The combined company would
have sales of $66.8 million on a pro forma basis for the fiscal year ended April
28, 1996.
Management believes the Merger to be a critical step towards further
establishing the Company as a primary supplier of medical devices to acute care
providers and OEMs in today's competitive health care environment. AFTER THE
MERGER, NOVAMETRIX WILL SERVE MOST OF THE WORLD'S LARGEST MANUFACTURERS OF
MEDICAL MONITORING EQUIPMENT. THE COMBINED COMPANY WOULD BE THE WORLD'S LARGEST
OEM PROVIDER OF NDIR GAS ANALYZERS FOR MEDICAL APPLICATIONS. VIRTUALLY EVERY
DOMESTIC "NATIONAL ACCOUNT" PURCHASES THE PRODUCTS OF ONE OR MORE OF THE
COMBINED COMPANY'S OEM CUSTOMERS.
Novametrix has received the written opinion of Tucker Anthony Incorporated,
our financial advisor, to the effect that, as of October 18, 1996, the exchange
ratio in the Merger is fair, from a financial point of view, to Novametrix and
its stockholders. Based in part upon the opinion of Tucker Anthony and the
strategic opportunities described above, your Board of Directors and management
have concluded that the proposed Merger is in the best interests of Novametrix
and its stockholders.
<PAGE>
2
Additional factors which lead the Board of Directors and management of
Novametrix to recommend approval of the Merger include:
- - The opportunity for Novametrix to EXPAND ITS MARKET PRESENCE by broadening
its product lines and technology base in existing and complementary product
areas, particularly through the acquisition of Andros' anesthetic agent
products and technology.
- - The ability of Novametrix to INCREASE ITS CUSTOMER BASE through greater
penetration of the OEM market as a result of Andros' position as a supplier
to major OEM medical device suppliers such as Hewlett-Packard Co., Colin
Medical Instruments Corporation and Draegerwerk.
- - PRODUCT AND INDUSTRY DIVERSIFICATION within the field of gas monitoring as a
result of Andros' presence in the automotive gas analyzer and environmental
monitoring markets and the substantial market share held by Andros in the
automotive gas analyzer industry segment.
- - The POTENTIAL FINANCIAL BENEFITS TO NOVAMETRIX STOCKHOLDERS, including
projected positive financial contributions to revenue, earnings per share,
net income and cash flow resulting from the Merger.
- - The results of financial analyses indicating that, based on recent stock
prices of Novametrix common stock, the implied COST OF ANDROS IS FAVORABLE TO
NOVAMETRIX STOCKHOLDERS.
- - The INCREASED VISIBILITY of the Company within the financial community
resulting from the Merger.
Consummation of the Merger is subject to, among other things, the approval
by the Novametrix stockholders voting at the annual meeting of stockholders on
November 25, 1996 of the issuance of the shares of Novametrix common stock to be
issued in the Merger. Information concerning the meeting, the Merger and other
matters concerning Novametrix and Andros is set forth in the accompanying proxy
material. Among other matters for Novametrix stockholders to consider at the
annual meeting are approval of the Novametrix 1996 Long Term Incentive Plan, the
election of two Class A directors for the ensuing three years and the
ratification of the Board of Directors' selection of Ernst & Young LLP to serve
as Novametrix' independent auditors for the 1997 fiscal year. Because of the
importance of the Merger and such other matters to Novametrix and its
stockholders, I urge you to read this material carefully.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ISSUANCE OF
NOVAMETRIX COMMON STOCK IN CONNECTION WITH THE MERGER. SINCE YOUR VOTE IS
IMPORTANT AT THE ANNUAL MEETING OF STOCKHOLDERS, WE ASK THAT YOU PROMPTLY
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE.
You may have received letters, a proxy statement and proxy cards from a
group calling itself variously the "13D Shareholders Group," the "13D
Shareholders Group Regarding Novametrix Medical Systems Inc." and the
"Novametrix 13D Shareholders Group." THIS GROUP, LED BY A LAWYER NAMED PAUL COTE
AND HIS ADVISORS, IS A DISSIDENT STOCKHOLDER GROUP WITH ABSOLUTELY NO
AFFILIATION WITH THE BOARD OF DIRECTORS OR MANAGEMENT OF NOVAMETRIX. Paul Cote
and his advisors are soliciting proxies to replace the two Class A Directors up
for re-election this year with himself and Vartan Ghugasian. In addition, Paul
Cote is soliciting proxies in support of a proposal to increase "shareholder
values."
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE AGAINST THE
COTE GROUP'S NOMINEES AND THEIR PROPOSAL FOR THE REASONS OUTLINED IN THE SECTION
OF THE PROXY STATEMENT TITLED "INTRODUCTION--PAUL COTE'S DISSIDENT 13D GROUP."
WE STRONGLY URGE YOU NOT TO SIGN OR RETURN ANY OF THE GREEN PROXY CARDS YOU
RECEIVE FROM THE 13D GROUP UNTIL YOU HAVE HAD THE OPPORTUNITY TO REVIEW AND
CAREFULLY CONSIDER THE COMPANY'S PROXY STATEMENT.
YOU CAN REVOKE ANY PROXY YOU HAVE SENT TO THE 13D GROUP BY SIGNING, DATING
AND RETURNING THE ENCLOSED WHITE PROXY CARD.
ONLY YOUR LATEST DATED PROXY COUNTS.
<PAGE>
3
I join with your Board of Directors in urging you to vote FOR the issuance
of Novametrix common stock in connection with the Merger, FOR your Board's
nominees for Class A Directors and AGAINST the Cote Group's nominees and
proposal.
Sincerely,
/s/ William J. Lacourciere
William J. Lacourciere
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
YOUR VOTE IS IMPORTANT
To ensure that your interests will be represented at the Meeting, whether or
not you plan to attend the Meeting, please complete, date, sign and mail your
proxy promptly in the enclosed envelope. Stockholders who attend the Meeting in
person may revoke their proxies and vote in person if they desire.
<PAGE>
NOVAMETRIX MEDICAL SYSTEMS INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 25, 1996
------------------------
Wallingford, Connecticut
October 23, 1996
To the Holders of Common Stock
and Series B Preferred Stock of
NOVAMETRIX MEDICAL SYSTEMS INC.:
The Annual Meeting of the Stockholders of NOVAMETRIX MEDICAL SYSTEMS INC.
("Novametrix " or the "Company") will be held at The Drake Swissotel, 440 Park
Avenue, New York, New York, on Monday, November 25, 1996 at 2:00 PM for the
following purposes, as more fully described in the accompanying Proxy Statement:
1. To consider and take action upon a proposal to approve, pursuant to the
requirements of the Nasdaq National Market ("Nasdaq"), the issuance of the
number of shares of common stock, par value $.01 per share ("Novametrix Common
Stock"), contemplated by the Agreement and Plan of Merger dated as of July 29,
1996, as amended as of October 18, 1996 (as so amended, the "Merger Agreement")
among the Company, Novametrix Acquisition Corp., a Delaware corporation and
wholly owned subsidiary of the Company ("Acquisition"), and Andros Holdings
Inc., a Delaware corporation ("Andros"), (a copy of the Merger Agreement is
attached as Appendix A to the accompanying Proxy Statement), providing for the
merger of Acquisition with and into Andros (the "Merger") whereupon Andros will
become a wholly owned subsidiary of the Company.
2. To consider and take action upon a proposal to approve the Company's
1996 Long Term Incentive Plan.
3. To elect two Class A directors of the Company for the ensuing three
years.
4. To consider and take action upon a proposal to ratify the Board of
Directors' selection of Ernst & Young LLP to serve as the Company's independent
auditors for the 1997 fiscal year.
5. To transact such other business as may properly come before the Meeting
or any adjournment or adjournments thereof.
The close of business on September 27, 1996 has been fixed by the Board of
Directors as the record date for the determination of stockholders entitled to
notice of, and to vote at, the Meeting. A list of the stockholders entitled to
vote at the Meeting may be examined at the offices of Haythe & Curley, 237 Park
Avenue, New York, New York, during the ten-day period preceding the Meeting.
By Order of the Board of Directors,
/s/ Joseph A. Vincent
Joseph A. Vincent, CMA,
SECRETARY
YOUR ATTENTION IS DIRECTED TO THE ACCOMPANYING PROXY STATEMENT
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. IF YOU DO NOT
EXPECT TO BE PRESENT, PLEASE MARK, SIGN AND DATE THE ENCLOSED FORM OF PROXY AND
MAIL IT IN THE ENCLOSED RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES, SO THAT YOUR VOTE CAN BE RECORDED.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 2
SUMMARY................................................................... 3
INTRODUCTION.............................................................. 19
PROPOSAL I: APPROVAL OF THE MERGER PROPOSAL............................... 23
THE MERGER................................................................ 23
Background of the Merger................................................ 23
Recommendation of the Board of Directors; Reasons for the Merger........ 25
Opinion of Novametrix' Financial Advisor................................ 27
Accounting Treatment.................................................... 31
Certain Federal Income Tax Consequences of the Merger................... 32
Management and Operations of Novametrix Following the Merger............ 32
Liquidity and Sources of Capital Following the Merger................... 34
Interests of Certain Persons in the Merger.............................. 34
No Dissenters' Rights................................................... 35
THE MERGER AGREEMENT...................................................... 36
Effective Time.......................................................... 36
The Merger.............................................................. 36
Conditions to Consummation of the Merger................................ 39
Representations and Warranties.......................................... 40
Covenants--Novametrix and Andros........................................ 40
Covenants--Andros....................................................... 40
Covenants--Novametrix................................................... 41
Amendment............................................................... 42
Termination............................................................. 42
Fees and Expenses....................................................... 43
Other Agreements........................................................ 44
MARKET FOR NOVAMETRIX COMMON STOCK........................................ 45
PRO FORMA COMBINED FINANCIAL INFORMATION.................................. 46
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF NOVAMETRIX................. 53
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF NOVAMETRIX................................................ 54
NOVAMETRIX BUSINESS....................................................... 60
SELECTED CONSOLIDATED FINANCIAL DATA OF ANDROS............................ 65
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ANDROS.................................................... 66
ANDROS BUSINESS........................................................... 73
NOVAMETRIX MANAGEMENT..................................................... 80
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF
NOVAMETRIX.............................................................. 86
OTHER MATTERS SET FORTH FOR ACTION AT THE MEETING......................... 89
Proposal II: Approval of 1996 Long Term Incentive Plan.................. 89
Proposal III: Election of Class A Directors............................. 93
Proposal IV: Ratification of Selection of Independent Auditors.......... 95
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Proposal V: Other Matters............................................... 95
MISCELLANEOUS............................................................. 95
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF ANDROS...................... F-1
APPENDICES
Appendix A--Agreement and Plan of Merger and Amendment No. 1 thereto
Appendix B--Opinion of Tucker Anthony Incorporated
Appendix C--Voting Agreement
Appendix D--Form of Registration Rights Agreement
Appendix E--1996 Long Term Incentive Plan
</TABLE>
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which are on file with the Securities and Exchange
Commission (the "Commission"), are incorporated in this Proxy Statement by
reference and made a part hereof:
(a) Novametrix' Annual Report on Form 10-KSB for the year ended April 28,
1996;
(b) Novametrix' Current Report on Form 8-K dated July 29, 1996; and
(c) Novametrix' Quarterly Report on Form 10-Q for the quarter ended July
28, 1996.
Novametrix will provide without charge, upon the written or oral request of
any person to whom this Proxy Statement is delivered, a copy of any and all
information that has been incorporated by reference in this Proxy Statement (not
including exhibits to the information that is incorporated by reference unless
such exhibits are specifically incorporated by reference into the information
that Novametrix incorporates). THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
ARE AVAILABLE UPON REQUEST FROM NOVAMETRIX MEDICAL SYSTEMS INC., 56 CARPENTER
LANE, WALLINGFORD, CONNECTICUT 06492, ATTENTION: SECRETARY; TELEPHONE: (800)
243-3444. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY NOVEMBER 18, 1996.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement in connection with the
solicitation made hereby and, if given or made, such information or
representation should not be relied upon as having been authorized by
Novametrix. The delivery of this Proxy Statement shall not, under any
circumstances, create an implication that there has been no change in the
affairs of Novametrix or Andros since the date of this Proxy Statement.
2
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT. THIS SUMMARY DOES NOT CONTAIN A COMPLETE DESCRIPTION OF THE TERMS OF
THE MERGER AND THE OTHER MATTERS SUMMARIZED HEREIN AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THIS PROXY STATEMENT AND THE
APPENDICES. STOCKHOLDERS ARE URGED TO READ CAREFULLY THE ENTIRE PROXY STATEMENT
AND THE APPENDICES. EXCEPT AS OTHERWISE NOTED, THE INFORMATION IN THIS PROXY
STATEMENT (I) ASSUMES THAT IMMEDIATELY PRIOR TO THE EFFECTIVE TIME (AS
HEREINAFTER DEFINED) OF THE MERGER THERE WILL BE 7,606,374 SHARES OF NOVAMETRIX
COMMON STOCK OUTSTANDING OR ISSUABLE PURSUANT TO OUTSTANDING SHARES OF
CONVERTIBLE PREFERRED STOCK, SERIES B, PAR VALUE $1.00 PER SHARE ("SERIES B
PREFERRED STOCK"), OF THE COMPANY AND 102,833 SHARES OF COMMON STOCK, PAR VALUE
$.01 PER SHARE ("ANDROS COMMON STOCK"), OF ANDROS OUTSTANDING OR ISSUABLE UPON
THE EXERCISE OF THEN OUTSTANDING OPTIONS OR WARRANTS TO PURCHASE ANDROS COMMON
STOCK, RESULTING IN AN EXCHANGE RATIO OF 45.3354 SHARES OF NOVAMETRIX COMMON
STOCK FOR EACH SHARE OF ANDROS COMMON STOCK (SEE "THE MERGER AGREEMENT--THE
MERGER-- CONSIDERATION TO BE RECEIVED IN THE MERGER"), (II) ASSUMES THAT NO
ADDITIONAL SHARES OF NOVAMETRIX COMMON STOCK ARE ISSUED TO ANDROS STOCKHOLDERS
BASED UPON ANDROS REVENUES OR THE COMBINED COMPANY'S EARNINGS BEFORE INTEREST,
TAXES, DEPRECIATION AND AMORTIZATION ("EBITDA") FOR THE FISCAL YEAR ENDING MAY
3, 1998 (SEE "THE MERGER AGREEMENT -- THE MERGER -- EARN-OUT SHARES"), AND (III)
DOES NOT GIVE EFFECT TO ANY ISSUANCES OF NOVAMETRIX COMMON STOCK TO ANDROS
STOCKHOLDERS AFTER THE MERGER PURSUANT TO CERTAIN LIMITED ANTIDILUTION RIGHTS
(SEE "THE MERGER AGREEMENT--THE MERGER--LIMITED ANTIDILUTION RIGHTS"). EXCEPT AS
OTHERWISE NOTED, ALL REFERENCES IN THIS PROXY STATEMENT TO THE ACTIVITIES,
OPERATIONS AND BUSINESS OF NOVAMETRIX OR ANDROS SHALL ALSO INCLUDE THE
ACTIVITIES, OPERATIONS AND BUSINESS OF THEIR RESPECTIVE SUBSIDIARIES. THIS PROXY
STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS ABOUT NOVAMETRIX' PROJECTED
OPERATING RESULTS AFTER THE PROPOSED MERGER AND NOVAMETRIX' PLANS FOR ACHIEVING
SUCH RESULTS, INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS
"BELIEVES", "ANTICIPATES", "INTENDS", "EXPECTS" AND WORDS OF SIMILAR IMPORT. THE
COMPANY'S ABILITY TO ACHIEVE ITS PROJECTED RESULTS IS DEPENDENT ON A VARIETY OF
FACTORS, MANY OF WHICH ARE OUTSIDE OF MANAGEMENT'S CONTROL, INCLUDING, WITHOUT
LIMITATION, THOSE REFERRED TO UNDER "THE MERGER--RECOMMENDATION OF THE BOARD OF
DIRECTORS; REASONS FOR THE MERGER", "THE MERGER--MANAGEMENT AND OPERATIONS OF
NOVAMETRIX FOLLOWING THE MERGER--OPERATIONS OF NOVAMETRIX FOLLOWING THE MERGER",
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF NOVAMETRIX--RISKS ASSOCIATED WITH THE NOVAMETRIX BUSINESS" AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ANDROS--RISKS ASSOCIATED WITH THE ANDROS BUSINESS". SOME OF THE
MOST SIGNIFICANT FACTORS, ALONE OR IN COMBINATION, WOULD BE THE FAILURE TO
INTEGRATE THE BUSINESSES OF ANDROS AND THE COMPANY SUCCESSFULLY, AN
UNANTICIPATED SLOWDOWN IN THE HEALTH CARE INDUSTRY OR THE ENVIRONMENTAL INDUSTRY
(AS A RESULT OF COST CONTAINMENT MEASURES, CHANGES IN GOVERNMENTAL REGULATION OR
OTHER FACTORS), UNANTICIPATED TECHNOLOGICAL DEVELOPMENTS WHICH AFFECT THE
COMPETITIVENESS OF THE PRODUCTS OF NOVAMETRIX AND ANDROS, OR THE UNANTICIPATED
LOSS OF BUSINESS. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT NOVAMETRIX WILL
ACHIEVE ITS PROJECTED OPERATING RESULTS AFTER THE PROPOSED MERGER. GIVEN THESE
UNCERTAINTIES, PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE
ON SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY DOES NOT INTEND, AND DISCLAIMS
ANY OBLIGATION, TO UPDATE ANY SUCH FACTORS OR TO ANNOUNCE PUBLICLY THE RESULTS
OF ANY REVISIONS TO ANY OF THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO
REFLECT FUTURE EVENTS OR DEVELOPMENTS.
MEETING OF STOCKHOLDERS
This Proxy Statement is provided in connection with the solicitation of
proxies on behalf of the Board of Directors of the Company for use at the Annual
Meeting of Stockholders (the "Meeting") to be held on November 25, 1996, and at
any adjournment or adjournments thereof. The close of business on September 27,
1996 is the record date for determining the stockholders entitled to vote at the
Meeting (the "Record Date"). This Proxy Statement and the enclosed proxy are
first being sent to holders of Novametrix Common Stock and Series B Preferred
Stock on or about October 23, 1996.
PURPOSES OF THE MEETING
At the Meeting, the Company's stockholders will consider and take action
upon (i) a proposal to approve, pursuant to the requirements of the Nasdaq
National Market ("Nasdaq"), the issuance of the
3
<PAGE>
number of shares of Novametrix Common Stock contemplated by the Merger Agreement
(the "Merger Proposal"); (ii) a proposal to approve the Company's 1996 Long Term
Incentive Plan; (iii) the election of two Class A directors of the Company for
the ensuing three years; (iv) a proposal to ratify the Board of Directors'
selection of Ernst & Young LLP to serve as the Company's independent auditors
for the 1997 fiscal year; and (v) such other business as may properly come
before the Meeting or any adjournment or adjournments thereof.
VOTING REQUIREMENTS AT THE ANNUAL MEETING
The presence, in person or by proxy, of the holders of a majority of the
voting power of all the outstanding shares of Novametrix Common Stock and Series
B Preferred Stock entitled to vote at the Meeting is necessary to constitute a
quorum at the Meeting or any adjournments thereof. Directors of the Company are
elected by a plurality vote. Approval and adoption of the Merger Proposal and
approval of other matters will require the affirmative vote of a majority of the
voting power of the shares present at the Meeting, in person or by proxy, and
entitled to vote on that proposal. Abstentions and broker non-votes (as
hereinafter defined) will be counted as present for the purpose of determining
the presence of a quorum. For the purpose of determining the vote required for
approval of matters to be voted on at the Meeting, shares held by stockholders
who abstain from voting will be treated as being "present" and "entitled to
vote" on the matter and, thus, an abstention has the same legal effect as a vote
against the matter. However, in the case of a broker non-vote or where a
stockholder withholds authority from his proxy to vote the proxy as to a
particular matter, such shares will not be treated as "present" and "entitled to
vote" on the matter and, thus, a broker non-vote or the withholding of a proxy's
authority will have no effect on the outcome of the vote on the matter. A
"broker non-vote" refers to shares of Common Stock or Series B Preferred Stock
represented at the Meeting in person or by proxy by a broker or nominee where
such broker or nominee (i) has not received voting instructions on a particular
matter from the beneficial owners or persons entitled to vote and (ii) the
broker or nominee does not have discretionary voting power on such matter.
As of the Record Date, there were 7,161,930 outstanding shares of Novametrix
Common Stock, each holder of which is entitled to one vote per share with
respect to each matter to be voted on at the Meeting, and 40,000 shares of
Series B Preferred Stock, the holder of which is entitled to 11 votes per share
with respect to each matter to be voted on at the Meeting. As of the Record
Date, the directors and executive officers of the Company beneficially owned
approximately 667,802 shares of Novametrix Common Stock (excluding 158,944
shares subject to exercisable options and warrants) and have advised Novametrix
that they intend to vote or direct the vote of all shares of Novametrix Common
Stock over which they have voting power for approval and adoption of the Merger
Proposal.
THE COMPANIES
NOVAMETRIX
Organized in 1978, the Company is engaged in the business of designing,
developing, manufacturing and marketing monitors and sensors which provide
continuous and non-invasive measurements of a patient's blood gas levels (oxygen
and carbon dioxide) and respiratory mechanics (lung pressure, flow and volume).
The Company's current product line consists of (i) capnographs--monitors which
measure the level of exhaled carbon dioxide; (ii) pulse oximeters--monitors
which measure arterial blood oxygen saturation levels and pulse rates; (iii)
transcutaneous blood gas monitors monitors which measure oxygen and carbon
dioxide levels through the skin; (iv) a respiratory mechanics monitor--a monitor
which measures pressure, flow and volume in a patient's airway and lungs; and
(v) reusable and disposable sensors and adapters, related accessories and
replacement parts. Novametrix is a Delaware corporation with executive offices
at 56 Carpenter Lane, Wallingford, Connecticut 06492 (telephone: (800)
243-3444). All references to Novametrix include Novametrix and its subsidiaries,
unless the context otherwise requires. See "Novametrix Business".
4
<PAGE>
ANDROS
Andros designs, manufactures and markets non-dispersive infrared ("NDIR")
gas analyzers and sub-systems and other sensor instrumentation for medical,
automotive and environmental applications. Andros markets its NDIR products on a
worldwide basis to many of the leading original equipment manufacturers of
medical respiratory monitoring and automotive diagnostic equipment including
Hewlett-Packard Co., Siemens Medical Systems, Inc., Colin Medical Instruments
Corporation, SPX Corp. (Automotive Diagnostics and OTC Corp.), Snap-on Tools
Incorporated, Technotest S.R.L., Sagem Souriau Systems, Grundig Professional
Electronic GmbH, Computer Aided Services, Inc., Kontron Instruments Ltd., AVL
List GmbH and Actron Manufacturing Co.
In general, these companies incorporate Andros' products into their own
systems which they in turn sell to end users. Andros' NDIR products detect the
presence and measure the concentration of a variety of multi-component gas
streams.
In medical applications, Andros' NDIR systems are used to detect and measure
the level of halogenated hydrocarbons ("anesthetic agents"), carbon dioxide,
oxygen, and nitrous oxide in the inspired and expired breath of patients in
operating room, recovery room and intensive care unit environments. In
automotive applications, Andros' NDIR systems are used to detect and measure the
level of carbon monoxide, carbon dioxide, hydrocarbons, oxygen and oxides of
nitrogen in automobile exhaust. In December 1993, Andros Incorporated ("Andros
Inc."), now a wholly owned subsidiary of Andros, expanded its product line
through the acquisition of Scitec Corporation, a Delaware corporation
("Scitec"), which designs, manufactures and sells spectrum analysis instruments
that analyze the elemental composition of a material in its natural location and
condition using x-ray fluorescence ("XRF") technology. These products are sold
to end users principally for detection of lead in paint.
Andros is a 98% owned subsidiary of Genstar Capital Partners II, L.P., a
Delaware limited partnership ("Genstar"). Genstar is a private investment fund
that concentrates on acquisitions of manufacturing and services businesses.
THE MERGER
EFFECT OF THE MERGER; CONSIDERATION
Upon consummation of the Merger pursuant to the Merger Agreement,
Acquisition will be merged with and into Andros, and Andros will become a wholly
owned subsidiary of Novametrix and all of the issued shares of Andros Common
Stock outstanding immediately prior to the Effective Time will be converted into
the right to receive (i) fully paid and nonassessable shares of Novametrix
Common Stock consisting in the aggregate of 38% of the shares of Novametrix
Common Stock outstanding immediately after the Effective Time, (ii) 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 EBITDA for the fiscal
year ending May 3, 1998 exceed certain targets, and (iii) certain limited
antidilution rights (the "Rights"), provided that cash will be paid in lieu of
issuing any fractional shares of Novametrix Common Stock. See "The Merger
Agreement--The Merger-- Consideration to Be Received in the Merger", "The Merger
Agreement--The Merger--Earn-Out Shares", "The Merger Agreement--The Merger
Limited Antidilution Rights" and "The Merger Agreement--The Merger--Fractional
Shares".
RECOMMENDATIONS OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER
The Board of Directors of Novametrix (the "Novametrix Board") believes that
the Merger is fair to and in the best interests of Novametrix and its
stockholders. Accordingly, the Novametrix Board has approved and adopted the
Merger and the Merger Agreement and unanimously recommends that the Company's
stockholders vote in favor of the Merger Proposal.
In reaching its conclusion to enter into the Merger Agreement and recommend
approval of the Merger Proposal by its stockholders, the Company's Board of
Directors considered a number of factors.
5
<PAGE>
The Novametrix Board believes that the Merger represents a unique strategic
opportunity for Novametrix to create a worldwide leader in gas monitoring
products. Because of the increase in size, breadth of products and extent of
distribution that the Company will possess after the Merger, the Novametrix
Board believes that Novametrix will be able to realize significant increases in
revenues and cost savings opportunities which neither company would achieve
independently. The two companies' complementary technologies and the sharing of
basic research and product development resources should significantly increase
Novametrix' ability to introduce new products to the market quickly. The
Novametrix Board also believes that the Merger will significantly enhance the
Company's ability to market its products to hospital chains and OEMs in today's
competitive health care environment.
The recommendation of the Novametrix Board also is based on a number of
other factors, which are discussed below in the section "The
Merger--Recommendation of the Board of Directors; Reasons for the Merger".
OPINION OF NOVAMETRIX' FINANCIAL ADVISOR
Tucker Anthony Incorporated ("Tucker Anthony") has been retained by the
Company to act as financial advisor to the Company in connection with the
Merger. On October 18, 1996, Tucker Anthony delivered a written opinion to the
effect that, as of the date of such opinion and based upon and subject to
certain matters stated therein, the exchange ratio in the Merger is fair, from a
financial point of view, to the Company and its stockholders. The full text of
the written opinion of Tucker Anthony, which sets forth the assumptions made,
procedures followed and matters considered in, as well as limits of, its review
is attached hereto as Appendix B and is incorporated by reference herein.
Holders of Novametrix Common Stock and Series B Preferred Stock are urged to
read such opinion in its entirety. See "The Merger-- Opinion of Novametrix'
Financial Advisor".
MANAGEMENT AND OPERATIONS OF NOVAMETRIX FOLLOWING THE MERGER
At the Effective Time, the Board of Directors of the Company intends to
increase the number of directors and appoint new directors such that the Board
of Directors of the Company will be comprised of all of the members of the
Company's Board of Directors at the Effective Time, or such smaller number of
such members as may result from director resignations effective at the Effective
Time, and an equal number of directors appointed by the Board of Directors of
Andros prior to the Effective Time, one of whom will be Richard D. Paterson,
Chairman of Andros and a Managing Director of Genstar Capital LLC, the general
partner of Genstar. The Board of Directors of the Company also intends to elect
Mr. Paterson as Chairman of the Board of the Company. The continuing members of
the Board of Directors of the Company and the members appointed by the Board of
Directors of Andros will be as equally distributed as possible among Class A,
Class B and Class C directors of the Company. At the Effective Time, each
committee of the Board of Directors of the Company will be composed of an equal
number of the continuing members of the Board of Directors of the Company and
the members appointed by the Board of Directors of Andros. Each of the executive
officers of Novametrix is expected to continue as an executive officer of
Novametrix after the Merger.
The Novametrix Board believes that the Merger represents a unique strategic
and financial opportunity for Novametrix to create a worldwide leader in gas
monitoring products. Because of the resulting increase in size, breadth of
products and extent of distribution that the Company will possess after the
Merger, the Novametrix Board believes that Novametrix will be able to realize
significant revenue increases and cost savings which neither company would
achieve independently. The combined company would have sales of $66.8 million on
a pro forma basis for the fiscal year ended April 28, 1996, as compared to
Novametrix' stand-alone sales of $25.3 million for the same period. Management
believes the Merger to be a critical step towards further establishing the
Company as a primary supplier of medical devices to acute care providers and
OEMs in today's competitive health care environment.
6
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Company and Genstar have entered into a Voting Agreement (the "Voting
Agreement"), effective upon the consummation of the Merger, pursuant to which,
in any written consent or meeting of stockholders of the Company prior to
January 1, 1999, Genstar and, except as set forth below, the purchasers or
transferees of shares of Novametrix Common Stock issued to Genstar pursuant to
the Merger (the "Genstar Shares") will vote the Genstar Shares in favor of a
Board of Directors of the Company, at least one-half of whose members shall be
nominated by a majority of the current directors of the Company who continue to
be directors of the Company on (i) the date such consent is executed, (ii) the
date that notice of such meeting is mailed to stockholders of the Company or
(iii) if no such notice is mailed, the date of such meeting; provided that no
more than two of such nominees may be members of the management of the Company
and that Genstar will not be required under the Voting Agreement to vote in
favor of a Board of Directors of the Company less than half of whose members are
nominees of Genstar. Genstar Shares which are sold to the public pursuant to (i)
an effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), or (ii) the exemption from registration provided by Rule
144 under the Securities Act thereupon will cease to be Genstar Shares. A copy
of the Voting Agreement is attached hereto as Appendix C. See "The Merger
Agreement--Other Agreements".
As of September 27, 1996, Novametrix' directors and executive officers and
their affiliates beneficially owned approximately 9.1% (including shares subject
to then exercisable options and warrants) of the outstanding voting securities
of Novametrix. For a discussion of the vote required for the approval of the
Merger by the holders of Novametrix Common Stock and Series B Preferred Stock,
see "Meeting of Stockholders" above.
The Novametrix Board was aware of the foregoing interests and considered
them, among other matters, in approving and adopting the Merger Agreement and
the transaction contemplated thereby.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for by the Company as a
purchase in accordance with APB No. 16 "Business Combinations", as such term is
used under generally accepted accounting principles, for accounting and
financial reporting purposes. Under the purchase method of accounting, assets
and liabilities of Andros would be recorded at their fair value at the Effective
Time, with the excess of the purchase price and certain costs related to the
Merger over the net tangible and identifiable intangible assets acquired being
recorded as goodwill.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The Merger is intended to qualify, for federal income tax purposes, as a
"tax-free" reorganization. It is a condition to consummation of the Merger that
each of Novametrix and Andros will have received opinions of counsel to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
For a further discussion of federal income tax consequences of the Merger, see
"The Merger--Certain Federal Income Tax Consequences of the Merger".
NO DISSENTERS' RIGHTS
The holders of Novametrix Common Stock and Series B Preferred Stock are not
entitled to dissenters' appraisal rights in connection with, or as a result of,
the Merger.
7
<PAGE>
THE MERGER AGREEMENT
EFFECTIVE TIME OF THE MERGER
If the Merger is approved by the requisite vote of the stockholders of
Novametrix and the other conditions to the consummation of the Merger are
satisfied or, where permissible, waived, the Merger will become effective at the
time a certificate of merger is duly filed with the Secretary of State of the
State of Delaware or at such later time as may be specified in such certificate
(the "Effective Time"). It is anticipated that the certificate of merger will be
so filed as soon as practicable after the satisfaction or, where permissible,
waiver of the conditions noted below.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Novametrix and Andros to consummate the Merger are
subject to the satisfaction or, where permissible, waiver of certain conditions
set forth in the Merger Agreement, including obtaining the requisite approval by
the Company's stockholders of the Merger Proposal; the absence of any injunction
or enactment of any law prohibiting the consummation of the Merger; the receipt
of legal opinions with respect to certain federal income tax matters; and the
restructuring of certain indebtedness.
The consummation of the Merger is also subject to the expiration or
termination of the relevant waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"). Under the HSR Act and the
rules promulgated thereunder by the Federal Trade Commission (the "FTC"), the
Merger may not be consummated until notifications have been given and certain
information has been furnished to the Antitrust Division of the Department of
Justice (the "Antitrust Division") and the FTC and specified waiting period
requirements have been satisfied. Novametrix and Genstar each filed with the
Antitrust Division and the FTC a Notification and Report Form (the "Notification
and Report Form") with respect to the Merger on August 26, 1996. As a result of
early termination, the initial waiting period for each of these filings expired
on September 4, 1996.
The obligations of the Company and Acquisition to consummate the Merger are
subject to certain additional conditions, including (i) the accuracy of the
representations and warranties in all material respects of Andros contained in
the Merger Agreement, (ii) the performance by Andros in all material respects of
its obligations under the Merger Agreement to be performed by it at or prior to
the Effective Time, except to the extent that failure to comply with or perform
any such obligation would not have a Material Adverse Effect (as defined in the
Merger Agreement) on Andros and its subsidiaries taken as a whole, (iii) the
receipt of certain consents and (iv) the execution by Genstar of the Voting
Agreement. The Voting Agreement was executed by Genstar on October 21, 1996.
The obligations of Andros to consummate the Merger are subject to certain
additional conditions, including (i) the accuracy of the representations and
warranties in all material respects of the Company and Acquisition contained in
the Merger Agreement, (ii) the performance by the Company and Acquisition in all
material respects of their obligations under the Merger Agreement to be
performed by them at or prior to the Effective Time, except to the extent that
failure to comply with or perform any such obligation would not have a Material
Adverse Effect on the Company and its subsidiaries taken as a whole, (iii) the
approval of the Merger by the Company's stockholders, (iv) the receipt of
certain consents and (v) the execution by Novametrix of a Registration Rights
Agreement in the form attached hereto as Appendix D (the "Registration Rights
Agreement").
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time (notwithstanding any approval of the Merger
Agreement by the stockholders of Andros or the Company): (i) by mutual written
consent of Andros and the Company; (ii) by either Andros or the Company, if the
Merger is not consummated by March 31, 1997 (provided that the right to
terminate the Merger Agreement at such date will not be available to any party
whose failure to fulfill any of its obligations under the Merger Agreement is
the cause of or results in the failure to consummate the
8
<PAGE>
Merger by such date); (iii) by either Andros or the Company, if any applicable
domestic law, rule or regulation makes consummation of the Merger illegal or
otherwise prohibited or if any judgment, injunction, order or decree of a court
of competent jurisdiction restrains or prohibits the consummation of the Merger,
and such judgment, injunction, order or decree becomes final and nonappealable;
(iv) by either Andros or the Company, if stockholder approval of the Merger
Proposal by the stockholders of the Company is not obtained by reason of the
failure to obtain the requisite vote upon a vote at a duly held meeting of
stockholders or at any adjournment thereof; (v) by Andros, if the Board of
Directors of the Company or any committee thereof with the power to do so
withdraws or modifies in a manner adverse to Andros its approval or
recommendation of the Merger Agreement, the Merger or any other transaction
contemplated by the Merger Agreement or recommends, takes a neutral position
with respect to, is unable to take a position with respect to or fails to reject
another merger, consolidation or business combination with, or acquisition of,
the Company or its assets or another tender or exchange offer for shares of
Novametrix Common Stock, or resolves to do any of the foregoing; (vi) by either
Andros or the Company (the "Terminating Party"), if (x) there is a breach by the
other party of any representation or warranty contained in the Merger Agreement
which would have or would be reasonably likely to have a Material Adverse Effect
upon the Company or Andros and their respective subsidiaries taken as a whole,
as the case may be, or (y) is a material breach of any of the covenants or
agreements set forth in the Merger Agreement on the part of the other party,
which breach is not curable or, if curable, is not cured within 30 days after
written notice of such breach is given by the Terminating Party to the other
party; or (vii) by Andros, if it is disclosed or Andros otherwise learns that
ownership of an aggregate of 50% or more of the then outstanding shares of
Novametrix Common Stock has been acquired by any person and such person's
affiliates, other than Genstar or its affiliates.
For a description of the fees and expenses payable by each party in
connection with the Merger, see "The Merger Agreement--Fees and Expenses".
STOCK OPTIONS AND WARRANTS
At the Effective Time, each outstanding option to purchase Andros Common
Stock (an "Andros Option") issued pursuant to the Andros Stock Option Plan,
whether vested or unvested, shall be assumed by the Company. Each Andros Option
shall be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Andros Option, (i) (x) the same number
of whole shares of Novametrix Common Stock as the holder of such Andros Option
would have been entitled to receive pursuant to the Merger had such holder
exercised such option in full immediately prior to the Effective Time and (y) a
number of Rights equal to the number of Rights which the holder of such Andros
Option would have been entitled to receive pursuant to the Merger had such
holder exercised such option in full immediately prior to the Effective Time,
(ii) at a price per share (rounded up to the nearest whole cent) equal to (A)
the aggregate exercise price for the shares of Andros Common Stock otherwise
purchasable pursuant to such Andros Option divided by (B) the number of whole
shares of Novametrix Common Stock deemed purchasable pursuant to such Andros
Option.
At the Effective Time, each outstanding warrant to purchase shares of Andros
Common Stock (an "Andros Warrant") shall be assumed by the Company. Each Andros
Warrant shall be deemed to constitute a warrant to acquire, on the same terms
and conditions as were applicable under such Andros Warrant, (i) the same number
of whole shares of Novametrix Common Stock as the holder of such Andros Warrant
would have been entitled to receive pursuant to the Merger had such holder
exercised such warrant in full immediately prior to the Effective Time and (y) a
number of Rights equal to the number of Rights which the holder of such Andros
Warrant would have been entitled to receive pursuant to the Merger had such
holder exercised such warrant in full immediately prior to the Effective Time,
(ii) at a price per share (rounded up to the nearest whole cent) equal to (A)
the aggregate exercise price for the shares of Andros Common Stock otherwise
purchasable pursuant to such Andros Warrant divided by (B) the number of whole
shares of Novametrix Common Stock deemed purchasable pursuant to such Andros
Warrant. No additional consideration shall be required to be paid with respect
to the Rights.
9
<PAGE>
BACKGROUND OF THE MERGER
For a description of the background of the Merger, see "The
Merger--Background of the Merger".
MARKET PRICE OF NOVAMETRIX COMMON STOCK AND WARRANTS
Novametrix Common Stock is traded on the Nasdaq under the symbol NMTX and
the Company's redeemable Class A Warrants and redeemable Class B Warrants are
traded on the Nasdaq under the symbols NMTX and NMTXZ, respectively. On July 29,
1996, the last trading day prior to the public announcement of the proposed
Merger, the high and low sale prices per share of Novametrix Common Stock were
$5.875 and $5.50, respectively. The high and low sales prices on the last
trading day for which sales of Novametrix Class A Warrants and Class B Warrants
were reported prior to such announcement were $2.00 and $1.875, respectively,
for the Class A Warrants on July 26, 1996, and were $2.25 for the Class B
Warrants on July 16, 1996.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Set forth below is selected financial data of Novametrix and Andros and pro
forma combined financial information of Novametrix and Andros. The information
should be read in conjunction with the consolidated financial statements of
Novametrix, the consolidated financial statements of Andros, the pro forma
combined financial information of Novametrix and Andros, including the notes
thereto, and the sections titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Novametrix" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Andros" which are presented elsewhere in this Proxy Statement or incorporated
herein by reference. The pro forma financial data set forth below and elsewhere
in this Proxy Statement are presented for informational purposes only and are
not necessarily indicative of the results that actually would have occurred had
the Merger been consummated as of the dates presented or the results that may
occur in the future.
10
<PAGE>
NOVAMETRIX MEDICAL SYSTEMS INC.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------------------------
THREE MONTHS ENDED YEAR ENDED
------------------------ ----------------------------------------------
JULY 28, JULY 30, APRIL 28, APRIL 30, MAY 1, MAY 2,
1996 1995 1996 1995 1994 1993
----------- ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
For Period Ended
Net Sales..................................... $ 6,422 $ 6,081 $ 25,260 $ 24,032 $ 20,788 $ 19,888
Net Income.................................... 648(1) 388 3,117(2) 1,604 755 265
Earnings Per Common Share
(Primary and Fully Diluted)................. $ 0.08 $ 0.05 $ 0.39 $ 0.21 $ 0.11 $ 0.04
At Period End
Total Assets.................................. $ 19,691 $ 16,881 $ 18,823 $ 16,606 $ 15,271 $ 15,531
Working Capital............................... 8,981 6,913 8,364 6,412 2,143 1,406
Long-Term Debt................................ 1,208 2,183 1,333 2,308 3,560 4,293
Redeemable Preferred Stock.................... 1,000 1,000 1,000 1,000 1,000 1,000
Shareholders' Equity.......................... 13,231 9,693 12,529 9,152 3,283 2,385
<CAPTION>
MAY 3,
1992
---------
<S> <C>
For Period Ended
Net Sales..................................... $ 21,018
Net Income.................................... 200
Earnings Per Common Share
(Primary and Fully Diluted)................. $ 0.03
At Period End
Total Assets.................................. $ 16,526
Working Capital............................... 835
Long-Term Debt................................ 4,588
Redeemable Preferred Stock.................... 1,000
Shareholders' Equity.......................... 2,042
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------------------------------------
THREE MONTHS ENDED YEAR ENDED
JULY 28, 1996 APRIL 28, 1996
-------------------------------- --------------------------------
CONSOLIDATED CONSOLIDATED
ASSUMING ANTI ASSUMING ANTI
DILUTION DILUTION
CONSOLIDATED PROVISION CONSOLIDATED PROVISION
------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
For Period Ended
Net Sales.................................... $ 16,030 $ 16,030 $ 66,834 $ 66,834
Net Income (Loss)............................ 734 632 (4,556) (4,964)
Earnings (Loss) Per Common Share
(Primary and Fully Diluted)................ $ 0.05 $ 0.04 $ (0.32) $ (0.35)
Cash Dividends on Common Stock............... -- -- -- --
At Period End
Total Assets................................. $ 83,869 $ 104,772 N/A N/A
Working Capital.............................. 13,864 24,578 N/A N/A
Long-Term Debt............................... 38,423 38,423 N/A N/A
Redeemable Preferred Stock................... 1,000 1,000 N/A N/A
Shareholders' Equity......................... 15,771 36,674 N/A N/A
</TABLE>
- ------------------------
(1) Reflects an income tax benefit of $115,000, or $0.01 per share, attributable
to a reduction in the deferred tax asset valuation allowance.
(2) Reflects an income tax benefit of $1,020,000, or $0.13 per share,
attributable to a reduction in the deferred tax asset valuation allowance.
11
<PAGE>
ANDROS(1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ANDROS INCORPORATED
ANDROS HOLDINGS ---------------------------------------------------------
INC.(2) PERIOD FROM
------------------- JULY 31, 1995 YEAR ENDED
PERIOD FROM TO ------------------------------------------
INCORPORATION MARCH 26, JULY 30, JULY 31, JULY 25, JULY 26,
TO JULY 31, 1996 1996 1995 1994 1993 1992
------------------- ------------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS
DATA:
<S> <C> <C> <C> <C> <C> <C>
Sales, net............... $ 16,226 $ 26,933 $ 42,753 $ 57,742 $ 39,724 $ 35,001
Net Income (Loss)........ (22,091) (7,074) 2,866 8,019 5,872 4,840
Net Income per Share..... N/A(3) $ (1.53)(4) $ 0.59 $ 1.67 $ 1.25 $ 1.19
Shares used in computing
per share amounts...... N/A(3) 4,621(4) 4,821 4,798 4,699 4,064
BALANCE SHEET DATA:
Total Assets............. $ 55,424 $ 64,511(4) $ 63,871 $ 58,098 $ 50,055 $ 42,060
Working Capital.......... 7,482 38,689(4) 46,734 42,264 38,960 29,670
Long-Term Debt, less
current portion........ 37,215 -- -- -- -- --
Shareholders' Equity
(Deficit).............. (3,614) 52,615(4) 58,368 54,775 45,810 39,193
</TABLE>
- ------------------------
(1) On March 26, 1996, Andros Acquisition Inc., a wholly owned subsidiary of
Andros ("Andros Acquisition"), closed a public tender offer for all of the
shares of Andros Inc. for $18.00 per share (the "Tender Offer"). As a result
of the Tender Offer, Andros Acquisition acquired approximately 58% of the
outstanding shares of Andros Inc. At this time, Andros initiated the process
whereby it would acquire the remaining Andros Inc. shares it did not own
through a merger of Andros Acquisition and Andros Inc. which it could cause
to happen as a result of Andros Acquisition owning a majority of the then
outstanding shares of Andros Inc. As a consequence of the pending merger,
Andros accrued the cost of acquiring the remaining Andros Inc. shares
outstanding and cashing out the outstanding options. On May 14, 1996, Andros
acquired substantially all of the remaining shares of Andros Inc. as a
result of the merger of Andros Acquisition with and into Andros Inc. in
which Andros Inc. became a wholly owned subsidiary of Andros. The
accompanying consolidated financial statement data include the financial
statement data of Andros Inc. from July 31, 1995 through March 26, 1996 and
Andros, including its subsidiary, Andros Inc., from March 27, 1996 through
July 31, 1996. The selected financial data of Andros and Andros Inc. are
qualified in their entirety by, and should be read in conjunction with, the
financial statements of Andros and Andros Inc., including the notes thereto,
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations of Andros" included elsewhere herein. The Statement of
Operations Data and Balance Sheet Data for the years ended July 31, 1996,
July 30, 1995, July 31, 1994 and July 25, 1993, and for the period from July
31, 1995 to March 26, 1996 and the Balance Sheet Data as of July 31, 1996,
July 30, 1995 and July 31, 1994 are derived from, and are qualified by
reference to, the audited financial statements included elsewhere in this
Proxy Statement. The Statement of Operations Data and Balance Sheet Data for
the fiscal year ended July 26, 1992 are derived from audited financial
statements not included herein.
(2) Andros acquired the outstanding common shares of Andros Inc. in a cash
purchase effective March 26, 1996. The purchase was recorded in accordance
with APB No. 16 "Business Combinations". See Note 1 on page F-20, "Basis of
Presentation."
(3) Not applicable, since Andros was a closely-held private company effective
March 26, 1996.
(4) Unaudited.
12
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited Pro Forma Consolidated Condensed Balance Sheet as of
July 28, 1996 gives effect to the Merger assuming it had occurred at that date.
The unaudited Pro Forma Consolidated Condensed Statements of Operations for the
three month period ended July 28, 1996 (Andros for the three months ended July
31, 1996) and the year ended April 28, 1996 give effect to the Merger as if it
had occurred as of May 1, 1995. The pro forma information assumes the Merger
will be accounted for under the purchase method of accounting and includes the
effects of the assumptions and adjustments described in the accompanying notes
to the pro forma consolidated condensed financial statements. The pro forma
adjustments which give effect to the Merger are referred to as Pro Forma
Adjustments (Novametrix).
Additionally, the unaudited Pro Forma Consolidated Condensed Statements of
Operations for the three month period ended July 28, 1996 and the year ended
April 28, 1996 give effect to the acquisitions of the common shares of Andros
Inc. by Andros, which occurred between March 26, 1996 and May 14, 1996, as if
such acquisitions had occurred as of May 1, 1995. The pro forma information
gives effect to these transactions under the purchase method of accounting and
to the assumptions and adjustments described in the accompanying notes to the
pro forma consolidated condensed financial statements. The pro forma adjustments
which give effect to the acquisition of Andros Inc. by Andros are referred to as
Pro Forma Adjustments (Andros).
The pro forma consolidated condensed financial statements should be read in
conjunction with the historical audited and unaudited financial statements and
related notes thereto of Novametrix, Andros and Andros Inc. included elsewhere
in this Proxy Statement or incorporated herein by reference. These pro forma
statements are presented for informational purposes only and are not necessarily
indicative of the results that actually would have occurred had the pro forma
transactions been consummated at the dates indicated, nor are they necessarily
indicative of the future operating results or financial position of Novametrix.
In addition, they are not intended to be a projection of future results and do
not include any synergies that might be achieved from combining the operations
of the two companies. Permitted pro forma adjustments include only the effects
of events directly attributable to a transaction that are factually supportable
and expected to have a continuing impact. Pro forma adjustments reflecting
anticipated "efficiencies" in operations resulting from a transaction are, under
most circumstances, not permitted. As a result of the limitations imposed with
regard to the types of permitted pro forma adjustments, management believes that
this unaudited pro forma information is not indicative of future results of
operations.
13
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JULY 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED
PRO FORMA ASSUMING ANTI-
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA DILUTION
ANDROS NOVAMETRIX (NOVAMETRIX) CONSOLIDATED(21) PROVISIONS(18)(21)
----------- ----------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 702 $ 297 $ 999 $ 11,713
Accounts receivable............................... 7,091 6,625 13,716 13,716
Inventories....................................... 9,713 5,640 15,353 15,353
Deferred income taxes............................. 2,546 363 2,909 2,909
Prepaid expenses and other........................ 3,591 309 3,900 3,900
----------- ----------- ------------- ------- --------
Total current assets............................ 23,643 13,234 36,877 47,591
PROPERTY, PLANT AND EQUIPMENT--NET.................. 6,602 1,228 7,830 7,830
INTANGIBLE ASSETS--NET.............................. 21,395 4,458 $ 31,454 (15) 34,607 44,796
(22,700)(16)
DEFERRED INCOME TAXES--NET.......................... 771 771 771
OTHER ASSETS........................................ 3,784 3,784 3,784
----------- ----------- ------------- ------- --------
Total........................................... $ 55,424 $ 19,691 $ 8,754 $ 83,869 $ 104,772
----------- ----------- ------------- ------- --------
----------- ----------- ------------- ------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................. $ 3,310 $ 1,204 $ 4,514 $ 4,514
Accrued expenses.................................. 4,735 1,823 $ 2,600 (14) 9,158 9,158
Income tax payable................................ 1,041 1,041 1,041
Current portion of long-term debt................. 7,075 1,225 8,300 8,300
----------- ----------- ------------- ------- --------
Total current liabilities....................... 16,161 4,252 2,600 23,013 23,013
LONG-TERM DEBT...................................... 37,215 1,208 38,423 38,423
DEFERRED TAXES...................................... 5,662 5,662 5,662
REDEEMABLE PREFERRED STOCK.......................... 1,000 1,000 1,000
SHAREHOLDERS' EQUITY (DEFICIT):
Capital stock..................................... 1 71 (1)(12) 115 162
44 (12)
Additional paid-in capital........................ 18,476 28,116 25,196 (12) 53,312 74,168
(18,476)(12)
Retained (deficit) earnings....................... (22,091) (12,469) 22,091 (13) (35,169) (35,169)
(22,700)(16)
Treasury stock.................................... (2,487) (2,487) (2,487)
----------- ----------- ------------- ------- --------
(3,614) 13,231 6,154 15,771 36,674
----------- ----------- ------------- ------- --------
Total........................................... $ 55,424 $ 19,691 $ 8,754 $ 83,869 $ 104,772
----------- ----------- ------------- ------- --------
----------- ----------- ------------- ------- --------
Book value per share................................ $ 1.97 $ 1.42 $ 2.33
----------- ------- --------
----------- ------- --------
</TABLE>
(SEE ENDNOTES)
14
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JULY 28, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL CONSOLIDATED
ANDROS (MAY 1, PRO FORMA ASSUMING
1996 TO JULY HISTORICAL ADJUSTMENTS PRO FORMA ANTI-DILUTION
31, 1996) NOVAMETRIX (NOVAMETRIX) CONSOLIDATED(21) PROVISIONS(18)(21)
--------------- ----------- ------------ --------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales.................................... $ 9,608 $ 6,422 $ 16,030 $ 16,030
Costs and expenses:
Cost of products sold........................ 5,749 2,739 8,488 8,488
Research and product development............. 857 799 1,656 1,656
Amortization of patents and goodwill......... 255 $ 87 (17) 342 444
Amortization of loan origination fee......... 294 294 294
Selling, general and administrative.......... 1,445 2,277 3,722 3,722
Interest, net................................ 1,056 52 1,108 1,108
Other expense (income), net.................. (326) 7 (319) (319)
------ ----------- ------------ --------------- -----------------
9,330 5,874 87 15,291 15,393
------ ----------- ------------ --------------- -----------------
Income before income taxes..................... 278 548 (87) 739 637
Income tax provision (benefit)................. 105 (100) 5 5
------ ----------- ------------ --------------- -----------------
Net income..................................... $ 173 $ 648 $ (87) $ 734 $ 632
------ ----------- ------------ --------------- -----------------
------ ----------- ------------ --------------- -----------------
Earnings per common share (primary and fully
diluted)...................................... N/A $ 0.08 $ 0.05 $ 0.04
------ ----------- ------------ --------------- -----------------
------ ----------- ------------ --------------- -----------------
Number of shares used in computing earnings per
share......................................... N/A 8,161,052 6,168,144 14,329,196 14,329,196
------ ----------- ------------ --------------- -----------------
------ ----------- ------------ --------------- -----------------
</TABLE>
(SEE ENDNOTES)
15
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED APRIL 28, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL (A)
------------------------
ANDROS
ANDROS INC. (MARCH 27,
(MAY 1, 1996
1995 TO TO PRO FORMA PRO FORMA
MARCH 26, APRIL 30, ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
1996) 1996) (ANDROS) ANDROS NOVAMETRIX (NOVAMETRIX) CONSOLIDATED(21)
----------- ----------- ------------- --------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales......... $ 34,956 $ 6,618 $ 41,574 $ 25,260 $ 66,834
Interest.......... 14 14
----------- ----------- ------------- --------- ----------- ------------ ---------------
34,956 6,618 41,574 25,274 66,848
Costs and expenses:
Cost of products
sold............ 28,200 4,209 $ 250(9) 32,659 10,930 43,589
Research and
product
development..... 4,919 328 (150)(11) 5,197 2,714 7,911
100(9)
Research and
product
development in
process......... 22,700 (22,700)(7)
Amortization of
patents and
goodwill........ 468 85 488(8) 1,041 $ 337 (17) 1,378
Amortization of
loan origination
fee............. 96 956 (10) 1,052 1,052
Selling, general
and
administrative... 12,255 520 (2,082)(11) 10,843 9,137 19,980
150(9)
Stock option
compensation
expense......... 4,114 (4,114)(20)
Interest.......... 463 4,021(5) 4,484 287 4,771
Other expense
(income), net... (1,129) (12) 1,061(6) (80) 69 (11)
----------- ----------- ------------- --------- ----------- ------------ ---------------
48,827 28,389 (22,020) 55,196 23,137 337 78,670
----------- ----------- ------------- --------- ----------- ------------ ---------------
(Loss) income before
income taxes....... (13,871) (21,771) 22,020 (13,622) 2,137 (337) (11,822)
Income tax (benefit)
provision.......... (6,521) 493 (258)(19) (6,286) (980) (7,266)
----------- ----------- ------------- --------- ----------- ------------ ---------------
Net (loss) income... $ (7,350) $ (22,264) $ 22,278 $ (7,336) $ 3,117 $ (337) $ (4,556)(a)
----------- ----------- ------------- --------- ----------- ------------ ---------------
----------- ----------- ------------- --------- ----------- ------------ ---------------
Earnings (loss) per
common share
(primary and fully
diluted) (2)....... N/A N/A N/A $ 0.39 $ (0.32)
----------- ----------- --------- ----------- ---------------
----------- ----------- --------- ----------- ---------------
Number of shares
used in computing
earnings per
share.............. N/A N/A N/A 8,076,717 6,168,144 14,244,861
----------- ----------- --------- ----------- ------------ ---------------
----------- ----------- --------- ----------- ------------ ---------------
<CAPTION>
PRO FORMA
CONSOLIDATED
ASSUMING
ANTI-DILUTION
PROVISIONS(18)(21)
-----------------
<S> <C>
Revenues:
Net sales......... $ 66,834
Interest.......... 14
-----------------
66,848
Costs and expenses:
Cost of products
sold............ 43,589
Research and
product
development..... 7,911
Research and
product
development in
process.........
Amortization of
patents and
goodwill........ 1,786
Amortization of
loan origination
fee............. 1,052
Selling, general
and
administrative... 19,980
Stock option
compensation
expense.........
Interest.......... 4,771
Other expense
(income), net... (11)
-----------------
79,078
-----------------
(Loss) income before
income taxes....... (12,230)
Income tax (benefit)
provision.......... (7,266)
-----------------
Net (loss) income... $ (4,964)(a)
-----------------
-----------------
Earnings (loss) per
common share
(primary and fully
diluted) (2)....... $ (0.35)
-----------------
-----------------
Number of shares
used in computing
earnings per
share.............. 14,244,861
-----------------
-----------------
</TABLE>
- ------------------------------
(a) Reflects $9.4 million of charges and costs incurred by Andros Inc. in
conjunction with, but not directly related to, the acquisition. These
charges and costs relate to accounts receivable, inventories, product
warranty, property taxes and other liabilities. Charges of $5.0 million,
$0.4 million and $4.0 million are included in cost of products sold,
research and product development and selling, general and administrative,
respectively.
(SEE ENDNOTES)
16
<PAGE>
- ------------------------------
(1) Under the Merger Agreement, Novametrix will issue to the stockholders of
Andros shares of Novametrix Common Stock constituting 38% of the combined
company at the Effective Time of the Merger. After the end of Novametrix'
fiscal year ending May 3, 1998, additional shares of Novametrix Common Stock
constituting up to 5% of the Company may be issued, and reserved for
issuance to option and warrant holders of Andros, based upon Andros' net
revenues or the combined company's consolidated EBITDA. In addition,
Novametrix will issue to the stockholders of Andros anti-dilution Rights
enabling the holders to maintain, without additional payment, their
percentage ownership level as Novametrix options and warrants outstanding at
the Effective Time of the Merger are exercised. The Pro Forma Consolidated
Condensed Balance Sheet reflects the assumed issuance of 4,389,586 shares of
Novametrix Common Stock (based on the outstanding shares of Novametrix at
July 28, 1996) in exchange for all outstanding shares of Andros Common
Stock. The number of shares of Novametrix Common Stock to be issued is based
upon the exchange ratio of 48.8818 shares of Novametrix Common Stock for
each share of Andros Common Stock. The actual number of shares of Novametrix
Common Stock to be issued in the Merger will be determined at the Effective
Time of the Merger. The market value of a share of Novametrix Common Stock
is assumed to be $5.75 per share (the Nasdaq closing price per share at July
26, 1996).
(2) Earnings per share for the period and the year presented are based on the
weighted-average number of shares of Novametrix Common Stock and dilutive
common stock equivalents outstanding during the year. Common stock
equivalents consist of Series B Preferred Stock, stock options, warrants and
shares subscribed under the Novametrix Employee Stock Purchase Plan, (the
"Stock Purchase Plan"). The weighted average shares presented on both the
Pro Forma Consolidated and Pro Forma Consolidated Assuming Anti-Dilution
Provisions information includes all shares which are contingently issuable
pursuant to the Rights and the outstanding warrants of Andros which will be
converted to Novametrix warrants.
(3) The Pro Forma Consolidated Condensed Balance Sheet as of July 28, 1996
reflects Andros' balances as of July 31, 1996. The Pro Forma Consolidated
Statement of Operations for the three month period ended July 28, 1996
reflects Novametrix' results of operations for the three month period ended
July 28, 1996 and Andros' results of operations for the three month period
ended July 31, 1996. The Pro Forma Consolidated Statement of Operations for
the year ended April 28, 1996 reflects Novametrix' results of operations for
its fiscal year ended April 28, 1996 and the results of operations for
Andros Inc. and Andros for the year ended April 30, 1996.
(4) Genstar created Andros expressly for the purpose of acquiring Andros Inc., a
public company traded on the Nasdaq. On March 26, 1996, Andros Acquisition,
a wholly owned subsidiary of Andros, closed the Tender Offer for all of the
shares of Andros Inc. for $18.00 per share. As a result of the Tender Offer,
Andros Acquisition acquired approximately 58% of the outstanding shares of
Andros Inc. At this time Andros initiated the process whereby it would
acquire the remaining Andros Inc. shares it did not own, through a merger of
Andros Acquisition and Andros Inc. which it could cause to happen as a
result of Andros Acquisition owning a majority of the then outstanding
shares of Andros Inc. As a consequence of the pending merger, Andros accrued
the cost of acquiring the remaining Andros Inc. shares outstanding and
cashing out the outstanding options. On May 14, 1996, Andros acquired 100%
of the shares of Andros Inc. as a result of the merger of Andros Acquisition
with and into Andros Inc. in which Andros Inc. became a wholly owned
subsidiary of Andros (the "Andros Merger"). Before the closing of the Andros
Merger, certain stockholders (the "Dissenters") representing approximately
723,000 shares of Andros Inc. exercised their appraisal rights (under
Delaware corporate law). As part of the financing for the Andros Merger,
Andros borrowed $27,000,000 in the form of a term loan (the "Term Loan")
from a syndicate of banks (the "Banks"). As a result of the Dissenters
seeking appraisal rights for their shares, Andros did not have to fund the
purchase of the Dissenters' shares at the time of the Andros Merger and had
approximately $7,000,000 of excess cash. In early June 1996, in an effort to
reduce its interest costs, Andros agreed with the Banks to repay $7,000,000
of the Term Loan with the understanding that it would be able to re-borrow
the same amount at a later date. On July 12, 1996 the Dissenters withdrew
their appraisal rights. At that time, Andros paid the Dissenters
approximately $13,031,000, which it financed through re-borrowing the
$7,000,000 it had repaid on the Term Loan in June, the drawing of
approximately $5,400,000 under a revolving credit facility established with
the Banks at the time of the Andros Merger (the "Revolving Credit Facility")
and with approximately $631,000 of cash on hand.
(5) To give effect to an increase in interest expense assuming the $27.0 million
variable rate term debt (currently 8.5%), the $15.0 million 13% subordinated
debt, and the $5.4 million variable rate credit facility (currently 10%)
used in the financing of the Andros Merger had been outstanding as of May 1,
1995.
(6) To give effect to a reduction in interest income assuming the use of $26.0
million of the cash of Andros Inc. used in the financing of the Andros
Merger had occurred as of May 1, 1995.
(7) Andros acquired Andros Inc. on March 26, 1996 in a transaction accounted for
as a purchase and recorded a $22.7 million non-recurring write-off of
in-process technology during the period from March 27, 1996 to April 30,
1996.
(8) Assumes the Andros Merger occurred as of May 1, 1995 and the resulting
goodwill and purchased technology of $21.3 million was amortized beginning
May 1, 1995 using a twenty-five year amortization period. The Pro forma
adjustment represents the incremental amortization. Pro forma goodwill and
patent amortization is $844,000 and $197,000, respectively.
(9) To reflect the increase in depreciation expense due to the fair market
adjustment to fixed assets of $2.5 million resulting from the Andros Merger.
These assets are being depreciated over their remaining useful lives, which
average approximately five years.
(10) To give effect to the amortization of $3.8 million in loan origination
costs and $1.4 million in debt discounts associated with the Andros Merger.
The fees and discount are being amortized over the term of the loan (5
years). Pro forma amortization of fees and discount is $707,000 and
$345,000, respectively.
17
<PAGE>
(11) To reflect benefits resulting from certain cost saving measures implemented
in the year ended April 30, 1996. The following table summarizes the
adjustments:
<TABLE>
<CAPTION>
SELLING, GENERAL
RESEARCH AND AND
DEVELOPMENT ADMINISTRATIVE
------------- -----------------
<S> <C> <C>
Management restructuring(a)..................................... $ 150,000 $ 280,000
Elimination of the European service center(b)................... 1,052,000
Elimination of public reporting requirements(c)................. 400,000
Selling, general and administrative(d).......................... 350,000
------------- -----------------
$ 150,000 $ 2,082,000
------------- -----------------
------------- -----------------
</TABLE>
(a) Management Restructuring
Reflects the elimination of two senior officers in conjuction with the
Andros Merger.
(b) Elimination of the European Service Center
The cost savings resulted from the elimination of the European service
center located in Belp, Switzerland in April 1996.
(c) Elimination of Public Reporting Requirements
Costs eliminated due to the absence of public reporting requirements
resulting from going private. These costs included shareholder
communications, accounting and legal fees (reflects savings based on the
difference between current fees and expected fees for a private company
of comparable size), investor relations and annual report costs.
(d) Selling, General and Administrative
The adjustment reflects: transaction based requirement to cover directors
and officers of Andros Inc. for directors and officers
insurance--$122,000; and severance and related payroll taxes to a former
officer of Andros--$228,000.
(12) The Pro Forma Adjustments (Novametrix) reflect the assumed issuance of
4,389,586 shares of Novametrix Common Stock to stockholders of Andros in
exchange for all of the outstanding shares of Andros (4,389,586 multiplied
by the Nasdaq closing price of $5.75 per share at July 26, 1996).
(13) The Pro Forma Adjustments (Novametrix) include adjustments to eliminate
Andros capital stock and accumulated deficit.
(14) The Pro Forma Adjustments (Novametrix) reflect the transaction fees (legal,
accounting, printing and other costs) directly attributable to the Merger.
(15) The Pro Forma Adjustments (Novametrix) represent the portion of the
purchase price allocated to research and development in-process ($22.7
million) and the excess of the purchase price over the fair value of net
assets acquired (goodwill) ($8.7 million). All other assets and liabilities
acquired are reflected in the pro forma financial statements at their
historical cost which is assumed to approximate their fair value. The
purchase price allocation is based on preliminary information and will be
adjusted based on completion of appropriate valuation studies.
(16) The Pro Forma Adjustments (Novametrix) reflect the write off of purchased
in-process research and development.
(17) The Pro Forma Adjustments (Novametrix) reflect the increased amortization
expense as a result of the increase in goodwill. Goodwill is amortized over
25 years.
(18) The Pro Forma Consolidated Condensed Balance Sheet Assuming Anti-Dilution
Provisions reflects the assumed exercise of all outstanding options and
warrants of Novametrix at July 28, 1996 and the resulting issuance of an
additional 1,772,023 shares of Novametrix Common Stock pursuant to the
Rights. The exercise of all Novametrix options and warrants will result in
cash proceeds of $10.7 million. The issuance of shares of Novametrix Common
Stock pursuant to the Rights will result in additional goodwill of $10.0
million and additional annual amortization of $0.4 million.
(19) To reflect the income tax effect of the Pro Forma Adjustments (Andros)
based on the statutory rate of 38%.
(20) To eliminate the compensation expense associated with cashing out 566,283
Andros options resulting from the Andros Merger.
(21) Assuming Andros' revenues or the combined company's consolidated EBITDA
reach specified targets, as set forth in the Merger Agreement, for the
fiscal year ending May 3, 1998, intangible assets and equity, as reported in
the Pro Forma Consolidated Condensed Balance Sheet, would be $40.4 million
and $21.5 million, respectively. Net income and earnings per share, as
reported in the Pro Forma Consolidated Condensed Statement of Operations for
the three month period ended July 31, 1996 and for the year ended April 28,
1996, would be $1.4 million and $0.09, and $7.2 million and $0.46,
respectively.
Additionally, intangible assets and equity as reported in the Pro Forma
Consolidated Condensed Balance Sheet Assuming Anti-Dilution Provisions would
be $52.9 million and $44.8 million, respectively. Net income and earnings
per share, as reported in the Pro Forma Consolidated Condensed Statement of
Operations Assuming Anti-Dilution Provisions for the three month period
ended July 31, 1996 and for the year ended April 28, 1996, would be $1.3
million and $0.08, and $6.7 million and $0.43, respectively.
18
<PAGE>
INTRODUCTION
MEETING OF STOCKHOLDERS
This Proxy Statement, which will be mailed commencing on or about October
23, 1996 to the persons entitled to receive the accompanying Notice of Annual
Meeting of Stockholders, is provided in connection with the solicitation of
Proxies on behalf of the Board of Directors of Novametrix for use at the Annual
Meeting of Stockholders to be held on November 25, 1996, and at any adjournment
or adjournments thereof, for the purposes set forth in such Notice. The
Company's executive offices are located at 56 Carpenter Lane, Wallingford,
Connecticut 06492.
PURPOSES OF THE MEETING
At the Meeting, the Company's stockholders will consider and take action
upon (i) a proposal to approve, pursuant to the requirements of Nasdaq, the
issuance of the number of shares of Novametrix Common Stock contemplated by the
Merger Proposal; (ii) a proposal to approve the Company's 1996 Long Term
Incentive Plan; (iii) the election of two Class A directors of the Company for
the ensuing three years; (iv) a proposal to ratify the Novametrix Board's
selection of Ernst & Young LLP to serve as the Company's independent auditors
for the 1997 fiscal year; and (v) such other business as may properly come
before the Meeting or any adjournment or adjournments thereof.
VOTING REQUIREMENTS AT THE MEETING
The presence, in person or by proxy, of the holders of a majority of the
voting power of all the outstanding shares of Novametrix Common Stock and Series
B Preferred Stock entitled to vote at the Meeting is necessary to constitute a
quorum at the Meeting or any adjournments thereof. Directors of the Company are
elected by a plurality vote. Approval and adoption of the Merger Proposal and
approval of other matters will require the affirmative vote of a majority of the
voting power of the shares present at the Meeting, in person or by proxy, and
entitled to vote on that proposal. Abstentions and broker non-votes will be
counted as present for the purpose of determining the presence of a quorum. For
the purpose of determining the vote required for approval of matters to be voted
on at the Meeting, shares held by stockholders who abstain from voting will be
treated as being "present" and "entitled to vote" on the matter and, thus, an
abstention has the same legal effect as a vote against the matter. However, in
the case of a broker non-vote or where a stockholder withholds authority from
his proxy to vote the proxy as to a particular matter, such shares will not be
treated as "present" and "entitled to vote" on the matter and, thus, a broker
non-vote or the withholding of a proxy's authority will have no effect on the
outcome of the vote on the matter.
Holders of record of issued and outstanding shares of Novametrix Common
Stock and Series B Preferred Stock, in each case as of the Record Date, will be
entitled to notice of and to vote at the Meeting as described below. The Company
has no class or series of stock outstanding and entitled to vote at the Meeting
other than the Common Stock and the Series B Preferred Stock.
As of the Record Date, there were 7,161,930 outstanding shares of Novametrix
Common Stock, each holder of which is entitled to one vote per share with
respect to each matter to be voted on at the Meeting, and 40,000 shares of
Series B Preferred Stock, the holder of which is entitled to 11 votes per share
with respect to each matter to be voted on at the Meeting. As of the Record
Date, the directors and executive officers of the Company beneficially owned
approximately 667,802 shares of Novametrix Common Stock (excluding 158,944
shares subject to exercisable options and warrants) and have advised Novametrix
that they intend to vote or direct the vote of all shares of Novametrix Common
Stock over which they have voting power for approval and adoption of the Merger
Proposal.
PROXIES
All proxies that are properly executed by holders of Novametrix Common Stock
and received by Novametrix prior to the Meeting will be voted in accordance with
the instructions noted thereon. ANY
19
<PAGE>
PROXY RECEIVED BY NOVAMETRIX THAT DOES NOT SPECIFY TO THE CONTRARY WILL BE VOTED
IN FAVOR OF THE MERGER PROPOSAL, IN FAVOR OF EACH OTHER PROPOSAL SET FORTH IN
SUCH PROXY AND PRESENTED TO THE STOCKHOLDERS OF NOVAMETRIX FOR APPROVAL AND IN
FAVOR OF NOVAMETRIX' NOMINEES FOR ELECTION AS DIRECTORS. Any holder of
Novametrix Common Stock who submits a proxy will have the right to revoke it, at
any time before it is voted, by filing with the Secretary of Novametrix written
notice of revocation or a duly executed later-dated proxy, or by attending the
Novametrix Meeting and voting such Novametrix Common Stock in person.
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by Novametrix. In addition to use of
the mails, proxies may be solicited personally or by telephone or telegraph by
directors, officers and regular managerial employees of Novametrix, who will not
be specially compensated for such activities. Arrangements will be made with
custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of shares held of record by such custodians,
nominees and fiduciaries for reasonable expenses incurred in connection
therewith. Novametrix has retained Georgeson & Company Inc. ("Georgeson") to
assist in its solicitation of proxies from brokers, nominees, institutions and
individuals. The Company's agreement with Georgeson provides for a one-time fee
of $20,000 plus $5.00 per call to individual stockholders, as well as
reimbursement of expenses incurred by Georgeson. Additional charges may be
incurred for consulting, reports or other additional services. Approximately 25
employees of Georgeson are involved in the Company's solicitation of proxies.
The Company estimates that the cost of preparing and mailing this Proxy
Statement and all other activities related to this solicitation, including fees
for attorneys, accountants and solicitors and printing, transportation and
mailing costs, will be approximately $375,000, of which $15,000 has been paid to
date.
Under applicable regulations of the Commission, the Company and its
directors may be deemed to be "participants" in the Company's solicitation
efforts at the Meeting. For information on the directors of Novametrix, see
"Novametrix Management" and "Security Ownership of Certain Beneficial Owners and
Management of Novametrix".
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING IN PERSON ARE URGED TO MARK, SIGN AND DATE THE
ACCOMPANYING PROXY AND MAIL IT IN THE ENCLOSED RETURN ENVELOPE, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES, SO THAT THEIR VOTES CAN BE RECORDED.
PAUL COTE'S DISSIDENT 13D GROUP
A group calling itself variously the "13D Shareholders Group," the "13D
Shareholders Group Regarding Novametrix Medical Systems Inc." and the
"Novametrix 13D Shareholders Group" is soliciting proxies to replace the two
Class A directors up for re-election this year with a lawyer named Paul Cote and
a dentist named Vartan Ghugasian. In addition, Paul Cote and his 13D Group are
soliciting proxies in support of a proposal to "maximize shareholder values."
THE 13D GROUP, LED BY PAUL COTE AND HIS ADVISORS, IS A DISSIDENT STOCKHOLDER
GROUP WITH ABSOLUTELY NO AFFILIATION TO THE BOARD OF DIRECTORS OR MANAGEMENT OF
NOVAMETRIX.
THE COTE GROUP'S NOMINEES. The Cote Group's nominees have no experience in
the medical instrumentation business and have offered no concrete ideas on how
to increase Novametrix' stock price.
THE COMPANY'S NOMINEES. In contrast, the Company's nominees, Michael J.
Needham and Joseph A. Vincent, have been with Novametrix for 15 and 13 years,
respectively. Both bring valuable and relevant experience and knowledge to the
Novametrix Board and both support the Merger Proposal and the retention of
Tucker Anthony Incorporated as significant initiatives to increase stockholder
value. Mr. Needham owns 2,000 shares of Novametrix Common Stock and beneficially
owns an additional 25,588 shares issuable upon the exercise of currently
exercisable warrants. Mr. Vincent owns 50,716 shares of Novametrix Common Stock
and beneficially owns an additional 13,733 shares issuable upon the exercise of
currently exercisable stock options.
20
<PAGE>
Mr. Needham's business experience as Chairman and Chief Executive Officer of
SimEx Inc. has been invaluable to the Company, as have his insights into the
health care industry and finance gained while he was President of Helix
Investments Limited. Helix is a private venture capital fund co-founded by Mr.
Needham in 1968 and has a portfolio valued at $450,000,000. During Mr. Needham's
presidency, Helix made a number of investments in health care businesses in the
United States and Canada.
Mr. Vincent has 22 years of diversified experience in the medical equipment
industry. He served as Controller of Novametrix for five years and was promoted
to his current position as Chief Financial Officer in April 1990. Prior to
joining Novametrix in 1983, Mr. Vincent was an Assistant Controller at Picker
International, Inc., a leader in the development of nuclear and ultrasound
medical diagnostic equipment. Mr. Vincent's detailed knowledge of Novametrix'
financial position and operations make him an invaluable member of the
Novametrix Board.
The 13D Group has claimed that the reconfiguration of the Board of Directors
in May 1996 to equalize the number of directors in each of the three classes of
directors was contrary to the Certificate of Incorporation and By-laws of
Novametrix and the securities laws. In fact, one member of the Novametrix Board
was moved from one class to another in order to eliminate the unequal
distribution of directors among classes, which had resulted from prior director
resignations, so as to conform to the requirements of the Company's Certificate
of Incorporation, which calls for three classes of directors which are equal in
size.
Prior to the reconfiguration of the Novametrix Board, there had been three
Class A directors, one Class B director and two Class C directors. The Company's
By-laws explicitly provide for increases and reductions in the size of the
Novametrix Board and the number of directors in each class in part in order to
provide the Board with the flexibility to respond to director resignations and
maintain three classes of directors of as nearly equal size as possible.
Therefore, on May 20, 1996, Steven J. Shulman, then a Class A director, resigned
and the Board of Directors elected him as a Class B director pursuant to the
Company's By-laws. The Class B directors will be elected at the 1997 Annual
Meeting.
In addition, the Cote Group has made the claim that the Company's 1994 and
1995 Proxy Statements contained "promises" that the "three existing" Class A
directors would be "up for election" at the 1996 Annual Meeting. In fact, the
1994 and 1995 Proxy Statements made the general statement that "the Class A
directors will be elected at the 1996 Annual Meeting". This was merely a
statement as to when the CLASS of directors would next be elected. Mr. Cote
appears to have misread the statement as specific to the three Class A directors
in office at the time the 1994 and 1995 Proxy Statements were mailed. The
statement in the 1994 and 1995 Proxy Statements was correct and the requirements
of the Company's Certificate of Incorporation and By-laws have been met.
This Board action, which was taken in accordance with the Company's By-laws
and applicable law, preceded any indication by the 13D Group that they were
considering nominating a slate of directors.
PAUL COTE'S STOCKHOLDER PROPOSAL. On April 5, 1996, the Company received a
proposal from Paul Cote to initiate a "program to maximize shareholder values".
On April 25, 1996, Paul Cote publicly disclosed the existence of a "13D Group"
consisting of himself, his wife and eight other stockholders, the stated purpose
of which was to support Paul Cote's proposal. Novametrix management's efforts to
arrive at a reasonable accommodation with Paul Cote have been repeatedly
rebuffed.
THE NOVAMETRIX BOARD IS VERY MUCH IN FAVOR OF ENHANCING STOCKHOLDER VALUE
(AND, IN FACT, HAS RECOMMENDED THE MERGER IN ORDER TO INCREASE STOCKHOLDER
VALUE); IT UNANIMOUSLY OPPOSES THE COTE PROPOSAL BECAUSE THE PROPOSAL WOULD
UNNECESSARILY INTERFERE WITH THE NOVAMETRIX BOARD'S OBLIGATIONS TO MANAGE
NOVAMETRIX FOR THE BENEFIT OF ALL STOCKHOLDERS.
The current Board of Directors has presided over a remarkable recovery by
the Company during the past five years, reducing debt from approximately $24
million to approximately $5 million and increasing stockholders' equity from
less than $100,000 to more than $12 million, while the stock price rose from
less than $1.00 per share to around $6.00 per share. 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
21
<PAGE>
average price/earnings ratio for companies in the medical device industry is 22
times earnings. As can be seen from the Performance Graph on page 85, Novametrix
Common Stock has out-performed its peer group and has generally equaled or
exceeded the broader market.
In addition to ensuring that the Company is well managed and positioned to
experience substantial growth, at the direction of the Board of Directors,
management engaged the investment banking firm of Tucker Anthony Incorporated
five months ago with the purpose of enhancing stockholder value, including:
- Reviewing business plans, assessing strategies for growth and
acquisitions, presenting financial options and assisting in the
development and modeling of projections.
- Assisting the Company in the development of an overall financial strategy
to address the Company's plans to increase and maximize the value of the
Company.
- Assisting in the development of a plan to broaden investor awareness of
the Company, which includes strategies to expand the number of market
makers and institutional ownership.
Tucker Anthony has since assisted the Company in its due diligence review of
Andros, assisted the Company in structuring and analyzing the fairness of the
Merger and issued a fairness opinion to the Board of Directors with respect to
the Merger. The Novametrix Board believes the Merger will substantially increase
stockholder value. For a detailed discussion of the reasons why the Board of
Directors believes that the Merger will benefit ALL Novametrix stockholders, see
"The Merger --Recommendation of the Board of Directors; Reasons for the Merger",
"--Opinion of Novametrix' Financial Advisor" and
"--Management and Operations of Novametrix Following the Merger".
Members of the Company's management are meeting and communicating with
analysts, institutional investors and retail brokers in order to attract
additional institutional sponsorship and analyst coverage. The Novametrix Board
believes that the significantly larger size, critical mass and profitability of
the Company after the Merger, in addition to its expanded market capitalization,
will help further these goals.
THE NOVAMETRIX BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF NOVAMETRIX
COMMON STOCK AND SERIES B PREFERRED STOCK VOTE AGAINST THE COTE GROUP'S NOMINEES
AND THEIR STOCKHOLDER PROPOSAL.
STOCKHOLDERS ARE URGED NOT TO SIGN OR RETURN ANY OF THE GREEN PROXY CARDS
THEY RECEIVE FROM THE 13D GROUP UNTIL THEY HAVE REVIEWED AND CAREFULLY
CONSIDERED THE INFORMATION SET FORTH IN THIS PROXY STATEMENT.
STOCKHOLDERS CAN REVOKE ANY PROXY THEY HAVE SENT TO THE 13D GROUP BY
SIGNING, DATING AND RETURNING THE COMPANY'S ENCLOSED WHITE PROXY CARD.
ONLY A STOCKHOLDER'S LATEST DATED PROXY COUNTS.
22
<PAGE>
I. APPROVAL OF THE MERGER PROPOSAL
THE MERGER
The Effective Time, consideration and other terms of the Merger are
described in "The Merger Agreement" below.
BACKGROUND OF THE MERGER
In early April 1996, Jean-Pierre L. Conte, a Principal of Genstar,
telephoned William J. Lacourciere, Chairman of the Board, President and Chief
Executive Officer of Novametrix, to schedule a meeting. On April 17, 1996, Mr.
Lacourciere and Mr. Conte met and discussed the businesses of Novametrix and
Andros and the possible benefits that could result from a combination of Andros
with Novametrix.
In late April 1996, Novametrix and Andros agreed to exchange certain
confidential information to facilitate discussions regarding the terms of a
possible transaction, and Novametrix, Andros and Genstar executed a
confidentiality agreement dated May 10, 1996 whereby each party agreed to
maintain the confidential nature of certain information provided to it by the
other parties.
At meetings held on May 21, 1996 and May 22, 1996 between senior management
of Novametrix and representatives of Genstar and Andros, Genstar and Andros made
presentations on their companies, after which a strategic alliance or
combination of Novametrix and Andros was discussed. Over the next several weeks,
Messrs. Lacourciere and Conte continued to have telephone conversations
regarding the possibility of a business combination.
At a meeting on June 4, 1996, Mr. Lacourciere, Thomas M. Haythe, general
counsel and a director of the Company, Mr. Conte, and Richard Paterson, a
Managing Director of Genstar and Chairman of Andros, and other representatives
of Novametrix and Andros held extensive discussions regarding, among other
things, the complementary nature of the two businesses, revenue and cost savings
opportunities which would result from a combination and the framework of a
possible transaction.
On June 5, 1996, Tucker Anthony was retained to act as financial advisor to
Novametrix in connection with the discussions with Andros and Genstar.
On June 12, 1996, at a meeting at which Novametrix senior management, Mr.
Haythe, Mr. Conte, other Genstar representatives and representatives of Tucker
Anthony and the financial advisor to Andros, were present, the possible terms of
a business combination of Novametrix and Andros were reviewed in depth and
certain financial goals relating to the proposed combination were discussed,
including the basis for the exchange of Novametrix Common Stock for Andros
Common Stock.
The Board of Directors of the Company held a regularly scheduled meeting on
June 17, 1996 at which it reviewed the year-end results of the Company. At that
meeting, Mr. Lacourciere disclosed the discussions being held with Genstar
regarding a possible business combination with Andros. After discussion of the
matter, the Novametrix Board resolved that the Company should proceed with
operational and legal due diligence reviews of Andros.
On July 1 and 2, 1996, representatives of Haythe & Curley, counsel to
Novametrix, and Shearman & Sterling, counsel to Andros and Genstar, conducted
legal due diligence on Andros and Novametrix, respectively.
Mr. Lacourciere, Joseph A. Vincent, Chief Financial Officer, Vice
President--Finance and Treasurer of Novametrix, and Philip F. Nuzzo, Vice
President--Medical Product Development and Marketing of Novametrix, together
with several other members of Novametrix' operations, engineering, accounting,
sales and administrative staffs and representatives of Tucker Anthony, conducted
an on-site due diligence review at Andros from July 8, 1996 through July 12,
1996. The review concentrated on Andros' technology, market share, market
opportunities and current contractual obligations and also included inspections
of Andros' California and Washington facilities. Andros and Genstar personnel
conducted similar due diligence reviews at Novametrix from July 16 through July
19, 1996.
23
<PAGE>
At a special meeting of the Board of Directors of Novametrix held on July
20, 1996, senior management of Novametrix and representatives of Tucker Anthony
presented and discussed the strategic aspects of the transaction. In addition,
an exchange ratio which would result in Andros stockholders receiving 47% of the
combined company's common stock was discussed. The Novametrix Board extensively
discussed the issues presented and the terms proposed. Upon consideration of the
foregoing, the Novametrix Board instructed senior management to engage in
further negotiations with Genstar and Andros to resolve certain open issues,
including reducing the percentage of the combined company's common stock to be
issued to Andros stockholders, and to report back to the Novametrix Board.
At a special meeting of the Board of Directors of the Company held
telephonically on July 24, 1996 at which representatives of Tucker Anthony were
present, management updated the directors on the status of the negotiations,
including management's successful negotiation of a revised exchange ratio
pursuant to which Andros stockholders would receive 45% of the combined
company's common stock.
On July 24 and 25, 1996 in New York, representatives of Haythe & Curley and
Shearman & Sterling continued negotiations which had begun in early July 1996
regarding the terms of the original Merger Agreement.
On July 29, 1996, Novametrix' Board of Directors met again. Mr. Lacourciere
informed the Novametrix Board about the status of the negotiations with Genstar
and Andros and described any unresolved terms of the proposed business
combination and related transactions. The Novametrix Board had extensive
discussions with Novametrix' senior management and its legal advisors regarding
the issues presented and the terms proposed, which included the issuance of 45%
of the combined company's common stock to the Andros stockholders. Tucker
Anthony made a presentation of its financial analysis of the terms of the
transaction with Andros as originally proposed, at the conclusion of which
Tucker Anthony delivered its verbal opinion that, as of July 29, 1996, based
upon the procedures and subject to the assumptions described therein, the
original exchange ratio in the proposed Merger was fair to Novametrix and its
stockholders from a financial point of view. The Novametrix Board then
unanimously determined that the Merger as originally proposed was fair and in
the best interests of Novametrix and its stockholders and unanimously approved
the original Merger Agreement and the transactions contemplated by the original
Merger Agreement (subject to the resolution of minor open issues by the
Company's senior management and to the completion of appropriate documentation).
Following the July 29, 1996 meeting of the Company's Board of Directors, the
parties and their respective advisors conducted further negotiations concerning
unresolved terms of the proposed Merger and related transactions. The original
Merger Agreement was then executed later that evening.
The Board of Directors of the Company later received a written opinion from
Tucker Anthony confirming the verbal opinion they had delivered at the July 29,
1996 meeting.
On October 10, 1996, Mr. Lacourciere, Mr. Vincent, representatives of
Genstar and Andros and representatives of Tucker Anthony met to review Andros'
operating results since the execution of the original Merger Agreement. The
participants extensively discussed the effects of unanticipated order delays at
Andros on Andros' operating and financial results. Novametrix and Tucker Anthony
analyzed the deferral of revenues resulting from the order delays.
There followed numerous telephone conferences from October 10, 1996 through
October 16, 1996, in which Mr. Lacourciere, Mr. Vincent, Mr. Haythe, Mr. Conte,
Mr. Paterson and other representatives of Genstar discussed possible reductions
in the percentage of the outstanding shares of Novametrix Common Stock to be
issued in the Merger.
On October 16, 1996, the senior management of Novametrix and Andros and
representatives of Genstar agreed to present the current revised terms of the
proposed Merger to the Boards of Directors of Novametrix and Andros.
On October 18, 1996, representatives of Haythe & Curley and Shearman &
Sterling conducted negotiations regarding a draft amendment to the Merger
Agreement embodying the proposed revised terms of the Merger.
24
<PAGE>
On the evening of October 18, 1996, the Novametrix Board met to consider the
proposed amendment to the terms of the Merger Agreement. Novametrix' Board of
Directors, senior management and legal advisors reviewed and discussed the
proposed terms of the Merger and extensively discussed the reasons for the
revision in the terms. Representatives of Tucker Anthony presented their
financial analysis of the proposed transaction with Andros under the revised
terms and delivered Tucker Anthony's opinion that, as of October 18, 1996,
subject to the assumptions and based upon the procedures described in their
opinion, the amended exchange ratio in the proposed Merger was fair to
Novametrix and its stockholders from a financial point of view. After reviewing
Tucker Anthony's presentation and opinion, the Novametrix Board unanimously
determined that the Merger is fair and in the best interests of Novametrix and
its stockholders, unanimously approved the amendment to the Merger Agreement and
the transactions contemplated by the Merger Agreement, as so amended, and
unanimously resolved to recommend that the stockholders of Novametrix vote FOR
approval of the Merger Proposal.
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER
The Board of Directors of Novametrix has unanimously determined that the
Merger is fair to and in the best interests of Novametrix and its stockholders.
Accordingly, the Novametrix Board has unanimously recommended that the
stockholders of Novametrix vote FOR approval of the Merger Proposal.
In reaching its conclusion to enter into the Merger Agreement and recommend
approval of the Merger Proposal by its stockholders, the Company's Board of
Directors considered a number of factors. The Novametrix Board believes that the
Merger represents a unique strategic opportunity for Novametrix to create a
worldwide leader in gas monitoring products. Because of the increase in size,
breadth of products and extent of distribution that the Company will possess
after the Merger, the Novametrix Board believes that Novametrix will be able to
realize significant increases in revenues and cost savings opportunities which
neither company would achieve independently. The two companies' complementary
technologies and the sharing of basic research and product development resources
should significantly increase Novametrix' ability to introduce new products to
the market quickly. The Novametrix Board also believes that the Merger will
significantly enhance the Company's ability to market its products to hospital
chains and OEMs in today's competitive health care environment.
In addition, the Novametrix Board considered the following factors in
reaching its decision to recommend approval of the Merger Proposal:
(i) The opportunity for Novametrix to expand its market presence by
broadening its product lines and technology base in existing and
complementary products areas; specifically, Novametrix will fill a key
product offering in its existing product line through the acquisition of
Andros' anesthetic agent products and technology;
(ii) The ability of Novametrix to increase its revenues generated by the
sales of its existing products and Andros' products through product
enhancements based on overlapping technology of each entity;
(iii) The ability of Novametrix to achieve greater critical mass in
revenue size, breadth of products and operating resources and therefore
compete more effectively in the healthcare environment and more effectively
serve its customer base with a broader product offering;
(iv) The ability of Novametrix to increase its customer base through
greater penetration of the OEM market as a result of Andros' position as a
supplier to certain significant OEM medical device suppliers such as
Hewlett-Packard Co., Colin Medical Instruments Corporation and Draegerwerk;
(v) The potential to accelerate product development and pursue
additional product development opportunities as a result of the synergies
between the technologies of the two companies and the combination of the two
companies' research and development resources;
(vi) Product and industry diversification within the field of gas
monitoring as a result of Andros' presence in the automotive gas analyzer
and environmental monitoring markets and the substantial market share held
by Andros in the automotive gas analyzer industry segment;
25
<PAGE>
(vii) Recent developments at Andros including: (a) the development of the
Microbench technology and its application to the automotive emissions
products under development as well as the potential for future application
to other products, (b) recent significant new medical customer contracts,
including a contract with Siemens Medical Systems, Inc., (c) the
opportunities for Andros' Scitec division arising out of new federal
regulations requiring lead testing and (d) the recent streamlining of
Andros' operations;
(viii) The potential financial benefits to Novametrix stockholders,
including (a) estimated pro forma per share accretion and (b) financial
contribution to revenue, EBITDA, earnings before interest and taxes ("EBIT")
per share and net income relative to the exchange ratio in the Merger;
(ix) The implied aggregate equity consideration based on the exchange
ratio in the Merger at recent market price levels of Novametrix Common Stock
relative to the implied equity valuations of: (a) recent comparable
transactions in the medical device and analytical instruments industries,
(b) comparable publicly traded companies in the medical device and
analytical instruments industries and (c) discounted cash flow operating
results of Andros as a stand-alone company; the results of such analyses
indicating that the implied cost of Andros at recent stock prices of
Novametrix Common Stock was less than the implied equity value generated by
such analyses and therefore favorable to Novametrix stockholders;
(x) The potential cost savings synergies resulting from the Merger,
including the elimination of duplicate corporate general and administrative
services and functions, the consolidation of selected services such as sales
and marketing, more efficient utilization of manufacturing capacity and
economies of scale in purchasing raw materials and finished goods;
(xi) Andros' demonstrated historical performance and projected future
performance, including Andros' ability to generate strong cash flows to fund
internal operations and development and to support a leveraged capital
structure;
(xii) The increased visibility of the Company within the financial
community resulting from the Merger;
(xiii) The presence of Genstar as a primary stockholder and its proven
ability to enhance stockholder value through operating and manufacturing
experience as well as corporate development expertise in the areas of
mergers and acquisitions of selected companies, products and technologies;
(xiv) The terms and conditions of the Merger and the Merger Agreement,
including the amount and the form of the consideration, as well as the
parties' mutual representations, warranties and covenants, and the
conditions to their respective obligations;
(xv) The terms of the Merger Agreement that permit Novametrix' directors,
in the exercise of their fiduciary duties and subject to certain conditions,
to respond to inquiries regarding potential business combination
transactions, to provide information to, and negotiate with, third parties
making an unsolicited proposal to acquire Novametrix in such a transaction
and to terminate the Merger Agreement if Novametrix' Board of Directors
determines to recommend an alternative business combination transaction. In
that regard, Novametrix' Board of Directors noted that the Merger Agreement
provides that if, under certain circumstances, the Merger Agreement is
terminated, Novametrix will be obligated to pay to Andros a $3,000,000 fee.
Novametrix' Board of Directors did not view the termination fee provision of
the Merger Agreement as unreasonably impeding any interested third party
from proposing a superior transaction. See "The Merger Agreement--
Termination";
(xvi) The expectation that the Merger will be accounted for as a
purchase; and
(xvii) The likelihood that the Merger will be consummated.
The Novametrix Board also considered a number of potentially negative
factors in its deliberations concerning the Merger, including the following: (i)
the fact that the equityholders of Andros would own between 38% and 43% of the
outstanding voting power of Novametrix after the Merger and, as a result,
26
<PAGE>
such equityholders, in concert with others, would gain substantial voting power
to elect Novametrix directors and otherwise determine the outcome of matters
submitted to a vote of Novametrix' stockholders, even prior to the January 1,
1999 expiration of the Voting Agreement; (ii) the risk that benefits sought to
be achieved in the Merger will not be achieved; (iii) the difficult challenges
posed by the integration of Andros' business operations with Novametrix' and the
increased time and resources required in management's integration effort,
including the difficulty in coordinating geographically separated organizations;
(iv) transaction costs, estimated to be $2,600,000, relating to the negotiation
of, preparation for and consummation of the Merger, and the necessity for the
Company to finance such costs through increased borrowings; and (v) Andros'
level of indebtedness and the associated risk in servicing such indebtedness.
In view of the wide variety of factors considered in connection with its
evaluation of the terms of the Merger, the Company's Board of Directors did not
find it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors considered in reaching its
determination. Based on the factors described above, the Company's Board of
Directors has unanimously determined that the Merger is fair and in the best
interests of the Company and its stockholders, has unanimously approved the
Merger Agreement and the transactions contemplated by the Merger Agreement and
certain related matters and has unanimously resolved to recommend that the
stockholders of Novametrix vote FOR approval of the Merger Proposal.
The Novametrix Board's unanimous determination that the Merger is fair to
and in the best interests of Novametrix and its stockholders, unanimous approval
of the Merger Agreement and the transactions contemplated by the Merger
Agreement (subject to the resolution of minor open issues by the Company's
senior management and to the completion of appropriate documentation) and
unanimous resolution to recommend that the stockholders of Novametrix vote FOR
approval of the Merger Proposal were made at a special meeting of the Board of
Directors of Novametrix held on October 18, 1996, at which all directors were
present either in person or telephonically. See "--Background of the Merger". As
described above under "--Background of the Merger", at meetings held on June 17,
July 20, July 24, July 29 and October 18, the Company's Board of Directors
received advice or presentations from, and reviewed the then-current proposed
terms of the Merger with, its management and its financial and legal advisors.
The presentation by Tucker Anthony at the meeting held on October 18, 1996 is
described below under "--Opinion of Novametrix' Financial Advisor". The
presentations by Haythe & Curley, Novametrix' legal advisors, described and
explained (i) the terms and conditions of the proposed Merger as set forth in
the drafts of the Merger Agreement, the Voting Agreement and the Registration
Rights Agreement and the results of such firm's legal due diligence review, and
(ii) the fiduciary duties applicable to the Company's Board of Directors in
evaluating the proposed transaction.
OPINION OF NOVAMETRIX' FINANCIAL ADVISOR
Novametrix retained Tucker Anthony to act as its financial advisor in
connection with the Merger. Tucker Anthony was retained based on their
experience as a financial advisor in connection with mergers and acquisitions as
well as Tucker Anthony's industry knowledge and familiarity with Novametrix.
At the October 18, 1996 special meeting of the Novametrix Board, Tucker
Anthony delivered its opinion to the effect that, as of such date and based on
the matters described therein, the exchange ratio in the Merger was fair to
Novametrix and its stockholders from a financial point of view. Tucker Anthony
did not recommend to Novametrix that any specific ratio constituted the
appropriate exchange ratio for the Merger. Tucker Anthony's opinion to the
Novametrix Board addresses only the fairness to Novametrix and its stockholders
from a financial point of view of the exchange ratio in the Merger, and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote at the Novametrix Annual Meeting.
THE COMPLETE TEXT OF THE OPINION DATED OCTOBER 18, 1996 IS ATTACHED HERETO
AS APPENDIX B AND THE SUMMARY OF THE OPINION SET FORTH BELOW IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. STOCKHOLDERS OF
NOVAMETRIX ARE URGED TO READ SUCH OPINION CAREFULLY AND IN ITS ENTIRETY FOR A
27
<PAGE>
DESCRIPTION OF THE PROCEDURES FOLLOWED, THE FACTORS CONSIDERED, THE ASSUMPTIONS
MADE AND SCOPE OF THE REVIEW UNDERTAKEN BY TUCKER ANTHONY IN RENDERING ITS
OPINION.
In connection with its opinion, Tucker Anthony reviewed, among other things,
the Merger Agreement dated July 29, 1996 and amended as of October 18, 1996 and
related documents, certain publicly available financial information for
Novametrix and Andros and reviewed financial information on Novametrix and
Andros furnished to them by both companies, including certain internal financial
analyses and forecasts prepared by Novametrix and Andros managements. Tucker
Anthony also held discussions with the management of Novametrix and Andros
concerning the businesses, past and current business operations, financial
condition and future prospects of both companies, independently and combined,
including certain information prepared jointly by the managements of Novametrix
and Andros concerning potential cost savings and synergies that could result
from the Merger. In addition, Tucker Anthony reviewed the stock price and
trading history of Novametrix; analyzed certain publicly available information
of companies it deemed comparable or otherwise relevant to its inquiry and
compared Novametrix and Andros from a financial point of view with these
companies; compared the financial terms of the Merger with other business
combinations which Tucker Anthony deemed comparable or otherwise relevant to its
inquiry; prepared a discounted cash flow analysis of Novametrix and Andros;
reviewed the contribution by each company to pro forma combined revenue, gross
profit, EBITDA, EBIT and net income; analyzed the pro forma earnings per share
of the combined company; discussed with senior management of Novametrix their
view of the strategic rationale for the Merger and the benefits of the Merger to
Novametrix; discussed with senior management of Novametrix and its counsel their
view of the likely outcomes of pending, threatened and possible claims against
Novametrix and Andros; and conducted such other financial studies and analysis
and reviewed such other information as it deemed relevant and appropriate.
In its review and analysis and in arriving at its opinion, Tucker Anthony
assumed and relied upon the accuracy and completeness of all the financial
information publicly available or provided to Tucker Anthony by Novametrix and
Andros and did not attempt to verify any of such information. Tucker Anthony did
not make or obtain an independent evaluation or appraisals of any assets or
liabilities of Novametrix, Andros or any of its respective subsidiaries. Tucker
Anthony also relied upon, without independent certification, Novametrix'
management's assessment of the validity of Novametrix' and Andros' products and
technology. Tucker Anthony assumed (i) the financial projections of Novametrix
and Andros provided to Tucker Anthony have been reasonably prepared on a basis
reflecting the best currently available estimates and judgments of Novametrix
and Andros managements as to future financial performance and (ii) that such
projections will be realized in the amounts and time periods currently estimated
by the respective managements. Tucker Anthony also relied upon estimates and
judgments of Novametrix and Andros as to the future performance of both
companies, including the cost savings and synergies resulting from the Merger.
Tucker Anthony also relied upon Novametrix' management's assessment of the
likely outcomes of pending, threatened and possible claims against Novametrix
and Andros. Tucker Anthony also assumed, with the consent of Novametrix'
management, that the Merger will be accounted for as a purchase transaction
which will include a $22.7 million write-off of in-process research and
development and amortization periods for resulting goodwill of 25 years under
generally accepted accounting principles. Tucker Anthony's opinion is
necessarily based upon market, economic and other conditions that exist and can
be evaluated as of the date hereof.
The following is a summary of the material financial analyses used by Tucker
Anthony in connection with providing their opinion, dated October 18, 1996, to
the Novametrix Board, which opinion is attached hereto as Appendix B. Tucker
Anthony also conducted such other financial studies and analyses and reviewed
such other information as it deemed relevant and appropriate to enable the
opinion to be rendered. In its review, Tucker Anthony also took into account an
assessment of general economic, market and financial conditions and certain
industry trends and related matters.
(i) HISTORICAL STOCK TRADING ANALYSIS. Tucker Anthony reviewed the
historical public trading prices and volume for the Novametrix Common Stock
(y) on a daily basis from October 12, 1995 to October 16, 1996 and on a
weekly basis from October 1, 1993 to October 14, 1996,
28
<PAGE>
and (z) in comparison to selected companies in the medical device industry
including Criticare Systems Inc., Datascope Corp., Marquette Electronics
Inc., Nellcor-Puritan Bennett Corp. and Protocol Systems Inc. (the "Medical
Device Composite") and the S&P 500 Index, on a daily basis from October 3,
1995 to October 16, 1996 and on a weekly basis from October 3, 1993 to
October 14, 1996. Tucker Anthony noted that the price of Novametrix Common
Stock had outperformed the index price of the Medical Device Composite at
the end of the 52-week period ending October 14th.
(ii) COMPARABLE COMPANIES ANALYSIS. Tucker Anthony reviewed and compared
certain financial information relating to Novametrix and Andros to
corresponding financial information, ratios and public market multiples for
seven publicly traded corporations in the medical device industry:
Novametrix, Criticare Systems Inc., Datascope Corp., Marquette Electronics
Inc., Nellcor-Puritan Bennett Corp., Protocol Systems Inc. and SpaceLabs
Medical Inc. (the "Selected Medical Device Companies") and four publicly
traded corporations in the analytical instruments industry: CEM Corp.,
Cyberoptics Corp., OI Corp. and TSI Inc. (the "Selected Analytical
Instruments Companies") (collectively, the "Selected Companies"). The
multiples of the Selected Companies were calculated using the closing prices
of the common stock of such companies on October 16, 1996 (the "Reference
Prices"). The multiples and ratios for the Selected Companies were based on
publicly available information and composite analyst estimates. Tucker
Anthony compared the selected multiples and ratios for the Selected
Companies to those of Novametrix and Andros, based upon estimated future
operating results provided by Novametrix management, the terms of the
exchange ratio in the Merger and a price of Novametrix Common Stock of
$5.625 (the closing market price of such stock on October 16, 1996).
Tucker Anthony's analysis indicated that the mean Reference Prices to
earnings per share ratio (the "P/E Ratio") for the Selected Medical Device
Companies was estimated to be 17.1x in 1996 and 14.0x in 1997 and for the
Selected Analytical Instruments Companies was estimated to be 12.9x in 1996
and 8.2x in 1997. The estimated P/E Ratio for Novametrix was 26.8x in 1996
and 19.4x in 1997 on a stand alone basis. The implied P/E Ratio based on the
exchange ratio in the Merger is 13.7x for Andros on a stand alone basis in
1996 and 15.4x in 1997. Tucker Anthony noted that the Selected Medical
Device Companies and Novametrix multiples were higher than the comparable
P/E Ratios for Andros implied by the exchange ratio in the Merger, and that
the Selected Analytical Instruments Companies multiples were lower than
those of Andros implied by the exchange ratio in the Merger.
Tucker Anthony also analyzed estimated 1996 price to earnings multiples
to the five year projected earnings per share growth rate (the "PEG Rate").
The mean PEG Rate was 1.0x for the Selected Medical Device Companies and
0.7x for the Selected Analytical Instruments Companies as compared to the
PEG Rate of 1.4x for Novametrix on a stand alone basis and 0.4x for Andros
on a stand alone basis. Tucker Anthony noted that the PEG Rates for the
Selected Companies and Novametrix were higher than the PEG Rate for Andros
implied by the exchange ratio in the Merger.
(iii) COMPARABLE TRANSACTION ANALYSIS. Tucker Anthony analyzed certain
public information relating to 15 selected transactions in the medical
device industry (the "Selected Medical Device Transactions") and 15 selected
transactions in the analytical instruments industry (the "Selected
Analytical Instruments Transactions") (collectively, the "Selected
Transactions") and compared such information to various multiples and ratios
of the Merger, assuming estimated results of Andros for the year ending
December 31, 1996, as provided by Novametrix management, the terms of the
exchange ratio in the Merger and a price of Novametrix Common Stock of
$5.625 (the closing market price of such stock on October 16, 1996). Tucker
Anthony deemed the estimated results for the year ending December 31, 1996
to be the most appropriate time period for comparison in this analysis due
to the change of ownership, management and operating changes and capital
structure and other factors which will have occurred in the year ending
December 31, 1996 prior to the time of the Merger.
Such analysis indicated that for the Selected Medical Device Transactions
(x) aggregate consideration as a multiple of EBITDA ranged from 28.0x to
6.0x, with a mean of 12.5x and a median of 10.8x as compared to a multiple
of 7.1x for Andros on a stand alone basis in the Merger; (y) aggregate
29
<PAGE>
consideration as a multiple of EBIT ranged from 30.3x to 11.3x, with a mean
of 18.8x and a median of 17.6x as compared to a multiple of 10.5x for Andros
on a stand alone basis in the Merger; and (z) equity consideration as a
multiple of the last twelve months ("LTM") net income ranged from 40.0x to
5.4x, with a mean of 23.1x and a median of 23.2x as compared to a multiple
of 13.7x for Andros on a stand alone basis in the Merger. Such analysis
indicated that for the Selected Analytical Instruments Transactions (x)
aggregate consideration as a multiple of EBITDA ranged from 9.9x to 2.9x,
with a mean of 6.5x and a median of 6.7x as compared to a multiple of 7.1x
for Andros on a stand alone basis in the Merger; (y) aggregate consideration
as a multiple of EBIT ranged from 22.9x to 3.9x, with a mean of 11.7x and a
median of 13.5x as compared to a multiple of 10.5x for Andros on a stand
alone basis in the Merger; and (z) equity consideration as a multiple of LTM
net income ranged from 40.0x to 6.3x, with a mean of 19.9x and a median of
13.5x as compared to a multiple of 13.7x for Andros on a stand alone basis
in the Merger. Tucker Anthony noted that, based on mean multiples of the
Selected Transactions, the selected multiples exceeded the implied multiple
of the Merger based on estimated 1996 results for Andros on a stand alone
basis, with the exception of aggregate consideration as a multiple of EBITDA
for the Selected Analytical Instruments Transactions.
(iv) DISCOUNTED CASH FLOW. Tucker Anthony performed discounted cash flow
analyses of Andros using Novametrix' management projections of Andros'
future EBIT and cash flow available to its capital structure. In such
analyses, Tucker Anthony assumed terminal value multiples of 6.5x to 8.0x
fiscal 2000 EBITDA and discount rates of 10.0% to 14.0%. Such analyses
produced implied equity values of Andros of $34.5 million to $59.8 million.
Tucker Anthony noted that the implied equity value of the exchange ratio in
the Merger based on a price of Novametrix Common Stock of $5.625 (the
closing market price of such stock on October 16, 1996) was within this
range. In addition, Tucker Anthony noted that the aforementioned valuation
analyses were based on Andros as a stand-alone entity and did not include
any of the potential cost savings or synergies that could result from the
Merger.
Tucker Anthony also performed discounted cash flow analyses of
Novametrix based on management's projections of future EBIT and cash flow
available to its capital structure. In such analyses, Tucker Anthony
selected the following parameters: terminal value multiples of 7.0x to 8.5x
fiscal 2000 EBITDA and discount rates of 12.0% to 16.0%. Such analyses
implied equity values of Novametrix of $48.9 million to $63.4 million.
Based on these discounted cash flow analyses, the implied exchange ratio
ranged from 41.3% to 48.5% ownership of the combined entity for Andros.
Tucker Anthony noted that this implied percentage is higher than the 38%
equity percentage reflected in the exchange ratio in the Merger under the
terms of the Merger.
(v) PRO FORMA MERGER ANALYSIS. Tucker Anthony also analyzed the earnings
per share of the combined companies based on the exchange ratio in the
Merger. Using certain earnings estimates for Novametrix and Andros prepared
by Novametrix management for the years 1996 through 2000, Tucker Anthony
compared the earnings per share ("EPS") of Novametrix on a stand-alone
basis, to the EPS of the common stock of the combined companies as
forecasted by management of Novametrix on a pro forma basis. Tucker Anthony
performed this analysis based on a price of $5.625 per share of Novametrix
Common Stock (the closing market price of such stock on October 16, 1996).
Such analyses indicated that the proposed transaction on an earnings per
share basis in Novametrix' fiscal years 1997 through 1999 would be accretive
in all such cases analyzed given the purchase accounting assumptions
described herein.
(vi) CONTRIBUTION ANALYSIS. Tucker Anthony reviewed certain estimated
historical and future operating and financial information (including, among
other things, revenue, gross profit, earnings before interest, tax and
amortization, EBIT and net income) for Novametrix, Andros and the pro forma
combined entity resulting from the Merger. Tucker Anthony analyzed the
relative contribution of these income statement items by Novametrix and
Andros to the combined companies on a pro forma basis without taking into
account cost savings and synergies resulting from the Merger for estimated
Novametrix fiscal years 1997 through 1998, based on financial data and
estimates provided
30
<PAGE>
to Tucker Anthony by Novametrix management. In Novametrix fiscal years 1997
through 1998, Novametrix would have contributed 42.1% and 40.7%,
respectively, to combined total revenue, 48.5% and 50.8%, respectively, to
combined gross profit, 30.0% and 32.9%, respectively, to combined earnings
before interest, tax and amortization, 33.0% and 36.1%, respectively, to
combined EBIT, and 55.5% and 57.4%, respectively, to combined net income.
Tucker Anthony noted that, in the cases of revenue and income related
percentages, such contributions by Novametrix were less than the 62% equity
ownership retained by Novametrix as reflected in the exchange ratio in the
Merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Tucker Anthony's opinion. In arriving at its fairness determination,
Tucker Anthony considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is identical to
Novametrix or Andros or the contemplated transaction. The analyses were prepared
solely for purposes of Tucker Anthony providing its opinion to the Novametrix
Board as to the fairness to Novametrix of the exchange ratio pursuant to the
Merger Agreement and do not purport to be appraisals or necessarily reflect the
prices at which businesses or securities actually may be sold. Analyses based
upon future results are not necessarily indicative of actual future results and
are subject to industry performance, general business and economic conditions
and other matters.
Tucker Anthony's opinion to the Novametrix Board was one of many factors
taken into consideration by the Novametrix Board in making its determination to
approve the Merger Agreement. The foregoing summary does not purport to be a
complete description of the analysis performed by Tucker Anthony and is
qualified by reference to the written opinion of Tucker Anthony set forth in
Appendix B hereto.
Tucker Anthony, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings and private placements and
for corporate and other purposes. Tucker Anthony has acted as Novametrix'
financial advisor in connection with, and has participated in the negotiations
leading to, the proposed Merger.
Pursuant to a letter agreement dated June 25, 1996, Novametrix engaged
Tucker Anthony to act as the Company's exclusive financial advisor in connection
with a merger or other form of business combination involving the Company and
Andros. As compensation for its financial advisory services in connection with
the Merger, Tucker Anthony will receive a transaction fee (the "Transaction
Fee") from Novametrix equal to the lesser of 1.2% of the total consideration
paid or contributed for the stock of Andros (calculated at the Effective Time)
or $750,000 upon consummation of the Merger, provided, however, that the
Transaction Fee will not be less than $500,000. Tucker Anthony is entitled to
and has received a fee of $150,000 upon execution of the original Merger
Agreement and delivery of its fairness opinion. To date, Tucker Anthony has also
received $50,000 upon signature of the original Merger Agreement. The latter
fees will be credited against the Transaction Fee. Whether or not the Merger is
consummated, Novametrix has agreed to reimburse Tucker Anthony for reasonable
expenses incurred by Tucker Anthony, including legal fees and disbursements of
counsel. Novametrix has also agreed to indemnify Tucker Anthony and certain
related persons against certain liabilities to which Tucker Anthony may become
subject as a result of its engagement, including liabilities under the federal
securities laws.
Separately, pursuant to a letter agreement dated June 18, 1996, Novametrix
engaged Tucker Anthony to act as its financial advisor for a minimum period of
three months in connection with the Company's strategic and financial planning.
To date, Tucker Anthony has received a $50,000 retainer pursuant to the June 18
letter agreement.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for by the Company as a
purchase in accordance with APB No. 16 "Business Combinations", as such term is
used under generally accepted accounting principles, for accounting and
financial reporting purposes. Under the purchase method of accounting, assets
and liabilities of Andros would be recorded at their fair value at the Effective
Time, with the excess
31
<PAGE>
of the purchase price over the net tangible and identifiable intangible assets
acquired being recorded as goodwill.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Set forth below is a discussion of certain federal income tax consequences
under the Code to the Company and Andros as a result of the Merger. This
discussion does not address state, local or foreign income taxation.
None of the parties to the Merger Agreement has requested a ruling from the
Internal Revenue Service with regard to the federal income tax consequences of
the Merger.
Assuming the truth of the representations of the parties to the Merger
Agreement and their affiliates, the Merger will constitute a reorganization
under Section 368(a) of the Code. No gain or loss will be recognized by the
Company or Andros upon consummation of the Merger. The Company's tax basis in
the Andros Common Stock will generally be equal to the higher of (1) the
aggregate basis of Andros' former stockholders in the stock of Andros or (2) the
net basis to Andros of its assets. Andros' tax basis in its assets will be
unaffected by the Merger. As of April 28, 1996, the Company had net operating
loss carryforwards ("NOLs") for federal income tax reporting purposes of
approximately $12,875,000. Of this amount, $8,300,000 expires in 2005,
$4,200,000 expires in 2006 and $375,000 expires in 2007. Under Section 382 of
the Code and the Treasury Regulations promulgated thereunder, if a loss
corporation such as the Company has an "ownership change" within a designated
testing period, its ability to use its NOLs may be subject to an annual
limitation. Although the Company believes that consummation of the Merger will
not result in an ownership change for purposes of Section 382, there can be no
assurance that such an ownership change will not occur in the future. The
Company has no present intention, however, of issuing additional stock, options
or warrants which could result in an ownership change.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. THE
DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE CODE, EXISTING AND
PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND
COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE
COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. NO INFORMATION IS
PROVIDED HEREIN WITH RESPECT TO THE TAX CONSEQUENCES, IF ANY, OF THE MERGER
UNDER APPLICABLE FOREIGN, STATE AND LOCAL LAWS.
MANAGEMENT AND OPERATIONS OF NOVAMETRIX FOLLOWING THE MERGER
COMPOSITION OF THE NOVAMETRIX BOARD. At the Effective Time, the Board of
Directors of the Company intends to increase the number of directors and appoint
new directors such that the Board of Directors of the Company will be comprised
of all of the members of the Company's Board of Directors at the Effective Time
or such smaller number of such members as may result from director resignations
effective at the Effective Time and an equal number of directors appointed by
the Board of Directors of Andros prior to the Effective Time, one of whom shall
be Richard D. Paterson. The Board of Directors of the Company intends to elect
Mr. Paterson as Chairman of the Board of the Company. The continuing members of
the Board of Directors of the Company and the members appointed by the Board of
Directors of Andros will be as equally distributed as possible among Class A,
Class B and Class C directors of the Company. At the Effective Time, each
committee of the Board of Directors of the Company will be composed of an equal
number of the continuing members of the Board of Directors of the Company and
the members appointed by the Board of Directors of Andros. For information
concerning the proposed appointees of Andros to the Board of Directors of the
Company, see "Novametrix Management--Executive Officers and Directors of
Novametrix".
32
<PAGE>
MANAGEMENT OF NOVAMETRIX. Each of the executive officers of Novametrix is
expected to continue as an executive officer of Novametrix after the Merger.
Each of Novametrix' executive officers serves at the discretion of the
Novametrix Board.
OPERATIONS OF NOVAMETRIX FOLLOWING THE MERGER. THE FOLLOWING STATEMENTS IN
THIS PROXY STATEMENT ARE FORWARD-LOOKING STATEMENTS CONCERNING POST-MERGER
OPERATIONS OF NOVAMETRIX. THERE ARE MANY IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS
HEREIN, INCLUDING, WITHOUT LIMITATION, DIFFICULTIES THAT MAY BE ENCOUNTERED IN
INTEGRATING THE OPERATIONS OF NOVAMETRIX AND ANDROS, WHICH DIFFICULTIES WILL BE
EXACERBATED BY THE NECESSITY OF COORDINATING GEOGRAPHICALLY SEPARATE
ORGANIZATIONS, FUNDAMENTAL CHANGES OCCURRING IN THE HEALTH CARE INDUSTRY AS A
RESULT OF ECONOMIC FORCES, REGULATORY INFLUENCES AND POLITICAL INITIATIVES, THE
CONTINUING TREND TOWARDS MORE STRINGENT REGULATORY OVERSIGHT OF MEDICAL DEVICE
MANUFACTURERS, UNCERTAINTIES RELATED TO PATENTS AND OTHER PROPRIETARY RIGHTS,
INTENSE COMPETITION IN THE INDUSTRIES IN WHICH NOVAMETRIX AND ANDROS OPERATE,
DIFFICULTIES IN DEVELOPING AND INTRODUCING NEW PRODUCTS AND THE INCREASING
FOREIGN SALES OF THE COMBINED COMPANY AND THE RESULTANT EXPOSURE TO FOREIGN
CURRENCY FLUCTUATIONS. MANY OF THESE IMPORTANT FACTORS ARE OUTSIDE NOVAMETRIX'
CONTROL AND COULD CAUSE THE FORWARD-LOOKING STATEMENTS TO BE MATERIALLY
INACCURATE, AND NO ASSURANCE CAN BE PROVIDED AS TO ANY FUTURE FINANCIAL RESULTS.
IN ADDITION, BECAUSE THE MARKETS IN WHICH NOVAMETRIX AND ANDROS OPERATE ARE
HIGHLY COMPETITIVE AND BECAUSE OF THE INHERENT UNCERTAINTIES ASSOCIATED WITH
MERGING TWO COMPANIES, NO ASSURANCE CAN BE PROVIDED THAT NOVAMETRIX WILL BE ABLE
TO REALIZE FULLY THE REVENUE AND COST SAVINGS OPPORTUNITIES THAT NOVAMETRIX
CURRENTLY EXPECTS AFTER THE MERGER OR THAT SUCH REVENUE SYNERGIES AND COST
SAVINGS WILL BE REALIZED AT THE TIMES CURRENTLY ANTICIPATED. FURTHER, NO
ASSURANCE CAN BE PROVIDED THAT COST SAVINGS THAT ARE REALIZED WILL NOT BE OFFSET
BY LOSSES IN REVENUES. NOVAMETRIX DOES NOT PRESENTLY INTEND TO UPDATE PUBLICLY
THE FOLLOWING FORECASTS OR PROVIDE SIMILAR FORECASTS IN THE FUTURE.
The Novametrix Board believes that the Merger represents a unique strategic
and financial opportunity for Novametrix to create a worldwide leader in gas
monitoring products. Because of the resulting increase in size, breadth of
products and extent of distribution that the Company will possess after the
Merger, the Novametrix Board believes that Novametrix will be able to realize
significant revenue increases and cost savings which neither company would enjoy
on its own. The combined company would have sales of $66.8 million on a pro
forma basis for the fiscal year ended April 28, 1996, as compared to Novametrix'
stand-alone sales of $25.3 million for the same period. Management believes the
Merger to be a critical step towards further establishing the Company as a
primary supplier of medical devices to acute care providers and OEMs in today's
competitive health care environment.
The management of Novametrix believes that the multiple synergies resulting
from the Merger will accelerate the potential growth of each company's business
beyond that which would be possible for each company on a stand alone basis.
After the Merger, Novametrix will serve most of the world's largest
manufacturers of medical monitoring equipment. The combined company would be the
world's largest OEM provider of NDIR gas analyzers for medical applications.
Substantially increased revenues should result from cross marketing each
company's products to the other company's OEM customers and through the
inclusion of Andros anesthetic agent technology in the Company's products sold
under the Novametrix brand name.
The sale of Novametrix end-user products should also be enhanced through the
increased visibility provided by the greater critical mass of the combined
company. Virtually every domestic "national account" (i.e., large purchasers and
buying groups) purchases the products of one or more of the combined company's
OEM customers, providing access to such national account purchasers for the
Company's end-user products which is now unavailable to Novametrix. The Company
believes that a broader product line will enhance sales to the larger healthcare
providers such as hospital chains, whose purchasing patterns reflect the
nationwide trend toward buying from fewer vendors as the industry consolidates.
Novametrix' sales and marketing staff will bring their medical monitoring
expertise to the management of the combined company's medical products while the
Andros staff will focus their historical expertise on the environmental and
automotive markets, providing better service to each and enhancing new sales
opportunities in both areas. This rationalization will create two stronger
dedicated sales forces.
33
<PAGE>
The Company anticipates continued growth in revenues from the Andros
automotive and environmental product lines for four main reasons. First, Andros
is introducing several new automotive and environmental products that are
expected to be well received by Andros' customers. Second, third world markets
for Andros' automotive products are expanding. Third, significant opportunities
for environmental products such as lead based paint testing and ambient air
monitoring are emerging in the U.S. market. Finally, the management of Andros
will focus on these core markets after the Merger, thus enhancing the Company's
sales efforts in these areas.
Both companies specialize in NDIR technology, providing the unique
opportunity to combine the technical expertise of both companies and
facilitating the product development process. Also, both companies'
manufacturing processes are substantially the same, offering the opportunity to
gain economies in manufacturing and purchasing power. Additional cost savings
are expected to be derived through the elimination of duplicate corporate
general and administrative services and certain redundant senior management
positions.
The Novametrix Board believes that revenues, cash flow and earnings should
increase substantially as a result of the Merger. Earnings per share of the
combined company should grow at a compound annual growth rate greater than 25%
over the next several years. For the fourth quarter of fiscal 1997, the Company
anticipates that revenue will more than double and earnings per share will
increase by approximately 50%, compared to Novametrix' fourth quarter of fiscal
1996. As a result of the higher levels of revenue, EBITDA, EBIT and net income
contributed by Andros and the strategic reasons for revenue enhancement together
with the potential cost savings discussed above, management believes the
combined company should approximately triple revenue and increase earnings per
share by approximately 100% in fiscal 1998, the first full fiscal year following
the Merger, compared to Novametrix' results as a stand-alone company in fiscal
1996. Management believes that the integration of the two companies will provide
substantial additional near term and future financial benefits beyond the
substantial increases in revenues, cash flow and earnings described above;
including sales productivity improvements, purchasing leverage, manufacturing
economies and a more effective and productive product development program.
LIQUIDITY AND SOURCES OF CAPITAL FOLLOWING THE MERGER
After the Merger, Novametrix will continue to require sufficient liquidity
to source the combined company's working capital needs, primarily inventory,
accounts receivable and debt service. The combined company is expected to
generate sufficient cash from operations to cover the debt service requirements
on approximately $48 million of debt, and to have sufficient availability
against its revolving credit facility to satisfy its working capital needs.
Management has received proposals from two lenders to refinance Andros' $15
million of subordinated debt, with the expectation of reducing the current
interest rate of 13% to more typical senior lending rates of approximately 8% to
9%. This transaction would have a very favorable impact (approximately $600,000
to $750,000 per annum) on the Company's debt service requirements. Historically,
both Andros and Novametrix have provided significant EBITDA and cash from
operations which are expected to continue to be sufficient for the combined
company's cash requirements.
In addition, after the Merger, Novametrix will continue to have
approximately $5.4 million of additional net proceeds that may be realized upon
the exercise of the Class A and Class B Warrants issued in June 1994, which are
redeemable by the Company under specified conditions. There are also additional
potential proceeds available from outstanding options and warrants in the
aggregate amount of $4.6 million as of September 30, 1996. Management believes
that EBITDA will be sufficient to meet the requirements of the combined company,
and that additional resources would be available on commercially reasonable
terms if needed.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Contingent upon the consummation of the Merger, the Company and Genstar will
enter into the Voting Agreement pursuant to which, in any written consent or
meeting of stockholders of the Company
34
<PAGE>
prior to January 1, 1999, Genstar and the purchasers or transferees of the
Genstar Shares will vote the Genstar Shares in favor of a Board of Directors of
the Company, at least one-half of whose members shall be nominated by a majority
of the current directors of the Company who continue to be directors of the
Company on (i) the date such consent is executed, (ii) the date that notice of
such meeting is mailed to stockholders of the Company or (iii) if no such notice
is mailed, the date of such meeting; provided that no more than two of such
nominees may be members of the management of the Company and that Genstar will
not be required under the Voting Agreement to vote in favor of a Board of
Directors of the Company less than half of whose members are nominees of
Genstar. Genstar Shares which are sold to the public pursuant to (i) an
effective registration statement under the Securities Act or (ii) the exemption
from registration provided by Rule 144 under the Securities Act thereupon cease
to be Genstar Shares. The above description is qualified in its entirety by the
copy of the Voting Agreement that is attached hereto as Appendix C and
incorporated herein by reference.
As of September 27, 1996, Novametrix' directors and executive officers and
their affiliates beneficially owned approximately 9.1% (including shares subject
to exercisable options and warrants) of the outstanding voting securities of
Novametrix. For a discussion of the vote required for the approval of the Merger
by the holders of Novametrix Common Stock and Series B Preferred Stock, see
"Meeting of Stockholders" above.
The Novametrix Board was aware of the foregoing interests and considered
them, among other matters, in approving and adopting the Merger Agreement and
the transaction contemplated thereby.
NO DISSENTERS' RIGHTS
The holders of Novametrix Common Stock and Series B Preferred Stock are not
entitled to dissenters' appraisal rights in connection with, or as a result of,
the Merger.
35
<PAGE>
THE MERGER AGREEMENT
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT WITH RESPECT TO THE MERGER
AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE
MERGER AGREEMENT ATTACHED HERETO AS APPENDIX A, WHICH IS INCORPORATED HEREIN BY
REFERENCE. STOCKHOLDERS OF THE COMPANY ARE URGED TO READ THE MERGER AGREEMENT
CAREFULLY.
EFFECTIVE TIME
The Merger Agreement provides that the Merger will become effective upon the
last to occur of the filing of a certificate of merger with respect to the
Merger with the Secretary of State of the State of Delaware or at such later
time as is specified in the certificate of merger. The time at which the Merger
will become effective is referred to herein as the "Effective Time". Such
filing, together with all other filings or recordings required by the Delaware
General Corporation Law (the "Delaware Law") in connection with the Merger, will
be made as soon as practicable after the approval and adoption by the
stockholders of the Company of the Merger Proposal and the satisfaction or, to
the extent permitted under the Merger Agreement, waiver of all other conditions
to the Merger contained in the Merger Agreement.
THE MERGER
At the Effective Time, Acquisition shall be merged into Andros, which shall
be the surviving corporation and a wholly owned subsidiary of the Company. The
corporate existence of Andros, with all its purposes, powers and objects, shall
continue unaffected and unimpaired by the Merger and as the surviving
corporation it shall be governed by the laws of the State of Delaware and
succeed to all of the rights, assets, liabilities and obligations of Acquisition
in accordance with the Delaware Law.
CONSIDERATION TO BE RECEIVED IN THE MERGER. At the Effective Time:
(i) ACQUISITION COMMON STOCK. Each share of Acquisition Common Stock
issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder
thereof, be converted into one share of Andros Common Stock.
(ii) ANDROS COMMON STOCK. Each share of Andros Common Stock issued and
outstanding immediately prior to the Effective Time, except for such shares
held by Andros in its treasury or by the Company or any of its subsidiaries,
shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into (a) the right to receive (i) that number
(the "Exchange Number") of fully paid and nonassessable shares of Novametrix
Common Stock equal to (x) .6129032 (the "Base Number") multiplied by the
number of shares of Novametrix Common Stock outstanding immediately prior to
the Effective Time (assuming conversion of all then outstanding shares of
Series B Preferred Stock) divided by (y) the number of shares of Andros
Common Stock outstanding immediately prior to the Effective Time (assuming
the exercise in full of all then outstanding Andros Options and Andros
Warrants), computed to four decimal places and (ii) under certain
circumstances, additional shares of Novametrix Common Stock (see "--Earn-Out
Shares" below) and (b) the Rights to receive additional shares of Novametrix
Common Stock.
(iii) SECURITIES HELD BY THE COMPANY. Each share, if any, of Andros
Common Stock issued and outstanding immediately prior to the Effective Time
which is then owned beneficially or of record by the Company or any
subsidiary of the Company shall, by virtue of the Merger and without any
action on the part of the holder thereof, be cancelled and retired and cease
to exist, without any conversion thereof or payment therefor.
(iv) TREASURY SECURITIES. Each share of Andros Common Stock held by
Andros in its treasury immediately prior to the Effective Time shall, by
virtue of the Merger, be cancelled and retired and cease to exist, without
any conversion thereof or payment therefor.
36
<PAGE>
FRACTIONAL SHARES. No fractional shares of Novametrix Common Stock will be
issued in the Merger. Each holder of Andros Common Stock who would have been
entitled upon consummation of the Merger to receive an aggregate number of
shares of Novametrix Common Stock comprising a fractional share, will be
entitled to receive, in lieu thereof, an amount in cash determined by
multiplying the average of the daily closing sale price per share of Novametrix
Common Stock on the Nasdaq for the ten trading days immediately prior to the
Effective Time by the fraction of a share of Novametrix Common Stock to which
such holder would otherwise have been entitled.
STOCK OPTIONS AND WARRANTS. At the Effective Time, each outstanding Andros
Option issued pursuant to the Stock Option Plan of Andros, whether vested or
unvested, shall be assumed by the Company. Each Andros Option shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Andros Option, (i) (x) the same number of whole shares of
Novametrix Common Stock as the holder of such Andros Option would have been
entitled to receive pursuant to the Merger had such holder exercised such option
in full immediately prior to the Effective Time and (y) a number of Rights equal
to the number of Rights which the holder of such Andros Option would have been
entitled to receive pursuant to the Merger had such holder exercised such option
in full immediately prior to the Effective Time, (ii) at a price per share
(rounded up to the nearest whole cent) equal to (A) the aggregate exercise price
for the shares of Andros Common Stock otherwise purchasable pursuant to such
Andros Option divided by (B) the number of whole shares of Novametrix Common
Stock deemed purchasable pursuant to such Andros Option.
At the Effective Time, each outstanding Andros Warrant shall be assumed by
the Company. Each Andros Warrant shall be deemed to constitute a warrant to
acquire, on the same terms and conditions as were applicable under such Andros
Warrant, (i) the same number of whole shares of Novametrix Common Stock as the
holder of such Andros Warrant would have been entitled to receive pursuant to
the Merger had such holder exercised such warrant in full immediately prior to
the Effective Time and (y) a number of Rights equal to the number of Rights
which the holder of such Andros Warrant would have been entitled to receive
pursuant to the Merger had such holder exercised such warrant in full
immediately prior to the Effective Time, (ii) at a price per share (rounded up
to the nearest whole cent) equal to (A) the aggregate exercise price for the
shares of Andros Common Stock otherwise purchasable pursuant to such Andros
Warrant divided by (B) the number of whole shares of Novametrix Common Stock
deemed purchasable pursuant to such Andros Warrant.
LIMITED ANTIDILUTION RIGHTS. At the Effective Time, the Company will issue
Rights to holders of record of Andros Common Stock as of the Effective Time in
accordance with the provisions of the Merger Agreement and to holders of Andros
Options and Andros Warrants who exercise such options or warrants after the
Effective Time in accordance with the provisions of the Merger Agreement. The
Rights shall not be transferable, except that Genstar may transfer Rights to its
general and limited partners upon receipt by the Company of (i) an opinion of
counsel to Genstar reasonably satisfactory to the Company to the effect that
such transfer will not violate the Securities Act or any state or foreign
securities laws and (ii) a representation letter from each such transferee in
form and substance reasonably satisfactory to the Company. The Rights will not
be evidenced by certificates. The Company will not issue fractional Rights.
The Company has authorized the issuance of and will hold in reserve the
shares of Novametrix Common Stock issuable pursuant to the Rights (the
"Underlying Shares"), and monthly, on the first business day after the end of
each month in which an Antidilution Event (as defined below) shall have occurred
after the month in which the Effective Time shall have occurred (each such date,
an "Antidilution Date") (until and including the first business day of the month
immediately succeeding the later of the month in which the last of the remaining
warrants and options to acquire shares of Novametrix Common Stock outstanding
immediately prior to the Effective Time and Andros Options and Andros Warrants
have expired or been exercised), the Company will issue Underlying Shares to
Rights holders as set forth below with respect to any Antidilution Events which
shall have occurred during the immediately preceding month.
37
<PAGE>
Each Right grants to the holder thereof the right to receive from the
Company on each Antidilution Date a number of Underlying Shares equal to (x) the
sum of (i) the Base Number (or if there shall be an Adjusted Base Number (as
defined under "--Earn-Out Shares" below) in effect, the Adjusted Base Number)
multiplied by the number of shares of Novametrix Common Stock issued by the
Company pursuant to warrants or options to acquire shares of Novametrix Common
Stock outstanding immediately prior to the Effective Time (but excluding any
such shares issued upon conversion of the Series B Preferred Stock) and (ii) the
number of shares of Novametrix Common Stock which were issuable by Novametrix
upon the exercise of Andros Options or Andros Warrants (including Underlying
Shares so issuable as provided in the next succeeding paragraph), which Andros
Options or Andros Warrants were cancelled or otherwise expired unexercised, in
either case during the preceding month (or, in the case of the first
Antidilution Date after the issuance of such Right, after the Effective Time)
divided by (y) the number of Rights then outstanding or issuable upon the
exercise of all then outstanding Andros Options and Andros Warrants. The
issuance by the Company of Novametrix Common Stock pursuant to warrants or
options and the cancellation or expiration of Andros Options or Andros Warrants
as aforesaid are herein referred to as "Antidilution Events". Antidilution
Events will not include, and Rights shall not grant the holders thereof the
right to receive shares of Novametrix Common Stock in respect of, issuances at
or after the Effective Time of any Novametrix Securities (as defined in the
Merger Agreement) except for shares of Novametrix Common Stock issued pursuant
to options and warrants outstanding immediately prior to the Effective Time.
Notwithstanding anything to the contrary contained in the Merger Agreement,
upon the occurrence of an Antidilution Event, the number of shares of Novametrix
Common Stock issuable upon the exercise of each then outstanding Andros Option
and Andros Warrant shall be increased by the number of Underlying Shares which
would have been issuable pursuant to the Rights subject to such Andros Option or
Andros Warrant (assuming such Rights were then outstanding).
EARN-OUT SHARES. Within ten business days after Novametrix receives its
audited consolidated financial statements (the date of such receipt is referred
to herein as the "Adjustment Date") for the fiscal year ending May 3, 1998
("Fiscal 1998"), if (i) the net revenues of the Andros business exceed
$48,900,000 for Fiscal 1998 or (ii) the combined company's consolidated EBITDA
exceeds $16,300,000 for Fiscal 1998, the Base Number would be increased to a
number (the "Adjusted Base Number") equal to a fraction (a) the numerator of
which is 38% plus the "Adjustment Factor" defined below and (b) the denominator
of which is 62% minus the Adjustment Factor, where the Adjustment Factor is
equal to 1% multiplied by the greater of (x) the quotient of (A) the amount by
which the net revenues of the Andros business for Fiscal 1998 exceed $48,900,000
divided by (B) $1,700,000 and (y) the quotient of (C) the amount by which the
EBITDA of the combined company for Fiscal 1998 exceeds $16,300,000 divided by
(D) $660,000, but in no event shall the Adjusted Base Number be greater than
.7543860. The effects of any acquisitions of businesses (other than as a result
of the Merger) by Novametrix subsequent to July 29, 1996 would be eliminated in
computing such net revenues and EBITDA.
On the Adjustment Date, if (i) the net revenues of the Andros business equal
or exceed $48,900,000 for Fiscal 1998 or (ii) the combined company's
consolidated EBITDA equals or exceeds $16,300,000 for Fiscal 1998, Novametrix
would issue additional shares of Common Stock (the "Earn-Out Shares") as
follows:
(i) Novametrix would issue a number of Earn-Out Shares for each share of
Andros Common Stock outstanding at the Effective Time to persons who held
such shares at the Effective Time determined by subtracting (x) the Exchange
Number determined by using the Base Number from (y) the Exchange Number
determined by using the Adjusted Base Number.
(ii) Novametrix would issue to each person who had exercised Andros
Options or Andros Warrants prior to the Adjustment Date a number of Earn-Out
Shares (rounded down to the nearest whole share) equal to the difference
between (x) the number of shares of Novametrix Common Stock which would have
been issued to such exercising holder had such Andros Option or Andros
Warrant (or portion thereof), as applicable, been exercised after such
Adjusted Base Number had been in
38
<PAGE>
effect and (y) the number of shares of Novametrix Common Stock actually
issued upon the exercise of such Andros Option or Andros Warrant (or portion
thereof), as applicable.
(iii) If one or more Antidilution Events shall have occurred prior to
the Adjustment Date, Novametrix would issue to each holder of Rights a
number of Earn-Out Shares (rounded down to the nearest whole share) equal to
the difference between (x) the number of shares of Novametrix Common Stock
which would have been issued to such holder had the Adjusted Base Number
been in effect with respect to all such Antidilution Events and (y) the
number of shares of Novametrix Common Stock actually issued to such holder
with respect to all such Antidilution Events.
CONDITIONS TO CONSUMMATION OF THE MERGER
CONDITIONS TO OBLIGATIONS OF THE PARTIES TO THE MERGER AGREEMENT. The
obligations of the Company and Andros to consummate the Merger are subject to
the satisfaction of the following conditions: (i) the expiration or termination
of any applicable waiting period under the HSR Act relating to the Merger (which
period has been terminated); (ii) no provision of any applicable domestic law or
regulation is enacted, entered, enforced or deemed applicable to the Merger,
which makes the consummation of the Merger illegal, and no judgment, injunction,
order or decree of a court of competent jurisdiction restraining or prohibiting
the consummation of the Merger shall be in effect; (iii) the approval, by the
requisite vote of the Company's stockholders, of the issuance of Novametrix
Common Stock, including the Underlying Shares, in connection with the Merger in
accordance with the rules of the Nasdaq; (iv) the receipt by the Company and
Andros of an opinion from Haythe & Curley, counsel to the Company, and from
Shearman & Sterling, counsel to Andros, based upon certain factual
representations of Andros, Andros' equityholders, the Company and Acquisition
reasonably requested by such counsel, dated the date of the Effective Time, to
the effect that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, in form and
substance reasonably satisfactory to the Company and Andros; and (v) the debt of
the Company and Andros and their respective subsidiaries with respect to which
consents of the lenders thereunder are required to consummate the Merger shall
have been modified, amended, restructured, refinanced or repaid on terms
reasonably satisfactory to the boards of directors of both the Company and
Andros such that (i) there will be available to the Company and Andros an
aggregate of at least $4,000,000 of unused borrowing availability at the
Effective Time in excess of any amounts necessary to pay expenses of the Company
and Andros incurred in connection with the Merger and the other transactions
contemplated thereby and (ii) without the consent of the Company and Andros, the
aggregate non-revolving funded indebtedness of the Company and Andros will not
exceed the amount thereof as of the date of the Merger Agreement, and such debt
will contain such modifications to existing financial and other covenants as
shall be reasonably satisfactory to such boards of directors, which may include
the Company acting as guarantor or co-borrower under Andros' credit facilities.
ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY AND ACQUISITION. The
obligations of the Company and Acquisition to consummate the Merger are subject
to certain additional conditions, including (i) the accuracy of the
representations and warranties in all material respects of Andros contained in
the Merger Agreement, (ii) the performance by Andros in all material respects of
its obligations under the Merger Agreement to be performed by it at or prior to
the Effective Time, except to the extent that failure to comply with or perform
any such obligation would not have a Material Adverse Effect on Andros and its
subsidiaries taken as a whole, (iii) the receipt of certain consents and (iv)
the execution by Genstar of the Voting Agreement.
ADDITIONAL CONDITIONS TO OBLIGATIONS OF ANDROS. The obligations of Andros
to consummate the Merger are subject to certain additional conditions, including
(i) the accuracy of the representations and warranties in all material respects
of the Company and Acquisition contained in the Merger Agreement, (ii) the
performance by the Company and Acquisition in all material respects of their
obligations under the Merger Agreement to be performed by them at or prior to
the Effective Time, except to the extent that failure to comply with or perform
any such obligation would not have a Material Adverse Effect on the Company and
its subsidiaries taken as a whole, (iii) the approval of the Merger by the
Company and the
39
<PAGE>
Merger Proposal by its stockholders, (iv) the receipt of certain consents, (v)
the execution by the Company of the Voting Agreement and (vi) the execution by
the Company of the Registration Rights Agreement.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and warranties by each of the
Company and Andros relating to corporate existence, powers and similar matters,
corporate authorization, governmental filings and approvals, non-contravention
of corporate documents, agreements and instruments, capitalization,
subsidiaries, financial statements, disclosure documents, absence of certain
changes, undisclosed material liabilities, litigation, taxes and tax treatment,
retirement and other employee plans and benefits, intellectual property,
compliance with law and finders' fees.
COVENANTS--NOVAMETRIX AND ANDROS
CONDUCT OF THE COMPANY AND ANDROS. Prior to the Effective Time, each of the
Company and Andros is required by the Merger Agreement generally to operate its
business in the ordinary and usual course of business consistent with its prior
practice. Each of the Company and Andros has agreed that it will not, without
the prior written consent of the other, (which shall not be unreasonably
withheld), except as required by the Merger Agreement or applicable law, (a)
adopt or propose any change in its certificate of incorporation or bylaws; (b)
merge or consolidate with any other person or acquire a substantial amount of
equity in or assets of any other person; (c) sell, lease, license or otherwise
dispose of any material assets or property except (i) pursuant to existing
contracts or commitments, (ii) in the ordinary course consistent with past
practice or (iii) for transfers between the Company and/or its subsidiaries; (d)
declare or pay any dividends or make any distributions on its common stock;
provided, however, that the Company may declare or pay dividends which are
scheduled to accrue on the Company's Series B Preferred Stock; (e) (i) issue,
deliver or sell, or authorize or propose the issuance, delivery or sale of, any
securities or subsidiary securities, other than the issuance of shares of common
stock upon the exercise of its options or warrants outstanding on the date of
the Merger Agreement, upon the conversion of preferred stock or pursuant to any
currently existing stock option or employee stock purchase plans or (ii) split,
combine or reclassify any securities or subsidiary securities; (f) except as
otherwise expressly permitted by the Merger Agreement, make any commitment or
enter into any contract or agreement material to it and its subsidiaries taken
as a whole except in the ordinary course of business consistent with past
practice; (g) (i) enter into any arrangement to provide any severance or
termination pay to any of its or any of its subsidiaries' directors or officers,
(ii) enter into any employment, deferred compensation or other similar agreement
(or any amendment to any such existing agreement) with any of its or any of its
subsidiaries' directors or officers, (iii) increase the benefits payable under
any existing severance or termination pay policies or employment agreements,
(iv) increase the compensation, bonus or other benefits payable to any of its
directors or officers or any of its subsidiaries' directors or officers, or (v)
accelerate the exercisability or vesting of any options; or (h) take or agree or
commit to take any action that would make any representation or warranty of it
under the Merger Agreement inaccurate in any material respect at, or as of any
time prior to, the Effective Time. Each of the Company and Andros has agreed to
give the other, its counsel, financial advisors, auditors and other authorized
representatives full access to its and its subsidiaries' offices, properties,
books and records, furnish to the other, its counsel, financial advisors,
auditors and other authorized representatives such financial and operating data
and other information as such persons may reasonably request and instruct its
and its subsidiaries' employees, counsel and financial advisors to cooperate
with the other in its investigation.
COVENANTS--ANDROS
ACQUISITION PROPOSALS FOR ANDROS. Until the Effective Time or earlier
termination of the Merger Agreement, Andros and its subsidiaries and the
officers, directors, employees or other agents of Andros and its subsidiaries
will not, directly or indirectly, (i) take any action to solicit, initiate or
encourage any Andros Acquisition Proposal (as defined below) or (ii) engage in
negotiations with, or disclose any nonpublic information relating to Andros or
any of its subsidiaries or afford access to the properties, books
40
<PAGE>
or records of Andros or any of its subsidiaries to, any person that may be
considering making, or has made, an Andros Acquisition Proposal. Andros will
promptly notify Novametrix after receipt of any Andros Acquisition Proposal or
any indication that any person is considering making an Andros Acquisition
Proposal or any request for nonpublic information relating to Andros or any of
its subsidiaries or for access to the properties, books or records of Andros or
any of its subsidiaries by any person that may be considering making, or has
made, an Andros Acquisition Proposal. For purposes hereof, "Andros Acquisition
Proposal" means any offer or proposal for, or any indication of interest in, a
merger or other business combination involving Andros or any of its subsidiaries
or the acquisition of any equity interest in, or a substantial portion of the
assets of, Andros or any of its subsidiaries, other than the transactions
contemplated by the Merger Agreement.
CERTAIN AGREEMENTS WITH AFFILIATES AND OTHERS. To ensure that the issuance
of Novametrix Common Stock in the Merger complies with the Securities Act, prior
to the Effective Time, Andros will cause to be delivered to Novametrix a list
identifying each person who might immediately prior to the Effective Time be
deemed to be an "affiliate" of Andros for purposes of Rule 145 under the
Securities Act (each, a "Securities Act Affiliate"). Andros shall use its best
efforts to obtain from each person who is identified as a possible Securities
Act Affiliate prior to the Effective Time an agreement providing that such
person will not offer to sell, sell or otherwise dispose of any Novametrix
Common Stock issued to such person in the Merger in violation of the Securities
Act.
COVENANTS--NOVAMETRIX
ACQUISITION PROPOSALS FOR NOVAMETRIX. Until the Effective Time or earlier
termination of the Merger Agreement, Novametrix and its subsidiaries and the
officers, directors, employees or other agents of Novametrix and its
subsidiaries will not, directly or indirectly, (i) take any action to solicit,
initiate or encourage any Novametrix Acquisition Proposal (as defined below) or
(ii) engage in negotiations with, or disclose any nonpublic information relating
to Novametrix or any of its subsidiaries or afford access to the properties,
books or records of Novametrix or any of its subsidiaries to, any person that
may be considering making, or has made, a Novametrix Acquisition Proposal.
Provided that the Board of Directors of Novametrix, after receiving an opinion
of outside counsel to the effect that the Novametrix Board is required to do so
in order to discharge properly its fiduciary duties, may consider, negotiate,
approve and recommend to the stockholders of Novametrix an unsolicited bona fide
written Novametrix Acquisition Proposal which the Novametrix Board determines in
good faith (after consultation with its financial advisors) is made by a person
financially capable of consummating such Novametrix Acquisition Proposal (any
such Novametrix Acquisition Proposal being referred to herein as a "Superior
Novametrix Proposal"). For purposes hereof, "Novametrix Acquisition Proposal"
means any offer or proposal for, or any indication of interest in, a merger or
other business combination involving Novametrix or any of its subsidiaries or
the acquisition of any equity interest in, or a substantial portion of the
assets of, Novametrix or any of its subsidiaries, other than the transactions
contemplated by the Merger Agreement.
Novametrix has agreed to notify Andros promptly after receipt of any
Novametrix Acquisition Proposal or any indication that any person is considering
making a Novametrix Acquisition Proposal or any request for nonpublic
information relating to Novametrix or any of its subsidiaries or for access to
the properties, books or records of Novametrix or any of its subsidiaries by any
person that may be considering making, or has made, a Novametrix Acquisition
Proposal.
If the Board of Directors of Novametrix receives a request for material
nonpublic information by a party who makes a Superior Novametrix Proposal, then,
and only in such case, Novametrix may, subject to the execution of a
confidentiality agreement substantially similar to that then in effect between
Andros and Novametrix, provide such party with access to information regarding
Novametrix. Novametrix agrees not to release any third party from any
confidentiality or standstill agreement to which Novametrix is a party.
ACQUISITION. Novametrix has agreed to take all action necessary to cause
Acquisition to perform its obligations under the Merger Agreement and to
consummate the Merger on the terms and conditions set forth in the Merger
Agreement.
41
<PAGE>
INDEMNIFICATION OF ANDROS OFFICERS AND DIRECTORS. Novametrix has also
agreed that, from and after the Effective Time, Novametrix and Andros will each
indemnify, defend and hold harmless, to the fullest extent permitted by law, the
present and former officers and directors of Andros and its subsidiaries against
all losses, claims, damages and liability in respect of acts or omissions
occurring at or prior to the Effective Time. Novametrix will cause Andros (and
its successors) to establish and maintain provisions in its certificate of
incorporation and by-laws concerning the indemnification and exoneration of
Andros' former and present officers, directors, employees and agents that are no
less favorable to those persons than the provisions of Andros' certificate of
incorporation and by-laws in effect on the date of the Merger Agreement.
INCLUSION IN NASDAQ NATIONAL MARKET. Novametrix will use its reasonable
best efforts to cause the shares of Novametrix Common Stock to be issued in the
Merger (including the Underlying Shares) to be approved for inclusion in the
Nasdaq subject to official notice of issuance, prior to the Effective Time.
AMENDMENT
Any provision of the Merger Agreement may be amended or supplemented at any
time by written agreement of the Company, Acquisition and Andros; provided,
that, the amount and kind of consideration to be received by the holders of
Andros Common Stock as part of the Merger and the terms of the Andros
Certificate of Incorporation may not be altered or changed in any manner, and
the terms of the Merger Agreement may not be altered or changed if such
alteration or change would adversely affect the holders of any shares of capital
stock of Andros after approval and adoption of the Merger Agreement by such
holders, without the further approval of such holders and each party's Board of
Directors.
TERMINATION
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time (notwithstanding any approval of the Merger
Agreement by the stockholders of Andros or the Company): (i) by mutual written
consent of Andros and the Company; (ii) by either Andros or the Company, if the
Merger is not consummated by March 31, 1997 (provided that the right to
terminate the Merger Agreement at such date will not be available to any party
whose failure to fulfill any of its obligations under the Merger Agreement is
the cause of or results in the failure to consummate the Merger by such date);
(iii) by either Andros or the Company, if any applicable domestic law, rule or
regulation makes consummation of the Merger illegal or otherwise prohibited or
if any judgment, injunction, order or decree of a court of competent
jurisdiction restrains or prohibits the consummation of the Merger, and such
judgment, injunction, order or decree becomes final and nonappealable; (iv) by
either Andros or the Company, if stockholder approval of the Merger Proposal by
the stockholders of the Company is not obtained by reason of the failure to
obtain the requisite vote upon a vote at a duly held meeting of stockholders or
at any adjournment thereof; (v) by Andros, if the Board of Directors of the
Company or any committee thereof with the power to do so withdraws or modifies
in a manner adverse to Andros its approval or recommendation of the Merger
Agreement, the Merger or any other transaction contemplated by the Merger
Agreement or recommends, takes a neutral position with respect to, is unable to
take a position with respect to or fails to reject another merger, consolidation
or business combination with, or acquisition of, the Company or its assets or
another tender or exchange offer for shares of Novametrix Common Stock, or
resolves to do any of the foregoing; (vi) by either Andros or the Company (the
"Terminating Party"), if (x) there is a breach by the other party of any
representation or warranty contained in the Merger Agreement which would have or
would be reasonably likely to have a Material Adverse Effect upon the Company or
Andros and their respective subsidiaries taken as a whole, as the case may be,
or (y) there is a material breach of any of the covenants or agreements set
forth in the Merger Agreement on the part of the other party, which breach is
not curable or, if curable, is not cured within 30 days after written notice of
such breach is given by the Terminating Party to the other party; or (vii) by
Andros, if it is disclosed or Andros otherwise learns that ownership of an
aggregate of 50% or more of the then outstanding shares of Novametrix Common
Stock has been acquired by any person and such person's affiliates, other than
Genstar or its affiliates.
42
<PAGE>
If the Merger Agreement is terminated pursuant to the above provisions it
will become void and of no effect with no liability on the part of any party
thereto, except for certain payment provisions described below and certain
agreements with respect to confidential information and except that a party will
remain liable for any willful breaches of the Merger Agreement.
FEES AND EXPENSES
Pursuant to the Merger Agreement, Andros is obligated to pay the Company a
fee of $3,000,000, plus actual, documented out-of-pocket expenses of the Company
and its affiliates relating to the transactions contemplated by the Merger
Agreement (including, but not limited to, reasonable fees and expenses payable
to the Company's counsel, accountants, financial advisors, consultants, banks,
other financial institutions and other persons and their respective agents and
counsel), upon termination of the Merger Agreement by the Company due to a
breach by Andros of its covenant in the Merger Agreement that it will not,
directly or indirectly, (i) take any action to solicit, initiate or encourage
any Andros Acquisition Proposal or (ii) engage in negotiations with, or disclose
any nonpublic information relating to Andros or any of its subsidiaries or
afford access to the properties, books or records of Andros or any of its
subsidiaries to, any person that may be considering making, or has made, an
Andros Acquisition Proposal.
Pursuant to the Merger Agreement, the Company is obligated to pay Andros a
fee of $3,000,000, plus actual, documented out-of-pocket expenses of Andros and
its affiliates relating to the transactions contemplated by the Merger Agreement
(including, but not limited to, reasonable fees and expenses payable to Andros'
counsel, accountants, financial advisors, consultants, banks, other financial
institutions and other persons and their respective agents and counsel), upon
the earliest to occur of the following events: (i) the Merger Agreement is
terminated by Andros because (x) the Board of Directors of the Company or any
committee thereof with the power to do so withdraws or modifies in a manner
adverse to Andros its approval or recommendation of the Merger Agreement, the
Merger or any other transaction contemplated by the Merger Agreement or
recommends, takes a neutral position with respect to, is unable to take a
position with respect to or fails to reject another merger, consolidation or
business combination with, or acquisition of, the Company or its assets or
another tender or exchange offer for shares of Novametrix Common Stock, or
resolves to do any of the foregoing or (y) it shall have been disclosed or
Andros shall have otherwise learned that ownership of an aggregate of 50% or
more of the then outstanding shares of Novametrix Common Stock has been acquired
by any person and such person's affiliates, other than Genstar or its
affiliates, (ii) the Merger Agreement is terminated by Andros due to a breach by
the Company of its covenant in the Merger Agreement that it will not, directly
or indirectly, (x) take any action to solicit, initiate or encourage any
Novametrix Acquisition Proposal or (y) engage in negotiations with, or disclose
any nonpublic information relating to the Company or any of its subsidiaries or
afford access to the properties, books or records of the Company or any of its
subsidiaries to, any person that may be considering making, or has made, a
Novametrix Acquisition Proposal; provided that nothing shall prevent the Board
of Directors of the Company, after receiving an opinion of outside counsel to
the effect that the Novametrix Board is required to do so in order to discharge
properly its fiduciary duties, from considering, negotiating, approving and
recommending to the stockholders of the Company an unsolicited bona fide written
Novametrix Acquisition Proposal which the Novametrix Board determines in good
faith (after consultation with its financial advisors) is made by a person
financially capable of consummating such Novametrix Acquisition Proposal or
(iii) the Merger Agreement is terminated by Andros or the Company as a result of
a failure to obtain the requisite approval of the Company's stockholders if at
the time of the taking of the vote for such approval, or any adjournment
thereof, there shall have been publicly announced, and not withdrawn, a proxy
contest, tender offer, exchange offer, merger or other Novametrix Acquisition
Proposal (the "Pre-Termination Transaction"), and, within 12 months of such
vote, the Company shall enter into, or be the subject of, a transaction which
would qualify as a transaction under the definition of "Novametrix Acquisition
Proposal" or any transaction wherein a person or group of persons acquires 50%
or more of the outstanding voting securities of the Company (inclusive of voting
rights contingent on conversion), in any such case with the same persons, or
affiliates of the persons, who shall have proposed the Pre-Termination
Transaction.
43
<PAGE>
Except as set forth above, all costs and expenses incurred in connection
with the Merger Agreement are to be paid by the party incurring such cost or
expense.
OTHER AGREEMENTS
Contingent upon the consummation of the Merger, the Company and Genstar will
enter into the Voting Agreement pursuant to which, in any written consent or
meeting of stockholders of the Company prior to January 1, 1999, Genstar and the
purchasers or transferees of Genstar Shares will vote the Genstar Shares in
favor of a Board of Directors of the Company, at least one-half of whose members
shall be nominated by a majority of the current directors of the Company who
continue to be directors of the Company on (i) the date such consent is
executed, (ii) the date that notice of such meeting is mailed to stockholders of
the Company or (iii) if no such notice is mailed, the date of such meeting;
provided that no more than two of such nominees may be members of the management
of the Company and that Genstar will not be required under the Voting Agreement
to vote in favor of a Board of Directors of the Company less than half of whose
members are nominees of Genstar. Genstar Shares which are sold to the public
pursuant to (i) an effective registration statement under the Securities Act or
(ii) the exemption from registration provided by Rule 144 under the Securities
Act thereupon cease to be Genstar Shares. The above description is qualified in
its entirety by the copy of the Voting Agreement that is attached hereto as
Appendix C and incorporated herein by reference.
Contingent upon the consummation of the Merger, at the Effective Time, the
Company and the holders of securities of Andros immediately prior to the
Effective Time (the "Andros Stockholders") will enter into a Registration Rights
Agreement. Pursuant to such agreement, beginning nine months after the Effective
Time, at any time and from time to time, the Company will be obligated to use
its reasonable best efforts to cause to be registered under the Securities Act
the sale of any or all shares of Novametrix Common Stock (including the
Underlying Shares) issued in the Merger (as appropriately adjusted) and
beneficially owned by the Andros Stockholders immediately after the Effective
Time (such shares, the "Original Shares") upon the request of the Stockholder
Representative (as defined in the Registration Rights Agreement). The Company
shall not be obligated to file and cause to become effective more than two
registration statements in which shares of Novametrix Common Stock are
registered pursuant to the above demand rights, there shall be at least a
six-month period between such filings and each such demand must cover at least a
number of shares of Novametrix Common Stock equal to 20% of the number of the
Original Shares. Such demand registration rights terminate upon the first to
occur of the tenth anniversary of the Registration Rights Agreement or the date
on which at least 80% of the aggregate number of Original Shares and Underlying
Shares shall have been registered under the Securities Act. Additionally, the
Company will be obligated, subject to certain restrictions, to use its
reasonable best efforts to include in any registration of Novametrix Common
Stock (other than pursuant to a registration statement on Form S-4 or S-8)
effected by the Company additional Original Shares, as requested by the Andros
Stockholders (a "supplemental registration"). The Company will be obligated to
pay all expenses relating to both demand registrations and all supplemental
registrations, except that legal fees and expenses of counsel to Genstar or its
permitted transferees shall not be payable by the Company after the first two
supplemental registrations effected by it. The above description is qualified in
its entirety by the copy of the Registration Rights Agreement that is attached
hereto as Appendix D and incorporated by reference herein.
44
<PAGE>
MARKET FOR NOVAMETRIX COMMON STOCK
Novametrix Common Stock trades on the Nasdaq under the symbol "NMTX". The
following table sets forth the range of high and low sales prices per share for
Novametrix Common Stock for fiscal 1995 and 1996 and a portion of fiscal 1997.
<TABLE>
<CAPTION>
HIGH SALE LOW SALE
------------- -----------
<S> <C> <C>
FISCAL 1995
First Quarter................................................. $ 5 5/8 $ 4
Second Quarter................................................ 7 3/8 5 1/8
Third Quarter................................................. 5 5/8 3 7/8
Fourth Quarter................................................ 5 3/8 4
FISCAL 1996
First Quarter................................................. $ 6 1/4 $ 5
Second Quarter................................................ 5 1/2 4 5/8
Third Quarter................................................. 8 4 5/8
Fourth Quarter................................................ 7 3/4 5 1/2
FISCAL 1997
First Quarter................................................. $ 6 3/4 $ 4 7/8
Second Quarter (through October 22, 1996)..................... 7 5 3/8
</TABLE>
On October 22, 1996, the last sale price of the Novametrix Common Stock as
reported on the Nasdaq was $5.75.
As of September 27, 1996, there were approximately 928 record holders of the
Novametrix Common Stock. No dividends have been declared on Novametrix Common
Stock since the Company was organized. In addition, a loan agreement and a
securities purchase agreement to which the Company is a party and the Company's
Certificate of Designation of Series B Preferred Stock contain, among other
provisions, various covenants restricting the Company's ability to pay cash
dividends to holders of Novametrix Common Stock.
45
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited Pro Forma Consolidated Condensed Balance Sheet as of
July 28, 1996 gives effect to the Merger assuming it had occurred at that date.
The unaudited Pro Forma Consolidated Condensed Statements of Operations for the
three month period ended July 28, 1996 (Andros for the three months ended July
31, 1996) and the year ended April 28, 1996 give effect to the Merger as if it
had occurred as of May 1, 1995. The pro forma information assumes the Merger
will be accounted for under the purchase method of accounting and includes the
effects of the assumptions and adjustments described in the accompanying notes
to the pro forma consolidated condensed financial statements. The pro forma
adjustments which give effect to the Merger are referred to as Pro Forma
Adjustments (Novametrix).
Additionally, the unaudited Pro Forma Consolidated Condensed Statements of
Operations for the three month period ended July 28, 1996 and the year ended
April 28, 1996 give effect to the acquisitions of common shares of Andros Inc.
by Andros, which occurred between March 26, 1996 and May 14, 1996, as if such
acquisitions had occurred as of May 1, 1995. The pro forma information gives
effect to these transactions under the purchase method of accounting and to the
assumptions and adjustments described in the accompanying notes to the pro forma
consolidated condensed financial statements. The pro forma adjustments which
give effect to the acquisition of Andros Inc. by Andros are referred to as Pro
Forma Adjustments (Andros).
The pro forma combined financial information should be read in conjunction
with the historical audited and unaudited financial statements and related notes
thereto of Novametrix, Andros and Andros Inc. included elsewhere in this Proxy
Statement or incorporated herein by reference. These pro forma statements are
presented for informational purposes only and are not necessarily indicative of
the results that actually would have occurred had the pro forma transactions
been consummated at the dates indicated, nor are they necessarily indicative of
the future operating results or financial position of Novametrix. In addition,
they are not intended to be a projection of future results and do not include
any synergies that might be achieved from combining the operations of the two
companies. Permitted pro forma adjustments include only the effects of events
directly attributable to a transaction that are factually supportable and
expected to have a continuing impact. Pro forma adjustments reflecting
anticipated "efficiencies" in operations resulting from a transaction are, under
most circumstances, not permitted. As a result of the limitations imposed with
regard to the types of permitted pro forma adjustments, management believes that
this unaudited pro forma information is not indicative of future results of
operations.
46
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JULY 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED
PRO FORMA ASSUMING ANTI-
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA DILUTION
ANDROS NOVAMETRIX (NOVAMETRIX) CONSOLIDATED(21) PROVISIONS(18)(21)
----------- ----------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 702 $ 297 $ 999 $ 11,713
Accounts receivable............... 7,091 6,625 13,716 13,716
Inventories....................... 9,713 5,640 15,353 15,353
Deferred income taxes............. 2,546 363 2,909 2,909
Prepaid expenses and other........ 3,591 309 3,900 3,900
----------- ----------- ------------ ------- --------
Total current assets............ 23,643 13,234 36,877 47,591
PROPERTY, PLANT AND
EQUIPMENT--NET.................... 6,602 1,228 7,830 7,830
$ 31,454 (15
INTANGIBLE ASSETS--NET.............. 21,395 4,458 (22,700) 16) 34,607 44,796
DEFERRED INCOME TAXES--NET.......... 771 771 771
OTHER ASSETS........................ 3,784 3,784 3,784
----------- ----------- ------------ ------- --------
Total........................... $ 55,424 $ 19,691 $ 8,754 $ 83,869 $ 104,772
----------- ----------- ------------ ------- --------
----------- ----------- ------------ ------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................. $ 3,310 $ 1,204 $ 4,514 $ 4,514
Accrued expenses.................. 4,735 1,823 $ 2,600 (14) 9,158 9,158
Income tax payable................ 1,041 1,041 1,041
Current portion of long-term
debt............................ 7,075 1,225 8,300 8,300
----------- ----------- ------------ ------- --------
Total current liabilities......... 16,161 4,252 2,600 23,013 23,013
LONG-TERM DEBT...................... 37,215 1,208 38,423 38,423
DEFERRED TAXES...................... 5,662 5,662 5,662
REDEEMABLE PREFERRED STOCK.......... 1,000 1,000 1,000
SHAREHOLDERS' EQUITY (DEFICIT):
Capital stock..................... 1 71 (1)(12) 115 162
44 (12)
Additional paid-in capital........ 18,476 28,116 25,196 (12) 53,312 74,168
(18,476)(12)
Retained (deficit) earnings....... (22,091) (12,469) 22,091 (13) (35,169) (35,169)
(22,700)(16)
Treasury stock.................... (2,487) (2,487) (2,487)
----------- ----------- ------------ ------- --------
(3,614) 13,231 6,154 15,771 36,674
----------- ----------- ------------ ------- --------
Total........................... $ 55,424 $ 19,691 $ 8,754 $ 83,869 $ 104,772
----------- ----------- ------------ ------- --------
----------- ----------- ------------ ------- --------
Book value per share.............. $ 1.97 $ 1.42 $ 2.33
----------- ------- --------
----------- ------- --------
</TABLE>
(SEE ENDNOTES)
47
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JULY 28, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL CONSOLIDATED
ANDROS PRO FORMA ASSUMING
(MAY 1, 1996 TO HISTORICAL ADJUSTMENTS PRO FORMA ANTI-DILUTION
JULY 31, 1996) NOVAMETRIX (NOVAMETRIX) CONSOLIDATED(21) PROVISIONS(18)(21)
--------------- ----------- ------------ --------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales............................ $ 9,608 $ 6,422 $ 16,030 $ 16,030
Costs and expenses:
Cost of products sold................ 5,749 2,739 8,488 8,488
Research and product development..... 857 799 1,656 1,656
Amortization of patents and
goodwill........................... 255 $ 87 (17) 342 444
Amortization of loan origination
fee................................ 294 294 294
Selling, general and
administrative..................... 1,445 2,277 3,722 3,722
Interest, net........................ 1,056 52 1,108 1,108
Other expense (income), net.......... (326) 7 (319) (319)
------- ----------- ------------ --------------- -----------------
9,330 5,874 87 15,291 15,393
------- ----------- ------------ --------------- -----------------
Income before income taxes............. 278 548 (87) 739 637
Income tax provision (benefit)......... 105 (100) 5 5
------- ----------- ------------ --------------- -----------------
Net income............................. $ 173 $ 648 $ (87) $ 734 $ 632
------- ----------- ------------ --------------- -----------------
------- ----------- ------------ --------------- -----------------
Earnings per common share (primary and
fully diluted)....................... N/A $ 0.08 $ 0.05 $ 0.04
------- ----------- --------------- -----------------
------- ----------- --------------- -----------------
Number of shares used in computing
earnings per share................... N/A 8,161,052 6,168,144 14,329,196 14,329,196
------- ----------- ------------ --------------- -----------------
------- ----------- ------------ --------------- -----------------
</TABLE>
(SEE ENDNOTES)
48
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED APRIL 28, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL(A)
--------------------------------
ANDROS INC. ANDROS (MARCH PRO FORMA PRO FORMA
(MAY 1, 1995 TO 27, 1996 TO ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
MARCH 26, 1996) APRIL 30, 1996) (ANDROS) ANDROS NOVAMETRIX (NOVAMETRIX) CONSOLIDATED(21)
--------------- --------------- ------------- --------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales....... $ 34,956 $ 6,618 $ 41,574 $ 25,260 $ 66,834
Interest........ 14 14
------- --------------- ------------- --------- ----------- ------------ ---------------
34,956 6,618 41,574 25,274 66,848
Costs and
expenses:
Cost of products
sold.......... 28,200 4,209 $ 250(9) 32,659 10,930 43,589
Research and
product
development... 4,919 328 (150)(11) 5,197 2,714 7,911
100(9)
Research and
product
development in
process....... 22,700 (22,700)(7)
Amortization of
patents and
goodwill...... 468 85 488(8) 1,041 $ 337 (17) 1,378
Amortization of
loan
origination
fee........... 96 956(10) 1,052 1,052
Selling, general
and
administrative.. 12,255 520 (2,082)(11) 10,843 9,137 19,980
150(9)
Stock option
compensation
expense....... 4,114 (4,114)(20)
Interest........ 463 4,021(5) 4,484 287 4,771
Other expense
(income),
net........... (1,129) (12) 1,061(6) (80) 69 (11)
------- --------------- ------------- --------- ----------- ------------ ---------------
48,827 28,389 (22,020) 55,196 23,137 337 78,670
------- --------------- ------------- --------- ----------- ------------ ---------------
(Loss) income
before income
taxes........... (13,871) (21,771) 22,020 (13,622) 2,137 (337) (11,822)
Income tax
(benefit)
provision ...... (6,521) 493 (258)(19) (6,286) (980) (7,266)
------- --------------- ------------- --------- ----------- ------------ ---------------
Net (loss)
income.......... $ (7,350) $ (22,264) $ 22,278 $ (7,336) $ 3,117 $ (337) $ (4,556)(a)
------- --------------- ------------- --------- ----------- ------------ ---------------
------- --------------- ------------- --------- ----------- ------------ ---------------
Earnings (loss)
per common share
(primary and
fully
diluted)(2)..... N/A N/A N/A $ 0.39 $ (0.32)
------- --------------- --------- ----------- ------------ ---------------
------- --------------- --------- ----------- ------------ ---------------
Number of shares
used in
computing
earnings per
share........... N/A N/A N/A 8,076,717 6,168,144 14,244,861
------- --------------- --------- ----------- ------------ ---------------
------- --------------- --------- ----------- ------------ ---------------
<CAPTION>
PRO FORMA
CONSOLIDATED
ASSUMING ANTI-
DILUTION
PROVISIONS(18)(21)
-----------------
<S> <C>
Revenues:
Net sales....... $ 66,834
Interest........ 14
-----------------
66,848
Costs and
expenses:
Cost of products
sold.......... 43,589
Research and
product
development... 7,911
Research and
product
development in
process.......
Amortization of
patents and
goodwill...... 1,786
Amortization of
loan
origination
fee........... 1,052
Selling, general
and
administrative.. 19,980
Stock option
compensation
expense.......
Interest........ 4,771
Other expense
(income),
net........... (11)
-----------------
79,078
-----------------
(Loss) income
before income
taxes........... (12,230)
Income tax
(benefit)
provision ...... (7,266)
-----------------
Net (loss)
income.......... $ (4,964)(a)
-----------------
-----------------
Earnings (loss)
per common share
(primary and
fully
diluted)(2)..... $ (0.35)
-----------------
-----------------
Number of shares
used in
computing
earnings per
share........... 14,244,861
-----------------
-----------------
</TABLE>
- ------------------------------
(a) Reflects $9.4 million of charges and costs incurred by Andros Inc. in
conjunction with, but not directly related to, the acquisition. These
charges and costs relate to accounts receivable, inventories, product
warranty, property taxes and other liabilities. Charges of $5.0 million,
$0.4 million and $4.0 million are included in cost of products sold,
research and product development and selling, general and administrative.
(SEE ENDNOTES)
49
<PAGE>
- ------------------------------
(1) Under the Merger Agreement, Novametrix will issue to the stockholders of
Andros shares of Novametrix Common Stock constituting 38% of the combined
company at the Effective Time of the Merger. After the end of Novametrix'
fiscal year ending May 3, 1998, additional shares of Novametrix Common Stock
constituting up to 5% of the Company may be issued, and reserved for
issuance to option and warrant holders of Andros, based upon Andros' net
revenues or the combined company's consolidated EBITDA. In addition,
Novametrix will issue to the stockholders of Andros anti-dilution Rights
enabling the holders to maintain, without additional payment, their
percentage ownership level as Novametrix options and warrants outstanding at
the Effective Time of the Merger are exercised. The Pro Forma Consolidated
Condensed Balance Sheet reflects the assumed issuance of 4,389,589 shares of
Novametrix Common Stock (based on the outstanding shares of Novametrix at
July 28, 1996) in exchange for all outstanding shares of Andros Common
Stock. The number of shares of Novametrix Common Stock to be issued is based
upon the exchange ratio of 48.8818 shares of Novametrix Common Stock for
each share of Andros Common Stock. The actual number of shares of Novametrix
Common Stock to be issued in the Merger will be determined at the Effective
Time of the Merger. The market value of a share of Novametrix Common Stock
is assumed to be $5.75 per share (the Nasdaq closing price per share at July
26, 1996).
(2) Earnings per share for the period and the year presented are based on the
weighted-average number of shares of Novametrix Common Stock and dilutive
common stock equivalents outstanding during the year. Common stock
equivalents consist of Series B Preferred Stock, stock options, warrants and
shares subscribed under the Stock Purchase Plan. The weighted average shares
presented on both the Pro Forma Consolidated and Pro Forma Consolidated
Assuming Anti-Dilution Provisions information includes all shares which are
contingently issuable pursuant to the Rights and the outstanding warrants of
Andros which will be converted to Novametrix warrants.
(3) The Pro Forma Consolidated Condensed Balance Sheet as of July 28, 1996
reflects Andros' balances as of July 31, 1996. The Pro Forma Consolidated
Statement of Operations for the three month period ended July 28, 1996
reflects Novametrix' results of operations for the three month period ended
July 28, 1996 and Andros' results of operations for the three month period
ended July 31, 1996. The Pro Forma Consolidated Statement of Operations for
the year ended April 28, 1996 reflects Novametrix' results of operations for
its fiscal year ended April 28, 1996 and the results of operations for
Andros Inc. and Andros for the year ended April 30, 1996.
(4) Genstar created Andros expressly for the purpose of acquiring Andros Inc., a
public company traded on the Nasdaq. On March 26, 1996, Andros Acquisition
closed the Tender Offer for all of the shares of Andros Inc. for $18.00 per
share. As a result of the Tender Offer, Andros Acquisition acquired
approximately 58% of the outstanding shares of Andros Inc. At this time
Andros initiated the process whereby it would acquire the remaining Andros
Inc. shares it did not own, through a merger of Andros Acquisition and
Andros Inc. which it could cause to happen as a result of Andros Acquisition
owning a majority of the then outstanding shares of Andros Inc. As a
consequence of the pending merger, Andros accrued the cost of acquiring the
remaining Andros Inc. shares outstanding and cashing out the outstanding
options. On May 14, 1996, Andros acquired 100% of the shares of Andros Inc.
as a result of the merger of Andros Acquisition with and into Andros Inc. in
which Andros Inc. became a wholly owned subsidiary of Andros. Before the
closing of the Andros Merger, the Dissenters, representing approximately
723,000 shares of Andros Inc., exercised their appraisal rights (under
Delaware corporate law). As part of the financing for the Andros Merger,
Andros borrowed $27,000,000 under the Term Loan from the Banks. As a result
of the Dissenters seeking appraisal rights for their shares, Andros did not
have to fund the purchase of the Dissenters' shares at the time of the
Andros Merger and had approximately $7,000,000 of excess cash. In early June
1996, in an effort to reduce its interest costs, Andros agreed with the
Banks to repay $7,000,000 of the Term Loan with the understanding that it
would be able to re-borrow the same amount at a later date. On July 12, 1996
the Dissenters withdrew their appraisal rights. At that time, Andros paid
the Dissenters approximately $13,031,000, which it financed through
re-borrowing the $7,000,000 it had repaid on the Term Loan in June, the
drawing of approximately $5,400,000 under the Revolving Credit Facility and
with approximately $631,000 of cash on hand.
(5) To give effect to an increase in interest expense assuming the $27.0 million
variable rate term debt (currently 8.5%), the $15.0 million 13% subordinated
debt, and the $5.4 million variable rate credit facility (currently 10%)
used in the financing of the Andros Merger had been outstanding as of May 1,
1995.
50
<PAGE>
(6) To give effect to a reduction in interest income assuming the use of $26.0
million of the cash of Andros Inc. used in the financing of the Andros
Merger had occurred as of May 1, 1995.
(7) Andros acquired Andros Inc. on March 26, 1996 in a transaction accounted for
as a purchase and recorded a $22.7 million non-recurring write-off of
in-process technology during the period from March 27, 1996 to April 30,
1996.
(8) Assumes the Andros Merger occurred as of May 1, 1995 and the resulting
goodwill and purchased technology of $21.3 million was amortized beginning
May 1, 1995 using a twenty-five year amortization period. The Pro forma
adjustment represents the incremental amortization. Pro forma goodwill and
patent amortization is $844,000 and $197,000, respectively.
(9) To reflect the increase in depreciation expense due to the fair market
adjustment to fixed assets of $2.5 million resulting from the Andros Merger.
These assets are being depreciated over their remaining useful lives, which
average approximately five years.
(10) To give effect to the amortization of $3.8 million in loan origination
costs and $1.4 million in debt discounts associated with the Andros Merger.
The fees and discount are being amortized over the term of the loan (5
years). Pro forma amortization of fees and discount is $707,000 and
$345,000, respectively.
(11) To reflect benefits resulting from certain cost saving measures implemented
in the year ended April 30, 1996. The following table summarizes the
adjustments:
<TABLE>
<CAPTION>
SELLING, GENERAL
RESEARCH AND AND
DEVELOPMENT ADMINISTRATIVE
------------ -----------------
<S> <C> <C>
Management restructuring (a)............................................. $ 150,000 $ 280,000
Elimination of the European service center (b)........................... 1,052,000
Elimination of public reporting requirements (c)......................... 400,000
Selling, general and administrative (d).................................. 350,000
------------ -----------------
$ 150,000 $ 2,082,000
------------ -----------------
------------ -----------------
</TABLE>
(a) MANAGEMENT RESTRUCTURING
Reflects the elimination of two senior officers in conjunction with
the Andros Merger.
(b) ELIMINATION OF THE EUROPEAN SERVICE CENTER
The cost savings resulted from the elimination of the European
service center located in Belp, Switzerland in April 1996.
(c) ELIMINATION OF PUBLIC REPORTING REQUIREMENTS
Costs eliminated due to the absence of public reporting requirements
resulting from going private. These costs included shareholder
communications, accounting and legal fees (reflects savings based on
the difference between current fees and expected fees for a private
company of comparable size), investor relations and annual report
costs.
(d) SELLING, GENERAL AND ADMINISTRATIVE
The adjustment reflects: transaction based requirement to cover
directors and officers of Andros Inc. for directors and officers
insurance--$122,000; and severance and related payroll taxes to a
former officer of Andros Inc.--$228,000.
(12) The Pro Forma Adjustments (Novametrix) reflect the assumed issuance of
4,389,586 shares of Novametrix Common Stock to stockholders of Andros in
exchange for all of the outstanding shares of Andros (4,389,586 multiplied
by the Nasdaq closing price of $5.75 per share at July 26, 1996).
(13) The Pro Forma Adjustments (Novametrix) include adjustments to eliminate
Andros capital stock and accumulated deficit.
(14) The Pro Forma Adjustments (Novametrix) reflect the transaction fees (legal,
accounting, printing and other costs) directly attributable to the Merger.
51
<PAGE>
(15) The Pro Forma Adjustments (Novametrix) represent the portion of the
purchase price allocated to research and development in-process ($22.7
million) and the excess of the purchase price over the fair value of net
assets acquired (goodwill) ($8.7 million). All other assets and liabilities
acquired are reflected in the pro forma financial statements at their
historical cost which is assumed to approximate their fair value. The
purchase price allocation is based on preliminary information and will be
adjusted based on completion of appropriate valuation studies.
(16) The Pro Forma Adjustments (Novametrix) reflect the write off of purchased
in-process research and development.
(17) The Pro Forma Adjustments (Novametrix) reflect the increased amortization
expense as a result of the increase in goodwill. Goodwill is amortized over
25 years.
(18) The Pro Forma Consolidated Condensed Balance Sheet Assuming Anti-Dilution
Provisions reflects the assumed exercise of all outstanding options and
warrants of Novametrix at July 28, 1996 and the resulting issuance of an
additional 1,772,023 shares of Novametrix Common Stock pursuant to the
Rights. The exercise of all Novametrix options and warrants will result in
cash proceeds of $10.7 million. The issuance of shares of Novametrix Common
Stock pursuant to the Rights will result in additional goodwill of $10.0
million and additional annual amortization of $0.4 million.
(19) To reflect the income tax effect of the Pro Forma Adjustments (Andros)
based on the statutory rate of 38%.
(20) To eliminate the compensation expense anticipated with cashing out 566,283
Andros options resulting from the Andros Merger.
(21) Assuming Andros' revenues or the combined company's consolidated EBITDA
reach specified targets, as set forth in the Merger Agreement, for the
fiscal year ending May 3, 1998, intangible assets and equity, as reported in
the Pro Forma Consolidated Condensed Balance Sheet, would be $40.4 million
and $21.5 million, respectively. Net income and earnings per share, as
reported in the Pro Forma Consolidated Condensed Statement of Operations for
the three month period ended July 31, 1996 and for the year ended April 28,
1996, would be $1.4 million and $0.09, and $7.2 million and $0.46,
respectively.
Additionally, intangible assets and equity as reported in the Pro Forma
Consolidated Condensed Balance Sheet Assuming Anti-Dilution Provisions would
be $52.9 million and $44.8 million, respectively. Net income and earnings
per share, as reported in the Pro Forma Consolidated Condensed Statement of
Operations Assuming Anti-Dilution Provisions for the three month period
ended July 31, 1996 and for the year ended April 28, 1996, would be $1.3
million and $0.08, and $6.7 million and $0.43, respectively.
52
<PAGE>
SELECTED CONSOLIDATED FINANCIAL
INFORMATION OF NOVAMETRIX
Set forth below is selected financial information of Novametrix.
(In thousands, except per share amounts)(1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
-------------------------- -------------------------------------------------------------
JULY 28, JULY 30, APRIL 28, APRIL 30,
1996 1995 1996(1) 1995(1) MAY 1, 1994(1) MAY 2, 1993
------------ ------------ --------------- --------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
For Period Ended
Net Sales............................ $ 6,422 $ 6,081 $ 25,260 $ 24,032 $ 20,788 $ 19,888
Net Income........................... 648(2) 388 3,117(3) 1,604 755 265
Earnings Per Common Share (Primary
and Fully Diluted)................. $ 0.08 $ 0.05 $ 0.39 $ 0.21 $ 0.11 $ 0.04
At Period End
Total Assets......................... $ 19,691 $ 16,881 $ 18,823 $ 16,606 $ 15,271 $ 15,531
Working Capital...................... 8,981 6,913 8,364 6,412 2,143 1,406
Long-term Debt....................... 1,208 2,183 1,333 2,308 3,560 4,293
Redeemable Preferred Stock........... 1,000 1,000 1,000 1,000 1,000 1,000
Shareholders' Equity................. 13,231 9,693 12,529 9,152 3,283 2,385
<CAPTION>
MAY 3, 1992
-----------
<S> <C>
For Period Ended
Net Sales............................ $ 21,018
Net Income........................... 200
Earnings Per Common Share (Primary
and Fully Diluted)................. $ 0.03
At Period End
Total Assets......................... $ 16,526
Working Capital...................... 835
Long-term Debt....................... 4,588
Redeemable Preferred Stock........... 1,000
Shareholders' Equity................. 2,042
</TABLE>
- --------------------------
(1) The above data should be read in conjunction with the consolidated financial
statements, related notes and other financial information set forth
elsewhere in this Proxy Statement or incorporated herein by reference
(2) Reflects an income tax benefit of $115,000, or $0.01 per share, attributable
to a reduction in the deferred tax asset valuation allowance.
(3) Reflects an income tax benefit of $1,020,000, or $0.13 per share,
attributable to a reduction in the deferred tax asset valuation allowance.
53
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF NOVAMETRIX
RESULTS OF OPERATIONS
QUARTER ENDED JULY 28, 1996 COMPARED TO QUARTER ENDED JULY 30, 1995
Operating results for the first quarter of fiscal 1997 ended July 28, 1996
were improved compared to the first quarter ended July 30, 1995. Net sales for
the first quarter increased to approximately $6,422,000 compared to
approximately $6,081,000 for the first quarter of the prior fiscal year. Income
before income taxes increased by 38% for the first quarter of fiscal 1997
compared to the first quarter of fiscal 1996 while net income increased by 67%
to approximately $648,000 or $.08 per share for the first quarter of fiscal 1997
compared to net income of approximately $388,000 or $.05 per share reported for
the first quarter of the prior fiscal year. Net income for the first quarter of
fiscal 1997 includes an income tax benefit of $115,000 or $.01 per share
pertaining to the reduction of the Company's deferred tax asset valuation
allowance.
Net sales increased by 6% when comparing the quarter ended July 28, 1996 to
the quarter ended July 30, 1995. The increase was led by continued growth in
sales to international customers and original equipment manufacturers ("OEMs")
which was slightly offset by a modest decrease in domestic hospital sales.
Cost of products sold as a percentage of net sales was unchanged overall at
43% for the first quarter of fiscal 1997 compared to the first quarter of the
prior fiscal year. The Company's continued focus on product cost improvements
and new product development is expected to have a favorable effect on margins
during the remainder of fiscal 1997.
Research and product development ("R&D") expenses increased by approximately
$114,000 or 17% for the first quarter of fiscal 1997 compared to the first
quarter of fiscal 1996. The increase was primarily due to higher levels of
salaries and related fringe benefits, development materials and outside
professional services, and corresponds to the Company's aggressive product
development efforts. The Company expects to maintain its on-going R&D spending
levels at approximately 10% of net sales to continue to enhance its competitive
position.
Selling, general and administrative ("S,G&A") expenses decreased by
approximately $35,000 or 2% for the first three months of fiscal 1997 compared
to the first three months of the prior fiscal year. The decreases in S,G&A
resulted primarily from cost efficiencies generated in both the international
sales and field service areas which were partially offset by increases in
domestic sales expense related to the Company's efforts to strengthen its U.S.
sales operations. Marketing expenditures increased modestly for the first
quarter of fiscal 1997 compared to the first quarter of fiscal 1996 due to
increased personnel related costs and increased travel related expenses to
support the Company's expanded clinical activities. Administrative expenses for
the three months ended July 28, 1996 remained at the same levels as the three
months ended July 30, 1995.
Interest expense decreased by approximately $23,000 or 30% for the quarter
ended July 28, 1996 compared to the quarter ended July 30, 1995. The improvement
resulted primarily from reduced bank debt levels as a result of scheduled
principal payments.
Income taxes for the first quarter of fiscal 1997 include $15,000 of current
income tax expense calculated on an alternative minimum tax basis due to the
Company's net operating loss carryforwards. In addition, the Company reduced its
deferred tax asset valuation allowance and recognized a benefit of $115,000 due
to continued improvement in earnings and increased probability of future taxable
income. Management will continue to evaluate whether future reductions in the
valuation allowance are warranted based on future operating performance and
other relevant factors.
54
<PAGE>
The Company's backlog of firm orders aggregated approximately $3,619,000 as
of July 28, 1996 compared to approximately $4,292,000 as of April 28, 1996.
Except for orders pursuant to long-term OEM agreements, the Company
traditionally ships its products on a current basis. As such, the Company does
not consider its backlog at any time to be a meaningful indicator of future
sales.
YEAR ENDED APRIL 28, 1996 COMPARED TO YEAR ENDED APRIL 30, 1995
Net sales increased by approximately $1.2 million or 5% to approximately
$25.3 million for the fiscal year ended April 28, 1996 ("Fiscal 1996") as
compared to net sales of approximately $24.0 million for the fiscal year ended
April 30, 1995 ("Fiscal 1995"). International sales grew by 17% for Fiscal 1996
while sales to OEM customers increased by 24% as the Company expanded its OEM
customer base. While product sales to the Company's domestic hospital markets
were approximately 6% higher for Fiscal 1996, overall domestic sales decreased
by approximately 8% due to reduced sales of the Company's products in the non-
hospital markets. The Company anticipates improvement in both hospital and
non-hospital sales in the next fiscal year as a result of strategic distribution
enhancements recently implemented as part of the Company's fiscal 1997 business
plan.
Cost of sales as a percentage of net sales improved to 43% for Fiscal 1996
from 44% for the prior fiscal year primarily due to favorable product mix.
Improved margins on international sales were partially offset by relatively
modest percentage increases in domestic hospital product cost of sales. The
Company is continuing its efforts to reduce costs as a percentage of net sales
and expects new product development programs, product quality enhancements and
other cost reduction efforts to contribute to these efforts.
R&D expenses increased by 12% or approximately $295,000 to $2,714,000 during
Fiscal 1996 as compared to $2,419,000 for Fiscal 1995. The increase resulted
primarily from higher levels of salaries and related fringe benefits and outside
professional services incurred in conjunction with the Company's expanded
product development efforts, which were partially offset by reductions in
engineering supplies and materials. The Company expects its R&D spending to
continue to approximate 10% of net sales for fiscal 1997.
S,G&A expenses increased by approximately 2% to $9,137,000 for Fiscal 1996
as compared to $8,978,000 for Fiscal 1995. Increased selling expenses associated
with higher levels of sales, particularly in the international area, were
partially offset by reduced marketing expenses. Increased salaries and related
fringe benefits in the marketing area were offset by decreased outside
professional services. General and administrative expenses increased nearly 8%
during Fiscal 1996 primarily as a result of increased legal, external reporting
and recruitment expenses.
Interest expense during Fiscal 1996 decreased by 23% as a result of lower
debt levels primarily associated with the Company's public offering consummated
during the first quarter of Fiscal 1995 (June 1994), and scheduled principal
payments.
Current income tax expense of $40,000 for Fiscal 1996 was unchanged from
Fiscal 1995 and was calculated on an alternative minimum tax basis after
utilizing a portion of the Company's net operating loss carryforwards. In 1995
and prior years, the Company maintained a valuation allowance for the total
amount of net deferred tax assets related to tax credit carryforwards, net
operating loss carryforwards and temporary timing differences since management
believed that it was uncertain whether the tax benefits associated with these
assets would ultimately be realized. Because of the continued improvement in the
performance of the Company in 1996, management believes that it is more likely
than not that a portion of these benefits will be realized and, in accordance
with the provisions of Statement of Financial Accounting Standards No. 109, has
reduced the valuation allowance and recognized a benefit of $1,020,000 in the
1996 financial statements. Management will continue to evaluate whether further
reductions in the valuation allowance are warranted based on future operating
performance and other relevant factors.
55
<PAGE>
YEAR ENDED APRIL 30, 1995 COMPARED TO YEAR ENDED MAY 1, 1994
Net sales increased by 16% to approximately $24,000,000 in Fiscal 1995
compared to net sales of approximately $20,800,000 in the fiscal year ended May
1, 1994 ("Fiscal 1994"). International revenue growth of 28% was the largest
single contributing factor. Sales of sensors and electronics to OEM customers
who utilize the Company's technology in their systems, were responsible for
approximately $1.4 million of the growth in overall sales revenues. Sales to
domestic markets were 2 percent lower than sales to these markets recorded in
Fiscal 1994. The Company expected continued improvement in international and OEM
sales levels in Fiscal 1996, and domestic sales were also expected to strengthen
as the result of strategic changes implemented in the domestic sales effort.
Cost of sales as a percentage of net sales increased from 43% to 44% when
comparing Fiscal 1995 to Fiscal 1994, primarily due to the higher international
content of net sales reported. On-going quality and cost reduction efforts, with
significant contributions from both the manufacturing and new product
development areas, were expected to minimize any potential impact on margins due
to the continued growth of international sales as a percentage of overall
revenues.
R&D expenses increased by 24% to approximately $2,419,000 compared to
$1,954,000 reported in Fiscal 1994. This increase of almost $465,000 resulted
primarily from higher levels of salaries and related fringe benefit costs,
supplies, and outside services associated with increased product development
efforts. Costs associated with providing new OEM customers with technical
development assistance, and increased depreciation expense associated with
higher levels of assets, also contributed to the year-to-year increase.
S,G&A expenses increased by 5% when comparing Fiscal 1995 expenses to Fiscal
1994 expenses. Selling, marketing and service related administrative costs
accounted for 3% of the overall S,G&A increase as the result of increased
international selling expenses associated with the higher levels of sales
activities abroad, partially offset by a reduction in domestic selling and
marketing expenses. General and administrative expenses accounted for the
remaining 2% due to increased accounting and reporting fees, and higher
insurance costs. The Company expected to commit additional resources toward
enhancing domestic hospital and non-hospital revenues in Fiscal 1996, as well as
supporting the increases in international sales activities.
Interest expense in Fiscal 1995 decreased by 46% compared to Fiscal 1994 due
to significantly lower debt levels as the result of the public offering
consummated in June 1994. Scheduled principal payments during Fiscal 1995 also
contributed to the lower debt levels, and were expected to continue to have a
positive impact on interest expenses in Fiscal 1996.
Other expense (income), net, exclusive of the favorable $140,000 settlement
of a contractual dispute in Fiscal 1994, increased by approximately $9,000
compared to Fiscal 1994.
Income tax expense of $40,000 for Fiscal 1995 resulted from higher taxable
income levels compared to the prior year and was calculated on an alternative
minimum tax method after the utilization of a portion of the Company's net
operating loss carryforwards.
LIQUIDITY AND SOURCES OF CAPITAL
The Company requires sufficient liquidity to source its working capital
needs which are primarily inventory, accounts receivable and debt service. Cash
flow from operations is the principal source of the Company's working capital.
The Company also has available borrowing under its revolving credit facility to
cover periodic fluctuations in its working capital requirements and further,
believes that additional funds, if required, could be obtained from various
sources on commercially reasonable terms. In addition, the Company has
approximately $5,600,000 of additional net proceeds that may be realized upon
the exercise of both Class A and Class B Warrants issued in June 1994, which are
redeemable by the Company under specified conditions.
The Company had working capital of approximately $8,982,000 at July 28, 1996
compared to working capital of approximately $8,364,000 at April 28, 1996. The
Company's current ratio of 3.1 to 1 remained unchanged at July 28, 1996 from
April 28, 1996. The increase in working capital of approximately $618,000
56
<PAGE>
was primarily generated by increases in accounts receivable and prepaid
expenses, offset by increases in accrued expenses.
Approximately $217,000 of cash was provided by operations for the three
months ended July 28, 1996 compared to approximately $107,000 for the three
months ended July 30, 1995. Increases in net income before depreciation,
amortization and deferred income tax benefits combined with increases in accrued
expenses, partially offset by increases in accounts receivable and prepaid
expenses, accounted for the increase.
The Company had additional borrowing capacity of approximately $1,525,000
available for working capital needs under its revolving credit facility at both
July 28, 1996 and April 28, 1996. In addition, the warrants associated with the
public offering are callable by the Company, 50% after December 8, 1995 and 50%
after December 8, 1996, in each case if the common stock price of the Company
exceeds specified levels. The Company believes that cash from operations will be
sufficient to fund cash requirements for fiscal 1997.
IMPACT OF INFLATION
The rate of inflation continues to have a marginal impact on the operations
of the Company. While management routinely assesses the possible effects of
inflation with respect to the Company's future business plans, the rate of
inflation is not expected to have a material impact upon the growth of the
Company during fiscal 1997.
RISKS ASSOCIATED WITH THE NOVAMETRIX BUSINESS
Set forth below are some of the material risks associated with Novametrix'
business and operations:
(i) The electronic medical instrumentation industry is characterized by
rapid technological changes and advances. Although the Company believes that its
products are technologically current, the development of new technologies or
refinements of existing ones could at any time make the Company's existing
products technologically or economically obsolete.
(ii) The Company and one of its wholly owned subsidiaries hold patents and
have patents pending related to certain of the Company's products. If the
Company's products are determined to use technology, processes or other subject
matter that is claimed under other existing U.S. or foreign patents, or if other
companies obtain patents claiming subject matter utilized by Novametrix, such
companies may bring infringement actions against Novametrix. The Company may not
have the resources necessary to challenge successfully the validity of such
patents or withstand claims of infringement in cases where the Company's
position has merit. Even if Novametrix were to be successful in prevailing in
such actions, the cost of such litigation could have a material adverse effect
on the Company's results of operations. An adverse outcome could subject
Novametrix to significant liabilities to third parties, require disputed rights
to be licensed or require Novametrix to cease using such technology. There can
be no assurance that the Company will be able to obtain such licenses or that
such licenses, if available, can be obtained on commercially reasonable terms.
(iii) The Company relies on trade secrets and proprietary know-how, which it
will seek to protect, in part, by confidentiality agreements with certain of its
employees, suppliers and customers. However, if the Company's confidentiality
agreements are breached, if the Company does not have adequate remedies for any
such breach or if the Company's trade secrets or proprietary know-how otherwise
become known or independently discovered by competitors, the Company's business
could be materially adversely affected.
(iv) The electronic medical instrumentation industry is extremely
competitive. The Company's competitors vary in size from entities which are
smaller than the Company to divisions or subsidiaries of multinational
corporations. Some of these competitors also have extensive production
facilities, well established marketing and service organizations, recognized
reputations in the electronic medical instrumentation industry and far greater
financial resources than the Company has or will have in the foreseeable future.
57
<PAGE>
(v) The Company's products are "medical devices" within the meaning of a
1976 amendment to the Federal Food, Drug and Cosmetics Act. Under the amendment,
a manufacturer must obtain approval by the United States Food and Drug
Administration (the "FDA") of a new medical device before it can be marketed in
the United States. The approval process requires that the safety and efficacy of
such devices be demonstrated by the manufacturer to the FDA. Under certain
circumstances, the cost of obtaining such premarketing approval may be high and
the process lengthy. All of the products currently marketed domestically by the
Company requiring pre-marketing approval from the FDA have been so approved.
Following regulatory approval, commercially marketed products, as well as
the manufacturer and manufacturing facility, are subject to periodic review and
inspections. In the event of a discovery of previously unknown problems with a
Novametrix product, then restrictions on the product or Novametrix, including
recalls (which could require costly redesign or reconfiguration of Novametrix'
product) or even withdrawal of the product from the market could result, any of
which could have a material adverse effect on Novametrix.
In the future, certain other industry-wide performance standards with
respect to safety and efficacy of medical products are likely to be promulgated
by the FDA. The FDA has not yet developed industry-wide performance standards
with respect to the safety and effectiveness of those products manufactured by
the Company which would be subject to such standards. When and if these
standards are adopted, the Company will be required to submit data demonstrating
compliance with the standards (during which period the Company may be permitted
to continue to market products which have previously been approved by the FDA).
There can be no assurance that the Company's products will comply with the
applicable industry-wide performance standards when and if adopted or that the
Company will receive the requisite approval to market any of its future
products. Any failure to receive approvals or non-compliance with performance
standards would have a material adverse effect on the Company's business and
financial position.
Various countries in which the Company markets its products have regulatory
agencies which perform functions comparable to the FDA. To date, foreign
regulations have not adversely affected the Company's business; however, there
can be no assurance that any such regulations will not have a material adverse
affect on the Company's business and financial condition in the future.
(vi) The Company believes that its success will be highly dependent upon its
continued ability to attract and retain skilled managers and engineering
personnel, including its President and Chief Executive Officer, William J.
Lacourciere.
(vii) Substantially all of the components in the Company's products are
manufactured by others and then assembled by the Company. The Company's assembly
operations require a variety of electronic and mechanical components and
supplies as well as specialized assembly equipment. The Company has not
experienced any interruption of production or supplies of components, supplies
or equipment. Interruption of the Company's sources of supply or quality
problems with supplied components would have a material adverse effect on the
Company's business and financial position.
(viii) From time to time, the Company is subject to product liability claims,
suits and complaints incidental to its business. These claims, suits and
complaints are covered by insurance policies maintained by the Company, subject
to certain policy limits. In addition, certain of the Company's OEM agreements
require the Company to maintain minimum levels of product liability insurance.
The Company currently maintains product liability insurance in the amount of
$5,000,000 with a $50,000 per occurrence deductible up to an aggregate annual
deductible of $250,000. This product liability insurance meets the minimum
standards set by all of the Company's current OEM agreements; however, there can
be no assurance that the Company will not enter into additional OEM agreements
in the future which require greater product liability insurance. The Company is
not aware of any pending product liability claims, suits or complaints the
disposition of which, in the opinion of management, would have a material
adverse effect upon the Company's business, financial position or liquidity. The
Company, however, could be materially adversely affected by successful product
liability claims, and there can be no assurance that the Company will have
sufficient resources to satisfy any liability resulting from claims not covered
by existing insurance policies.
58
<PAGE>
(ix) Sales to foreign customers constitute a significant portion of the
Company's total net sales. The Company intends to continue to improve and expand
its sales efforts in countries worldwide and expects international sales to
continue to constitute a significant portion of the Company's total net sales.
Sales in foreign countries of electronic medical devices are subject to a number
of risks, including regulatory requirements, foreign currency fluctuations, the
imposition of tariffs and import and export controls, changes in government
policies (including United States policy toward these countries), and other
factors which could have a material adverse effect on the Company's business and
financial position.
59
<PAGE>
NOVAMETRIX BUSINESS
GENERAL
Organized in 1978, the Company is engaged in the business of designing,
developing, manufacturing and marketing monitors and sensors which provide
continuous and non-invasive measurements of a patient's blood gas levels (oxygen
and carbon dioxide) and respiratory mechanics (lung pressure, flow and volume).
The Company's current product line consists of the following:
- Capnographs--monitors which measure the level of exhaled carbon dioxide.
- Pulse Oximeters--monitors which measure arterial blood oxygen saturation
levels and pulse rates.
- Transcutaneous Blood Gas Monitors--monitors which measure oxygen and
carbon dioxide levels through the skin.
- Respiratory Mechanics Monitor--a monitor which measures pressure, flow and
volume in a patient's airway and lungs.
- Reusable and disposable sensors and adapters, related accessories and
replacement parts.
BLOOD GAS MONITORS
Levels of oxygen and carbon dioxide in the blood are important indicators of
the condition of critically ill or injured patients. These levels are
particularly important to doctors, nurses, therapists and other clinicians
during anesthesia in the operating room, the assessment of a patient in the
emergency room, the monitoring of a patient in the intensive care unit and
recovery room and throughout respiratory care applications. Healthy people have
a normal range of oxygen and carbon dioxide levels in their blood, lungs and
other tissue. Also, depending on a person's size and age, there is a range of
normal airway and lung pressure, flow and volume levels. By continuously
monitoring these ranges, a change in a patient's status can be detected at an
early stage and modified before serious deterioration in a patient's condition
occurs. In addition, if a patient's blood gas levels or respiratory mechanics
are outside their normal ranges, continuous monitoring provides healthcare
professionals with important information concerning the progress of the medical
treatment undertaken to bring them back within normal ranges.
Previously, the only methods of determining the body's oxygen and carbon
dioxide levels involved invasive techniques of withdrawing blood samples from a
patient's artery and waiting for laboratory analysis of the samples. The
Company's products offer healthcare providers the alternative of non-invasive,
continuous and immediate measurement of oxygen and carbon dioxide. The Company's
blood gas monitoring products utilize three different technologies, each of
which is suitable for different applications.
CAPNOGRAPH MONITORS. The Company's capnographs (or end-tidal carbon dioxide
monitors) provide a continuous, non-invasive measurement and display of the
amount of carbon dioxide in each breath exhaled by the patient. Clinically,
end-tidal carbon dioxide levels have been correlated to a patient's arterial
blood carbon dioxide levels. Measurement of these levels provides a simple,
non-invasive method of estimating the carbon dioxide levels of the patient.
Applications for capnographs include (i) intubation verification, the
verification of the introduction of an airway tube into the trachea (air tube)
rather than the esophagus (food tube) and the verification of an open and
unobstructed airway; (ii) extubation detection, the disclosure of the accidental
dislodging from the trachea of an airway tube; (iii) ventilation management
through the disclosure of ventilator malfunctions and the proper adjustment of
mechanical ventilation to match a patient's condition and needs; and (iv)
verification of the effectiveness of cardio-pulmonary resuscitation (CPR).
The Company's capnographs utilize a form of infrared spectrometry (a method
of analyzing gas content by measuring the amount of infrared energy absorbed)
developed by the Company to measure levels of expired carbon dioxide throughout
the patient's respiratory cycle. These monitors provide both a graphical and
digital display of carbon dioxide levels and respiratory rate. The reliability
and accuracy of capnography have made its use a rapid indicator of proper and
continuous intubation, obstructions in the
60
<PAGE>
airway and pulmonary efficiency in eliminating carbon dioxide. In addition,
end-tidal carbon dioxide and respiratory rate measurements facilitate proper and
cost efficient ventilator use. In recognition of its accurate measurement of
clinically significant facts, as well as the added degree of safety that it
affords patients, capnography has been recommended for use in the operating room
by the American Society of Anesthesiologists and in the intensive care unit by
the Society of Critical Care Medicine.
The Company has two bedside capnographs which are portable devices: the
CAPNOGARD-TM-, a lightweight capnograph (measuring approximately 3" high, 9"
wide and 8" deep, and weighing 8 pounds), and the CO(2)SMO-TM-, a combined
capnograph and pulse oximeter which is the same size as the CAPNOGARD-TM-. These
"mainstream" (on the airway) capnographs are designed to take measurements at
the patient's airway through infrared measurement as compared to "sidestream"
measurements of exhaled breath which involves the drawing of samples through
tubes connected to bedside monitors and are susceptible to moisture and other
secretion contaminants. Both models utilize a new generation, durable and
solid-state sensor developed by the Company. These monitors also permit sampling
on non-intubated patients. The CAPNOGARD-TM- has a list sales price of
approximately $7,500 and the CO(2)SMO-TM- has a list sales price of
approximately $9,500.
PULSE OXIMETERS. The Company's pulse oximeters provide a continuous and
non-invasive measurement and display of pulse rate and arterial blood oxygen
saturation through the detection and measurement of infrared light absorbed by
hemoglobin in the blood. Reusable finger and multi-position sensors
(Y-Sensor-TM-) are available for adult, pediatric and neonatal applications and
eliminate the use of costly disposable sensors. Pulse oximeters have been
clinically demonstrated as safe, accurate and cost-effective for the
determination and trending of levels of blood oxygen saturation and pulse rates.
Applications for these monitors are widespread since the level of oxygen in a
patient's blood can be as important a vital sign of a patient's condition as the
patient's temperature, blood pressure, respiratory rate and electrocardiogram.
Pulse oximetry is used in many departments of the hospital, including the
operating room by anesthesiologists, emergency rooms and intensive care units by
nurses and respiratory therapists and neonatal intensive care units by
neonatologists. Additional applications include inter- and intra-hospital
transport situations and clinical applications in surgical centers, doctors'
offices and clinics during outpatient procedures.
The Company has a family of pulse oximeters designed to meet the individual
needs of clinicians in a variety of settings. Each oximeter utilizes the
Company's reusable Superbright-TM- sensors, which provide safe and accurate
results on all types of patients, including neonates (an infant less than 28
days old) and poorly perfused patients (patients with insufficient blood flow).
The Company's full-featured oximeter, the OXYPLETH-TM- provides high visibility
of the plethysmographic waveform (a graphic display of arterial pulse, also
known as a plethysmogram) through the use of digital technology combined with
advanced software developed by the Company. The Model 515B (and Model 515C with
plethysmogram) pulse oximeters utilize the same basic technology and software as
its more expensive model to provide the same oxygen saturation and pulse rate
information but with fewer available added features.
This family of pulse oximeters also includes a battery operated handheld
pulse oximeter, the SPO(2)TX-TM-. Measuring approximately 6" high, 4" wide and
1" deep and weighing less than 1 pound, this monitor's lightweight design and
portability permits wide applications such as use in emergency transport
situations, doctors' offices, clinics during outpatient procedures and
performance of spot checks on patients in all areas of the hospital. The
Oxypleth has a list sales price of approximately $3,000. The Model 515B, Model
515C and SPO(2)TX-TM- have list sales prices of approximately $2,000, $2,200 and
$1,000, respectively.
TRANSCUTANEOUS BLOOD GAS MONITORS. The Company's transcutaneous (through
the skin) blood gas monitor provides continuous and non-invasive measurements of
oxygen and carbon dioxide levels in the skin tissue of patients. This monitor
utilizes dual parameter sensors attached to the patient's skin surface to
measure the amount of oxygen and carbon dioxide diffusing through the skin.
Based upon the magnitude of the diffusion of the blood gas molecules, the
monitor converts the sensor readings into a value corresponding to the oxygen or
carbon dioxide at the patient's skin surface and displays the information on
61
<PAGE>
the monitor. Premature and other critically ill newborn infants are the primary
patients who benefit from the use of transcutaneous monitoring. In view of their
limited blood supply, frequent invasive blood sampling has been recognized as
traumatic and unsatisfactory for these patients. The Company intends to continue
to develop and enhance its transcutaneous blood gas monitor for neonatal and
adult use in intensive care and vascular medicine applications.
The Company's Model 840 transcutaneous monitor utilizes a simple menu-driven
system which takes the user through automatic calibration procedures, histogram
(graphical representation of data collected over time) and printout options.
This monitor, which features a bright, easy-to-read, vacuum fluorescent digital
display ("VFD") has a list sales price of approximately $6,500 to $8,500
depending on its configuration.
RESPIRATORY MECHANICS MONITOR
The Company's respiratory mechanics monitor, the VenTrak-TM- Model 1550,
provides continuous and non-invasive measurements of the pressure, flow and
volume in a patient's airway, as well as measurements of other pulmonary
mechanics parameters. Optimal carbon dioxide elimination and arterial
oxygenation during mechanical ventilation require the clinical management of the
pressure, flow and volume of airway gases being administered. Applications for
this monitor include the clinical management of the proper pressure and flow of
airway gases being delivered to a ventilated patient's lungs, allowing
therapists to wean a patient from expensive mechanical ventilation to
spontaneous breathing at the clinically appropriate and most cost-effective
time. The Model 1550, when combined with Novametrix's capnography and airway
flow monitoring technologies, provides continuous measurements of pulmonary dead
space and carbon dioxide production (SBCO(2) - single breath CO(2)). The Company
believes that deadspace and CO(2) production are parameters that have,
heretofore, been unavailable in a bedside monitor. The real-time knowledge of
pulmonary deadspace, the portion of a patient's lungs which do not participate
in gas exchange, concurrently with CO(2) production, the volume of CO(2) exhaled
by the patient, and the impact of each parameter by ventilator changes, provides
the bedside clinician with very important feedback to optimize the patient's
care. Thus, use of the Model 1550 enhances patient care by minimizing the
trauma, length of stay and the costs associated with mechanical ventilation.
Respiratory therapy and critical care departments with patients requiring
mechanical ventilation represent the primary users of the Company's respiratory
mechanics monitor.
The VenTrak-TM- monitor (excluding the capnograph) has a list sales price of
approximately $9,400 to $13,000 depending on its configuration.
The Company also maintains the exclusive rights for the commercial
manufacture and marketing of a family of disposable airway flow sensors. This
patented technology provides the Company with lower manufacturing costs than
previous types of flow sensors and improves the accuracy of information
currently obtainable from these monitors.
SALES, MARKETING AND CUSTOMERS
The Company markets its products domestically and internationally directly
through salespersons and outside distributors to its customers, most of which
are hospitals. All of the Company's blood gas and respiratory mechanics products
are marketed primarily to hospitals for use in operating rooms, emergency rooms,
intensive care units, respiratory therapy departments, transport situations and
in other departments where critically ill or injured patients require
monitoring. The Company expects to increase further its marketing efforts to
physician groups and other healthcare facilities such as nursing homes, surgical
centers and outpatient clinics through the use of manufacturers' representatives
experienced in these marketplaces.
The Company also markets its products directly to OEMs which incorporate
certain of the Company's products and technologies in the manufacture of their
own multi-parameter systems, ventilators and other non-competing products.
Generally, the Company sells its products to OEM customers pursuant to long-
62
<PAGE>
term contracts which, in certain cases, provide for the purchase of minimum
quantities of products at specified prices. The Company assembles the products
to be sold to OEM customers and, generally, also agrees to provide maintenance
and replacement parts. The Company continues to seek new agreements with other
OEM customers and additional agreements for other products with its current
customers. To support this effort fully, the Company hired an OEM Sales and
Marketing Manager during Fiscal 1996. There can be no assurance however that the
Company will be successful in obtaining other long-term OEM contracts.
The Company employs a 17-person direct United States sales force and also
utilizes six outside distributors in the United States to sell its products.
Typically, these distributors sell other medical instruments and products, but
do not sell products which compete directly with those offered by the Company.
Internationally, the Company currently employs six sales and marketing
managers and has approximately 85 outside international distributors. The
Company markets its products in over 75 countries worldwide. The Company's
international net sales of products and services constituted 45%, 39% and 35% of
the Company's total net sales during Fiscal 1996, 1995 and 1994, respectively.
The Company is engaged in continuing efforts to improve and expand the
international distribution of its products and expects international sales to
continue to constitute a significant portion of the Company's total net sales.
Many of the countries into which the Company sells its products require
governmental approval for the sale of the Company's medical instruments. In most
countries which require approval, the approval process is shorter than that in
the United States and, generally, the Company shares the costs associated with
the approval process with its international distributors. The Company believes
it has all necessary approvals to sell the products which it currently
distributes internationally.
All of the Company's international sales are denominated in United States
dollars. However, the volume of export sales of the Company's products may be
affected by fluctuations in the rate of exchange of the United States dollar for
the currency of the country in which sales are made. The Company believes that
prior fluctuations in the strength of the United States dollar have had a
minimal impact on international sales of its products.
No customer accounted for more than 10% of the Company's net sales in Fiscal
1996, 1995 or 1994.
Advertising of the Company's products consists primarily of displays at
medical meetings and trade shows. The Company also advertises in trade journals
and periodicals and cooperates in the publication of technical papers written by
medical authorities in areas relating to the Company's products.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are devoted to the design
and development of new monitor and sensor technologies and to the development
and enhancement of its existing products. The Company anticipates offering new
products in the future, however there can be no assurance that the Company will
introduce new products in successive fiscal years. With the advent of managed
care and continuing healthcare cost containment efforts, these research and
development activities are focused on providing technology and related products
which measure and record medically necessary information in a safe and
cost-effective manner.
The Company's research and development activities presently are, and during
the foreseeable future are expected to be, devoted primarily to the development
and enhancement of the Company's existing products and technologies and to the
design and development of new products. For Fiscal 1996, 1995 and 1994, the
Company incurred aggregate expenses of approximately $7,087,000 for these
activities. Approximately $2,714,000 was attributable to Fiscal 1996,
approximately $2,419,000 to Fiscal 1995 and approximately $1,954,000 to Fiscal
1994. All of the Company's research and development activities are sponsored by
the Company.
63
<PAGE>
The Company's Cascadia Technology Division, located in Redmond, Washington,
is principally engaged in research and development. The research and development
portion of expenses related to this division are included in the amounts stated
in the preceding paragraph.
PRODUCTION AND SERVICE
Substantially all of the components in the Company's products are
manufactured by others and then assembled by the Company. The Company's assembly
operations require a variety of electronic and mechanical components and
supplies, as well as specialized equipment which the Company owns or leases.
The Company does not have any long-term contracts with any of its suppliers
and believes that the needed components and supplies are available from
alternate sources. The Company has not experienced any interruption of
production or deliveries of components, supplies or equipment. However, there
can be no assurance that the Company will continue to receive timely service or
that the Company would be able to find readily a substitute manufacturer if one
were needed on short notice. Interruption of the Company's sources of supply or
quality problems with the supplied components could have a material adverse
effect on the Company's business and financial position.
The Company provides maintenance service for its products through service
technicians who are employees of the Company and through independent service
representatives. The Company's products utilize modular components which have
been designed for maximum maintenance accessibility and ease of removal for
repair or replacement. The Company warrants its products against defects in
material and workmanship, including parts and labor, for one year or more,
except for certain non-capital items which the Company warrants for shorter
periods. The Company also offers extended warranty programs that may be
purchased by its customers. Historically, the Company's annual warranty expenses
have been immaterial.
64
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF ANDROS
Set forth below are selected financial data of Andros.
ANDROS(1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ANDROS INCORPORATED
ANDROS HOLDINGS ---------------------------------------------------------
INC.(2) PERIOD FROM
------------------- JULY 31, 1995 YEAR ENDED
PERIOD FROM TO ------------------------------------------
INCORPORATION MARCH 26, JULY 30, JULY 31, JULY 25, JULY 26,
TO JULY 31, 1996 1996 1995 1994 1993 1992
------------------- ------------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS
DATA:
<S> <C> <C> <C> <C> <C> <C>
Sales, net............... $ 16,226 $ 26,933 $ 42,753 $ 57,742 $ 39,724 $ 35,001
Net Income (Loss)........ (22,091) (7,074) 2,866 8,019 5,872 4,840
Net Income per Share..... N/A(3) $ (1.53)(4) $ 0.59 $ 1.67 $ 1.25 $ 1.19
Shares used in computing
per share amounts...... N/A(3) 4,621(4) 4,821 4,798 4,699 4,064
BALANCE SHEET DATA:
Total Assets............. $ 55,424 $ 64,511(4) $ 63,871 $ 58,098 $ 50,055 $ 42,060
Working Capital.......... 7,482 38,689(4) 46,734 42,264 38,960 29,670
Long-Term Debt, less
current portion........ 37,215 -- -- -- -- --
Shareholders' Equity
(Deficit).............. (3,614) 52,615(4) 58,368 54,775 45,810 39,193
</TABLE>
- ------------------------
(1) On March 26, 1996, Andros Acquisition, a wholly owned subsidiary of Andros,
closed the Tender Offer for all of the shares of Andros Inc. for $18.00 per
share. As a result of the Tender Offer, Andros Acquisition acquired
approximately 58% of the outstanding shares of Andros Inc. At this time,
Andros initiated the process whereby it would acquire the remaining Andros
Inc. shares it did not own through a merger of Andros Acquisition and Andros
Inc. which it could cause to happen as a result of Andros Acquisition owning
a majority of the then outstanding shares of Andros Inc. As a consequence of
the pending merger, Andros accrued the cost of acquiring the remaining
Andros Inc. shares outstanding and cashing out the outstanding options. On
May 14, 1996, Andros acquired substantially all of the remaining shares of
Andros Inc. as a result of the merger of Andros Acquisition with and into
Andros Inc. in which Andros Inc. became a wholly owned subsidiary of Andros.
The accompanying consolidated financial statement data include the financial
statement data of Andros Inc. from July 31, 1995 through March 26, 1996 and
Andros, including its subsidiary, Andros Inc., from March 27, 1996 through
July 31, 1996. The selected financial data of Andros and Andros Inc. are
qualified in their entirety by, and should be read in conjunction with, the
financial statements of Andros and Andros Inc., including the notes thereto,
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations of Andros" included elsewhere herein. The Statement of
Operations Data and Balance Sheet Data for the years ended July 31, 1996,
July 30, 1995, July 31, 1994 and July 25 1993, and for the period from July
31, 1995 to March 26, 1996 and the Balance Sheet Data as of July 31, 1996,
July 30, 1995 and July 31, 1994 are derived from, and are qualified by
reference to, the audited financial statements included elsewhere in this
Proxy Statement. The Statement of Operations Data and Balance Sheet Data for
the fiscal year ended July 26, 1992 are derived from audited financial
statements not included herein.
(2) Andros acquired the outstanding common shares of Andros Inc. in a cash
purchase effective March 26, 1996. The purchase was recorded in accordance
with APB No. 16 "Business Combinations". See Note 1 on page F-20, "Basis of
Presentation."
(3) Not applicable, since Andros was a closely-held private company effective
March 26, 1996.
(4) Unaudited.
65
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ANDROS
<TABLE>
<CAPTION>
(AS A PERCENTAGE OF SALES)
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
<CAPTION>
ANDROS HOLDINGS
INC. ANDROS INCORPORATED
--------------- ----------------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED
INCORPORATION JULY 31, 1995 -------------------------------------
TO JULY 31, TO MARCH 26, JULY 30, JULY 31, JULY 25,
1996 1996 1995 1994 1993
--------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales..................................................... 100% 100% 100% 100% 100%
Cost of sales............................................. 61% 86% 59% 59% 57%
Gross profit.............................................. 39% 14% 41% 41% 43%
Research and development.................................. 147% 13% 12% 7% 9%
Marketing, general and administrative..................... 14% 52% 24% 15% 14%
Interest and other income................................. 10% (3)% (3%) (2%) (2%)
Income before income taxes................................ (132)% (47)% 8% 21% 22%
Income tax provision (benefit)............................ 4% (21)% 1% 7% 7%
Net income (loss)......................................... (136)% (26)% 7% 14% 15%
</TABLE>
TWELVE MONTHS ENDED JULY 31, 1996 COMPARED TO TWELVE MONTHS ENDED JULY 30, 1995
Genstar formed Andros for the purpose of acquiring Andros Inc. (a U.S.
publicly traded corporation). On March 26, 1996 Andros, through Andros
Acquisition, a wholly owned subsidiary, purchased, through a public tender offer
approximately 58% of the outstanding stock of Andros Inc. As of May 14, 1996,
Andros acquired substantially all of the remaining Andros Inc. shares it had not
acquired on March 26, 1996. Upon the completion of the acquisition of Andros
Inc., Andros Acquisition was merged into Andros Inc., leaving Andros Inc. as a
wholly owned subsidiary of Andros.
The acquisition of Andros Inc. was accounted for as a purchase in accordance
with APB No. 16 "Business Combinations", as of March 27, 1996.
Andros' sales increased marginally to approximately $43,160,000 in 1996
compared to $42,753,000 in 1995. The increase in sales resulted from higher
sales for worldwide medical, international automotive, automotive service, and
Scitec products, offset by lower domestic automotive sales.
Worldwide medical sales increased 12% to $14,971,000 for 1996 largely due to
the introduction of Andros' model 4700 Anesthesia Monitoring System. This was
partially offset by changes in order patterns of certain of Andros' customers in
the U.S., Europe and the Far East, as they continued to bring their inventories
in line with expected revenues.
International automotive sales increased 40% to $17,841,000 for 1996
compared to the same period last year mainly due to demand generated by the
ongoing MOT inspection and maintenance program in the United Kingdom.
Automotive service and parts sales increased 12% to $3,872,000 for 1996
compared to a year ago, generally due to a larger installed base.
Scitec sales increased 6% to $3,072,000 for 1996 compared to the same period
a year ago. This increase in sales was primarily a result of the introduction of
the new MAP 4 product, partially offset by a decline in service revenue.
U.S. automotive sales decreased 67% to $3,403,000 for 1996 compared to the
year ended July 30, 1995 due mainly to the cancellation of the IM 240 program
and delays in the implementation of state ASM programs. Management believes that
the sales decrease was also attributable to customer uncertainty with respect to
the timing of implementation of the ASM programs in different states.
Cost of sales as a percentage of sales was 77% at $33,080,000 for 1996
compared to 59% at $25,428,000 for the same period a year ago. During the period
July 31, 1995 to March 26, 1996, Andros
66
<PAGE>
increased its reserves for obsolete inventory by $3,866,000 based on decreased
demand and changes in market preferences, particularly relating to products
designed for the IM 240 program. Also, included in this same period were
inventory write-offs and order cancellation charges totaling $1,849,000.
Excluding the effect of these adjustments, cost of sales as a percentage of net
sales increased from 60% to 63% when comparing the twelve months ended July 31,
1996 to the comparable period in 1995, primarily due to increased material costs
and variations in the sales mix.
Warranty expense increased from $816,000 for the twelve months ended July
31, 1995, to $1,977,000 for the same period ended July 31, 1996 primarily due to
estimated costs associated with its medical gas analyzer.
Andros' research, development and engineering expenses were $4,602,900 for
the twelve months ended July 31, 1996 and $5,100,900 for the year ended July 30,
1995. The change is attributable to a reduction in headcount and related
operating expenses.
Marketing, general and administrative expenses excluding warranty and bad
debt expenses discussed elsewhere were $9,124,700 for the twelve months ended
July 31, 1996 compared to $8,977,000 for the year ended July 30, 1995. The
increase was attributable to approximately $3.2 million of items discussed below
offset by a reduction in headcount and related operating expenses.
In conjunction with the Andros Merger, the amount allocated to purchased
technology and in-process technology at the acquisition date was determined by
recognized valuation techniques in the high technology industry. The commercial
viability of the in-process technology had not been established and had no
identifiable alternative future use. Accordingly, the entire $22,700,000 was
charged to operations in 1996.
In connection with the acquisition of Andros Inc. by Andros, as of March 26,
1996, all of the outstanding Andros Inc. employee stock options whether or not
then exercisable (other than 98,400 options that were exchanged for equity unit
awards) were exchanged for cash payments. The net expense of the acquisition of
these options of approximately $4,113,800 representing the excess of the $18.00
per share over the grant price has been recorded as an expense.
In March 1996, in conjunction with the Andros Merger, Andros increased its
provision for bad debts as a result of the worsening financial condition of
several of its customers and to reflect anticipated negative outcomes of
disputed accounts receivable balances. Total bad debt expenses were $996,400 and
$408,800 for the twelve months ended July 31, 1996 and July 30, 1995,
respectively.
During the period from July 31, 1995 to March 26, 1996, interest income was
$836,200 and during the period from March 27, 1996 to July 31, 1996, interest
income was $283,900. Interest income for the twelve months ended July 31, 1995
was $1,355,000. The decrease is attributable to the use of Andros Inc.'s cash
and available for sale securities to fund the acquisition of Andros Inc. by
Andros.
During the period from July 31, 1995 to March 26, 1996, interest expense was
$6,000 and during the period from March 27, 1996, to July 31, 1996, interest
expense was $1,909,700. The increase in interest expense was a result of the
debt incurred by Andros in connection with the acquisition of Andros Inc. by
Andros.
The provision (benefit) for income taxes for the twelve months ended July
31, 1996 consists of ($1,724,700) current federal, ($2,999,800) deferred
federal, and ($290,600) deferred state income taxes. The effective tax rate was
(44.2%) and 2.8% for the period from July 31, 1995 to March 26, 1996 and March
27, 1996 to July 31, 1996, respectively.
Included in the condensed statement of operations for the twelve months
ended July 31, 1996, were $8,343,000 of certain charges and costs incurred by
Andros. Management is of the opinion that the
67
<PAGE>
inclusion of these charges and costs in the condensed statement of operations
does not accurately reflect the ongoing operations of the business. The
following table summarizes these charges and costs:
<TABLE>
<CAPTION>
COST OF SALES R&D SG&A TOTAL
------------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Andros Restructuring (1)............................ $ 352 $ 277 $ 542 $ 1,171
Elimination of European Sales Office (2)............ 225 225
Elimination of Director's Compensation (3).......... 108 108
Costs Associated With Change of Vendors (4)......... 560 560
Discontinued Products/Programs In Inventory (5)..... 3,512 3,512
Inventory Order Cancellations (6)................... 339 339
Write-off Capitalized Software Tooling (7).......... 74 74
Warranty Claim (8).................................. 800 800
Professional and Legal Fees (9)..................... 1,074 1,074
Property Taxes in Arrears (10)...................... 280 280
Environmental Hazard (11)........................... 200 200
------ --------- --------- ---------
$ 4,763 $ 351 $ 3,229 $ 8,343
------ --------- --------- ---------
------ --------- --------- ---------
</TABLE>
- ------------------------
(1) ANDROS RESTRUCTURING
Employee headcount was reduced by 21, as part of a company-wide cost savings
program. This reduction was in the sales, finance, manufacturing and
administration departments. In addition, Andros eliminated the use of certain
consultants.
(2) ELIMINATION OF EUROPEAN SALES OFFICE
Reflects the cost incurred relating to closing down the European sales office.
(3) ELIMINATION OF DIRECTOR'S COMPENSATION
This amount reflects payments made to directors during the 1996 fiscal year.
(4) COST ASSOCIATED WITH CHANGE OF VENDORS
Costs associated with changing certain printed circuit vendors.
(5) DISCONTINUED PRODUCTS/PROGRAMS IN INVENTORY
Discontinued products (4210 "On airway", MAP 3, smokemeter, MT3500) and a
discontinued program (IM240) which were in inventory during Andros' 1996 fiscal
year. There were no alternative uses in the Andros product family for these
inventory items/components.
(6) INVENTORY ORDER CANCELLATIONS
Inventory purchase order commitments for discontinued products and programs.
(7) WRITE-OFF CAPITALIZED SOFTWARE TOOLING
Management's determination to expense all software tooling costs.
68
<PAGE>
(8) WARRANTY CLAIM
Reserve increased for a specific claim.
(9) PROFESSIONAL AND LEGAL FEES
Amount represents professional and legal fees related to Andros' acquisition of
Andros Inc. which were incurred by Andros Inc. during its 1996 fiscal year.
(10) PROPERTY TAXES IN ARREARS
The Andros Merger required the lessor of Andros' headquarters to provide its
consent to the transaction. As a direct result, the lease agreement was
scrutinized by the lessor's attorney, and it was determined that property taxes
have been billed in error for the last five years.
(11) ENVIRONMENTAL HAZARD
Reserve for environmental hazards at Scitec.
Total operating expenses, including the items discussed below, increased
$28,213,300 to $43,516,000 during 1996 as compared to $15,302,700 for the same
period a year ago. Excluding the effect of the adjustments enumerated above,
operating expenses decreased 21% to $12,152,000 for the twelve months ended July
31, 1996, compared to $15,302,700 for the same period a year ago, due to cost
savings measures and control over operating expenses.
FISCAL YEAR ENDED JULY 30, 1995 COMPARED TO FISCAL YEAR ENDED JULY 31, 1994
Andros' sales for the fiscal year ended July 30, 1995 ("Andros' Fiscal
1995") decreased 26% from sales reported for the fiscal year ended July 31, 1994
("Andros' Fiscal 1994"). This decrease in sales resulted primarily from the
reduction of sales related to the now-completed German upgraded vehicle
inspection program. Fiscal 1994 included approximately $14 million in sales
related to the German vehicle inspection program compared with minimal sales in
Andros' Fiscal 1995. Revenue for Andros' Fiscal 1995 was also adversely affected
by a delay in implementation of various states' emissions programs, as well as
unexpected shipment delays of the MAP 4 product developed by Andros' Scitec
subsidiary. Volume shipments of the MAP 4 commenced in December 1995.
International automotive product sales decreased 53% to $12,732,000 for
Andros' Fiscal 1995 from Andros' Fiscal 1994 for the reasons stated above with
respect to the German program.
U.S. automotive product sales increased 6% to $10,320,100 for Andros' Fiscal
1995 over Andros' Fiscal 1994 due primarily to the increased demand for new or
enhanced versions of Andros' Model 6000 Series Automotive Exhaust Analyzers and,
to a lesser extent, the improvements in the U.S. economy and variations in order
patterns from automotive customers. Automotive service revenues increased 12% to
$3,457,200 for Andros' Fiscal 1995 over Andros' Fiscal 1994, generally due to a
larger installed base.
Worldwide medical parts and service revenue decreased 11% to $13,359,000 in
Andros' Fiscal 1995 over Andros' Fiscal 1994. Andros believes that the decrease
was mainly a result of a decrease in orders by certain customers in the U.S. and
Europe in Andros' Fiscal 1995, as customer inventories were brought in line with
expected revenues, partially offset by sales increases to customers located in
the Far East.
Gross margins were 41% for Andros' Fiscal 1995, unchanged from Andros'
Fiscal 1994. However, gross margins in the fourth quarter of Andros' Fiscal 1995
were 37% due to increased material costs and variations in the sales mix.
Research and development expenses increased by 19% in Andros' Fiscal 1995
over Andros' Fiscal 1994 due primarily to research and development expenses for
the MAP 4 project at Scitec. Excluding Scitec, research and development expenses
decreased 1% compared to Andros' Fiscal 1994 due to tighter control over
expenses in Andros' Fiscal 1995.
69
<PAGE>
Marketing, general and administrative expenses were up 16% in Andros' Fiscal
1995 over Andros' Fiscal 1994. This increase primarily related to operations at
Scitec, including a one-time charge of $850,000 related to consolidation and
streamlining of operations. Excluding Scitec, marketing, general and
administrative expenses decreased 1% in Andros' Fiscal 1995 over Andros' Fiscal
1994.
Interest and other income increased by 30% to $1,354,900 mainly as a result
of higher interest rates on cash and cash equivalents and short-term investment
balances.
The effective rate for the income tax provision for Andros' Fiscal 1995 of
15.2% was significantly below the combined federal and state statutory rate,
primarily due to tax benefits attributable to Andros' foreign sales corporation,
research and development credits, and an adjustment of prior years' taxes.
Net income for Andros' Fiscal 1995 decreased 64% from Andros' Fiscal 1994 to
$2,865,500 mainly due to the decrease in sales relative to fixed costs as well
as the increases in marketing, general and administrative expenses. As a result,
earnings per share decreased 65% for Andros' Fiscal 1995 from Andros' Fiscal
1994.
For information regarding foreign operations and export sales see "Andros
Business--Sales, Marketing and Customers" and Note 8 to the consolidated
financial statements of Andros Inc. for Andros' Fiscal 1995 and Andros' Fiscal
1994.
FISCAL YEAR ENDED JULY 31, 1994 COMPARED TO FISCAL YEAR ENDED JULY 25, 1993
On December 28, 1993, Andros acquired Scitec in a transaction accounted for
as a purchase. Accordingly, Andros' financial results include the results of
operations of Scitec commencing on the date of acquisition. In the approximately
seven months ended July 31, 1994, Scitec's sales were $3,026,700, cost of sales
were $1,223,800, research and development expense was $269,000 and marketing,
general and administrative expense was $1,325,000. The discussion of Andros'
Fiscal 1994 results of operations compared to the fiscal year ended July 25,
1993 ("Andros' Fiscal 1993") amounts below excludes Scitec where appropriate.
Andros' Fiscal 1994 sales of $54,715,000 (excluding Scitec) were 38% higher
than Andros' Fiscal 1993 sales. Automotive product sales and service revenues
were up 30% to a record $39,768,900 and represented 69% of total sales.
International automotive product sales were up 22% to $26,963,000 mainly due to
shipments resulting from the German vehicle inspection program. U.S. automotive
product sales increased by 68% over Andros' Fiscal 1993 to $9,726,400 due, in
part, to a consolidation in the industry which increased Andros' market share,
and also due to shipments of higher value products.
Andros' worldwide medical product sales and service revenues were up 62% to
$14,946,100 in Andros' Fiscal 1994, representing 26% of total sales. Increases
in medical product sales were experienced equally in both U.S. and European
markets. Most of the overall increase was related to sales of the Model 4610
Multi-Gas Anesthesia Monitor Analyzer, a product introduced in Andros' Fiscal
1993 as an enhanced version of an earlier model.
Automotive and medical parts and service revenue increased 42% to $5,637,700
over Andros' Fiscal 1993. Substantially all of this revenue relates to
international markets and corresponds to the increase in the number of installed
units needing maintenance.
Gross margins in Andros' Fiscal 1994 decreased to 41% from 43% in Andros'
Fiscal 1993 mainly due to variations in the sales mix, particularly, an
increased proportion of sales of international automotive and medical products
which generally have lower margins than corresponding U.S. products.
Research and development expense increased by 22% to $4,297,300 over Andros'
Fiscal 1993 (including Scitec) representing 7% of sales. This increase reflected
significant design efforts on new products at Andros as well as increases
resulting from the acquisition of Scitec.
Marketing, general and administrative expense increased 57% over Andros'
Fiscal 1993 to $8,765,800 principally due to inclusion of Scitec expenses,
amortization of Scitec goodwill, increased customer service expenses related to
increases in sales and professional fees related to various acquisition
activities. These
70
<PAGE>
expenses increased as a percentage of sales from 14% to 15% over Andros' Fiscal
1993 for the reasons discussed above. Excluding Scitec expenses (which were not
included in Andros' Fiscal 1993 amounts), marketing, general and administrative
expenses increased 33% over Andros' Fiscal 1993 amounts and were 14% of sales
(exclusive of Scitec sales).
Interest and other income increased by 16% to $1,040,300 mainly due to
interest earned on larger cash and cash equivalents and short-term investment
balances.
The effective rate for the income tax provision for Andros' Fiscal 1994 of
32.8% was significantly below the combined federal and state statutory rate,
primarily due to tax benefits attributable to Andros's foreign sales
corporation.
Net income increased 37% over Andros' Fiscal 1993 to $8,019,000,
representing a 14% return on sales.
RISKS ASSOCIATED WITH THE ANDROS BUSINESS
Set forth below are some of the material risks associated with Andros'
business and operations:
(i) The industry in which Andros competes, as well as the markets that it
serves, may be characterized by cyclical market patterns as a consequence of,
among other things, business cycles, regulatory changes or general economic
conditions affecting the timing of orders from major customers. Substantial
variations in the operations of Andros' customers or in the demand for their
products has in the past and may in the future cause substantial variations in
sales and profitability from quarter to quarter. In addition, demand for Andros'
automotive and spectrum analysis instrumentation may be substantially affected
by the enactment, timing, extent and severity of state, federal and foreign laws
governing inspection of automotive emissions and levels of lead contaminants.
Andros has experienced fluctuations in sales of such products as well as demand
for particular product enhancements as a result of actual or perceived changes
in regulatory requirements. Legislation or regulations resulting in stricter
enforcement of, or more stringent specifications for, testing of automotive
emissions has resulted in periodic increases in sales and the development of
enhanced new products. Conversely, decreases in sales have resulted, and may
result in the future, from actual or perceived delays in or weakening of
enforcement standards. Andros expects such fluctuations to continue in the
future. In particular, during Andros' Fiscal 1995, a weakening of regulation of
automotive emissions in a number of states resulted in a significant decline in
the rate of growth of U.S. sales of automotive gas analyzer products.
(ii) Andros is also subject to various environmental laws and regulations
both in the U.S. and abroad. The operations of Andros, like those of other
companies in the industries in which Andros competes, involve the use of
substances regulated under environmental laws. In particular, products
manufactured by Andros' Scitec subsidiary contain various radioactive materials.
The risk of accidental overexposure, contamination or injury from the handling
by customers, employees and others of these materials or related problems cannot
be eliminated completely. While Andros maintains insurance, there can be no
assurance that such insurance will provide adequate coverage against potential
liability or that Andros will be able to maintain or obtain additional insurance
on acceptable terms. In the event of an accident, Andros could be held liable
for any damages that result and any such liability could have a material adverse
effect on Andros' financial position or results of operations.
(iii) The fields of NDIR gas analyzer instrumentation and XRF technology are
covered by many issued patents and patent applications. If Andros' products are
determined to use technology, processes or other subject matter that is claimed
under other existing U.S. or foreign patents, or if other companies obtain
patents claiming subject matter utilized by Andros, such companies may bring
infringement actions against Andros. Andros may not have the resources necessary
to challenge successfully the validity of such patents or withstand claims of
infringement in cases where Andros' position has merit. Even if Andros were to
be successful in prevailing in such actions, the cost of such litigation could
have a material adverse effect on Andros' results of operations. An adverse
outcome could subject Andros to significant liabilities to third parties,
require disputed rights to be licensed or require Andros to cease using such
technology.
71
<PAGE>
There can be no assurance that Andros will be able to obtain such licenses or
that such licenses, if available, can be obtained on commercially reasonable
terms.
(iv) Andros also relies on trade secret protection for its confidential and
proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary technologies or
otherwise gain access to Andros' trade secrets or disclose such technologies, or
that Andros can meaningfully protect its trade secrets.
(v) The products of Andros' medical device manufacturer customers into which
Andros' devices are incorporated are "medical devices" within the meaning of a
1976 amendment to the Federal Food, Drug and Cosmetics Act. Under the amendment,
a manufacturer must obtain approval by the FDA of a new medical device before it
can be marketed in the United States. The approval process requires that the
safety and efficacy of such devices be demonstrated by the manufacturer to the
FDA. Under certain circumstances, the cost of obtaining such premarketing
approval may be high and the process lengthy. All of the products currently
marketed domestically by Andros and products incorporating Andros' devices
marketed by Andros' customers requiring pre-marketing approval from the FDA have
been so approved.
Following regulatory approval, commercially marketed products, as well as
the manufacturer and manufacturing facility, are subject to periodic review and
inspections. In the event of a discovery of previously unknown problems with a
product of Andros or a product of its customers containing Andros' devices, then
restrictions on the product, Andros or the customer, including recalls (which
could require costly redesign or reconfiguration of Andros' product) or even
withdrawal of the product from the market could result, any of which could have
a material adverse effect on Andros.
(vi) Products under development may be subject to delays due to, among other
things, engineering, regulatory or production problems. There can be no
assurance that Andros will not experience difficulties that could delay or
prevent the successful development, introduction and marketing of new products
or product enhancements, or that any new products or enhancements introduced
would adequately meet the requirements of the marketplace or otherwise achieve
market acceptance. If Andros were unable, for technological or other reasons, to
develop and introduce new products in a timely manner in response to changing
market environments, governmental regulations or customer requirements, there
would be a material adverse effect on Andros' results of operations.
(vii) The process for licensing and registration of Scitec's products is
complex, and there can be no assurance that Scitec's activities and instruments
will continue to obtain or maintain appropriate regulatory licenses and
registration. In addition, regulations in some states require that instruments
be sold or rented only to customers licensed to operate the instruments by the
appropriate state agencies.
(viii) While Andros has not experienced a material product liability claim
and also maintains product liability insurance, there can be no assurance that
it will be able to maintain such insurance or obtain additional insurance on
acceptable terms, that insurance will provide adequate coverage against
potential product liability, or that Andros will not be subject to a claim that
could otherwise have a material adverse effect on Andros' financial position or
results of operations.
72
<PAGE>
ANDROS BUSINESS
GENERAL
Andros designs, manufactures and markets NDIR gas analyzers and sub-systems
and other sensor instrumentation for medical, automotive and environmental
applications. Andros markets its NDIR products on a worldwide basis to many of
the leading OEMs of medical respiratory monitoring and automotive diagnostic
equipment including Hewlett-Packard Co., Siemens Medical Systems, Inc., Colin
Medical Instruments Corporation, SPX Corp. (Automotive Diagnostics and OTC
Corp.), Snap-on Tools Incorporated, Technotest S.R.L., Sagem Souriau Systems,
Grundig Professional Electronic GmbH, Computer Aided Services, Inc., Kontron
Instruments Ltd., AVL List GmbH and Actron Manufacturing Co.
In general, these companies incorporate Andros' products into their own
systems which they in turn sell to end-users. Andros' NDIR products detect the
presence and measure the concentration of a variety of multi-component gas
streams. In medical applications, Andros' NDIR systems are used to detect and
measure the level of anesthetic agents, carbon dioxide, oxygen and nitrous oxide
in the inspired and expired breath of patients in operating room, recovery room
and intensive care unit environments. In automotive applications, Andros' NDIR
systems are used to detect and measure the level of carbon monoxide, carbon
dioxide, hydrocarbons, oxygen and oxides of nitrogen in automobile exhaust. In
December 1993, Andros Inc. expanded its product line through the acquisition of
Scitec, which designs, manufactures and sells spectrum analysis instruments that
analyze the elemental composition of a material in its natural location and
condition using XRF technology. These products are sold to end users principally
for detection of lead in paint.
HISTORY
Andros Inc. was formed in 1968 to design and develop scientific instruments
under contract to United States government agencies, and has concentrated on the
development of instruments utilizing NDIR gas analyzer technology. In 1976,
Andros Inc. adopted a strategy of commercializing its NDIR gas analyzer
technology by producing products for and selling to instrumentation
manufacturers on an OEM basis. Andros Inc. initially concentrated its efforts on
the design, manufacture and sale of NDIR gas analyzers used in equipment for
diagnostic engine tune-ups to improve the fuel efficiency of motor vehicles. The
adoption by the U.S. government of the 1977 and 1990 amendments to the Clean Air
Act of 1970, and the subsequent enactment of laws by many states and countries
which require regular inspection and maintenance of automotive emissions,
created additional demand for NDIR gas analyzers for the measurement and
analysis of gases in automotive emissions. Several leading manufacturers of
automotive test equipment have designed their equipment to incorporate Andros'
products. In addition, in the last few years, several Western European nations
have adopted active programs to improve air quality by requiring more frequent
and more stringent automotive emissions testing. Moreover, several Latin
American and Southeast Asian nations are initiating automotive emissions control
programs.
In 1980, Andros Inc. began to expand the applications for its NDIR gas
analyzer products by developing products for the medical market. Andros' medical
gas analyzer products are incorporated into devices for the analysis of the
inspired and expired breath of patients undergoing general anesthesia, post-
surgical recovery and intensive care. Today, Andros produces fully-functional
anesthesia monitors that are one of many modules that make up the
multi-parameter medical monitors sold by medical equipment manufacturers
including Hewlett Packard and Siemens.
ACQUISITION OF SCITEC CORPORATION. In December 1993, Andros Inc. acquired
Scitec, headquartered in Kennewick, Washington, for $7,000,000 in cash and the
assumption of liabilities aggregating $1,171,300. Founded in 1986, Scitec
designs, manufactures and sells portable spectrum analysis instruments that use
XRF technology to analyze the elemental composition of materials in situ and in
real time. Scitec's products are typically used in industries such as
environmental testing, mining and exploration. The fastest growing market for
the use of Scitec's products is the detection of lead in paint, whose growth is
being driven by the recent enactment and enforcement of Title X of the Housing
and Community Development Act of 1992 which amended the Toxic Substances Control
Act.
73
<PAGE>
ACQUISITION BY GENSTAR. On March 26, 1996, Andros Acquisition acquired 58%
of the outstanding shares of Andros Inc. through a public tender offer for
$18.00 per share. As of May 14, 1996, Andros acquired substantially all of the
remaining Andros Inc. shares outstanding which were not already purchased on
March 26, 1996 for $18.00 per share as a result of the merger of Acquisition
into Andros Inc.
MEDICAL INSTRUMENTATION
Andros Inc. entered the medical products field in 1980 with the introduction
of a gas analyzer for the measurement of carbon dioxide and nitrous oxide in
human breath for use principally in hospital operating rooms, post-surgical
recovery rooms and Intensive Care Units ("ICUs"). In the operating room,
real-time knowledge of the components and concentrations of gases inhaled and
exhaled by the patient is vital to the assurance of patient safety during the
time the patient is anesthetized. Monitoring the amount of anesthetic agents,
carbon dioxide, oxygen and nitrous oxide entering and leaving the patient can
help the anesthesiologist ensure a patient is adequately ventilated, which is
critical to ensuring the delivery of oxygen to the brain and other vital organs.
In addition, this information helps the anesthesiologist minimize the time a
patient is anesthetized, reducing the risk of complications and the time spent
in post-operative recovery and thereby increasing the quality of patient care
and reducing the over-all cost of patient care, a driving force in the health
care industry today.
Andros develops and sells various gas analyzers for medical monitoring
purposes. Andros is a major supplier of medical gas analyzers to the Medical
Division of Hewlett-Packard Co.; Siemens Medical Systems, Inc.; Dragerwerk AG
and its affiliate, North American Drager; Colin Medical Instruments Corporation;
Kontron Instruments Ltd.; Actron Manufacturing Company; and Datascope
Corporation.
The following is a description of Andros' medical gas analyzer products:
MULTI-GAS ANESTHESIA MONITOR. In Andros' fiscal year ended July 28, 1991,
Andros introduced its Model 4610 Multi-Gas Anesthesia Monitor Analyzer ("4610"),
which permits continuous, simultaneous monitoring of anesthetic agents, carbon
dioxide and nitrous oxide on a breath-by-breath basis. Prior to the introduction
of the 4610, physicians were able to monitor both the gases and anesthetic
agents in a patient's breath through the use of either a single mass
spectrometer or a number of separate NDIR gas analyzers. Andros believes that,
although mass spectrometers can measure more gases than the 4610, they cannot
provide continuous monitoring as cost effectively as the 4610. Andros' 4640
agent identifying module can be integrated with the 4610 to provide automatic
agent identification for sophisticated monitor applications.
CAPNOMETERS. Capnometers monitor the respiratory functions of patients by
measuring the levels of end-tidal carbon dioxide expelled from their lungs.
"End-tidal" refers to the air expelled last in the patient's breathing cycle,
which comes from an area of the lungs closest to the blood vessels and,
therefore, permits a highly accurate measure of pulmonary gas exchange. In 1980,
Andros Inc. introduced its 400 Series gas analyzer which measures the
concentration of carbon dioxide in a patient's breath. This product also
measures the concentration of nitrous oxide (an analgesic) which, together with
a patented Andros process for automatic compensation for the effect of nitrous
oxide on carbon dioxide measurements, permits more accurate carbon dioxide
measurements. In Andros' Fiscal 1994, Andros Inc. introduced the Model 4210
On-Airway Carbon Dioxide Analyzer. This product is designed for breath-by-breath
monitoring in a variety of hospital settings outside the operating room, such as
ICU, emergency care and during transport.
4700 SERIES ANESTHESIA GAS MONITORING SUB-SYSTEMS. In Andros' Fiscal 1995,
Andros Inc. began delivery of its 4700 series of custom OEM anesthesia gas
monitoring sub-systems, incorporating measurement and identification of
anesthetic agents, carbon dioxide, nitrous oxide, oxygen, patient breath rate,
and elapsed time since the last detected breath, all on a breath-by-breath
basis. In addition to gas concentration analyzers, the 4700 includes complete
sample delivery and power modules packaged per OEM customer requirements. Andros
believes that the 4700 offers unique value and opportunity to both large and
small OEM medical device manufacturers addressing the instrumentation
requirement of the operating room.
74
<PAGE>
Because Andros' medical instrumentation products are sold on an OEM basis,
Andros is not required to obtain approval of the FDA of its medical devices
prior to sale by Andros. However, the products of Andros' customers into which
Andros' devices are incorporated are subject to pre-market clearance or other
regulation by the FDA and foreign governmental authorities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Andros--Risks Associated with the Andros Business."
Revenue from sales and service of medical gas analyzer products was
$14,971,500 for the twelve months ended July 31, 1996, $13,359,000 in Andros'
Fiscal 1995, $14,946,100 in Andros' Fiscal 1994 and $9,230,200 in Andros' Fiscal
1993.
AUTOMOTIVE GAS ANALYZERS
Andros is a leading worldwide OEM supplier of NDIR automotive gas analyzers.
These products are incorporated into automotive diagnostic equipment sold to
automotive repair shops, car dealerships and neighborhood garages for engine
tune-ups and for exhaust inspections. Andros is a major supplier of NDIR
automotive gas analyzers to various affiliates of SPX Corporation, including
Automotive Diagnostics and OTC Corporation; Crypton Wellman Ltd. (United
Kingdom); Sagem Souriau Systems (France); Snap-on Tools Corporation and its
subsidiary, Sun Electric Corporation; Tecnotest S.r.l. (Italy); Grundig
Professional Electronic GmbH, Computer Aided Services, Inc.; AVL List GmbH; and
others. Demand for Andros' automotive products continues to be driven in large
part by the increasing use of engine diagnostic equipment resulting from the
increasing sophistication of automobile engines and the adoption and amendment
of automotive emissions laws by various jurisdictions.
The following is a description of Andros' principal automotive gas analyzer
product lines:
200 SERIES. Andros' 200 Series gas analyzer was first introduced in 1977
and is still being sold today in significant quantities. The 200 Series is a
high-performance analyzer utilizing analog circuitry which measures
concentrations of carbon dioxide, carbon monoxide and hydrocarbon gases. The 200
Series is sold in a three-gas configuration and is incorporated into products
used either for government-mandated automobile emission inspection programs or
for engine tune-ups to improve the fuel efficiency of motor vehicles.
5000 SERIES. Andros also sells a lower priced, medium-performance digital
electronic gas analyzer for automotive emissions inspection in non-U.S. programs
which are materially less stringent in their instrumentation requirements than
those for which the 200 Series is used. Like the 200 Series, the 5000 Series
analyzer can measure concentrations of carbon dioxide, carbon monoxide and
hydrocarbon gases. The 5000 Series is sold in one-gas, two-gas or three-gas
configurations. The 5000 Series meets only a limited number of worldwide
performance specifications and is sold primarily in Western Europe.
6000 SERIES. Andros' 6000 Series four-gas analyzer meets all current U.S.
emission analyzer specifications, including the 1990 California specifications,
and the most stringent European standards, the OIML-Class I. The 6000 Series
incorporates advanced digital technology and comes in a five-gas configuration
which uses chemical sensor technology to measure oxides of nitrogen. Andros
offers the 6000 Series in a variety of configurations ranging from a 'bare
bones' optical bench to a fully configured shelf sub-system incorporating a
pneumatic pump and filter module and power supply in addition to the optical
bench.
7000 SERIES. The Model 7110 Digital Opacimeter Subsystem, otherwise known
as the Smoke Meter, provides Andros' OEM automotive test equipment customers
with an opacity measuring analyzer for diesel engines. The Smoke Meter
incorporates visible light absorption technology, an addition to Andros'
technology base. The Smoke Meter is sold primarily in Western Europe.
MICROBENCH. The Microbench represents a significant technological advance
over Andros' previous generation of automotive products. By incorporating all of
the functionality of a fully configured 6000 Series 5-gas shelf (including the
pneumatics systems and power supply) into a form factor one-fifth the size,
one-tenth the weight and requiring one-twentieth the power, management believes
the Microbench
75
<PAGE>
will significantly change the way automotive analyzers are marketed. Whereas the
prior generation of analyzers was incorporated into refrigerator size engine
analyzers, the Microbench will be incorporated into a truly hand-held, battery
operated diagnostic instrument. The lower cost and smaller size of the
Microbench is anticipated to broaden the addressable market for automotive gas
analysis equipment from one unit per garage or garage bay to one unit per
automotive technician. The advanced technology used in the Microbench was
derived from technologies originally developed for Andros' medical products,
evidencing the technology sharing by Andros' two core product development
programs.
In many jurisdictions, the diagnostic products sold by Andros' OEM customers
must be certified by regulatory or quasi-regulatory agencies before they can be
used in emission inspection programs. Andros' products must meet certain
specifications to enable its customers' devices to achieve certification,
although the Andros devices are not themselves certified.
Revenue from sales and service of automotive gas analyzers was $25,115,500
for the twelve months ended July 31, 1996, $26,509,300 in fiscal 1995,
$39,768,900 in fiscal 1994 and $30,493,300 in fiscal 1993.
SPECTRUM ANALYSIS INSTRUMENTATION
Andros' Scitec subsidiary designs, manufactures and sells portable spectrum
analysis instrumentation designed to detect and measure selected elements in a
material in its natural location and condition using powerful k-shell XRF
technology. Scitec sells its products directly through a five person direct
sales force and through a network of four independent sales organizations with a
total of seven representatives throughout the United States.
Scitec's current product line is used principally to detect the presence and
concentration of lead in paint. Historically lead has been added to house paints
and other paints because it helped paint dry faster and improved resistance to
weather. Today lead is classified as a toxic substance and is known to cause
adverse health effects in humans and the environment. Lead poisoning is
widespread among children affecting as many as three million children in the
United States under the age of seven. Deteriorating lead-based paint is believed
to be a leading cause of lead poisoning in children. In the residential housing
sector, the U.S. Department of Housing and Urban Development ("HUD") estimates
that there are 57 million privately owned and occupied homes built before 1980
(the use of lead-based paint in residential construction was banned in 1978)
that contain lead-based paint. Of those homes approximately 9.9 million are
occupied by children under the age of seven, the group most at risk to the
hazards of lead-based paint. In October 1992, the U.S. Congress enacted the
Housing and Community Development Act, to address the lead-based paint in the
nation's housing stock. Title X of that bill, the Residential Lead Based Paint
Hazard Reduction Act, provided a comprehensive national approach to dealing with
lead-based paint. The regulations implementing Title X which were approved in
April 1996 and are set to take effect beginning in September 1996 include among
other things provisions requiring the disclosure of any known lead-based paint
hazards upon sale of any residence, set standards for the inspection of
residences for lead-based paint hazards and require that a seller give a
potential buyer the opportunity to inspect a residence for the presence of lead
hazards.
Scitec's primary product line includes:
MAP SPECTRUM ANALYZER. Scitec's metal analysis probe ("MAP") spectrum
analyzer is an automated system that employs XRF technology to detect and
measure the intensity and frequency of x-rays emitted by an irradiated sample.
The analyzer produces a graph, or "spectrum", depicting the energy of the
emitted radiation, which indicates the amount of lead present, whether it is
located on or below the surface of the paint and whether there are other
elements or possible contaminants in the paint. The MAP 4 is a portable, "full
spectrum" analyzer, capable of measuring both the K and L emission lines of lead
simultaneously in a wide range of field conditions. The basic MAP 4 system
includes a control console with 256K of memory, which is connected to a hand
scanner by a 10-foot cable, and is calibrated on typical substrates with the
U.S. Department of Housing and Urban Development lead-in-paint reference
standards. The radiation source is a 40 millicurie Cobalt 57 radio isotope.
Included with the console are
76
<PAGE>
spectrum display, automatic substrate correction and automatic source decay time
correction software programs, as well as a carry pack, rechargeable batteries,
operator's manual and shipping case.
Optional software packages include:
Advanced Report Manager ("ARM") database software electronically records
test locations, field notes and measurement results and processes the
information to produce a comprehensive test report.
AcuTransfer software allows data to be downloaded from the console to a
personal computer and checks during data transfer for indications of abnormal
field conditions, instrument malfunction or operator misuse.
Hardware, software and training packages are sold in a total system as the
AcuData System. Additional memory capacity, additional calibration programs, and
a variety of accessories, such as telescoping poles and clamps, are also
available.
Scitec is required to be licensed by the Washington State Department of
Health to conduct certain activities related to radioactive materials. That
agency conducts periodic reviews to ensure compliance with the safety and other
conditions of the license. In addition, instruments manufactured by Scitec
containing radioactive materials must be registered with the Washington State
Department of Health. Changes in activities or modifications to instruments
typically require that an amended license or registration be approved by the
applicable regulatory agency. Scitec's practice has been to require that all
customers be so licensed. Scitec also conducts training courses for employees
and customers.
Andros' revenue from sales and service of spectrum analysis instruments was
$3,072,500 for the twelve months ended July 31, 1996, $2,885,100 in fiscal 1995
and $3,026,700 in fiscal 1994.
SALES, MARKETING AND CUSTOMERS
Andros' products are sold primarily on an OEM basis. Scitec products are
sold by sales personnel and representatives primarily to end user customers in
the environmental testing and mining and exploration markets. Selling activities
consist principally of direct sales calls on customers and potential customers
by senior management, technical and sales personnel. In addition to its
Berkeley, California and Kennewick, Washington locations, Andros has independent
sales agents in Europe and Asia.
To date, Andros' products have been sold primarily to manufacturers of
respiratory monitoring equipment or automotive diagnostic equipment. There are a
relatively small number of major manufacturers in these industries, particularly
in the automotive diagnostic equipment market, which has recently experienced a
consolidation. As a result, a significant portion of Andros' sales are to a
small number of customers. During the twelve months ended July 31, 1996, Andros'
13 largest customers accounted in the aggregate for more than 80% of sales. In
addition, three customers, Hewlett-Packard Co., SPX Corp. and Snap-on Tools
Incorporated, each accounted for more than 10% of total sales and aggregated 53%
of Andros' total sales. Although products of Andros' Scitec subsidiary are sold
to a broad range of end user customers in other markets, Andros anticipates that
it will continue to make a substantial portion of its sales to a limited number
of customers and, therefore, the loss of, or cancellation of orders by, any
major customer could have a material adverse effect on Andros' results of
operations. In addition, the timing of orders by major customers or decisions by
one or more major customers to cancel or defer purchases could lead to
substantial variability from quarter to quarter.
In addition to domestic markets, Andros actively markets its products in
Western Europe and, to a growing extent, in the Far East and South America.
International sales include sales to foreign customers, and sales to domestic
customers for equipment produced by them for shipment overseas. Product sales to
customers outside of the United States accounted for approximately 60% of
Andros' total sales for the 12 months ended July 31, 1996. Andros' international
sales are denominated in U.S. dollars. Accordingly, decreases in the value of
foreign currency relative to the U.S. dollar could make Andros' products less
price-competitive. Foreign currency fluctuations have not had a material or
significant impact on Andros' results of operations historically since operating
expenses denominated in other than U.S. dollars have not
77
<PAGE>
been material or significant. However, foreign operating expenses denominated in
foreign currencies are expected to increase as Andros' foreign operations grow,
and foreign currency fluctuations may, in the future, become more significant as
a result. International sales and operations may also be materially adversely
affected by changes in governmental regulations, the imposition of governmental
controls, export license requirements, restrictions on export of critical
technology, political and economic instability or conflicts, trade restrictions,
changes in tariffs and taxes, difficulties in staffing and managing
international operations, general economic conditions overseas, and other
matters generally affecting foreign operations.
RESEARCH AND DEVELOPMENT
The market for NDIR gas analyzer instrumentation and spectrum analysis
instrumentation is characterized by rapid technological change. In the medical
monitoring market, Andros is focused on developing products with more
functionality. In the automotive instrumentation market, technological changes
are often required as a result of changes in government regulations which can
vary among countries. In addition, as Andros' existing products become more
mature and its existing markets more saturated, Andros' ability to develop new
products and technologies increases in importance. Andros' future success will
depend to a large extent on its ability to enhance its current products and to
develop and introduce, on a timely and cost-effective basis, new products that
keep pace with technological developments and address the evolving needs of its
customers.
The principal focus of Andros' current research and development effort is to
develop new products for existing markets as well as enhancements to current
products. For example, in the medical market and the market for automotive
diagnostic equipment, Andros is working to develop, among other things, an
analyzer that measures additional gases. In the spectrum analysis market, Andros
continues to develop products based on XRF technology with a focus on the
hazardous waste market.
The costs of producing, promoting and servicing new products are generally
greater than in the case of more mature products, which may also have higher
volumes. Further, as new products are introduced, such new products may render
obsolete or otherwise less marketable Andros' then current products that address
similar market needs, which could lead to inventory write-offs or otherwise have
a material adverse impact on Andros' results of operations.
Andros spent an estimated amount of $4,602,900, $5,100,900, $4,297,300, and
$3,528,500 during the 12 months ended July 31, 1996 and in fiscal years 1995,
1994 and 1993, respectively, for Andros-sponsored research and development.
PRODUCTION AND SERVICE
Andros has been ISO 9001 certified since September 1995. Andros'
manufacturing operations consist of purchasing, assembling and testing the
materials and components comprising its products. The principal materials and
components used in the production of Andros' gas analyzer products include NDIR
source devices, motors, optical band-pass filters, photodetectors, printed
circuit boards, and plastic and metal parts, all of which are purchased from
independent suppliers. In addition to many of the components identified above,
Scitec products require a radioactive source, acquisition and transportation of
which is monitored by government authorities and which requires appropriate
licensing and compliance with accountability procedures. Although most are
standard parts, certain items proprietary to Andros, such as source assemblies,
molded plastic parts, filters, printed circuit boards, and photodetectors, are
fabricated or assembled by independent vendors using Andros' production tooling
or pursuant to proprietary design specifications owned by Andros.
Andros' facilities and documentation procedures for the manufacture of
medical products are required to conform to the FDA's Good Manufacturing
Practices ("GMP"). Domestic manufacturing facilities are subject to biennial FDA
inspections. Failure to maintain GMP status would have a material adverse effect
on Andros.
78
<PAGE>
Andros conducts manufacturing operations for all of its NDIR gas analyzer
products in its Berkeley, California, headquarters facility. Its spectrum
analysis instruments are manufactured at its Scitec subsidiary in Kennewick,
Washington.
To date, Andros has received a significant proportion of its revenues from
upgrading or servicing customers' existing equipment. Andros performs most of
its service and repair work in its service facilities located in Berkeley,
California. Service of Scitec products is performed at the Scitec facility
located in Kennewick, Washington. Andros' warranties vary among products, but
may extend for periods up to three years, while products manufactured by Scitec
have warranties for up to five years. Scitec also offers a variety of training
courses to all customers as well as in-field technical support, measurement
validation and test certification services. Andros derives revenue from the sale
of replacement parts as well as from the sale of parts under license to
customers to manufacture Andros' products. Service and parts revenues were
$5,312,100 for the twelve months ended July 31, 1996, $6,909,100 in fiscal 1995,
$6,584,300 in fiscal 1994 and $3,959,600 in fiscal 1993. Revenues include
revenues of Scitec commencing in December 1993. These revenues are included in
the revenues disclosed in the discussion under "--Medical Instrumentation",
"--Automotive Gas Analyzers" and "--Spectrum Analysis Instrumentation" above.
79
<PAGE>
NOVAMETRIX MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF NOVAMETRIX
Certain information with respect to the executive officers and directors of
the Company is set forth below:
<TABLE>
<CAPTION>
POSITIONS
NAME WITH THE COMPANY AGE
- ---------------------------------------------------- ---------------------------------- ---
<S> <C> <C>
William J. Lacourciere.............................. Chairman of the Board, 57
President, Chief Executive
Officer and Director (Class C)
Joseph A. Vincent, CMA.............................. Vice President 45
Finance, Chief Financial
Officer, Treasurer, Secretary
and Director (Class A)
Leslie E. Mace...................................... Vice President 50
Engineering
Philip F. Nuzzo..................................... Vice President--Medical 44
Product Development and
Marketing
Thomas M. Haythe.................................... Director (Class C) 57
Michael J. Needham.................................. Director (Class A) 55
Photios T. Paulson.................................. Director (Class B) 57
Steven J. Shulman................................... Director (Class B) 44
</TABLE>
William J. Lacourciere has been Chairman of the Board of the Company since
September 1991, Chief Executive Officer since February 1991, President since
August 1986 and a director since October 1982. He served as Chief Operating
Officer from March 1983 to February 1991. Mr. Lacourciere served as Executive
Vice President from March 1983 to August 1986. From October 1982 to March 1983,
he served as Executive Vice President Marketing. From April 1980 to October
1982, Mr. Lacourciere served as Vice President Domestic Sales.
Joseph A. Vincent, a Certified Management Accountant (CMA), has been Vice
President Finance of the Company since August 1991, Treasurer since February
1991 and Chief Financial Officer and Secretary since April 1990. He served as
Controller from September 1984 to April 1990. Mr. Vincent was a National Vice
President of the Institute of Management Accountants from June 1994 to June
1995. Mr. Vincent held various positions with Picker International, Inc. (a
manufacturer of medical diagnostic instruments and supplies) from August 1974
until he joined the Company in August 1983. Mr. Vincent has been a director of
the Company since February 1994.
Leslie E. Mace has been Vice President Engineering of the Company and
General Manager of the Company's Cascadia Division in Redmond, Washington since
March 1991. He served as Vice President of the Company's Cascadia Division from
May 1989 to March 1991. Mr. Mace served as Vice President, Chief Operating
Officer and Engineering Manager of Cascadia Technology Corporation, a Washington
corporation (research and development company), from prior to 1988 to April
1989.
Philip F. Nuzzo was appointed Vice President--Medical Product Development
and Marketing, effective August 1, 1996. He served as Director of Marketing from
February 1993 to August 1996 and as Marketing Manager from July 1989 to February
1993. He was Product Manager from January 1986 to July 1989. Prior to joining
Novametrix, Mr. Nuzzo, a licensed Respiratory Care Practitioner, obtained his
clinical experience with several west coast hospitals including St. Joseph's
Hospital in Bellingham, Washington and LAC/USC Medical Center in Los Angeles,
California.
80
<PAGE>
Thomas M. Haythe has been a director of the Company since March 1978. He has
been a partner at the law firm of Haythe & Curley since prior to 1989. Mr.
Haythe also serves as a director of Isomedix Inc., a provider of commercial
sterilization services, Guest Supply, Inc., a provider of hotel guest room
amenities and accessories, Westerbeke Corporation, a manufacturer of marine
engine products, Ramsay Health Care, Inc., a provider of psychiatric healthcare
services, and Ramsay Managed Care, Inc., a provider of managed mental healthcare
services.
Michael J. Needham has been a director of the Company since August 1990, and
was previously a director of the Company from January 1980 to November 1989. Mr.
Needham has served as Chairman and Chief Executive Officer of SimEx Inc., a
designer of entertainment attractions, since March 1991. Mr. Needham previously
served as President of Helix Investments Limited, a venture capital fund, from
1980 until February 1991. Helix is a private venture capital fund co-founded by
Mr. Needham in 1968 and has a portfolio valued at $450,000,000. During Mr.
Needham's presidency, Helix made a number of investments in health care
businesses in the United States and Canada.
Photios T. Paulson has been a director of the Company since July 1992. Mr.
Paulson has served as Vice President of bioAlliance, SA, a privately-held French
holding company, since January 1995, Chairman of bioMerieux Vitek Inc., a
manufacturer of clinical diagnostic systems, since July 1991 and as Senior
Adviser-Health Care Industry and International Investment Banking for Prudential
Securities Inc. since prior to 1989.
Steven J. Shulman has been a director of the Company since November 1993.
Mr. Shulman has served as President, Pharmacy & Disease Management Group of
Value Health, Inc., a provider of specialty managed care programs, since
November 1995, and as a director of Value Health, Inc. since April 1991. Mr.
Shulman previously served as Executive Vice President from April 1991 until
September 1993, and Senior Vice President from prior to 1989 until September
1993 of Value Health, Inc. From October 1990 through April 1991, he also served
as the acting President and Chief Executive Officer of American PsychManagement,
Inc. a wholly owned subsidiary of Value Health, Inc. Prior to 1989, Mr. Shulman
held various managerial positions at CIGNA Healthplan, Inc., a provider of group
life and health insurance, including managed care products. Mr. Shulman is also
a director of Ramsay Health Care, Inc., a provider of psychiatric healthcare
services.
ANDROS DESIGNEES TO THE NOVAMETRIX BOARD
At the Effective Time, the Board of Directors and each committee thereof
will be reconfigured as described under "The Merger--Management of Novametrix
Following the Merger". Set forth below is information as to the persons who are
expected to be appointed directors of the Company by Andros after the Merger:
Richard D. Paterson has been a director and Chairman of Andros since
February 12, 1996, has been a Managing Director of Genstar Capital LLC, which is
the general partner of Genstar, since September 1995 and an Executive Vice
President of Genstar Investment Corporation since February 1987. He has also
been a director of Wolverine Tube, Inc. from January 1991 to October 1995, a
director and Chairman of Prestolite Electric Inc. since October 1991, a director
and Chairman of Seaspan International Ltd. from October 1994 to June 1996, a
director of Genstar Capital Corporation from November 1988 to August 1995, a
director of Gentek Building Products since December 1994, a director of Atlantic
Industries, Inc. from December 1990 to November 1993, a director of Eurocal
Trading, Inc. from August 1991 to October 1995 and a director of Panolam
Holdings, Inc. since June 1996.
Mark E. Bandeen has been a director and President of Andros since February
12, 1996. He has also been a managing director of Genstar Capital LLC since
September 1995, a Senior Vice President of Genstar Investment Corporation since
July 1987, a director of Wolverine Tube Inc. from January 1991 to September
1995, a director of Prestolite Electric Inc. since October 1991, a director of
Seaspan International Ltd. from October 1994 to June 1996, a director of Genstar
Capital Corporation from April 1989 to May 1995, a director of Gentek Building
Products since December 1994 and a director of Panolam Holdings, Inc. since June
1996.
81
<PAGE>
Daniel J. Boverman has been a director and Vice President and Secretary of
Andros since February 12, 1996. He has also been a principal of Genstar Capital
LLC since September 1995, a Vice President of Genstar Investment Corporation
since April 1989 and a director of Panolam Holdings, Inc. since January 1996.
Jean-Pierre L. Conte has been a director and Vice President and Treasurer of
Andros since February 12, 1996. He has also been a principal of Genstar Capital
LLC since September 1995, a Vice President of Genstar Investment Corporation
since July 1995, a principal of The NTC Group, Inc. from June 1989 to March
1995, a director of TB Woods Corporation since March 1990 and a director of
Panolam Holdings, Inc. since June 1996.
Michael J. Kennedy has been a partner at the law firm of Shearman & Sterling
since 1993 and previously was an associate there from 1985.
William J. MacDonald has been a director of Andros since July 1996. He has
also been an Executive Vice President of Genstar Capital Corporation since
January 1996, Executive Vice President and Chief Operating Officer of Indal
Limited from January 1993 to January 1994, a director of Indal Limited from June
1991 to October 1993, a director of Exal Aluminum Inc. since November 1994 and a
director of Panolam Holdings, Inc. since January 1996.
EXECUTIVE COMPENSATION
The following table sets forth information for the fiscal years ended April
28, 1996, April 30, 1995 and May 1, 1994 concerning the compensation of the
Company's Chief Executive Officer and other executive officers of the Company
whose total annual salary and bonus exceeded $100,000 during the fiscal year
ended April 28, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
FISCAL --------------------- ---------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK OPTIONS(#) COMPENSATION(1)
- ---------------------------------------------- ---------- ---------- --------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
William J. Lacourciere........................ 1996 $ 200,000 $ 15,000 0 $ 4,511
Chairman of the Board, 1995 200,000 25,000 30,000 4,478
President and Chief 1994 166,346 0 0 3,126
Executive Officer
Joseph A. Vincent, CMA........................ 1996 104,904 10,000 0 3,141
Chief Financial Officer, 1995 100,000 15,000 20,000 2,651
Vice President 1994 100,000 0 0 1,916
Finance, Treasurer and
Secretary
</TABLE>
- ------------------------
(1) Includes contributions made by the Company on behalf of the named executive
officers to Novametrix' Employee Stock Purchase Plan (the "ESOP"), the
Company's 401(k) Plan and a term life insurance plan. The Company did not
grant any stock options to the executive officers named in the Summary
Compensation Table during the fiscal year ended April 28, 1996.
The following table sets forth the number of options held by the executive
officers named in the Summary Compensation Table at April 28, 1996. None of the
executive officers named in the Summary Compensation Table exercised any stock
options during the fiscal year ended April 28, 1996.
82
<PAGE>
AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR
ENDED APRIL 28, 1996 AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT APRIL 28, 1996 AT APRIL 28, 1996(1)
------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William J. Lacourciere.................................... 10,000 20,000 $ 15,000 $ 30,000
Joseph A. Vincent, CMA.................................... 51,667 13,333 186,250 20,000
</TABLE>
- ------------------------
(1) In-the-money options are those where the fair market value of the underlying
Novametrix Common Stock exceeds the exercise price thereof. The value of
in-the-money options is determined in accordance with regulations of the
Commission by subtracting the aggregate exercise price of the options from
the aggregate year-end market value of the underlying Novametrix Common
Stock.
COMPENSATION OF DIRECTORS
The Company has a policy of paying its directors who are not employees of
the Company an annual fee of $2,500 plus $1,250 for each meeting of the Board of
Directors of the Company attended.
Thomas M. Haythe, General Counsel and a director of the Company, is a member
of the law firm of Haythe & Curley, the Company's general counsel. It is
expected that Haythe & Curley will continue to render legal services to the
Company in the future.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The report of the Compensation Committee documents the Committee's policies
regarding executive officer compensation. The Company's philosophy and
objectives in setting compensation are (i) to offer levels of compensation which
are competitive with those offered by other companies in similar businesses;
(ii) to compensate executives based on each executive's level of responsibility
and contribution to the Company's business goals; (iii) to link compensation
with the Company's financial performance; and (iv) to align the interests of the
Company's executives with the interests of the Company's stockholders.
BASE SALARY. Base salary is determined by level of responsibility,
individual performance and Company performance, as well as by the need to
provide a competitive package that allows the Company to retain key executives.
After reviewing individual and Company performance and market studies on
salaries at other companies of similar size, the President makes recommendations
to the Compensation Committee concerning officers' salaries, other than his own.
The Compensation Committee reviews and, with any changes it deems appropriate,
approves these recommendations. Using the same review process, the Compensation
Committee makes decisions pertaining to the President's salary.
EXECUTIVE BONUSES. Executive bonuses provide the opportunity for executive
officers to earn additional compensation by achieving specific performance
goals. The Company will pay a percentage of each participant's annual base
salary as an annual bonus, provided the Company achieves specific performance
objectives. These objectives are established by the Board of Directors of the
Company at the beginning of each fiscal year in consultation with such executive
officers.
STOCK OPTIONS. The Company periodically grants stock options to its
executive officers and other key employees. The primary purpose of stock option
grants is to align the interests of the Company's executive officers more
closely with the interests of the Company's stockholders by offering the
executives an opportunity to benefit from increases in the market price of the
Novametrix Common Stock. Stock options provide long-term incentives that have
enabled the Company to attract and retain key employees by encouraging their
ownership of Novametrix Common Stock. The stock option plans are administered by
the Stock Option Committee of the Company's Board of Directors, which determines
the persons who are to receive options and the number of shares to be subject to
each option. In selecting individuals for
83
<PAGE>
options and determining the terms thereof, the Stock Option Committee may take
into consideration any factors it deems relevant, including present and
potential contributions to the success of the Company.
COMPENSATION OF EXECUTIVE OFFICERS. The Company has an employment agreement
with William J. Lacourciere, President and Chief Executive Officer of the
Company. Pursuant to this agreement, the annual base salary of Mr. Lacourciere
is subject to cost of living increases and increases at the discretion of the
Company's Board of Directors based upon performance of the Company and
performance of the executive. For fiscal year 1995, the Company's Board of
Directors approved an increase of approximately 20% in the base salary payable
to Mr. Lacourciere. In addition, for fiscal years 1995 and 1996, the Company
granted Mr. Lacourciere bonuses of $25,000 and $15,000, respectively, based upon
individual performance and contribution to the growth of the Company. The salary
increase and the bonus awards were based on the continued increases in sales,
operating income, net income and earnings per share of the Company during fiscal
1994, 1995 and 1996.
Compensation Committee
Steven J. Shulman
Michael J. Needham
Thomas M. Haythe
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All executive officer compensation decisions have been made by the
Compensation Committee of the Company's Board of Directors. The Compensation
Committee reviews and makes recommendations regarding the compensation for
management and key employees of the Company, including salaries and bonuses. No
member of the Compensation Committee is an executive of the Company. The current
members of the Compensation Committee are Steven J. Shulman, Michael J. Needham
and Thomas M. Haythe. At the Effective Time, the Compensation Committee will be
composed of an equal number of the continuing members of the Board of Directors
of the Company and the members appointed by the Board of Directors of Andros.
For information concerning the proposed appointees of Andros to the Board of
Directors of the Company, see "Novametrix Management--Andros Designees to the
Novametrix Board".
84
<PAGE>
PERFORMANCE GRAPH
The following performance graph compares the cumulative total shareholder
return on the Novametrix Common Stock to the NASDAQ Stock Market-US Index and to
the Standard and Poor's Medical Products and Supplies Index for the Company's
last five fiscal years. The graph assumes that $100 was invested in each of the
Novametrix Common Stock, the NASDAQ Stock Market-US Index and the Standard and
Poor's Medical Products and Supplies Index on September 30, 1991 and that all
dividends were reinvested.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NOVAMETRIX Medical NASDAQ Composite S&P MEDICAL Products & Supplies
<S> <C> <C> <C>
9/30/91 100.0% 100.0% 100.0%
9/30/92 100.0% 110.7% 98.2%
9/30/93 150.0% 144.8% 68.5%
9/30/94 277.5% 145.1% 87.3%
9/30/95 190.0% 198.1% 137.2%
6/30/96 225.0% 224.9% 148.3%
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
9/30/91 9/30/92 9/30/93 9/30/94 9/30/95 6/30/96
--------- --------- --------- --------- --------- ---------
NOVAMETRIX....................................... 100.0% 100.0% 150.0% 277.5% 190.0% 225.0%
NASDAQ STOCK MRKT--US............................ 100.0% 110.7% 144.8% 145.1% 198.1% 224.9%
S&P MEDICAL PRODUCTS AND SUPPLIES................ 100.0% 98.2% 68.5% 87.3% 137.2% 148.3%
</TABLE>
85
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF NOVAMETRIX
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The stockholders (including any "group", as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934) who, to the knowledge of the
Board of Directors of the Company, owned beneficially more than five percent of
any class of the outstanding voting securities of the Company as of September
30, 1996, and their respective shareholdings as of such date (according to
information furnished by them to the Company), are set forth in the following
table. Except as indicated in the footnotes to the table, all of such shares are
owned with sole voting and investment power.
<TABLE>
<CAPTION>
SHARES
TITLE OF BENEFICIALLY PERCENT
NAME AND ADDRESS CLASS OWNED OF CLASS
- -------------------------------------------------------------- --------------------- ----------------- -----------
<S> <C> <C> <C>
Paul A. Cote Group ........................................... Common 997,215(1) 13.5%
512 Webster Road
Lewiston, Maine 04240
First Union Corporation ...................................... Common 716,182(2) 9.1%
One First Union Center Series B Preferred 40,000(2) 100%
Charlotte, NC 28288
William J. Lacourciere ....................................... Common 370,990(3) 5.2%
56 Carpenter Lane
Wallingford, Connecticut 06492
</TABLE>
- ------------------------
(1) Information as to the Paul A. Cote Group (the "Cote Group"), is based upon a
proxy statement filed with the Commission by the Cote Group. Such proxy
statement indicates that the Cote Group beneficially owns an aggregate of
997,215 shares, which includes 229,150 shares issuable on the exercise of
currently exercisable warrants.
(2) Consists of (i) 444,444 shares issuable upon the conversion of 40,000 shares
of Series B Preferred Stock and (ii) 271,738 shares issuable upon the
exercise of currently exercisable warrants formerly held by First Fidelity
Incorporated ("First Fidelity"), a wholly owned subsidiary of First Fidelity
Bancorporation, which warrants will expire on May 23, 2000. The Series B
Preferred Stock and warrants, presently held by First Union Corporation
("First Union") as the result of First Union's merger with First Fidelity
consummated in January 1996, were previously held by First Fidelity Bank,
Connecticut ("FFB-CT"), formerly known as Union Trust Company prior to its
acquisition by First Fidelity Bancorporation. Information as to the holdings
of First Union is based upon a report on Schedule 13D filed with the
Commission by FFB-CT and Northeast Bancorp, Inc., its parent corporation
prior to the acquisition of FFB-CT by First Fidelity Bancorporation. First
Fidelity Bancorporation may be deemed to be the indirect beneficial owner of
the shares held by First Fidelity by virtue of its ownership of all of the
stock of First Fidelity.
(3) Includes (i) 5,887 shares held for the account of Mr. Lacourciere, the
Chairman of the Board, President and Chief Executive Officer and a director
of the Company, under the ESOP, (ii) 1,000 shares issuable upon the exercise
of Class A warrants and 1,000 shares issuable upon the exercise of Class B
warrants held by Mr. Lacourciere, which warrants are currently exercisable
and will expire on December 8, 1997 and December 8, 1999, respectively, and
(iii) 20,000 shares issuable upon the exercise of currently exercisable
options held by Mr. Lacourciere.
86
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of September 30, 1996, the number of
shares of the outstanding voting securities of the Company beneficially owned by
each of the Company's directors and each executive officer named in the Summary
Compensation Table, and all directors and executive officers as a group,
according to information furnished by such persons to the Company. The address
of each of the directors listed below is in care of Novametrix Medical Systems
Inc., 56 Carpenter Lane, Wallingford, Connecticut 06492.
<TABLE>
<CAPTION>
SHARES
TITLE OF BENEFICIALLY PERCENT
NAME AND ADDRESS CLASS OWNED OF CLASS
- ----------------------------------------------------------------------- ------------ ----------------- -----------
<S> <C> <C> <C>
Thomas M. Haythe ...................................................... Common 116,540(1) 1.6%
Director of the Company
William J. Lacourciere ................................................ Common 370,990(2) 5.2%
Chairman of the Board, President and Chief Executive Officer of the
Company and Director of the Company
Michael J. Needham .................................................... Common 27,588(3) *
Director of the Company
Photios T. Paulson .................................................... Common 15,500(4) *
Director of the Company
Steven J. Shulman ..................................................... Common 6,000 *
Director of the Company
Joseph A. Vincent, CMA ................................................ Common 64,449(5) *
Vice President Finance, Chief Financial Officer, Treasurer and
Secretary of the Company and Director of the Company
All directors and executive 667,802(1)(2) 9.1%
officers as a group (3)(4)
(eight persons) ..................................................... Common (5)(6)
</TABLE>
- --------------------------
* Less than one percent.
(1) Includes (i) 14,844 shares issuable upon the exercise of currently
exercisable warrants held by Mr. Haythe, which warrants will expire on
December 31, 1997, and (ii) 10,744 shares issuable upon the exercise of
currently exercisable warrants held by Mr. Haythe, which warrants will
expire on March 10, 1999.
(2) Includes (i) 5,887 shares held for the account of Mr. Lacourciere under the
ESOP, (ii) 1,000 shares issuable upon the exercise of Class A warrants and
1,000 shares issuable upon the exercise of Class B warrants held by Mr.
Lacourciere, which warrants are currently exercisable and will expire on
December 8, 1997 and December 8, 1999, respectively, and (iii) 20,000 shares
issuable upon the exercise of currently exercisable stock options held by
Mr. Lacourciere.
(3) Includes (i) 14,844 shares issuable upon the exercise of currently
exercisable warrants held by Mr. Needham, which warrants will expire on
December 31, 1997, and (ii) 10,744 shares issuable upon the exercise of
currently exercisable warrants held by Mr. Needham, which warrants will
expire on March 10, 1999.
(4) Includes 10,000 shares issuable upon the exercise of currently exercisable
warrants held by Mr. Paulson, which warrants will expire on November 30,
2002.
(5) Includes (i) 3,158 shares held for the account of Mr. Vincent under the
ESOP, (ii) 200 shares issuable upon the exercise of Class A warrants and 200
shares issuable upon the exercise of Class B warrants held by Mr. Vincent,
which warrants are currently exercisable and will expire on December 8, 1997
and December 8, 1999, respectively, and (iii) 13,333 shares issuable upon
the exercise of currently exercisable stock options held by Mr. Vincent.
(6) Includes (i) 1,475 shares held for the account of Leslie E. Mace, Vice
President Engineering of the Company, under the ESOP, (ii) 24,535 shares
issuable upon the exercise of currently exercisable warrants held by Mr.
Mace, which warrants will expire on March 22, 2000, (iii) 8,667 shares
issuable upon the exercise of currently exercisable stock options held by
Mr. Mace, (iv) 2,545 shares held for the account of Philip F. Nuzzo, Vice
President-- Medical Product Development and Marketing, under the ESOP, and
(v) 28,833 shares issuable upon the exercise of currently exercisable stock
options held by Mr. Nuzzo.
87
<PAGE>
PURCHASES AND SALES OF NOVAMETRIX COMMON STOCK. The table below shows the
numbers of shares of Novametrix Common Stock purchased or sold by the directors
named therein since August 1, 1994 and the dates of such purchases. No shares of
Series B Preferred Stock or Warrants were purchased or sold by any director
during such period.
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------------
NAME DATE PURCHASED SOLD
- ---------------------------- ---------------------- ----------- ---------
<S> <C> <C> <C>
Thomas M. Haythe September 19, 1995 1,000
September 22, 1995 1,000
September 12, 1996 34,107(1)
William J. Lacourciere September 12, 1994 585(2)
September 1, 1995 499(2)
June 25, 1996 353(2)
July 8, 1996 30,000
July 12, 1996 70,000(1)
July 12, 1996 5,500
July 16, 1996 1,000
July 17, 1996 10,000
September 6, 1996 234,078(1)
Michael J. Needham September 14, 1995 1,000
Photios T. Paulson October 5, 1994 1,000
August 15, 1995 500
September 12, 1995 1,000
Steven J. Shulman September 15, 1995 5,000
Joseph A. Vincent, CMA September 12, 1994 357(2)
September 1, 1995 335(2)
June 25, 1996 304(2)
September 26, 1996 45,000(1)
</TABLE>
- ------------------------
(1) Shares purchased through the exercise of warrants or options.
(2) Shares allocated under the ESOP.
Since August 1, 1994, the Company has issued 1,504,810 shares of Novametrix
Common Stock upon the exercise of options and warrants, the conversion of Series
B Preferred Stock, as Director compensation and pursuant to the Stock Purchase
Plan.
88
<PAGE>
OTHER MATTERS SET FORTH FOR ACTION AT THE MEETING
II. APPROVAL OF 1996 LONG TERM INCENTIVE PLAN
The Company's Board of Directors believes that attracting and retaining key
employees and directors of high quality is essential to the Company's growth and
success. The Company's Board of Directors also believes that important
advantages to the Company are gained by a comprehensive compensation program
which includes different types of incentives for motivating such individuals and
rewards for outstanding service. In this regard, stock options and other
stock-related awards have been and will continue to be an important element of
the Company's compensation program because such awards enable employees and
directors to acquire or increase their proprietary interest in the Company,
thereby promoting a close identity of interests between such individuals and the
Company's stockholders. Such awards also provide to employees and directors an
increased incentive to expend their maximum efforts for the success of the
Company's business.
Accordingly, on April 29, 1996 the Company's Board of Directors adopted,
subject to stockholder approval at the Meeting, the Novametrix Medical Systems
Inc. 1996 Long Term Incentive Plan (the "Incentive Plan"). In authorizing grants
of a wide range of awards, including options, stock appreciation rights
("SARs"), restricted stock, performance awards and other stock-based awards, the
Incentive Plan is intended to give the Company greater flexibility to respond to
rapidly changing business, economic and regulatory requirements and conditions.
In addition, such flexibility will enhance the ability of the Company to link
closely compensation to performance. The Incentive Plan will not become
effective unless approved by the holders of a majority of the voting power of
the shares present or represented and voting thereon at the Meeting. The text of
the Incentive Plan is set forth in Appendix E hereto.
The following discussion of the material features of the Incentive Plan is
qualified by reference to the text of the Incentive Plan set forth in Appendix E
hereto.
SHARES SUBJECT TO THE PLAN. Under the Incentive Plan, 750,000 shares of
Novametrix Common Stock will be available for issuance of awards. Shares
distributed under the Incentive Plan may be either newly issued shares or
treasury shares. If any shares subject to an Incentive Plan award are forfeited
or the award is settled in cash or otherwise terminates without a distribution
of shares, the shares subject to such award will again be available for awards
under the Incentive Plan. Thus, for example, if an award is voluntarily
surrendered in exchange for a new award, the shares that were subject to the
surrendered award would be available for the new award (or other awards) under
the Incentive Plan. The maximum number of shares of Novametrix Common Stock
which may be granted to any individual under the Incentive Plan in any two-year
period shall not exceed 100,000 shares, subject to the adjustments described in
the next paragraph.
The Incentive Plan provides that, in the event of changes in the corporate
structure of the Company affecting the Novametrix Common Stock, the Stock Option
Committee may adjust (i) the number and kind of shares which may be issued in
connection with awards, (ii) the number and kind of shares issued or issuable in
respect of outstanding awards, and (iii) the exercise price, grant price, or
purchase price relating to any award, and the Stock Option Committee may also
provide for cash payments relating to awards. The Stock Option Committee may
also adjust performance conditions and other terms of awards in response to
these kinds of events or to changes in applicable laws, regulations or
accounting principles. The Incentive Plan provides that, in connection with any
merger or consolidation in which the Company is not the surviving corporation or
any sale or transfer by the Company of all or substantially all its assets or
any tender offer or exchange offer for or the acquisition, directly or
indirectly, by any person or group of all or a majority of the then outstanding
voting securities of the Company, all outstanding options under the Incentive
Plan will become exercisable in full on and after (i) 15 days prior to the
effective date of such merger, consolidation, sale, transfer or acquisition or
(ii) the date of commencement of such tender offer or exchange offer, as the
case may be.
ELIGIBILITY. Any employee, including any officer or employee-director, of
the Company and its subsidiaries or affiliated companies is eligible to receive
awards under the Incentive Plan. Directors of the Company who are not employees
are eligible for grants of stock options under the Incentive Plan.
89
<PAGE>
ADMINISTRATION. The Incentive Plan will be administered by the Stock Option
Committee of the Company's Board of Directors. Subject to the terms and
conditions of the Incentive Plan, the Stock Option Committee is authorized to
designate participants who are employees, directors or consultants of the
Company and its subsidiaries and affiliated companies, determine the type and
number of awards to be granted, set terms and conditions of such awards,
prescribe forms of award agreements, interpret the Incentive Plan, specify rules
and regulations relating to the Incentive Plan, and make all other
determinations which may be necessary or advisable for the administration of the
Incentive Plan.
The Incentive Plan provides that in the event that any member of the Stock
Option Committee is not a "disinterested person" as defined in Rule 16b-3 under
the Securities Exchange Act of 1934, as in effect at April 30, 1991, the maximum
number of shares of Novametrix Common Stock which may be subject to options
granted to all directors is 300,000 and the maximum number of shares of
Novametrix Common Stock which may be subject to options granted in any two-year
period to each employee-director is 100,000 and to each director who is not an
employee of the Company is 10,000.
STOCK OPTIONS AND SARS. The Stock Option Committee is authorized to grant
stock options, including both incentive stock options ("ISOs"), which can result
in potentially favorable tax treatment to the participant, and nonqualified
stock options, and also to grant SARs entitling the participant to receive the
excess of the fair market value of a share on the date of exercise or other
specified date over the grant price of the SAR. The exercise price per share of
Novametrix Common Stock subject to an option and the grant price of an SAR is
determined by the Stock Option Committee, provided that the exercise price may
not be less than the fair market value of the Novametrix Common Stock on the
date of grant. The term of each such option or SAR, the times at which each such
option or SAR shall be exercisable, and provisions requiring forfeiture of
unexercised options at or following termination of employment, generally will be
fixed by the Stock Option Committee, except no ISO or SAR relating thereto will
have a term exceeding ten years. Options may be exercised by payment of the
exercise price in cash, or in stock, outstanding awards or other property
(including notes or obligations to make payment on a deferred basis, such as
through "cashless exercises") having a fair market value equal to the exercise
price, as the Stock Option Committee may determine from time to time. Methods of
exercise and settlement and other terms of the SARs will be determined by the
Stock Option Committee.
RESTRICTED STOCK. The Incentive Plan also authorizes the Stock Option
Committee to grant restricted stock. Restricted stock is an award of shares
which may not be disposed of by participants and which may be forfeited in the
event of certain terminations of employment prior to the end of a restriction
period established by the Stock Option Committee. Such an award would entitle
the participant to all of the rights of a stockholder of the Company, including
the right to vote the shares and the right to receive any dividends thereon,
unless otherwise determined by the Stock Option Committee.
PERFORMANCE AWARDS. The Incentive Plan also authorizes the Stock Option
Committee to grant to eligible employees performance awards. A performance award
is an award which consists of a right (i) denominated or payable in cash,
Novametrix Common Stock, other securities or other property (including, without
limitation, restricted securities), and (ii) which shall confer on the holder
thereof rights valued as determined by the Stock Option Committee and payable
to, or exercisable by, the holder of the performance award upon the achievement
of such performance goals during such performance periods as the Stock Option
Committee shall establish. Subject to the terms of the Incentive Plan and any
applicable award agreement, performance goals to be achieved during any
performance period, the length of any performance period, the amount of any
performance award granted and the amount of any payment or transfer to be made
pursuant to any performance award will be determined by the Stock Option
Committee and by the other terms and conditions of any performance award.
OTHER STOCK-BASED AWARDS. In order to enable the Company to respond to
business, economic and regulatory developments, and to trends in executive
compensation practices, the Incentive Plan authorizes the Stock Option Committee
to grant awards that are denominated or payable in, valued in whole or in part
by reference to, or otherwise based on or related to Novametrix Common Stock.
The Stock Option Committee determines the terms and conditions of such awards,
including consideration to be paid to
90
<PAGE>
exercise awards in the nature of purchase rights, the period during which awards
will be outstanding, and forfeiture conditions and restrictions on awards.
OTHER TERMS OF AWARDS. The flexible terms of the Incentive Plan will permit
the Stock Option Committee to impose performance conditions with respect to any
award. Such conditions may require that an award be forfeited, in whole or in
part, if performance objectives are not met, or require that the time of
exercisability or settlement of an award be linked to achievement of performance
conditions.
No awards may be granted under the Incentive Plan after June 30, 2006.
Awards may be settled in cash, stock, other awards or other property, in the
discretion of the Stock Option Committee. The Stock Option Committee may
condition the payment of an award on the withholding of taxes and may provide
that a portion of the Novametrix Common Stock or other property to be
distributed will be withheld (or previously acquired Novametrix Common Stock or
other property surrendered by the participant) to satisfy withholding and other
tax obligations. Awards granted under the Incentive Plan may not be pledged or
otherwise encumbered and are not transferable except by will or by the laws of
descent and distribution to a guardian or legal representative designated to
exercise such person's rights and receive distributions under the Incentive Plan
upon such person's death, or otherwise if permitted under Rule 16b-3 and by the
Stock Option Committee.
Awards under the Incentive Plan are generally granted for no consideration
other than services. The Stock Option Committee may, however, grant awards alone
or in addition to, in tandem with or in substitution for any other award under
the Incentive Plan, other awards under other Company plans, or other rights to
payment from the Company. Awards granted in addition to or in tandem with other
awards may be granted either at the same time or at different times. If an award
is granted in substitution for another award, the participant must surrender
such other award in consideration for the grant of the new award.
The Novametrix Board may amend, modify or terminate the Incentive Plan at
any time provided that, unless required by law, (i) the number of shares of
Novametrix Common Stock available under the Incentive Plan may not be amended
without stockholder approval (subject to certain provisions relating to
adjustment as discussed above) and (ii) no amendment or termination of the
Incentive Plan may, without a participant's consent, adversely affect any rights
already accrued under the Incentive Plan by the participant. In addition, no
amendment or modification shall, unless previously approved by the stockholders
(where such approval is necessary to satisfy then applicable requirements of
federal securities laws, the Code, or rules of any stock exchange on which the
Novametrix Common Stock is listed) (i) in any manner affect the eligibility
requirements of the Incentive Plan, (ii) increase the number of shares of
Novametrix Common Stock subject to any option, (iii) change the purchase price
of the shares of Novametrix Common Stock subject to any option, (iv) extend the
period during which awards may be granted under the Incentive Plan, or (v)
materially increase the benefits to participants under the Incentive Plan.
Unless earlier terminated by the Company's Board of Directors, the Incentive
Plan will terminate when no shares remain available for issuance and the Company
has no further obligation with respect to any outstanding award.
FEDERAL INCOME TAX IMPLICATIONS OF THE PLAN. The following description
summarizes the material federal income tax consequences arising with respect to
the issuance and exercise of awards granted under the Incentive Plan. The grant
of an option or SAR (including a stock-based award in the nature of a purchase
right) will create no tax consequences for the participant or the Company. A
participant will not have taxable income upon exercising an ISO (except that the
alternative minimum tax may apply) and the Company will receive no deduction at
that time. Upon exercising an option other than an ISO (including a stock-based
award in the nature of a purchase right), the participant must generally
recognize ordinary income equal to the difference between the exercise price and
fair market value of the freely transferable and nonforfeitable Novametrix
Common Stock acquired on the date of exercise, and upon exercising an SAR, the
participant must generally recognize ordinary income equal to the cash or the
fair market value of the freely transferable and nonforfeitable Novametrix
Common Stock received. In each case, the
91
<PAGE>
Company will be entitled to a deduction equal to the amount recognized as
ordinary income by the participant.
A participant's disposition of shares acquired upon the exercise of an
option, SAR or other stock-based award in the nature of a purchase right
generally will result in short-term or long-term capital gain or loss measured
by the difference between the sale price and the participant's tax basis in such
shares (or the exercise price of the option in the case of shares acquired by
exercise of an ISO and held for the applicable ISO holding periods). Generally,
there will be no tax consequences to the Company in connection with a
disposition of shares acquired under an option or other award, except that the
Company will be entitled to a deduction (and the participant will recognize
ordinary taxable income) if shares acquired upon exercise of an ISO are disposed
of before the applicable ISO holding periods have been satisfied.
With respect to other awards granted under the Incentive Plan that may be
settled either in cash or in Novametrix Common Stock or other property that is
either not restricted as to transferability or not subject to a substantial risk
of forfeiture, the participant must generally recognize ordinary income equal to
the cash or the fair market value of Novametrix Common Stock or other property
received. The Company will be entitled to a deduction for the same amount. With
respect to awards involving stock or other property that is restricted as to
transferability and subject to a substantial risk of forfeiture, the participant
must generally recognize ordinary income equal to the fair market value of the
shares or other property received at the first time the shares or other property
become transferable or not subject to a substantial risk of forfeiture,
whichever occurs earlier. The Company will be entitled to a deduction in an
amount equal to the ordinary income recognized by the participant. A participant
may elect under Section 83(b) of the Code to be taxed at the time of receipt of
shares or other property rather than upon lapse of restrictions on
transferability or the substantial risk of forfeiture, but if the participant
subsequently forfeits such shares or property he would not be entitled to any
tax deduction, including as a capital loss, for the value of the shares or
property on which he previously paid tax. Such election must be made and filed
with the Internal Revenue Service within 30 days of the receipt of the shares or
other property.
Section 162(m) of the Code limits deductibility of certain compensation for
each of the Chief Executive Officer of the Company and the additional four
executive officers who are highest paid and employed at year end to $1 million
per year, effective for tax years beginning on or after January 1, 1994. The
Company anticipates that action will be taken with respect to awards under the
Incentive Plan to ensure deductibility.
The Stock Option Committee may condition the payment of an award on the
withholding of taxes and may provide that a portion of the stock or other
property to be distributed will be withheld (or previously acquired stock or
other property surrendered by the participant) to satisfy withholding and other
tax obligations.
The foregoing summarizes the material federal income tax consequences
arising with respect to the issuance and exercise of awards granted under the
Incentive Plan. Different tax rules may apply with respect to participants who
are subject to Section 16 of the Securities Exchange Act of 1934, when they
acquire stock in a transaction deemed to be a nonexempt purchase under that
statute or within six months of an exempt grant of a derivative security under
the Incentive Plan. This summary does not address the effects of other federal
taxes or taxes imposed under state, local or foreign tax laws.
The Board of Directors of the Company recommends that the Company's
stockholders vote FOR approval of the Incentive Plan. It is the intention of the
persons named in the accompanying form of Proxy to vote the shares represented
thereby in favor of such approval unless otherwise instructed in such Proxy.
92
<PAGE>
III. ELECTION OF CLASS A DIRECTORS
The Company's Certificate of Incorporation provides for the division of the
Company's Board of Directors into three classes. The Class A directors and the
nominees for election identified below are Michael J. Needham and Joseph A.
Vincent, the Class B directors are Photios T. Paulson and Steven J. Shulman, and
the Class C directors are Thomas M. Haythe and William J. Lacourciere. The
stockholders have elected each class to serve for a full term of three years. If
the number of directors is increased, the increase will be apportioned among the
classes so as to make all classes as nearly equal in number as possible.
Two Class A directors will be elected at the Meeting to serve for three
years and until their respective successors shall have been elected and
qualified. The Class B directors will be elected at the 1997 Annual Meeting and
the Class C directors will be elected at the 1998 Annual Meeting. It is the
intention of each of the persons named in the accompanying form of Proxy to vote
the shares represented thereby in favor of the nominees for Class A director
named below unless otherwise instructed in such Proxy. In case either one of the
nominees is unable or declines to serve, such persons reserve the right to vote
the shares represented by such Proxy for another person duly nominated by the
Company's Board of Directors in such nominee's stead. The Company's Board of
Directors has no reason to believe that either of the nominees, Michael J.
Needham and Joseph A. Vincent, will be unable or will decline to serve. The
nominees are each presently serving as Class A directors of the Company. At the
Effective Time of the Merger, the Board will be increased in size and new
members will be elected by the Novametrix Board as more fully described under
"The Merger Management of Novametrix Following the Merger".
Certain information concerning the six present directors of the Company
(including the two nominees as Class A directors) is set forth herein under
"Novametrix Management".
Information concerning the right of certain stockholders of the Company to
elect directors to the Board of Directors is set forth below.
At the Effective Time, the Board of Directors and each committee thereof
will be reconfigured as described under "The Merger--Management of Novametrix
Following the Merger". For information as to the persons who are expected to be
appointed directors of the Company by Andros, see "Novametrix Management--Andros
Designees to the Novametrix Board".
Effective May 20, 1996, Steven J. Shulman resigned as a Class A director of
the Company and was elected as a Class B director, to serve until the next
election of Class B directors or until his successor has been duly elected and
qualified. This change was made so as to eliminate the unequal distribution of
directors among classes which had resulted from prior director resignations and
to conform to the requirements of the Company's Amended and Restated Certificate
of Incorporation, which calls for three classes of Directors which are equal in
size. During Fiscal 1996, the Board of Directors of the Company met four times.
During the fiscal year ended April 28, 1996, the Novametrix Board had a
Stock Option Committee, whose members were Messrs. Shulman, Haythe, Needham and
Paulson, a Compensation Committee, whose members were Messrs. Shulman, Haythe,
Needham and Paulson, and an Audit Committee, whose members were Messrs. Shulman
and Haythe. The Board of Directors of the Company does not have a Nominating
Committee.
The Stock Option Committee administers the Company's stock option plans, and
its Employee Stock Purchase Plan. The Compensation Committee makes
recommendations to the Board of Directors of the Company regarding compensation
and other benefits to be paid to key employees of the Company. The Audit
Committee is authorized to review the results of the auditors' examinations and
to make recommendations with respect to accounting practices and procedures and
internal controls. The Audit Committee, the Stock Option Committee and the
Compensation Committee each met one time during the past fiscal year. All of the
directors other than Messrs. Needham and Shulman attended at least 75% of the
meetings of the Novametrix Board and meetings of any committee of the Novametrix
Board on which such directors served.
93
<PAGE>
The directors and officers of the Company, other than Messrs. Haythe,
Needham, Paulson and Shulman, are active in its business on a day-to-day basis.
No family relationships exist among any of the directors and officers of the
Company.
On August 29, 1991, the Company issued an aggregate of 120,000 shares of
Series B Preferred Stock to certain investors, of which 100,000 shares are
currently outstanding. In addition to their right to vote with the holders of
shares of Novametrix Common Stock on all matters to be voted on at the Meeting,
the holders of record of the shares of Series B Preferred Stock, exclusively and
as a class, have the right to elect by majority vote one director to the Board
of Directors of the Company who is not a competitor of, supplier to or customer
of the Company or an affiliate of such a competitor, supplier or customer. To
date, the holders of the Series B Preferred Stock have not exercised this right.
In addition, pursuant to an Underwriting Agreement dated as of June 16, 1994
between the Company and Keane Securities Co., Inc. ("Keane"), the Company has
agreed that until June 8, 1999, at the request of Keane, the Company will use
its best efforts to cause one individual designated by Keane to be elected to
the Board of Directors of the Company. To date, Keane has not made such a
request.
The Company's Certificate of Incorporation contains a provision, authorized
by Delaware law, which eliminates the personal liability of a director of the
Company to the Company or to any of its stockholders for monetary damages for a
breach of his fiduciary duty as a director, except in the case where the
director breached his duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized a payment of a
dividend or approved a stock repurchase in violation of Delaware corporate law,
or obtained an improper personal benefit.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
the Novametrix Common Stock, to file with the Commission initial reports of
ownership and reports of changes in ownership of Novametrix Common Stock.
Officers, directors and greater than ten percent stockholders are required by
Commission regulations to furnish the Company with copies of all Section 16(a)
reports they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and representations from certain persons that
no other reports were required, all Section 16(a) filing requirements applicable
to its officers, directors and greater than ten percent beneficial owners have
been complied with.
94
<PAGE>
IV. RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors of the Company has selected Ernst & Young LLP to
serve as independent auditors for the Company for the fiscal year ending April
27, 1997. Such firm has examined the financial statements of the Company since
the Company's inception. The Board of Directors considers Ernst & Young LLP to
be eminently qualified.
Although it is not required to do so, the Board of Directors of the Company
is submitting its selection of the Company's auditors for ratification at the
Meeting in order to ascertain the views of stockholders regarding such
selection. If the selection is not ratified, the Board of Directors of the
Company will reconsider its selection.
The Novametrix Board recommends that the Company's stockholders vote FOR
ratification of the selection of Ernst & Young LLP to examine the consolidated
financial statements of the Company and its subsidiaries for fiscal 1997. It is
the intention of the persons named in the accompanying form of Proxy to vote the
shares represented thereby in favor of such ratification unless otherwise
instructed in such Proxy.
A representative of Ernst & Young LLP will be present at the Meeting with
the opportunity to make a statement if such representative desires to do so, and
will be available to respond to appropriate questions.
V. OTHER MATTERS
The Board of Directors of the Company does not know of any other matters
which may be brought before the Meeting. However, if any such other matters are
properly presented for action, it is the intention of the persons named in the
accompanying form of Proxy to vote the shares represented thereby in accordance
with their judgment on such matters.
MISCELLANEOUS
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1997 Annual Meeting of
Stockholders of the Company must be received by the Company by June 24, 1997 in
order to be considered for inclusion in the Company's Proxy Statement relating
to such meeting.
95
<PAGE>
ANDROS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Audited Financial Statements of Andros Incorporated:
Report of Independent Accountants.................................................. F-2
Consolidated Balance Sheets as of July 30, 1995 and July 31, 1994.................. F-3
Consolidated Statements of Operations for the years ended July 30, 1995, July 31,
1994 and July 25, 1993........................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the years ended July
30, 1995, July 31, 1994 and July 25, 1993........................................ F-5
Consolidated Statements of Cash Flows for the years ended July 30, 1995, July 31,
1994 and July 25, 1993........................................................... F-6
Notes to Consolidated Financial Statements......................................... F-7
Consolidated Financial Statements of Andros Holdings Inc. and Andros Incorporated:
Report of Independent Accountants.................................................. F-15
Consolidated Balance Sheet as of July 31, 1996 (Andros Holdings Inc.).............. F-16
Consolidated Statements of Operations for the period from July 31, 1995 to March
26, 1996 (Andros Incorporated) and for the period from December 5, 1995 (date of
incorporation) to July 31, 1996 (Andros Holdings Inc.)........................... F-17
Consolidated Statements of Shareholders' Equity (Deficit) for the period from July
31, 1995 to March 26, 1996 (Andros Incorporated) and for the period from December
5, 1995 (date of incorporation) to July 31, 1996 (Andros Holdings Inc.).......... F-18
Consolidated Statements of Cash Flows for the period from July 31, 1995 to March
26, 1996 (Andros Incorporated) and for the period from December 5, 1995 (date of
incorporation) to July 31, 1996 (Andros Holdings Inc.)........................... F-19
Notes to the Consolidated Financial Statements..................................... F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Andros Incorporated
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Andros Incorporated and its subsidiaries at July 30, 1995 and July 31, 1994, and
the results of their operations and their cash flows for each of the three years
in the period ended July 30, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
September 11, 1995
F-2
<PAGE>
ANDROS INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 30, 1995 JULY 31, 1994
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................................................... $ 9,612,000 $ 3,431,700
Short-term investments, available for sale......................................... 16,400,300 22,592,200
Accounts receivable, less allowance for doubtful accounts of $540,300 and
$142,000......................................................................... 8,231,800 9,957,500
Inventories (Note 4)............................................................... 16,772,500 8,755,000
Prepaid expenses and other assets.................................................. 839,400 335,200
------------- -------------
TOTAL CURRENT ASSETS............................................................... 51,856,000 45,071,600
Plant and equipment, net (Note 5).................................................. 5,298,800 5,730,800
Goodwill and patents, less accumulated amortization of $1,227,900 and $706,100..... 6,316,900 6,808,700
Other assets....................................................................... 398,800 486,400
------------- -------------
TOTAL ASSETS....................................................................... $ 63,870,500 $ 58,097,500
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities........................................... $ 3,725,200 $ 1,889,300
Payroll and employee benefits...................................................... 1,397,200 612,300
Income taxes payable............................................................... 0 306,500
------------- -------------
TOTAL CURRENT LIABILITIES.......................................................... 5,122,400 2,808,100
Deferred income taxes (Note 6)..................................................... 379,900 514,200
------------- -------------
TOTAL LIABILITIES.................................................................. 5,502,300 3,322,300
------------- -------------
Commitments (Note 9)
SHAREHOLDERS' EQUITY (NOTE 7)
Common shares, $.01 par value, 10,000,000 shares authorized; outstanding 4,568,400
and 4,534,000.................................................................... 33,946,700 33,219,200
Retained earnings.................................................................. 24,421,500 21,556,000
------------- -------------
TOTAL SHAREHOLDERS' EQUITY......................................................... 58,368,200 54,775,200
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......................................... $ 63,870,500 $ 58,097,500
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
ANDROS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-------------------------------------------
JULY 30, 1995 JULY 31, 1994 JULY 25, 1993
------------- ------------- -------------
<S> <C> <C> <C>
Sales............................................................... $ 42,753,400 $ 57,741,700 $ 39,723,500
Cost of sales....................................................... 25,427,700 33,790,200 22,547,700
------------- ------------- -------------
GROSS PROFIT........................................................ 17,325,700 23,951,500 17,175,800
------------- ------------- -------------
Expenses and other income:..........................................
Research and development.......................................... 5,100,900 4,297,300 3,528,500
Marketing, general and administrative............................. 10,201,800 8,765,800 5,580,700
Interest and other income......................................... (1,354,900) (1,040,300) (898,000)
------------- ------------- -------------
13,947,800 12,022,800 8,211,200
------------- ------------- -------------
Income before income taxes.......................................... 3,377,900 11,928,700 8,964,600
Income tax provision (Note 6)....................................... 512,400 3,909,700 3,092,800
------------- ------------- -------------
NET INCOME.......................................................... $ 2,865,500 $ 8,019,000 $ 5,871,800
------------- ------------- -------------
------------- ------------- -------------
Net income per common and common equivalent share (Note 2).......... $0.59 $1.67 $1.25
---- ---- ----
---- ---- ----
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
ANDROS INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON SHARES SHAREHOLDERS'
------------------------- RETAINED NOTES
SHARES AMOUNT EARNINGS RECEIVABLE TOTAL
---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JULY 26, 1992................ 4,383,600 $ 31,601,200 $ 7,665,200 $ (73,800) $ 39,192,600
Net income.............................. 5,871,800 5,871,800
Common shares issued, net of costs, upon
exercise of options and purchases
under employee stock purchase plan.... 77,800 697,100 697,100
Tax benefits realized from exercise of
non-qualified stock options........... 27,600 27,600
Collection of shareholders' notes
receivable............................ 20,900 20,900
---------- ------------- ------------- ------------- -------------
BALANCE AT JULY 25, 1993................ 4,461,400 32,325,900 13,537,000 (52,900) 45,810,000
Net income.............................. 8,019,000 8,019,000
Common shares issued, net of costs, upon
exercise of options and purchases
under employee stock purchase plan.... 128,600 1,351,200 1,351,200
Repurchases of common stock............. (56,000) (839,000) (839,000)
Tax benefits realized from exercise of
non-qualified stock options........... 403,600 403,600
Collection of shareholders' notes
receivable............................ 30,400 30,400
---------- ------------- ------------- ------------- -------------
BALANCE AT JULY 31, 1994................ 4,534,000 33,241,700 21,556,000 (22,500) 54,775,200
Net income.............................. 2,865,500 2,865,500
Common shares issued, net of costs, upon
exercise of options and purchases
under employee stock purchase plan.... 34,400 631,500 631,500
Tax benefits realized from exercise of
non-qualified stock options........... 73,500 73,500
Collection of shareholders' notes
receivable............................ 22,500 22,500
---------- ------------- ------------- ------------- -------------
BALANCE AT JULY 30, 1995................ 4,568,400 $ 33,946,700 $ 24,421,500 $ 0 $ 58,368,200
---------- ------------- ------------- ------------- -------------
---------- ------------- ------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
ANDROS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-------------------------------------------
JULY 30, 1995 JULY 31, 1994 JULY 25, 1993
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................................... $ 2,865,500 $ 8,019,000 $ 5,871,800
Adjustments to reconcile net income to net cash flows from operating
activities:
Deferred income tax provision (benefit)........................... (134,300) (813,200) 168,200
Depreciation...................................................... 1,322,800 1,519,000 1,533,500
Amortization, including goodwill and software development costs... 853,500 1,483,500 1,284,300
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable........................................... 1,725,700 2,406,000 (3,150,600)
Inventories................................................... (8,017,500) (665,600) (2,554,500)
Prepaid expenses.............................................. (504,200) (44,600) (12,200)
Other assets.................................................. 32,600 (269,000) 68,900
Accounts payable and accrued liabilities...................... 1,835,900 (1,074,600) 746,200
Income taxes payable (refundable)............................. (306,500) (224,000) 1,070,900
Payroll and employee benefits................................. 784,900 18,000 92,500
Deferred revenue.............................................. 0 0 (159,500)
------------- ------------- -------------
NET CASH FLOWS FROM OPERATING ACTIVITIES........................ 458,400 10,354,500 4,959,500
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments................................. (36,411,500) (35,455,600) (43,008,400)
Proceeds from maturities of short-term investments.................. 42,603,400 32,653,200 39,495,800
Payment for purchase of Scitec Corporation, net of cash acquired.... 0 (6,977,000) 0
Capital expenditures................................................ (1,167,600) (584,300) (314,000)
Additions to patents................................................ (29,900) (56,900) (68,700)
------------- ------------- -------------
NET CASH FLOWS FROM INVESTING ACTIVITIES........................ 4,994,400 (10,420,600) (3,895,300)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net......................... 705,000 1,754,800 724,700
Repurchases of common stock......................................... 0 (839,000) 0
Collection of shareholders' notes receivable........................ 22,500 30,400 20,900
------------- ------------- -------------
NET CASH FLOWS FROM FINANCING ACTIVITIES........................ 727,500 946,200 745,600
------------- ------------- -------------
Net change in cash and cash equivalents............................. 6,180,300 880,100 1,809,800
Cash and cash equivalents at beginning of year...................... 3,431,700 2,551,600 741,800
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................ $ 9,612,000 $ 3,431,700 $ 2,551,600
------------- ------------- -------------
------------- ------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid............................................... $ 1,852,100 $ 4,946,900 $ 1,840,700
Interest paid................................................... $ 1,500 $ 7,700 $ 500
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES
In December 1993, the Company purchased all of the capital stock of Scitec
Corporation for $7,000,000. In conjunction with the acquisition, liabilities
were assumed as follows:
<TABLE>
<S> <C> <C> <C>
Fair value of assets acquired....................... $8,171,300
Cash paid for the capital stock..................... (7,000,000)
----------
Liabilities assumed................................. $1,171,300
----------
----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
ANDROS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--OPERATIONS
Andros Incorporated ("Andros") and its subsidiaries ("Company") designs,
manufactures, sells and services measurement analysis and diagnostic instruments
on a worldwide basis.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company operates on a 52-53 week fiscal year ending the last Sunday in
July. Fiscal 1995, 1994 and 1993 each comprised 52 weeks.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts and operating
results of Andros Incorporated and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
INDUSTRY SEGMENT
The Company operates in a single industry segment--the design, manufacture
and service of measurement, analysis and diagnostic instruments. Its product
lines include analyzers for automotive and medical applications sold through
Original Equipment Manufacturers, and portable spectrum analysis instrumentation
sold to end users. The Company's products are sold primarily in domestic and
European markets.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
Effective August 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115 ("FAS 115") "Accounting for Certain
Investments in Debt and Equity Securities". Adoption of FAS 115 had no material
effect on the Company's financial position or results of operations. In
accordance with the provisions of FAS 115, the Company classifies its
investments, and accounts for changes in fair value, as follows:
- Debt securities that the Company has the positive intent and ability to
hold to maturity are classified as HELD-TO-MATURITY SECURITIES and
reported at amortized cost.
- Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as TRADING
SECURITIES and reported at fair value, with unrealized gains and losses
included in earnings.
- Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as AVAILABLE-FOR-SALE
SECURITIES and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of
shareholders' equity.
Investments at July 30, 1995 and July 31, 1994 consist principally of United
States treasury notes and municipal obligations (principally various State of
California and various California county and agency obligations). These
investments are classified as available-for-sale securities and are stated at
cost which approximates fair value. Certain investments with maturities beyond
one year of the balance sheet date are classified as current assets since
management intends to redeem such investments prior to maturity.
F-7
<PAGE>
ANDROS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are valued at the lower of cost (standard cost which
approximates first-in, first-out) or market.
PLANT AND EQUIPMENT
Depreciation is computed using the straight-line method and the estimated
useful lives of the related assets which generally range from two to ten years.
The Company's building lease renewal options extend to August 2020, and
amortization of related leasehold improvements is based on the expectation that
renewal options will be exercised. The Company considers the estimated useful
life of the leasehold improvements when evaluating the period over which the
cost of leasehold improvements are amortized. Maintenance and repairs are
charged against income as incurred, and major improvements are capitalized.
Parts tooling costs, including software development costs, are capitalized,
included in machinery and equipment, and amortized generally on a
unit-of-production basis.
GOODWILL
Goodwill is amortized using the straight-line method over the period of
expected benefit which is estimated to be fifteen years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets for potential impairment by
analyzing the operating results, trends and prospects of its products, including
gross cash flows therefrom, as well as comparing them to their competitors. The
Company also takes into consideration any other events or circumstances that
might indicate potential impairment. Based upon these evaluations, the Company
has determined that no impairment of recorded long-lived assets has occurred.
RESEARCH AND DEVELOPMENT
Research and development expenses are charged against income as incurred.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time the product is shipped.
Revenue from extended warranty contracts is recognized over the terms of the
contracts using the straight-line method.
WARRANTY COSTS
The Company provides for specific warranty items when they become known and
expenses routine warranty repairs as incurred.
INCOME TAXES
In the first quarter of fiscal 1994, the Company adopted, effective as of
July 25, 1993, Statement of Financial Accounting Standards No. 109 ("FAS 109"),
"Accounting for Income Taxes". FAS 109 is an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
tax consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, FAS 109
generally considers all expected future events other than enactments of changes
in the tax laws or rates. Previously, the Company used the asset and liability
F-8
<PAGE>
ANDROS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
approach provided under Statement of Financial Accounting Standards No. 96 that
gave no recognition to future events other than the recovery of assets and
settlement of liabilities at their carrying amounts. Adoption of FAS 109 had no
effect on the Company's previously recorded deferred tax liability.
EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of shares
outstanding plus common stock equivalents such as stock options, warrants and
convertible debt. The number of shares used in the computation of earnings per
share for the three years was 4,820,900 in fiscal 1995, 4,797,900 in fiscal 1994
and 4,698,600 in fiscal 1993.
NOTE 3--ACQUISITION OF SCITEC CORPORATION
In December 1993, the Company acquired Scitec Corporation for $7,000,000 in
cash and assumption of liabilities aggregating $1,171,300. Additionally, the
Scitec stockholders may become entitled to receive contingent payments of up to
$5,750,000 (less certain finders' fees) if and to the extent that revenues from
sales and products and services associated with the Scitec business during
calendar year 1995 reach specified targets.
Scitec designs, manufactures and sells spectrum analysis instruments that
analyze selected elements contained in the materials tested. These products are
sold to end users principally for the detection of lead in paint. The
Consolidated Statement of Operations for fiscal 1994 includes the results of
operations of Scitec from the date of acquisition. The transaction was accounted
for as a purchase and the excess of the aggregate purchase price of $8,171,300
over the fair value of the assets acquired of Scitec of $1,629,500 was recorded
as goodwill ($6,541,800). If this acquisition had occurred as of the beginning
of the first quarter of fiscal 1993, the Company estimates that pro forma sales
would have been approximately $58,608,300 and $43,808,900 in fiscal 1994 and
fiscal 1993, respectively. Pro forma net income would have been approximately
$7,869,700, $1.64 per share, in fiscal 1994 and approximately $5,503,600, $1.17
per share, in fiscal 1993. (Such pro forma information is unaudited.)
NOTE 4--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JULY 31,
JULY 30, 1995 1994
------------- ------------
<S> <C> <C>
Raw materials.................................................... $ 14,243,000 $6,055,300
Work in process.................................................. 1,977,800 1,401,700
Finished goods................................................... 551,700 1,298,000
------------- ------------
$ 16,772,500 $8,755,000
------------- ------------
------------- ------------
</TABLE>
F-9
<PAGE>
ANDROS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--PLANT AND EQUIPMENT
Investment in plant and equipment, at cost, is summarized as follows:
<TABLE>
<CAPTION>
JULY 30, 1995 JULY 31, 1994
------------- -------------
<S> <C> <C>
Machinery and equipment, including software development
costs......................................................... $ 15,706,600 $ 14,723,300
Furniture and office equipment................................. 193,400 193,400
Leasehold improvements......................................... 3,214,200 3,029,900
------------- -------------
19,114,200 17,946,600
Less--Accumulated depreciation and amortization................ 13,815,400 12,215,800
------------- -------------
$ 5,298,800 $ 5,730,800
------------- -------------
------------- -------------
</TABLE>
Software development costs are capitalized from the date technological
feasibility is established until the product is available for general release.
The capitalized costs are amortized beginning when the related products are
available for general release, and amortization is calculated on a
unit-of-production basis. The establishment of technological feasibility and the
ongoing assessment of recoverability of capitalized software costs requires
considerable judgment by management with respect to certain external factors
including, but not limited to, anticipated future gross revenue, estimated
economic life and changes in software and hardware technologies. At July 30,
1995 and July 31, 1994, capitalized software development costs totaled $258,400
and $535,200, net of related amortization of $2,219,500 and $1,942,700,
respectively.
NOTE 6--INCOME TAXES
The federal and state income tax provision (benefit) consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
JULY 30, JULY 31, JULY 25,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Federal
Current........................................ $ 680,100 $4,021,700 $2,326,400
Deferred....................................... (96,300) (811,900) 199,500
------------ ------------ ------------
583,800 3,209,800 2,525,900
------------ ------------ ------------
State
Current........................................ (33,400) 701,200 598,200
Deferred....................................... (38,000) (1,300) (31,300)
------------ ------------ ------------
(71,400) 699,900 566,900
------------ ------------ ------------
$ 512,400 $3,909,700 $3,092,800
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
In August 1993, President Clinton signed into law the Omnibus Budget
Reconciliation Act of 1993 ("Act"). The Act included certain provisions which
affected Andros including, but not limited to, retroactive reinstatement of the
research and development tax credit, effective as of the beginning of fiscal
year 1993, and increasing the corporate tax rate from 34% to 35% for corporate
taxable income in excess of $10 million. The one-time adjustment to recorded
deferred income taxes for the increase in the corporate tax rate and the benefit
resulting from the retroactive reinstatement of the research and development tax
credit was a net benefit of approximately $65,000 which was recorded in the
first quarter of fiscal year 1994.
F-10
<PAGE>
ANDROS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--INCOME TAXES (CONTINUED)
The deferred income tax liability (asset) is comprised of the following:
<TABLE>
<CAPTION>
JULY 30,
1995 JULY 31, 1994
------------ -------------
<S> <C> <C>
Depreciation and amortization................................... $ 819,200 $ 992,000
DISC dividend.................................................. 43,000 88,000
Other.......................................................... 39,200 39,100
------------ -------------
Gross deferred tax liabilities............................. 901,400 1,119,100
------------ -------------
Employee benefits.............................................. (109,100) (72,200)
State income taxes............................................. (135,200) (283,700)
Bad debt expense............................................... (184,100) (23,300)
Inventory adjustment........................................... (78,000) (154,700)
Acquired loss carryforwards (Scitec)........................... (408,600) (408,600)
Other.......................................................... (15,100) (71,000)
------------ -------------
Gross deferred tax assets.................................. (930,100) (1,013,500)
Less--valuation allowance...................................... 408,600 408,600
------------ -------------
Gross deferred tax assets, net............................. (521,500) (604,900)
------------ -------------
$ 379,900 $ 514,200
------------ -------------
------------ -------------
</TABLE>
At July 30, 1995, the Company had available approximately $1,093,000 and
$26,000 of net operating loss and tax credit carryforwards, respectively. These
carryforwards were acquired in connection with the fiscal 1994 acquisition of
Scitec (Note 3). Goodwill will be reduced in the future to the extent these
carryforwards are utilized to reduce Scitec's future taxable income. A valuation
allowance equal to the tax benefit applicable to these carryforwards has been
recorded at July 30, 1995 and July 31, 1994.
The provision for income tax differs from the amounts that would be computed
by applying the federal statutory rate of 34% for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
JULY 30, JULY 31, JULY 25,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Computed expected tax provision.................... $1,148,500 $4,056,000 $3,048,000
State income taxes, net of federal income tax
benefit.......................................... (47,100) 488,000 374,200
FSC benefit........................................ (103,800) (382,000) (230,000)
Research and development credits................... (443,500) (161,000)
Tax exempt interest income......................... (297,600) (206,000)
Amortization of goodwill........................... 264,700 74,000
Other.............................................. (8,800) 40,700 (99,400)
------------ ------------ ------------
$ 512,400 $3,909,700 $3,092,800
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
NOTE 7--SHAREHOLDERS' EQUITY
SHAREHOLDERS' NOTES RECEIVABLE
The shareholders' notes receivable were notes from employees for the
exercise of stock option. These notes bore interest at 9% and were fully repaid
in fiscal 1995.
F-11
<PAGE>
ANDROS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS
During fiscal 1992, the shareholders approved an amendment and restatement
of the Company's three existing stock plans: the 1980 Employee Stock Option Plan
("1980 Employee Plan"), the 1989 Employee Stock Option Plan ("1989 Employee
Plan"), and the Company's Stock Option Plan for Directors ("Directors Plan")
which consolidated the existing plans into a single stock plan, increased by
250,000 shares the number of shares for which options may be granted and amended
various other terms and provisions contained in such plans. Accordingly, all
outstanding options under the 1980 and 1989 Employee Plans and Directors Plan
have been incorporated into the Option Plan. However, each outstanding option
incorporated into the Option Plan will continue to be governed by the terms and
conditions of the instrument evidencing such grant, and nothing in the Option
Plan will affect the rights and obligations of the holders of such options with
respect to their acquisition of shares of Andros' common stock thereunder or
their exercise of any outstanding stock appreciation rights thereunder. In
December 1992, the shareholders approved an amendment to the Option Plan
increasing the number of shares reserved for issuance thereunder by 300,000
shares. In fiscal 1994, the shareholders approved an additional amendment to the
Option Plan further increasing the number of shares reserved for issuance
thereunder by an additional 300,000 shares. At July 30, 1995, 364,453 shares of
common stock were available for future grants under the Option Plan.
Pursuant to the Company's Option Plan, the Compensation Committee of the
Board of Directors may grant options to key employees to purchase shares of
common stock either as an incentive stock option or as a non-qualified stock
option. The exercise price of incentive stock options granted may not be less
than 100% of the fair market value of the common stock on the date of grant, and
the exercise price of non-qualified options granted may not be less than 85% of
the fair value of the common stock on the date of grant. Options granted
terminate within ten years after the date of the grant and vest daily over three
to five-year periods. The Board of Directors may provide for acceleration of
vesting at its discretion. In the event of certain changes in control of the
Company, vesting of outstanding options will automatically accelerate. In the
event of certain other corporate transactions, unless assumed by a successor
corporation, vesting of outstanding options will automatically accelerate, and
the options will expire if not exercised prior to the consummation of such
corporate transaction. The Plan contains a stock appreciation right feature
whereby the Compensation Committee, at its discretion, may settle the whole or
any part of an exercisable installment of an option in exchange for the
surrender of such installment or partial installment. The settlement offer may
be made in shares of common stock, cash or both. The settlement offer shall be
equal to the excess of the fair market value of the shares over the option's
exercise price. The exercise price may be paid in the form of cash or the tender
of outstanding shares with a market value equal to the exercise price. In
addition, certain limited stock appreciation rights have been granted to
officers and directors of the Company in tandem with their outstanding options.
Any option with such a limited stock appreciation right in effect for at least
six months will automatically be canceled upon the occurrence of certain hostile
takeovers, and the optionee will in turn be entitled to a cash distribution from
the Company based upon the takeover price and the option price.
New Board members will automatically be granted a non-qualified stock option
to purchase 25,000 shares of common stock. Each automatic grant will be equal to
100% of the fair market value per share of the common stock on the date of
grant. Options granted terminate within ten years of the date of grant: 15,000
shares vest after one year of Board service, and 5,000 shares vest upon the
completion of each of the next two years of Board service thereafter.
F-12
<PAGE>
ANDROS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--SHAREHOLDERS' EQUITY (CONTINUED)
The following summarizes the activity for the Option Plan:
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994 FISCAL 1993
-------------------------- -------------------------- --------------------------
NUMBER OF OPTION PRICE NUMBER OF OPTION PRICE NUMBER OF OPTION PRICE
SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE
---------- -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance........... 807,895 $5.50-6.25 781,862 $4.50-16.25 652,297 $4.50-10.84
Granted..................... 0 153,000 $12.96-13.81 212,000 $13.81-16.25
Exercised................... (32,292) $5.96-13.81 (126,203) $4.50-13.81 (74,680) $4.50-10.84
Terminated.................. (57,140) $8.125-13.81 (764) $7.66-8.125 (7,755) $6.75-8.51
---------- -------------- ---------- -------------- ---------- --------------
Ending balance.............. 718,463 $5.50-16.25 807,895 $5.50-16.25 781,862 $4.50-16.25
---------- -------------- ---------- -------------- ---------- --------------
---------- -------------- ---------- -------------- ---------- --------------
Exercisable................. 537,207 427,690 368,923
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The exercise of stock options resulted in an increase in common stock of
$353,412, $1,124,700 and $582,200 in fiscal 1995, 1994 and 1993, respectively.
NON-QUALIFIED STOCK OPTIONS
Tax benefits realized by the Company from the exercise of non-qualified
stock options issued under stock option plans that result in ordinary income to
the optionee are added to shareholders' equity in the year benefits are
realized.
EMPLOYEE PARTICIPATION PLANS
The Company has a stock purchase plan which permits employees to purchase
Andros' common stock at the lower of 85% of fair market value at the date of
purchase or 85% of the fair market value at the date of commencement of the
offering period. In addition, the Company has a Savings and Investment 401(k)
Plan ("Savings Plan") which, until amended in fiscal 1992, provided for matching
contributions by the Company, which may be settled through contributions of the
Company's common stock to the Savings Plan. The amended Savings Plan calls for
cash contributions only. Common stock increased $28,500, $32,000 and $36,300 in
fiscal 1995, 1994 and 1993, respectively, as a result of employee stock
purchases under these plans.
At July 30, 1995, the Company has reserved 1,100,340 shares for issuance
under the above described stock option and stock purchase plan.
STOCK REPURCHASES
In May 1994, the Board of Directors approved a stock repurchase program
authorizing the purchase of up to 500,000 shares of Andros' common stock on the
open market. To date, 56,000 shares have been repurchased for a cost of
$839,000. The Company intends to utilize these repurchased shares for issuances
of common shares applicable to options exercised under its stock option plans.
NOTE 8--SALES TO MAJOR CUSTOMERS AND EXPORT SALES
During fiscal 1995, 42% of the Company's sales were made to three customers
that individually accounted for more than 10% of total sales. During fiscal
1994, 25% of the Company's sales were made to two customers that individually
accounted for more than 10% of total sales. During fiscal 1993, 55% of the
Company's sales were made to four customers that individually accounted for more
than 10% of total sales. The Company's export sales for fiscal 1995, 1994 and
1993 amounted to $23,796,000, $36,356,400 and
F-13
<PAGE>
ANDROS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--SALES TO MAJOR CUSTOMERS AND EXPORT SALES (CONTINUED)
$27,890,300, respectively. The Company maintains a sales office in Zurich,
Switzerland and a service depot in Belp, Switzerland. Export sales are
transacted in United States dollars.
NOTE 9--COMMITMENTS
The Company occupies office and plant facilities worldwide under various
lease agreements. The Berkeley facility is leased under an agreement expiring in
August 2005 at an annual rental of $242,800. This lease agreement contains
renewal options for an additional 15 years. Total rent expense for fiscal years
1995, 1994 and 1993 was $406,200, $398,900 and $346,800, respectively.
NOTE 10--CONCENTRATION OF CREDIT RISK
The Company invests its excess cash primarily in short-term U.S. Treasury
securities and corporate obligations. The investments generally mature within
one year and are therefore subject to little market risk. The Company has not
incurred losses related to these investments.
Concentrations of credit risk with respect to trade receivables are
mitigated due to the small number of large creditworthy customers comprising the
Company's customer base. Ongoing credit evaluations of customers' financial
condition are performed. The company maintains reserves for potential credit
losses, and such losses, in the aggregate, have not exceeded management's
expectations.
F-14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Shareholders,
Andros Holdings Inc.:
We have audited the accompanying consolidated balance sheet of Andros Holdings
Inc. as of July 31, 1996, and the related consolidated statements of operations,
shareholders' deficit and cash flows for the period from December 5, 1995 (date
of incorporation) to July 31, 1996, and the consolidated statements of
operations, shareholders' equity and cash flows of Andros Incorporated for the
period from July 31, 1995 to March 26, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Andros Holdings Inc.
at July 31, 1996, and the results of its operations and its cash flows for the
period from December 5, 1995 (date of incorporation) to July 31, 1996, and the
consolidated statements of operations, shareholders' equity and cash flows of
Andros Incorporated for the period from July 31, 1995 to March 26, 1996, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
San Jose, California
September 23, 1996
F-15
<PAGE>
ANDROS
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ANDROS
HOLDINGS INC.
JULY 31, 1996
--------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................................................... $ 702,100
Accounts receivable, less allowance for doubtful accounts of $1,190,200......................... 7,090,700
Income tax refund receivable.................................................................... 3,049,900
Inventories..................................................................................... 9,713,400
Prepaid expenses and other assets............................................................... 540,700
Deferred tax asset.............................................................................. 2,546,000
--------------
TOTAL CURRENT ASSETS.......................................................................... 23,642,800
Plant and equipment, net.......................................................................... 6,602,300
Goodwill and other intangible assets, less accumulated amortization of $302,800................... 21,395,000
Loan origination fees, net........................................................................ 3,525,200
Other assets...................................................................................... 258,800
--------------
TOTAL ASSETS.................................................................................. $ 55,424,100
--------------
--------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable................................................................................ $ 3,309,900
Accrued liabilities............................................................................. 5,776,200
Revolving loan.................................................................................. 4,200,000
Term loan, current portion...................................................................... 2,875,000
--------------
TOTAL CURRENT LIABILITIES..................................................................... 16,161,100
Deferred income taxes............................................................................. 5,662,000
Term loan, net of current portion................................................................. 22,720,700
Subordinated debt................................................................................. 14,494,500
--------------
TOTAL LIABILITIES............................................................................. 59,038,300
--------------
Commitments (Note 6)
SHAREHOLDERS' DEFICIT
Common shares, $.01 par value,
Authorized: 300,000 shares
Issued and outstanding: 89,800 shares........................................................... 900
Additional paid-in capital........................................................................ 18,475,800
Accumulated deficit............................................................................... (22,090,900)
--------------
TOTAL SHAREHOLDERS' DEFICIT................................................................... (3,614,200)
--------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT................................................... $ 55,424,100
--------------
--------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-16
<PAGE>
ANDROS
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ANDROS
ANDROS HOLDINGS
INCORPORATED INC.
----------- -----------
<S> <C> <C>
PERIOD FROM
JULY 31,
1995 PERIOD FROM
TO MARCH INCORPORATION
26, TO JULY 31,
1996 1996
----------- -----------
Sales, net....................................................... $26,933,400 $16,226,100
----------- -----------
Operating expenses:
Cost of sales.................................................. 19,256,300 9,958,100
Inventory write-downs.......................................... 3,866,000
Research and development....................................... 3,418,100 1,184,800
Marketing, general and administrative.......................... 6,937,100 2,187,600
Write-off of purchased in-process technology................... 22,700,000
Stock option buy-out........................................... 4,113,800
Warranty expense............................................... 1,880,000 97,000
Bad debt expense............................................... 976,000 20,400
----------- -----------
Total operating expenses..................................... 40,447,300 36,147,900
----------- -----------
Operating loss............................................. (13,513,900) (19,921,800)
----------- -----------
Interest and other income and expense:
Interest expense............................................... 6,000 1,909,700
Interest income................................................ (836,200) (283,900)
Other, net..................................................... 3,600 (54,700)
----------- -----------
Total interest and other income and expense.................. (826,600) 1,571,100
----------- -----------
Loss before income taxes................................... 12,687,300 21,492,900
Income tax provision (benefit)................................... (5,613,100) 598,000
----------- -----------
Net loss................................................. $(7,074,200) $(22,090,900)
----------- -----------
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-17
<PAGE>
ANDROS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED
COMMON SHARES ADDITIONAL EARNINGS
-------------------- PAID-IN (ACCUMULATED
ANDROS INCORPORATED SHARES AMOUNT CAPITAL DEFICIT) TOTAL
--------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES, JULY 31, 1995........... 4,568,400 $ 45,684 $33,901,016 $24,421,500 $58,368,200
Net loss.......................... (7,074,200) (7,074,200)
Common shares issued, net of
issuance costs, upon exercise of
options......................... 137,000 1,370 1,305,430 1,306,800
Common shares issued, net of
issuance costs, upon purchases
under employee stock purchase
plan............................ 1,000 10 13,990 14,000
--------- --------- ---------- ----------- -----------
BALANCES, MARCH 26, 1996.......... 4,706,400 $ 47,064 $35,220,436 $17,347,300 $52,614,800
--------- --------- ---------- ----------- -----------
--------- --------- ---------- ----------- -----------
<CAPTION>
-------------------------------------------------------------------------------------------
ANDROS HOLDINGS INC.
<S> <C> <C> <C> <C> <C>
Common shares issued, net of
issuance costs, for cash in
March 1996...................... 89,800 $ 900 $16,999,100 $17,000,000
Issuance of warrants.............. 1,390,800 1,390,800
Issuance of equity units, net of
repurchases..................... 85,900 85,900
Net loss from incorporation to
July 31, 1996................... $(22,090,900) (22,090,900)
--------- --------- ---------- ----------- -----------
BALANCES, JULY 31, 1996........... 89,800 $ 900 $18,475,800 $(22,090,900) $(3,614,200)
--------- --------- ---------- ----------- -----------
--------- --------- ---------- ----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-18
<PAGE>
ANDROS
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C>
ANDROS
INCORPORATED ANDROS
----------- HOLDINGS
PERIOD FROM INC.
JULY 31, -----------
1995 PERIOD FROM
TO MARCH INCORPORATION
26, TO JULY 31,
1996 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................... $(7,074,200) $(22,090,900)
Adjustments to reconcile net income to net cash flows from operating
activities:
Depreciation............................................................. 883,000 594,900
Amortization, including goodwill and software development costs.......... 680,700 712,200
Allowance for doubtful accounts.......................................... 975,900 20,400
Provision for excess and obsolete inventories............................ 3,866,000 (481,700)
Deferred income tax benefit.............................................. (2,925,900)
Write-off of in-process technology....................................... 22,700,000
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable.................................................. (478,800) 623,600
Income tax refund receivable......................................... (3,049,900)
Inventories.......................................................... 2,733,700 941,100
Prepaid expenses and other assets.................................... 570,100 (241,400)
Accounts payable..................................................... (980,300) 565,100
Warranty reserve..................................................... 1,376,000 (331,800)
Payroll and employee benefits........................................ 380,800 (529,500)
Other accrued liabilities............................................ 5,997,500 1,365,100
----------- -----------
Net cash flows provided by operating activities........................ 2,954,600 3,847,100
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Andros Inc., net of cash acquired........................... (57,822,700)
Purchase of available-for-sale investments............................... (12,743,000)
Proceeds from sale of available-for-sale investments..................... 29,143,200
Purchases of property and equipment...................................... (432,900) (106,800)
Additions to patents..................................................... (22,000) (15,300)
----------- -----------
Net cash flows provided by (used in) investing activities.............. 15,945,300 (57,944,800)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under tender facility.......................................... 24,800,000
Repayment of tender facility............................................. (24,800,000)
Borrowings under subordinated loan....................................... 15,000,000
Borrowings under term loan............................................... 27,000,000
Repayment of term loan................................................... (625,000)
Net borrowings under revolving loan...................................... 4,200,000
Loan origination fees.................................................... (3,792,000)
Proceeds from issuance of common stock................................... 1,320,800 17,000,000
Proceeds from sale of equity award units................................. 414,700
Repurchase of equity award units......................................... (328,800)
Stock option buyout...................................................... (4,069,100)
----------- -----------
Net cash flows provided by financing activities........................ 1,320,800 54,799,800
----------- -----------
Net change in cash and cash equivalents.................................... 20,220,700 702,100
Cash and cash equivalents at beginning of period........................... 9,612,000
----------- -----------
Cash and cash equivalents at end of period................................. $29,832,700 $ 702,100
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid...................................................... $ 29,300 $ 2,000
Interest paid.......................................................... $ 5,500 $ 394,715
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Issuance of warrants................................................... $ 1,390,800
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-19
<PAGE>
ANDROS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
Andros Holdings Inc. and its wholly owned subsidiaries, Andros Incorporated,
Scitec Inc. and Andros Foreign Sales Corporation (Andros Holdings or
collectively the Company) design, manufacture, sell and service measurement,
analytic and diagnostic devices for medical, automotive and environmental
applications. Andros Holdings, incorporated in the state of Delaware on December
5, 1995, had no material operations prior to March 26, 1996. The fiscal year end
of Andros Holdings is December 31.
Genstar Capital Partners II, L.P. (Genstar) formed Andros Holdings for the
purpose of acquiring Andros Incorporated (a U.S. publicly traded corporation).
On March 26, 1996 Andros Holdings, through Andros Acquisition Inc. (Andros
Acquisition), a wholly owned subsidiary, purchased, through a public tender
offer, the outstanding stock of Andros Incorporated (Andros) for $18.00 per
share. As of May 14, 1996, Andros Holdings acquired the remaining Andros shares
it did not own. Upon the completion of the acquisition of Andros, Andros
Acquisition was merged into Andros and was liquidated. Minority interest related
to the loss between March 27, 1996 and May 14, 1996 was not material. The total
acquisition price was approximately $88.1 million which was paid in cash. In
connection with the transaction, the Company issued common stock for $17
million, and Andros Acquisition entered into a $15 million subordinated loan
agreement, a $27 million term credit facility and a $15 million revolving credit
facility of which $5.4 million was used.
The acquisition of Andros was accounted for as a purchase as of March 27, 1996.
The total purchase price of $88.1 million (including the costs of acquisition of
$2.9 million), has been allocated to the net assets acquired based on their
estimated fair values as of March 26, 1996. The Company allocated a portion of
the purchase price to various in-process research and development projects that
had identifiable economic value and expensed this value as of the date of the
acquisition. The purchased technology is related to the Company's products which
are technically feasible and which have proven commercial feasibility, and
accordingly, the fair value of the purchased technology is amortized on a
straight-line basis over the period of expected benefit which is estimated to be
25 years.
The fair value of the assets acquired (net of cash acquired of $30,318,700) and
liabilities assumed were as follows:
<TABLE>
<CAPTION>
<S> <C>
In-process technology.......................................... $22,700,000
Purchased technology........................................... 12,444,000
Inventories.................................................... 10,172,800
Goodwill....................................................... 8,845,500
Receivables.................................................... 7,734,700
Plant and equipment............................................ 7,090,400
Prepaids and other current assets.............................. 5,895,200
Other assets................................................... 688,400
Payables and accrued liabilities............................... (12,086,300)
Deferred taxes................................................. (5,662,000)
-----------
$57,822,700
-----------
-----------
</TABLE>
2. PROPOSED MERGER WITH NOVAMETRIX MEDICAL SYSTEMS INC.:
On July 29, 1996, Andros Holdings entered into a merger agreement, as amended,
with a U.S. publicly traded company, Novametrix Medical Systems Inc.
(Novametrix), in which shareholders of Andros Holdings will receive common stock
and certain anti-dilutive rights in exchange for shares of Andros
(CONTINUED)
F-20
<PAGE>
ANDROS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. PROPOSED MERGER WITH NOVAMETRIX MEDICAL SYSTEMS INC.: (CONTINUED)
Holdings. The merger agreement contains certain terms and conditions including:
an earn-out shares provision, accuracy of representations and warranties,
approval of the transaction by Novametrix shareholders and execution of a voting
agreement. The merger agreement also provides for a termination fee of $3
million and other costs as defined, to be paid in certain circumstances by the
terminating party to the other party.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include consolidated operating results of
Andros (Andros operated on a 52-53 week fiscal year ending the last Sunday in
July), for the period from July 31, 1995 to March 26, 1996 and the consolidated
financial statements for Andros Holdings and its wholly owned subsidiaries for
the period from incorporation to July 31, 1996 (Andros Holdings had no material
operating activity from December 5, 1995 (date of incorporation) to March 26,
1996). All significant intercompany accounts and transactions have been
eliminated in consolidation.
BUSINESS AND CREDIT CONCENTRATIONS:
Andros operates in a single industry segment--the design, manufacture and
service of measurement, analytic and diagnostic instruments. Its product lines
include analyzers for automotive and medical applications sold through original
equipment manufacturers, and portable spectrum analysis instrumentation sold to
end users. Andros' products are sold in domestic and international markets.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
INVENTORIES:
Inventories are valued at the lower of cost (standard cost which approximates
first-in, first out) or market. The Company's inventories include high
technology components that may be specialized in nature and subject to
technological obsolescence. While the company attempts to minimize the required
inventory on hand and considers technological obsolescence when estimating
required reserves to reduce recorded amount to market value, it is reasonably
possible that such estimates could change in the near future.
The Consolidated Statement of Operations of Andros Incorporated for the period
from July 31, 1995 to March 26, 1996 includes a provision for excess and
obsolete inventories in the amount of $3,866,000 based on the Company's
estimates of future realizability.
PLANT AND EQUIPMENT:
Depreciation is computed using the straight-line method and the estimated useful
lives of the related assets which generally range from two to ten years. The
Company's building lease renewal options extend to August 2020, and amortization
of related leasehold improvements is based on the expectation that renewal
options will be exercised. The Company considers the estimated useful life of
the leasehold improvements
(CONTINUED)
F-21
<PAGE>
ANDROS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
when evaluating the period over which the cost of leasehold improvements are
amortized. Maintenance and repairs are charged against income as incurred and
major improvements are capitalized. Tooling costs, including software
development costs, are capitalized when appropriate, and are included in
machinery and equipment, and amortized generally on a unit-of-production basis.
IMPAIRMENT OF LONG-LIVED ASSETS:
During March 1995, the Financial Accounting Standards Board issued Statement No.
121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires the Company to review for
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets whenever events or changes in circumstance indicate that
the carrying amount of an asset might not be recoverable. In certain situations,
an impairment loss would be recognized.
Andros evaluates its long-lived assets for potential impairment by analyzing the
operating results, trends and prospects of its products, including gross cash
flows therefrom, as well as comparing them to their competitors. The Company
also takes into consideration any other events or circumstances that might
indicate potential impairment. Based upon these evaluations, the Company has
determined that no impairment of recorded long-lived assets has occurred.
RESEARCH AND DEVELOPMENT:
Research and development costs are charged to expense as incurred.
REVENUE RECOGNITION AND ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Revenue from product sales is recognized at the time the product is shipped and
after all significant conditions of sale have been met. The Company reviews a
customer's credit history before extending credit. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information.
FOREIGN CURRENCY ACCOUNTING:
Substantially all of Andros' sales are denominated in U.S. dollars. Foreign
currency transactions during the period are immaterial and are included in
operations.
WARRANTY COSTS:
The Company's products generally have a warranty period of three months to 18
months from customer receipt. Estimated future costs of repair, replacement and
customer accommodations are reflected in the accompanying consolidated financial
statements.
INCOME TAXES:
Income taxes are accounted for using the liability method. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Deferred tax assets and
liabilities
(CONTINUED)
F-22
<PAGE>
ANDROS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash and cash equivalents, and accrued liabilities are a
reasonable estimate of their fair value due to their short term nature. The
estimated values of Andros Holdings' long term debt are based on interest rates
at July 31, 1996 for issues with similar remaining maturities.
The estimated fair value amounts of Andros Holdings' financial instruments have
been determined by Andros Holdings, using appropriate market information and
valuation methodologies. Considerable judgment is required to develop the
estimates of fair value; thus, the estimates provided herein are not necessarily
indicative of the amounts that could be realized in a current market exchange.
Andros Holdings calculates the fair value of financial instruments and includes
this additional information in the notes to the consolidated financial
statements when the fair value is different than the book value of those
financial instruments. When the fair value is equal to the book value, no
additional disclosure is made. Andros Holdings uses quoted market prices
whenever available to calculate these fair values. When quoted market prices are
not available, Andros Holdings uses standard pricing models for various types of
financial instruments which take into account the present value of estimated
future cash flows. The effect of using different market assumptions and/or
estimation methodologies may be material to the estimated fair value amounts.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reported period. Actual results could differ from those estimates.
RECENT PRONOUNCEMENTS:
During October 1995, the Financial Accounting Standards Board issued Statement
No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation," which
established a fair value based method of accounting for stock-based compensation
plans and requires additional disclosures for those companies who elect not to
adopt the new method of accounting. While the Company studies the impact of this
pronouncement, it continues to account for stock options under APB Opinion No.
25, "Accounting for Stock Issued to Employees." SFAS No. 123 will be effective
for fiscal years beginning after December 15, 1995 and will require the Company
to provide additional disclosures in the financial statements for the year
ending December 31, 1996.
(CONTINUED)
F-23
<PAGE>
ANDROS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. BALANCE SHEET:
<TABLE>
<CAPTION>
INVENTORIES:
<S> <C>
Inventories at July 31, 1996 comprise:
Raw materials................................................. $9,056,900
Work-in-process............................................... 367,100
Finished goods................................................ 289,400
---------
$9,713,400
---------
---------
PLANT AND EQUIPMENT, NET:
Plant and equipment at July 31, 1996 comprise:
Machinery and equipment....................................... $5,034,700
Furniture and office equipment................................ 25,400
Leasehold improvements........................................ 2,137,100
---------
7,197,200
Less accumulated depreciation and amortization................ (594,900)
---------
$6,602,300
---------
---------
</TABLE>
ACCRUED LIABILITIES:
Accrued liabilities as of July 31, 1996 comprise:
<TABLE>
<CAPTION>
<S> <C>
Income taxes payable............................................ $1,040,800
Warranty reserve................................................ 1,094,200
Accrued interest................................................ 783,900
Professional fees............................................... 688,400
Payroll and employee benefits................................... 625,500
Other........................................................... 1,543,400
---------
$5,776,200
---------
---------
</TABLE>
5. DEBT:
TENDER FACILITY:
The Company used a tender facility of $24.8 million, bearing interest at 10% per
annum, to finance the purchase of 58% of Andros. The tender facility was repaid
with interest on May 15, 1996 through the use of a term loan facility (see
following). The loan was collateralized by substantially all assets of the
Company including the shares of its subsidiaries.
TERM LOAN:
On March 25, 1996, the Company entered into a $27 million term loan facility
with certain banks. The term loan bears interest at a variable rate determined
by reference to the base rate (which is defined as 1.75% plus the higher of (i)
the Prime Rate or (ii) the rate which is 0.5% in excess of the Federal Funds
Effective
(CONTINUED)
F-24
<PAGE>
ANDROS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. DEBT: (CONTINUED)
Rate) or Adjusted Eurodollar Rate (8.5% and 10% as of July 31, 1996). Repayment
of the principal is due quarterly commencing June 30, 1996, and ending March 31,
2001, at $625,000 per quarter and increasing by $375,000 up to a maximum payment
of $2,000,000 per payment after each fourth payment, until maturity. The term
loan may be repaid without penalty. The full amount of the facility was drawn on
May 15, 1996. The loan is collateralized by substantially all assets of the
Company including the shares of its subsidiaries. Certain financing costs
amounting to $2,142,800 have been capitalized and are being amortized over the
term of the loan using the effective interest method. The terms of the term loan
facility require the Company to maintain certain financial ratios, to place
certain limitations on declaration and payment of dividends and similar
distributions and to comply with other financial covenants.
SUBORDINATED LOAN:
On March 25, 1996, the Company entered into a $15 million subordinated loan
agreement with certain lenders. The loan requires quarterly interest payments in
arrears, commencing May 15, 1996, at an annual interest rate of 13%. Principal
repayments of $1,875,000 are due quarterly, commencing with the earlier of (i)
the quarter ending on June 30, 2001, or (ii) the quarter immediately following
repayment in full of the term loan facility. Certain financing costs amounting
to $1,649,200 have been capitalized and amortized over the term of the loan. The
terms of the subordinated loan agreement require the Company to maintain certain
financial ratios and to comply with other financial covenants.
WARRANTS:
In connection with the term loan and subordinated loan agreement, the Company
issued warrants to the lenders of the term loan and the subordinated loan to
acquire up to a total of 8,000 Class A Common Shares, at an exercise price of
$0.01 per share at any time prior to March 25, 2006. The difference between the
exercise price of the warrants and the fair value of the Class A Common Shares
at the time of the issue of the warrants was approximately $1,390,800, which was
accounted for as additional paid-in capital and a discount to the related debt.
The discount is amortized over the term of the related debt using the effective
interest method.
MATURITY:
The aggregate maturities of the term loan and subordinated loan at July 31,
1996, are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997........................................................... $2,875,000
1998........................................................... 4,375,000
1999........................................................... 5,875,000
2000........................................................... 7,250,000
2001........................................................... 7,875,000
Thereafter..................................................... 13,125,000
----------
41,375,000
Less:
Current portion.............................................. (2,875,000)
Unamortized discounts........................................ (1,284,800)
----------
$37,215,200
----------
----------
</TABLE>
(CONTINUED)
F-25
<PAGE>
ANDROS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. DEBT: (CONTINUED)
REVOLVING LOAN:
On March 25, 1996 the Company entered into a $15 million Revolving Loan
facility. Loans under this facility bear interest at a variable rate determined
by reference to the base rate (which is defined as 1.75% plus the higher of (i)
the Prime Rate or (ii) the rate which is 0.5% in excess of the Federal Funds
Effective Rate) or the Adjusted Eurodollar Rate (10% as of July 31, 1996). The
loan, which expires on March 31, 2001, is collateralized by substantially all
assets of the Company including the shares of its subsidiaries. As of July 31,
1996, the Company has drawn $4.2 million on this facility. The revolving loan
agreement requires the Company to maintain certain financial ratios and to
comply with other financial covenants.
6. COMMITMENTS:
The Company occupies office and plant facilities under various operating lease
agreements. The main office and manufacturing site in Berkeley, California is
leased under an agreement expiring in August 2005 at an annual rental of
approximately $257,000 as of July 31, 1996, subject to increases based on
appraised market value (currently under negotiation) and periodic adjustment for
changes based on the Consumer Price Index. This lease agreement contains renewal
options for an additional 15 years. Total rent expense for the period from July
31, 1995 to March 26, 1996 and the period from March 27, 1996 to July 31, 1996
was $259,900 and $121,100, respectively.
7. BENEFIT PLAN:
The Andros' Saving and Investment Plan (the Plan) was established pursuant to
section 401(k) of the Internal Revenue Code of 1986, as amended. Essentially all
employees are eligible to participate and may elect to contribute to the Plan up
to 15% of their compensation, subject to certain limitations. The Company
matches 50% of an individual participant's contribution in cash each quarter, up
to 6% of the participant's salary. The matching contributions approximated
$93,447 and $158,500 for the period from March 27, 1996 to July 31, 1996 and for
the period from July 31, 1995 to March 26, 1996, respectively.
8. CONCENTRATION OF CREDIT RISK:
Cash and cash equivalents are primarily invested in deposits with one major bank
in the United States. Deposits in this bank may exceed the amount of insurance
provided on such deposits. Andros has not experienced any losses on deposits of
cash and cash equivalents.
Concentrations of credit risk with respect to trade receivables are mitigated
due to the small number of large creditworthy customers comprising the Company's
customer base. Ongoing credit evaluations of customers' financial condition are
performed. The Company maintains reserves for potential credit losses and such
losses, in the aggregate, have not exceeded management's expectations.
9. SHAREHOLDER'S EQUITY:
COMMON STOCK:
The authorized shares of the Company consist of 300,000 shares of which 150,000
shares are voting Class A common shares, par value $.01 per share, and 150,000
shares are nonvoting Class B common shares, par
(CONTINUED)
F-26
<PAGE>
ANDROS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDER'S EQUITY: (CONTINUED)
value $.01 per share. As of July 31, 1996, 89,800 Class A common shares and no
Class B common shares were issued and outstanding.
EQUITY UNIT AWARD AGREEMENT:
During March 1996 the Company issued 2,190 Equity Unit Awards (EUA) to four
members of the management of Andros for $189.34 per unit. Subsequently, the
Company repurchased 1,736 EUAs from a member of management at the issuance
price. The holders of the EUAs are entitled to receive, at the option of the
Company, Class A common shares or the fair market equivalent upon the earliest
of the following events (i) the termination of the participant's employment with
the Company for any reason, (ii) a public offering, (iii) the sale of the
Company or (iv) the tenth anniversary of the agreement. However, the term may be
extended by the stockholders for an additional period not to exceed ten years
from the original expiration date.
10. STOCK OPTION PLAN:
All options granted as of March 26, 1996 of Andros, whether or not then
exercisable, were repurchased by Andros. The net expense of the repurchase of
approximately $4.1 million representing the excess of $18.00 per share over the
grant price has been recorded by Andros as compensation expense in the period of
July 31, 1995 to March 26, 1996.
In July 1996, the Company authorized the 1996 Equity Incentive Plan (the Plan)
under which the Board of Directors may issue incentive and nonqualified stock
options to employees, officers, and consultants of the Company. The Board of
Directors has the authority to determine to whom options will be granted at
prices not lower than fair market value at the date of grant, and nonstatutory
options may be granted at prices not lower than 85% of fair market value at the
date of grant as determined by the Board of Directors at date of grant. Options
granted under the Plan generally become exercisable ratably over 60 months. The
right of exercise generally expires ten years from the date of the grants. In
connection with the authorization of the Plan, Andros Holdings reserved 10,918
shares of common stock for issuance under the Plan. As of July 31, 1996 no
options had been granted. In September 1996 approximately 2,900 options were
granted with an exercise price of $189.34 per share.
(CONTINUED)
F-27
<PAGE>
ANDROS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES:
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
ANDROS
ANDROS HOLDINGS
INCORPORATED INC.
------------- ------------
<S> <C> <C>
PERIOD FROM
JULY 31, PERIOD FROM
1995 TO INCORPORATION
MARCH 26, TO JULY 31,
1996 1996
------------- ------------
Current:
Federal....................................................... $ (2,247,200) $ 522,500
Deferred:
Federal....................................................... (3,018,800) 19,000
State......................................................... (347,100) 56,500
------------- ------------
$ (5,613,100) $ 598,000
------------- ------------
------------- ------------
</TABLE>
The components of the deferred tax assets are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Warranty reserve.............................................. $ 392,200
Inventory reserves............................................ 1,241,500
Other reserves................................................ 835,700
State net operating loss carryforward......................... 76,600
Acquired operating loss carryforward of Scitec 408,600
---------
Total deferred tax assets................................. 2,954,600
Less valuation allowance........................................ (408,600)
---------
Net deferred tax assets................................... $2,546,000
---------
---------
</TABLE>
Although realization of the deferred tax assets is not assured, the Company
believes that it is more likely than not that all of the deferred tax assets
will be realized. The amount of the deferred tax assets considered realizable
could be reduced if estimates of future taxable income decline significantly.
At July 31, 1996, Andros Holdings has available approximately $1,093,000 and
$26,000 of net operating loss and tax credit carryforwards, respectively. These
carryforwards were acquired in connection with the fiscal 1994 acquisition of
Scitec. A valuation allowance equal to the tax benefit applicable to these
carryforwards has been recorded at July 31, 1996.
(CONTINUED)
F-28
<PAGE>
ANDROS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES: (CONTINUED)
The effective tax rate differs from the statutory federal income tax rate as
follows:
<TABLE>
<CAPTION>
ANDROS ANDROS
INCORPORATED HOLDINGS INC.
------------- ---------------
<S> <C> <C>
PERIOD FROM
JULY 31, PERIOD FROM
1995 TO INCORPORATION
MARCH 26, TO JULY 31,
1996 1996
------------- ---------------
Tax at statutory rate............................................ (34.0)% (34.0)%
Permanent differences............................................ 0.4
Goodwill amortization............................................ 0.5
Write-off of in-process technology............................... 36.4
State taxes...................................................... (2.3) 0.3
Other............................................................ (8.3) (0.4)
----- -----
(44.2)% 2.8%
----- -----
----- -----
</TABLE>
12. SUBSEQUENT EVENT:
Subsequent to July 31, 1996, Andros Holdings sold for cash 1,673 shares of its
common stock at $189.34 per share to employees and other investors.
13. SIGNIFICANT CUSTOMERS AND EXPORT SALES:
During the period from December 5, 1995 (date of incorporation) to July 31,
1996, 56% of Andros Holdings' sales were made to three customers that
individually accounted for more than 10% of total sales. During the period from
July 31, 1995 to March 26, 1996, 51% of Andros' sales were made to three
customers that individually accounted for more than 10% of total sales. The
export sales for the period from December 5, 1995 (date of incorporation) to
July 31, 1996 and the period from July 31, 1995 to March 26, 1996 amounted to
$8,924,000 and $16,782,200, respectively. Export sales are transacted in United
States dollars.
F-29
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF JULY 29, 1996,
AS AMENDED AS OF OCTOBER 18, 1996,
AMONG
NOVAMETRIX MEDICAL SYSTEMS INC.,
NOVAMETRIX ACQUISITION CORP.,
AND
ANDROS HOLDINGS INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ARTICLE I. THE MERGER..................................................................................... 1
SECTION 1.01 The Merger.................................................................................. 1
SECTION 1.02 Conversion of Shares........................................................................ 1
SECTION 1.03 Surrender and Payment....................................................................... 2
SECTION 1.04 Stock Options, Equity Units and Warrants.................................................... 3
SECTION 1.05 Fractional Shares........................................................................... 4
SECTION 1.06 Limited Antidilution Rights................................................................. 4
ARTICLE II. THE SURVIVING CORPORATION AND NOVAMETRIX...................................................... 5
SECTION 2.01 Certificate of Incorporation................................................................ 5
SECTION 2.02 Bylaws...................................................................................... 5
SECTION 2.03 Directors and Officers...................................................................... 5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................ 6
SECTION 3.01 Corporate Existence and Power............................................................... 6
SECTION 3.02 Corporate Authorization..................................................................... 6
SECTION 3.03 Governmental Authorization.................................................................. 6
SECTION 3.04 Non-Contravention........................................................................... 6
SECTION 3.05 Capitalization.............................................................................. 7
SECTION 3.06 Subsidiaries................................................................................ 7
SECTION 3.07 SEC Filings................................................................................. 7
SECTION 3.08 Financial Statements........................................................................ 8
SECTION 3.09 Proxy Statement............................................................................. 8
SECTION 3.10 Absence of Certain Changes.................................................................. 8
SECTION 3.11 No Undisclosed Material Liabilities......................................................... 9
SECTION 3.12 Litigation.................................................................................. 9
SECTION 3.13 Taxes....................................................................................... 10
SECTION 3.14 ERISA....................................................................................... 10
SECTION 3.15 Compliance with Laws........................................................................ 11
SECTION 3.16 Finders' Fees............................................................................... 11
SECTION 3.17 Vote Required............................................................................... 12
SECTION 3.18 Intellectual Property....................................................................... 12
SECTION 3.19 Permits; Company Products; Regulation....................................................... 12
SECTION 3.20 Section 203 of the Delaware Law............................................................. 13
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF NOVAMETRIX.................................................. 13
SECTION 4.01 Corporate Existence and Power............................................................... 13
SECTION 4.02 Corporate Authorization..................................................................... 14
SECTION 4.03 Governmental Authorization.................................................................. 14
SECTION 4.04 Non-Contravention........................................................................... 14
SECTION 4.05 Capitalization.............................................................................. 14
SECTION 4.06 Subsidiaries................................................................................ 15
SECTION 4.07 SEC Filings................................................................................. 15
SECTION 4.08 Financial Statements........................................................................ 15
SECTION 4.09 Absence of Certain Changes.................................................................. 16
SECTION 4.10 No Undisclosed Material Liabilities......................................................... 17
SECTION 4.11 Litigation.................................................................................. 17
SECTION 4.12 Taxes....................................................................................... 17
SECTION 4.13 ERISA....................................................................................... 17
SECTION 4.14 Compliance with Laws........................................................................ 18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
SECTION 4.15 Finders' Fees............................................................................... 19
<S> <C>
SECTION 4.16 Opinion of Financial Advisor................................................................ 19
SECTION 4.17 Vote Required............................................................................... 19
SECTION 4.18 Intellectual Property....................................................................... 19
SECTION 4.19 Permits; Company Products; Regulation....................................................... 19
SECTION 4.20 Rights Agreement; Delaware Section 203; Charter Supermajority Provisions; Warrant
Antidilution........................................................................................... 20
SECTION 4.21 Proxy Statement............................................................................. 21
ARTICLE V. COVENANTS OF THE COMPANY....................................................................... 21
SECTION 5.01 Conduct of the Company...................................................................... 21
SECTION 5.02 Access to Information....................................................................... 22
SECTION 5.03 Other Offers................................................................................ 22
SECTION 5.04 Notices of Certain Events................................................................... 23
SECTION 5.05 Affiliates.................................................................................. 23
ARTICLE VI. COVENANTS OF NOVAMETRIX....................................................................... 23
SECTION 6.01 Conduct of Novametrix....................................................................... 23
SECTION 6.02 Access to Information....................................................................... 24
SECTION 6.03 Other Offers................................................................................ 24
SECTION 6.04 Obligations of Merger Subsidiary............................................................ 25
SECTION 6.05 Director and Officer Liability.............................................................. 25
SECTION 6.06 Inclusion in Nasdaq National Market......................................................... 25
SECTION 6.07 Notice of Certain Events.................................................................... 25
ARTICLE VII. COVENANTS OF NOVAMETRIX AND THE COMPANY...................................................... 26
SECTION 7.01 Best Efforts................................................................................ 26
SECTION 7.02 Certain Filings............................................................................. 26
SECTION 7.03 Public Announcements........................................................................ 26
SECTION 7.04 Further Assurances.......................................................................... 26
SECTION 7.05 Stockholder Meeting......................................................................... 26
SECTION 7.06 Preparation of the Proxy Statement.......................................................... 26
ARTICLE VIII. CONDITIONS TO THE MERGER.................................................................... 27
SECTION 8.01 Conditions to the Obligations of Each Party................................................. 27
SECTION 8.02 Conditions to the Obligations of Novametrix and Merger Subsidiary........................... 27
SECTION 8.03 Conditions to the Obligations of the Company................................................ 28
ARTICLE IX. TERMINATION................................................................................... 29
SECTION 9.01 Termination................................................................................. 29
SECTION 9.02 Effect of Termination....................................................................... 29
SECTION 9.03 Fees and Expenses........................................................................... 29
ARTICLE X. MISCELLANEOUS.................................................................................. 30
SECTION 10.01 Notices.................................................................................... 30
SECTION 10.02 Amendments; No Waivers..................................................................... 31
SECTION 10.03 Successors and Assigns..................................................................... 31
SECTION 10.04 Governing Law.............................................................................. 31
SECTION 10.05 Counterparts; Effectiveness................................................................ 32
SECTION 10.06 Entire Agreement........................................................................... 32
AMENDMENT No. 1.......................................................................................... 33
</TABLE>
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of July 29, 1996, among Andros
Holdings Inc., a Delaware corporation (the "Company"), Novametrix Medical
Systems Inc., a Delaware corporation ("Novametrix"), and Novametrix Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of Novametrix (the
"Merger Subsidiary").
WHEREAS, the Boards of Directors of Novametrix, the Merger Subsidiary and
the Company have approved this Agreement and the Merger (as defined below); and
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Code (as defined below).
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I.
THE MERGER
SECTION 1.01 THE MERGER. (a) At the Effective Time (as defined in Section
1.01(b)), the Merger Subsidiary shall be merged (the "Merger") with and into the
Company in accordance with the General Corporation Law of the State of Delaware
("Delaware Law"), whereupon the separate existence of the Merger Subsidiary
shall cease, and the Company shall be the surviving corporation (the "Surviving
Corporation").
(b) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger, the Company and the Merger
Subsidiary will file a certificate of merger with the Secretary of State of the
State of Delaware and make all other filings or recordings required by Delaware
Law in connection with the Merger. The closing of the Merger will take place at
the offices of Haythe & Curley, 237 Park Avenue, New York, New York 10017, or
such other place as the parties may agree. The Merger shall become effective at
such time as the certificate of merger is duly filed with the Secretary of State
of the State of Delaware or at such later time as is specified in the
certificate of merger (the "Effective Time").
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the assets, rights, privileges, powers and franchises and be subject
to all of the liabilities, restrictions, disabilities and duties of the Company
and the Merger Subsidiary, all as provided under Delaware Law.
SECTION 1.02 CONVERSION OF SHARES. At the Effective Time:
(a) each outstanding share of common stock, par value $.01 per share
(the "Shares"), of the Company held by the Company as treasury stock or
owned by Novametrix or any subsidiary of Novametrix immediately prior to the
Effective Time shall be cancelled, and no payment (whether in cash, shares
of Novametrix' common stock, par value $.01 per share (the "Novametrix
Common Stock"), or other consideration) shall be made with respect thereto;
(b) each share of common stock, par value $.01 per share, of the Merger
Subsidiary outstanding immediately prior to the Effective Time shall be
converted into and become one share of common stock, par value $.01 per
share, of the Surviving Corporation with the same rights, powers and
privileges as the shares so converted and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation; and
(c) except as otherwise provided in Section 1.02(a), each Share
outstanding immediately prior to the Effective Time shall be converted into
the right to receive (i) that number (the "Exchange Number") of fully paid
and nonassessable shares of Novametrix Common Stock equal to (x) .8181818
multiplied by the number of shares of Novametrix Common Stock outstanding
immediately prior to the Effective Time (assuming conversion of all then
outstanding shares of preferred stock, $1.00 par
A-1
<PAGE>
value (the "Novametrix Preferred Stock"), of Novametrix) divided by (y) the
number of Shares outstanding immediately prior to the Effective Time
(assuming the exercise in full of all then outstanding Company Options and
Company Warrants (each as hereinafter defined)), computed to four decimal
places and (ii) one Right (as defined in Section 1.06 hereof) (such Right
together with the Exchange Number of shares of Novametrix Common Stock are
hereinafter referred to as the "Merger Consideration").
SECTION 1.03 SURRENDER AND PAYMENT. (a) Each holder of Shares that have
been converted into a right to receive Novametrix Common Stock, upon surrender
to Novametrix of a certificate or certificates representing such Shares, will be
entitled to receive in exchange therefor (i) that number of whole shares of
Novametrix Common Stock which such holder has the right to receive pursuant to
Section 1.02, (ii) that number of Rights which such holder has the right to
receive pursuant to Section 1.02 and (iii) cash in lieu of fractional shares of
Novametrix Common Stock which such holder has the right to receive pursuant to
Section 1.05, and the certificate or certificates for the Shares so surrendered
shall be cancelled. Until so surrendered, each such certificate shall, after the
Effective Time, represent for all purposes, only the right to receive upon such
surrender the Merger Consideration and cash in lieu of any fractional shares of
Novametrix Common Stock as contemplated by this Section 1.03 and Section 1.05.
(b) If any shares of Novametrix Common Stock are to be issued to a Person
other than the registered holder of the Shares represented by the certificate or
certificates surrendered in exchange therefor, it shall be a condition to such
issuance that the certificate or certificates so surrendered shall be properly
endorsed or otherwise be in proper form for transfer and that the Person
requesting such issuance shall pay to Novametrix any transfer or other taxes
required as a result of such issuance to a Person other than the registered
holder of such Shares or establish to the satisfaction of Novametrix that such
tax has been paid or is not payable. For purposes of this Agreement, "Person"
means an individual, a corporation, a partnership, an association, a trust or
any other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
(c) After the Effective Time, there shall be no further registration of
transfers of Shares. If, after the Effective Time, certificates representing
Shares are presented to the Surviving Corporation, they shall be cancelled and
exchanged as provided for, and in accordance with the procedures set forth, in
this Article I.
(d) Notwithstanding the foregoing, Novametrix shall not be liable to any
holder of Shares for any amount paid, or any shares of Novametrix Common Stock
or Rights delivered, to a public official pursuant to applicable abandoned
property laws. Any shares of Novametrix Common Stock or any Rights or other
amounts remaining unclaimed by holders of Shares six months after the Effective
Time (or such earlier date immediately prior to such time as such amounts would
otherwise escheat to or become property of any governmental entity) shall, to
the extent permitted by applicable law, become the property of Novametrix free
and clear of any claims or interest of any Person previously entitled thereto.
(e) The Surviving Corporation shall be entitled to deduct and withhold from
the cash, if any, payable in lieu of fractional shares otherwise payable
pursuant to this Agreement to any holder of Shares such amounts as the Surviving
Corporation is required to deduct and withhold with respect to the making of
such payment under the Code, or any provisions of state, local or foreign tax
law. To the extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
such Shares in respect of which such deduction and withholding was made by the
Surviving Corporation.
(f) No dividends or other distributions on shares of Novametrix Common Stock
shall be paid to the holder of any unsurrendered certificates representing
Shares until such certificates are surrendered as provided in this Section. Upon
such surrender, there shall be paid, without interest, to the person in whose
name the certificates representing the shares of Novametrix Common Stock into
which such Shares were converted are registered, all dividends and other
distributions paid in respect of such Novametrix Common Stock on a date
subsequent to, and in respect of a record date after, the Effective Time.
A-2
<PAGE>
SECTION 1.04 STOCK OPTIONS, EQUITY UNITS AND WARRANTS. (a) At the
Effective Time, each outstanding option to purchase Shares (a "Company Option")
issued pursuant to the Stock Option Plan of the Company (the "Company Stock
Option Plan"), whether vested or unvested, shall be assumed by Novametrix. Each
Company Option shall be deemed to constitute an option to acquire, on the same
terms and conditions as were applicable under such Company Option, (i) (x) the
same number of whole shares of Novametrix Common Stock as the holder of such
Company Option would have been entitled to receive pursuant to the Merger had
such holder exercised such option in full immediately prior to the Effective
Time and (y) a number of Rights equal to the number of Rights which the holder
of such Company Option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full immediately prior to the
Effective Time, (ii) at a price per share (rounded up to the nearest whole cent)
equal to (A) the aggregate exercise price for the Shares otherwise purchasable
pursuant to such Company Option divided by (B) the number of whole shares of
Novametrix Common Stock deemed purchasable pursuant to such Company Option;
provided, however, that in the case of any Company Option to which Section 421
of the Code applies by reason of its qualification under Section 422 of the Code
("qualified stock options"), the option price, the number of shares purchasable
pursuant to such Company Option and the terms and conditions of exercise of such
Company Option shall be determined in order to comply with Section 424(a) of the
Code. No additional consideration shall be required to be paid with respect to
the Rights. Any partial exercise of a Company Option shall result in a
proportional issuance of the Rights subject to such Company Option. As soon as
practicable after the Effective Time, Novametrix shall deliver to the holders of
Company Options appropriate notices setting forth such holders' rights with
respect to such Company Options pursuant to the Company Stock Option Plan and
the certificates evidencing the grants of such Company Options shall continue in
effect on the same terms and conditions (subject to the adjustments required by
this Section 1.04(a) after giving effect to the Merger and the assumption by
Novametrix as set forth above). Novametrix shall comply with the terms of the
Company Stock Option Plan and shall use reasonable efforts to ensure, to the
extent required by, and subject to the provisions of, such Plan, that Company
Options which qualified as qualified stock options prior to the Effective Time
continue to qualify as qualified stock options of Novametrix after the Effective
Time. Novametrix shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Novametrix Common Stock for delivery
upon exercise of Company Options assumed by it in accordance with this Section
1.04(a).
(b) At the Effective Time, the Company will pay to each holder of Equity
Units (as defined in the Equity Unit Award Agreements, dated as of March 25,
1996 between the Company and each of the holders thereof (the "EUA
Agreements")), pursuant to such holders' EUA Agreement, shares of Company Common
Stock.
(c) At the Effective Time, each outstanding warrant to purchase Shares (a
"Company Warrant") shall be assumed by Novametrix. Each Company Warrant shall be
deemed to constitute a warrant to acquire, on the same terms and conditions as
were applicable under such Company Warrant, (i) the same number of whole shares
of Novametrix Common Stock as the holder of such Company Warrant would have been
entitled to receive pursuant to the Merger had such holder exercised such
warrant in full immediately prior to the Effective Time and (y) a number of
Rights equal to the number of Rights which the holder of such Company Warrant
would have been entitled to receive pursuant to the Merger had such holder
exercised such warrant in full immediately prior to the Effective Time, (ii) at
a price per share (rounded up to the nearest whole cent) equal to (A) the
aggregate exercise price for the Shares otherwise purchasable pursuant to such
Company Warrant divided by (B) the number of whole shares of Novametrix Common
Stock deemed purchasable pursuant to such Company Warrant. No additional
consideration shall be required to be paid with respect to the Rights. Any
partial exercise of Company Warrant shall result in a proportional issuance of
the Rights subject to such Company Warrant. Novametrix shall take all corporate
action necessary to reserve for issuance a sufficient number of shares of
Novametrix Common Stock for delivery upon exercise of Company Warrants assumed
by it in accordance with this Section 1.04(c).
A-3
<PAGE>
(d) Prior to the Effective Time, (i) the Company shall use its best efforts
to obtain any consents required from holders of Company Options granted under
the Company Stock Option Plan or holders of the Equity Units, as the case may
be, and (ii) the Company shall make any amendments to the terms of such stock
option award or plan or compensation plans or arrangements or other applicable
agreements that, in the case of either clauses (i) or (ii), are necessary to
give effect to the transactions contemplated by Section 1.04(a) and (b).
SECTION 1.05 FRACTIONAL SHARES. No fractional shares of Novametrix Common
Stock shall be issued in the Merger. All fractional shares of Novametrix Common
Stock that a holder of Shares would otherwise be entitled to receive as a result
of the Merger shall be aggregated and if a fractional share results from such
aggregation, such holder shall be entitled to receive, in lieu thereof, an
amount in cash determined by multiplying the average of the daily closing sale
price per share of Novametrix Common Stock on the Nasdaq National Market for the
ten trading days immediately preceding the Effective Time by the fraction of a
share of Novametrix Common Stock to which such holder would otherwise have been
entitled. No such cash in lieu of fractional shares of Novametrix Common Stock
shall be paid to any holder of Shares until certificates representing such
Shares are surrendered and exchanged in accordance with Section 1.03.
SECTION 1.06 LIMITED ANTIDILUTION RIGHTS.
(a) Novametrix has authorized the issuance of contingent rights to receive
shares of Novametrix Common Stock (the "Rights") and, at the Effective Time,
will issue such Rights to holders of record of Shares as of the Effective Time
in accordance with Section 1.02(c) and to holders of Company Options and Company
Warrants who exercise such options or warrants after the Effective Time in
accordance with Section 1.04(a) or Section 1.04(c). The Rights shall not be
transferable, except that Genstar Capital Partners II, L.P., a Delaware limited
partnership ("Genstar"), may transfer Rights to its general and limited partners
upon receipt by Novametrix of (i) an opinion of counsel to Genstar reasonably
satisfactory to Novametrix to the effect that such transfer will not violate the
Securities Act or any state or foreign securities laws and (ii) a representation
letter from each such transferee in form and substance reasonably satisfactory
to Novametrix. The Rights shall not be evidenced by certificates. Novametrix
shall not issue fractional Rights.
(b) Novametrix has authorized the issuance of and will hold in reserve the
shares of Novametrix Common Stock issuable pursuant to the Rights (the
"Underlying Shares"), and monthly, on the first business day after the end of
each month in which an Antidilution Event (as hereinafter defined) shall have
occurred after the month in which the Effective Date shall have occurred (each
such date, an "Antidilution Date") (until and including the first business day
of the month immediately succeeding the later of the month in which the last of
the remaining warrants and options to acquire shares of Novametrix Common Stock
outstanding immediately prior to the Effective Time and Company Options and
Company Warrants shall have expired or been exercised), Novametrix will issue
Underlying Shares to Rights holders as set forth in Section 1.06(c) with respect
to any Antidilution Events (as hereinafter defined) which shall have occurred
during the immediately preceding month.
(c) Each Right grants to the holder thereof the right to receive from
Novametrix on each Antidilution Date a number of Underlying Shares equal to (x)
the sum of (i) .8181818 multiplied by the number of shares of Novametrix Common
Stock issued by Novametrix pursuant to warrants or options to acquire shares of
Novametrix Common Stock outstanding immediately prior to the Effective Time (but
excluding any such shares issued upon conversion of the Novametrix Preferred
Stock) and (ii) the number of shares of Novametrix Common Stock which were
issuable by Novametrix upon the exercise of Company Options or Company Warrants
(including Underlying Shares so issuable as provided in Section 1.06(e)), which
Company Options or Company Warrants were cancelled or otherwise expired
unexercised, in either case during the preceding month (or, in the case of the
first Antidilution Date after the issuance of such Right, after the Effective
Time) divided by (y) the number of Rights then outstanding or issuable upon the
exercise of all then outstanding Company Options and Company Warrants, computed
to four decimal places. The issuance by Novametrix of Novametrix Common Stock
pursuant to warrants or options and the
A-4
<PAGE>
cancellation or expiration of Company Options or Company Warrants as aforesaid
are herein referred to as "Antidilution Events". Antidilution Events shall not
include, and Rights shall not grant the holders thereof the right to receive
shares of Novametrix Common Stock in respect of, issuances at or after the
Effective Time of any Novametrix Securities (as defined in Section 4.05) except
for shares of Novametrix Common Stock issued pursuant to options and warrants
outstanding immediately prior to the Effective Time.
(d) Novametrix shall deliver, or arrange to have delivered, on each
Antidilution Date certificate(s) representing the number of shares of Novametrix
Common Stock issuable pursuant to each Right on such Antidilution Date
registered in the name of the person to whom such Right was issued at the
address of such person as it appears on the records of Novametrix. Novametrix
shall not issue fractional shares of Novametrix Common Stock to Rights holders.
The number of shares of Novametrix Common Stock that each Rights holder shall be
entitled to receive on each Antidilution Date shall be rounded down to the
nearest whole share.
(e) Notwithstanding anything to the contrary contained herein, upon the
occurrence of an Antidilution Event, the number of shares of Novametrix Common
Stock issuable upon the exercise of each then outstanding Company Option and
Company Warrant shall be increased by the number of Underlying Shares which
would have been issuable pursuant to the Rights subject to such Company Option
or Company Warrant (assuming such Rights were then outstanding).
ARTICLE II.
THE SURVIVING CORPORATION AND NOVAMETRIX
SECTION 2.01 CERTIFICATE OF INCORPORATION. The certificate of
incorporation of the Merger Subsidiary in effect at the Effective Time shall
become the certificate of incorporation of the Surviving
Corporation until amended in accordance with applicable law.
SECTION 2.02 BYLAWS. The bylaws of the Merger Subsidiary in effect at the
Effective Time shall become the bylaws of the Surviving Corporation until
amended in accordance with applicable law.
SECTION 2.03 DIRECTORS AND OFFICERS. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
applicable law, (i) the directors of the Merger Subsidiary at the Effective Time
and an equal number of directors appointed by the Board of Directors of the
Company prior to the Effective Time shall become the directors of the Surviving
Corporation, (ii) the officers of the Merger Subsidiary at the Effective Time
shall become the officers of the Surviving Corporation, (iii) the directors of
Novametrix shall be comprised of (A) all of the members of Novametrix' Board of
Directors at the Effective Time or such smaller number of such members as may
result from director resignations effective at the Effective Time and (B) an
equal number of directors appointed by the Board of Directors of the Company
prior to the Effective Time, one of whom shall be Richard D. Paterson, and (iv)
Richard D. Paterson shall be Chairman of the Board of Directors of Novametrix.
The continuing members of the Board of Directors of Novametrix, on the one hand,
and the members appointed by the Board of Directors of the Company, on the other
hand, as described in clause (iii) above, shall be as equally distributed as
possible among Class A, Class B and Class C Directors of Novametrix. At the
Effective Time, each committee of the Board of Directors of Novametrix shall be
composed of an equal number of the continuing members of the Board of Directors
of Novametrix, on the one hand, and the members appointed by the Board of
Directors of the Company, on the other hand, as described in clause (iii) above.
A-5
<PAGE>
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Novametrix that:
SECTION 3.01 CORPORATE EXISTENCE AND POWER. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, and has all corporate powers and all governmental licenses,
permits, authorizations, consents and approvals required to carry on its
business as now conducted except where the failure to do so would not have or
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the financial condition, business, assets or results of
operations of the Company and its Subsidiaries (as defined in Section 3.06(a)
hereof) taken as a whole (a "Company Material Adverse Effect"). The Company is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except for
those jurisdictions where the failure to be so qualified would not have or
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. The Company has heretofore delivered to Novametrix true
and complete copies of the Company's certificate of incorporation and bylaws as
currently in effect. The Company does not own and has never owned any assets or
properties other than the capital stock of Andros and Andros's predecessor and
is not engaged and has never engaged in any activities other than in connection
with Andros and Andros's Subsidiaries and in connection with or as contemplated
by this Agreement.
SECTION 3.02 CORPORATE AUTHORIZATION. The execution, delivery and
performance by the Company of this Agreement and the consummation of the Merger
by the Company are within the Company's corporate powers and have been duly
authorized by all necessary corporate action. This Agreement constitutes a valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms. Copies of the resolutions duly adopted by the
Company's Board of Directors and Genstar, as holder of a majority of the Shares,
authorizing the Merger and the execution and delivery of this Agreement and the
performance by the Company of its obligations hereunder have been furnished to
Novametrix.
SECTION 3.03 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by the Company of this Agreement and the consummation of the Merger
by the Company require no action by or in respect of, or filing with, any
governmental body, agency, official or authority other than (i) the filing of a
certificate of merger in accordance with Delaware Law; and (ii) compliance with
any applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "HSR Act"), except where the failure of any such action to be taken
or filing to be made would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect or prevent
consummation of the transactions contemplated hereby.
SECTION 3.04 NON-CONTRAVENTION. Except as disclosed on Exhibit 3.04 to the
Company Disclosure Schedule delivered by the Company to Novametrix
simultaneously with the execution and delivery hereof (the "Company Disclosure
Schedule"), the execution, delivery and performance by the Company of this
Agreement and the consummation of the Merger by the Company do not and will not
(i) contravene or conflict with the certificate of incorporation or bylaws of
the Company, (ii) assuming compliance with the matters referred to in Section
3.03, contravene or conflict with or constitute a violation of any provision of
any law, regulation, judgment, injunction, order or decree binding upon or
applicable to the Company or any of its Subsidiaries, (iii) constitute a default
under or give rise to a right of termination, cancellation or acceleration of
any right or obligation of the Company or any of its Subsidiaries or to a loss
of any benefit to which the Company or any of its Subsidiaries is entitled under
any material agreement or other instrument binding upon the Company or any of
its Subsidiaries or any license, franchise, permit or other similar
authorization held by the Company or any of its Subsidiaries, or (iv) result in
the creation or imposition of any Lien (as defined below) on any asset of the
Company or any of its Subsidiaries, except for any occurrences or results
referred to in clauses (ii), (iii) and (iv) which would not have or reasonably
be expected to have, individually or in the aggregate, a Company Material
Adverse Effect or prevent
A-6
<PAGE>
consummation of the transactions contemplated hereby. For purposes of this
Agreement, "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance or adverse claim of any kind in respect
of such asset.
SECTION 3.05 CAPITALIZATION. The authorized capital stock of the Company
consists of 300,000 Shares of which 150,000 Shares are voting Class A common
stock, par value $.01 per share ("Class A Shares"), and 150,000 Shares are
non-voting Class B common stock, par value $.01 per share ("Class B Shares"). As
of the date hereof, there are outstanding (v) 89,787 Class A Shares (w) no Class
B Shares, (x) Company Options to purchase an aggregate of 2,559 Shares (none of
which Company Options were then exercisable), (y) Company Warrants to purchase
an aggregate of 8,000 Shares, 2,500 of which were issued to each of Banque
Paribas and the Bank of Nova Scotia and 3,000 of which were issued to BG
Services Limited and (z) Equity Units exercisable for 453.6 Shares or cash, at
the Company's option, as set forth in the EUA Agreements. All outstanding shares
of capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable and free of preemptive rights. Except as set
forth in this Section, there are outstanding as of the date hereof (i) no shares
of capital stock or other voting securities of the Company, (ii) no securities
of the Company convertible into or exchangeable for shares of capital stock or
voting securities of the Company, and (iii) no options, warrants or other rights
to acquire from the Company, and no obligation of the Company to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of the Company (the items in clauses (i),
(ii) and (iii) being referred to collectively as the "Company Securities").
Except as disclosed on Exhibit 3.05 to the Company Disclosure Schedule, there
are no outstanding obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any Company Securities.
SECTION 3.06 SUBSIDIARIES. (a) Each Subsidiary of the Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, has all corporate powers and all
governmental licenses, permits, authorizations, consents and approvals required
to carry on its business as now conducted and is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where failure to have such licenses,
permits, authorizations, consents or approvals or to be so qualified would not
have or reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect. For purposes of this Agreement, "Subsidiary" of
any Person means (i) any corporation or other entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are
directly or indirectly owned by such Person, and (ii) any partnership of which
such Person is a general partner.
(b) Except as disclosed on Exhibit 3.06(b) to the Company Disclosure
Schedule, all of the outstanding capital stock of each Subsidiary of the Company
is owned by the Company, directly or indirectly, free and clear of any Lien and
free of any other limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock). There are no
outstanding (i) securities of the Company or any of its Subsidiaries convertible
into or exchangeable for shares of capital stock or other voting securities in
any Subsidiary of the Company, or (ii) options or other rights to acquire from
the Company or any of its Subsidiaries, and no other obligation of the Company
or any of its Subsidiaries to issue, any capital stock or voting securities in,
or any securities convertible into or exchangeable for any capital stock or
voting securities in, any Subsidiary of the Company (the items in clauses (i)
and (ii) being referred to collectively as the "Company Subsidiary Securities").
There are no outstanding obligations of the Company or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any outstanding Company Subsidiary
Securities.
SECTION 3.07 SEC FILINGS. (a) The Company has delivered to Novametrix (i)
the annual report on Form 10-K of Andros Incorporated, a Delaware corporation
and wholly owned Subsidiary of the Company ("Andros"), for the fiscal year ended
July 30, 1995 (the "Andros 10-K"), (ii) Andros' quarterly reports on Form 10-Q
for Andros' fiscal quarters ended October 29, 1995 and January 28, 1996, (iii)
Andros' current reports on Form 8-K dated December 28, 1993 and March 25, 1996,
(iv) Andros' proxy or information statements relating to meetings of, or actions
taken without a meeting by, the
A-7
<PAGE>
stockholders of the Company held since January 1, 1993, and (v) all of Andros'
other reports, statements, schedules and registration statements filed with the
Securities and Exchange Commission (the "SEC") since January 1, 1993, and all
materials incorporated therein by reference (the filings referred to in clauses
(i) through (v) above and delivered to Novametrix prior to the date hereof being
hereinafter referred to as the "Andros SEC Filings").
(b) As of its filing date, each such report or statement filed pursuant to
the Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder (the "Exchange Act") complied as to form in all material respects
with the requirements of the Exchange Act and did not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
(c) Each such registration statement and any amendment thereto filed
pursuant to the Securities Act of 1933 and the rules and regulations promulgated
thereunder (the "Securities Act"), as of the date such statement or amendment
became effective, complied as to form in all material respects with the
Securities Act and did not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
SECTION 3.08 FINANCIAL STATEMENTS. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company and its consolidated Subsidiaries included as Exhibit 3.08 to the
Company Disclosure Schedule and those included in the Andros 10-K and the
quarterly reports on Form 10-Q referred to in Section 3.07 fairly present, in
conformity with generally accepted accounting principles applied on a consistent
basis (except as may be indicated in the notes thereto), the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and their consolidated results of operations and cash flows for
the periods then ended (subject, in the case of any unaudited interim financial
statements, to normal year-end adjustments, none of which, individually or in
the aggregate, would have a Company Material Adverse Effect).
SECTION 3.09 PROXY STATEMENT. None of the information supplied by the
Company for inclusion in the proxy statement relating to the meeting of
Novametrix' stockholders to be held in connection with the Merger (the "Proxy
Statement"), to be filed by Novametrix with the SEC, and any amendments or
supplements thereto, will, at the respective times such documents are filed, and
at the time the Proxy Statement or any amendment or supplement thereto is first
mailed to stockholders of Novametrix, at the time such stockholders vote on
adoption of this Agreement and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
SECTION 3.10 ABSENCE OF CERTAIN CHANGES. Except as contemplated hereby or
as described in any Andros SEC Filing or as disclosed on Exhibit 3.10 to the
Company Disclosure Schedule, since July 30, 1995, the Company and its
Subsidiaries have conducted their business in all material respects in the
ordinary course consistent with past practices and there has not been:
(a) any event, occurrence or development or state of circumstances or
facts, which affects or relates to the Company, which has had or would
reasonably be expected to have a Company Material Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or
any repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities
of, or other ownership interests in, the Company or any of its Subsidiaries;
(c) any amendment of any material term of any outstanding security of
the Company or any of its Subsidiaries;
(d) any incurrence, assumption or guarantee by the Company or any of its
Subsidiaries of any indebtedness for borrowed money other than in the
ordinary course of business and in amounts and on terms consistent with past
practices;
A-8
<PAGE>
(e) any creation or assumption by the Company or any of its Subsidiaries
of any Lien on any material asset other than in the ordinary course of
business consistent with past practices;
(f) any making of any loan, advance or capital contributions to or
investment in any Person other than loans, advances or capital contributions
to or investments in wholly owned Subsidiaries of the Company made in the
ordinary course of business consistent with past practices;
(g) any change in any method of accounting or accounting practice by the
Company or any of its Subsidiaries, except for any such change required by
reason of a concurrent change in generally accepted accounting principles or
to conform a Subsidiary's accounting policies and practices to those of the
Company;
(h) except for contractual obligations existing on the date hereof,
other than in the ordinary course of business consistent with past
practices, any (i) grant of any severance or termination pay to any
director, officer or employee of the Company or any of its Subsidiaries,
(ii) entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any
director, officer or employee of the Company or any of its Subsidiaries,
(iii) increase in benefits payable under any existing severance or
termination pay policies or employment agreements, (iv) increase in
compensation, bonus or other benefits payable to directors, officers or
employees of the Company or any of its Subsidiaries, or (v) acceleration of
the exercisability or vesting of any Company Options, Equity Units or
Company Warrants, as the case may be;
(i) any labor dispute, other than individual grievances, which would
have a Company Material Adverse Effect, or any activity or proceeding by a
labor union or representative thereof to organize any employees of the
Company or any of its Subsidiaries, which employees were not subject to a
collective bargaining agreement at July 30, 1995 or any lockouts, strikes,
slowdowns, work stoppages or threats thereof by or with respect to such
employees;
(j) any actual or, to the Company's knowledge, threatened dispute
between the Company or any of its Subsidiaries and any vendor or customer,
other than disputes which would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect;
(k) any actual or, to the Company's knowledge, threatened suspension or
cancellation of any governmental license, permit, authorization, consent or
approval, other than those the suspension or cancellation of which would not
have or reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect; or
(l) any change in any Federal or state law, rule or regulation
applicable to the Company or any of its Subsidiaries, or in the
interpretation or application thereof, which individually or in the
aggregate has had or would reasonably be expected to have a Company Material
Adverse Effect.
SECTION 3.11 NO UNDISCLOSED MATERIAL LIABILITIES. Except as described in
any Andros SEC Filing or on Exhibit 3.11 to the Company Disclosure Schedule,
there are no liabilities of the Company or any of its Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which, individually or in the aggregate, have or would reasonably be expected to
have a Company Material Adverse Effect, other than:
(i) liabilities incurred in the ordinary course of business consistent
with past practices since January 28, 1996, which in the aggregate are not
material to the Company and its Subsidiaries, taken as a whole; and
(ii) liabilities under this Agreement.
SECTION 3.12 LITIGATION. Except as described in the Andros 10-K or as
disclosed on Exhibit 3.12 to the Company Disclosure Schedule, there is no
action, suit, investigation or proceeding pending against, or to the knowledge
of the Company, threatened against the Company or any of its Subsidiaries or any
of their respective properties before any court or arbitrator or any
governmental body, agency or official
A-9
<PAGE>
which would have or reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. To the best of the knowledge of
the Company, there is no toxic waste condition or other pollution condition of
any nature, including, without limitation, the presence of asbestos or other
carcinogens, existing at any location leased or owned by the Company or any of
its Subsidiaries which could reasonably be expected to have, individually or in
the aggregate, a Company Material Adverse Effect.
SECTION 3.13 TAXES. (i) The Company and each of its Subsidiaries have
timely filed all tax returns, statements, reports and forms required to be filed
with any tax authority when due in accordance with all applicable laws except
where the failure to do so would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect; (ii) no
deficiency in payment of any taxes for any period has been asserted by any
taxing authority which remains unsettled at the date hereof except for
deficiencies which would not have or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect; and (iii)
neither the Company nor any of its Subsidiaries is liable and it is not
reasonably likely that the Company or any of its Subsidiaries will be liable for
any taxes not reserved against in Andros' consolidated balance sheet as of
January 28, 1996 included in Andros' quarterly report on Form 10-Q for the
fiscal quarter then ended except those which would not have or reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect.
For purposes of this Agreement, "Code" means the Internal Revenue Code of
1986, as amended; and "tax" or "taxes" means all net income, gross income, gross
receipts, sales, use, ad valorem, transfer, accumulated earnings, personal
holding company, excess profits, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property or
windfall profits taxes, customs duties or other taxes, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority (domestic
or foreign).
SECTION 3.14 ERISA. (a) "Employee Plans" shall mean each "employee benefit
plan", as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974 ("ERISA"), which (i) is subject to any provision of ERISA and (ii) is
maintained, administered or contributed to by the Company or any affiliate (as
defined below) and covers any employee or former employee of the Company or any
affiliate or under which the Company or any affiliate has any liability. Copies
of such plans (and, if applicable, related trust agreements) and all amendments
thereto and written interpretations thereof have been furnished to Novametrix.
For purposes of this Section, "affiliate" of any Person means any other Person
which, together with such Person, would be treated as a single employer under
Section 414 of the Code. No Employee Plan individually or collectively
constitutes a "defined benefit plan" as defined in Section 3(35) of ERISA.
(b) No Employee Plan constitutes a "multi-employer plan", as defined in
Section 3(37) of ERISA, and no Employee Plan is maintained in connection with
any trust described in Section 501(c)(9) of the Code. No Employee Plan is
subject to Title IV of ERISA. Neither the Company nor any of its affiliates has
incurred, nor has reason to expect to incur, any liability under Title IV of
ERISA arising in connection with the termination of, or complete or partial
withdrawal from, any plan previously covered by Title IV of ERISA that would
have, or reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect. Nothing done or omitted to be done and no
transaction or holding of any asset under or in connection with any Employee
Plan has or will make the Company or any of its Subsidiaries or any officer or
director of the Company or any of its Subsidiaries subject to any liability
under Title I of ERISA or liable for any tax pursuant to Section 4975 of the
Code that would have, or reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
(c) Except as disclosed on Exhibit 3.14 to the Company Disclosure Schedule
and except to the extent it would not have, or reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, (i) each
Employee Plan which is intended to be qualified under Section 401(a) of the Code
is so qualified and has been so qualified during the period from its adoption to
date, and each trust
A-10
<PAGE>
forming a part thereof is exempt from tax pursuant to Section 501(a) of the
Code, and (ii) each Employee Plan has been maintained in compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
final rules and final regulations, including but not limited to, ERISA and the
Code, which are applicable to such Employee Plan.
(d) Except to the extent it would not have, or reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect, there
is no contract, agreement, plan or arrangement covering any employee or former
employee of the Company or any of its Subsidiaries that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible due to Sections 162(m) or 280G of the Code.
(e) "Benefit Arrangement" of any party shall mean each employment, severance
or other similar contract, arrangement or policy and each plan or arrangement
(written or oral) providing for compensation, bonus, profit-sharing, stock
option, or other stock related rights or other forms of incentive or deferred
compensation, vacation benefits, insurance coverage (including any self-insured
arrangements), health or medical benefits, disability benefits, workers'
compensation, supplemental unemployment benefits, severance benefits and
post-employment or retirement benefits (including compensation, health or
medical insurance or other benefits) which (i) is not an Employee Plan, (ii) is
entered into, maintained or contributed to, as the case may be, by such party or
any of its affiliates and (iii) covers any employee or former employee of such
party or any of its affiliates. Copies or descriptions of the Benefit
Arrangements of the Company have been furnished to Novametrix. Exhibit 3.14(e)
to the Company Disclosure Schedule sets forth all outstanding Company Options as
of the date hereof, including the applicable exercise price with respect
thereto. Except to the extent that it would not have, or reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect,
each of the Company's Benefit Arrangements has been maintained in compliance
with its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations that are applicable to such Benefit Arrangement.
(f) Except to the extent that it would not have, or reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect,
the transactions contemplated hereby will not result in any liability for
severance pay to any employee or accelerate the exercisability or vesting of any
Company Options or Company Warrants, as the case may be, nor will any employee
be entitled to any payment by reason of such transactions or the termination of
such employee within a specified time period after such transactions.
(g) Neither the Company nor any of its Subsidiaries provides, nor has any of
them made any current or past commitment to provide, post-retirement health or
medical benefits for retired employees of the Company or any of its
Subsidiaries.
(h) Except as disclosed on Exhibit 3.14(h) to the Company Disclosure
Schedule and subject to the provisions of Section 3.10(h), there has been no
amendment to, written interpretation or announcement (whether or not written) by
the Company or any of its affiliates relating to, or change in employee
participation or coverage under, any Employee Plan or Benefit Arrangement of the
Company which in the aggregate would increase the per employee expense of
maintaining such Employee Plan or Benefit Arrangement above the level of the
expense incurred on a per employee basis in respect thereof for the six months
ended January 28, 1996 except to the extent, with respect to all employees, as
would not have, or reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
SECTION 3.15 COMPLIANCE WITH LAWS. Except as described in any Andros SEC
Filing, neither the Company nor any of its Subsidiaries is in violation of, or
has violated, any applicable provisions of any laws, statutes, ordinances or
regulations other than violations which would not, in the aggregate, reasonably
be expected to have a Company Material Adverse Effect.
SECTION 3.16 FINDERS' FEES. Except for CS First Boston ("CSFB"), there is
no investment banker, broker, finder or other intermediary which has been
retained by or is authorized to act on behalf of the Company or any of its
Subsidiaries who might be entitled to any fee or commission in connection with
the transactions contemplated by this Agreement. The Company has heretofore
furnished to Novametrix a
A-11
<PAGE>
complete and correct copy of all agreements between the Company and CSFB
pursuant to which such firm would be entitled to any payment relating to the
transactions contemplated by this Agreement.
SECTION 3.17 VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding Shares is the only vote of the holders of any class
or series of the Company's capital stock necessary to approve this Agreement and
the transactions contemplated hereby and such approval has been obtained.
SECTION 3.18 INTELLECTUAL PROPERTY. Set forth on Exhibit 3.18 to the
Company Disclosure Schedule is a list and brief description of all of the
patents, registered and common law trademarks, service marks, tradenames,
copyrights, licenses and other similar rights of the Company and its
Subsidiaries. The Company or one of its Subsidiaries, as applicable, owns all
right, title and interest in and to all such proprietary rights. The proprietary
rights listed are all such rights necessary to the conduct of the business of
the Company and its Subsidiaries as currently conducted; no adverse claim has
been made and no dispute has arisen with respect to any of the said proprietary
rights; and the operations of the business of the Company and its Subsidiaries
and the use by the Company or its Subsidiaries of such proprietary rights do not
involve infringement or claimed infringement of any patent, trademark, service
mark, tradename, copyright, license or similar right. The Company has taken
reasonable measures to maintain the confidentiality of the processes and
formulae, research and development and other know-how of the Company, the value
of which to the Company is dependent upon the maintenance of the confidentiality
thereof. Neither the Company nor any of its Subsidiaries has licensed or
otherwise permitted the use by any third party of any proprietary information on
terms or in a manner that is reasonably likely to have a Company Material
Adverse Effect.
SECTION 3.19 PERMITS; COMPANY PRODUCTS; REGULATION. (a) Except as
disclosed on Exhibit 3.19(a)(i) to the Company Disclosure Schedule, the Company
and each of its Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions, consents,
certificates, approvals and orders of any governmental body, agency, official or
authority necessary for the Company or such Subsidiary, as applicable, to own,
lease and operate its properties or to carry on its business as it is now being
conducted (the "Company Permits"), and no suspension or cancellation of any of
the Company Permits is pending or, to the knowledge any of the officers of the
Company or any of its Subsidiaries, threatened, except where the failure to
have, or the suspension or cancellation of, any of the Company Permits would not
have a Company Material Adverse Effect. A list of the material Company Permits
is set forth on Exhibit 3.19(a)(ii) to the Company Disclosure Schedule. Except
as disclosed on Exhibit 3.19(a)(i) to the Company Disclosure Schedule, neither
the Company nor any of its Subsidiaries is in default under or violation of (i)
any law, regulation, judgment, injunction, order or decree applicable to the
Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected, (ii) any of the Company
Permits or (iii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries or any property or asset of the Company or any of its
Subsidiaries is bound or affected, except for defaults or violations that,
individually or in the aggregate, would not have a Company Material Adverse
Effect.
(b) Except as disclosed on Exhibit 3.19(b) to the Company Disclosure
Schedule and except as would not have a Company Material Adverse Effect, since
July 30, 1995, there have been no written notices, citations or decisions by any
governmental or regulatory body that any product produced, manufactured or
marketed at any time by the Company or any of its Subsidiaries (the "Company
Products"), other than a Company Third Party Product (as defined below) is
defective or fails to meet any applicable standards promulgated by any such
governmental or regulatory body, and no officer of the Company or any of its
Subsidiaries knows of any such defect or failure. In the case of products which
are produced or manufactured by third parties and are distributed by the Company
or any of its Subsidiaries (the "Company Third Party Products"), to the
knowledge of any of the officers of the Company or any of its Subsidiaries,
there have been no written notices, citations or decisions by any governmental
or regulatory body that any Company Third Party Product distributed at any time
by the Company or any of its Subsidiaries is defective or fails to meet any
applicable standards promulgated by any such governmental or regulatory body,
and none of the officers of the Company or any of its Subsidiaries knows of any
such
A-12
<PAGE>
defect or failure. The Company and each of its Subsidiaries has complied with
the laws, regulations, policies, procedures and specifications applicable to the
Company or such Subsidiary, as applicable, with respect to the design,
manufacture, labelling, testing and inspection of Company Products in the United
States and the operation of manufacturing facilities in the United States
promulgated by the Food and Drug Administration (the "FDA"), and has complied
with the laws, regulations, policies, procedures and specifications applicable
to the Company or such Subsidiary, as applicable, in any jurisdiction outside
the United States with respect to the design, manufacture, labelling, testing
and inspection of Company Products and the operation of manufacturing facilities
outside of the United States except for such non-compliance as would not have a
Company Material Adverse Effect. Except as disclosed on Exhibit 3.19(b) to the
Company Disclosure Schedule, since July 30, 1995, there have been no recalls,
field notifications or seizures ordered or, to the knowledge of any of the
officers of the Company or any of its Subsidiaries, threatened by any such
governmental or regulatory body with respect to any of the Company Products,
other than Company Third Party Products, and neither the Company nor any of its
Subsidiaries has independently engaged in recalls or field notifications. In the
case of Company Third Party Products distributed by the Company or any of its
Subsidiaries, neither the Company nor any of its Subsidiaries has received any
notices of any recalls, field notifications or seizures ordered or threatened by
any such governmental or regulatory body with respect to any of such Company
Third Party Products, and neither the Company nor any of its Subsidiaries has
independently engaged in recalls or field notifications. Except as set forth on
Exhibit 3.19(b) to the Company Disclosure Schedule, neither the Company nor any
of its Subsidiaries has received, and to the knowledge of any of the officers of
the Company or any of its Subsidiaries, there is no reasonable basis for, any
warning letter or Section 305 notices from the FDA.
(c) Except as set forth on Exhibit 3.19(c)(i) to the Company Disclosure
Schedule, the Company or one or more of its Subsidiaries has obtained, in all
countries where the Company or such Subsidiary, as applicable, is marketing or
has marketed the Company Products, all applicable licenses, registrations,
approvals, clearances and authorizations required to be obtained by it by local,
state or federal agencies (including the FDA) in such countries regulating the
safety, effectiveness and market clearance of the Company Products that are
currently marketed by the Company or such Subsidiary, as applicable, except
where the failure to obtain such licenses, registrations, approvals, clearances
and authorizations would not have a Company Material Adverse Effect. The Company
has made available to Novametrix all information relating to the Company
Products in the United States, and Exhibit 3.19(c)(ii) to the Company Disclosure
Schedule sets forth a list of all licenses, registrations, approvals, permits
and device listings. Exhibit 3.19(c)(iii) to the Company Disclosure Schedule
sets forth a description of all inspections by regulatory authorities, recalls,
product actions and audits of Company Products since July 30, 1995.
Section 3.20 SECTION 203 OF THE DELAWARE LAW. As of the date hereof and
pursuant to Section 203(a)(1) and (b)(4) of the Delaware Law, the restrictions
on the Company contained in Section 203 of the Delaware Law are, and at all
times on or prior to the Effective Time such restrictions shall be, inapplicable
to the Merger and the other transactions contemplated by this Agreement.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF NOVAMETRIX
Novametrix represents and warrants to the Company that:
SECTION 4.01 CORPORATE EXISTENCE AND POWER. Novametrix is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, and has all corporate powers and all governmental licenses,
permits, authorizations, consents and approvals required to carry on its
business as now conducted except where the failure to do so would not have or
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the financial condition, business, assets or results of
operations of Novametrix and its Subsidiaries taken as a whole (a "Novametrix
Material Adverse Effect"). Novametrix is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except for those jurisdictions where the
failure to be so
A-13
<PAGE>
qualified would not have or reasonably be expected to have, individually or in
the aggregate, a Novametrix Material Adverse Effect. Novametrix has heretofore
delivered to the Company true and complete copies of Novametrix' certificate of
incorporation and bylaws as currently in effect. Since the date of its
incorporation, the Merger Subsidiary has not engaged in any activities other
than in connection with or as contemplated by this Agreement.
SECTION 4.02 CORPORATE AUTHORIZATION. The execution, delivery and
performance by Novametrix and the Merger Subsidiary of this Agreement and the
consummation of the Merger by the Merger Subsidiary are within the corporate
powers of Novametrix and the Merger Subsidiary and have been duly authorized by
all necessary corporate action, except for any required approval by Novametrix'
stockholders of the issuance of Novametrix Common Stock in connection with the
Merger. This Agreement constitutes a valid and binding agreement of Novametrix
and the Merger Subsidiary enforceable against Novametrix and the Merger
Subsidiary in accordance with its terms.
SECTION 4.03 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Novametrix and the Merger Subsidiary of this Agreement and the
consummation of the Merger by the Merger Subsidiary require no action by or in
respect of, or filing with, any governmental body, agency, official or authority
other than (i) the filing of a certificate of merger in accordance with Delaware
Law; (ii) compliance with any applicable requirements of the HSR Act, the
Exchange Act and the Securities Act; (iii) compliance with the applicable
requirements of the Nasdaq National Market; and (iv) compliance with any
applicable state securities or Blue Sky laws, except where the failure of any
such action to be taken or filing to be made would not have or reasonably be
expected to have, individually or in the aggregate, a Novametrix Material
Adverse Effect or prevent consummation of the transactions contemplated hereby.
SECTION 4.04 NON-CONTRAVENTION. Except as disclosed on Exhibit 4.04 to the
Novametrix Disclosure Schedule delivered by Novametrix to the Company
simultaneously with the execution and delivery hereof (the "Novametrix
Disclosure schedule"), the execution, delivery and performance by Novametrix and
the Merger Subsidiary of this Agreement and the consummation of the Merger by
the Merger Subsidiary do not and will not (i) contravene or conflict with the
certificate of incorporation or bylaws of Novametrix or the Merger Subsidiary,
(ii) assuming compliance with the matters referred to in Section 4.03,
contravene or conflict with or constitute a violation of any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to Novametrix or any of its Subsidiaries, (iii) constitute a default
under or give rise to a right of termination, cancellation or acceleration of
any right or obligation of Novametrix or any of its Subsidiaries or to a loss of
any benefit to which Novametrix or any of its Subsidiaries is entitled under any
material agreement or other instrument binding upon Novametrix or any of its
Subsidiaries or any license, franchise, permit or other similar authorization
held by Novametrix or any of its Subsidiaries, or (iv) result in the creation or
imposition of any Lien on any asset of Novametrix or any of its Subsidiaries,
except for any occurrences or results referred to in clauses (ii), (iii) and
(iv) which would not have or reasonably be expected to have, individually or in
the aggregate, a Novametrix Material Adverse Effect or prevent consummation of
the transactions contemplated hereby.
SECTION 4.05 CAPITALIZATION. The authorized capital stock of Novametrix
consists of 20,000,000 shares of Novametrix Common Stock and 1,000,000 shares of
Novametrix Preferred Stock. As of June 28, 1996, there were outstanding (w)
6,647,512 shares of Novametrix Common Stock, (x) 40,000 shares of Novametrix
Preferred Stock, (y) employee and other stock options to purchase an aggregate
of 413,734 shares of Novametrix Common Stock (of which options to purchase an
aggregate of 248,734 shares of Novametrix Common Stock were then exercisable)
("Novametrix Options") and (z) warrants to purchase, subject to certain
conditions, up to 2,547,514 shares of Novametrix Common Stock ("Novametrix
Warrants"). All outstanding shares of capital stock of Novametrix have been duly
authorized and validly issued and are fully paid and nonassessable and free of
preemptive rights. Except as set forth in this Section, and except for changes
since June 28, 1996 resulting from the exercise of employee stock options,
issuances pursuant to Novametrix' employee stock purchase plan or other
obligations to issue shares of Novametrix Common Stock referred to above
outstanding on such date, there are outstanding as of the date hereof (i) no
shares of capital stock or other voting securities of Novametrix, (ii) no
securities of Novametrix
A-14
<PAGE>
convertible into or exchangeable for shares of capital stock or voting
securities of Novametrix, and (iii) no options, warrants or other rights to
acquire from Novametrix, and no obligation of Novametrix to issue, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of Novametrix (the items in clauses (i), (ii)
and (iii) being referred to collectively as the "Novametrix Securities"). Except
as set forth on Exhibit 4.05 to the Novametrix Disclosure Schedule, there are no
outstanding obligations of Novametrix or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any Novametrix Securities. The shares of Novametrix
Common Stock to be exchanged for Shares in the Merger and the Underlying Shares
have been duly authorized, except for any required approval by Novametrix'
stockholders of the issuance of Novametrix Common Stock in connection with the
Merger, and when issued and delivered in accordance with the terms of this
Agreement, will have been validly issued and will be fully paid and
nonassessable and the issuance thereof is not subject to any preemptive or other
similar right.
SECTION 4.06 SUBSIDIARIES. (a) Each Subsidiary of Novametrix is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation, has all corporate powers and all
governmental licenses, permits, authorizations, consents and approvals required
to carry on its business as now conducted and is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where failure to have such licenses,
permits, authorizations, consents or approvals or to be so qualified would not
have or reasonably be expected to have, individually or in the aggregate, a
Novametrix Material Adverse Effect.
(b) Except as disclosed on Exhibit 4.06(b) to the Novametrix Disclosure
Schedule, all of the outstanding capital stock of each Subsidiary of Novametrix
is owned by Novametrix, directly or indirectly, free and clear of any Lien and
free of any other limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock). There are no
outstanding (i) securities of Novametrix or any of its Subsidiaries convertible
into or exchangeable for shares of capital stock or other voting securities in
any Subsidiary of Novametrix, or (ii) options or other rights to acquire from
Novametrix or any of its Subsidiaries, and no other obligation of Novametrix or
any of its Subsidiaries to issue, any capital stock or voting securities in, or
any securities convertible into or exchangeable for any capital stock or voting
securities in, any Subsidiary of Novametrix (the items in clauses (i) and (ii)
being referred to collectively as the "Novametrix Subsidiary Securities"). There
are no outstanding obligations of Novametrix or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any outstanding Novametrix Subsidiary
Securities.
SECTION 4.07 SEC FILINGS. (a) Novametrix has delivered to the Company (i)
Novametrix's annual report on Form 10-KSB for the fiscal year ended April 28,
1996 (the "Novametrix 10-KSB"), (ii) its current report on Form 8-K dated April
28, 1993, (iii) its proxy or information statements relating to meetings of, or
actions taken without a meeting by Novametrix' stockholders held (or scheduled
to be held) since January 1, 1993, and (iv) all of its other reports,
statements, schedules and registration statements filed with the SEC since
January 1, 1993, and all materials incorporated therein by reference (the
filings referred to in clauses (i) through (iv) above and delivered to the
Company prior to the date hereof being hereinafter referred to as the
"Novametrix SEC Filings").
(b) As of its filing date, each such report or statement filed pursuant to
the Exchange Act complied as to form in all material respects with the
requirements of the Exchange Act and did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading.
(c) Each such registration statement and any amendment thereto filed
pursuant to the Securities Act, as of the date such statement or amendment
became effective, complied as to form in all material respects with the
Securities Act and did not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
SECTION 4.08 FINANCIAL STATEMENTS. The audited consolidated financial
statements of Novametrix and its consolidated Subsidiaries included in the
Novametrix 10-KSB fairly present, in conformity with
A-15
<PAGE>
generally accepted accounting principles applied on a consistent basis (except
as may be indicated in the notes thereto), the consolidated financial position
of Novametrix and its consolidated Subsidiaries as of the dates thereof and
their consolidated results of operations and cash flows for the periods then
ended.
SECTION 4.09 ABSENCE OF CERTAIN CHANGES. Except as contemplated hereby or
as described in any Novametrix SEC Filing or as disclosed on Exhibit 4.09 to the
Novametrix Disclosure Schedule, since April 28, 1996, Novametrix and its
Subsidiaries have conducted their business in all material respects in the
ordinary course consistent with past practices and there has not been:
(a) any event, occurrence or development or state of circumstances or
facts, which affects or relates to Novametrix, which has had or would
reasonably be expected to have a Novametrix Material Adverse Effect;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Novametrix other
than the Novametrix Preferred Stock, or any repurchase, redemption or other
acquisition by Novametrix or any of its Subsidiaries of any outstanding
shares of capital stock or other securities of, or other ownership interests
in, Novametrix or any of its Subsidiaries;
(c) any amendment of any material term of any outstanding security of
Novametrix or any of its Subsidiaries;
(d) any incurrence, assumption or guarantee by Novametrix or any of its
Subsidiaries of any indebtedness for borrowed money other than in the
ordinary course of business and in amounts and on terms consistent with past
practices;
(e) any creation or assumption by Novametrix or any of its Subsidiaries
of any Lien on any material asset other than in the ordinary course of
business consistent with past practices;
(f) any making of any loan, advance or capital contributions to or
investment in any Person other than loans, advances or capital contributions
to or investments in wholly owned Subsidiaries of Novametrix made in the
ordinary course of business consistent with past practices;
(g) any change in any method of accounting or accounting practice by
Novametrix or any of its Subsidiaries, except for any such change required
by reason of a concurrent change in generally accepted accounting principles
or to conform a Subsidiary's accounting policies and practices to those of
Novametrix;
(h) except for contractual obligations existing on the date hereof,
other than in the ordinary course of business consistent with past
practices, any (i) grant of any severance or termination pay to any
director, officer or employee of Novametrix or any of its Subsidiaries, (ii)
entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any
director or officer of Novametrix or any of its Subsidiaries, (iii) increase
in benefits payable under any existing severance or termination pay policies
or employment agreements, (iv) increase in compensation, bonus or other
benefits payable to directors, officers or employees of Novametrix or any of
its Subsidiaries, or (v) acceleration of the exercisability or vesting of
any Novametrix Options or Novametrix Warrants, as the case may be;
(i) any labor dispute, other than individual grievances, which would
have a Novametrix Material Adverse Effect, or any activity or proceeding by
a labor union or representative thereof to organize any employees of
Novametrix or any of its Subsidiaries, which employees were not subject to a
collective bargaining agreement at April 28, 1996 or any lockouts, strikes,
slowdowns, work stoppages or threats thereof by or with respect to such
employees;
(j) any actual or, to Novametrix' knowledge, threatened dispute between
Novametrix or any of its Subsidiaries and any vendor or customer, other than
disputes which would not have or reasonably be expected to have,
individually or in the aggregate, a Novametrix Material Adverse Effect;
A-16
<PAGE>
(k) any actual or, to Novametrix' knowledge, threatened suspension or
cancellation of any governmental license, permit, authorization, consent or
approval, other than those the suspension or cancellation of which would not
have or reasonably be expected to have, individually or in the aggregate, a
Novametrix Material Adverse Effect; or
(l) any change in any Federal or state law, rule or regulation
applicable to Novametrix or any of its Subsidiaries, or in the
interpretation or application thereof, which individually or in the
aggregate has had or would reasonably be expected to have a Novametrix
Material Adverse Effect.
SECTION 4.10 NO UNDISCLOSED MATERIAL LIABILITIES. Except as described in
any Novametrix SEC Filing or on Exhibit 4.10 to the Novametrix Disclosure
Schedule, there are no liabilities of Novametrix or any of its Subsidiaries of
any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, and there is no existing condition, situation or set
of circumstances which, individually or in the aggregate, have or would
reasonably be expected to have a Novametrix Material Adverse Effect, other than:
(i) liabilities incurred in the ordinary course of business consistent
with past practices since April 28, 1996, which in the aggregate are not
material to Novametrix and its Subsidiaries, taken as a whole; and
(ii) liabilities under this Agreement.
SECTION 4.11 LITIGATION. Except as described in the Novametrix 10-KSB or
as disclosed on Exhibit 4.11 to the Novametrix Disclosure Schedule, there is no
action, suit, investigation or proceeding pending against, or to the knowledge
of Novametrix threatened against, Novametrix or any of its Subsidiaries or any
of their respective properties before any court or arbitrator or any
governmental body, agency or official which would have or reasonably be expected
to have, individually or in the aggregate, a Novametrix Material Adverse Effect.
To the best of the knowledge of Novametrix, there is no toxic waste condition or
other pollution condition of any nature, including, without limitation, the
presence of asbestos or other carcinogens, existing at any location leased or
owned by Novametrix or any of its Subsidiaries which could reasonably be
expected to have, individually or in the aggregate, a Novametrix Material
Adverse Effect.
SECTION 4.12 TAXES. (i) Novametrix and each of its Subsidiaries have
timely filed all tax returns, statements, reports and forms required to be filed
with any tax authority when due in accordance with all applicable laws except
where the failure to do so would not have or reasonably be expected to have,
individually or in the aggregate, a Novametrix Material Adverse Effect; (ii) no
deficiency in payment of any taxes for any period has been asserted by any
taxing authority which remains unsettled at the date hereof except for
deficiencies which would not have or reasonably be expected to have,
individually or in the aggregate, a Novametrix Material Adverse Effect; and
(iii) neither Novametrix nor any of its Subsidiaries is liable and it is not
reasonably likely that Novametrix or any of its Subsidiaries will be liable for
any taxes not reserved against in Novametrix' consolidated balance sheet as of
April 28, 1996 included in the Novametrix 10-KSB except those which would not
have or reasonably be expected to have, individually or in the aggregate, a
Novametrix Material Adverse Effect.
SECTION 4.13 ERISA. (a) "Novametrix Employee Plans" shall mean each
"employee benefit plan", as defined in Section 3(3) of ERISA, which (i) is
subject to any provision of ERISA and (ii) is maintained, administered or
contributed to by Novametrix or any affiliate (as defined in Section 3.14(a))
and covers any employee or former employee of Novametrix or any affiliate or
under which Novametrix or any affiliate has any liability. No Novametrix
Employee Plan individually or collectively constitutes a "defined benefit plan"
as defined in Section 3(35) of ERISA.
(b) No Novametrix Employee Plan constitutes a "multi-employer plan", as
defined in Section 3(37) of ERISA, and no Novametrix Employee Plan is maintained
in connection with any trust described in Section 501(c)(9) of the Code. No
Novametrix Employee Plan is subject to Title IV of ERISA. Neither Novametrix nor
any of its affiliates has incurred, nor has reason to expect to incur, any
liability under Title IV of ERISA arising in connection with the termination of,
or complete or partial withdrawal from, any
A-17
<PAGE>
plan previously covered by Title IV of ERISA that would have, or reasonably be
expected to have, individually or in the aggregate, a Novametrix Material
Adverse Effect. Nothing done or omitted to be done and no transaction or holding
of any asset under or in connection with any Novametrix Employee Plan has or
will make Novametrix or any of its Subsidiaries or any officer or director of
Novametrix or any of its Subsidiaries subject to any liability under Title I of
ERISA or liable for any tax pursuant to Section 4975 of the Code that would
have, or reasonably be expected to have, individually or in the aggregate, a
Novametrix Material Adverse Effect.
(c) Except as disclosed on Exhibit 4.13(c) to the Novametrix Disclosure
Schedule and except to the extent it would not have, or reasonably be expected
to have, individually or in the aggregate, a Novametrix Material Adverse Effect,
(i) each Novametrix Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during the
period from its adoption to date, and each trust forming a part thereof is
exempt from tax pursuant to Section 501(a) of the Code, and (ii) each Novametrix
Employee Plan has been maintained in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, final rules and final
regulations, including but not limited to ERISA and the Code, which are
applicable to such Employee Plan.
(d) Except to the extent that it would not have, or reasonably be expected
to have, individually or in the aggregate, a Novametrix Material Adverse Effect,
there is no contract, agreement, plan or arrangement covering any employee or
former employee of Novametrix or any of its Subsidiaries that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible due to Sections 162(m) or 280G of the Code.
(e) Copies or descriptions of Novametrix' Benefit Arrangements have been
furnished to the Company. Exhibit 4.13(e) to the Novametrix Disclosure Schedule
sets forth all outstanding Novametrix Options as of the date hereof, including
the applicable exercise price with respect thereto. Except to the extent that it
would not have, or reasonably be expected to have, individually or in the
aggregate, a Novametrix Material Adverse Effect, each of Novametrix' Benefit
Arrangements has been maintained in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations
that are applicable to such Benefit Arrangement.
(f) Except to the extent it would not have, or reasonably be expected to
have, individually or in the aggregate, a Novametrix Material Adverse Effect,
the transactions contemplated hereby will not result in any liability for
severance pay to any employee or accelerate the exercisability or vesting of any
Novametrix Options, nor will any employee be entitled to any payment by reason
of such transactions or the termination of such employee within a specified time
period after such transactions.
(g) Neither Novametrix nor any of its Subsidiaries provides, nor has any of
them made any current or past commitment to provide, post-retirement health or
medical benefits for retired employees of Novametrix or any of its Subsidiaries.
(h) Except as disclosed on Exhibit 4.13(h) to the Novametrix Disclosure
Schedule and subject to the provisions of Section 4.09(h), there has been no
amendment to, written interpretation or announcement (whether or not written) by
Novametrix or any of its affiliates relating to, or change in employee
participation or coverage under, any Novametrix Employee Plan or Benefit
Arrangement of Novametrix which in the aggregate would increase the per employee
expense of maintaining such Novametrix Employee Plan or Benefit Arrangement of
Novametrix above the level of the expense incurred on a per employee basis in
respect thereof for the six months ended October 29, 1995 except to the extent,
with respect to all employees, as would not have, or reasonably be expected to
have, individually or in the aggregate, a Novametrix Material Adverse Effect.
SECTION 4.14 COMPLIANCE WITH LAWS. Except as described in any Novametrix
SEC Filing, neither Novametrix nor any of its Subsidiaries is in violation of,
or has violated, any applicable provisions of any laws, statutes, ordinances or
regulations other than violations which would not, in the aggregate, reasonably
be expected to have a Novametrix Material Adverse Effect.
A-18
<PAGE>
SECTION 4.15 FINDERS' FEES. Except for Tucker Anthony Incorporated
("Tucker"), there is no investment banker, broker, finder or other intermediary
which has been retained by or is authorized to act on behalf of Novametrix or
any of its Subsidiaries who might be entitled to any fee or commission in
connection with the transactions contemplated by this Agreement. Novametrix has
heretofore furnished to the Company a complete and correct copy of all
agreements between Novametrix and Tucker pursuant to which such firm would be
entitled to any payment relating to the transactions contemplated by this
Agreement.
SECTION 4.16 OPINION OF FINANCIAL ADVISOR. Novametrix has received the
oral opinion of Tucker to the effect that as of the date hereof the Merger
Consideration is fair to Novametrix from a financial point of view, and a copy
of the written opinion to such effect shall be delivered to the Company prior to
August 3, 1996.
SECTION 4.17 VOTE REQUIRED. The affirmative vote of the holders of a
majority of the voting power represented by the shares of Novametrix Common
Stock and Novametrix Preferred Stock (voting together as a single class) voted
at a meeting of stockholders is the only vote of the holders of any class or
series of Novametrix' capital stock necessary to approve this Agreement and the
transactions contemplated hereby.
SECTION 4.18 INTELLECTUAL PROPERTY. Set forth on Exhibit 4.18 to the
Novametrix Disclosure Schedule is a list and brief description of all of the
patents, registered and common law trademarks, service marks, tradenames,
copyrights, licenses and other similar rights of Novametrix and its
Subsidiaries. Novametrix or one of its Subsidiaries, as applicable, owns all
right, title and interest in and to all such proprietary rights. The proprietary
rights listed are all such rights necessary to the conduct of the business of
Novametrix and its Subsidiaries as currently conducted; no adverse claim has
been made and no dispute has arisen with respect to any of the said proprietary
rights; and the operations of the business of Novametrix and its Subsidiaries
and the use by Novametrix or its Subsidiaries of such proprietary rights do not
involve infringement or claimed infringement of any patent, trademark, service
mark, tradename, copyright, license or similar right. Novametrix has taken
reasonable measures to maintain the confidentiality of the processes and
formulae, research and development and other know-how of Novametrix, the value
of which to Novametrix is dependent upon the maintenance of the confidentiality
thereof. Neither Novametrix nor any of its Subsidiaries has licensed or
otherwise permitted the use by any third party of any proprietary information on
terms or in a manner that is reasonably likely to have a Novametrix Material
Adverse Effect.
SECTION 4.19 PERMITS; COMPANY PRODUCTS; REGULATION. (a) Except as
disclosed on Exhibit 4.19(a)(i) to the Novametrix Disclosure Schedule,
Novametrix and each of its Subsidiaries is in possession of all franchises,
grants, authorizations, licenses, permits, easements, variances, exceptions,
consents, certificates, approvals and orders of any governmental body, agency,
official or authority necessary for Novametrix or such Subsidiary, as
applicable, to own, lease and operate its properties or to carry on its business
as it is now being conducted (the "Novametrix Permits"), and no suspension or
cancellation of any of the Novametrix Permits is pending or, to the knowledge of
any of the officers of Novametrix or any of its Subsidiaries, threatened, except
where the failure to have, or the suspension or cancellation of, any of the
Novametrix Permits would not have a Novametrix Material Adverse Effect. A list
of the material Novametrix Permits is set forth on Exhibit 4.19(a)(ii) to the
Novametrix Disclosure Schedule. Except as disclosed on Exhibit 4.19(a)(i) to the
Novametrix Disclosure Schedule, neither Novametrix nor any of its Subsidiaries
is in default under or violation of (i) any law, regulation, judgment,
injunction, order or decree applicable to Novametrix or any of its Subsidiaries
or by which any property or asset of Novametrix or any of its Subsidiaries is
bound or affected, (ii) any of the Novametrix Permits or (iii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Novametrix or any of its Subsidiaries is
a party or by which Novametrix or any of its Subsidiaries or any property or
asset of Novametrix or any of its Subsidiaries is bound or affected, except for
any such defaults or violations that, individually or in the aggregate, would
not have a Novametrix Material Adverse Effect.
A-19
<PAGE>
(b) Except as disclosed on Exhibit 4.19(b) to the Novametrix Disclosure
Schedule and except as would not have a Novametrix Material Adverse Effect,
since April 28, 1996, there have been no written notices, citations or decisions
by any governmental or regulatory body that any product produced, manufactured
or marketed at any time by Novametrix or any of its Subsidiaries (the
"Novametrix Products"), other than a Novametrix Third Party Product (as defined
below), is defective or fails to meet any applicable standards promulgated by
any such governmental or regulatory body, and no officer of Novametrix or any of
its Subsidiaries knows of any such defect or failure. In the case of products
which are produced or manufactured by third parties and are distributed by
Novametrix or any of its Subsidiaries (the "Novametrix Third Party Products"),
to the knowledge of any of the officers of Novametrix or any of its
Subsidiaries, there have been no written notices, citations or decisions by any
governmental or regulatory body that any Novametrix Third Party Product
distributed at any time by Novametrix or any of its Subsidiaries is defective or
fails to meet any applicable standards promulgated by any such governmental or
regulatory body, and none of the officers of Novametrix or any of its
Subsidiaries knows of any such defect or failure. Novametrix and each of its
Subsidiaries has complied with the laws, regulations, policies, procedures and
specifications applicable to Novametrix with respect to the design, manufacture,
labelling, testing and inspection of Novametrix Products in the United States
and the operation of manufacturing facilities in the United States promulgated
by the FDA, and has complied with the laws, regulations, policies, procedures
and specifications applicable to Novametrix or such Subsidiary, as applicable,
in any jurisdiction outside the United States with respect to the design,
manufacture, labelling, testing and inspection of Novametrix Products and the
operation of manufacturing facilities outside of the United States except for
such non-compliance as would not have a Novametrix Material Adverse Effect.
Except as disclosed on Exhibit 4.19(b) to the Novametrix Disclosure Schedule,
since April 28, 1996, there have been no recalls, field notifications or
seizures ordered or, to the knowledge of any of the officers of Novametrix or
any of its Subsidiaries, threatened by any such governmental or regulatory body
with respect to any of the Novametrix Products, other than Novametrix Third
Party Products, and neither Novametrix nor any of its Subsidiaries has
independently engaged in recalls or field notifications. In the case of
Novametrix Third Party Products distributed by Novametrix or any of its
Subsidiaries, neither Novametrix nor any of its Subsidiaries has received any
notices of any recalls, field notifications or seizures ordered or threatened by
any such governmental or regulatory body with respect to any of such Novametrix
Third Party Products, and neither Novametrix nor any of its Subsidiaries has
independently engaged in recalls or field notifications. Except as set forth on
Exhibit 4.19(b) to the Novametrix Disclosure Schedule, neither Novametrix nor
any of its Subsidiaries has received, and to the knowledge of any of the
officers of Novametrix or any of its Subsidiaries, there is no reasonable basis
for, any warning letter or Section 305 notices from the FDA.
(c) Except as set forth on Exhibit 4.19(c)(i) to the Novametrix Disclosure
Schedule, Novametrix or one or more of its Subsidiaries has obtained, in all
countries where Novametrix or such Subsidiary, as applicable, is marketing or
has marketed the Novametrix Products, all applicable licenses, registrations,
approvals, clearances and authorizations required to be obtained by it by local,
state or federal agencies (including the FDA) in such countries regulating the
safety, effectiveness and market clearance of the Novametrix Products in such
countries that are currently marketed by Novametrix or such Subsidiary, as
applicable, except where the failure to obtain such licenses, registrations,
approvals, clearances and authorizations would not have a Novametrix Material
Adverse Effect. Novametrix has made available to the Company all information
relating to the Novametrix Products in the United States, and Exhibit
4.19(c)(ii) to the Novametrix Disclosure Schedule sets forth a list of all
licenses, registrations, approvals, permits and device listings. Exhibit
4.19(c)(iii) to the Novametrix Disclosure Schedule sets forth a description of
all inspections by regulatory authorities, recalls, product actions and audits
of Novametrix Products since April 28, 1996.
SECTION 4.20 RIGHTS AGREEMENT; DELAWARE SECTION 203; CHARTER SUPERMAJORITY
PROVISIONS; WARRANT ANTIDILUTION. (a) The Board of Directors of Novametrix has
taken such action as is necessary to ensure that a Distribution Date (as defined
in the Rights Agreement of Novametrix dated March 14, 1989, as amended (the
"Rights Agreement")) does not occur, that Genstar does not become an Acquiring
Person (as defined in the Rights Agreement) and that the Rights (as defined
therein) do not become exercisable, in each case by reason of this Agreement or
any transaction contemplated by this Agreement.
A-20
<PAGE>
(b) As of the date hereof and pursuant to Section 203(a)(1) of the Delaware
Law, the restrictions on Novametrix and the Merger Subsidiary contained in
Section 203 of the Delaware Law are, and at all times on, prior to or after the
Effective Time such restrictions shall be, inapplicable to the Merger, the other
transactions contemplated by this Agreement and Genstar and its affiliates by
reason of the Merger and the other transactions contemplated by this Agreement.
(c) The Board of Directors of Novametrix has taken such action as is
necessary to ensure that Article Twelfth of the Certificate of Incorporation of
Novametrix shall be inapplicable to the Merger, the other transactions
contemplated by this Agreement and Genstar and its affiliates by reason of the
Merger and the other transactions contemplated by this Agreement.
(d) The Board of Directors of Novametrix has taken such action as is
necessary to ensure that no antidilution adjustments to the Novametrix Warrants
shall occur as a result of the Merger and the other transactions contemplated by
this Agreement, including, without limitation, the issuance of the Rights.
(e) The Board of Directors of Novametrix shall have taken such action as is
necessary to ensure that no "Change in Control" under the Employment Agreement
dated as of June 1, 1988, as amended, between Novametrix and William J.
Lacourciere shall have occurred.
(f) Novametrix has heretofore delivered to the Company a true, complete and
correct copy of the resolutions of the Board of Directors of Novametrix
effectuating Section 4.20(a), (b), (c), (d) and (e).
SECTION 4.21 PROXY STATEMENT. None of the information supplied by
Novametrix for inclusion in the Proxy Statement to be filed by Novametrix with
the SEC, and any amendments or supplements thereto, will, at the time the Proxy
Statement or any amendment or supplement thereto is first mailed to stockholders
of Novametrix, at the time such stockholders vote on adoption of this Agreement
and at the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
ARTICLE V.
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 5.01 CONDUCT OF THE COMPANY. Except as expressly contemplated by
this Agreement or as set forth on Exhibit 5.01 to the Company Disclosure
Schedule, from the date hereof until the Effective Time, the Company and its
Subsidiaries shall conduct their business in the ordinary course consistent with
past practice and shall use their best efforts to preserve intact their business
organizations and relationships with third parties and to keep available the
services of their present officers and employees. Except as otherwise approved
in writing by Novametrix or as expressly contemplated by this Agreement, and
without limiting the generality of the foregoing, from the date hereof until the
Effective Time:
(a) the Company will not adopt or propose any change in its certificate
of incorporation or bylaws;
(b) the Company will not, and will not permit any of its Subsidiaries
to, merge or consolidate with any other Person (other than another wholly
owned Subsidiary) or acquire a substantial amount of equity in or assets of
any other Person;
(c) the Company will not, and will not permit any of its Subsidiaries
to, sell, lease, license or otherwise dispose of any material assets or
property except (i) pursuant to existing contracts or commitments, (ii) in
the ordinary course consistent with past practice or (iii) for transfers
between the Company and/or its Subsidiaries;
(d) the Company will not declare or pay any dividends or make any
distributions on its Shares;
A-21
<PAGE>
(e) the Company will not, and will not permit any of its Subsidiaries
to, (i) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any Company Securities or Company Subsidiary
Securities, other than the issuance of Shares upon the exercise of Company
Options or Company Warrants outstanding on the date hereof, (ii) split,
combine or reclassify any Company Securities or Company Subsidiary
Securities or (iii) except as required or permitted by this Agreement,
repurchase, redeem or otherwise acquire any Company Securities or any
Company Subsidiary Securities;
(f) except as otherwise expressly permitted hereby, the Company will not
make any commitment or enter into any contract or agreement material to the
Company and its Subsidiaries taken as a whole except in the ordinary course
of business consistent with past practice;
(g) the Company will not, and will not permit any of its Subsidiaries
to, (i) enter into any arrangement to provide any severance or termination
pay to any director or officer of the Company or any of its Subsidiaries,
(ii) enter into any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any
director or officer of the Company or any of its Subsidiaries, (iii)
increase the benefits payable under any existing severance or termination
pay policies or employment agreements, (iv) increase the compensation, bonus
or other benefits payable to directors or officers of the Company or any of
its Subsidiaries, or (v) accelerate the exercisability or vesting of any
Company Option or Company Warrant;
(h) the Company will not, and will not permit any of its Subsidiaries
to, agree or commit to do any of the foregoing; or
(i) the Company will not, and will not permit any of its Subsidiaries
to, take or agree or commit to take any action that would make any
representation and warranty of the Company hereunder inaccurate in any
material respect at, or as of any time prior to, the Effective Time.
SECTION 5.02 ACCESS TO INFORMATION. From the date hereof until the
Effective Time, the Company will give Novametrix, its counsel, financial
advisors, auditors and other authorized representatives full access to the
offices, properties, books and records of the Company and its Subsidiaries, will
furnish to Novametrix, its counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information as such Persons may reasonably request and will instruct the
employees, counsel and financial advisors of the Company and its Subsidiaries to
cooperate with Novametrix in its investigation of the business of the Company
and its Subsidiaries; provided that no investigation pursuant to this Section
shall affect any representation or warranty given by the Company to Novametrix
hereunder. All nonpublic information provided to, or obtained by, Novametrix in
connection with the transactions contemplated hereby shall be "Proprietary
Information" of the Company for purposes of the Letter Agreement dated May 10,
1996 (the "Confidentiality Agreement") among Novametrix, Andros and Genstar
Capital LLC, the general partner of Genstar.
SECTION 5.03 OTHER OFFERS. From the date hereof until the termination
hereof, the Company and its Subsidiaries and the officers, directors, employees
or other agents of the Company and its Subsidiaries will not, directly or
indirectly, (i) take any action to solicit, initiate or encourage any Company
Acquisition Proposal (as defined below) or (ii) engage in negotiations with, or
disclose any nonpublic information relating to the Company or any of its
Subsidiaries or afford access to the properties, books or records of the Company
or any of its Subsidiaries to, any Person that may be considering making, or has
made, a Company Acquisition Proposal. The Company shall immediately cease and
cause to be terminated any existing discussions or negotiations with any parties
(other than Novametrix) conducted heretofore with respect to any of the
foregoing. The Company will promptly notify Novametrix after receipt of any
Company Acquisition Proposal or any indication that any Person is considering
making a Company Acquisition Proposal or any request for nonpublic information
relating to the Company or any of its Subsidiaries or for access to the
properties, books or records of the Company or any of its Subsidiaries by any
Person that may be considering making, or has made, a Company Acquisition
Proposal. For purposes of this Agreement, "Company Acquisition Proposal" means
any offer or proposal for, or any indication of interest in, a merger or other
business combination involving the Company or any of its Subsidiaries or the
A-22
<PAGE>
acquisition of any equity interest in, or a substantial portion of the assets
of, the Company or any of its Subsidiaries, other than the transactions
contemplated by this Agreement.
SECTION 5.04 NOTICES OF CERTAIN EVENTS. The Company shall promptly notify
Novametrix of:
(i) any notice or other communication from any Person alleging that the
consent of such Person (or another Person) is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings commenced
or, to the best of its knowledge threatened against, relating to or
involving or otherwise affecting the Company or any of its Subsidiaries
which, if pending on the date of this Agreement, would have been required to
have been disclosed pursuant to Section 3.12 or which relate to the
consummation of the transactions contemplated by this Agreement.
SECTION 5.05 AFFILIATES. To ensure that the issuance of Novametrix Common
Stock in the Merger complies with the Securities Act, prior to the Effective
Time, the Company shall cause to be delivered to Novametrix a list identifying
each person who might at the time of the meeting of the Company's stockholders
be deemed to be an "affiliate" of the Company for purposes of Rule 145 under the
Securities Act (each, a "Securities Act Affiliate"). The Company shall use its
best efforts to obtain from each person who is identified as a possible
Securities Act Affiliate prior to the Effective Time an agreement (a "Securities
Act Affiliate Agreement") providing that such person will not offer to sell,
sell or otherwise dispose of any Novametrix Common Stock issued to such person
in the Merger in violation of the Securities Act.
ARTICLE VI.
COVENANTS OF NOVAMETRIX
Novametrix agrees that:
SECTION 6.01 CONDUCT OF NOVAMETRIX. Except as expressly contemplated by
this Agreement or as set forth on Exhibit 6.01 to the Novametrix Disclosure
Schedule, from the date hereof until the Effective Time, Novametrix and its
Subsidiaries shall conduct their business in the ordinary course consistent with
past practice and shall use their best efforts to preserve intact their business
organizations and relationships with third parties and to keep available the
services of their present officers and employees. Except as otherwise approved
in writing by the Company or as expressly contemplated by this Agreement, and
without limiting the generality of the foregoing, from the date hereof until the
Effective Time:
(a) Novametrix will not adopt or propose any change in its certificate
of incorporation or bylaws;
(b) Novametrix will not, and will not permit any of its Subsidiaries to,
merge or consolidate with any other Person (other than another wholly owned
Subsidiary) or acquire a substantial amount of equity in or assets of any
other Person;
(c) Novametrix will not, and will not permit any of its Subsidiaries to,
sell, lease, license or otherwise dispose of any material assets or property
except (i) pursuant to existing contracts or commitments, (ii) in the
ordinary course consistent with past practice or (iii) for transfers between
Novametrix and/or its Subsidiaries;
(d) Novametrix will not declare or pay any dividends or make any
distributions on Novametrix Common Stock; provided, however, that the
foregoing shall not prohibit any dividends being declared or paid which are
scheduled to accrue on the Novametrix Preferred Stock;
(e) Novametrix will not, and will not permit any of its Subsidiaries to,
(i) issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any Novametrix Securities or Novametrix
A-23
<PAGE>
Subsidiary Securities, other than the issuance of shares of Novametrix
Common Stock upon the exercise of Novametrix Options or Novametrix Warrants
outstanding on the date hereof, upon the conversion of the Novametrix
Preferred Stock or pursuant to any currently existing stock option or
employee stock purchase plans or (ii) split, combine or reclassify any
Novametrix Securities or Novametrix Subsidiary Securities;
(f) except as otherwise expressly permitted hereby, Novametrix will not
make any commitment or enter into any contract or agreement material to
Novametrix and its Subsidiaries taken as a whole except in the ordinary
course of business consistent with past practice;
(g) Novametrix will not, and will not permit any of its Subsidiaries to,
(i) enter into any arrangement to provide any severance or termination pay
to any director or officer of Novametrix or any of its Subsidiaries, (ii)
enter into any employment, deferred compensation or other similar agreement
(or any amendment to any such existing agreement) with any director or
officer of Novametrix or any of its Subsidiaries, (iii) increase the
benefits payable under any existing severance or termination pay policies or
employment agreements, (iv) increase the compensation, bonus or other
benefits payable to directors or officers of Novametrix or any of its
Subsidiaries, or (v) accelerate the exercisability or vesting of any
Novametrix Option;
(h) Novametrix will not, and will not permit any of its Subsidiaries to,
agree or commit to do any of the foregoing; or
(i) Novametrix will not, and will not permit any of its Subsidiaries to,
take or agree or commit to take any action that would make any
representation and warranty of Novametrix hereunder inaccurate in any
material respect at, or as of any time prior to, the Effective Time.
SECTION 6.02 ACCESS TO INFORMATION. From the date hereof until the
Effective Time, Novametrix will give the Company, its counsel, financial
advisors, auditors and other authorized representatives full access to the
offices, properties, books and records of Novametrix and its Subsidiaries, will
furnish to the Company, its counsel, financial advisors, auditors and other
authorized representatives such financial and operating data and other
information as such Persons may reasonably request and will instruct the
employees, counsel and financial advisors of Novametrix and its Subsidiaries to
cooperate with the Company in its investigation of the business of Novametrix
and its Subsidiaries; provided that no investigation pursuant to this Section
shall affect any representation or warranty given by Novametrix to the Company
hereunder. All nonpublic information provided to, or obtained by, the Company in
connection with the transactions contemplated hereby shall be "Proprietary
Information" of Novametrix for purposes of the Confidentiality Agreement.
SECTION 6.03 OTHER OFFERS. (a) From the date hereof until the termination
hereof, Novametrix and its Subsidiaries and the officers, directors, employees
or other agents of Novametrix and its Subsidiaries will not, directly or
indirectly, (i) take any action to solicit, initiate or encourage any Novametrix
Acquisition Proposal (as defined below) or (ii) engage in negotiations with, or
disclose any nonpublic information relating to Novametrix or any of its
Subsidiaries or afford access to the properties, books or records of Novametrix
or any of its Subsidiaries to, any Person that may be considering making, or has
made, a Novametrix Acquisition Proposal. Nothing contained in this Section
6.03(a) or any other provision of this Agreement shall prevent the Board of
Directors of Novametrix, after receiving an opinion of outside counsel to the
effect that the Board is required to do so in order to discharge properly its
fiduciary duties, from considering, negotiating, approving and recommending to
the stockholders of Novametrix an unsolicited bona fide written Novametrix
Acquisition Proposal which the Board determines in good faith (after
consultation with its financial advisors) is made by a person financially
capable of consummating such Novametrix Acquisition Proposal (any such
Novametrix Acquisition Proposal being referred to herein as a "Superior
Novametrix Proposal"). For purposes of this Agreement, "Novametrix Acquisition
Proposal" means any offer or proposal for, or any indication of interest in, a
merger or other business combination involving Novametrix or any of its
Subsidiaries or the acquisition of any equity interest in, or a substantial
portion of the assets of, Novametrix or any of its Subsidiaries, other than the
transactions contemplated by this Agreement.
A-24
<PAGE>
(b) Novametrix will promptly notify the Company after receipt of any
Novametrix Acquisition Proposal or any indication that any Person is considering
making a Novametrix Acquisition Proposal or any request for nonpublic
information relating to Novametrix or any of its Subsidiaries or for access to
the properties, books or records of Novametrix or any of its Subsidiaries by any
Person that may be considering making, or has made, a Novametrix Acquisition
Proposal. Novametrix shall immediately cease and cause to be terminated any
existing discussions or negotiations with any parties (other than the Company)
conducted heretofore with respect to any of the foregoing.
(c) If the Board of Directors of Novametrix receives a request for material
nonpublic information by a party who makes a Superior Novametrix Proposal, then,
and only in such case, Novametrix may, subject to the execution of a
confidentiality agreement substantially similar to that then in effect between
the Company and Novametrix, provide such party with access to information
regarding Novametrix. Novametrix agrees not to release any third party from any
confidentiality or standstill agreement to which Novametrix is a party.
SECTION 6.04 OBLIGATIONS OF MERGER SUBSIDIARY. Novametrix will take all
action necessary to cause the Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Merger on the terms and conditions set
forth in this Agreement.
SECTION 6.05 DIRECTOR AND OFFICER LIABILITY. From and after the Effective
Time, (a) Novametrix shall indemnify, defend and hold harmless the present and
former officers and directors of the Company and its Subsidiaries against all
losses, claims, damages and liability in respect of acts or omissions occurring
at or prior to the Effective Time and (b) the Surviving Corporation shall
indemnify, defend and hold harmless to the fullest extent permitted by law the
present and former officers and directors of the Company and its Subsidiaries
against all losses, claims, damages and liability in respect of acts or
omissions occurring at or prior to the Effective Time. Novametrix shall cause
the Surviving Corporation (and its successors) to establish and maintain
provisions in its certificate of incorporation and by-laws concerning the
indemnification and exoneration of the Company's former and present officers,
directors, employees and agents that are no less favorable to those persons than
the provisions of the Company's certificate of incorporation and by-laws in
effect on the date hereof.
SECTION 6.06 INCLUSION IN NASDAQ NATIONAL MARKET. Novametrix shall use its
reasonable best efforts to cause the shares of Novametrix Common Stock to be
issued in the Merger (including the Underlying Shares) to be approved for
inclusion in the Nasdaq National Market subject to official notice of issuance,
prior to the Effective Time.
SECTION 6.07 NOTICE OF CERTAIN EVENTS. Each of Novametrix and the Merger
Subsidiary shall promptly notify the Company of:
(i) any notice or other communication from any Person alleging that the
consent of such Person (or another Person) is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(iii) any actions, suits, claims, investigations or proceedings commenced
or, to the best of its knowledge threatened against, relating to or
involving or otherwise affecting it or any of its Subsidiaries which, if
pending on the date of this Agreement, would have been required to have been
disclosed pursuant to Section 4.11 or which relate to the consummation of
the transactions contemplated by this Agreement.
A-25
<PAGE>
ARTICLE VII.
COVENANTS OF NOVAMETRIX AND THE COMPANY
The parties hereto agree that:
SECTION 7.01 BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each party will use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate the transactions
contemplated by this Agreement including, without limitation, obtaining all
material consents, waivers and approvals required in connection with the
authorization, execution and delivery of this Agreement by the parties and the
consummation by the parties of the Merger and the other transactions
contemplated by this Agreement and, if required, Novametrix acting as guarantor
or co-borrower under Andros' credit facilities.
SECTION 7.02 CERTAIN FILINGS. The Company and Novametrix shall cooperate
with one another (a) in connection with the preparation of the Proxy Statement,
and (b) in determining whether any action by or in respect of, or filing with,
any governmental body, agency or official, or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (c) in seeking any such actions,
consents, approvals or waivers or making any such filings, furnishing
information required in connection therewith or with the Proxy Statement and
seeking timely to obtain any such actions, consents, approvals or waivers.
SECTION 7.03 PUBLIC ANNOUNCEMENTS. Novametrix and the Company will consult
with each other before issuing any press release or making any public statement
with respect to this Agreement and the transactions contemplated hereby and,
except as may be required by applicable law or any listing agreement with any
national securities exchange or interdealer quotation system upon the advice of
counsel (in which case only reasonable efforts to consult with the other party
are required), will not issue any such press release or make any such public
statement without the prior consent of the other party, which consent shall not
be unreasonably withheld or delayed.
SECTION 7.04 FURTHER ASSURANCES. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or the Merger
Subsidiary, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or the Merger Subsidiary, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Corporation any and all right, title and interest in, to and under any
of the rights, properties or assets of the Company acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger.
SECTION 7.05 STOCKHOLDER MEETING. Novametrix shall cause a meeting of its
stockholders (the "Stockholder Meeting") to be duly called and held, or action
to be taken by written consent without a Stockholder Meeting, as soon as
reasonably practicable for the purpose of voting on the approval and adoption of
this Agreement and the Merger. The Directors of Novametrix shall, unless any of
such respective Directors determines in good faith after consultation with and
based upon a written opinion of outside legal counsel that they are otherwise
required in accordance with their fiduciary duties, recommend approval and
adoption of this Agreement and the Merger by Novametrix' stockholders. In
connection with such meetings, Novametrix will use its best efforts to obtain
the necessary approvals by its stockholders of this Agreement, the transactions
contemplated hereby and such other matters as are contemplated by the terms of
this Agreement or required by Delaware Law, and will otherwise comply with all
legal requirements applicable to such meetings.
SECTION 7.06 PREPARATION OF THE PROXY STATEMENT. Novametrix and the
Company shall promptly prepare and Novametrix shall file with the SEC a
preliminary version of the Proxy Statement and will use their best efforts to
respond to the comments of the SEC in connection therewith and to furnish all
information required to prepare the definitive Proxy Statement. Novametrix shall
also take any action (other than qualifying to do business in any jurisdiction
in which it is not now so qualified or filing a general consent to service of
process in any jurisdiction) required to be taken under any applicable state
A-26
<PAGE>
securities laws in connection with the issuance of the Novametrix Common Stock
in the Merger and the Underlying Shares and the Company shall furnish all
information concerning the Company and the holders of Shares as may be
reasonably requested in connection with any such action. Novametrix will cause
the Proxy Statement to be mailed to its stockholders, and if necessary, after
the definitive Proxy Statement shall have been mailed, promptly circulate
amended, supplemented or supplemental proxy materials and, if required in
connection therewith, resolicit proxies.
ARTICLE VIII.
CONDITIONS TO THE MERGER
SECTION 8.01 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations
of the Company, Novametrix and the Merger Subsidiary to consummate the Merger
are subject to the satisfaction of the following conditions:
(i) any applicable waiting period under the HSR Act relating to the
Merger shall have expired;
(ii) no provision of any applicable domestic law or regulation shall be
enacted, entered, enforced or deemed applicable to the Merger, which makes
the consummation of the Merger illegal, and no judgment, injunction, order
or decree of a court of competent jurisdiction restraining or prohibiting
the consummation of the Merger shall be in effect;
(iii) there shall have been approved, by the requisite vote of
Novametrix' stockholders, the issuance of Novametrix Common Stock, including
the Underlying Shares, in connection with the Merger in accordance with the
rules of the Nasdaq National Market;
(iv) Novametrix and the Company shall have received an opinion from
Haythe & Curley, counsel to Novametrix, and from Shearman & Sterling,
counsel to the Company, based upon certain factual representations of the
Company, the Company's equityholders, Novametrix and the Merger Subsidiary
reasonably requested by such counsel, dated the date of the Effective Time,
to the effect that the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code, in form and substance reasonably satisfactory to the Company and
Novametrix; and
(v) The debt of Novametrix and the Company and their respective
Subsidiaries with respect to which consents of the lenders thereunder are
required to consummate the Merger shall have been modified, amended,
restructured, refinanced or repaid on terms reasonably satisfactory to the
boards of directors of both Novametrix and the Company such that (i) there
shall be available to Novametrix and the Company an aggregate of at least
$4,000,000 of unused borrowing availability at the Effective Time in excess
of any amounts necessary to pay expenses of Novametrix and the Company
incurred in connection with the Merger and the other transactions
contemplated hereby and (ii) without the consent of Novametrix and the
Company, the aggregate non-revolving funded indebtedness of Novametrix and
the Company shall not exceed the amount thereof as of the date hereof, and
such debt shall contain such modifications to existing financial and other
covenants as shall be reasonably satisfactory to such boards of directors,
which may include Novametrix acting as guarantor or co-borrower under
Andros' credit facilities.
SECTION 8.02 CONDITIONS TO THE OBLIGATIONS OF NOVAMETRIX AND MERGER
SUBSIDIARY. The obligations of Novametrix and the Merger Subsidiary to
consummate the Merger are subject to the satisfaction of the following further
conditions:
(i) the Company shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, the representations and warranties of the Company contained
in this Agreement shall be true in all respects at and as of the Effective
Time as if made at and as of such time except for (A) changes contemplated
by this Agreement, (B) those representations and warranties that address
matters only as of a particular date, provided that such representations and
warranties are true and correct as of such date, (C) changes in any law or
A-27
<PAGE>
regulation applicable to the Company or any of its Subsidiaries or by which
any property or asset of the Company or any of its Subsidiaries is bound,
(D) changes attributable to customers delaying orders or purchases pending
completion of the Merger, (E) changes arising out of general economic
conditions or conditions generally affecting the medical device or
automobile exhaust gas analyzer markets and (F) where the failure to be so
true and correct would not have a Company Material Adverse Effect, and
Novametrix shall have received a certificate signed by an executive officer
of the Company to the foregoing effect;
(ii) Novametrix shall have received a copy of the resolutions of the
Board of Directors of the Company authorizing the Merger, which copy shall
be certified by an executive officer of the Company;
(iii) the consents set forth on Exhibit 8.02(iii) to the Novametrix
Disclosure Schedule to the Merger and the transactions contemplated by this
Agreement shall have been obtained and be in effect at the Effective Time;
(iv) Novametrix shall have received consolidated financial statements of
the Company as of July 28, 1996 and for the year then ended, prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with the Andros SEC Filings and in conformity with Regulation S-X
of the Securities Act, audited by Coopers & Lybrand L.L.C., independent
certified public accountants for the Company; and
(v) Genstar shall have entered into a Voting Agreement in the form of
Exhibit A hereto (the "Voting Agreement").
SECTION 8.03 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate the Merger are subject to the satisfaction of the
following further conditions:
(i) Novametrix and the Merger Subsidiary shall have performed in all
material respects all of their respective obligations hereunder required to
be performed by them at or prior to the Effective Time, the representations
and warranties of Novametrix and the Merger Subsidiary contained in this
Agreement shall be true in all respects at and as of the Effective Time as
if made at and as of such time except for (A) changes contemplated by this
Agreement, (B) those representations and warranties that address matters
only as of a particular date, provided that such representations and
warranties are true and correct as of such date, (C) changes in any law or
regulation applicable to Novametrix or any of its Subsidiaries or by which
any property or asset of Novametrix or any of its Subsidiaries is bound, (D)
changes attributable to customers delaying orders or purchases pending
completion of the Merger, (E) changes arising out of general economic
conditions or conditions generally affecting the medical device market and
(F) where the failure to be so true and correct would not have a Novametrix
Material Adverse Effect, and the Company shall have received a certificate
signed by an executive officer of each of Novametrix and the Merger
Subsidiary to the foregoing effect;
(ii) the Company shall have received a copy of the resolutions of the
Board of Directors of Novametrix authorizing the Merger, which copy shall be
certified by an executive officer of Novametrix;
(iii) Novametrix shall have entered into the Voting Agreement;
(iv) Novametrix shall have entered into a Registration Rights Agreement
in the form of Exhibit B hereto (the "Registration Rights Agreement"); and
(v) the consents set forth on Exhibit 8.03(iv) to the Company Disclosure
Schedule to the Merger and the transactions contemplated by this Agreement
shall have been obtained and be in effect at the Effective Time.
A-28
<PAGE>
ARTICLE IX.
TERMINATION
SECTION 9.01 TERMINATION. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time (notwithstanding any
approval of this Agreement by the stockholders of the Company or Novametrix);
(i) by mutual written consent of the Company and Novametrix;
(ii) by either the Company or Novametrix, if the Merger has not been
consummated by March 31, 1997 (provided that the right to terminate this
Agreement under this clause shall not be available to any party whose
failure to fulfill any of its obligations under this Agreement has been the
cause of or resulted in the failure to consummate the Merger by such date);
(iii) by either the Company or Novametrix, if there shall be any
applicable domestic law, rule or regulation that makes consummation of the
Merger illegal or otherwise prohibited or if any judgment, injunction, order
or decree of a court of competent jurisdiction shall restrain or prohibit
the consummation of the Merger, and such judgment, injunction, order or
decree shall become final and nonappealable;
(iv) by either the Company or Novametrix, if the stockholder approval
referred to in Section 8.01(iii) shall not have been obtained by reason of
the failure to obtain the requisite vote upon a vote at a duly held meeting
of stockholders or at any adjournment thereof;
(v) by the Company if the Board of Directors of Novametrix or any
committee thereof with the power to do so shall have withdrawn or modified
in a manner adverse to the Company its approval or recommendation of this
Agreement, the Merger or any other transaction contemplated hereby or shall
have recommended, taken a neutral position with respect to, been unable to
take a position with respect to or failed to reject another merger,
consolidation or business combination with, or acquisition of, Novametrix or
its assets or another tender or exchange offer for shares of Novametrix
Common Stock, or shall have resolved to do any of the foregoing;
(vi) by either the Company or Novametrix (the "Terminating Party") if
(x) there has been a breach by the other party of any representation or
warranty contained in this Agreement which would have or would be reasonably
likely to have a Novametrix Material Adverse Effect or Company Material
Adverse Effect, as the case may be, or (y) there has been a material breach
of any of the covenants or agreements set forth in this Agreement on the
part of the other party, which breach is not curable or, if curable, is not
cured within 30 days after written notice of such breach is given by the
Terminating Party to the other party; or
(vii) by the Company if it shall have been disclosed or the Company shall
have otherwise learned that ownership of an aggregate of 50% or more of the
then outstanding shares of Novametrix Common Stock has been acquired by any
person and such person's affiliates, other than Genstar or its affiliates.
SECTION 9.02 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 9.01, this Agreement shall become void and of no effect with
no liability on the part of any party hereto, except that (a) the agreements
contained in Section 9.03, the last sentence of Section 5.02 and the last
sentence of Section 6.02 shall survive the termination hereof, and (b) nothing
herein shall relieve any party hereto from liability for any willful breaches
hereof.
SECTION 9.03 FEES AND EXPENSES. (a) The Company shall pay Novametrix a fee
of $3,000,000 (the "Novametrix Fee"), plus actual, documented out-of-pocket
expenses of Novametrix and its affiliates relating to the transactions
contemplated by this Agreement (including, but not limited to, reasonable fees
and expenses payable to Novametrix' counsel, accountants, financial advisors,
consultants, banks, other financial institutions and other persons and their
respective agents and counsel) (the "Novametrix
A-29
<PAGE>
Expenses"), upon termination of this Agreement by Novametrix pursuant to Section
9.01(vi) due to a breach by the Company of any of its covenants or agreements
set forth in Section 5.03.
(b) Novametrix shall pay the Company a fee of $3,000,000 (the "Company Fee"
and, together with the Novametrix Fee, the "Fees" ), plus actual, documented
out-of-pocket expenses of the Company and its affiliates relating to the
transactions contemplated by this Agreement (including, but not limited to,
reasonable fees and expenses payable to the Company's counsel, accountants,
financial advisors, consultants, banks, other financial institutions and other
persons and their respective agents and counsel) (the "Company Expenses" and,
together with the Novametrix Expenses, the "Expenses"), upon the earlier to
occur of the following events:
(i) this Agreement is terminated by the Company pursuant to Section
9.01(v) or Section 9.01(vii);
(ii) this Agreement is terminated by the Company pursuant to Section
9.01(vi) due to a breach by Novametrix of any of its covenants or agreements
set forth in Section 6.03; or
(iii) this Agreement is terminated by Novametrix or the Company pursuant
to Section 9.01(iv) as a result of a failure to obtain the requisite
Novametrix stockholder approval if, at the time of the taking of the vote
for such approval, or any adjournment thereof, there shall have been
publicly announced, and not withdrawn, a proxy contest, tender offer,
exchange offer, merger or other Novametrix Acquisition Proposal (the
"Pre-Termination Transaction"), and, within 12 months of such vote,
Novametrix shall enter into, or be the subject of, a transaction which would
qualify as a transaction under the definition of "Novametrix Acquisition
Proposal" or any transaction wherein a person or group of persons acquires
50% or more of the outstanding voting securities of the Company (inclusive
of voting rights contingent on conversion), in any such case with the same
persons, or affiliates of the persons, who shall have proposed the
Pre-Termination Transaction (any such transaction being a "Post-Termination
Transaction").
(c) The Fees shall be paid within one business day after the first to occur
of the events described in Section 9.03(a), (b)(i) or (b)(ii), or Novametrix'
entering into or becoming the subject of a Post-Termination Transaction.
(d) In the event that a party shall fail to pay a Fee or any Expenses when
due, the term Expenses shall be deemed to include the costs and expenses
actually incurred by the other party and its respective stockholders and
affiliates (including, without limitation, reasonable fees and expenses of
counsel) in connection with the collection under and enforcement of this Section
9.03.
(e) Except as set forth in this Section 9.03, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not any
such transaction is consummated.
ARTICLE X.
MISCELLANEOUS
SECTION 10.01 NOTICES. All notices, requests and other communications to
any party hereunder shall be in writing (including telecopy, telex or similar
writing) and shall be given,
if to Novametrix or the Merger Subsidiary, to:
One Barnes Industrial Park Road
Wallingford, Connecticut 06482
Telephone: (203) 265-7701
Telecopy: (203) 269-0189
Attention: President
A-30
<PAGE>
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Telephone: (212) 880-6000
Telecopy: (212) 682-0200
Attention: Andrew J. Beck, Esq.
if to the Company to:
Metro Tower, Suite 1170
950 Tower Lane
Foster City, California 94404
Telephone: (415) 280-2350
Telecopy: (415) 286-2383
Attention: President
with a copy to:
Shearman & Sterling
555 California Street
San Francisco, California 94104
Telephone: (415) 616-1100
Telecopy: (415) 616-1199
Attention: Michael J. Kennedy, Esq.
or such other address or telex or telecopy number as such party may hereafter
specify for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective when delivered at the address
specified in this Section.
SECTION 10.02 AMENDMENTS; NO WAIVERS. (a) Any provision of this Agreement
may be amended or waived prior to the Effective Time if, and only if, such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Company, Novametrix and the Merger Subsidiary or, in the case of a waiver,
by the party against whom the waiver is to be effective; provided that (i) any
waiver or amendment shall be effective against a party only if the Board of
Directors of such party approves such waiver or amendment and only such Board of
Directors can take actions on behalf of that party and (ii) after the adoption
of this Agreement by the stockholders of the Company, no such amendment or
waiver shall, without the further approval of such stockholders and each party's
Board of Directors, alter or change (x) the amount or kind of consideration to
be received in exchange for any shares of capital stock of the Company, (y) any
term of the certificate of incorporation of the Surviving Corporation or (z) any
of the terms or conditions of this Agreement if such alteration or change would
adversely affect the holders of any shares of capital stock of the Company.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 10.03 SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto.
SECTION 10.04 GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the law of the State of Delaware applicable in
the case of agreements made and to be performed entirely within such State.
A-31
<PAGE>
SECTION 10.05 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
SECTION 10.06 ENTIRE AGREEMENT. This Agreement, the Registration Rights
Agreement and the Confidentiality Agreement constitute the entire agreement
between the parties with respect to the subject matter hereof and supersede all
prior agreements, understandings and negotiations, both written and oral,
between the parties with respect to the subject matter of this Agreement. No
representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by either party hereto. Neither
this Agreement nor any provision hereof is intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder except for the
provisions of Section 6.05, which are intended for the benefit of the Company's
former and present officers, directors, employees and agents and the provisions
of Article I, which are intended for the benefit of the Company's stockholders,
including holders of Equity Units, Company Options, and Company Warrants.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.
ANDROS HOLDINGS INC.
By: /s/ Jean-Pierre L. Conte
--------------------------------------
Title: Vice President and Treasurer
By: /s/ Daniel J. Boverman
--------------------------------------
Title: Vice President and Secretary
NOVAMETRIX MEDICAL SYSTEMS INC.
By: /s/ William J. Lacourciere
--------------------------------------
Title: President
NOVAMETRIX ACQUISITION CORP.
By: /s/ William J. Lacourciere
--------------------------------------
Title: President
A-32
<PAGE>
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 1 dated as of October 18, 1996, to the AGREEMENT AND PLAN OF
MERGER dated as of July 29, 1996, (the "Merger Agreement") among Andros Holdings
Inc., a Delaware corporation (the "Company"), Novametrix Medical Systems Inc., a
Delaware corporation ("Novametrix"), and Novametrix Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of Novametrix ("Merger
Subsidiary").
WHEREAS, the Company, Novametrix and Merger Subsidiary have entered into the
Merger Agreement; and
WHEREAS, the Company, Novametrix and Merger Subsidiary desire, through this
Amendment No. 1, to amend the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, the parties hereto agree as follows:
1. Section 1.02(b) of the Merger Agreement is hereby amended by deleting
the word "and" at the end of such Section.
2. Section 1.02(c) of the Merger Agreement is hereby amended by replacing
the period at the end of such Section with "; and", by deleting subsection
1.02(c)(i)(x) of such Section in its entirety and by substituting in lieu
thereof the following:
"(x) .6129032 (such number being hereinafter referred to as the "Base
Number" and such number, as it may be adjusted pursuant to Section
1.02(d), being hereinafter referred to as the "Adjusted Base Number")
multiplied by the number of shares of Novametrix Common Stock
outstanding immediately prior to the Effective Time (assuming
conversion of all then outstanding shares of preferred stock, $1.00
par value (the "Novametrix Preferred Stock"), of Novametrix) divided
by ..."
3. A new Section 1.02(d) is hereby inserted in the Merger Agreement to read
as follows:
"(d) in the event that either (x) the Net Revenues of the Company (as
defined below) for the fiscal year ending May 3, 1998 ("FY1998")
shall exceed $48,900,000 or (y) the EBITDA of Novametrix (as defined
below) for FY1998 shall exceed $16,300,000, each holder of Shares
outstanding immediately prior to the Effective Time shall be entitled
to receive for each Share so held a number of additional shares of
Novametrix Common Stock (the "Earn-Out Shares") computed by
subtracting (x) the Exchange Number determined by using the Base
Number from (y) the Exchange Number determined by using the Adjusted
Base Number. The Adjusted Base Number shall be a number, calculated
to seven decimal places, equal to a fraction (I) the numerator of
which is 38% plus the Adjustment Factor (as defined below) and (II)
the denominator of which is 62% minus the Adjustment Factor. The
Adjustment Factor shall be equal to 1% multiplied by the greater of
(x) the quotient of (A) the amount by which the Net Revenues of the
Company for FY1998 exceed $48,900,000 divided by (B) $1,700,000 and
(y) the quotient of (C) the amount by which the EBITDA of Novametrix
for FY1998 exceeds $16,300,000 divided by (D) $660,000, but in no
event shall the Adjusted Base Number be greater than .7543860.
The Net Revenues of the Company shall be determined in accordance
with generally accepted accounting principles and shall be derived
from the audited consolidated financial statements of the Company for
FY1998. For purposes of determining the Net Revenues of the Company,
any net revenues of businesses acquired by the Company subsequent to
the date hereof shall be eliminated. The EBITDA of Novametrix shall
be determined from the audited consolidated statement of income of
Novametrix for FY1998 and shall be defined as
A-33
<PAGE>
net revenues minus the sum of cost of products sold, research and
development expense and selling, general and administrative expense
plus depreciation and amortization expense to the extent that these
items are included in cost of products sold, research and product
development expense and selling, general and administrative expense.
The EBITDA of Novametrix shall be adjusted to eliminate the EBITDA
resulting from any businesses acquired by Novametrix subsequent to
the date hereof, compensation expense attributable to the exercise of
stock options, gains or losses on the sale or disposition of
substantial assets or liabilities and any restructuring or other
unusual charges or costs incurred by Novametrix during FY1998. In the
event that at any time prior to the end of FY1998 all or a
substantial portion of the assets and business of the Company or
Novametrix shall have been transferred to another entity or entities,
then prior to such transfer the Board of Directors of Novametrix
shall determine the amount of the allocable portion of the Net
Revenues of the Company and EBITDA of Novametrix that shall be
(utilizing the historical period to date net revenues and EBITDA and
budgeted and or forecasted future period revenues and EBITDA
attributable to such assets or business) attributable to such assets
and business during FY1998, and the amount so determined by the Board
shall be included in the Net Revenues of the Company and EBITDA of
Novametrix for FY1998 for purposes of determining the Adjusted Base
Number. In the event of (i) a consolidation or merger of Novametrix
with or into another corporation in which Novametrix is not the
surviving corporation, or (ii) a merger in which Novametrix is the
surviving corporation but the shares of Novametrix's capital stock
outstanding immediately prior to the merger are converted by virtue
of the merger into other property, whether in the form of securities,
cash or otherwise, or (iii) any sale of all or substantially all of
Novametrix' assets to another corporation (each of the events
described in clauses (i), (ii) or (iii) above being a "Subsequent
Combination"), then, as a condition of such Subsequent Combination,
lawful and adequate provision will be made whereby each holder of the
right to receive Earn-Out Shares will thereafter have the contingent
right to receive on the Adjustment Date (as hereinafter defined) the
kind of stock and other securities and property (including, without
limitation, cash) paid in connection with the Subsequent Combination
which, based upon the fair market value of such stock and other
securities and property (including, without limitation, cash) on the
Adjustment Date, would have a value equal to the portion of such
Earn-Out Shares which would have been paid prior to the Subsequent
Combination."
4. A new Section 1.03(g) is hereby inserted in the Merger Agreement to read
as follows:
"(g) If Novametrix shall become obligated to issue Earn-Out Shares
pursuant to Section 1.02(d), Novametrix shall deliver, or arrange to
have delivered, within 10 business days after it shall have received
its audited consolidated financial statements for FY1998 from its
independent public accountants (the date of such delivery is
hereinafter referred to as the "Adjustment Date"), certificates(s)
representing the number of Earn-Out Shares issuable to each holder
(an "exchanging holder") of Shares as of the Effective Date that
exchanged such Shares for shares of Novametrix Common Stock (and cash
in lieu of fractional shares and Rights) pursuant to Section 1.03(a)
registered in the name of the person to whom such shares of
Novametrix Common Stock (and cash in lieu of fractional shares) and
Rights were issued at the address of such person as it appears on the
records of Novametrix. Novametrix shall not issue fractional Earn-Out
Shares to any exchanging holder. The number of Earn-Out Shares that
each exchanging holder shall be entitled to receive shall be rounded
down to the nearest whole share. Novametrix has authorized the
issuance of and will hold in reserve the Earn-Out Shares issuable
pursuant to this Section 1.03(g) and Sections 1.04(e) and 1.06(f)."
5. A new Section 1.04(e) is hereby inserted in the Merger Agreement to read
as follows:
"(e) In the event that the holder (an "exercising holder") of any Company
Option or Company Warrant shall exercise (in whole or in part) such
Company Option or Company Warrant prior to the Adjustment Date and an
Adjusted Base Number is subsequently in effect
A-34
<PAGE>
pursuant to Section 1.02(d), on the Adjustment Date Novametrix shall
issue to such exercising holder a number of Earn-Out Shares (each
rounded down to the nearest whole share) equal to the difference
between (x) the number of shares of Novametrix Common Stock which
would have been issued to such exercising holder had such Company
Option or Company Warrant (or portion thereof), as applicable, been
exercised after such Adjusted Base Number had been in effect and (y)
the number of shares of Novametrix Common Stock actually issued upon
the exercise of such Company Option or Company Warrant (or portion
thereof), as applicable."
6. Section 1.06(c) of the Merger Agreement is hereby amended by deleting
subsection 1.06(c)(c)(i) of such Section in its entirety, and by substituting in
lieu thereof the following:
"(i) the Base Number (or if there shall be an Adjusted Base Number in
effect, the Adjusted Base Number) multiplied by the number of shares
of Novametrix Common Stock issued by Novametrix pursuant to warrants
or options to acquire shares of Novametrix Common Stock outstanding
immediately prior to the Effective Time (but excluding any such
shares issued upon conversion of the Novametrix Preferred Stock) and
..."
7. A new Section 1.06(f) is hereby inserted in the Merger Agreement to read
as follows:
"(f) In the event that shares of Novametrix Common Stock are issued to
the holders of Rights with respect to one or more Antidilution Events
prior to the Adjustment Date and an Adjusted Base Number is
subsequently in effect pursuant to Section 1.02(d), on the Adjustment
Date Novametrix shall issue to each holder of Rights a number of
Earn-Out Shares (rounded down to the nearest whole share) equal to
the difference between (x) the aggregate number of shares of
Novametrix Common Stock which would have been issued to such holder
had the Adjusted Base Number been in effect with respect to all
Antidilution Events occurring prior to the Adjustment Date and (y)
the aggregate number of shares of Novametrix Common Stock actually
issued to such holder with respect to all such Antidilution Events."
8. The parties hereby agree that the matters set forth in the disclosure
letter delivered by the Company to Novametrix simultaneously with the execution
and delivery hereof shall not be deemed to be breaches of the representations
and warranties of the Company contained in the Merger Agreement, and,
accordingly, the existence thereof shall not permit Novametrix (a) to fail to
(nor permit the Merger Subsidiary to fail to) fulfill their respective
obligations under the Merger Agreement to consummate the Merger pursuant to
Section 8.02(i) thereof or (b) to terminate the Merger Agreement pursuant to
Section 9.01(vi) thereof.
9. All references in the Merger Agreement to the "Agreement" shall be to
the Merger Agreement as amended by this Amendment No. 1.
10. Except as expressly set forth herein, all of the terms and conditions of
the Merger Agreement shall remain unaffected by this Amendment No. 1 and shall
remain in full force and effect.
11. This Amendment No. 1 may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Amendment No. 1 shall become
effective when each party hereto shall have received counterparts hereof signed
by all of the other parties hereto. This Amendment No. 1 shall be governed by
and construed in
A-35
<PAGE>
accordance with the laws of the State of Delaware, without regard to any
conflict of laws principles of such State which would apply the laws of any
other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
be duly executed by their respective authorized officers as of the day and year
first above written.
ANDROS HOLDINGS INC.
By: /s/ RICHARD D. PATERSON
--------------------------------------
TITLE: PRESIDENT
By: /s/ JEAN-PIERRE L. CONTE
--------------------------------------
TITLE: VICE PRESIDENT AND
TREASURER
NOVAMETRIX MEDICAL SYSTEMS INC.
By: /s/ WILLIAM J. LACOURCIERE
--------------------------------------
TITLE: PRESIDENT
NOVAMETRIX ACQUISITION CORP.
By: /s/ WILLIAM J. LACOURCIERE
--------------------------------------
TITLE: PRESIDENT
A-36
<PAGE>
APPENDIX B
[LOGO]
TUCKER ANTHONY INCORPORATED
One World Financial Center
200 Liberty Street
New York, N.Y. 10281
(212) 225-8094
(212) 225-8827 Fax
Investment Banking
October 18, 1996
Board of Directors
Novametrix Medical Systems Inc.
56 Carperter Lane
Wallingford, CT 06492
Gentlemen:
You have requested our opinion as to the fairness to Novametrix Medical Systems
Inc. ("Novametrix") and its stockholders, from a financial point of view, and as
of the date hereof, of the Exchange Ratio (as defined below) in the proposed
merger of Andros Incorporated ("Andros") with and into Novametrix pursuant to
the merger agreement dated July 29, 1996 and as amended as of October 18, 1996
(the "Merger Agreement"). Under the terms of the Merger Agreement, a wholly
owned subsidiary of Novametrix will merge with and into Andros, and thereafter
Andros will become a wholly owned subsidiary of Novametrix in accordance with
the Merger Agreement (the "Merger"). Pursuant to the Merger, all of the issued
and outstanding shares of Andros will be converted into the right to receive i)
shares of Novametrix common stock (the "Common Stock") consisting in the
aggregate of 38% of the shares of Common Stock outstanding immediately after the
Effective Time (as defined in the Merger Agreement) computed as follows a) each
issued and outstanding share of Andros will be converted into a right to receive
shares of Common Stock equal to .6129032 multiplied by the number of shares of
Common Stock then outstanding (assuming conversion of the November preferred
stock) divided by the number of shares of Andros common stock outstanding
(assuming the exercise in full of all then outstanding Andros options and
warrants) and b) one contingent right to receive Common Stock under certain
antidilution events equal to .6129032 multiplied by the number of shares of
Common Stock issued pursuant to Novametrix warrants or options to acquire shares
of Common Stock outstanding immediately prior to the Effective Time subject to
adjustment based on cancellation or expiration of Andros options and warrants
and ii) up to an additional 5% of the shares of Common Stock (based upon the
capitalization of Novametrix immediately after the Merger) in the event that
Andros' revenues or Novametrix' consolidated EBITDA for the fiscal year ending
May 3, 1998 exceed certain targets as set forth in Section 1.02 (d) of the
Merger Agreement (collectively, the "Exchange Ratio"). The Merger is intended to
qualify as a tax-free reorganization. The terms and conditions of the Merger are
more fully set forth in the Merger Agreement.
Tucker Anthony Incorporated ("Tucker Anthony"), as part of its investment
banking business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated underwritings
and private placements and for corporate and other purposes. Tucker Anthony has
acted as Novametrix' financial advisor in connection with, and has participated
in the negotiations leading to, the proposed Merger. Tucker Anthony will receive
fees for our services as financial advisor and for rendering this opinion, a
substantial portion of which is contingent upon the closing of the Merger. In
the ordinary course of our business, Tucker Anthony may actively trade the
securities of Novametrix for our own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
In connection with our opinion, we have, among other things:
(i) reviewed the Merger Agreement and related documents;
<PAGE>
(ii) reviewed certain publicly available financial information for Novametrix
and Andros;
(iii) reviewed financial information on Novametrix and Andros furnished to us by
both companies, including certain internal financial analyses and forecasts
prepared by Novametrix and Andros managements;
(iv) held discussions with the management of Novametrix and Andros concerning
the businesses, past and current business operations, financial condition and
future prospects of both companies, independently and combined, including
certain information prepared jointly by the managements of Novametrix and Andros
concerning potential cost savings and synergies that could result from the
Merger;
(v) reviewed the stock price and trading history of Novametrix;
(vi) analyzed certain publicly available information of companies we deemed
comparable or otherwise relevant to our inquiry and compared Novametrix and
Andros from a financial point of view with these companies;
(vii) compared the financial terms of the Merger with other business
combinations which we deemed comparable or otherwise relevant to our inquiry;
(viii) prepared a discounted cash flow analysis of Novametrix and Andros;
(ix) reviewed the contribution by each company to proforma combined revenue,
gross profit, earnings before interest, taxes, depreciation and amortization,
earnings before interest and taxes and net income;
(x) analyzed the proforma earnings per share of the combined company;
(xi) discussed with senior management of Novametrix their view of the strategic
rationale for the Merger and the benefits of the Merger to Novametrix;
(xii) discussed with senior management of Novametrix and its counsel their view
of the likely outcomes of pending, threatened and possible claims against
Novametrix and Andros; and
(xiii) conducted such other financial studies and analysis and reviewed such
other information as we deemed relevant and appropriate.
In our review and analysis and in arriving at our opinion we have assumed and
relied upon the accuracy and completeness of all the financial information
publicly available or provided to us by Novametrix and Andros and have not
attempted to verify any of such information. We did not make or obtain an
independent evaluation or appraisals of any assets or liabilities of Novametrix,
Andros or any of their respective subsidiaries. We have also relied upon,
without independent certification, Novametrix' management's assessment of the
validity of Novametrix' and Andros' products and technology. We have assumed (i)
the financial projections of Novametrix and Andros provided to us have been
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of Novametrix and Andros managements as to future financial
performance and (ii) that such projections will be realized in the amounts and
time periods currently estimated by the respective managements. We have also
relied upon estimates and judgments of Novametrix and Andros as to the future
performance of both companies, including the cost savings and synergies
resulting from the Merger. We have also relied upon Novametrix' management's
assessment of the likely outcomes of pending, threatened and possible claims
against Novametrix and Andros. We have also assumed, with your consent, that the
Merger will be accounted for as a purchase transaction which will include a
substantial write-off of in-process research and development under generally
accepted accounting principles. Tucker Anthony's opinion is necessarily based
upon market, economic and other conditions that exist and can be evaluated as of
the date hereof.
<PAGE>
Our advisory service and this letter are furnished for the use of the Board of
Directors of Novametrix only, are not a recommendation to shareholders and may
not be used for other purposes without prior written consent. We do not believe
any person other than the Board of Directors has the legal right to rely on this
letter and, absent any controlling precedent, will resist any assertion
otherwise.
Based upon and subject to the foregoing considerations, it is our opinion that,
as of the date hereof, the Exchange Ratio is fair to Novametrix and its
stockholders from a financial point of view.
Very truly yours,
/s/ Tucker Anthony Incorporated
Tucker Anthony Incorporated
<PAGE>
APPENDIX C
VOTING AGREEMENT dated as of October 21, 1996 (this "Agreement") between
Novametrix Medical Systems Inc., a Delaware corporation (the "Corporation"), and
Genstar Capital Partners II, L.P., a Delaware limited partnership ("Genstar").
W I T N E S S E T H:
WHEREAS, the Corporation, Novametrix Acquisition Corp., a Delaware
corporation (the "Merger Subsidiary"), and Andros Holdings Inc., a Delaware
corporation ("Andros"), have entered into an Agreement and Plan of Merger dated
as of July 29, 1996 (the "Merger Agreement") pursuant to which the Merger
Subsidiary is to be merged (the "Merger") with and into Andros, Andros is to
become a wholly owned subsidiary of the Corporation and the Corporation is to
issue shares (the "Genstar Shares") of its common stock, par value $.01 per
share ("Common Stock"), to Genstar; and
WHEREAS, a condition to consummation of the Merger is that Genstar and the
Corporation enter into a voting agreement on the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual benefits to be derived and
the conditions and promises herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. VOTING AGREEMENT. In any written consent or meeting of the stockholders
of the Corporation prior to January 1, 1999, Genstar agrees to vote all its
Genstar Shares in favor of a Board of Directors of the Corporation, at least
one-half of whose members shall be nominated by a majority of the current
directors of the Corporation who continue to be directors of the Corporation on
(i) the date such consent is executed, (ii) the date that notice of such meeting
is mailed to the stockholders of the Corporation or (iii) if no such notice is
mailed, the date of such meeting; provided, however, that no more than two of
such nominees may be members of the management of the Corporation; and provided,
further, that nothing in this Agreement shall require Genstar to vote in favor
of a Board of Directors less than half of whose members are nominees of Genstar.
2. PURCHASERS OR TRANSFEREES OF GENSTAR SHARES. Any person or entity who
shall acquire prior to January 1, 1999 (either voluntarily or involuntarily, by
operation of law or otherwise) any Genstar Shares other than pursuant to an
offering registered under the Securities Act of 1933, as amended (the "Act"), or
pursuant to Rule 144 under the Act or as otherwise required by applicable law
(upon the consummation of (x) the sale of Genstar Shares to the public pursuant
to an offering registered under the Act or pursuant to Rule 144 under the Act,
or (y) the transfer of Genstar Shares where it is required by applicable law
that the transferee(s) take such securities free from the restrictions imposed
by this Agreement, such securities shall cease to be Genstar Shares for all
purposes of this Agreement) shall be bound by all of the provisions of this
Agreement and, prior to registration of, and as a condition to, the issuance or
transfer of any such Genstar Shares on the books of the Corporation, any
purchaser, acquiror or other transferee shall execute an agreement in favor of
the parties hereto agreeing to be bound by such provisions.
3. LEGEND. The stock certificates evidencing the Genstar Shares shall bear
a legend reading substantially as follows:
"Until January 1, 1999 (at which time this legend shall
automatically become null and void), these shares shall be subject to
the provisions of the Voting Agreement dated as of August , 1996
between the Corporation and Genstar Capital Partners II, L.P., a copy of
which is on file at the principal place of business of the Corporation,
including provisions regarding the voting and transfer hereof."
4. REORGANIZATION, ETC. The provisions of this Agreement shall apply
MUTATIS MUTANDI to any shares of capital stock resulting from any stock split or
reverse split, stock dividend, reclassification of the capital stock of the
Corporation, consolidation, merger or reorganization of the Corporation.
5. TERMINATION. This Agreement shall terminate on January 1, 1999.
C-1
<PAGE>
6. NOTICES. Any notice or other communication under this Agreement shall
be in writing and sufficient if delivered personally, by telecopy or sent by
registered or certified mail, postage prepaid, addressed as follows:
If to the Corporation:
56 Carpenter Lane
Wallingford, Connecticut 06492
Telephone: (203) 265-7701
Telecopy: (203) 269-0189
Attention: President
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Telephone: (212) 880-6000
Telecopy: (212) 682-0200
Attention: Andrew J. Beck, Esq.
If to Genstar:
Metro Tower, Suite 1170
950 Tower Lane
Foster City, California 94404-2121
Telephone: (415) 286-2350
Telecopy: (415) 286-2383
Attention: General Partner
with a copy to:
Shearman & Sterling
555 California Street
San Francisco, California 94104
Telephone: (415) 616-1100
Telecopy: (415) 616-1199
Attention: Michael J. Kennedy, Esq.
All such notices and communications shall be deemed to have been duly given at
the time delivered by hand, if personally delivered, upon confirmation of
receipt, if sent by telecopy, or three (3) business days after being deposited
in the mail, if sent by registered or certified mail. Any party may, upon
written notice to the other parties hereto, change the address to which notices
or other communications to such party are to be delivered or mailed.
7. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
8. ENTIRE AGREEMENT. This Agreement contains the entire agreement among
the parties hereto with respect to the subject matter hereof. All of the parties
hereto agree that this Agreement may be amended or modified or any provision
hereof may be waived by a written agreement between Genstar and the Corporation.
This Agreement supersedes all prior understandings, negotiations and agreements
relating to the subject matter hereof.
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State, without regard to any conflict
of laws principles of such State which would apply the laws of any other
jurisdiction.
C-2
<PAGE>
10. JURISDICTION; WAIVER OF TRIAL BY JURY. THE PARTIES HERETO HEREBY
IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY NEW YORK STATE OR UNITED STATES
FEDERAL COURT SITTING IN THE CITY OF NEW YORK OVER ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND HEREBY IRREVOCABLY AGREE THAT
ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN SUCH NEW YORK STATE OR FEDERAL COURT. THE PARTIES AGREE THAT A FINAL JUDGMENT
IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN
OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY
LAW. THE PARTIES FURTHER WAIVE TRIAL BY JURY, ANY OBJECTION TO VENUE IN SUCH
STATE AND ANY OBJECTION TO ANY ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS
OF FORUM NON CONVENIENS. THE PARTIES FURTHER AGREE THAT ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE BROUGHT ONLY IN A NEW YORK
STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK COUNTY.
11. HEADINGS. The headings in this Agreement are solely for convenience of
reference and shall not affect the interpretation of any of the provisions
hereof.
12. SEVERABILITY. If any provision herein contained shall be held to be
illegal or unenforceable, such holding shall not affect the validity or
enforceability of the other provisions of this Agreement.
13. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the Corporation, Genstar, each of their respective successors,
permitted assigns, executors, administrators, legal representatives and heirs,
as applicable.
14. CONSTRUCTION. The parties hereto agree that this Agreement is the
product of negotiations between sophisticated parties, each of whom were
represented by counsel, and each of whom had an opportunity to participate in,
and did participate in, the drafting of each provision hereof.
* * *
IN WITNESS WHEREOF, each of the parties hereto has executed this Voting
Agreement on the date first above written.
NOVAMETRIX MEDICAL SYSTEMS INC.
By:___/s/ WILLIAM J. LACOURCIERE___
Name: William J. Lacourciere
Title: President
GENSTAR CAPITAL PARTNERS II, L.P.
By GENSTAR CAPITAL LLC
general partner
By:_____/s/ RICHARD D. PATERSON____
Name: Richard D. Paterson
Title: Managing Director
By:_______/s/ MARK E. BANDEEN______
Name: Mark E. Bandeen
Title: Managing Director
C-3
<PAGE>
APPENDIX D
----------------------------
REGISTRATION RIGHTS AGREEMENT
AMONG
NOVAMETRIX MEDICAL SYSTEMS INC.
AND
CERTAIN OF ITS STOCKHOLDERS
DATED AS OF , 1996
----------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- --------- ---------
<S> <C> <C>
Recitals...................................................................................... 1
1. Registration of Common Stock.................................................................. 1
2. Legend and Compliance with Securities Laws.................................................... 8
3. Appointment of Stockholder Representative..................................................... 8
4. Investment in the Corporation................................................................. 9
5. Reorganization, Etc......................................................................... . 10
6. Notices..................................................................................... . 10
7. Counterparts.................................................................................. 10
8. Entire Agreement.............................................................................. 11
9. Governing Law................................................................................. 11
10. Jurisdiction; Waiver of Trial by Jury......................................................... 11
11. Headings...................................................................................... 11
12. Severability.................................................................................. 11
13. Binding Effect................................................................................ 11
14. Construction.................................................................................. 11
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT dated as of , 1996 (this
"Agreement") among Novametrix Medical Systems Inc., a Delaware corporation (the
"Corporation"), Genstar Capital Partners II, L.P., a Delaware limited
partnership ("Genstar"), and the other persons listed on Exhibit A hereto
(collectively, including Genstar, the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Corporation, Novametrix Acquisition Corp., a Delaware
corporation (the "Merger Subsidiary"), and Andros Holdings Inc., a Delaware
corporation ("Andros"), are entering into an Agreement and Plan of Merger dated
as of the date hereof (the "Merger Agreement") pursuant to which the Merger
Subsidiary is to be merged (the "Merger") with and into Andros, Andros is to
become a wholly owned subsidiary of the Corporation and the Corporation is to
issue shares of its common stock, par value $.01 per share ("Common Stock"), to
the Stockholders; and
WHEREAS, a condition to consummation of the Merger is that the Corporation
provides the Stockholders with certain registration rights and the parties wish
to make the representations and enter into the covenants set forth herein.
NOW, THEREFORE, in consideration of the mutual benefits to be derived and
the conditions and promises herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. REGISTRATION OF COMMON STOCK. (a) At any time after the end of the
nine-month period beginning on the date of the Effective Time (as defined in the
Merger Agreement), the Stockholder Representative (as defined in Section 3(a))
shall have the right to request that the Corporation effect the registration
under the Securities Act of 1933, as amended (the "Securities Act"), of any or
all shares of Common Stock issued in the Merger or constituting Underlying
Shares (as defined in the Merger Agreement) and beneficially owned by the
Stockholders (the shares of Common Stock requested to be registered under this
subsection (a) are hereinafter collectively referred to as the "Demand
Registration Shares"); provided that each request by the Stockholder
Representative hereunder shall (x) specify the intended method of disposition
thereof by the Stockholders and (y) shall cover in the aggregate at least a
number of shares of Common Stock equal to 20% of the number of shares of Common
Stock (as such number shall be appropriately adjusted for stock dividends, stock
splits and similar events) issued in the Merger and beneficially owned by the
Stockholders immediately after the Effective Time (the "Original Shares"). The
Corporation shall not be obligated to file and cause to become effective more
than two registration statements in which Demand Registration Shares are
registered pursuant to this subsection (a) and there shall be at least a
six-month period between such filings under this subsection (a). The
Stockholders' rights under this subsection (a) shall terminate upon the earlier
to occur of (1) the tenth anniversary of the date hereof and (2) the date on
which at least 80% of the aggregate number of Original Shares and Underlying
Shares shall have been registered under the Securities Act.
(b) In the event that any of the Stockholders, if they have the right to do
so, exercises its rights under subsection (a) of this Section 1, the Corporation
shall use its reasonable best efforts to cause the sale of the Demand
Registration Shares to be registered under the Securities Act and to effect and
to comply with all such regulatory qualifications, compliances and requirements
as may be necessary to permit the sale or other transfer of such Demand
Registration Shares, in the manner described in such request, including, without
limitation, qualifications under applicable blue sky or other state securities
laws (provided that the Corporation shall not be required in connection
therewith to qualify as a foreign corporation or to execute a general consent to
service of process in any state); provided, however, that (i) if the legend set
forth in Section 2(a) is or has been removed from the certificates evidencing
any of the Demand Registration Shares pursuant to Section 2(b), then the
Corporation shall not be required to take any action with respect to the
registration of such Demand Registration Shares or other steps contemplated
hereby in connection therewith and such Demand Registration Shares shall not be
deemed included in a registration request for purposes of the requirement set
forth in clause (y) of Section 1(a) and (ii) the Corporation shall have the
right to delay such registration for one period of 90 days in any twelve-month
period by written notice to the Stockholder Representative in the event that the
Board of Directors of the Corporation determines in
D-1
<PAGE>
good faith that such delay is in the best interests of the Corporation, provided
that the Stockholder Representative shall be entitled to withdraw such request
within 30 days of receipt of such notice and if such request is withdrawn, such
registration shall not constitute a registration to which the Stockholders are
entitled pursuant to this Section 1.
(c) In the event that, at any time or from time to time, the Corporation
proposes to register the sale of any shares of Common Stock to be issued by the
Corporation or sold by any holder of shares of Common Stock (the "Registration
Shares") under the Securities Act pursuant to a registration statement to be
filed after the end of the nine-month period beginning after the date of the
Effective Time, including, without limitation, pursuant to Section 1(a) above
but other than pursuant to a registration statement on Forms S-4 or S-8, or any
successor to such Forms, for the purpose of the issuance, sale or other transfer
of the Registration Shares by the Corporation or such holder, the Corporation
shall mail or deliver to each of the Stockholders at least 15 days prior to the
filing of the registration statement covering such Registration Shares, a
written notice (a "Registration Notice") of its intention so to register the
Registration Shares, and specifying the date by which the Supplemental Notice
referred to in Section 1(d) below must be returned to the Corporation.
(d) In the event that a Registration Notice shall have been so mailed or
delivered, each of the Stockholders, at such person's election, may mail or
deliver to the Corporation a written notice or notices (a "Supplemental Notice")
(i) specifying the number of shares of Common Stock issued in the Merger and
Underlying Shares (collectively "Supplemental Registration Shares") proposed to
be sold or otherwise transferred by such Stockholder, (ii) describing the
proposed manner of sale or other transfer thereof and (iii) requesting the
registration thereof under the Securities Act; provided, however, that such
Supplemental Notice shall be so mailed or delivered by any Stockholder not more
than 10 days after the date of the Registration Notice.
(e) From and after receipt of a Supplemental Notice, the Corporation shall,
subject to the prior sale or other transfer of some or all of such Registration
Shares and subject to the provisions of subsection (a) above, use its reasonable
best efforts to cause the Supplemental Registration Shares specified in such
Supplemental Notice to be registered under the Securities Act and to effect and
to comply with all such regulatory qualifications and requirements as may be
necessary to permit the sale or other transfer of such Supplemental Registration
Shares in the manner described in such Supplemental Notice, including, without
limitation, qualifications under applicable blue sky or other state securities
laws (provided that the Corporation shall not be required in connection
therewith to qualify as a foreign corporation or to execute a general consent to
service of process in any state); provided, however, that (i) if in the case of
an underwritten public offering of the Registration Shares the managing
underwriter shall advise the Corporation that the inclusion of some or all of
such Supplemental Registration Shares would, in such managing underwriter's
judgment, materially interfere with the proposed distribution of the
Registration Shares, then the Corporation may, upon written notice to the
Stockholders holding Supplemental Registration Shares, allocate or eliminate (x)
first, shares of Common Stock held by officers or directors of the Corporation
otherwise to be included in the registration statement, and (y) second, the
Supplemental Registration Shares otherwise to be included in the registration
statement (if and to the extent such allocation or elimination is indicated by
such managing underwriter as necessary to eliminate such interference after
giving effect to clause (x) above) pro rata among the holders of the
Supplemental Registration Shares on the basis of the number of Supplemental
Registration Shares held by the holders thereof, (ii) if the legend set forth in
Section 2(a) is or has been removed from the certificates evidencing any of the
Supplemental Registration Shares pursuant to Section 2(b), then the Corporation
shall not be required to take any action with respect to the registration of
such Supplemental Registration Shares or other steps contemplated hereby in
connection therewith and (iii) the Corporation shall have the right to delay or
abandon such registration at any time in the event that the Board of Directors
of the Corporation determines in good faith that such delay is in the best
interest of the Corporation.
D-2
<PAGE>
(f) If and whenever the Corporation is required by the provisions of this
Section 1 to use its reasonable best efforts to effect the registration under
the Securities Act of any securities requested to be so registered by any
Stockholder, the Corporation will, as promptly as practicable:
(i) prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement with respect to such securities and
use its reasonable best efforts to cause such registration statement to
become effective;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for a period from the date of the effectiveness thereof through
the earlier of (1) the date which is nine (9) months after the date of
effectiveness thereof and (2) the date on which all Demand Registration
Shares and/or Supplemental Registration Shares included in such registration
statement shall have been sold or otherwise disposed of by Stockholders
pursuant to such registration statement, and to comply with the provisions
of the Securities Act with respect to the sale or other disposition of all
shares of Common Stock covered by such registration statement whenever such
Stockholder(s), shall desire to sell or otherwise dispose of the same within
such period;
(iii) furnish to such Stockholder(s), as applicable, such number of
copies of a prospectus, including a preliminary prospectus and final
prospectus, in conformity with the requirements of the Securities Act, and
such other documents as may reasonably be requested thereby in order to
facilitate the public sale or other disposition of such shares of Common
Stock owned thereby;
(iv) notify the Stockholder Representative promptly of any request by
the Commission for the amendment or supplement of such registration
statement or prospectus or for additional information, and notify such
stockholder promptly of the filing of each amendment or supplement to such
registration statement or prospectus;
(v) advise the Stockholder Representative, promptly after it shall
receive notice, of the issuance of any stop order by the Commission
suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly
use its reasonable best efforts to prevent the issuance of any stop order or
to obtain its withdrawal if such stop order should be issued;
(vi) with respect to any registration statement relating to an
underwritten offering which includes Demand Registration Shares and/or
Supplemental Registration Shares, upon the request of the Stockholder
Representative, the Corporation shall cooperate with the Stockholder
Representative to obtain and furnish at the closing provided for in the
underwriting agreement (1) an opinion of counsel to the Corporation, dated
such date, addressed to the underwriters and to the Stockholder(s)
registering the sale of shares of Common Stock, and (2) a "cold comfort"
letter from the independent certified public accountants of the Corporation,
dated such date, addressed to the underwriters and to such Stockholder(s),
in each case, covering substantially the same matters with respect to the
issuer, such registration statement (and the prospectus included therein)
and with respect to the events subsequent to the date of the financial
statements included in such registration statement, as are customarily
covered in opinions of issuer's counsel and in accountants' letters
delivered to the underwriters in underwritten public offerings of
securities;
(vii) notify such Stockholder(s), in writing, at any time when a
prospectus relating to such shares of Common Stock is required to be
delivered under the Securities Act within the appropriate period mentioned
in clause (ii) immediately preceding, of the happening of any event as a
result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and promptly prepare (and file with the Commission) and furnish to
the Stockholder(s) whose shares of Common Stock are offered in such
prospectus a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter delivered to
the purchasers
D-3
<PAGE>
of such shares of Common Stock, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing.
(g) The Stockholders agree to furnish the Corporation such information
regarding themselves and the proposed distribution of Demand Registration Shares
or Supplemental Registration Shares, as the case may be, by such Stockholder(s)
as the Corporation may from time to time reasonably request in writing in order
to prepare a registration statement and prospectus or any supplement or
amendment thereto pursuant to the Securities Act and the rules and regulations
promulgated thereunder.
(h) The Stockholders agree that, upon receipt of a written notice from the
Corporation of the happening of any event of the kind described in clause (vii)
of Section 1(f) above, they will forthwith discontinue their disposition of
Demand Registration Shares or Supplemental Registration Shares, as the case may
be, pursuant to the registration statement relating to such Demand Registration
Shares or Supplemental Registration Shares, as the case may be, until their
receipt of the copies of the supplemented or amended prospectus contemplated by
clause (vii) of Section 1(f) above and, if so requested by the Corporation in
writing, will deliver to the Corporation (at the Corporation's expense) all
copies then in their possession, other than permanent file copies, of the
prospectus relating to such Demand Registration Shares or Supplemental
Registration Shares, as the case may be.
(i) The Corporation shall pay all expenses (the "Registration Expenses")
necessary to effect under the Securities Act any registration statements,
amendments or supplements filed pursuant to this Section 1 (other than any
underwriters' discounts and commissions and any brokerage commissions and fees
payable with respect to shares of Common Stock sold by any Stockholder and legal
fees and expenses of counsel to the Stockholders other than, in connection with
a registration statement prepared pursuant to Section 1(a) and the first two
registration statements which include Supplemental Registration Shares,
reasonable fees and expenses of one counsel to the Stockholders selected by the
Stockholder Representative), including, without limitation, printing expenses,
fees of the Commission and the National Association of Securities Dealers, Inc.,
expenses of compliance with blue sky and other state securities laws, and
accounting and legal fees and expenses of counsel to the Corporation and, in
connection with a registration statement prepared pursuant to Section 1(a) and
the first two registration statements which include Supplemental Registration
Shares, reasonable fees and expenses of one counsel to the Stockholders selected
by the Stockholder Representative; provided, however, that in the event that the
registration statement is not declared effective as a result of the withdrawal
by one or more Stockholders of the Demand Registration Shares from the
registration (a "Withdrawn Registration"; provided, that a Withdrawn
Registration shall not include a registration statement withdrawn by the
applicable person(s) as a result of a delay imposed by the Corporation pursuant
to Section 1(b)(ii) hereof), such Withdrawn Registration shall count as one of
the two registration statements prepared pursuant to Section 1(a) with respect
to which the Corporation is obligated to pay the Registration Expenses unless
such Stockholder(s) shall pay all Registration Expenses incurred by the
Corporation in the Withdrawn Registration (but in any event such Withdrawn
Registration shall not count as one of the two registration statements that the
Corporation is obligated to file and cause to become effective pursuant to
Section 1(a)). Nothing herein shall be deemed to prohibit the same counsel from
representing both the Corporation and the Stockholders in connection with any
such registration, subject to obtaining required consents.
(j) It is understood and agreed that the Corporation shall not be obligated
to provide or effect an underwritten offering of shares of Common Stock in the
event that a registration is effected pursuant to Section 1(a) hereof. Whenever
a registration statement requested pursuant to Section 1(a) hereof covers an
underwritten public offering (as determined by the Corporation) the Stockholder
Representative shall have, subject to the reasonable prior approval of the
Corporation (including based on recognized standing and pricing factors), the
right to select the managing underwriter(s) to administer the offering. In the
event of an underwritten public offering as aforesaid, the Corporation agrees
reasonably to cooperate (and to cause its officers reasonably to cooperate) with
the managing underwriter(s) in a manner customary for issuers of securities in
an underwritten secondary public offering. If the Corporation at any time
proposes to register any of its securities under the Securities Act for sale for
its own account and such securities are
D-4
<PAGE>
to be distributed by or through one or more underwriter(s), the Corporation will
have the right to select the managing underwriter(s) to administer the offering,
provided that if the number of Supplemental Registration Shares is greater than
the number of shares to be sold by the Corporation in connection therewith, the
Corporation shall give due consideration to any reasonable request by the
Stockholder Representative that a particular investment banking firm of
recognized standing be included in the underwriting syndicate.
(k) Each Stockholder agrees that, in the event the Corporation files a
registration statement under the Securities Act with respect to an underwritten
public offering of any securities of the Corporation in which such Stockholder
was permitted to participate (whether or not such Stockholder does in fact
participate), if required by the underwriters thereof, such Stockholder will not
effect any public sale or distribution, including any sale pursuant to Rule 144
promulgated under the Securities Act, of any equity securities of the
Corporation or any securities convertible into or exchangeable or exercisable
for any equity security of the Corporation (other than as part of such
underwritten public offering) during the seven days prior to or 90 days after,
or such longer period as may be required by the underwriters thereof (not to
exceed in any event 180 days), the effectiveness of such registration statement.
(l) The Corporation agrees that, in the event the Corporation files a
registration statement under the Securities Act with respect to an underwritten
public offering of any Demand Registration Shares, if required by the
underwriters thereof, the Corporation will not effect any public sale or
distribution of any equity securities of the Corporation or any securities
convertible into or exchangeable or exercisable for any equity security of the
Corporation (other than as part of such underwritten public offering) during the
seven days prior to or 90 days after, or such longer period as may be required
by the underwriters thereof (not to exceed in any event 180 days), the
effectiveness of such registration statement, other than (i) pursuant to
employee stock option plans in existence on the effective date of the
registration statement, (ii) upon the conversion of convertible securities or
the exercise of warrants outstanding on such effective date, or (iii) in
connection with an acquisition by the Corporation, whether in the form of an
asset purchase, stock exchange, merger or otherwise.
(m) In the event of any registration pursuant to this Section 1 covering
shares of Common Stock beneficially owned by any Stockholder, the Corporation
will indemnify and hold harmless each such Stockholder (if shares of Common
Stock of that person are included in the subject registration statement), each
such Stockholder's directors, officers and general partners, if any, the
directors and officers of any such general partner, each underwriter (as defined
in the Securities Act), if any, of Demand Registration Shares and each other
person or entity, if any, who controls such Stockholder or underwriter within
the meaning of the Securities Act (collectively, the "Indemnitees") against any
losses, claims, damages, costs, expenses (including reasonable attorneys' fees),
or liabilities (or actions in respect thereof) to which such Stockholder or
controlling person or entity becomes subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages, costs, expenses or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the related registration statement, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were made;
provided, however, that the Corporation will not be liable in any such case to
an Indemnitee to the extent that any such loss, claim, damage, cost, expense or
liability arises out of or is based upon (x) an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, preliminary prospectus, prospectus or amendment or supplement in
reliance upon and in conformity with written information furnished by any
Indemnitee, specifically for use in the preparation thereof or (y) such
Indemnitee's failure to deliver a copy of the prospectus or any amendments or
supplements thereto (if required by applicable law) to the person asserting any
loss, claim, damage or liability after the Corporation has furnished such
Indemnitee with the same and the loss, claim, damage or liability of such
Indemnitee results from an untrue statement or omission of a material fact which
was corrected therein. The Corporation also agrees to reimburse each
D-5
<PAGE>
Indemnitee for any legal or other expenses reasonably incurred by such
Indemnitee in connection with investigating or defending any such loss, claim,
damage, liability or action.
(n) In the event of any registration pursuant to this Section 1 covering
shares of Common Stock beneficially owned by any Stockholder, each such
Stockholder (if shares of Common Stock of that person are included in the
subject registration statement) shall severally (and not jointly) indemnify and
hold harmless the Corporation, each of its directors and officers, and each
other person or entity, if any, who controls the Corporation within the meaning
of the Securities Act, against any losses, claims, damages, costs, expenses
(including reasonable attorneys' fees) or liabilities (or actions in respect
thereof) to which the Corporation or any such director, officer, or controlling
person becomes subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages, costs, expenses or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue or alleged untrue statement
of any material fact contained in the related registration statement, and any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances in which they were made, in each case to the extent, but only to
the extent, that such loss, claim, damage, cost, expense or liability arises out
of or is based upon (x) an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, preliminary
prospectus, prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished by such Stockholder specifically
for use in the preparation thereof or (y) such Stockholder's failure to deliver
a copy of the prospectus or any amendments or supplements thereto (if required
by applicable law) to the person asserting any loss, claim, damage or liability
after the Corporation has furnished such Stockholder with the same and the loss,
claim, damage or liability of such Indemnitee results from an untrue statement
or omission of a material fact which was corrected therein. Each such
Stockholder shall severally (and not jointly) reimburse any legal or other
expenses reasonably incurred by the Corporation or any such director, officer,
or controlling person or entity in connection with investigating or defending
any such loss, claim, damage, liability or action.
(o) Promptly after receipt by an indemnified party under this Section 1 of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 1, notify the indemnifying party of the commencement thereof; provided,
however, that failure to so notify the indemnifying party shall not affect an
indemnifying party's obligations hereunder, except to the extent that the
indemnifying party is materially prejudiced by such failure. The indemnifying
party shall be entitled to appoint counsel of the indemnifying party's choice at
the indemnifying party's expense to represent the indemnified party in any
action for which indemnification is sought (in which case the indemnifying party
shall not thereafter be responsible for the fees and expenses of any separate
counsel retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of the institution of such action or (iv) the indemnifying
party shall authorize the indemnified party to employ separate counsel at the
expense of the indemnifying party. It is understood, however, that the
indemnifying party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time.
D-6
<PAGE>
(p) No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened action,
suit or proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such action, suit or proceeding.
(q) If the indemnification provided for in this Section 1 is applicable in
accordance with its terms but for any reason is held to be unavailable to or
insufficient to hold harmless an indemnified party under paragraphs (m) or (n)
of this Section 1 in respect of any losses, claims, damages, costs, expenses or
liabilities referred to therein, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted, but after deducting any contribution
received by the indemnifying party from persons other than the indemnified
parties, such as persons who control the indemnifying party within the meaning
of the Securities Act, officers of the Corporation who signed the registration
statement and directors of the Corporation, who also may be liable for
contribution) by such indemnified party as a result of such losses, claims,
liabilities, expenses and damages in such proportion as shall be appropriate to
reflect the relative benefits received by the indemnifying party, on the one
hand, and the indemnified parties, on the other hand. The relative benefits
received by the indemnifying party, on the one hand, and the indemnified
parties, on the other hand, shall be deemed to be in the same proportion as the
total net proceeds from the offering registered pursuant to the registration
statement (after deducting expenses) received by the indemnifying party bear to
the total net proceeds from the offering (after deducting expenses) received by
the indemnified parties, in each case as set forth in the table on the cover
page of the prospectus. If, but only if, the allocation provided by the
foregoing sentence is not permitted by applicable law, the allocation of
contribution shall be made in such proportion as is appropriate to reflect not
only the relative benefits referred to in the foregoing sentence but also the
relative fault of the indemnifying party, on the one hand, and the indemnified
parties, on the other hand, with respect to the statements or omissions which
resulted in such loss, claim, liability, expense or damage, or action in respect
thereof, as well as any other relevant equitable considerations with respect to
such offering. Such relative fault shall be determined by reference to whether
the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
indemnifying party, the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Corporation and the Stockholders agree that it would not be just
and equitable if contributions pursuant to this Section 1(q) were to be
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to herein. The
amount paid or payable by an indemnified party as a result of the loss, claim,
liability, expense or damage, or action in respect thereof, referred to above in
this Section 1(q) shall be deemed to include, for purposes of this Section 1(q),
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 1(q), no person found guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Stockholders' obligations to
contribute as provided in this Section 1(q) are several in proportion to their
respective Demand Registration Shares and/or Supplemental Registration Shares
included in the registration statement, and not joint. For purposes of this
Section 1(q), any person who controls a party to this Agreement within the
meaning of the Securities Act will have the same rights to contribution as that
party, and each officer and director of the Corporation who signed the
registration statement will have the same rights to contribution as the
Corporation, subject in each case to the provisions hereof. Any party entitled
to contribution, promptly after receipt of notice of commencement of any action
against any such party in respect of which a claim for contribution may be made
under this Section 1(q), will notify any such party or parties from whom
contribution may be sought, but the omission so to notify will not relieve the
party or parties from whom contribution may be sought from any other obligation
it or they may have under this Section 1(q). No party will be liable for
D-7
<PAGE>
contribution with respect to any action or claim settled without its written
consent (which consent will not be unreasonably withheld).
(r) With respect to any underwritten offering, each Stockholder (if shares
of Common Stock of that person are included in the subject registration
statement) and the Corporation shall, in addition to the foregoing, provide the
underwriters of such offering with customary representations and warranties, and
indemnification, in each instance as shall be reasonably requested by the
underwriters thereof, provided, however, that (i) any such agreement to
indemnify an underwriter with respect to any preliminary prospectus shall not
inure to the benefit of any such underwriter to the extent that any loss, claim,
damage, cost, expense or liability of any such underwriter results solely from
an untrue statement of material fact contained in, or the omission of a material
fact from, such preliminary prospectus which untrue statement or omission was
corrected in the final prospectus, if such underwriter failed to send or give a
copy of the final prospectus to the person asserting such loss, claim, damage,
cost, expense or liability at or prior to the written confirmation of the sale
of such securities to such person, and (ii) no Stockholder will be liable to the
extent that such loss, claim, liability, expense or damage is based on an untrue
statement or omission or alleged untrue statement or omission made in reliance
on and in conformity with information relating to any underwriter furnished in
writing to the Corporation by or on behalf of any underwriter, expressly for
inclusion in the registration statement, a preliminary prospectus or the
prospectus, and provided further that any such agreement by any Stockholder to
indemnify an underwriter shall be on a several (and not joint) basis in
proportion to the number of securities sold by such Stockholder in such
underwritten offering and shall be limited in amount to the net proceeds
received by such Stockholder in such underwritten offering.
2. LEGEND AND COMPLIANCE WITH SECURITIES LAWS. (a) The stock certificates
evidencing the shares of Common Stock of the Stockholders subject to this
Agreement shall bear a legend reading substantially as follows:
"These securities have not been registered under the Securities Act
of 1933, as amended, or qualified under state securities laws and may
not be sold, pledged or otherwise transferred unless (a) covered by an
effective registration statement under the Securities Act of 1933, as
amended, and qualified under applicable state securities laws, or (b)
the Corporation shall have been furnished with an opinion of counsel
reasonably acceptable to the Corporation to the effect that no
registration or qualification is legally required for such transfer."
(b) In the event that a registration statement covering the shares of Common
Stock of the Corporation owned by the Stockholders which are subject to this
Agreement shall become effective under the Securities Act and under any
applicable state securities laws or in the event that the Corporation shall
receive an opinion of counsel to the holder of such shares of Common Stock or
counsel to the Corporation in form and substance reasonably satisfactory to the
Corporation that, in the opinion of such counsel, the above stated legend is
not, or is no longer, necessary or required under applicable law (including,
without limitation, because of the availability of the exemption afforded by
Rule 144(k) promulgated under the Securities Act), the Corporation shall, or
shall instruct its transfer agents and registrars to, remove the above stated
legend from the stock certificates evidencing such shares of Common Stock or
issue new certificates without such legend in lieu thereof.
(c) Each Stockholder consents to the Corporation making a notation on its
records and giving instructions to any transfer agent for the Common Stock in
order to implement the restrictions on transfer established in this Section 2.
3. APPOINTMENT OF STOCKHOLDER REPRESENTATIVE.
(a) Each Stockholder hereby makes, constitutes and appoints Genstar to be
such Stockholder's true and lawful attorney in fact and agent (the "Stockholder
Representative"), for such Stockholder and in such Stockholder's name, as
effectively as such Stockholder could act for himself, herself or itself, with
full power of substitution in the premises, to take all actions which under this
Agreement are to be or may be taken by such Stockholder, including, without
limitation, to give and receive all consents, waivers,
D-8
<PAGE>
amendments, notices and other communications to be given or which may be given
or received or may be received under this Agreement. The death or incapacity of
any Stockholder shall not terminate the agency and power of attorney granted
hereby to the Stockholder Representative. Such agency and power of attorney is
irrevocable and coupled with an interest, and the provisions of this Section 3
are independent and severable and shall be enforceable notwithstanding any
rights or remedies that any Stockholder may have in connection with, or in any
way arising out of, the transactions contemplated by this Agreement. The
obligations hereunder of Genstar, as representative, shall not be terminated by
operation of law, whether by its liquidation, dissolution or by the occurrence
of any other event. In the event Genstar should liquidate or dissolve, or for
any other reason become unable to perform its responsibilities hereunder, or
resign such position, the Stockholders holding a majority of the shares of
Common Stock held by all Stockholders shall select another representative by
written notice executed by such Stockholders and delivered to the Corporation to
fill such vacancy and such substituted representative shall be deemed the
Stockholder Representative for all purposes of this Agreement.
(b) The Corporation shall be entitled to rely conclusively on the actions,
communications, instructions, decisions and agreements of the Stockholder
Representative as being the actions, communications, instructions, decisions and
agreements of each of the Stockholders (without the need to communicate or
otherwise confirm such with any Stockholder), and no Stockholder shall have any
claim or cause of action against the Corporation for any action taken or not
taken by the Corporation in reliance upon the actions, communications,
instructions, decisions or agreements of the Stockholder Representative.
(c) All actions, communications, instructions, decisions and agreements of
the Stockholder Representative shall be conclusive and binding upon all of the
Stockholders and no Stockholder shall have any claim or cause of action against
the Stockholder Representative for any action taken or not taken by the
Stockholder Representative in its role as such, except for any action or
omission taken or made fraudulently or in bad faith with respect to such
Stockholder.
4. INVESTMENT IN THE CORPORATION.
(a) Each of the Stockholders understands that the Corporation proposes to
issue and deliver to the Stockholders the shares of Common Stock pursuant to the
Merger Agreement without compliance with the registration requirements of the
Securities Act; and that for such purpose the Corporation will rely upon the
Stockholders' representations and warranties contained herein.
(b) Each of the Stockholders understands that, under the existing rules of
the Commission, the Stockholders may be unable to sell their shares of Common
Stock except to the extent that such shares may be sold, (i) pursuant to an
effective registration statement covering such sale pursuant to the Securities
Act and applicable state securities laws or an applicable exemption therefrom or
(ii) in a bona fide private placement to a purchaser who shall be subject to the
same restrictions on any resale or (iii) subject to the restrictions contained
in Rule 144.
(c) None of the Stockholders is relying on the Corporation respecting the
financial, tax and other economic considerations of an investment in the Common
Stock, and each of the Stockholders has relied on the advice of, or has
consulted with, only its own advisors.
(d) Each of the Stockholders is familiar with the provisions of Rule 144 and
the limitations upon the availability and applicability of such rule.
(e) Each of the Stockholders is a sophisticated investor familiar with the
type of risks inherent in the acquisition of restricted securities such as the
shares of Common Stock to be issued to it and its financial position is such
that it can afford to retain such shares for an indefinite period of time
without realizing any direct or indirect cash return on its investment.
(f) Each of the Stockholders has such knowledge and experience in financial,
tax and business matters so as to evaluate the merits and risks of an investment
in the Common Stock and to make an informed investment decision with respect
thereto.
D-9
<PAGE>
(g) Each of the Stockholders is acquiring its shares of Common Stock as an
investment for its sole account, and without any present view towards the resale
or other distribution thereof.
5. REORGANIZATION, ETC. The provisions of this Agreement shall apply
mutatis mutandi to any shares of capital stock resulting from any stock split or
reverse split, stock dividend, reclassification of the capital stock of the
Corporation, consolidation, merger or reorganization of the Corporation.
6. NOTICES. Any notice or other communication under this Agreement shall
be in writing and sufficient if delivered personally, by telecopy or sent by
registered or certified mail, postage prepaid, addressed as follows:
If to the Corporation:
56 Carpenter Lane
Wallingford, Connecticut 06492
Telephone: (203) 265-7701
Telecopy: (203) 269-0189
Attention: President
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Telephone: (212) 880-6000
Telecopy: (212) 682-0200
Attention: Andrew J. Beck, Esq.
If to Genstar:
Genstar Capital
Metro Tower, Suite 1170
950 Tower Lane
Foster City, California 94404-2121
Telephone: (415) 286-2350
Telecopy: (415) 286-2383
Attention: General Partner
with a copy to:
Shearman & Sterling
555 California Street
San Francisco, California 94104
Telephone: (415) 616-1100
Telecopy: (415) 616-1199
Attention: Michael J. Kennedy, Esq.
If to any other Stockholder:
To the address as set forth opposite
such Stockholder's name on Exhibit A hereto.
All such notices and communications shall be deemed to have been duly given at
the time delivered by hand, if personally delivered, upon confirmation of
receipt, if sent by telecopy, or three (3) business days after being deposited
in the mail, if sent by registered or certified mail. Any party may, upon
written notice to the other parties hereto, change the address to which notices
or other communications to such party are to be delivered or mailed.
7. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
D-10
<PAGE>
8. ENTIRE AGREEMENT. This Agreement contains the entire agreement among
the parties hereto with respect to the subject matter hereof. All of the parties
hereto agree that this Agreement may be amended or modified or any provision
hereof may be waived by a written agreement between the Stockholder
Representative and the Corporation. This Agreement supersedes all prior
understandings, negotiations and agreements relating to the subject matter
hereof.
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State, without regard to any conflict
of laws principles of such State which would apply the laws of any other
jurisdiction.
10. JURISDICTION; WAIVER OF TRIAL BY JURY. THE PARTIES HERETO HEREBY
IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY NEW YORK STATE OR UNITED STATES
FEDERAL COURT SITTING IN THE CITY OF NEW YORK OVER ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND HEREBY IRREVOCABLY AGREE THAT
ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN SUCH NEW YORK STATE OR FEDERAL COURT. THE PARTIES AGREE THAT A FINAL JUDGMENT
IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN
OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY
LAW. THE PARTIES FURTHER WAIVE TRIAL BY JURY, ANY OBJECTION TO VENUE IN SUCH
STATE AND ANY OBJECTION TO ANY ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS
OF FORUM NON CONVENIENS. THE PARTIES FURTHER AGREE THAT ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE BROUGHT ONLY IN A NEW YORK
STATE OR UNITED STATES FEDERAL COURT SITTING IN NEW YORK COUNTY.
11. HEADINGS. The headings in this Agreement are solely for convenience of
reference and shall not affect the interpretation of any of the provisions
hereof.
12. SEVERABILITY. If any provision herein contained shall be held to be
illegal or unenforceable, such holding shall not affect the validity or
enforceability of the other provisions of this Agreement.
13. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the Corporation, each of the Stockholders, each of their respective
successors, permitted assigns, executors, administrators, legal representatives
and heirs, as applicable.
14. CONSTRUCTION. The parties hereto agree that this Agreement is the
product of negotiations between sophisticated parties and individuals, all of
whom were represented by counsel, and each of whom had an opportunity to
participate in, and did participate in, the drafting of each provision hereof.
* * *
D-11
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Registration Rights Agreement on the date first above written.
NOVAMETRIX MEDICAL SYSTEMS INC.
By:
- ----------------------------
Name:
Title:
GENSTAR CAPITAL PARTNERS II, L.P.
By Genstar Capital LLC
general partner
By:
- ----------------------------
Name:
Title:
By:
- ----------------------------
Name:
Title:
- -------------------------------
Name:
- -------------------------------
Name:
D-12
<PAGE>
Exhibit A to
Registration Rights Agreement
STOCKHOLDERS
<TABLE>
<CAPTION>
NAME ADDRESS
- ------------------------------------------------------------- -------------------------------
<S> <C>
Genstar Capital Partners II, L.P. Metro Tower, Suite 1170
950 Tower Lane
Foster City, CA 94404-2121
(415) 286-2350
(415) 286-2383
</TABLE>
D-13
<PAGE>
APPENDIX E
NOVAMETRIX MEDICAL SYSTEMS INC.
1996 LONG TERM INCENTIVE PLAN
SECTION 1. PURPOSE. The purposes of this Novametrix Medical Systems Inc.
1996 Long Term Incentive Plan (the "Plan") are to encourage selected employees,
officers, directors and consultants of, and other individuals providing services
to, Novametrix Medical Systems Inc. (together with any successor thereto, the
"Company") and its Affiliates (as defined below) to acquire a proprietary
interest in the growth and performance of the Company, to generate an increased
incentive to contribute to the Company's future success and prosperity thus
enhancing the value of the Company for the benefit of its shareholders, and to
enhance the ability of the Company and its Affiliates to attract and retain
exceptionally qualified individuals upon whom, in large measure, the sustained
progress, growth and profitability of the Company depend.
SECTION 2. DEFINITIONS. As used in the Plan, the following terms shall
have the meanings set forth below:
"Affiliate" shall mean (i) any entity that, directly or through one or
more intermediaries, is controlled by the Company and (ii) any entity in
which the Company has a significant equity interest, as determined by the
Committee.
"Award" shall mean any Option, Stock Appreciation Right, Restricted
Security, Performance Award, or Other Stock-Based Award granted under the
Plan.
"Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award granted under the Plan.
"Board" shall mean the Board of Directors of the Company.
"Cause", as used in connection with the termination of a Participant's
employment, shall mean (i) with respect to any Participant employed under a
written employment agreement with the Company or an Affiliate of the Company
which agreement includes a definition of "cause," "cause" as defined in such
agreement or, if such agreement contains no such definition, a material
breach by the Participant of such agreement, or (ii) with respect to any
other Participant, the failure to perform adequately in carrying out such
Participant's employment responsibilities, including any directives from the
Board, or engaging in such behavior in his personal or business life as to
lead the Committee in its reasonable judgment to determine that it is in the
best interests of the Company to terminate his employment.
"Common Stock" shall mean the common stock of the Company, $.01 par
value per share.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated thereunder.
"Committee" shall mean the Stock Option Committee or any other committee
of the Board designated by the Board to administer the Plan and composed of
not less than three outside directors, as described in Section 162(m) of the
Code, each of whom, to the extent necessary to comply with Rule 16b-3 only,
is a "disinterested person" within the meaning of Rule 16b-3 as in effect at
April 30, 1991.
"Common Shares" shall mean any or all, as applicable, of the Common
Stock and such other securities or property as may become the subject of
Awards, or become subject to Awards, pursuant to an adjustment made under
Section 4(b) of the Plan and any other securities of the Company or any
Affiliate or any successor that may be so designated by the Committee.
"Employee" shall mean any employee of the Company or of any Affiliate.
E-1
<PAGE>
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall mean (A) with respect to any property other
than the Common Shares, the fair market value of such property determined by
such methods or procedures as shall be established from time to time by the
Committee; and (B) with respect to the Common Shares, the last sale price
regular way on the date of reference, or, in case no sale takes place on
such date, the average of the high bid and low asked prices, in either case
on the principal national securities exchange on which the Common Shares are
listed or admitted to trading, or if the Common Shares are not listed or
admitted to trading on any national securities exchange, the last sale price
reported on the National Market System of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") on such date, or
the average of the closing high bid and low asked prices in the
over-the-counter market reported on NASDAQ on such date, whichever is
applicable, or if there are no such prices reported on NASDAQ on such date,
as furnished to the Committee by any New York Stock Exchange member selected
from time to time by the Committee for such purpose. If there is no bid or
asked price reported on any such date, the Fair Market Value shall be
determined by the Committee in accordance with the regulations promulgated
under Section 2031 of the Code, or by any other appropriate method selected
by the Committee.
"Good Reason", as used in connection with the termination of a
Participant's employment, shall mean (i) with respect to any Participant
employed under a written employment agreement with the Company or an
Affiliate of the Company, "good reason" as defined in such written agreement
or, if such agreement contains no such definition, a material breach by the
Company of such agreement, or (ii) with respect to any other Participant, a
failure by the Company to pay such Participant any amount otherwise vested
and due and a continuation of such failure for 30 business days following
notice to the Company thereof.
"Incentive Stock Option" shall mean an option granted under Section 6(a)
of the Plan that is intended to meet the requirements of Section 422 of the
Code or any successor provision thereto.
"Non-Qualified Stock Option" shall mean an option granted under Section
6(a) of the Plan that is not intended to be an Incentive Stock Option. Any
stock option granted by the Committee which is not designated an Incentive
Stock Option shall be deemed a Non-Qualified Stock Option.
"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
"Other Stock-Based Award" shall mean any right granted under Section
6(e) of the Plan.
"Participant" shall mean any individual granted an Award under the Plan.
"Performance Award" shall mean any right granted under Section 6(d) of
the Plan.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.
"Released Securities" shall mean securities that were Restricted
Securities but with respect to which all applicable restrictions have
expired, lapsed or been waived in accordance with the terms of the Plan or
the applicable Award Agreement.
"Restricted Securities" shall mean any Common Shares granted under
Section 6(c) of the Plan, any right granted under Section 6(c) of the Plan
that is denominated in Common Shares or any other Award under which issued
and outstanding Common Shares are held subject to certain restrictions.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act, or any successor rule or
regulation thereto as in effect from time to time.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stock Appreciation Right" shall mean any right granted under Section
6(b) of the Plan.
E-2
<PAGE>
SECTION 3. ADMINISTRATION. The Plan shall be administered by the
Committee. Subject to the terms of the Plan and applicable law, and in addition
to other express powers and authorizations conferred on the Committee by the
Plan, the Committee shall have full power and authority to: (i) designate
Participants; (ii) determine the type or types of Awards to be granted to an
eligible Employee or other individual under the Plan; (iii) determine the number
and classification of Common Shares to be covered by (or with respect to which
payments, rights or other matters are to be calculated in connection with)
Awards; (iv) determine the terms and conditions of any Award; (v) determine
whether, to what extent, and under what circumstances Awards may be settled or
exercised in cash, Common Shares, other securities, other Awards or other
property, or canceled, forfeited or suspended, and the method or methods by
which Awards may be settled, exercised, canceled, forfeited or suspended; (vi)
determine requirements for the vesting of Awards or performance criteria to be
achieved in order for Awards to vest; (vii) determine whether, to what extent
and under what circumstances cash, Common Shares, other securities, other
Awards, other property and other amounts payable with respect to an Award under
the Plan shall be deferred either automatically or at the election of the holder
thereof or of the Committee; (viii) interpret and administer the Plan and any
instrument or agreement relating to, or Award made under, the Plan; (ix)
establish, amend, suspend or waive such rules and regulations and appoint such
agents as it shall deem appropriate for the proper administration of the Plan;
and (x) make any other determination and take any other action that the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Committee, may be
made at any time and shall be final, conclusive and binding upon all Persons,
including the Company, any Affiliate, any Participant, any holder or beneficiary
of any Award, any shareholder and any Employee. Notwithstanding the foregoing,
the maximum number of Awards which may be granted to any one Participant under
this Plan in any two-year period shall not exceed 100,000 Common Shares, subject
to the adjustments provided in Section 4(b) hereof and no Awards under this Plan
shall be granted after June 30, 2006.
SECTION 4. COMMON SHARES AVAILABLE FOR AWARDS.
(a) COMMON SHARES AVAILABLE. Subject to adjustment as provided in Section
4(b):
(i) CALCULATION OF NUMBER OF COMMON SHARES AVAILABLE. The number of
Common Shares available for granting Awards under the Plan shall be 750,000,
any or all of which may be or may be based on Common Stock, any other
security which becomes the subject of Awards, or any combination thereof.
Initially, 750,000 shares of Common Stock shall be reserved for Awards
hereunder. Further, if, after the effective date of the Plan, any Common
Shares covered by an Award granted under the Plan or to which such an Award
relates, are forfeited, or if an Award otherwise terminates or is canceled
without the delivery of Shares or of other consideration, then the Common
Shares covered by such Award or to which such Award relates, or the number
of Common Shares otherwise counted against the aggregate number of Common
Shares available under the Plan with respect to such Award, to the extent of
any such forfeiture, termination or cancellation, shall again be, or shall
become, available for granting Awards under the Plan.
(ii) ACCOUNTING FOR AWARDS. For purposes of this Section 4,
(A) if an Award is denominated in or based upon Common Shares, the
number of Common Shares covered by such Award or to which such Award
relates shall be counted on the date of grant of such Award against the
aggregate number of Common Shares available for granting Awards under the
Plan and against the maximum number of Awards available to any
Participant; and
(B) Awards not denominated in Common Shares may be counted against
the aggregate number of Common Shares available for granting Awards under
the Plan and against the maximum number of Awards available to any
participant in such amount and at such time as the Committee shall
determine under procedures adopted by the Committee consistent with the
purposes of the Plan;
E-3
<PAGE>
PROVIDED, HOWEVER, that Awards that operate in tandem with (whether granted
simultaneously with or at a different time from), or that are substituted
for, other Awards may be counted or not counted under procedures adopted by
the Committee in order to avoid double counting. Any Common Shares that are
delivered by the Company, and any Awards that are granted by, or become
obligations of, the Company, through the assumption by the Company or an
Affiliate of, or in substitution for, outstanding awards previously granted
by an acquired company shall, in the case of Awards granted to Participants
who are officers or directors of the Company for purposes of Section 16 of
the Exchange Act, be counted against the Common Shares available for
granting Awards under the Plan.
(iii) SOURCES OF COMMON SHARES DELIVERABLE UNDER AWARDS. Any Common
Shares delivered pursuant to an Award may consist, in whole or in part, of
authorized and unissued Common Shares or of treasury Common Shares.
(b) ADJUSTMENTS. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Common Shares,
other securities or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Common Shares or other securities of the
Company, issuance of warrants or other rights to purchase Common Shares or other
securities of the Company, or other similar corporate transaction or event
affects the Common Shares such that an adjustment is determined by the Committee
to be appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of Common Shares (or other securities or property) which
thereafter may be made the subject of Awards, (ii) the number and kind of Common
Shares (or other securities or property) subject to outstanding Awards, and
(iii) the grant or exercise price with respect to any Award or, if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
Award; PROVIDED, HOWEVER, that the number of Common Shares subject to any Award
denominated in Common Shares shall always be a whole number.
In connection with any merger or consolidation in which the Company is not
the surviving corporation and which results in the holders of the outstanding
voting securities of the Company (determined immediately prior to such merger or
consolidation) owning less than a majority of the outstanding voting securities
of the surviving corporation (determined immediately following such merger or
consolidation), or any sale or transfer by the Company of all or substantially
all its assets or any tender offer or exchange offer for or the acquisition,
directly or indirectly, by any person or group of all or a majority of the then
outstanding voting securities of the Company, all outstanding Options under the
Plan shall become exercisable in full, notwithstanding any other provision of
the Plan or of any outstanding Options granted thereunder, on and after (i) the
fifteenth day prior to the effective date of such merger, consolidation, sale,
transfer or acquisition or (ii) the date of commencement of such tender offer or
exchange offer, as the case may be. The provisions of the foregoing sentence
shall apply to any outstanding Options which are Incentive Stock Options to the
extent permitted by Section 422(d) of the Code and such outstanding Options in
excess thereof shall, immediately upon the occurrence of the event described in
clause (i) or (ii) of the foregoing sentence, be treated for all purposes of the
Plan as Non-Qualified Stock Options and shall be immediately exercisable as such
as provided in the foregoing sentence.
SECTION 5. ELIGIBILITY. Any Employee, including any officer or
employee-director of the Company or of any Affiliate, and any consultant of, or
other individual providing services to, the Company or any Affiliate shall be
eligible to be designated a Participant. A non-employee director shall be
eligible to receive Non-Qualified Stock Options under the Plan.
SECTION 6. AWARDS.
(a) OPTIONS. The Committee is hereby authorized to grant to eligible
individuals options to purchase Common Shares (each, an "Option") which shall
contain the following terms and conditions and
E-4
<PAGE>
with such additional terms and conditions, in either case not inconsistent with
the provisions of the Plan, as the Committee shall determine:
(i) EXERCISE PRICE. The purchase price per Common Share purchasable
under an Option shall be determined by the Committee; PROVIDED, HOWEVER,
that such purchase price shall not be less than one hundred percent (100%)
of the Fair Market Value of a Common Share on the date of grant of such
Option, or such other price as required under Subsection 6(a)(iv) hereof.
(ii) TIME AND METHOD OF EXERCISE. Subject to the terms of Section
6(a)(iii), the Committee shall determine the time or times at which an
Option may be exercised in whole or in part, and the method or methods by
which, and the form or forms (including, without limitation, cash, Common
Shares, outstanding Awards, or other property, or any combination thereof,
having a Fair Market Value on the exercise date equal to the relevant
exercise price) in which, payment of the exercise price with respect thereto
may be made or deemed to have been made.
(iii) EXERCISABILITY UPON DEATH, RETIREMENT AND TERMINATION OF
EMPLOYMENT. Subject to the condition that no Option may be exercised in
whole or in part after the expiration of the Option period specified in the
applicable Award Agreement:
(A) Subject to the terms of paragraph (D) below, upon the death of a
Participant while employed or within 3 months of retirement or disability
as defined in paragraph (B) below, the Person or Persons to whom such
Participant's rights with respect to any Option held by such Participant
are transferred by will or the laws of descent and distribution may,
prior to the expiration of the earlier of: (1) the outside exercise date
determined by the Committee at the time of granting the Option, or (2)
nine months after such Participant's death, purchase any or all of the
Common Shares with respect to which such Participant was entitled to
exercise such Option immediately prior to such Participant's death, and
any Options not so exercisable will lapse on the date of such
Participant's death;
(B) Subject to the terms of paragraph (D) below, upon termination of
a Participant's employment with the Company (x) as a result of retirement
pursuant to a retirement plan of the Company or an Affiliate or
disability (as determined by the Committee) of such Participant, (y) by
the Company other than for Cause, or (z) by the Participant with Good
Reason, such Participant may, prior to the expiration of the earlier of:
(1) the outside exercise date determined by the Committee at the time of
granting the Option, or (2) three months after the date of such
termination, purchase any or all of the Common Shares with respect to
which such Participant was entitled to exercise any Options immediately
prior to such termination, and any Options not so exercisable will lapse
on such date of termination;
(C) Subject to the terms of paragraph (D) below, upon termination of
a Participant's employment with the Company under any circumstances not
described in paragraphs (A) or (B) above, such Participant's Options
shall be canceled to the extent not theretofore exercised;
(D) Upon (i) the death of the Participant, or (ii) termination of the
Participant's employment with the Company (x) by the Company other than
for Cause (y) by the Participant with Good Reason or (z) as a result of
retirement or disability as defined in paragraph (B) above, the Company
shall have the right to cancel all of the Options such Participant was
entitled to exercise at the time of such death or termination (subject to
the terms of paragraphs (A) or (B) above) for a payment in cash equal to
the excess, if any, of the Fair Market Value of one Common Share on the
date of death or termination over the exercise price of such Option for
one Common Share times the number of Common Shares subject to the Option
and exercisable at the time of such death or termination; and
(E) Upon expiration of the respective periods set forth in each of
paragraphs (A) through (C) above, the Options of a Participant who has
died or whose employment has been terminated shall be canceled to the
extent not theretofore canceled or exercised.
E-5
<PAGE>
(F) For purposes of paragraphs (A) through (D) above, the period of
service of an individual as a director or consultant of the Company or an
Affiliate shall be deemed the period of employment.
(iv) INCENTIVE STOCK OPTIONS. The following provisions shall apply
only to Incentive Stock Options granted under the Plan:
(A) No Incentive Stock Option shall be granted to any eligible
Employee who, at the time such Option is granted, owns securities
possessing more than ten percent (10%) of the total combined voting power
of all classes of securities of the Company or of any Affiliate, except
that such an Option may be granted to such an Employee if at the time the
Option is granted the option price is at least one hundred ten percent
(110%) of the Fair Market Value of the Common Shares (determined in
accordance with Section 2) subject to the Option, and the Option by its
terms is not exercisable after the expiration of five (5) years from the
date the Option is granted; and
(B) To the extent that the aggregate Fair Market Value of the Common
Shares with respect to which Incentive Stock Options (without regard to
this subsection) are exercisable for the first time by any individual
during any calendar year (under all plans of the Company and its
Affiliates) exceeds $100,000, such Options shall be treated as
Non-Qualified Stock Options. This subsection shall be applied by taking
Options into account in the order in which they were granted. If some but
not all Options granted on any one day are subject to this subsection,
then such Options shall be apportioned between Incentive Stock Option and
Non-Qualified Stock Option treatment in such manner as the Committee
shall determine. For purposes of this subsection, the Fair Market Value
of any Common Shares shall be determined, in accordance with Section 2,
as of the date the Option with respect to such Common Shares is granted.
(v) TERMS AND CONDITIONS OF OPTIONS GRANTED TO
DIRECTORS. Notwithstanding any provision contained in the Plan to the
contrary, during any period when any member of the Committee shall not be a
"disinterested person" as defined in Rule 16b-3, as such Rule was in effect
at April 30, 1991, then, the terms and conditions of Options granted under
the Plan to any director of the Company during such period shall be as
follows:
(A) The price at which each Common Share subject to an option may be
purchased shall, subject to any adjustments which may be made pursuant to
Section 4, in no event be less than the Fair Market Value of a Common
Share on the date of grant, and provided further that in the event the
option is intended to be an Incentive Stock Option and the optionee owns
on the date of grant securities possessing more than ten percent (10%) of
the total combined voting power of all classes of securities of the
Company or of any Affiliate, the price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per Common Share
on the date of grant.
(B) The Option may be exercised to purchase Common Shares covered by
the Option not sooner than six (6) months following the date of grant.
The Option shall terminate and no Common Shares may be purchased
thereunder more than ten (10) years after the date of grant, provided
that if the Option is intended to be an Incentive Stock Option and the
Optionee owns on the date of grant securities possessing more than ten
percent (10%) of the total combined voting power of all classes of
securities of the Company or of any Affiliate, the Option shall terminate
and no Common Shares may be purchased thereunder more than five (5) years
after the date of grant.
(C) The maximum number of Common Shares which may be subject to
options granted to all directors pursuant to this Section 6(a)(v) shall
be 300,000 shares in the aggregate. The maximum number of Common Shares
which may be subject to options granted in any two-year period to any
director of the Company who is an Employee shall be 100,000 shares and
the
E-6
<PAGE>
maximum number of Common Shares which may be subject to options granted
in any two-year period to any director of the Company who is not an
Employee shall be 10,000 shares.
(b) STOCK APPRECIATION RIGHTS. The Committee is hereby authorized to grant
to eligible Employees "Stock Appreciation Rights." Each Stock Appreciation Right
shall consist of a right to receive the excess of (i) the Fair Market Value of
one Common Share on the date of exercise or, if the Committee shall so determine
in the case of any such right other than one related to any Incentive Stock
Option, at any time during a specified period before or after the date of
exercise over (ii) the grant price of the right as specified by the Committee,
which shall not be less than one hundred percent (100%) of the Fair Market Value
of one Common Share on the date of grant of the Stock Appreciation Right (or, if
the Committee so determines, in the case of any Stock Appreciation Right
retroactively granted in tandem with or in substitution for another Award, on
the date of grant of such other Award). Subject to the terms of the Plan and any
applicable Award Agreement, the grant price, term, methods of exercise, methods
of settlement, and any other terms and conditions of any Stock Appreciation
Right granted under the Plan shall be as determined by the Committee. The
Committee may impose such conditions or restrictions on the exercise of any
Stock Appreciation Right as it may deem appropriate.
(c) RESTRICTED SECURITIES.
(i) ISSUANCE. The Committee is hereby authorized to grant to eligible
Employees "Restricted Securities" which shall consist of the right to
receive, by purchase or otherwise, Common Shares which are subject to such
restrictions as the Committee may impose (including, without limitation, any
limitation on the right to vote such Common Shares or the right to receive
any dividend or other right or property), which restrictions may lapse
separately or in combination at such time or times, in such installments or
otherwise, as the Committee may deem appropriate.
(ii) REGISTRATION. Restricted Securities granted under the Plan may be
evidenced in such manner as the Committee may deem appropriate, including,
without limitation, book-entry registration or issuance of a stock
certificates or certificates. In the event any stock certificate is issued
in respect of Restricted Securities granted under the Plan, such certificate
shall be registered in the name of the Participant and shall bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Securities.
(iii) FORFEITURE. Except as otherwise determined by the Committee,
upon termination of a Participant's employment for any reason during the
applicable restriction period, all of such Participant's Restricted
Securities which had not become Released Securities by the date of
termination of employment shall be forfeited and reacquired by the Company;
PROVIDED, HOWEVER, that the Committee may, when it finds that a waiver would
be in the best interests of the Company, waive in whole or in part any or
all remaining restrictions with respect to such Participant's Restricted
Securities. Unrestricted Common Shares, evidenced in such manner as the
Committee shall deem appropriate, shall be issued to the holder of
Restricted Securities promptly after such Restricted Securities become
Released Securities.
(d) PERFORMANCE AWARDS. The Committee is hereby authorized to grant to
eligible Employees "Performance Awards." Each Performance Award shall consist of
a right, (i) denominated or payable in cash, Common Shares, other securities or
other property (including, without limitation, Restricted Securities), and (ii)
which shall confer on the holder thereof rights valued as determined by the
Committee and payable to, or exercisable by, the holder of the Performance
Award, in whole or in part, upon the achievement of such performance goals
during such performance periods as the Committee shall establish. Subject to the
terms of the Plan and any applicable Award Agreement, the performance goals to
be achieved during any performance period, the length of any performance period,
the amount of any Performance Award granted, the termination of a Participant's
employment and the amount of any payment or transfer to be made pursuant to any
Performance Award shall be determined by the Committee and by the other terms
and conditions of any Performance Award. The Committee shall issue performance
goals prior to the commencement of the performance period to which such
performance goals pertain.
E-7
<PAGE>
(e) OTHER STOCK-BASED AWARDS. The Committee is hereby authorized to grant
to eligible Employees "Other Stock-Based Awards." Each Other Stock-Based Award
shall consist of a right (i) which is other than an Award or right described in
Section 6(a), (b), (c) or (d) above and (ii) which is denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or related to,
Common Shares (including, without limitation, securities convertible into Common
Shares) as are deemed by the Committee to be consistent with the purposes of the
Plan; PROVIDED, HOWEVER, that such right shall comply, to the extent deemed
desirable by the Committee, with Rule 16b-3 and applicable law. Subject to the
terms of the Plan and any applicable Award Agreement, the Committee shall
determine the terms and conditions of Other Stock-Based Awards. Common Shares or
other securities delivered pursuant to a purchase right granted under this
Section 6(e) shall be purchased for such consideration, which may be paid by
such method or methods and in such form or forms, including, without limitation,
cash, Common Shares, other securities, other Awards, other property, or any
combination thereof, as the Committee shall determine.
(f) GENERAL.
(i) NO CASH CONSIDERATION FOR AWARDS. Awards may be granted for no
cash consideration or for such minimal cash consideration as may be required
by applicable law.
(ii) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with, or in substitution for any other Award, except that in no event
shall an Incentive Stock Option be granted together with a Non-Qualified
Stock Option in such a manner that the exercise of one Option affects the
right to exercise the other. Awards granted in addition to or in tandem with
other Awards may be granted either at the same time as or at a different
time from the grant of such other awards.
(iii) FORMS OF PAYMENT UNDER AWARDS. Subject to the terms of the Plan
and of any applicable Award Agreement, payments or transfers to be made by
the Company or an Affiliate upon the grant, exercise or payment of an Award
may be made in such form or forms as the Committee shall determine,
including, without limitation, cash, Common Shares, other securities, other
Awards, or other property, or any combination thereof, and may be made in a
single payment or transfer, in installments, or on a deferred basis, in each
case in accordance with rules and procedures established by the Committee.
Such rules and procedures may include, without limitation, provisions for
the payment or crediting of reasonable interest on installment or deferred
payments. In accordance with the above, the Committee may elect (i) to pay a
Participant (or such Participant's permitted transferee) upon the exercise
of an Option in whole or in part, in lieu of the exercise thereof and the
delivery of Common Shares thereunder, an amount of cash equal to the excess,
if any, of the Fair Market Value of one Common Share on the date of such
exercise over the exercise price of such Option for one Common Share times
the number of Common Shares subject to the Option or portion thereof so
exercised or (ii) to settle other stock denominated Awards in cash.
(iv) LIMITS ON TRANSFER OF AWARDS.
(A) No award (other than Released Securities), and no right under any
such Award, may be assigned, alienated, pledged, attached, sold or
otherwise transferred or encumbered by a Participant otherwise than by
will or by the laws of descent and distribution (or, in the case of
Restricted Securities, to the Company) and any such purported assignment,
alienation, pledge, attachment, sale or other transfer or encumbrance
shall be void and unenforceable against the Company or any Affiliate.
(B) Each award, and each right under any Award, shall be exercisable,
during the Participant's lifetime only by the Participant or if
permissible under applicable law, by the Participant's guardian or legal
representative.
(v) TERMS OF AWARDS. The term of each Award shall be for such period
as may be determined by the Committee; PROVIDED, HOWEVER, that in no event
shall the term of any Option exceed a period of ten years from the date of
its grant.
E-8
<PAGE>
(vi) RULE 16B-3 SIX-MONTH LIMITATIONS. To the extent required in order
to maintain the exemption provided under Rule 16b-3 only, any equity
security offered pursuant to the Plan must be held for at least six months
after the date of grant, and with respect to any derivative security issued
pursuant to the Plan, at least six months must elapse from the date of
acquisition of such derivative security to the date of disposition of the
derivative security (other than upon exercise or conversion) or its
underlying equity security. Terms used in the preceding sentence shall, for
the purposes of such sentence only, have the meanings, if any, assigned or
attributed to them under Rule 16b-3.
(vii) COMMON SHARE CERTIFICATES. All certificates for Common Shares
delivered under the Plan pursuant to any Award or the exercise thereof shall
be subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the Plan or the rules, regulations, and
other requirements of the Securities and Exchange Commission, any stock
exchange upon which such Common Shares are then listed, and any applicable
Federal or state securities laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to
such restrictions.
(viii) DELIVERY OF COMMON SHARES OR OTHER SECURITIES AND PAYMENT BY
PARTICIPANT OF CONSIDERATION. No Common Shares or other securities shall be
delivered pursuant to any Award until payment in full of any amount required
to be paid pursuant to the Plan or the applicable Award Agreement is
received by the Company. Such payment may be made by such method or methods
and in such form or forms as the Committee shall determine, including,
without limitation, cash, Common Shares, other securities, other Awards or
other property, or any combination thereof; PROVIDED that the combined
value, as determined by the Committee, of all cash and cash equivalents and
the Fair Market Value of any such Common Shares or other property so
tendered to the Company, as of the date of such tender, is at least equal to
the full amount required to be paid pursuant to the Plan or the applicable
Award Agreement to the Company.
SECTION 7. AMENDMENTS; ADJUSTMENTS AND TERMINATION. Except to the extent
prohibited by applicable law and unless otherwise expressly provided in an Award
Agreement or in the Plan:
(a) AMENDMENTS TO THE PLAN. The Board may amend, alter, suspend,
discontinue, or terminate the Plan without the consent of any shareholder,
Participant, other holder or beneficiary of an Award, or other Person; PROVIDED,
HOWEVER, that, subject to the Company's rights to adjust Awards under Sections
7(c) and (d), any amendment, alteration, suspension, discontinuation, or
termination that would impair the rights of any Participant, or any other holder
or beneficiary of any Award theretofore granted, shall not to that extent be
effective without the consent of such Participant, other holder or beneficiary
of an Award, as the case may be; and PROVIDED FURTHER, HOWEVER, that
notwithstanding any other provision of the Plan or any Award Agreement, without
the approval of the shareholders of the Company no such amendment, alteration,
suspension, discontinuation, or termination shall be made that would:
(i) increase the total number of Common Shares available for Awards
under the Plan, except as provided in Section 4 hereof; or
(ii) otherwise cause the Plan to cease to comply with any tax or
regulatory requirement, including for these purposes any approval or other
requirement which is or would be a prerequisite for exemptive relief from
Section 16(b) of the Exchange Act.
(b) AMENDMENTS TO AWARDS. The Committee may waive any conditions or rights
under, amend any terms of, or alter, suspend, discontinue, cancel or terminate,
any Award theretofore granted, prospectively or retroactively; PROVIDED,
HOWEVER, that, subject to the Company's rights to adjust Awards under Sections
7(c) and (d), any amendment, alteration, suspension, discontinuation,
cancellation or termination that would impair the rights of any Participant or
holder or beneficiary of any Award theretofore granted, shall not to that extent
be effective without the consent of such Participant or holder or beneficiary of
an Award, as the case may be.
(c) ADJUSTMENT OF AWARDS UPON CERTAIN ACQUISITIONS. In the event the
Company or any Affiliate shall assume outstanding employee awards or the right
or obligation to make future such awards in
E-9
<PAGE>
connection with the acquisition of another business or another corporation or
business entity, the Committee may make such adjustments, not inconsistent with
the terms of the Plan, in the terms of Awards as it shall deem appropriate in
order to achieve reasonable comparability or other equitable relationship
between the assumed awards and the Awards granted under the Plan as so adjusted.
(d) ADJUSTMENTS OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NON-RECURRING EVENTS. The Committee is hereby authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards in recognition
of unusual or non-recurring events (including, without limitation, the events
described in Section 4(b) hereof) affecting the Company, any Affiliate, or the
financial statements of the Company or any Affiliate, or of changes in
applicable laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan.
SECTION 8. GENERAL PROVISIONS.
(a) NO RIGHT TO AWARDS. No Employee or other Person shall have any claim
to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Employees, or holders or beneficiaries of Awards
under the Plan. The terms and conditions of Awards need not be the same with
respect to each recipient.
(b) DELEGATION. Subject to the terms of the Plan and applicable law, the
Committee may delegate to one or more officers or managers of the Company or any
Affiliate, or to a committee of such officers or managers, the authority,
subject to such terms and limitations as the Committee shall determine, to grant
Awards to, or to cancel, modify, waive rights with respect to, alter,
discontinue, suspend, or terminate Awards; PROVIDED, HOWEVER, that, no such
delegation shall be permitted with respect to Awards held by Employees who are
officers or directors of the Company for purposes of Section 16 of the Exchange
Act, or any successor section thereto or who are otherwise subject to such
Section.
(c) CORRECTION OF DEFECTS, OMISSIONS, AND INCONSISTENCIES. The Committee
may correct any defect, supply any omission, or reconcile any inconsistency in
the Plan or any Award in the manner and to the extent it shall deem desirable to
carry the Plan into effect.
(d) WITHHOLDING. The Company or any Affiliate shall be authorized to
withhold from any Award granted, from any payment due or transfer made under any
Award or under the Plan or from any compensation or other amount owing to a
Participant the amount (in cash, Common Shares, other securities, other Awards,
or other property) of withholding taxes due in respect of an Award, its
exercise, or any payment or transfer under such Award or under the Plan and to
take such other action as may be necessary in the opinion of the Company or
Affiliate to satisfy all obligations for the payment of such taxes.
(e) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.
(f) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the Company or
any Affiliate. Further, the Company or an Affiliate may at any time dismiss a
Participant from employment, free from any liability, or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(g) GOVERNING LAW. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Delaware and applicable Federal law.
(h) SEVERABILITY. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as
to any Person or Award under any law deemed applicable by the Committee, such
provision shall be construed or deemed amended to conform to applicable laws, or
if it cannot be construed or deemed amended without, in the determination of the
Committee, materially
E-10
<PAGE>
altering the intent of the Plan or the Award, such provision shall be stricken
as to such jurisdiction, Person or Award and the remainder of the Plan and any
such Award shall remain in full force and effect.
(i) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
(j) NO FRACTIONAL COMMON SHARES. No fractional Common Shares shall be
issued or delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash, other securities, or other property shall be paid or
transferred in lieu of any fractional Common Shares or whether such fractional
Common Shares or any rights thereto shall be canceled, terminated, or otherwise
eliminated.
(k) HEADINGS. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 9. ADOPTION, APPROVAL AND EFFECTIVE DATE OF THE PLAN. The Plan
shall be considered adopted and shall become effective on the date the Plan is
approved by the Board; provided, however, that the Plan and any Awards granted
under the Plan shall be void, if the shareholders of the Company shall not have
approved the adoption of the Plan within twelve (12) months after the effective
date, by a majority of votes cast thereon at a meeting of shareholders duly
called and held for such purpose.
E-11
<PAGE>
IMPORTANT
1. Be sure to vote on the WHITE proxy card. We strongly urge you not to sign or
return any green proxy cards you receive from the 13D group, even as a
protest vote against their nominees. Remember, each properly executed proxy
you submit revokes all prior proxies.
2. If any of your shares are held in the name of a bank, broker or other
nominee, please contact the party responsible for your account and instruct
them to vote on the WHITE proxy card "FOR" the Novametrix board nominees and
"FOR" the Novametrix merger proposal.
3. IF YOU HAVE ALREADY SIGNED AND RETURNED THE 13D GROUP'S PROXY YOU CAN REVOKE
THAT PROXY BY SIGNING AND RETURNING A LATER-DATED WHITE PROXY WHICH IS
INCLUDED WITH THE ENCLOSED PROXY MATERIALS. ONLY YOUR LATEST DATED PROXY
COUNTS.
If you have any comments or questions please feel free to call us at (800)
243-3444 or Georgeson & Company, the firm assisting us in the solicitation of
proxies, at (800) 223-2064. Your opinions are important to us.
<PAGE>
/X/ PLEASE MARK YOUR VOTES AS IN THIS
EXAMPLE P R O X Y
NOVAMETRIX MEDICAL SYSTEMS INC.
PROXY--ANNUAL MEETING OF STOCKHOLDERS--NOVEMBER 25, 1996
COMMON STOCK
The undersigned, a stockholder of NOVAMETRIX MEDICAL SYSTEMS INC., does
hereby appoint William J. Lacourciere and Joseph A. Vincent, or either of them,
with full power of substitution, the undersigned's proxies, to appear and vote
at the Annual Meeting of Stockholders to be held on November 25, 1996 at 2:00 P.
M., local time, or at any adjournments thereof, upon such matters as may come
before the Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby instructs said proxies or their substitutes to vote
as specified below on the following matters and in accordance with their
judgment on other matters which may properly come before the Meeting.
The Board of Directors recommends a vote "FOR" each item.
<TABLE>
<S><C> <C>
1. Approval and adoption of the Merger Proposal.
FOR / / AGAINST / / ABSTAIN / /
2. Approval of the 1996 Long Term Incentive Plan.
FOR / / AGAINST / / ABSTAIN / /
3. Election of Class A Directors.
FOR both nominees listed below / / WITHHOLD authority for both nominees listed below / /
(except as marked to the contrary below)
</TABLE>
Michael J. Needham and Joseph A. Vincent
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
------------------------------------------------------------------------
<TABLE>
<S><C> <C>
4. Ratification of appointment of Ernst & Young LLP as independent auditors for fiscal 1997.
FOR / / AGAINST / / ABSTAIN / /
</TABLE>
(CONTINUED AND TO BE COMPLETED ON REVERSE SIDE)
<PAGE>
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
(CONTINUED FROM OTHER SIDE)
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS INDICATED AS TO ANY OF THE ITEMS SUCH SHARES WILL BE VOTED IN FAVOR
OF THE ITEMS FOR WHICH NO DIRECTION IS INDICATED.
IMPORTANT: Before returning this Proxy, please sign your name or names on
the line(s) below exactly as shown hereon. Executors, administrators, trustees,
guardians or corporate officers should indicate their full titles when signing.
Where shares are registered in the names of joint tenants or trustees, each
joint tenant or trustee should sign.
Dated
- ---------------------------------------, 1996
- ---------------------------------------------(L.S.)
- ---------------------------------------------(L.S.)
Stockholder(s)
Sign Here
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
/X/ PLEASE MARK YOUR VOTES AS IN THIS
EXAMPLE P R O X Y
"5" FIRST FIDELITY INCORPORATED: 40,000 PREFERRED SHARES (440,000 VOTES)
NOVAMETRIX MEDICAL SYSTEMS INC.
PROXY--ANNUAL MEETING OF STOCKHOLDERS--NOVEMBER 25, 1996
SERIES B PREFERRED STOCK
The undersigned, a stockholder of NOVAMETRIX MEDICAL SYSTEMS INC., does
hereby appoint WILLIAM J. LACOURCIERE and JOSEPH A. VINCENT, or either of them,
with full power of substitution, the undersigned's proxies, to appear and vote
all shares of Series B Preferred Stock of the Company which the undersigned is
entitled to vote at the Annual Meeting of Stockholders to be held on November
25, 1996 at 2:00 P.M., local time, or at any adjournments thereof, upon such
matters as may properly come before the Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS INDICATED AS TO ANY OF THE ITEMS SUCH SHARES WILL BE VOTED IN FAVOR
OF THE ITEMS FOR WHICH NO DIRECTION IS INDICATED.
The Board of Directors recommends a vote "FOR" each item.
<TABLE>
<S><C> <C>
1. Approval and adoption of the Merger Proposal.
FOR / / AGAINST / / ABSTAIN / /
2. Approval of the 1996 Long Term Incentive Plan.
FOR / / AGAINST / / ABSTAIN / /
3. Election of Class A Directors.
FOR both nominees listed below / / WITHHOLD authority to vote
for both nominees listed below / /
</TABLE>
Michael J. Needham and Joseph A. Vincent
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
- --------------------------------------------------------------------------------
<TABLE>
<S><C> <C>
4. Ratification of appointment of Ernst & Young LLP as independent auditors for fiscal 1997.
FOR / / AGAINST / / ABSTAIN / /
</TABLE>
(CONTINUED AND TO BE COMPLETED ON REVERSE SIDE)
<PAGE>
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
(CONTINUED FROM OTHER SIDE)
The undersigned hereby instructs said proxies or their substitutes to vote
as specified above on each of the above matters and in accordance with their
judgment on any other matters which may properly come before the Meeting.
IMPORTANT: Before returning this Proxy, please sign your name or names on
the line(s) below exactly as shown hereon. Executors, administrators, trustees,
guardians or corporate officers should indicate their full titles when signing.
Where shares are registered in the names of joint tenants or trustees, each
joint tenant or trustee should sign.
Dated
- ---------------------------------------, 1996
- ---------------------------------------------(L.S.)
- ---------------------------------------------(L.S.)
Stockholder(s)
Sign Here
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD USING THE ENCLOSED ENVELOPE.
