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EXHIBIT 99.1
December 22, 2000
Dear Colorado MEDtech Shareholder:
As promised, I'm writing to you today to give you an update of recent activities
at Colorado MEDtech. When I took over management of the company I emphasized
that quality and infrastructure would be areas of key focus. Our vision is to be
the leading independent medical device outsourcing company. As an ISO certified
and federally regulated medical device company, we continue to invest
aggressively in our manufacturing processes in order to maintain superior
quality for our customers. Your new management team is very experienced and we
are working intensely to bring the Colorado MEDtech contract manufacturing
operation to a world class level. We continue to experience growth in bookings
in its manufacturing, imaging and CIVCO business units. Even with the many
positive steps we are taking, we still face challenges.
As you may know, we announced yesterday we anticipate that we will post an
operating loss of approximately $700,000 for our second quarter ended December
31, 2000, which includes one-time charges of not less than $250,000 related to
the company's response to the unsolicited acquisition proposal by HEI, Inc.
These results are lower than analyst estimates. Revenues for the quarter are
expected to be slightly ahead of prior quarter revenues of $17.1 million.
The preliminary estimates primarily reflect increased expenses and reduced
revenues as a result of addressing manufacturing and quality systems issues.
During the quarter, we invested heavily in our manufacturing and quality
systems, and we expect the investment to result in long-term cost-savings and
improved performance and profitability. Our previous guidance included
substantial investment in manufacturing systems and processes. However, as our
new management team reviewed these systems and processes, the need for further
change recently became evident and our management team responded by increasing
training and fortifying our systems and processes. As a result, spending for
these matters exceeded the original estimates and we experienced delays in
certain production projects. The increased investment and reduced shipments have
had a negative impact on results for the current quarter and are expected to
have an impact for the remaining two quarters of the company's fiscal year.
The anticipated quarter results also include the effect of an increase in
research and development expense associated with our x-ray generator product.
These results are not what we anticipated in our plan, but we as a management
team have concluded that aggressively accelerating our investment in
infrastructure and quality improvements is necessary for the long-term success
of the company. Frank Maguire, our Chief Operations Officer, and I have shared
our plans with key clients and they have agreed with our
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aggressive program to strengthen our manufacturing and quality systems. Your new
management is absolutely committed to improving our position as a leading
medical device company.
As many of you know, in August 2000 our Board of Directors authorized a stock
repurchase program, pursuant to which the company is authorized to purchase up
to 1.2 million shares of Colorado MEDtech stock. The implementation of such a
program is subject to several regulatory and corporate issues and
considerations, which have the effect of controlling the timing of the
purchases. While we were not able to implement the program as early as we would
have liked, I am pleased to report that we have been able to purchase 21,700
shares to date this quarter at an average cost per share of $5.01. It is our
intention to continue the repurchases from time to time as the situation
permits.
I believe that it is important for your management team to have interests that
are aligned with those of the shareholders in general. We strive to do that
through our executive compensation program, which puts significant emphasis on
stock options. However, the Board of Directors and I also believe that the
interests of shareholders are best served if management, in addition to having
the ability to profit from options, owns Colorado MEDtech stock. To that end,
the Board of Directors has proposed the authorization of a loan program to
certain senior executives to enable them to purchase Colorado MEDtech stock in
the open market.
The program, to be administered by the Compensation Committee of the Board of
Directors, would make available loans of up to a total of $1 million to senior
officers of the company selected by the Board. The loan proceeds must be used
only for the purchase of Colorado MEDtech stock from parties other than the
company. The loans will be with full recourse against the borrowers, and will be
secured by the Colorado MEDtech stock purchased with loan proceeds. The loans
would have a term of five years and bear interest at a rate equal to the prime
interest rate plus one-half percent, adjusted annually. Interest would be
payable annually and the principal would be payable at maturity. The eligible
officers may take out the loans any time prior to June 30, 2001, unless such
date is extended by the Board.
In considering this loan program, the Board of Directors stated that it is in
the best interests of the company and its shareholders to authorize the loan
program. The Board believes that the terms of the loans are fair to the company
and will enable the senior officer group of the company to purchase stock of the
company, thereby further aligning their interests with those of all
shareholders.
Because I am also a director of the company and this proposed transaction
involves a loan to me, the transaction is a "conflicting interest transaction"
under Section 7-108-501 of the Colorado Business Corporation Act. That statute
requires that the company provide 10 days written notice to shareholders of such
a proposed authorization of a loan by the company to a director of the company.
This letter constitutes such written notice. The Board of Directors will
consider the authorization of such a loan eleven days after the date of this
letter. The Board of Directors is expected to approve the loan program. If the
program is approved, I and the others chosen to participate will be permitted to
borrow money from the company for the purpose and on the terms stated above.
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Thank you for your continued support. I know I speak for your management team
when I express our enthusiasm and strong belief in the ongoing opportunity of
Colorado MEDtech. I wish you all a happy holiday season.
Sincerely,
/s/ Stephen K. Onody
Stephen K. Onody
President and
Chief Executive Officer
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ADDITIONAL INFORMATION
The statements in this letter that are not historical facts are forward-looking
statements that represent management's beliefs and assumptions based on
currently available information. Forward-looking statements can be identified by
the use of words such as "believes," "intends," "may," "will," "should,"
"anticipated," "expected" or comparable terminology or by discussions of
strategy. Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it cannot assure that these
expectations will prove to be correct. Such statements involve risks and
uncertainties including, but not limited to, the risk that the Company's
existing level of orders may not be indicative of the level or trend of future
orders, the risk that the Company may not successfully complete the work
encompassed by current or future orders, the risk that unforeseen technical or
production difficulties may adversely impact project timing and financial
performance, the risk that the management changes will not produce the desired
results, the risk of potential litigation, the risks associated with regulation
by the Federal Food and Drug Administration, the risk that acquired companies
cannot be successfully integrated with the Company's existing operations and the
risk that a downturn in general economic conditions or customer budgets may
adversely affect research and development and capital expenditure budgets of
potential customers upon which the Company is dependent. Should one or more of
these risks materialize (or the consequences of such a development worsen), or
should the underlying assumptions prove incorrect, actual results could differ
materially from those forecasted or expected. These factors are more fully
described in the Company's documents filed from time to time with the Securities
and Exchange Commission. The Company disclaims any intention or obligation to
update publicly or revise such statements whether as a result of new
information, future events or otherwise.
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