Filed by Colorado MEDtech, Inc.
Pursuant to Rule 425 under the Securities
Act of 1933 and deemed filed pursuant
to Rules 14a-12 and 14d-9 of the
Securities Exchange Act of 1934
Subject Company: Colorado MEDtech, Inc.
Commission File Number: 000-12471
THE FOLLOWING LETTER TO SHAREHOLDERS OF COLORADO MEDTECH, INC.IS A PRELIMINARY
COMMUNICATION PRIOR TO THE COMMENCEMENT OF AN
EXCHANGE OFFER AND A PROXY SOLICITATION
[COLORADO MEDTECH LETTERHEAD]
September 21, 2000
Dear Colorado MEDtech Shareholder:
I want to bring you up to date on recent developments affecting
Colorado MEDtech, Inc.
On August 31, 2000, in a filing required by the Securities and
Exchange Commission, Anthony Fant, Chief Executive Officer of HEI,
Inc., disclosed that he had been acquiring Colorado MEDtech shares
since early May and had accumulated 1,214,300 shares, or about 9.9% of
the total outstanding. In his filing, he stated that he wanted to take
over control of your Company "in whatever manner and through whatever
means he may determine to be the most effective and most efficient."
Subsequently, on September 11, 2000, Mr. Fant sent a letter to
your Board of Directors proposing a transaction in which HEI would
acquire your Company for HEI common stock "having a value" of $12 per
Colorado MEDtech share. However, HEI's proposal limited the number of
HEI shares that would be issued to 8.5 million which means that the
value of the proposed transaction would be less than $12 per share if
HEI shares trade below a specified price. You should know that HEI
shares closed yesterday at $16.94, but have traded as low as $5.00 and
as high as $25.38 within the past year. In fact, HEI shares had never
traded above $17 a share until late August, 2000. HEI, which Mr. Fant
took over a few years ago, is a smaller company than Colorado MEDtech.
On the same day it delivered its proposal to the Company, HEI
filed suit against the Company and its directors in a Colorado federal
court. HEI's suit alleges that certain provisions of your Company's
bylaws and its shareholders' rights plan wrongfully limit the rights
of shareholders to hold a special meeting to elect directors. HEI said
it intends to demand a special meeting of shareholders to replace the
Company's directors. We will defend this litigation vigorously and
intend to hold our regularly scheduled annual meeting in November.
It is important for you to know that at this time, neither Mr.
Fant nor HEI has begun a formal offer for your Colorado MEDtech
shares. Neither Mr. Fant's Schedule 13D nor the HEI press releases or
lawsuit reveal Mr. Fant's and HEI's plans for Colorado MEDtech should
they obtain control.
If Mr. Fant or HEI begins an offer, your Board, consistent with
its fiduciary responsibility to represent the best interests of all
Colorado MEDtech shareholders, will review the offer and report its
findings and recommendations to all shareholders. In the meantime, I
urge you not to act hastily with respect to your investment in the
Company.
At this time, we do not know what further steps, if any, Mr. Fant
or HEI may contemplate or undertake. However, we believe that Mr. Fant
would not have invested over $8.4 million toward the purchase of
Colorado MEDtech shares unless he was convinced, as we are, that the
shares are worth more than the price paid.
I will keep you informed of further developments. Thank you for
your interest and support.
Sincerely,
/s/ Stephen K. Onody,
President & Chief Executive Officer
* * * *
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'' 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 that acquired companies cannot be successfully integrated
with the Company's existing operations, 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, and
developments that may occur regarding Mr. Fant and HEI, Inc.
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 assumes no duty to update any forward-looking
statements.
If an exchange offer commences, the Company will file a
solicitation/recommendation statement regarding the exchange
offer. If a proxy solicitation commences, the Company and certain
of its officers and directors may be deemed to be participants in
the solicitation of proxies from the Company's shareholders with
respect to the transactions contemplated above, and a proxy
statement to solicit proxies from the Company's security holders
may be required to be filed.
Information regarding such officers and directors is
included in the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1999, in its proxy statement for its
1999 annual meeting and in its filing with the SEC on September
21, 2000 filed pursuant to Rule 425 under the Securities Act of
1933, as amended. These documents are available free of charge at
the Securities and Exchange Commission web site and from the
Company's contact, each listed below.
The Company has retained Wasserstein Perella & Co.
("Wasserstein Perella") to assist the Company in evaluating its
response to HEI's proposal, for which they received and may
receive substantial fees, as well as reimbursement of reasonable
out-of-pocket expenses. In addition, the Company has agreed to
indemnify Wasserstein Perella and certain persons related to them
against certain liabilities, including certain liabilities under
the federal securities laws, arising out of their engagement.
Wasserstein Perella is an investment banking firm that provides a
full range of financial services for institutional and individual
clients. Wasserstein Perella does not admit that it or any of its
directors, officers or employees is a "participant" as defined in
Schedule 14A promulgated under the Securities Exchange Act of
1934, as amended, in any solicitation, or that Schedule 14A
requires the disclosure of certain information concerning
Wasserstein Perella.
INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ ANY
SOLICITATION/ RECOMMENDATION STATEMENT, PROXY SOLICITATION
STATEMENT AND ANY OTHER RELEVANT DOCUMENTS TO BE FILED BY THE
COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION WHEN THEY
BECOME AVAILABLE, BECAUSE EACH OF THESE DOCUMENTS WILL CONTAIN
IMPORTANT INFORMATION. INVESTORS AND SECURITY HOLDERS MAY OBTAIN
A FREE COPY OF THESE DOCUMENTS WHEN AVAILABLE AND OTHER DOCUMENTS
FILED BY THE COMPANY WITH THE SEC AT THE SEC'S INTERNET WEB SITE
AT WWW.SEC.GOV. THESE DOCUMENTS MAY ALSO BE OBTAINED FREE FROM
THE COMPANY BY DIRECTING SUCH REQUESTS TO: PETER J. JENSEN,
SECRETARY, COLORADO MEDTECH, INC., 6175 LONGBOW DRIVE, BOULDER,
CO 80301, TELEPHONE: (303) 530-2660.
PARTICIPANT INFORMATION
HEI, Inc. has announced an intention to solicit proxies from
shareholders of Colorado MEDtech, Inc. (the "Company") to cause
the election of a new slate of directors of the Company. In the
event of such a solicitation, the Company, its directors and
certain of the Company's officers may be deemed to be
"participants" on behalf of the Company in any such solicitation.
Set forth below is certain information regarding these directors
and certain officers of the Company that supplements and updates
information previously reported with respect to such persons in
the Company's Annual Report on Form 10-K for the year ended June
30, 1999 and its definitive Proxy Statement for an Annual Meeting
of Shareholders dated October 15, 1999.
Directors:
John V. Atanasoff
Stephen K. Onody(1)
Dean A. Leffingwell
Robert L. Sullivan
Clifford W. Mezey
John E. Wolfe
Ira M. Langenthal, Ph.D.
John P. Jenkins
Officers:
Gregory A. Gould, Chief Financial Officer and Treasurer
Peter J. Jensen, Vice President, General Counsel and Secretary
_________________________________
(1) Mr. Onody is also the Chief Executive Officer and President of the Company
Employment Relationships
Messrs. Atanasoff, Gould, Onody and Jensen are currently employed by the
Company.
For the year ended June 30, 2000, (1) Mr. Jensen was granted an option to
purchase 10,000 shares of the Company's common stock under the Colorado MEDtech,
Inc. Stock Option Plan (the "Plan") at a price of $3.82 per share, which options
vest in two equal annual installments of 5,000 shares beginning on May 24, 2001,
subject to his continued employment, and (2) Mr. Onody was granted an option to
purchase 20,000 shares of the Company's common stock under the Plan at a price
of $3.82 per share, which options vest in two equal annual installments of
10,000 shares beginning on May 24, 2001, subject to his continued employment.
Both such options expire in May 2005.
In addition, (1) on August 25, 2000, Mr. Jensen was granted an option to
purchase 15,000 shares of the Company's common stock under the Plan at a price
of $7.94 per share, which options vest in four equal annual installments of
3,750 shares beginning on August 26, 2001, subject to his continued employment
and (2) on August 24, 2000, Mr. Onody was granted an option to purchase 270,000
shares of the Company's common stock under the Plan at a price of $7.56 per
share, which options vest in three equal annual installments of 90,000 shares
beginning on August 26, 2001, subject to his continued employment. Both such
options expire in August 2010.
Since June 30, 1999, the Company has granted the following options to Mr.
Gould: (i) on November 19, 1999, an option to purchase 5,000 shares of the
Company's common stock under the Plan at a price of $13.19 per share, which
options vest in four equal annual installments of 1,250 shares beginning on
November 19, 2000 and expiring on November 19, 2005; (ii) on May 23, 2000, an
option to purchase 10,000 shares of the Company's common stock under the Plan at
a price of $3.82 per share, which options vest in two equal annual installments
of 5,000 shares beginning on May 23, 2001 and expiring on May 23, 2005; and
(iii) on August 25, 2000, an option to purchase 20,000 shares of the Company's
common stock under the Plan at a price of $7.94 per share, which options vest in
four equal annual installments of 5,000 shares beginning on August 25, 2001 and
expiring on August 25, 2010. The vesting of all three of Mr. Gould's options is
subject to his continued employment.
For the current year, the Company pays Mr. Atanasoff salary at the annual
rate of $100,000, Mr. Gould a salary at the annual rate of $115,000, Mr. Onody
a salary at the annual rate of $200,000 and Mr. Jensen a salary at the annual
rate of $130,000.
In June 2000, the Company entered into an employment agreement with Stephen
K. Onody, Chief Executive Officer of the Company, which has a three-year term.
As of July 1, 2000, Mr. Onody's annual compensation under the agreement is
$200,000. The agreement also provides for incentive compensation in the form of
an annual bonus, calculated as a percentage of annual salary, which is based on
the overall profitability of the Company. In connection with and as a condition
of the employment agreement, Mr. Onody executed a non-competition agreement in
which he agreed not to engage in competitive activities for a period of two
years after his employment with the Company is terminated, whether voluntarily
or involuntarily. Pursuant to the agreement, the Company granted incentive and
non-statutory stock options to purchase up to a total of 270,000 shares of the
Company's common stock as described above. Upon the occurrence of the following
events, Mr. Onody may terminate his employment for "good reason" and his
unvested options will immediately vest in full: (i) a bankruptcy or liquidation
of the Company, (ii) a sale of substantially all the assets of the Company,
(iii) if (a) Mr. Onody elects to remain employed after a change in control of
the Company as defined in the agreement and (b) thereafter, during the term of
employment or 12 months from the change in control, whichever is longer, his
employment is terminated without cause, he is demoted from his position, his
duties are diminished, he is required to materially increase his travel, he is
relocated or his compensation or benefits are materially reduced or (iv) within
90 days of a change in control of the Company (if clause (iii) is not
applicable).
Upon a termination of Mr. Onody's employment by the Company other than for
cause as defined in the agreement within the first 12 months of the term of
employment, the Company will continue to pay his salary through the 24th month
of what would otherwise have been the term of employment and provide for
immediate vesting of the pro-rated portion of options for the portion of the
year worked. If the Company terminates Mr. Onody's employment other than for
cause after the first 12 months of the employment term and prior to the end of
the employment term, the Company will pay Mr. Onody his salary for an additional
12 months and, if the termination occurs within the term of employment, provide
for immediate vesting of the pro-rated portion of options for the portion of the
year worked. If Mr. Onody terminates his employment for "good reason" as defined
by clause (iii) in the preceding paragraph, the Company will pay him the greater
of his salary for 12 months or the continuation of his salary for the number of
months remaining in the term of employment, reimburse outplacement services for
12 months and reimburse legal fees in connection with enforcement of the
agreement. If Mr. Onody terminates his employment for "good reason" as defined
by clause (iv) in the preceding paragraph, the Company will pay him his salary
for 12 months, reimburse outplacement services for 12 months and reimburse his
legal fees in connection with enforcement of the agreement.
In June 1993, the Company entered into an employment agreement with John V.
Atanasoff, then Chief Executive Officer of the Company. This employment
agreement has expired. In connection with and as a condition of the
employment agreement, Mr. Atanasoff executed a non-competition
agreement in which he agreed not to engage in competitive activities for a
period of two years after his employment with the Company is terminated, whether
voluntarily or involuntarily. In May 1996, pursuant to the employment agreement,
the Company granted Mr. Atanasoff an incentive stock option to purchase 260,000
shares of common stock at a purchase price of $3.25 per share (the "Option").
The Option vests in June 2002, subject to earlier vesting if the Company's
common stock achieves specified prices levels by September 30, 2000.
In June 2000, the Company entered an additional arrangement with Mr.
Atanasoff, in connection with his retirement from the position of Chief
Executive Officer of the Company. Mr. Atanasoff agreed to devote his efforts to
the Company on approximately a half time basis through December 31, 2000 and to
continue to serve as Chairman of the Company's Board of Directors for that
period. The Company agreed to pay Mr. Atanasoff at an annualized rate of
$100,000 per year, and to continue his benefits through the end of the year.
The Company has entered into severance agreements with Messrs. Gould and
Jensen. Pursuant to each such agreement, if the Company terminates the
employment of Mr. Gould or Mr. Jensen, respectively, within twelve months of a
change in control of the Company as defined in the agreements other than for
cause as defined in the agreements, or if such executive terminates his
employment for "good reason," the Company will pay such executive an amount
equal to his monthly salary in effect at the time of termination multiplied by
12. The agreements provide that such executive may terminate his employment for
"good reason" upon the following events: (i) the sale by the Company of
substantially all of its assets; or (ii) if (a) such executive elects to remain
employed after a change in control of the Company and (b) thereafter, during the
12 months after the change in control, he is demoted from his position, his
duties are diminished, his travel obligations materially increase, he is
relocated or his compensation or benefits are materially reduced.
Director Compensation
Directors of the Company are reimbursed for out-of-pocket expenses incurred
in attending each meeting or committee meeting of the Board of Directors. In
consideration of their service as directors, non-employee directors periodically
receive warrants to purchase common stock of the Company, which warrants
generally vest 15,000 shares per year, subject to continued service on the
Board, and have an exercise price equal to the fair market value of the common
stock on the date of grant. All director warrants have a five-year term from
their grant date. On August 25, 2000, the Company granted a warrant to Director
John Jenkins to purchase 10,000 shares of the Company's common stock for $7.94
per share. The warrant is fully vested and expires in August 2005. In the
aggregate, director warrants to purchase 265,000 shares of common stock are
outstanding, and of such amount, warrants to purchase 15,000 shares expire in
November 2001, warrants to purchase 75,000 shares expire in November 2002,
warrants to purchase 150,000 expire in June 2003, warrants to purchase 15,000
shares expire in June 2004 and warrants to purchase 10,000 shares expire in
August 2005.
The Company entered into a consulting agreement in July 2000 with Mr.
Jenkins pursuant to which Mr. Jenkins provides consulting services as the
Company's Senior Program Manager for an initial term of four months, commencing
July 17, 2000. The consulting agreement is renewable upon the mutual agreement
of the parties. Mr. Jenkins is paid $95 per hour plus expenses and consults for
an average of 40 to 60 hours per week.
Security Ownership Information
The following table sets forth certain information concerning the
beneficial ownership of the Company's common stock, as of September 21, 2000, by
each director of the Company and the other officers mentioned above. Except as
indicated in the footnotes to the table and subject to applicable community
property laws, the Company believes that each of such persons has the sole
voting and dispositive power over the shares held by him except as otherwise
indicated.
Amount and Nature
Name and Address of Beneficial
of Beneficial Owner Ownership Percent of Class
John V. Atanasoff 635,945(1) 5.1%
6175 Longbow Drive
Boulder, CO 80301
Stephen K. Onody 12,500(2) *
6175 Longbow Drive
Boulder, CO 80301
Clifford W. Mezey 437,032(3) 3.6%
6175 Longbow Drive
Boulder, CO 80301
Dean A. Leffingwell 420,999(4) 3.4%
6175 Longbow Drive
Boulder, CO 80301
John E. Wolfe 150,000(5) 1.2%
6175 Longbow Drive
Boulder, CO 80301
Robert L. Sullivan 140,413(6) 1.1%
6175 Longbow Drive
Boulder, CO 80301
Ira M. Langenthal, Ph.D. 61,600(7) *
6175 Longbow Drive
Boulder, CO 80301
John P. Jenkins 35,000(8) *
7887 E. Belleview Avenue
Englewood, CO 80111
Gregory A. Gould 12,841(9) *
6175 Longbow Drive
Boulder, CO 80301
Peter J. Jensen 10,654(10) *
6175 Longbow Drive
Boulder, CO 80301
* Less than one percent (1%)
(1) Includes (a) 1,000 shares owned by Mr. Atanasoff's wife, (b) 1,800 shares
owned by Mr. Atanasoff's stepson, (c) 800 shares owned by Mr. Atanasoff's
stepdaughter, as to all of which he disclaims beneficial ownership and (d)
options to purchase 245,653 shares, which are currently exercisable or
become exercisable within 60 days. Does not include options to purchase
260,000 shares, which options may vest on September 30, 2000 depending on
whether the average of the bid and ask prices of the Company's common stock
is above certain thresholds. On September 30, 2000, if such average on the
last prior trading date was $6 or greater, options to purchase 151,300
shares will vest; if such average was $7 or greater, options to purchase
206,400 shares will vest; if such average was $8 or greater, options to
purchase all 260,000 shares will vest. All such options will vest on June
21, 2002, if Mr. Atanasoff is still employed on such date.
(2) Includes options to purchase 12,500 shares, which are currently exercisable
or become exercisable within 60 days.
(3) Includes 341,932 shares held by the Petsy G. Mezey Trust, of which Mr.
Mezey is a trustee. Also includes 30,000 shares that are held by the
Clifford W. Mezey Trust, of which Mr. Mezey is a trustee. Also includes
warrants to acquire 30,000 shares, which are currently exercisable or
become exercisable within 60 days.
(4) Includes warrants to acquire 45,000 shares, which are currently exercisable
or become exercisable within 60 days.
(5) Includes warrants to acquire 45,000 shares, which are currently exercisable
or become exercisable within 60 days.
(6) Includes warrants to acquire 45,000 shares, which are currently exercisable
or become exercisable within 60 days.
(7) Includes warrants to acquire 60,000 shares, which are currently exercisable
or become exercisable within 60 days.
(8) Includes warrants to acquire 25,000 shares, which are currently exercisable
or become exercisable within 60 days.
(9) Includes options to purchase 10,750 shares, which are currently exercisable
or become exercisable within 60 days.
(10) Includes options to purchase 6,250 shares, which are currently exercisable
or become exercisable within 60 days.
