SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant | |
Filed by a Party other than the Registrant |X|
Check the appropriate box:
|X| Preliminary Proxy Statement
| | Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
| | Definitive Proxy Statement
| | Definitive Additional Materials
| | Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
EMBREX, INC.
(Name of Registrant as Specified In Its Charter)
Micro Cap Partners, L.P.
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
| | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-
11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which 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:
| | 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
Micro Cap Partners, L.P.
470 University Avenue
Palo Alto, CA 94301
April ___, 1999
Dear Fellow Embrex Shareholder:
The enclosed proxy statement and proxy card are being sent to you by
Micro Cap Partners, L.P., a Delaware limited partnership, and its general
partner, Palo Alto Investors. Palo Alto Investors is Embrex's largest
shareholder, holding approximately 13.4 percent of the issued and outstanding
Common Stock of Embrex, Inc.
Micro Cap Partners is submitting two shareholder proposals for a vote
at the annual meeting of Embrex shareholders scheduled for May 20, 1999. One
proposal recommends that Embrex take prompt action to improve the price of
Embrex stock and maximize the value of Embrex stock for all shareholders.
The other proposes an amendment to Embrex's By-Laws granting to Embrex
shareholders the right to call special meetings of shareholders - a right the
shareholders currently do not have.
Palo Alto Investors and Micro Cap Partners are soliciting proxies FOR
the shareholder proposals because they have been concerned about the
continuous decline in the Company's stock price since first investing in the
Company in 1996.
We hope you will read the enclosed Proxy Statement which further
explains our reasons for making the proposals and vote with us by completing
and returning the enclosed BLUE proxy card.
Thank you for your consideration.
Very truly yours,
MICRO CAP PARTNERS, L.P.
By: Palo Alto Investors, General Partner
By:
William L. Edwards, President
Enclosures
PRELIMINARY COPY
SUBJECT TO COMPLETION
April __, 1999
____________________
PROXY STATEMENT
OF MICRO CAP PARTNERS, L.P.
___________________
SOLICITATION OF PROXIES
IN OPPOSITION TO PROXY
STATEMENT OF THE
BOARD OF DIRECTORS
OF EMBREX, INC.
____________________
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 1999
_____________________
This Proxy Statement and the enclosed BLUE Proxy Card are
being furnished by Micro Cap Partners, L.P. ("Micro Cap
Partners") to holders of common stock, no par value (the "Common
Stock"), of Embrex, Inc., a North Carolina corporation (the
"Company" or "Embrex"), in connection with the solicitation of
proxies by Micro Cap Partners for use at the Company's Annual
Meeting of Shareholders and at any and all adjournments,
postponements or reschedulings thereof (the "Meeting"). Micro
Cap Partners is a Delaware limited partnership whose general
partner is Palo Alto Investors ("PAI"), a California corporation
and registered investment adviser.
The Meeting will be held on May 20, 1999, at 9:00 a.m.
Eastern Daylight Time, at the North Carolina Biotechnology
Center, 15 Alexander Drive, Research Triangle Park, North
Carolina, and the record date for determining shareholders
entitled to notice of and to vote at the Meeting is March 22,
1999 (the "Record Date"). According to the Preliminary Proxy
Statement filed by the Company with the Securities and Exchange
Commission on April 9, 1999, as of the close of business on February 26,
1999, there were outstanding and entitled to vote 8,302,372
shares of Common Stock. As of the Record Date, Micro Cap
Partners was the beneficial owner of 304,500 shares of Common
Stock, representing approximately 3.7% of the shares outstanding
and entitled to vote on the Record Date. As of the Record Date,
PAI was the beneficial owner of an aggregate of 1,083,000 shares
of Common Stock, representing approximately 13.4% of the shares
outstanding and entitled to vote on the Record Date.
This Proxy Statement and the BLUE Proxy Card are first being
mailed or furnished by Micro Cap Partners to shareholders of the
Company on or about April 24, 1999.
THIS SOLICITATION IS BEING MADE BY MICRO CAP PARTNERS AND
NOT ON BEHALF OF THE EMBREX BOARD.
Micro Cap Partners is soliciting proxies from Embrex
shareholders in support of two proposals. The first proposal is
an amendment to the Company's Amended and Restated By-laws (the
"By-laws") that would give Embrex shareholders the right to call
special meetings of shareholders (the "Special Meeting
Amendment"). The second proposal is a recommendation that the
Embrex Board of Directors and management hire a nationally
recognized investment banking firm to assist the Company in
evaluating options to maximize shareholder value (the
"Shareholder Proposal").
The Special Meeting Amendment is designed to secure for the
Company's shareholders the right to call Special Meetings of
Shareholders for the purpose of nominating candidates to stand
for election to the Embrex Board or to propose other business.
This is a right that is permitted under North Carolina law in the
discretion of North Carolina companies. The Board of Directors
of Embrex, however, has chosen not to provide Embrex shareholders
with the right to call special meetings. Presently, Embrex
shareholders have the right to meet only once each year at the
annual meeting, unless the Board of Directors calls a special
meeting. Micro Cap Partners believes that the Special Meeting
Amendment will enhance shareholder democracy and provide
shareholders with greater ability to encourage or cause the
Embrex Board to actively consider alternatives to increase the
price of Embrex stock and thereby maximize value for all
shareholders. The proposed Special Meeting Amendment would
permit the holders of 10% or more of the Company's outstanding
capital stock to call a Special Meeting of Shareholders.
The Shareholder Proposal, submitted to the Embrex Board by
Micro Cap Partners, recommends that Embrex hire a nationally
recognized investment banking firm to assist the Company in
evaluating options to maximize shareholder value including, among
other things, an issuer tender offer (the "Shareholder
Proposal"). The Shareholder Proposal is advisory only and is not
binding on Embrex.
Micro Cap Partners is soliciting proxies FOR the adoption of
the Special Meeting Amendment and FOR adoption of the Shareholder
Proposal.
YOUR VOTE IS IMPORTANT, NO MATTER HOW MANY OR HOW FEW SHARES
YOU OWN. PLEASE SIGN AND DATE THE ENCLOSED BLUE PROXY CARD AND
RETURN IT IN THE ENCLOSED ENVELOPE PROMPTLY. PROPERLY VOTING AND RETURNING
THE ENCLOSED BLUE PROXY CARD AUTOMATICALLY REVOKES ANY PROXY
PREVIOUSLY SIGNED BY YOU.
DO NOT RETURN ANY WHITE PROXY CARD SENT TO YOU BY EMBREX.
Even if you previously have voted on the Embrex white proxy card,
you have every legal right to change your vote by signing, dating
and returning the enclosed BLUE Proxy Card. ONLY YOUR LATEST
DATED PROXY WILL COUNT AT THE MEETING.
IMPORTANT NOTE: If your shares of Common Stock are
registered in your own name, please sign, date and mail the
enclosed BLUE Proxy Card to Micro Cap Partners in care of Morrow
& Co., Inc. ("Morrow & Co."), the firm assisting Micro Cap
Partners in the solicitation of proxies, in the postage-paid
envelope provided. If your shares of Common Stock are held in
the name of a brokerage firm, bank nominee or other institution,
only that institution can sign a BLUE Proxy Card with respect to
your shares of Common Stock and only upon receipt of specific
instructions from you. Accordingly, you should contact the
person responsible for your account and give instructions for a
BLUE Proxy Card to be signed representing your shares of Common
Stock. Micro Cap Partners urges you to confirm in writing your
instructions to the person responsible for your account and to
provide a copy of such instructions to Micro Cap Partners in care
of Morrow & Co. at the address indicated below so that Micro Cap
Partners will be aware of all instructions given and can attempt
to ensure that such instructions are followed.
If you have any questions about executing your proxy or
require assistance, please contact:
Morrow & Co., Inc.
445 Park Avenue, 5th Floor
New York, New York 10022
Call Toll Free: (800) 662-5200
REASONS FOR THE SOLICITATION
PAI and Micro Cap Partners are soliciting proxies FOR the
adoption of the Special Meeting Amendment and FOR the Shareholder
Proposal because they have been concerned about the continuous
decline in the Company's stock price since first investing in the
Company in 1996.
The price of Embrex stock is down year-to-date and since its
initial public offering in 1991. On April 30, 1996, the stock
price closed at $7.75 per share. On April 30, 1997, the closing
price was $6.63 per share. On April 30, 1998, the closing price
was $5.88 per share. On April 6, 1999, the closing price was
$4.31 per share. At $4.31 per share, Embrex's stock trades at
approximately 10 times expected earnings in a stock market that
is trading at approximately 27 times expected earnings and has
averaged a rate of 25 times earnings since 1996. On a cash flow
basis, Embrex stock trades at just four times cash flow. In the
U.S. market, leading drug and animal health companies currently
trade at 30 to 60 times cash flow. Micro Cap Partners believes
that merely to achieve a fair price in the market today, Embrex's
shares need to trade at over $10 per share, or two to three times
the current level. To gain a strategic advantage Embrex needs to
aim at a price that is higher than $10 per share.
The chronically low and steadily falling stock price is
hurting Embrex. It puts Embrex at a strategic disadvantage to
other publicly traded companies with high stock prices that can
use their stock to buy new products or hire and motivate top
employees and managers. The low share price hinders Embrex's
ability to compete.
Because the stock price has dropped steadily year after
year, Micro Cap Partners believes that management is either
unwilling or unable to do what is necessary to attract the
attention of Wall Street and promote interest in the Company;
therefore, the Company should seek the expertise of a
professional, nationally recognized investment banking firm that
can recommend strategies to enhance shareholder value.
Micro Cap Partners is not seeking to replace any members of
the Company's Board of Directors at this time. Micro Cap
Partners is a constructive investor and prefers a measured
response. Micro Cap Partners hopes the Shareholder Proposal, if
adopted, will send a strong message to the Board that the
shareholders want to see an increase in the price of Embrex stock
in the near term. If, however, Embrex's Board and management
continue to be unwilling or unable to effect a meaningful
increase in the value of the Company's Common Stock, then the
shareholders should have the right to consider meaningful changes
in the Embrex Board and/or Embrex management. Accordingly, Micro
Cap Partners is also proposing the Special Meeting Amendment.
The purpose of the Special Meeting Amendment is to secure for
Embrex's shareholders the right of the shareholders to call a
Special Meeting of Shareholders. The 10% ownership threshold
necessary to call a Special Meeting of Shareholders is identical
to the threshold contained in the North Carolina Business
Corporation Act, and ensures that shareholders holding a
substantial stake in the Company will have the ability to call
such a shareholders' meeting.
In the event the Special Meeting Amendment is adopted, PAI,
on behalf of Micro Cap Partners and other investment advisory
clients of PAI, may call a Special Meeting of Shareholders for
the purpose of electing different or additional directors to the
Embrex Board, including the possibility of electing a majority of
the Embrex Board, or for other purposes. If PAI decides to
request a Special Meeting in the future, the vote of the
Company's shareholders at such a Special Meeting will be
solicited pursuant to a separate proxy statement.
GENERAL
Proxy Information
As of the Record Date, Micro Cap Partners was the beneficial
owner of 304,500 shares of Common Stock, representing
approximately 3.7% of the shares outstanding on the Record Date.
As of the Record Date, PAI was the beneficial owner of an
aggregate of 1,083,000 shares of Common Stock, representing
approximately 13.4% of the shares outstanding on the Record Date.
The shares of Common Stock represented by each BLUE Proxy
Card that is properly executed and returned to Micro Cap Partners
will be voted at the Meeting in accordance with the instructions
marked thereon. Executed but unmarked BLUE Proxy Cards will be
voted FOR the election of management's nominees to the Board of
Directors, FOR the adoption of the Special Meeting Amendment, FOR
the adoption of the Shareholder Proposal, and FOR management's
proposal to ratify the selection of Ernst & Young LLP as the
Company's independent public accountants.
If you hold your shares in the name of one or more brokerage
firms, banks or nominees, only they can vote your shares and only
upon receipt of your specific instructions. Accordingly, you
should contact the person responsible for your account and give
instructions to vote the BLUE Proxy Card.
Proxy Revocation
Whether or not you plan to attend the Meeting, Micro Cap
Partners urges you to vote FOR the election of management's
nominees to the Embrex Board, FOR the Special Meeting Amendment,
FOR the Shareholder Proposal and FOR ratification of the
appointment of Ernst & Young LLP by signing, dating and returning
the BLUE Proxy Card in the enclosed envelope. You can do this
even if you have already voted on the white proxy card solicited
by the Embrex Board. It is the latest dated proxy that counts.
Execution of a BLUE Proxy Card will not affect your right to
attend the Meeting and to vote in person. Any shareholder
granting a proxy (including a proxy given to the Company) may
revoke it at any time before it is voted by (a) submitting a duly
executed new proxy bearing a later date, (b) attending and voting
at the Meeting in person, or (c) at any time before a previously
executed proxy is voted, giving written notice of revocation to
either Micro Cap Partners, c/o Morrow & Co., Inc., 445 Park
Avenue, 5th Floor, New York, New York, 10022, or the Company,
1035 Swabia Court, Durham, North Carolina 27703, Attention:
Corporate Secretary. Merely attending the Meeting without voting
at the Meeting will not revoke any previous proxy that has been
duly executed by you.
Micro Cap Partners urges you to sign, date and mail the BLUE
Proxy Card in the enclosed envelope. No postage is required for
mailing within the United States.
QUORUM AND VOTING
The Embrex Board will furnish shareholders with a definitive
proxy statement ("Management's Proxy Statement") in connection
with the Embrex Board's solicitation of proxies at the Meeting.
Information concerning the Record Date and the number of shares
of Common Stock outstanding and entitled to vote on the Record
Date is required to be set forth in Management's Proxy Statement
and, in accordance with Rule 14a-5(c) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), reference
is made to Management's Proxy Statement for such information.
Only shareholders of record at the close of business on the
Record Date are entitled to notice of and to vote on matters that
come before the Meeting.
According to the By-Laws, the presence in person or by proxy
of the holders of a majority of the outstanding shares of Common
Stock entitled to vote at the Meeting is necessary to constitute
a quorum at the Meeting.
Election of Directors
Pursuant to the By-Laws and North Carolina law, each holder
of Common Stock is entitled to one vote for each share held on
all matters considered at the Meeting. Directors will be elected
by a plurality of the votes cast by shareholders at the Meeting.
"Plurality" means that the individuals who receive the largest
number of votes cast, even if less than a majority, are elected
as directors up to the maximum number of directors to be chosen
at the Meeting. Votes not cast at the Meeting because of broker
non-votes, abstention or otherwise are not considered in
determining which nominees receive the highest of number of
votes.
Micro Cap Partners does not at this time oppose the election
of the Embrex Nominees and intends to use the BLUE Proxy Card to
vote for the election of the Embrex Nominees, unless a
shareholder directs otherwise on the BLUE Proxy Card or revokes
the Proxy.
Special Meeting Amendment
The Embrex Board of Directors states in its Preliminary Proxy
Statement that it intends to use the discretionary authority given to
it in the white proxy card to vote against the Special Meeting Amendment.
The preliminary proxy material filed by Embrex also includes a proxy card
that does not include the Special Meeting Amendment and does not allow
shareholders to vote on the proposal. Accordingly, any shareholder who
wishes to vote FOR the Special Meeting Amendment should use only the
BLUE Proxy Card. Micro Cap Partners disputes the Company's right to
use discretionary authority to vote against the Special Meeting
Amendment and believes that the Company must provide
shareholders with a proxy card that will allow shareholders to
vote on the Special Meeting Amendment as they see fit rather than
to grant blanket discretionary authority to the Company.
Approval of the Special Meeting Amendment requires that the
votes cast in favor of the Special Meeting Amendment exceed the
votes cast against it. Thus, abstentions, broker non-votes and
withheld votes will not be counted in determining
whether the Special Meeting Amendment has been approved. Only
shares actually voted for or against the Special Meeting
Amendment will be counted.
Shareholder Proposal
Any shareholder who wishes to vote for the
Shareholder Proposal should use the BLUE Proxy Card, or, if
using the white Proxy Card, should indicate a vote FOR the
Shareholder Proposal.
Approval of the Shareholder Proposal requires the
affirmative vote of a majority of the shares present, or
represented, and entitled to vote at the Meeting. Assuming a
quorum is present at the Meeting, abstentions will count as votes
cast against the Shareholder Proposal, and broker non-votes will
have no effect on the outcome of the vote on the Shareholder
Proposal.
MICRO CAP PARTNERS' PROPOSALS
Special Meeting Amendment
Embrex's Certificate of Incorporation and By-Laws do not
permit shareholders to take any action at any time other than
once a year at the annual meeting of shareholders. To enable
shareholders to call special meetings, Micro Cap Partners intends
to present the Special Meeting Amendment set forth below for a
vote at the Meeting. The text of the Special Meeting Amendment
is as follows:
RESOLVED, that Section 4 of Article III of the Company's By-
Laws be amended by adding the following after the last sentence
thereof:
"In addition, and notwithstanding any other
provision of these by-laws to the contrary,
the following provisions shall govern special
meetings of shareholders of the Corporation.
A special meeting of the shareholders of the
Corporation shall be called by the Secretary
upon the written request of shareholders who
together own ten percent (10%) or more of the
outstanding shares of voting stock of the
Corporation. The written request shall state
the purpose and date of the meeting. The
notice of the special meeting shall be mailed
by the Secretary within 30 days following the
Corporation's receipt of such request. If
the Secretary fails to call the special
meeting and mail the notice as required by
the preceding sentence, a person designated
by the shareholders requesting the meeting
shall have the power and authority to call
the special meeting and mail such notice. A
special meeting called at the request of
shareholders shall be presided over by a
person designated by the shareholders calling
the meeting. The record date for determining
shareholders entitled to request a special
meeting is the date the first shareholder
signs the request. The record date for the
special meeting shall be the record date set
forth in the request, so long as such date
complies with North Carolina law. Special
meetings of shareholders shall be held at the
location set forth in the request. For
purposes of this Section 4, "shareholder"
includes a beneficial owner whose shares are
held in voting trust or by a nominee and
whose beneficial ownership is certified to
the Corporation by that voting trust or
nominee. Without the approval of the
shareholders, the board of directors may not
further amend or repeal this Section 4 of the
By-laws governing special meetings or adopt
any new by-law provision that is inconsistent
with or would render ineffective the
provisions of this Section 4 pertaining to
special meetings of shareholders."
Micro Cap Partners believes that Embrex shareholders holding
a substantial stake in the Company should have the right to call
a Special Meeting of Shareholders. Adoption of the Special
Meeting Amendment would secure the right of shareholders holding
10% or more of the capital stock of the Company to call a Special
Meeting. In addition, the Special Meeting Amendment would
prevent the Board from amending, modifying or repealing the
Special Meeting Amendment without the vote of the shareholders.
For additional information concerning Micro Cap Partners' reasons
for proposing the Special Meeting Amendment, see "Reasons for the
Solicitation" above.
MICRO CAP PARTNERS STRONGLY RECOMMENDS THAT YOU VOTE "FOR"
THE SPECIAL MEETING AMENDMENT.
Shareholder Proposal
Micro Cap Partners has submitted the following Shareholder
Proposal to the Board of Directors of Embrex and is soliciting
proxies from other Embrex shareholders to adopt the Shareholder
Proposal. The text of the Shareholder Proposal is as follows:
"The Board of Directors of the Company is
requested promptly to retain a nationally
recognized investment banking firm to
recommend and evaluate the Company's options
to increase shareholder value, including but
not limited to, an issuer tender offer."
PAI and Micro Cap Partners believe that Embrex shareholders
deserve a fair return on their investment.
The Shareholder Proposal is intended to be a referendum on
shareholder value. This is a chance for shareholders to tell
management that they are not satisfied with Embrex's current
value, and want something done about it.
PAI is the general partner of Micro Cap Partners, the
proposer of this resolution. PAI is a registered investment
adviser specifically structured to make long-term investments in
the equity of "micro-cap" stocks based on original, fundamental
analysis. Embrex, with its $40 million market capitalization,
clearly falls within this category.
We consider ourselves to be constructive investors. We try
to be supportive of the companies in which we invest. PAI
controls approximately 13.0% of Embrex's shares and is Embrex's
largest shareholder.
Despite Embrex's commercial success, and despite the fact
that cash is piling up in Embrex's bank account, Embrex's stock
price is below the price of its Initial Public Offering (in
November of 1991). This drop in share value over the last seven
years has occurred during the biggest bull market of our
generation.
We feel that of all the constituencies the Board serves,
Embrex's shareholders have been the most poorly served over time.
Poultry producers save tens of millions of dollars annually using
Embrex products. Embrex's employees enjoy job security and a
nice work environment. It is time for management and the Board
to acknowledge their responsibility to the owners of Embrex.
Voting yes on this resolution is the way for you, an Embrex
owner, to ask them to do so.
MICRO CAP PARTNERS URGES YOU TO VOTE "FOR" THE SHAREHOLDER
PROPOSAL.
Ratification Of Selection Of
Independent Public Accountants
The Embrex Board has selected Ernst & Young LLP as the
Company's independent public accountants for the fiscal year
ending December 31, 1999, subject to the approval of the
Company's shareholders.
MICRO CAP PARTNERS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE RATIFICATION OF SELECTION OF ERNST & YOUNG LLP AS THE
COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS.
OTHER MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
Micro Cap Partners is not aware of any matters to be
presented for a vote of shareholders at the Meeting other than
the election of directors, the Special Meeting Amendment, the
Shareholder Proposal and the ratification of the selection of
Ernst & Young LLP as the Company's independent public accountants
for the fiscal year ending December 31, 1999. If any other
matter properly comes before the Meeting, the person named as
proxy on the enclosed BLUE Proxy Card will have discretionary
authority to vote all shares covered by such proxies in
accordance with his best judgment with respect to such matter,
unless he is directed by a proxy to do otherwise.
STOCK OWNERSHIP OF MICRO CAP PARTNERS AND PAI
As of the Record Date, Micro Cap Partners owned beneficially
304,500 shares of Common Stock, representing approximately 3.7%
of the outstanding Common Stock of Embrex. As of the Record
Date, PAI owned beneficially, on behalf of its investment
advisory clients (including Micro Cap Partners), 1,083,000 shares
of Common Stock, representing approximately 13.4% of the
outstanding Common Stock of Embrex. As of the Record Date,
Mr. William L. Edwards, the President of PAI, personally owned
32,400 shares, or approximately 0.4%, of the outstanding Common
Stock of Embrex. As of the Record Date, Mr. Theodore Janus, an
investment analyst with PAI, did not personally own any shares of
Embrex Common Stock.
Management's Proxy Statement is required to set forth
information as to the number and percentage of outstanding shares
beneficially owned by (i) each person known by Embrex to own more
than 5% of the outstanding Common Stock, (ii) each director and
nominee of Embrex, (iii) the Chief Executive Officer of Embrex
and the four other highest paid executive officers of Embrex and
(iv) all executive officers and directors of Embrex as a group.
Reference is made to management's Proxy Statement for such
information.
INFORMATION ABOUT PARTICIPANTS IN
MICRO CAP PARTNERS' PROXY SOLICITATION
The proxies solicited hereby are sought by Micro Cap
Partners. Micro Cap Partners is a Delaware limited partnership.
Its general partner is PAI. PAI is a California corporation and
is registered with the Securities and Exchange Commission as an
investment adviser under the Investment Advisers Act of 1940.
PAI's investment advisory clients include Micro Cap Partners and
various separately managed accounts. Pursuant to investment
management agreements, PAI is authorized, among other things, to
invest funds of its advisory clients in securities, and to vote
and dispose of those securities. William Leland Edwards is the
President, sole shareholder and sole director of PAI. Theodore
Janus is an investment analyst with PAI. The address of Micro
Cap Partners and PAI, and the business address of Mr. Edwards'
and Mr. Janus is 470 University Avenue, Palo Alto, California
94301.
Except as set forth herein, neither PAI, Mr. Edwards, Micro
Cap Partners, nor any of PAI's other investment advisory clients,
nor any of their respective affiliates or associates, directly or
indirectly, beneficially owns any shares of Common Stock of the
Company or any securities of any parent or subsidiary of the
Company, has had any relationship with the Company in any
capacity other than as a shareholder, nor is or has been a party
to any transactions, or series of similar transactions, nor is
any currently proposed transaction or series of similar
transactions known to any of them, to which the Company or any of
its subsidiaries was or is to be a party, in which the amount
involved exceeds $60,000 and in which any of them or their
respective affiliates or associates had, or will have, a direct
or indirect material interest. Neither PAI, Mr. Edwards, Micro
Cap Partners, nor any other PAI client, nor any of their
respective affiliates or associates, has entered into any
agreement or understanding with any person respecting any future
employment by the Company or its affiliates or any future
transactions to which the Company or any of its affiliates will
or may be a party. There are no contracts, arrangements or
understandings by PAI, Mr. Edwards, Micro Cap Partners, or any
other PAI client, or any of their respective affiliates or
associates, within the past year with any person with respect to
the Company's securities.
PROXY SOLICITATION; EXPENSES
Micro Cap Partners may solicit proxies by mail, telephone,
in person or by other means.
The total cost of this proxy solicitation (including fees of
attorneys, solicitors and advertising and printing expenses) will
be paid by PAI, and is estimated to be approximately $150,000.
Approximately $75,000 of such costs have been paid to date. To
the extent legally permissible, PAI intends to seek reimbursement
from the Company for the costs of this solicitation. Micro Cap
Partners and PAI do not currently intend to submit approval of
such reimbursement to a vote of shareholders of the Company
unless required by law.
PAI has retained Morrow & Co., Inc. ("Morrow & Co.") to
assist in the solicitation of proxies for a fee of $100,000 and
will reimburse Morrow & Co. for reasonable out-of-pocket
expenses. PAI will indemnify Morrow & Co. against certain
liabilities and expenses in connection with the solicitation.
Approximately 20 persons will be utilized by Morrow & Co. in its
solicitation efforts, which may be made by telephone, facsimile,
telegram and in person.
Micro Cap Partners intends to deliver a proxy statement and
form of proxy to holders of at least the percentage of the
Company's voting shares required under applicable law to adopt
the Special Meeting Amendment and the Stockholder Proposal.
Micro Cap Partners and PAI have notified the Company of such
intention.
April __, 1999 MICRO CAP PARTNERS, L.P.
By: Palo Alto Investors
General Partner
By:
William L. Edwards
President
If you have any questions or require assistance, please contact:
Morrow & Co., Inc.
445 Park Avenue, 5th Floor
New York, New York, 10022
Toll Free: (800) 662-5200
APPENDIX I
EMBREX, INC. PROXY SOLICITED BY
MICRO CAP PARTNERS, L.P.
IN OPPOSITION TO THE BOARD OF DIRECTORS OF EMBREX, INC.
The undersigned hereby appoints William L. Edwards and
Theodore Janus, and each of them, as proxies of the undersigned,
with full power of substitution, to vote all shares of Common
Stock, no par value, of Embrex, Inc. (the "Company") that the
undersigned would be entitled to vote if personally present at
the Annual Meeting of Shareholders of the Company scheduled to be
held on May 20, 1999, or any other shareholder's meeting held in
lieu thereof, and at any and all adjournments, postponements,
reschedulings or continuations thereof.
1. Election of Directors: (check one box only)
Company Nominees: Charles E. Austin; C. Daniel Blackshear; Lester M.
Crawford, DVM, Ph.D.; Randall L. Marcuson; Kenneth N.
May, Ph.D.; Arthur M. Pappas.
/ / FOR all nominees / / WITHHOLD AUTHORITY
listed above to vote for all
nominees listed above
/ / FOR all nominees listed above (except as marked to
the contrary below)
Instruction: To withhold authority to vote for one or more
of the nominees, write the name(s) of the nominee(s) in the space
provided: ____________________________________
You should refer to the Proxy Statement distributed by the
Company for the names, backgrounds, qualifications and other
information concerning the Company's nominees.
2. Ratify the action of the Board of Directors in appointing
Ernst & Young LLP as independent accountants for the fiscal year
ending December 31, 1999.
/ / FOR / / AGAINST / / ABSTAIN
MICRO CAP PARTNERS RECOMMENDS A VOTE FOR ITEM 3.
3. Adopt a Shareholder Proposal submitted by Micro Cap Partners
recommending that the Company retain an investment banking firm
to advise the Company on strategies to improve the Company's
stock price and maximize shareholder value.
/ / FOR / / AGAINST / / ABSTAIN
MICRO CAP PARTNERS RECOMMENDS A VOTE FOR ITEM 4.
4. Adopt an Amendment to the Company's By-Laws granting to
shareholders the right to call special meetings of shareholders.
/ / FOR / / AGAINST / / ABSTAIN
The proxies are hereby authorized to vote in their
discretion upon all other matters that may properly come before
the Meeting or any adjournments, postponements, reschedulings or
continuations thereof.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO DIRECTION IS
INDICATED, IT WILL BE VOTED FOR THE ELECTION OF THE COMPANY'S
NOMINEES LISTED IN ITEM 1 AND FOR ITEMS 2, 3 AND 4
The undersigned hereby acknowledges receipt of the Proxy
Statement from Micro Cap Partners.
DATED: ____________, 1999
_______________________________
Signature
_______________________________
Signature, if held jointly
Title or Authority: ______________________
Please sign exactly as your name
appears on this proxy. Joint
owners should each sign personally.
If signing as attorney, executor,
administrator, trustee or guardian,
please include your full title.
Corporate proxies should be signed
by an authorized officer.
PLEASE SIGN, DATE AND RETURN THIS CARD PROMPTLY USING THE
ENVELOPE ENCLOSED.
CRK\4325\011\1040446.01