13D SHAREHOLDERS GROUP
John C. Allen, Sr. Vartan Ghugasian
Lillian I. Allen Donn Gifford
Roland R. Batson Linda Gifford
Richard Boulet TO: All Sharholders Ginette Gladu
Joan P. Cote Of Robert R. Gladu
Paul A. Cote Novametrix Medical Systems, Inc. Andrew Gross
Normand F. Doyon Dana Gross
Pauline G. Doyon FROM: The Novametrix 13D John F. Gross
Sandra Dunham Shareholders Group Susan T. Gross
Thomas B. Dunham Diane James
Adrienne R. Emmi DATE: July 19, 1996 Richard James
Anthony N. Emmi Edgar Morin
Armen Ghugasian John Orestis
Takuhe Ghugasian Raymond E. Robichaud
For some time now, a substantial number of Novametrix shareholders have become
increasingly dissatisfied with Management's lack of concern for maximizing
shareholder values. To emphasize their concerns, the shareholders formed a
so-called 13D Group, including those listed on the letterhead of this letter,
representing about 9% of the Company's common shareholders, and filed the
schedule with the Securities and Exchange Commission. The Group has now been
expanded to include approximately 15% of the common shareholders.
As you can see from the following material, we encountered strong opposition
and were rebuffed by Management in attempting to present a Shareholder Proposal
requesting company action on our concerns. As a result of this opposition, we
felt that:
1. Management had no real interest in the shareholder's concerns;
2. The opposition was indicative of a continuous attitude towards
shareholders; and
3. The shareholders should take decisive action to correct the
situation.
In view of Management's continuing opposition, we feel there is only one way to
get company action on our concerns. This is to wage a proxy contest at this
year's Annual Shareholder Meeting and get true shareholder representation on
the Board of Directors. We seek the election of two directors at this years
Annual Shareholder Meeting and we have proposed our own slate in the enclosed
proxy materials. We urge you to read the enclosed proxy material carefully,
and
if you share the Group's concerns, please sign the enclosed
proxy card and return it to us promptly in the enclosed envelope.
What Has been Management's Attitude Toward Shareholder Concerns?
We feel strongly that some of the shareholders most basic concerns are being
ignored by Management, such as:
* What are the Company's prospects?
* What is the Company actually worth?
* Does Management have a constructive program in place to enhance
shareholder values?
Before the 13D Group was formed to make the Shareholder Proposal, several
members of the Group attempted to have a constructive dialog with Management
about the members' concerns. Each was rebuffed. The Group was then organized
and filed a formal Shareholder Proposal with the Company to be included with
the proxy material the Management sends out to shareholders for the annual
meeting. The Proposal urged the directors to develop a program to maximize
shareholder values, including retention of an investment banking firm to
address these concerns on an organized basis. A copy of the Proposal is
included in our proxy statement. The Management flatly refused to include the
Group's Proposal with their proxy materials on the ground that the Proposal
involved matters in the ordinary course of business.
Why We Believe Management is Free to Act Arbitrarily
The reason is that the bylaws and Articles of Incorporation of the Company are
structured so that Management and Directors can apparently operate almost as
they see fit without any real control by shareholders. For example:
1. Management has nominated the directors and elects them routinely
with your proxies.
2. Directors themselves can change their number between three and nine
at any time without the approval of the shareholders.
3. Directors can change the bylaws at any time without the approval of
the shareholders.
4. Shareholders cannot change the bylaws or the Articles of
Incorporation unless they get approval of 80% of all shareholders.
5. Management can call a special meeting of shareholders any time to
discuss their own proposals.
6. Shareholders cannot call a special meeting to discuss their
proposals or their dissatisfaction with Management unless:
a. the directors agree to it; or
b. they can get 80% of all shareholders to agree.
As a result of these one-sided restrictions, we believe Management is operating
as if it were sheltered behind a form of Iron Curtain. The shareholders, on
the other hand, are on the outside, looking in.
What can the Shareholders do about it?
It is clear to us that the shareholders have little say in the Company, and,
under the present restrictions, probably never will have a significant voice.
We asked for a chance to bring before all the shareholders in the annual proxy
statement a perfectly reasonable proposal and were turned down flat. With such
a precedent, it appears that shareholder proposals are likely to meet with
resistance from Management in the future. To have any meaningful voice at
all in this Company, the shareholders must have representation on the Board of
Directors, through directors they nominate and choose. Without that, we feel
very strongly that we are just captives of Management and their handpicked
Board of Directors. After all, we are supposed to own this Company and we are
entitled to have a management that is responsive to shareholder interests. We
believe that the present system is excessively management-oriented and not in
the best interests of the Company and its shareholders. In fact, two of the
current directors do not even own stock in the Company. Make no mistake:
Management has clearly demonstrated to us that it wants no input or
interference from shareholders. Let's change that.
We Need to Elect REAL Shareholder Representatives to the Board of Directors
We believe this is the only way to create an effective shareholder voice in
this company. This year there will be three directors elected at the Annual
Meeting. As usual, Management will hand-pick its own slate and send it to you
for your vote. If we do not present an opposing slate of candidates, the
Management slate will be elected as usual - and the current Management attitude
will continue unchanged. Your vote will have had no significance, in our
opinion.
If you agree with the Group's concerns and want to create real shareholder
interest in this company, then we urge you to vote for the 13D slate of
candidates. They are:
Dr. Vartan Ghugasian
Paul A. Cote
John Orestis
We urge you to review the materials enclosed regarding them.
You will be receiving from Management proxy material asking you to vote for
their slate of Directors. If you share our concerns, then do not return the
management proxy. If you do, you may cancel your vote for the independent
directors.