13D SHAREHOLDERS GROUP
John C. Allen, Sr. Donn Gifford
Lillian I. Allen Linda Gifford
Roland R. Batson Ginette Gladu
Richard Boulet TO: All Sharholders Robert R. Gladu
Joan P. Cote Of Andrew Gross
Paul A. Cote Novametrix Medical Systems, Inc. Dana Gross
Normand F. Doyon John F. Gross
Pauline G. Doyon FROM: The Novametrix 13D Susan T. Gross
Sandra Dunham Shareholders Group Diane James
Thomas B. Dunham Richard James
Adrienne R. Emmi DATE: August 6, 1996 William Lagerson
Anthony N. Emmi Pierre Levesque
Armen Ghugasian Edgar Morin
Takuhe Ghugasian John Orestis
Vartan Ghugasian Raymond E. Robichaud
A substantial number of Novametrix shareholders have become increasingly
dissatisfied with Management's lack of interest in maximizing shareholder
values and concerns. On April 17, 1996 the shareholders formed a so-called 13D
Group, which now represents approximately 16% of the common stock of the
Company. We want the Company and its shareholders to prosper.
We have 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 shareholders' concerns;
2. Management's opposition was indicative of a continuous attitude
towards shareholders; and
3. We must take decisive action.
- - WE NEED YOUR SUPPORT -
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 year's
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.
Let's elect two shareholder representatives to the board and send
a real message to Management.
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.
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. Management flatly refused to include the
Group's Proposal with their proxy materials on the ground the Proposal involved
matters in the ordinary course of business.
WHY WE BELIEVE MANAGEMENT IS FREE TO ACT ARBITRARILY
The reason is the bylaws and Articles of Incorporation of the Company are
structured so 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 total 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.
HOW HAS MANAGEMENT EXERCISED ITS POWERS?
After we formed our 13D Shareholders Group on April 17, 1996, Management tried
to take away the ultimate power we have as shareholders to elect the members of
the Board of Directors. Although management's proxy statements in 1994 and
1995 promised the shareholders that three existing Class A Directors would be
up for election at the 1996 Annual Meeting of Shareholders, just two months ago
the Board of Directors took away from the shareholders the decision of whether
Steven Shulman would continue as a Director. Instead, they appointed Mr.
Shulman a Director and limited the number of Directors to stand for election at
the Shareholder Meeting to two, rather than three, of the six member Board. By
doing so, the existing Board was able to prevent Shareholders from electing at
the Shareholders Meeting one half of the Board of Directors. Management was
able to ensure its hand-picked candidates would comprise a majority of the
Board of Directors.
What's more, Mr. Shulman will now serve, in effect, a four year term. This is
contrary to the Certificate of Incorporation of the Company, which was the
basis on which the Company was formed. The Certificate limits the term to
three years. We believe it also violates the Bylaws of the Company and the
Securities laws. It is as if the Vice President of the United States said that
the President would serve a four year term until 1997 rather than stand for
election in 1996. This undemocratic action by the Board of Directors should
not be permitted.
WHAT CAN THE SHAREHOLDERS DO ABOUT IT?
It is clear to us 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 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 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
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 any stock in the Company. Make no mistake:
Management has clearly demonstrated to us 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 two 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. In our opinion, your vote will have had no
significance.
If you agree with the Group's concerns and want to create real shareholder
interest in this company, we urge you to vote for the 13D slate of candidates.
They are:
Dr. Vartan Ghugasian
Paul A. Cote
We urge you to review the materials enclosed regarding them.
If you share our concerns, then DO NOT RETURN THE MANAGEMENT PROXY. IF YOU DO,
YOU MAY CANCEL YOUR VOTE FOR THE INDEPENDENT DIRECTORS.