13D SHAREHOLDERS GROUP
John C. Allen, Sr. Donn Gifford
Lillian I. Allen Linda Gifford
Roland R. Batson Ginette Gladu
Richard Boulet Robert R. Gladu
Joan P. Cote Andrew Gross
Paul A. Cote Dana Gross
Normand F. Doyon John F. Gross
Pauline G. Doyon Susan T. Gross
Sandra Dunham Diane James
Thomas B. Dunham Richard James
Adrienne R. Emmi William Lagerson
Anthony N. Emmi Pierre Levesque
Armen Ghugasian Edgar Morin
Takuhe Ghugasian John Orestis
Vartan Ghugasian Raymond E. Robichaud
PRELIMINARY PROXY STATEMENT
13D Shareholders Group
Regarding
NOVAMETRIX MEDICAL SYSTEMS, INC.
The enclosed proxy is solicited by the 13D Shareholders Group (names
listed above) of Novametrix Medical Systems, Inc. ("Novametrix") for use
in voting at the annual meeting regarding the matters described in this proxy
statement and in the accompanying materials. Each of the members of the
Group is a shareholder of Novametrix and each has no connection to existing
management. The solicitation is being done to elect two shareholder
representatives to the Board of Directors of Novametrix and to oppose the
proposal of the existing Board of Directors to merge Novametrix with Andros
Holdings, Inc. ("Andros").
Date, Time and Place of Annual Meeting
(a) Date of annual meeting of shareholders of Novametrix
Medical Systems, Inc. is November 25, 1996 at 2:00 p.m.
Place of annual meeting: The Drake Swissotel, 440 Park Avenue, New
York, New York
Mailing address of executive officers:
Novametrix Medical Systems, Inc.
56 Carpenter Lane
Wallingford, Connecticut 06492
(b) The definitive proxy statement will be first given to security
holders on or after November 1, 1996, if the Securities and Exchange
Commission reduces the ten (10) day waiting period.
THE DEFINITIVE PROXY STATEMENT TO BE GIVEN TO STOCKHOLDERS ON OR AFTER
NOVEMBER 1, 1996, IF THE SECURITIES AND EXCHANGE COMMISSION REDUCES THE TEN
(10) DAY WAITING PERIOD
Voting and Revocability of Proxy
When proxies are properly dated, executed and returned, the shares they
represent will be voted at the annual meeting in accordance with your
instructions as stockholders. If no specific instructions are given, the
shares will be voted FOR the election of the nominees for directors set
forth herein and FOR ratification of the proposal set forth herein. Any
proxy given by any stockholder may be revoked by the stockholder prior to
its exercise by voting in person at the annual meeting, by giving written
notice to the Secretary of Novametrix prior to the annual meeting or by
giving a later dated proxy.
Persons Making the Solicitation and Interest of Certain Persons
in Matters to be Acted Upon
(a) Solicitation is made by 13D Shareholders Group consisting of the
persons identified and described in Attachment A. Solicitation will
be made by personal meetings or telephone conversations, by members
of the 13D Shareholders Group, and mailings that will include the
proxy statement, proxy and letters.
(b) No employees of Novametrix or any member of the 13D Shareholders
Group will be used to solicit security holders.
(c) No specially engaged employees, representatives or other persons will
be used to solicit proxies.
(d) Estimated expenses of the 13D Shareholders Group of this solicitation
are $35,000; approximately $25,000 of expenses have been incurred to
date.
(e) The cost of the solicitation has been borne initially by the members
of the 13D Shareholders Group described in Attachment A.
Reimbursement will be sought from the registrant, Novametrix, if the
solicitation is successful.
Voting Securities And Principal Holders Thereof
(a) Number of common shares entitled to vote: As of June 28, 1996, based
upon publicly available statements of the Company, there were
approximately 6,647,512 shares of common stock of Novametrix, 40,000
shares of Class B preferred stock of Novametrix, and warrants to
purchase up to 2,547,514 shares of Novametrix common stock. Each
holder of common stock as of the record date of September 27, 1996 is
entitled to one vote per share of stock owned. Each share of
preferred stock is entitled to eleven votes at the annual meeting.
Holders of warrants who have not exercised their warrants on or prior
to September 27, 1996 by the purchase of shares of common stock are
not entitled to vote such warrants.
(b) The record date is September 27, 1996.
(c) There are no cumulative voting rights.
(d) (i) Security Ownership of Certain Beneficial Owners
The stockholders (including any "group," as that
term is used in Section 13(d)(3) of the Securities
Exchange Act of 1934) who, to the knowledge of the 13D
Shareholders Group, owned beneficially more than five
percent of any class of the outstanding voting
securities of the Company as of July 1, 1996, and their
respective shareholdings as of such date (according to
information furnished by them to the Company), are set
forth in the following table. Except as indicated in
the footnotes to the table, all of such shares are
owned with sole voting and investment power.<F1>
<F1>For all information other than the Schedule 13D Shareholders Group, the
information is as of July 1, 1996 and derived solely from the Annual Report of
the company dated July 28, 1996.
Title of Shares Percent
Name and Address Class Beneficially Owned of Class
First Union Corporation Common 716,182 (1)(2) 9.7%
One First Union Center Series B
Charlotte, NC 28288 Preferred 40,000 (2) 100.0%
William J. Lacourciere Common 417,490 (3) 6.0%
One Barnes Industrial Park Rd
Wallingford, Connecticut 06492
13D Shareholders Group Common 864,810 (4) 12.4%
(1) Consists of (i) 444,444 shares issuable upon the conversion of
40,000 shares of Series B Preferred Stock and (ii) 271,738 shares
issuable upon the exercise of currently exercisable warrants
formerly held by First Fidelity Incorporated ("First Fidelity"),
a wholly owned subsidiary of First Fidelity Bancorporation, which
warrants will expire on May 23, 2000. The Series B Preferred Stock and
warrants presently held by First Union Corporation ("First Union")
as the result of First Union's merger with First Fidelity consummated
in January, 1996, were formerly held by First Fidelity Bank,
Connecticut ("FFB-CT"), formerly known as Union Trust Company prior to
its acquisition by First Fidelity Bancorporation.
(2) Information as to the holdings of First Union is based upon a report on
Schedule 13D filed with the Commission by FFB-CT and Northeast Bancorp,
Inc., its parent corporation prior to the acquisition of FFB-CT by
First Fidelity Bancorporation. First Fidelity Bancorporation may be
deemed to be the indirect beneficial owner of the shares held by First
Fidelity by virtue of its ownership of all of the stock of First
Fidelity.
(3) Includes (i) 304,078 shares issuable upon the exercise of
currently exercisable warrants held by Mr. Lacourciere, the
Chairman of the Board, President and Chief Executive Officer and a
director of the Company, which warrants will expire on December
28, 1999, (ii) 5,887 shares held for the account of Mr.
Lacourciere under the Employee Stock Ownership Plan of the Company
(the "ESOP"), (iii) 1,000 shares issuable upon the exercise of
Class A warrants, and 1,000 shares issuable upon the exercise of
Class B warrants held by Mr. Lacourciere, which warrants are
currently exercisable and will expire on December 8, 1997 and
December 8, 1999, respectively, and (iv) 20,000 shares issuable
upon the exercise of currently exercisable options held by Mr.
Lacourciere. Does not include 38,889 shares held by the ESOP with
respect to which Mr. Lacourciere, as co-trustee, has shared voting
and investment power.
(4) Includes 180,325 shares issuable upon the exercise of currently
exercisable warrants.
(ii) Security Ownership of Management
The following table sets forth, as of July 1, 1996, the number of
shares of the outstanding voting securities of the Company
beneficially owned by each of the Company's directors and nominees
for director, each executive officer named in the Summary
Compensation Table of the annual report of the Company dated July 28,
1996, and all directors and executive officers as a group, according
to information furnished by such persons to the Company.<F2>
<F2>This information is derived from the annual report of the Company as of
July 28, 1996 and Form 5 filed with the SEC on or about June 2, 1996, except
where otherwise noted.
Title of Shares Percent
Name and Address Class Beneficially Owned of Class
Thomas M. Haythe Common 115,540 (1) 1.7%
Director of the Company
William J. Lacourciere Common 417,490(2) 6.0%
Chairman of the Board,
President and Chief
Executive Officer of the
Company and Director of
the Company
Michael J. Needham Common 26,588 (3) *
Director of the Company
Photios T. Paulson Common 14,500 (4) *
Director of the Company
Steven J. Shulman Common 5,000 *
Director of the Company
Joseph A. Vincent Common 64,450 (5) *
Vice President Finance,
Chief Financial Officer,
Treasurer and Secretary
of the Company and
Director of the Company
All directors and executive Common 678,245 (1) (2) 9.5%
officers as a group (3) (4)
(seven persons) (5) (6)
* Less than one percent.
The following information was obtained from Form 5 filed on or about June 12,
1996.
(1) Includes (i) 14,844 shares issuable upon the exercise of
currently exercisable warrants held by Mr. Haythe, which
warrant will expire on December 31, 1997, (ii) 10,744
shares issuable upon the exercise of currently exercisable
warrants held by Mr. Haythe, which warrants will expire on
March 10, 1999, (iii) 10,878 shares issuable upon the exercise
of currently exercisable warrants held by Mr. Haythe, which
warrants will expire on April 11, 2000, (iv) 15,995 shares
issuable upon the exercise of currently exercisable warrants
held by Mr. Haythe, which warrants will expire on November
30, 2000 and (v) 7,234 shares issuable upon the exercise
of currently exercisable warrants held by Mr. Haythe, which
warrants will expire on November 30, 2000.
(2) Also includes information from Form 4 filed on August 16, 1996.
Includes (i) 304,078 shares issuable upon the exercise of currently
exercisable warrants held by Mr. Lacourciere, which warrants will expire
on December 28, 1999, (ii) 5,887 shares held for the account of Mr.
Lacourciere under the ESOP, (iii) 1,000 shares issuable upon the
exercise of Class A warrants and 1,000 shares issuable upon the exercise
of Class B warrants held by Mr. Lacourciere, which warrants are
currently exercisable and will expire on December 8, 1997 and December
8, 1999, respectively, and (iv) 20,000 shares issuable upon the exercise
of currently exercisable stock options held by Mr. Lacourciere. Does
not include 38,889 shares held by the ESOP with respect to which Mr.
Lacourciere, as co-trustee, has shared voting and investment power.
(3) Includes (i) 14,844 shares issuable upon the exercise of currently
exercisable warrants held by Mr. Needham, which warrants will expire on
December 31, 1997, (ii) 10,744 shares issuable upon the exercise of
currently exercisable warrants held by Mr. Needham, which warrants will
expire on March 10, 1999, and (iii) 1,000 shares owned by Simex, Inc.
(4) Includes 10,000 shares issuable upon the exercise of currently
exercisable warrants held by Mr. Paulson, which warrants will
expire on November 30, 2002.
(5) Includes (i) 3,158 shares held for the account of Mr. Vincent under the
ESOP, (ii) 200 shares issuable upon the exercise of Class A warrants and
200 shares issuable upon the exercise of Class B warrants held by Mr.
Vincent, which warrants are currently exercisable and will expire on
December 8, 1997 and December 8, 1999, respectively, and (iii) 58,334
shares issuable upon the exercise of currently exercisable stock options
held by Mr. Vincent.
(6) Includes (i) 1,475 shares held for the account of Leslie E. Mace, Vice
President Engineering of the Company, under the ESOP, (ii) 24,535 shares
issuable upon the exercise of currently exercisable warrants held by Mr.
Mace, which warrants will expire on March 22, 2000, and (iii) 8,667
shares issuable upon the exercise of currently exercisable stock options
held by Mr. Mace.
(e) To the best of the knowledge of the 13D Shareholders Group, there have
been no changes in control of Novametrix since the beginning of the last
fiscal year.
Nominees for Election of Directors
Dr. Vartan Ghugasian
Dr. Ghugasian is 51 years old. Dr. Ghugasian has been a practicing
dentist in Massachusetts since 1972. Dr. Ghugasian has enjoyed a number
of academic appointments. These include a position as an Associate in
Prosthetic Dentistry, Harvard School of Dental Medicine, which he held
from 1980 until 1993. Dr. Ghugasian is a director of the Karagheusian
Commemorative Corporation of New York City. Dr. Ghugasian is a member of
the 13D Shareholders Group and owns 13,500 shares of the common stock of
the Corporation as well as 44,000 shares with Takuhe Ghugasian. Dr.
Ghugasian has had no business relationship with Novametrix and has no
family or business relationship with any existing directors or management.
Paul A. Cote, Esq.
Paul Cote is 66 years old. Mr. Cote has been a practicing lawyer in Maine
since 1955 and is the President and Director of his law firm, Cote, Cote &
Hamann. Mr. Cote is a member of the bar of several courts in the United
States, including the U.S. Supreme Court. Mr. Cote is a former judge.
Mr. Cote is a graduate of Boston University Law School. Mr. Cote was a
member of the Board of Directors of Secor Federal Savings & Loan,
Birmingham, Alabama, in 1992 and 1993, a bank with assets of $2 billion
and which was listed on NASDAQ. Mr. Cote was also a member of the
following Boards: Advisory Boards of Fleet Bank (1990-1992); Northeast
Bankshares Association (later became Norstar and then Fleet) (1975-1989);
and Auburn-Lewiston United Way (later to become Auburn-Lewiston United
Fund) (1957-1967). Mr. Cote, individually and with his wife Joan, owns
70,120 shares of the Corporation and 20,575 warrants, which accounts for
approximately 1.3% of the Corporation. Mr. Cote has had no business
relationship with Novametrix and has no family or business relationship
with any existing directors or management.
Plans of Dr. Ghugasian and Mr. Cote If Elected
If Dr. Ghugasian and Mr. Cote are elected they would work to maximize
shareholder values. They would propose, among other things, the
engagement of an investment banker to determine a true value for the
Company and to recommend a course of action to maximize those values.
They would propose that the Company adopt a plan to maximize those values,
which could include the sale of the Company to a third party. They and
the other members of the 13D Group are not aware of or have any
arrangements of any kind with any prospective purchaser for the Company.
They also oppose the merger with Andros. They believe the unanimous vote
by the current Board of Directors of the Company demonstrates a need for
new Directors. They believe that the merger is inappropriate for a number
of reasons, including those described in the following section. They
believe that basic business logic should have caused the directors to
reject the proposal. It is their opinion that issuance of about 4.4
million shares of the Company to Andros with a market value of
approximately $25 million (as of July 31, 1996) for a company, Andros,
that had a negative net worth (liabilities greater than assets) of $3.6
million (as of July 31, 1996), and the assumption by the Company of Andros
liability of $45 million for loans from banks and an additional $8 million
of other liabilities, is not a sound business deal.
Dr. Ghugasian and Mr. Cote believe that the broker management retained,
Tucker Anthony, Inc., is not suitable because of its rendering an opinion
upon which management relies, that the exchange ratio for the Andros
merger is fair to the Company and the shareholders, even though Tucker
Anthony has an interest in the shareholders voting in favor of the merger,
since Tucker Anthony's fee increases if the merger goes through.
If the shareholders do not vote to approve the Andros merger at the annual
meeting they will propose the Company take those steps necessary to
relieve the Company of any commitments or obligations arising from the
current Board of Directors' agreement to merge with Andros. Since Dr.
Ghugasian and Mr. Cote would be only two members of a six-member Board of
Directors, there can be no assurance that these plans will be adopted by
the full Board of Directors. There is also no assurance that another
purchaser for the Company will be located or that any sale would be on
better terms than the Andros merger, although these nominees would not
vote for any sale that was on similar or worse terms than the Andros
merger.
Compensation Of Directors And Executive Officers
Novametrix has not provided any compensation to any nominees of the
Schedule 13D Shareholders Group.
Other Matters To Be Acted Upon
Voting Procedures
The presence, in person or by proxy, of the holders of a majority of the
voting power of all the outstanding shares of common stock and Series B
preferred stock entitled to vote at the annual meeting is necessary to
constitute a quorum at the meeting or any adjournments thereof. Directors
of the Company are elected by a plurality vote. Adoption of the proposed
merger with Andros will require the affirmative vote of a majority of the
voting power of the shares present at the meeting, in person or by proxy,
and entitled to vote on that proposal. Abstentions and broker non-votes
(as defined below) will be counted as present for the purpose of
determining the presence of a quorum. For the purpose of determining the
vote required for approval of matters to be voted on at the meeting,
shares held by stockholders who abstain from voting will be treated as
being "present" and "entitled to vote" on the matter and, thus, an
abstention has the same legal effect as a vote against the matter.
However, in the case of a broker non-vote or where a stockholder withholds
authority from his proxy to vote the proxy as to a particular matter, such
shares will not be treated as "present" and "entitled to vote" on the
matter and, thus, a broker non-vote or the withholding of a proxy's
authority will have no effect on the outcome of the vote on the matter. A
"broker non-vote" refers to shares of common stock or Series B preferred
stock represented at the meeting in person or by proxy by a broker or
nominee where such broker or nominee (i) has not received voting
instructions on a particular matter from the beneficial owners or persons
entitled to vote and (ii) the broker or nominee does not have
discretionary voting power on such matter.
Other Matters To Be Acted Upon-The Proposed Merger of Andros with the Company
Proposal
Management of the Company has entered into an agreement with Andros
Holdings, Inc. ("Andros") in which Novametrix Acquisition Corp., a wholly
owned subsidiary corporation of the Company, would be merged with and into
Andros, a subsidiary of Genstar Capital Partners II, L.P. ("Genstar").
The agreement is effective and the merger will be consummated only if
there is an affirmative vote of a majority of the shares of the Company
as of September 27, 1996 that are present at the meeting approving of the
merger. Under the merger agreement, at the Effective Time of the merger
(the date the merger is consummated if approved by the shareholders) the
Company will issue to the stockholders of Andros (Genstar is the principal
stockholder of Andros and has a 98% ownership interest of Andros) on the
following: (1) shares of the Company's common stock constituting 38% of
the Company plus an opportunity to receive an additional 5% if certain
revenue or income thresholds are exceeded; and (ii) anti-dilution rights
enabling the Andros shareholders to maintain, without additional payment,
the 38% ownership interest (or 43% ownership as the case may be) as the
Company's options and warrants are exercised. The merger agreement also
provides that the Board of Directors of the Company shall be comprised of
(i) the members of the Company's Board of Directors immediately prior to
the Effective Time; and (ii) an equal number of directors appointed by
Andros. The agreement also provides that Genstar's Richard D. Paterson
shall become Chairman of the Board of the Company.
The 13D Group's Opposition to the Merger Proposal
The 13D Group opposes the merger proposal because it strongly believes
that the merger is not in the best interests of shareholders of the
Company. The reason for this position are as follows:
1. Dilution. Each shareholder's ownership interest in the Company will
be diluted by 38%, and 43% if the additional 5% is issued to Andros.
For example, if a current shareholder owned shares sufficient to
constitute 1% of the Company, immediately after the merger the shares
would constitute ownership of .62% (or .57% if the additional 5% is
granted) of the Company. As a percentage of book value, prior to the
merger such shareholder's book value of such shares would be $132,000
and after the merger would be $59,625, a 55% decrease.
2. Price. We believe the price paid for Andros is excessive:
(a) Andros will receive 4,389,586 shares of the Company with a
market value of approximately $25 million plus an opportunity to
receive an additional approximately 575,000 shares, with a market
value of about $3.3 million, if certain sales or income
thresholds are exceeded. Andros will also receive anti-dilution
rights regarding the more than 2 1/2 million stock options and
warrants of the Company. That means that for each issue of
shares of stock upon exercise of warrants and options Andros will
receive free additional shares of stock. If all warrants and
options are exercised this will mean approximately 950,000
additional shares of the Company.
(b) the Company will assume $45 million of Andros' bank
debt and other liabilities of Andros of about $8 million
(totalling $53 million).
(c) Andros had a negative net worth of about $3.6 million on
July 28, 1996.
(d) Andros had a net loss for the period ended March 26, 1996 of
over $7 million and a net operating loss for that period of $13.8
million.
(e) Sales of Andros have not shown any significant improvement
in the last three years. For the year ended July 31, 1994 sales
were $57.7 million, declined to $42.8 million for the next year
and increased only to $43.2 million for the year ended July 31,
1996.
3. Assumption of Debt. We believe the deal represents an unwarranted
bail-out for Genstar - 98% owner of Andros. Genstar has an equity
investment of approximately $17 million in Andros and is receiving
Company stock of approximately $27 million. Genstar is bailed out
because now it need rely not only on Andros' assets and income stream
to pay the $45 million of bank debt, but it also can use the Company's
income and assets. Since Andros had a negative net worth and a loss,
the addition of the Company's assets and future income make it easier
to pay off this debt and thereby provide for a return on Genstar's
investment.
4. Excessive Debt Structure. Management's press release dated August 2,
1996 announcing the merger refers to the combined sales if the Company
and Andros are merged. Management, however, failed to disclose in the
press release the additional debt that the Company will be assuming as
a result of the merger. Andros had bank debt prior to the merger of
approximately $45 million, all of which (together with $8 million of
other debt) will be assumed by the Company. If these loans are not
paid, then the banks have the right to take the assets of the Company.
Under such a scenario, the shares of the Company could be worthless.
5. Sacrifice of Minimum Debt Currently of the Company. In contrast to
Andros, the Company prior to the merger was relatively debt free. As
of July 31, 1996, the Company had long term liabilities of about $2.4
million.
6. Voting Control. Current management of the Company has relinquished
independent control of the Company in exchange for a voting agreement
that gives the current directors the ability to elect 1/2 of the
Directors of the new merged Company and Genstar the ability to elect
the remaining 1/2 of the Board of Directors. Operation of any
corporation is controlled by its Board of Directors. In turn, the
Board of Directors are accountable to those persons who elect
them--the shareholders. Under the merger agreement and the voting
agreement, which accompanies the merger agreement and is a necessary
condition of consummating the merger, 1/2 of the directors of the
Board of Directors are to be nominated and elected by Andros. The
other 1/2 of the directors are the Board of Directors of the Company
immediately before the merger is completed. Even if the 13D Group
Board of Directors nominees, Dr. Vartan Ghugasian and Paul Cote, are
elected by shareholders to fill 2 seats on the Company's Board of
Directors the remaining 4 members of the Company's Board of Directors
are each management nominees. Thus, for a 12 person Board of
Directors, 10 directors would be Andros and Company management
nominees.
In addition, the voting agreement provides that Genstar is to vote all
its shares (which would be approximately 38% of the Company) in
election of directors for those persons nominated by a majority of the
current Board of Directors of the Company; i.e., current management.
Therefore, Genstar would be required to vote its shares for the
Company management nominees. Since Genstar itself will have 38% of
the shares of the Company, the current directors of the Company have
virtually assured themselves of placing 1/2 of the directors of the
new merged company.
7. Possible Loss of Value. If the merger is approved, the shareholders
will retain a smaller ownership interest of a larger company. Nobody
can assure the shareholders that the value of their interests will be
higher (or lower) in the future as a result of the merger. Even the
opinion from Tucker Anthony, Inc. specifically disclaims any ability
to do so.
8. Sweetheart Registration Rights for Genstar. Under the agreement, the
Company agrees for a period of ten years on request to register all of
the Novametrix stock issued to Genstar and pay all of the registration
expenses including legal fees.
Long Term Incentive Plan - Management Proposal
We are strongly in favor of employee incentive programs but we do not
believe that the Company's plan will accomplish its objectives.
Of the 750,000 shares set aside for awards, up to 300,000 or 40% can go to
directors alone.
The Company has previously granted employees and directors options and
warrants for stock. The Company's 1996 Plan does not take these into
consideration or attempt to coordinate future Plan options with previous
grants.
We feel that the Plan should be revised and not approved.
13-D Group's Position Regarding Number Of Directors To Be Elected At The Annual
Meeting
The upcoming annual meeting of November 25, 1996 will permit the
shareholders to elect two Class A Directors. The Class B Directors were
elected at the 1994 annual meeting and will be elected at the 1997 annual
meeting and the Class C Directors were elected at the 1995 annual meeting
and will be elected at the 1998 annual meeting.
On August 15, 1994, prior to the issuance of the management's proxy
statement for the 1994 annual meeting at which Class B Directors were to
be elected, a Class B Director resigned. This created an imbalance in the
number of Directors: 3 Class A Directors; 1 Class B Director; and 2 Class
C Directors. Even though there was this imbalance and the shareholders
were voting for Class B Directors at the upcoming annual meeting in 1994,
the Board did not decrease the number of Class A Directors to 2 from 3 and
increase the number of Class B Directors from 1 to 2. The Board noted in
its 1994 proxy statement that there were three Class A Directors, who
would be elected at the 1996 Annual Meeting. Similar representations were
made in the 1995 proxy statement of the Board.
On April 25, 1996 the 13-D Group was formed and informed management that
it was seeking to have the shareholders adopt a proposal at the upcoming
meeting to increase shareholder values. At a telephone meeting on May 20,
1996 of the Board of Directors of the Company, Class A Director Steven
Shulman resigned and during the same meeting the Board reduced the number
of Class A Directors to 2 and increased the number of Class B Directors to
2. The Board then elected Mr. Shulman, who had just resigned as a Class A
Director, to be a Class B Director. As a Class B Director, Mr. Shulman
will not stand for election by the shareholders until the 1997 annual
meeting. As a Class A Director, however, he was scheduled to stand for
election at the upcoming annual meeting in 1996.
We believe the Board's action on May 20, 1996 violates the Certificate of
Incorporation and bylaws of the Company.
The Fifth Article of the Certificate of Incorporation provides that "the
directors of each class shall be elected to serve for a term of three
years. The By-laws may contain any provision regarding classification not
inconsistent with the terms hereof." In our opinion, Mr. Shulman's
continuation for four years on the Board contravenes this provision of the
Certificate of Incorporation.
Article IV, Section 1 of the By-laws provides that Directors shall be
elected at the annual meeting of the Stockholders, except as provided in
Section 2. Section 2 permits the Board to appoint a Director only if
there has been an increase in the number of Board members (which clearly
is not the case) or if there is a vacancy in the office of Director.
While the minutes of the May 20 meeting indicate that the Board appointed
Mr. Shulman to fill the vacancy in the Class B Directorship, in our
opinion this was not a true vacancy. Rather, it was created by the Board.
The minutes of the May 20 meeting indicate that this change in the number
of Class A and B Directors was done so that each Class would have
approximately 1/3 of the number of Directors as provided in the
Certificate of Incorporation. If that is the case, then why was such
reconfiguration not done by the Board prior to the 1994 annual meeting
when it was known, as specified in the 1994 proxy statement, that the
claimed disproportion of Class A and Class B Directors occurred.
Certainly, if such a move was necessary it should have been done prior to
the very meeting when the Shareholders elected the Class B Directors. Why
wait two years to make this change? Was the Board in violation of the
Certificate of Incorporation for two years?