NOVAMETRIX 13D SHAREHOLDERS GROUP
November 5, 1996
Dear Fellow Shareholders:
Management has set November 25, 1996 as the date of the annual
shareholders meeting to vote on various proposals, including a merger with
Andros. It has sent you a two hundred page book (Management's Proxy
Statement) full of financial tables, legal documents, opinions, projections,
estimates, etc., in support of the proposals.
THE 13D GROUP OPPOSES THE MERGER. The full statement of our position and
the back-up material is in the following pages of this letter and the enclosed
proxy statement. We urge you strongly to read this letter and proxy statement
and form a judgment. WE ARE AGAINST THE MERGER BECAUSE:
1. YOUR STOCK INTEREST IN THE COMPANY WOULD BE SEVERELY DILUTED, IN OUR
OPINION.
2. NOVAMETRIX WOULD BE GETTING A COMPANY IN EXTREMELY POOR FINANCIAL
CONDITION, INCLUDING HAVING A NEGATIVE NET WORTH, A NET OPERATING LOSS
IN THE MOST RECENT YEAR AND SALES THAT HAVE DECLINED SINCE 1994.
3. ANDROS HAS A HUGE DEBT THAT NOVAMETRIX'S SUBSIDIARY WOULD HAVE TO
ASSUME.
4. WE BELIEVE THE PRICE NOVAMETRIX IS PAYING FOR ANDROS IS EXCESSIVE
COMPARED TO WHAT NOVAMETRIX IS GETTING.
5. THE ANDROS DEBT LOAD IS SO LARGE THAT NOVAMETRIX COULD HAVE SEVERE
FINANCIAL PROBLEMS TRYING TO SERVICE IT.
6. MANAGEMENT'S CLAIMS AS TO FUTURE PROFITABILITY ARE BASED LARGELY ON
THEIR ESTIMATES, PREDICTIONS AND PROJECTIONS AS TO FUTURE FINANCIAL
RESULTS.
7. THE MERGER WOULD GIVE GENSTAR, WHICH OWNS ANDROS, TOO MUCH CONTROL
OVER THE AFFAIRS OF NOVAMETRIX.
AGAIN, WE URGE YOU TO READ THIS LETTER AND GET THE FULL STORY. ALSO PLEASE
CALL US AT 1-800-344-1666 IF YOU HAVE ANY QUESTIONS.
PROPOSAL NUMBER 1: THE MERGER AGREEMENT
WE BELIEVE THAT THE FACTS CLEARLY SHOW THE MERGER IS A BAD DEAL FOR
SHAREHOLDERS AND SHOULD BE VOTED DOWN. HERE'S WHY:
1. WHAT IS ACTUALLY HAPPENING HERE?
Although the transaction is cast in the form of a merger and stock
exchange, the net result is actually a purchase and sale arrangement.
Novametrix (the Company), through a subsidiary, will acquire all of the
assets of Andros and pay Genstar Capital Partners II, L.P. (Genstar),
which is the 98% owner of Andros, with 4,389,586 shares of Novametrix
stock and assumption by the subsidiary of $59 million of Andros'
liabilities.
2. WHAT IS GENSTAR?
Genstar Capital Partners II, L.P. (Genstar), in a separate private
placement memorandum, states that it is in the business of buying and
selling companies using leveraged buy-outs through raising large amounts
of debt in an acquired company. Its principals have made more than sixty
acquisitions and fifty divestitures.
3. THE CURRENT INTEREST OF NOVAMETRIX SHAREHOLDERS WILL BE SEVERELY DILUTED.
As of July 28, l996 on a book value basis, combiningNovametrix and Andros
would have resulted in a 55% reduction in book value to a Novametirix
shareholder. Please see the enclosed proxy statement for details.
4. WE BELIEVE THE PRICE TO BE PAID FOR ANDROS IS BASED ALMOST ENTIRELY ON
GUESSES, ESTIMATES AND PROJECTIONS OF ITS FUTURE VALUE.
As of July 31, l996, Andros had:
A negative net worth of $3.614 million
Total liabilities of approximately $59 million. Total Assets of $55
million, of which $34 million are tangible assets and $21 million are
intangible assets. Substantially all of the assets are mortgaged to
lenders.
An operating loss of almost $20 million
25% sales decline from 1994 to 1995 and relatively flatsales in 1996.
Novametrix is paying over $25,000,000 worth of stock for Andros and its
subsidiary is assuming all its debt. (Please see the enclosed proxy
statement for details.)
Novametrix is providing to Genstar anti-dilution rights regarding the
approximately 2-1/2 million options and warrants so that Andros could
receive in the future an additional 950,000 shares of the Company free.
WHERE IS ANDROS' VALUE?
Management claims that, in spite of all this, the future growth and
prospects of the combined companies will make the deal worthwhile. But,
even Management admits that these claims are based largely on
projected future performance, potential cost savings, potential synergies.
Management is hoping that these future developments will take place.
Management itself admits in its proxy statement "that no assurance can be
provided as to any future financial results".
5. IN OUR OPINION, THE "FAIRNESS OPINION" OF TUCKER ANTHONY IN FAVOR OF THE
MERGER CANNOT BE RELIED UPON.
Management relies on Tucker Anthony, its hired investment advisor, to
approve the merger as being fair to the Company and the shareholders. We
believe their fairness opinion is unreliable.
THEY ARE NOT IMPARTIAL. While Tucker Anthony has already received
fees for acting as a financial adviser and for rendering the opinion,
as Tucker Anthony states in its October 18, 1996 letter, a substantial
portion of their fee depends on the merger being successful. Tucker
Anthony has been paid some monies to date.
THEIR OPINION OF FUTURE PERFORMANCE IS BASED LARGELY ON ESTIMATES AND
PROJECTIONS GIVEN TO THEM BY MANAGEMENT.
THEY HAVE ASSUMED THAT SUCH PROJECTIONS WILL BE REALIZED. In other
words, in support of their opinion they are assuming that things will
happen just the way Management says they will.
6. IN OUR OPINION, THE COMPANY MAY HAVE SERIOUS FINANCIAL PROBLEMS IN
SERVICING THE ANDROS BANK DEBT OF $44 MILLION.
In 1997, principal and interest payments on the Andros term loan and
subordinated loans totalling $44 million will be almost $7 million.
In 1998, payments on these loans will be almost $8 million.
In l996, Novametrix had net operating income of $2.13 million. Andros,
for the year ended July 31, 1996, had an operating loss of almost $20
million.
WHERE IS THE DEBT SERVICE COMING FROM?
The banks have a mortgage on substantially all of the Andros assets to
secure the loans. If Management's predictions of future earnings do not
come true, the bank could be in a position to foreclose on the loan.
7. THE AGREEMENT GIVES GENSTAR EFFECTIVE CONTROL OF THE COMPANY.
A 38% - 43% single block of stock in itself amounts to practical voting
control.
In addition, a Voting Agreement between the parties gives Genstar (until
January l, 1999) the power to elect half of the directors.
Genstar will acquire in effect a negative veto over the Company's affairs.
8. SHOULD GENSTAR HAVE THAT MUCH CONTROL OF NOVAMETRIX?
According to the private placement memorandum, Genstar is in the business
of buying and disposing of companies. We believe its principal objective
is short term profits.
Andros is an example of how it operates. Before the Genstar acquisition,
(on May 1, 1996) Andros had approximately $26 million of cash and no bank
debt. Genstar used all of Andros own cash to pay out its shareholders and
then loaded the company with over $44 million of bank debt. Six months
after the acquisition, it wants to sell Andros to Novametrix under the
merger agreement.
PROPOSAL NUMBER 2: LONG TERM INCENTIVE PLAN
We are strongly in favor of employee incentive programs, which provide
incentives to employees and not directors. We do not believe that the
Company's plan will accomplish this objective.
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 directors options and warrants for
stock. As of August, 1995 directors had received 437,675 options and
warrants.
In order to motivate other key employees, we feel that the plan should be
revised to take into consideration previous options given to directors.
PROPOSAL NUMBER 3: ELECTION OF DIRECTORS
We urge you to vote for the election of Paul Cote and Vartan Ghugasian -
as directors who will truly represent the interests of shareholders on the
Board.
IF YOU AGREE WITH OUR POSITION, WE URGE YOU:
1. DO NOT SIGN AND RETURN THE -- COMPANY PROXY CARD.
2. DATE, SIGN, AND RETURN THE ENCLOSED GREEN PROXY CARD IN THE ENCLOSED
ENVELOPE.
VOTE NO CONFIDENCE -- VOTE THE GREEN CARD
NOVAMETRIX 13D SHAREHOLDERS GROUP<F1>
consisting of
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
<F1>Each of us is a shareholder of Novametrix Medical Systems, Inc. and is a
member of the Novametrix 13D Shareholders Group. Collectively, we own in the
aggregate, including currently exercisable warrants, approximately 10.8% of the
common stock of Novametrix. None of us are members of management of the
Company or have any business relationship with management.