UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (date of earliest event reported): April 1, 1998
Commission File No. 1-12575
UTAH MEDICAL PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
UTAH 87-0342734
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7043 South 300 West
Midvale, Utah 84047
Address of principal executive offices
Registrant's telephone number: (801) 566-1200
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS
On April 1, 1998, Perry L. Lane resigned as a director of Utah Medical Products,
Inc. ("UM"). Mr. Lane has furnished a letter describing disagreements between
himself and the operations, policies or practices of UM since 1993, and has
requested that the matter be disclosed. Mr. Lane's letter is attached as
Exhibit 1.
Mr. Lane indicated disagreements in two principal areas, and raised a number of
other "concerns": 1) new product development, especially Cordguard, a product
obtained in an asset purchase agreement on January 4, 1994 with OB Tech, Inc;
and 2) UM's share repurchase program, initiated in 1992.
1) In regard to new product development, Mr. Lane indicates that due diligence
efforts in acquiring Cordguard were inadequate, a safety issue was ignored, and
the board of directors was not informed of expenses. He also expresses
disappointment that a product was not developed for an idea he provided to UM.
UM believes that the descriptions provided by Mr. Lane are incorrect, incomplete
and misleading. Mr. Lane had and took advantage of unrestrained access to
senior management and technical personnel of UM. After an initial exposure to
Cordguard and favorable recommendation in early 1993 by UM's VP of New Product
Development, Dr.Gail Billings, due diligence efforts began in earnest in July
1993. UM's records include due diligence notes taken by members of UM's
established Steering Committee, composed of senior technical, marketing and
executive management personnel, in discussions with physicians, OB Tech
marketing and other management personnel, and two experienced venture capital
groups which had funded early Cordguard development, among others. Although
certain of UM's outside directors who were interested in the Cordguard
technology and the new product opportunity that it represented personally
participated in the due diligence process, Mr. Lane did not choose to do so.
Nevertheless, Mr. Lane voted in favor of a resolution unanimously passed at an
August 6, 1993 board meeting to authorize the negotiation of an agreement with
OB Tech, Inc. within guidelines established by the board, and later signed those
minutes. Mr. Lane did not offer any guidelines different from those adopted. A
tentative agreement to acquire Cordguard, contingent upon successful completion
of UM's own clinical evaluation of the product's efficacy, was publicly
announced on August 20, 1993. On September 8, Dr. Billings updated the board
respecting the results of UM's investigation to date and outlined additional
questions and matters under inquiry. Although Mr. Lane was present during the
September discussions, he did not indicate any due diligence questions that he
felt were not being properly assessed. Following the discussion of a term sheet
outlining the principal terms of the proposed acquisition, Mr. Lane voted in
favor of a resolution unanimously approved at the October 22, 1993 board meeting
to approve the acquisition of the assets of OB Tech, Inc. Again, Mr. Lane did
not suggest any terms or contingencies different from those included in the term
sheet, nor indicate any disagreement with the conclusion of the board to acquire
the Cordguard concept at a significant cost, clearly known to all at the
meeting, with the recognized requirement for further R&D and the related risks.
The purchase agreement was signed on January 4, 1994. UM's directors were aware
of the results of UM's clinical evaluations and participated in setting final
terms of the agreement. At no time in the five months between the August 6,
1993 board meeting at which he voted to pursue the Cordguard acquisition until
the agreement was signed on January 4, 1994, did Mr. Lane, as part of his due
diligence and the required exercise of his prudent business judgment as a
director, indicate that "ordinary management diligence" had not been exercised,
as he now asserts in his resignation letter.
The safety issue to which Mr. Lane alludes was first identified to Mr. Cornwell
in a letter written by Mr. Lane dated February 3, 1998 following a board meeting
on January 30, 1998. So that the entire board could properly consider Mr.
Lane's substantive comments, in the January 30 meeting Mr. Lane was asked to
disclose to the full board all of his objections regarding new product
development projects. Mr. Lane did not raise the Cordguard safety issue,
although in the meeting Mr. Lane withdrew his support for both the Cordguard and
fetal pH projects. The February 3, 1998 letter, which identified Mr. Lane's
Cordguard safety concern, was the thirty-seventh letter sent by Mr. Lane to UM
since June 1997, requesting written responses to questions in a format
acceptable to Mr. Lane, which information either had been already provided,
clearly and in detail satisfactory to Mr. Lane at the time it was presented, or
was available in the records of the Company open for review by Mr. Lane, or was
available from contact with various UM employees at all levels to which Mr. Lane
had free access. During this latter period since June 1997, Mr. Lane declined
to contact UM's scientific, sales and management employees directly responsible
for the project, notwithstanding the fact that he had previously felt free to do
so, particularly in connection with the review of his own product concept that
he had introduced to UM as noted below. Although Mr. Lane had referred to
Cordguard in several of the previous 36 letters since June 1997, he had never
referred to his concerns respecting the safety of the product. Apparently,
according to Mr. Lane's February 3, 1998 letter, in Mr. Lane's discussion with a
neighbor, a physician, in January 1997, the physician speculated that the use of
Cordguard to sever the cord, for a baby born with the umbilical cord tightly
wrapped around its neck, might be hazardous. Mr. Lane did not say whether the
physician had ever used Cordguard. Based on UM's validation of Cordguard
performance criteria, the U.S. FDA concurred with UM's premarketing claims of
safety and efficacy in December 1995. Since the December 1995 release by the
FDA, approximately 9,000 Cordguard units have been used without any reports of a
safety risk associated with the umbilical cord wrapped tightly around a baby's
neck. If Mr. Lane was so greatly concerned about his January 1997 findings, the
other directors now question why Mr. Lane never brought it up in a board
meeting, never exercised his power to call a special board meeting himself, and
waited more than a year to express his concerns.
Mr. Lane's repeated statements that the board was not informed of expenses are
not credible. The other directors can state from personal knowledge that all
directors were informed. Acquisition costs were discussed by the entire board
and agreed upon as part of setting the terms of the OB Tech agreement. Lori
Sessions, UM's Controller, on the board of directors from February 1994 until
August 1997, was responsible for collecting and reporting the details of all of
UM's expenses, including product development. Mr. Lane had free access to Ms.
Sessions, who provided accounting information regularly to the board, as well as
directly to individual directors when requested. Ms. Sessions was also
responsible for preparing the budgets which were part of the annual operating
plans reviewed in detail and approved each year by resolution of the board of
directors. Mr. Lane signed minutes at the beginning of each year of 1994, 1995,
1996 and 1997 that contained unanimous board approval for operating plans
including budgeted Cordguard product development spending.
With regard to the R&D project that Mr. Lane claims had "economic advantages and
clinical benefits readily apparent," UM's R&D managers were responsible for
independently evaluating the feasibility of Mr. Lane's idea, and chose in
November 1995 not to pursue it. Inasmuch as Mr. Lane admits in his resignation
letter that he had sufficient access to UM's engineers to learn that a patent
might be obtained, the other directors are perplexed as to why Mr. Lane also
could not learn in late 1995 why his project wasn't pursued. Although R&D
investigated Mr. Lane's idea more than a year earlier, Mr. Lane did not bring
this complaint to the board's attention prior to May 1997.
2) Mr. Lane indicates disagreements with the value of share repurchases and the
use of sales of puts to accomplish the repurchase objective.
The board unanimously approved the Company's share repurchase program as
detailed below and consistently bought shares at prices favorable to UM when
compared to contemporaneous market prices and trading conditions. Of course, it
is convenient now to be disappointed in view of the lower market prices. The
directors disagree with Mr. Lane's recent attempt to disavow responsibility for
repurchases that were made with his authorization as a director. Prior to Mr.
Cornwell's involvement at UM, on August 25, 1992, UM's board of directors by
unanimous written consent initiated a share repurchase program to repurchase up
to $2 million of UM's stock at a price up to $12/ share. Mr. Lane participated
in that resolution.
Subsequent to Mr. Cornwell's employment, Mr. Lane participated in board
meetings, consistently supported the stock repurchase plan and signed the
minutes to authorize additional repurchases or to formally ratify repurchases
previously made:
a)4-17-93: Authorized an additional $4 million in continuance of repurchase
plan. (Mr. Lane voted FOR)
b)5-21-93: Authorized uncovered put writing in order to facilitate share
repurchases at a predetermined price. (Mr. Lane abstained because he said
he did not understand put options.)
c)10-22-93: Authorized an additional $2 million in continuance of repurchase
plan. (Mr. Lane voted FOR)
d)1-28-94: Ratified all share repurchases and sales of puts to date. (Mr.
Lane voted FOR)
e)5-06-94: Ratified a repurchase of 300,000 shares at $7.875/ share from a
single shareholder. (Mr. Lane voted FOR)
f)7-22-94: 1) Ratified all share repurchases and sales of puts to date. (Mr.
Lane voted FOR); 2) Ratified 5-26-94 telephonic poll of directors to
authorize a further $2 million in continuance of repurchase plan. (Mr. Lane
voted FOR); and 3) Authorized an additional $2 million in continuance of
repurchase plan. (Mr. Lane voted FOR)
g)1-27-95: Ratified all share repurchases to date. (Mr. Lane voted FOR)
h)5-19-95: 1) Ratified all share repurchases to date. (Mr. Lane voted FOR);
and 2) Ratified 4-6-95 telephonic poll of directors to authorize a further
$2.5 million in continuance of repurchase plan. (Mr. Lane voted FOR)
i)7-28-95: Ratified all share repurchases to date. (Mr. Lane voted FOR)
j)10-27-95: Ratified all share repurchases to date. (Mr. Lane voted FOR)
k)12-27-95: Authorized an additional $3 million in continuance of repurchase
plan. (Mr. Lane voted FOR)
l)2-02-96: Ratified all share repurchases to date. (Mr. Lane voted FOR)
m)5-17-96: 1) Ratified all share repurchases and put sales to date. (Mr. Lane
voted FOR); and 2) Ratified 3-14-96 and 4-24-96 telephonic polls of
directors to authorize a further $6 million in continuance of repurchase
plan. (Mr. Lane voted FOR)
n)7-26-96: 1) Ratified all share repurchases and sales of puts to date. (Mr.
Lane voted FOR); 2) Ratified 6-24-96 telephonic poll of directors to
authorize a further $3 million in continuance of repurchase plan. (Mr. Lane
voted FOR); and 3) Authorized agreement with Swiss Bank Corporation to
privately sell put options. (Mr. Lane voted FOR)
o)10-25-96: Ratified all share repurchases and sales of puts to date. (Mr.
Lane voted FOR)
p)2-01-97: Ratified all share repurchases to date. (Mr. Lane voted FOR)
Put option sales were used by UM to lock in a purchase price for shares to be
repurchased. The exercise prices agreed upon were equal to or below the current
market price of the stock at the time the put option was sold. In fact, this
mechanism greatly benefitted stockholders by reducing UM's effective cost of
repurchasing shares by about $1.00/ share below the market price prevailing
during the time that the shares were repurchased. Mr. Lane's description of
"expended .... in sales contracts" is an incorrect representation. The amounts
"expended" were the purchase price of shares repurchased. This purchase price
resulting from the exercise of put options was reduced by the premiums received
when the put options were sold. Mr. Lane was accurate in saying at the May 21,
1993 board meeting that he does not understand this financial mechanism.
Mr. Lane lists additional concerns which include a number of conclusionary
allegations that are essentially a disagreement on management style. The other
directors believe that Mr. Lane's characterization of events is out of proper
context, full of gross exaggerations and misleading. As to allegations made by
certain executive managers through Mr. Lane, the majority of the board felt that
direct investigation by independent outside directors was the best method of
evaluating the situation. All outside directors met with the executive
managers, found the complaints were unsupported and voted to continue to support
Mr. Cornwell.
In October 1997, about five months after the outside board members had
investigated Mr. Lane's management concerns, the Executive Committee of the
board of directors, comprised of two outside directors and Mr. Cornwell who
represented a majority of the board of directors, recommended that Mr. Lane
resign as a director because of its finding that the matters initiated by Mr.
Lane were baseless and unfairly presented, and that Mr. Lane sought to change
top management through methods that were irresponsible and not in proper regard
for shareholder interests.
Mr. Lane's miscellaneous other disagreements include a claim that the Company's
line of credit was misused. The other directors disagree with Mr. Lane's
conclusions. Although the other directors agree that the primary impetus in
getting the line was to provide funding for acquiring Columbia Medical, Inc.,
the general purpose of the line was to provide liquidity to allow UM to take
advantage of opportunities to increase shareholder value, which includes share
repurchases authorized by the board of directors.
With regard to Mr. Lane's observations regarding his contacts with third
parties, Mr. Cornwell properly reminded Mr. Lane that third parties should be
referred to the CEO per the corporate policy governing handling of corporate
opportunities. The NYSE company referred to in Mr. Lane's letter did not make
an offer of any kind but merely initiated a preliminary overture in a manner
that would best serve such company's own interests. Regarding the telephone
call to Mr. Lane during negotiations regarding a supply agreement, the outside
firm solicited Mr. Lane in a transparent effort to circumvent and undermine UM's
established negotiating position. The call to Mr. Lane did not affect the terms
of the agreement, but did result in the board replacing Mr. Lane as Chairman.
The Company referred to has since breached the most significant terms of the
agreement, and the agreement has been terminated.
Mr. Lane's claim of "a flagrant distortion" in the February 1, 1997 minutes is a
matter of self-interest. A draft of all proposed resolutions, including a
resolution to limit outside director options, was circulated prior to the
meeting, considered and passed at the meeting, and was included in the minutes
of the meeting that Mr. Lane later signed. Notwithstanding the effect of the
resolution to deny Mr. Lane additional options, Mr. Lane has benefitted by
several hundred thousand dollars from options previously granted while a
director of UM. At the next board meeting in May 1997, Mr. Lane objected to the
February 1, 1997 resolution limiting his own options. Since that May 1997
meeting, Mr. Lane's subsequent objections relative to board meeting minutes have
been based on format, not substance. The other outside directors do not agree
with Mr. Lane that any of the minutes are inaccurate.
The other directors believe it is management's job to be enterprising,
optimistic and proactive. Not every initiative succeeds. Mr. Lane attended all
of the board meetings over the last 51/4 years since Mr. Cornwell was hired as
the chief executive officer of UM, approximately six meetings per year, and
regularly participated in unanimous approval of board actions. Mr. Lane had the
full opportunity to be heard and to express his disagreement with any of UM's
business decisions during that period of time, but he did not. When he
belatedly began writing letters raising questions since June 1997, those topics
were always included in the next possible board meeting. In view of Mr. Lane's
active participation in board discussions, his opportunity to request a more
complete review, his access to corporate information and personnel and his
regular vote in favor of board resolutions, the other directors object to Mr.
Lane's attempts in retrospect to disavow business judgments he previously
supported, and consider his actions irresponsible. Furthermore, Mr. Lane's
reference in his resignation letter that management was "unable to achieve what
I consider minimal corrective action" is misleading because, although Mr. Lane
had and took advantage of unrestrained access to the management of UM, he never
offered any coherent counter proposals or definition of what minimal corrective
action he expected.
As a practical matter, the other directors do not agree that there were
significant differences with Mr. Lane regarding operations, policies or
practices of UM. Mr. Lane's resignation is a result of an unsuccessful personal
campaign against Kevin L. Cornwell, Chairman & CEO. Mr. Lane's sole focus on
after-the-fact fault finding, without any coherent alternative proposals, made
him deteriorate into an ineffective board member. The other board members think
his resignation is in the best interest of UM and its shareholders. Mr. Lane's
resignation will have no negative impact on implementing UM's clear plan for the
future.
ITEM 7. EXHIBITS
c)Exhibit
SEC
Exhibit # Reference # Title of Document
1 17 Letter from Perry L. Lane, dated 30 March, 1998,
to Utah Medical Products, Inc. regarding director
resignation.
SIGNATURES
Pursuant to the requirements of the Securities Exchanges Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UTAH MEDICAL PRODUCTS, INC.
REGISTRANT
Date: 4/7/98 By:\s\ Kevin L. Cornwell
Kevin L. Cornwell
CEO and CFO