SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by rule 14a-
6(e)(2))
[X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to S240.14a-11(c) or S240.14a-12
UTAH MEDICAL PRODUCTS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filling Proxy Statement if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2), or
Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined).
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously by written preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
March 19, 1998
Dear UM Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of Shareholders of
Utah Medical Products, Inc. (UM). The meeting will be held at 12:00 noon
(local time) on Friday, May 15, 1998 at the corporate offices of UM, 7043 South
300 West, Midvale, Utah USA.
Please note that attendance at the Annual Meeting will be limited to
shareholders as of the record date (or their authorized representatives) and to
guests of the Company. Proof of ownership can be a copy of the enclosed proxy
card. Please see page two of this Proxy Statement for information about voting
your proxy, including voting at the Annual Meeting.
At the Annual Meeting, our shareholders will elect one director and consider
other business. If you think you will be unable to attend the meeting, please
complete your proxy and return it as soon as possible. If you decide later to
attend the meeting in person you may revoke the proxy.
Thank you for your ownership in UM!
Sincerely,
/s/ Kevin L. Cornwell
Kevin L. Cornwell
Chairman
<PAGE>
UTAH MEDICAL PRODUCTS, INC.
7043 South 300 West
Midvale, Utah 84047
(801) 566-1200
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 15, 1998
TO THE SHAREHOLDERS OF UTAH MEDICAL PRODUCTS, INC.
The Annual Meeting of Shareholders (the "Annual Meeting") of Utah Medical
Products, Inc. (the "Company" or "UM"), will be held at the corporate offices of
the Company, 7043 South 300 West, Midvale, Utah, on May 15, 1998, at 12:00 noon,
local time, for the following purposes:
(1) To elect one director to serve until the expiration of her term at the
2001 Annual Meeting and until her successor is elected and qualified;
and
(2) To transact such other business as may properly come before the Annual
Meeting.
Your Board of Directors recommends a vote "FOR" the nominated director,
whose background is described in the accompanying Proxy Statement, and for the
other proposal.
Only shareholders of record at the close of business on March 6, 1998 (the
"Record Date"), are entitled to notice of and to vote at the Annual Meeting.
This Proxy Statement and form of proxy are being first furnished to
shareholders of the Company on approximately April 1, 1998.
THE ATTENDANCE AT AND/OR VOTE OF EACH SHAREHOLDER AT THE ANNUAL MEETING IS
IMPORTANT, AND EACH SHAREHOLDER IS ENCOURAGED TO ATTEND.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Kevin L. Cornwell
Kevin L. Cornwell, Secretary
Salt Lake City, Utah
Dated: March 19, 1998
PLEASE FILL IN, SIGN, DATE, AND RETURN THE ENCLOSED PROXY PROMPTLY, WHETHER
OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING.
If your shares are held in the name of a brokerage firm, nominee, or other
institution, only it can vote your shares. Please contact promptly the person
responsible for your account and give instructions for your shares to be voted.
<PAGE>
UTAH MEDICAL PRODUCTS, INC.
PROXY STATEMENT
This Proxy Statement is furnished to shareholders of Utah Medical Products,
Inc. (the "Company" or "UM") in connection with the Annual Meeting of
Shareholders (the "Annual Meeting") to be held at the corporate offices of the
Company, 7043 South 300 West, Midvale, Utah, on May 15, 1998, at 12:00 noon,
local time, and any postponement or adjournment(s) thereof. The enclosed proxy,
when properly executed and returned in a timely manner, will be voted at the
Annual Meeting in accordance with the directions set forth thereon. If the
enclosed proxy is signed and returned timely without specific instructions, it
will be voted at the Annual Meeting:
(1) FOR the election of Barbara A. Payne as director; and
(2) IN accordance with the best judgment of the persons acting under the
proxies on other matters presented for a vote.
The Board of Directors has approved the foregoing proposals and recommends
that the shareholders vote for each of the proposals. Proxies solicited by the
Company will be voted FOR each of the proposals unless a vote against, or an
abstention from, one or more of the proposals is specifically indicated on the
proxy.
A proxy for the Annual Meeting is enclosed. It is important that each
shareholder complete, sign, date, and return the enclosed proxy promptly,
whether or not she/he plans to attend the Annual Meeting. Any shareholder who
executes and delivers a proxy has the right to revoke it at any time prior to
its exercise by providing the Secretary of the Company with an instrument
revoking the proxy or by providing the Secretary of the Company with a duly
executed proxy bearing a later date. In addition, a shareholder may revoke
her/his proxy by attending the Annual Meeting and electing to vote in person.
Proxies are being solicited by the Company, and all costs and expenses
incurred in connection with the solicitation will be paid by the Company.
Proxies are being solicited by mail, but, in certain circumstances, officers and
directors of the Company may make further solicitation in person, by telephone,
facsimile transmission, telegraph, or overnight courier.
Only holders of the 8,305,036 shares of Common Stock, par value $0.01 per
share, of the Company (the "Common Stock") issued and outstanding as of the
close of business on March 6, 1998 (the "Record Date"), will be entitled to vote
at the Annual Meeting. Each share of Common Stock is entitled to one vote.
Holders of at least a majority of the 8,305,036 shares of Common Stock
outstanding on the Record Date must be represented at the Annual Meeting to
constitute a quorum for conducting business.
All properly executed and returned proxies as well as shares represented in
person at the meeting will be counted for purposes of determining if a quorum is
present, whether or not the proxies are instructed to abstain from voting or
consist of broker non-votes. Under the Utah Revised Business Corporation Act
matters, other than the election of directors and certain specified
extraordinary matters, are approved if the number of votes cast FOR exceed the
number of votes cast AGAINST, and abstentions and broker non-votes are not
counted for purposes of determining whether a matter has been approved.
Directors are elected by a plurality of the votes cast; abstentions and broker
non-votes are not counted.
Officers and directors holding an aggregate of 68,712 shares, or
approximately 0.83% of the issued and outstanding stock, have indicated their
intent to vote in favor of all proposals.
ELECTION OF DIRECTORS
General
The Company's Articles of Incorporation provide that the Board of Directors
is divided into three classes as nearly equal in size as possible, with the term
of each director being three years and until such director's successor is
elected and qualified. One class of the Board of Directors shall be elected
each year at the annual meeting of the shareholders of the Company. The Board
of Directors has nominated Dr. Barbara A. Payne for election as director, for a
three year term expiring at the 2001 Annual Meeting.
It is intended that votes will be cast, pursuant to authority granted by the
enclosed proxy, for the election of the nominee named above as director of the
Company, except as otherwise specified in the proxy. In the event the nominee
shall be unable to serve, votes will be cast, pursuant to authority granted by
the enclosed proxy, for such other person(s) as may be designated by the Board
of Directors. Biographical information follows for the person nominated. The
officers of the Company are elected at the annual meeting of the Board of
Directors to serve at the pleasure of the Board of Directors. The information
concerning the nominee and other directors and their security holdings has been
furnished by them to the Company. (See "PRINCIPAL SHAREHOLDERS" below.)
Directors and Nominees
The Board of Directors' nominee for election as director of the Company at
the Annual Meeting is Dr. Barbara A. Payne. The other members of the Board of
Directors were elected at the Company's 1996 and 1997 meetings for terms of
three years, and therefore are not standing for election at the 1998 Annual
Meeting. Background information appears below with respect to the incumbent
directors whose terms have not expired, as well as the director standing for
election to the board.
Year Business Experience
First During Past Five Years
Name Age Elected and Other Information
- ----------------- --- ------- --------------------------------------------
Kevin L. Cornwell 51 1993 Chairman since 1996. Received B.S. degree
in chemical engineering from Stanford
University, M.S. degree in engineering-
economic systems from Stanford Graduate
School of Engineering, and MBA degree
specializing in finance from Stanford
Graduate School of Business. President and
CEO of UM since December 1992; Secretary
since 1993. Has served in various senior
operating management positions in several
technology-based companies over a 24 year
time span, including as a director on seven
other company boards.
Stephen W.
Bennett 65 1994 Received B.A. degree in biology from Stanford
University, M.D. degree from Stanford School
of Medicine, M.P.H. and T.M. degree and
Dr.P.H. degree from Tulane School of
Medicine. Served five years as fund manager,
director and senior analyst for health care
investments for an institutional investment
firm.
Ernst Hoyer 60 1996 Received B.S. degree in process engineering
from the University of California, Berkeley
and MBA degree from the University of Santa
Clara. Previously served in engineering and
general management positions for four
technology-based companies over a 28 year
time span.
Barbara A. Payne 51 1997 Received B.A. degree in psychology from
Stanford University, M.A. degree from
Cornell University, and M.A. and Ph.D.
degrees in sociology from Stanford
University. Served over eighteen years as
corporate research scientist for a Fortune 50
firm, environmental scientist for a national
laboratory, and as a consultant.
Perry L. Lane 80 1985 Retired Executive VP, VP and Director of
Marketing, and Director of Sorenson Research
Company, Salt Lake City, UT. Has served as a
director on seven other company boards.
Security Ownership of Management and Certain Persons
The following table furnishes information concerning the ownership of the
Company's Common Stock as of March 6, 1998, by the directors, the nominee for
director, the executive officer named in the compensation tables on page 6, all
directors and officers as a group, and those known by the Company to own
beneficially more than 5% of the Company's outstanding Common Stock as of
December 31, 1997.
Nature of Number of Percent
Name Ownership Shares Owned
- ---------------------- ------------ ------------ -------
Principal Shareholders
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109 Direct 838,000 10.09%
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202 Direct 640,000 7.71%
These securities are owned by various individual and institutional
investors which T. Rowe Price Associates, Inc. (Price Associates)
serves as an investment advisor with power to direct investments
and/or sole power to vote the securities. For purposes of the
reporting requirements of the securities Exchange Act of 1934, Price
Associates is deemed to be a beneficial owner of such securities;
however, Price Associates expressly disclaims that it is, in fact,
the beneficial owner of such securities.
Directors and Executive Officers
Kevin L. Cornwell(1)(3)(4) Direct 55,100 0.66%
Options 250,000 2.92
-------
Total 305,100 3.57
Perry L. Lane(2)(3)(4) Direct 25,100 0.30
Options 30,250 0.36
-------
Total 55,250 0.66
Ernst G. Hoyer(1)(2)(3)(4)(5) Direct 6,000 0.07
Options 2,500 0.03
-------
Total 8,500 0.10
Stephen W. Bennett(2)(3)(4)(5) Direct 2,500 0.03
Options 15,000 0.18
-------
Total 17,500 0.21
Barbara A. Payne(2)(3)(4)(5) Direct 300 0.00
All officers and directors as
a group (9 persons) Direct 93,712 1.13
Options 315,669 3.66
-------
Total 409,381 4.75%
(1)Executive Committee member.
(2)Audit Committee member.
(3)Nominating Committee member.
(4)Compliance Committee member.
(5)Compensation and Option Committee member.
In the previous table, shares owned directly by directors and executive
officers are owned beneficially and of record, and such record shareholder
has sole voting, investment, and dispositive power. Calculations of
percentage of shares outstanding assumes the exercise of options to which
the percentage relates. Percentages calculated for totals assume the
exercise of options comprising such totals.
Compliance with Exchange Act Requirements
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of a registered class of the Company's equity securities to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of equity securities of the Company. Officers, directors,
and greater than 10% shareholders are required to furnish the Company with
copies of all section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company, all section 16(a) requirements applicable to
persons who were officers, directors, and greater than 10% shareholders during
the preceding fiscal year were complied with.
Board and Committee Meetings
The directors held seven meetings during 1997 and one meeting to date in
1998. The incumbent director, Dr. Payne, was appointed on August 1, 1997, and
has attended two of the three meetings since that time.
The Company has Executive, Audit, Compliance, Nominating, and Compensation
and Option Committees. the current members of the Company's committees are
identified in the preceding table.
The Executive Committee met informally approximately twice per month, sine
being formed on August 1, 1997. The Committee formally passed resolutions on
behalf of the board of directors once in 1997 and twice to date in 1998.
The Audit Committee met once during 1997 and once to date in 1998 to review
the results of the 1996 audit by UM's independent auditor, Deloitte & Touche,
and the results of the 1997 audit by UM's independent Auditor, Tanner + Co. The
Audit Committee approves management's recommendation of independent accountants,
approves the scope of audit and related fees, and reviews financial reports,
audit results, internal accounting procedures, and programs to comply with
applicable requirements relating to financial accountability.
The Compliance Committee met in conjunction with each board meeting during
1997. In each meeting, after receiving the Company's routine compliance
reports, the Board reviewed compliance by UM and its personnel, including
executive officers and directors, with applicable regulatory requirements as
well as the Company's own compliance policy, and compared its established
policies and procedures for compliance with current applicable laws and
regulations, under the guidance of Corporate Counsel.
The Nominating Committee met informally during 1997. The Nominating
Committee takes the lead in nominating new directors. The Nominating Committee
will consider nominees recommended by shareholders. In accordance with the
Company's bylaws, shareholder's nominations for election as directors must be
submitted in writing to the Company at its principal offices not less than 30
days prior the Annual Meeting at which the election is to be held (or if less
than 60 days' notice of the date of the Annual Meeting is given or made to
shareholders, not later than the 10th day following the date on which the notice
of the Annual Meeting was mailed). The notice to the Company from a shareholder
who intends to nominate a person at the Annual Meeting for election as a
director must contain certain information about the shareholder and the
person(s) nominated by him, including, among other things, the name and address
of the shareholder, a representation that the shareholder is entitled to vote at
the Annual Meeting and attends to appear in person or by proxy at the Annual
Meeting, a description of all arrangements or understsandings between the
shareholder and each nominee, such other information as would be required to be
included in a proxy statement soliciting proxies for the election of the
proposed nominee, and the consent of each nominee to serve as a director if so
elected.
The Compensation and Option Committee, comprised of three outside directors
as indicated in the table above, consulted by telephone and met once formally
near the end of 1997 to review management performance, recommend compensation,
and develop compensation strategies and alternatives throughout the Company,
including those discussed in the Committee's report contained in this Proxy
Statement. The deliberations included an independent analysis of the CEO
compensation in the medical device industry, which culminated in recommendations
at the January 1998 Board Meeting.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth, for the last three fiscal years, cash
compensation received by the Company's Chief Executive Officer. No other
executive officers received salary and bonus for services which exceeded
$100,000 for the fiscal year ended December 31, 1997.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------- ---------------------------
(A) (B) (C) (D) (E) (G) (H)
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL
YEAR COMPEN- STOCK OPTIONS/ LTIP OTHER
NAME AND ENDED SALARY BONUS SATION AWARD(S) SARS PAYOUTS COMPEN-
PRINCIPAL DEC. ($) ($) ($) (F) (NO.) ($) SATION
POSITION 31, (1) (2) ($)
- -------------- ------ ------- ------- ------ --------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kevin L. 1997 $185,000 $75,000 1,000 -- 65,000 -- --
Cornwell
Chairman & 1996 180,000 125,280 900 -- 180,000 -- --
Chief Executive
Officer
1995 170,000 120,000 900 -- 40,000 -- -
</TABLE>
(1) Amounts are Company payments for 101(k) matching contributions.
(2) Amount for 1996 is twice the number of option shares outstanding due to the
replacement of the February 1996 option award of 90,000 shares to Mr.
Cornwell which was canceled in September 1996 in exchange for options to
purchase the same number of shares at a lower exercise price and a longer
vesting schedule.
The following table sets forth information respecting all individual
grants of options made during the last completed fiscal year to any executive
named in the Summary Compensation Table.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION> Potential Realized
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term(2)
---------------------------------------------- --------------------
(a) (b) (c) (d) (e) (f) (g)
Number of
Securities % of Total
Underlying Options/ SARs
Options/ Granted to Exercise
SARs Employees or Base
Granted During Fiscal Price Expiration
Name (#) Year(1) ($/share) Date 5%($) 10%($)
- ---------- ---------- ------------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Kevin L.
Cornwell 65,000(3) 15.1% $11.50 Feb 2007 $470,100 $1,191,300
</TABLE>
(1)The Company awarded new options to employees representing 429,700 shares in
1997. Percentage shown is based on this total. As of March 1998, 327,300
shares of the 1997 awards remain outstanding.
(2)Value was calculated based on grant date market price ($11.50 per share)
assuming the indicated appreciation rates compounded annually.
(3)All optionees may use Company shares owned for a period of at least six
months to pay for the exercise of options. The Company may accept shares to
cover withholding or other employee taxes. In the event of a change in
control, the Company is required to pay the optionee a cash amount equal to
the excess of the market price over the exercise price of all options
granted, whether or not vested.
Aggregate Option/SAR Exercises in Last Fiscal Year and
Year End Option/SAR Values
(a) (b) (c) (d) (e)
No. of Securities Value of
Underlying Unexercised in-
Unexercised the-money
Shares Options/SARs at FY Options/SARs at
Acquired End (#) FY End ($)
on Value Exercisable/
Exercise Realized Exercisable/
Name (#) ($) Unexercisable Unexercisable
- ----------------- --------- -------- --------------- -------------
Kevin L. Cornwell 0 0 219,688/145,312 $0/$0
Report of the Compensation and Option Committee
General
Under the supervision of the Compensation and Option Committee, the Company
has developed and implemented compensation policies, plans, and programs that
seek to enhance the long-term profitability and growth of the Company, and thus
shareholder value, by aligning closely the financial interests of the Company's
senior managers and other key employees with those of its shareholders. The
Compensation and Option Committee of the Board of Directors is responsible for
evaluating and recommending specific executive compensation for formal board
approval on an annual basis.
The Company applies a consistent philosophy to compensation for all
employees, including senior management. The philosophy is based on the premise
that the achievements of the Company result from the coordinated efforts of all
individual employees working toward common objectives. The Company strives to
achieve those objectives through teamwork that is focused on meeting the needs
and expectations of customers and shareholders.
There are seven basic objectives for the Company's compensation program:
(1) Pay for Performance. The basic philosophy is that rewards are provided
for the long term value of individual contribution and performance to the
Company. Rewards are both recurring (e.g., base salary) and non-recurring
(e.g., bonuses), and both financial and non-financial (e.g., recognition and
non-financial awards).
(2) Provide for Fairness and Consistency in the Administration of Pay.
Compensation is based on the value of the job, what each individual brings to
the job, and how well each individual performs on the job, consistently applied
across all functions of the Company.
(3) Pay Competitively. The Company believes it needs to attract and retain
the best people in the industry in order to achieve one of the best performance
records in the industry. In doing so, the Company needs to be perceived as
rewarding well, where competitive compensation includes the total package of
base pay, bonuses, awards, and other benefits.
(4) Conduct an Effective Performance Review Process. The Company believes
it needs to encourage individual employee growth and candidly review each
individual's performance in a timely way. This feedback process is bilateral,
providing management with an evaluation of the Company through the eyes of its
employees.
(5) Effectively Plan and Administer the Compensation Program. Expenditures
for employee compensation must be managed to what the Company can afford and in
a way that meets management goals for overall performance and return on
shareholder equity.
(6) Communicate Effectively. The Company believes that an effective
communication process must be employed to assure that its employees understand
how compensation objectives are being administered and met.
(7) Meet All Legal Requirements. The compensation program must conform to
all state and federal employment laws and guidelines.
The Company uses essentially five vehicles in its compensation program.
(1) Salary. UM sets base salaries by reviewing the aggregate of base salary
and annual bonus for competitive positions in the market. Executive base
salaries are set at the beginning of each calendar year by the Board of
Directors. For senior management, base salaries are fixed at levels somewhat
below the competitive amounts paid to senior management with comparable
qualifications, experience, and responsibilities at other similarly sized
companies engaged in the same or similar businesses. Then, annual bonuses and
longer term incentive compensation are more highly leveraged and tied closely to
the Company's success in achieving significant financial and non-financial
goals.
(2) Bonuses. UM has sales, research and development, and management
bonuses, which are generated out of an annual pretax profit sharing pool, the
Management Bonus Plan, which is calculated after the year-ending independent
financial audit has been completed. The Board of Directors has approved 4% of
pretax, prebonus earnings, plus 10% of pretax, prebonus earnings improvements
over the prior year's results, as an allocation for the Plan. For example, if
the Company achieves 20%-25% growth in pretax earnings, the sales, research and
development, and management bonus pool will accrue 6%-6.5% of pretax earnings,
which will be paid under recommendation of the Compensation and Option
Committee. In 1997, because pretax earnings declined 50.3%, the amount actually
allocated to the Plan was 4.0% of the pretax, prebonus earnings.
UM's management personnel, beginning with the first level of supervision and
professional management, and including certain non-management specialists and
technical people, together with all direct sales representatives, are eligible
as participants in the Management Bonus Plan. In 1997, eighty-seven
participants were included in the Plan. The Management Bonus Plan also funded
extraordinary performance bonuses paid to twelve employees during the year who
were non-participants in the Plan, attendance bonuses paid to over one hundred
non-exempt personnel and the annual holiday gift to employees.
The Company makes occasional cash awards, in amounts determined on an
individual basis, to employees who make extraordinary contributions to the
performance of the Company within a given period. These payments are made as
frequently and contemporaneously as possible to recognize excellent
accomplishments when they occur. The awards are funded from the accrued Plan
described above, and therefore do not impact the Company's financial
performance. Senior management is not eligible for these awards.
In 1997, executive management listed in the table on page 6 received a total
bonus of $75,000, which was equal to about 29% of aggregate base income and
about 29% of the pool accrued per the formula above. Actual individual bonuses
result from the Compensation and Option Committee's assessment of each senior
executive's achievement of specific objectives and value of both short term and
long term contribution to the Company's overall performance.
(3) Employee Stock Options. The Compensation and Option Committee believes
that its awards of stock options have successfully focused the Company's key
management personnel on building profitability and shareholder value. When
taken together with the share repurchase program, the net result of the option
program over the last five years has been awarding option shares to key
employees at a higher price, and in smaller amounts, than shares actually
repurchased in the open market during the same time period. The Board of
Directors considers this policy highly contributory to growth in future
shareholder value. The number of options granted in 1997 reflects the judgment
of the Committee of the number of options sufficient to constitute a material,
recognizable benefit to recipients. No explicit formula criteria were utilized,
other than minimizing dilution to shareholder interests.
The Board of Directors ordinarily awards employee options each year at its
regularly scheduled board meeting following the audited close of the prior
year's financial performance. In February, 1997, the Board of Directors
approved grants to 76 employees of options to purchase a total of 232,000 shares
at a price of 11.50 per share. Included in this number are options on 65,000
shares granted to executive management listed on page 6.
In May, 1997 the Company's share price had declined to five year lows and the
Board recognized that all previous employee option awards were priced above the
current market. Relative to the Board's objective of providing an incentive to
key employees to devote the utmost effort and skill to the advancement and
betterment of the Company that will maximize shareholder value from increasing
performance, the Committee noted that with all options "out-of-the-money",
employee efforts were being recognized by the market, and that the desired
incentives did not exist at that time. Accordingly, the Board approved a
special option grant of 152,800 shares to 108 employees. The price was set at
$6.75 per share, market price at the time of grant. Executive management was
not included in this award. In August 1997, the Board approved option grants of
26,400 shares to 42 Columbia Medical, Inc. ("CMI") employees at a price of $8.00
per share. Following the May, 1997 awards, the Board approved grants of 18,500
shares to six new UM employees and consultants, at prices between $6.8125 and
$8.00 per share.
Of the 429,700 options granted to employees and consultants in 1997, options
representing 102,400 shares have been canceled after termination of services.
All employee options vest over a four year period, with a ten year exercise
period. Consultant options vest over six months to four years, and have an
exercise period of from one to ten years, depending on length of service to UM.
Management expects to recommend additional options be awarded on an annual
basis to the Company's key employees and consultants based on its belief that
sharing the wealth of the Company with those who help create it is the best way
to assure growth in shareholder value.
(4) 401(k) Retirement Plan. The Compensation and Option Committee believes
that a continuance of the Company plan instituted in 1985 is consistent with
ensuring a stable employment base by helping to provide Company employees with a
vehicle to build long-term financial security. The Company matched a portion of
employee contributions in 1997 by about $54,100. Of this total amount,
executive management received $1,000. The Board of Directors has approved a
matching formula of 30% of employee contributions, up to certain individual
limits including a fixed individual maximum of $1,000 per year, for employees
who meet eligibility requirements.
(5) Group Benefit Plan. The Company provides a group health, dental, and
life insurance plan for its employees consistent with self-funded group plans
offered by other similar companies. A portion of the monthly premium cost is
generally paid by plan participants. Employees, including executive officers
and senior managers, paid premiums on the same basis until 1998, after which
time employees being paid at a rate of $9.50 or less per hour were provided a
25% discount to the standard rates.
Executive Officer Compensation
Utilizing the compensation objectives and vehicles outlined previously, the
Compensation and Option Committee comprised of three outside directors
established base compensation for the CEO by reference to surveys of similar
companies, adjusted as the Committee deemed appropriate for variations in
industry type, geographic location, size, and profitability. Base salary was
fixed at a level somewhat below the competitive amounts paid to executive
officers with comparable qualifications, experience, and responsibilities at
other similarly sized companies engaged in the same or similar businesses.
Then, the annual bonus and long term incentive compensation in the form of stock
options were more highly leveraged and tied closely to the Company's success in
achieving significant financial and non-financial goals.
The annual bonus for the CEO was awarded on the same basis as all employees
included in the Management Bonus Plan. At the beginning of the year, Plan
participants were awarded participation units in the bonus plan, proportional to
base salary and responsibility, based on the Committee's determination of the
relative contribution expected from each person toward attaining Company goals.
Each individual's performance objectives, derived as the applicable contribution
needed from that executive to achieve the Company's overall business plan for
the year, were reviewed by the Committee. These goals included financial
(weighted most heavily) and non-financial goals. Financial goals included net
sales, gross profit margin, after-tax profits, and return on equity, and
particularly in the case of the CEO, growth in earnings per share. Non-
financial goals included continuing the development of a talented and motivated
team of employees, conceiving and implementing programs to maintain competitive
advantages and to achieve consistent growth, reacting to competitive challenges,
promoting the Company's participation in socially responsible programs,
maintaining compliance with regulatory requirements, achieving a high regard of
shareholders and the broad business community in the integrity of the Company
and its management, and minimizing factors that represent significant business
risks.
The amount of bonus paid to the CEO was based on the Committee's evaluation
of his success in meeting the respective shorter term performance objectives,
supplemented by the Committee's evaluation of his performance and contribution
in meeting the Company's longer term financial and non-financial objectives. In
1997, revenue and profit growth objectives set in the operating plan at the
beginning of the year were not met. However, given restructuring brought on by
a rapidly changing environment including the loss of Baxter's purchase of UM's
blood pressure monitoring products and new competition in UM's core obstetrics
business, the Committee believes that non-financial performance objectives were
met or exceeded. Further, the CEO was credited by the Committee with providing
the determination and patience to stay with UM's niche -oriented, value-added
market strategy. This strategy has made possible UM's continuing profitability
on a smaller sales volume base, and allows the capability of funding UM's future
growth objectives.
1997 stock options were awarded the CEO incorporating the criteria utilized
for establishing cash bonuses as discussed above, supplemented by the
Committee's evaluation of the suitability of long-term option awards as an
effective incentive.
Upon application of the above criteria by the Compensation and Option
Committee and upon its recommendation in early 1998, the Board of Directors
awarded the CEO a bonus for 1997 of $75,000 under the Management Bonus Plan. In
addition, the Board set the CEO's 1998 base salary at $195,000.
The Committee intends that stock options serve as a significant component of
the CEO's total compensation package in order to retain his efforts on behalf of
the Company and to focus his efforts on enhancing shareholder value. In that
regard, shareholders in 1994 approved a Performance Option Plan under which Mr.
Cornwell could be granted options to purchase up to 400,000 shares of common
stock, contingent upon the Company achieving compounded 25% per annum growth in
earnings-per-share starting in 1994, or on such other terms as the Board of
Directors may specify. In the first three years of the plan, actual compounded
primary earnings-per-share growth averaged about 16% per year, but then declined
45% in 1997. In early 1998, upon the recommendation of the Compensation
Committee, the Board awarded Mr. Cornwell stock options to purchase an
additional 85,000 shares with an exercise price of $7.25 per share, vesting over
four years. After consideration for the 1998 award, Mr. Cornwell could earn
options to purchase up to an additional aggregate of 25,000 shares at a future
market price under the CEO Performance Option Plan.
The foregoing report has been furnished by: Stephen W. Bennett
Ernst G. Hoyer
Barbara A. Payne
Compensation and Option Committee Interlocks and Insider Participation
The members of the Compensation and Option Committee are Stephen W. Bennett,
Ernst G. Hoyer, and Barbara A. Payne. No member of such committee is a present
or former officer of the Company or any subsidiary. There are no other
interlocks. No member of such Committee, his family, or his affiliate was a
party to any material transactions with the Company or any subsidiary since the
beginning of the last completed fiscal year. No executive officer of the
Company serves as an executive officer, director, or member of a compensation
committee of any other entity, an executive officer or director of which is a
member of the Compensation and Option Committee of UM.
Employment Agreements, Termination of Employment, and Change in Control
On December 31, 1992, the Company entered into an employment agreement with
Kevin L. Cornwell, President and Chief Executive Officer that expired on
December 31, 1993, except for the provision under which the Company is required
to pay Mr. Cornwell one year's salary in the event his employment is terminated
as a result of a change in control, at the election of the Company, or by the
mutual agreement of Mr. Cornwell and the Company. In addition, the Company is
required to pay Mr. Cornwell appreciation of stock value for issued options
above the option exercise price, in the event of a change in control of the
Company or if terminated at the election of the Company. In January 1998, the
Compensation and Option Committee agreed that a modification to the surviving
termination provisions was needed, and undertook a full review, which is still
in progress. The Company has a performance option plan under which Mr. Cornwell
could earn options to purchase up to an additional aggregate of 25,000 shares at
a future market price if the Company attains 25% compounded per annum growth in
earnings per share, or on such other terms as the Board of Directors may
determine.
The Company is required to pay all other optionees under employee option
plans, and the outside directors under the Directors' Option Plan, the
appreciation of stock value for issued options above the option exercise price
in the event of a change of control of the Company.
The Company presently has no other employment agreements in the U.S. In
Ireland, the Company is subject to providing certain advance notice to its
employees in the event of termination. Under the terms of employment grants
awarded as incentives by the Industrial Development Agency (Ireland), the
Company would be obligated to repay grants during a five year period if
employment declined from levels at which grants were claimed by UM.
Director's Compensation
Outside (non-employed) directors currently receive annual cash compensation
of $9,000 each, plus reimbursement of expenses in attending meetings. In
addition, pursuant to the 1993 Directors' Stock Option Plan approved by
shareholders at the 1994 annual meeting, UM may award to each director options
to purchase 10,000 shares at an exercise price equivalent to the closing price
ten days after the public release of the Company's annual financial results. On
February 1, 1997, the Board of Directors formally voted to place a cumulative
limit on options awarded since 1992 to any particular outside director to 50,000
shares.
Pursuant to the (outside) directors' option plan, the Company granted options
for 20,000 shares at prices of $10.875 per share in March, 1997. The directors
note that, in accordance with the provisions of the 1993 Directors' Stock Option
Plan, options were automatically granted to directors as of March 30, 1997, the
90th day after the fiscal year end of the Company, December 31, 1997. Also in
accordance with the Plan, the $10.875 exercise price of the options was based on
the closing bid price on the New York Stock Exchange for the stock on the day
that was 10 days after the date that the Company publicly released its year-end
financial information.
In August, 1997, Barbara A. Payne was appointed a director of the Company.
In connection with this appointment, the Board granted Ms. Payne an option on
5,000 shares at a price of $8.00 per share. The option has a ten year life and
vests over four years beginning on July 1, 1998.
The board notes that the purpose of the Directors' Stock Option Plan, as
ratified and approved by the shareholders at an annual meeting, is to aid the
Company in retaining and attracting new outside directors without interlocking
interests, to provide directors with an incentive to remain directors of the
Company, and to use their best efforts to promote the success of UM's business.
On March 31, 1998, outside directors will be granted options representing an
additional total of 30,000 shares at an exercise price of $7.1875 per share. In
five years under the plan including 1998, outside directors have been awarded
options for 240,000 shares, of which 85,000 have been canceled without exercise.
All of the options vest over a four year period from the award date. Outside
director options which have not been canceled or exercised represent about 20%
of total Company options awarded and uncanceled since 1993. The Company is
required to pay optionees under the outside directors' option plan, the
appreciation of stock value for issued options above the option exercise price
in the event of a change of control of the Company.
Stock Performance Chart
The following chart compares what an investor's five year cumulative total
return (assuming re-investment of dividends) would have been assuming initial
$100 investments on December 31, 1992 for the Company's Common Stock and the two
indicated indices. The Company's common stock traded on NASDAQ until December
26, 1996 when it began trading on the New York Stock Exchange.
Performance Graph appears here. Detailed below are the plot points:
12/31/92 12/31/93 12/31/94 12/30/95 12/29/96 12/31/97
-------- -------- -------- -------- -------- --------
Utah Medical Products 100.0 65.2 70.3 163.9 110.7 56.4
Nasdaq Stock Market
(US & Foreign) 100.0 115.8 112.3 157.7 193.1 236.2
Nasdaq Stocks (SIC
3800-3899 US Companies) 100.0 84.6 91.2 134.2 139.8 158.9
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors retained Tanner + Co. as the Company's auditor and
independent certified public accountants for the year ended December 31, 1997,
and Deloitte & Touche LLP, in the preceding years. The selection of the
Company's auditors for the current fiscal year is not being submitted to the
shareholders for their consideration in the absence of a requirement to do so.
The selection of the independent auditors for 1998 will be made by the
Company's Board of Directors, with the advice of the Audit Committee, at such
time as they may deem it appropriate. There are no disagreements on accounting
policies or practices between the Company and its current or prior auditors.
It is anticipated that representatives of Tanner + Co. will be present at
the Annual Meeting and will be provided the opportunity to make a statement, if
they desire to do so, and to be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS
No proposals have been submitted by shareholders of the Company for
consideration at the Annual Meeting. It is anticipated that the next Annual
Meeting of Shareholders will be held during May 1999. Shareholders may present
proposals for inclusion in the Proxy Statement to be mailed in connection with
the 1999 Annual Meeting of Shareholders of the Company, provided such proposals
are received by the Company no later than December 5, 1998, and are otherwise in
compliance with applicable laws and regulations and the governing provisions of
the articles of incorporation and bylaws of the Company.
MISCELLANEOUS
Other Business
Management does not know of any business other than that referred to in the
Notice which may be considered at the Annual Meeting. If any other matters
should properly come before the Annual Meeting, it is the intention of the
persons named in the accompanying form of proxy to vote the proxies held by them
in accordance with their best judgment.
In order to assure the presence of the necessary quorum and to vote on the
matters to come before the Annual Meeting, please indicate your choices on the
enclosed proxy and date, sign, and return it promptly in the envelope provided.
The signing of a proxy by no means prevents your attending the meeting.
By Order of the Board of Directors,
UTAH MEDICAL PRODUCTS, INC.
/s/ Kevin L. Cornwell
Salt Lake City, Utah Kevin L. Cornwell
March 19, 1998 Chairman and CEO
<PAGE>
PROXY
ANNUAL MEETING OF THE SHAREHOLDERS OF (THIS PROXY IS SOLICITED ON
UTAH MEDICAL PRODUCTS, INC. BEHALF OF THE BOARD OF DIRECTORS)
The undersigned hereby appoints Kevin L. Cornwell and Paul O. Richins
proxies, with full power of substitution, to vote the shares of common stock of
Utah Medical Products, Inc. (the "Company"), which the undersigned is entitled
to vote at the Annual Meeting of shareholders of the Company ("Annual Meeting")
to be held at the corporate offices of the Company, 7043 South 300 West,
Midvale, Utah, on May 15, 1998, at 12:00 noon, local time, and any postponement
or adjournment(s) thereof, such proxies being directed to vote as specified
below. IF NO INSTRUCTIONS ARE SPECIFIED, SUCH PROXY WILL BE VOTED "FOR" EACH
PROPOSAL.
To vote in accordance with the board of directors' recommendations, sign below,
the "FOR" boxes may, but need not, be checked. To vote against any of the
recommendations, check the appropriate boxes marked "WITHHOLD AUTHORITY" or
"AGAINST" below.
1. To elect Barbara A. Payne as a director of the Company to serve a three-
year term and until her successor is elected and qualified:
Barbara A. Payne: FOR [ ] AGAINST [ ] WITHHOLD AUTHORITY [ ]
2. To transact such other business as may properly come before the Annual
Meeting.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS IN THE RECORDS OF THE COMPANY. WHEN
SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. IF YOUR SHARES ARE HELD AT
A BROKERAGE HOUSE, PLEASE INDICATE IN THE SPACE PROVIDED THE NAME OF THE
BROKERAGE HOUSE AND THE NUMBER OF SHARES HELD.
Dated: Number of Shares
- -------------------------- ---------------------------
- -------------------------- ---------------------------
Signature Signature (if held jointly)
- -------------------------- ---------------------------
Print Name Print Name
PLEASE MARK, SIGN, DATE, AND RETURN PROXY IN THE BUSINESS REPLY ENVELOPE
PROVIDED. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES
Utah Medical Products, Inc.
7043 South 300 West
Midvale, Utah 84047
