SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
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:
[ ] 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:
_______________
UTAH MEDICAL
PRODUCTS, INC.
_______________
[GRAPHIC OMITTED]
March 21, 2003
Dear UTMD Shareholder:
You are cordially invited to attend the 2003 Annual Meeting of Shareholders of
Utah Medical Products, Inc. (UTMD). The meeting will be held promptly at 12:00
noon (local time), on Friday, May 9, 2003, at the corporate offices of UTMD,
7043 South 300 West, Midvale, Utah USA. Please use the North Entrance.
Please note that attendance at the Annual Meeting will be limited to
shareholders as of the record date (or their authorized representatives) and
guests of the Company. Proof of ownership can be a copy of the enclosed proxy
card. You may wish to refer to page two of this Proxy Statement for information
about voting your proxy, including voting at the Annual Meeting.
At the Annual Meeting, we seek the approval of UTMD shareholders to elect two
directors, approve an incentive option plan, 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, you
may revoke the proxy and vote in person.
In order to receive UTMD's public announcements and other disclosures including
financial information, such as SEC Forms 10-K and 10-Q, you have several options
for obtaining the information. You can be added to the Company mail or fax lists
by contacting Paul Richins with your mailing address or fax number, by sending
an instruction letter to the corporate address, by calling (801-569-4200) with
instructions, or by e-mailing your contact information to info@utahmed.com. As
an alternative, you can view and print Company financial and other information
directly from UTMD's website; http://www.utahmed.com.
Thank you for your ownership in UTMD!
Sincerely,
/S/ Kevin L. Cornwell
Kevin L. Cornwell
Chairman & CEO
UTAH MEDICAL PRODUCTS, INC.
7043 South 300 West
Midvale, Utah 84047
(801) 566-1200
_______________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 9, 2003
TO THE SHAREHOLDERS OF UTAH MEDICAL PRODUCTS, INC.
The Annual Meeting of Shareholders (the "Annual Meeting") of UTAH MEDICAL
PRODUCTS, INC. (the "Company" or "UTMD"), will be held at the corporate offices
of the Company, 7043 South 300 West, Midvale, Utah, on May 9, 2003, at 12:00
noon, local time, for the following purposes:
(1) To elect two directors to serve for terms expiring at the 2006 Annual
Meeting and until successors are elected and qualified;
(2) To approve the 2003 Employees' and Directors' Incentive Plan; and
(3) To transact such other business as may properly come before the Annual
Meeting.
UTMD's Board of Directors recommends a vote "FOR" each of the above
proposals, which are described in the accompanying Proxy Statement.
Only shareholders of record at the close of business on March 7, 2003 (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, 2003.
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 21, 2003
________________________________________________________________________________
PLEASE PROMPTLY FILL IN, SIGN, DATE AND RETURN THE ENCLOSED PROXY, WHETHER
OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING.
If your shares are held in the name of a third party brokerage firm,
nominee, or other institution, only that third party can vote your shares. In
that case, please promptly contact the third party responsible for your account
and give instructions how your shares should be voted.
1
UTAH MEDICAL PRODUCTS, INC.
PROXY STATEMENT
This Proxy Statement is furnished to shareholders of UTAH MEDICAL PRODUCTS,
INC. (the "Company" or "UTMD") 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 9, 2003, 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 timely returned without specific instructions, it
will be voted at the Annual Meeting:
(1) FOR the election of Kevin L. Cornwell and Paul O. Richins as
directors;
(2) FOR the approval of the 2003 Employees' and Directors' Incentive Plan;
and
(3) 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 in favor of 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. 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 4,449,000 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 7, 2003 (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 4,449,000 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. Directors are elected by a plurality of
the votes cast. Abstentions and broker non-votes are not counted for purposes of
determining whether a matter has been approved or a director has been elected.
Officers and directors holding an aggregate of 138,000 shares, or
approximately 3.1%, of the issued and outstanding stock have indicated their
intent to vote in favor of all proposals.
2
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PROPOSAL NO. 1. ELECTION OF DIRECTORS
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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 Kevin L. Cornwell and Paul O. Richins for election as
directors, each for a three-year term expiring at the 2006 Annual Meeting.
It is intended that votes will be cast, pursuant to authority granted by
the enclosed proxy, for the election of the nominees named above as directors of
the Company, except as otherwise specified in the proxy. In the event the
nominees 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. The officers of the Company are elected to serve at the
pleasure of the Board of Directors. The information concerning the nominees 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' nominees for election as directors of the Company
at the Annual Meeting are Kevin L. Cornwell and Paul O. Richins. The other
members of the Board of Directors were elected at the Company's 2001 and 2002
meetings for terms of three years, and therefore, are not standing for election
at the Annual Meeting. Dr. Payne's term expires at the 2004 Annual Meeting, and
the terms of Dr. Bennett and Mr. Hoyer expire at the 2005 Annual Meeting.
Background information appears below with respect to the incumbent directors
whose terms have not expired, as well as the two directors standing for
reelection to the Board.
Year
First Business Experience during Past Five Years
Name Age Elected and Other Information
---- --- ------- -------------------------------------------------------------------------------
Kevin L. Cornwell 56 1993 Chairman of UTMD since 1996. President and CEO since December 1992; Secretary
since 1993. Has served in various senior operating management positions in
several technology-based companies over a 29-year time span, including as a
director on seven other company boards. Received B.S. degree in chemical
engineering from Stanford University, M.S. degree in engineering-economic
systems from the Stanford Graduate School of Engineering, and M.B.A. degree
specializing in finance from the Stanford Graduate School of Business.
Stephen W. Bennett 70 1994 Retired. Served five years as fund manager, director and senior analyst for
health care investments for an institutional investment firm. 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.
Ernst G. Hoyer 65 1996 General Manager of Petersen Precision Engineering Company, Redwood City, CA.
Previously served in engineering and general management positions for four
technology-based companies over a 33-year time span. Received B.S. degree in
process engineering from the University of California, Berkeley, and M.B.A.
degree from the University of Santa Clara.
Barbara A. Payne 56 1997 Consultant. Served over eighteen years as corporate research scientist for a
Fortune 50 firm, environmental scientist for a national laboratory. 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.
Paul O. Richins 42 1998 Chief Administrative Officer of UTMD since 1997. Treasurer and Assistant
Secretary since 1994. Joined UTMD in 1990. Received B.S. degree in finance
from Weber State University, and M.B.A. degree from Pepperdine University.
3
Executive Officers
Greg A. LeClaire, age 33, has been Chief Financial Officer of UTMD since
2001. Assistant Treasurer since 1998. Mr. LeClaire joined UTMD in 1994. He
received a B.S. degree in accounting from the University of Utah. Currently
pursuing MS in Management degree at Stanford University.
4
Security Ownership of Management and Certain Persons
The following table furnishes information concerning the ownership of
the Company's Common Stock as of March 7, 2003, by the directors, the nominees
for director, the executive officer named in the compensation tables on page 8,
all directors and executive 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, 2002
Number of Shares
Name Nature of Ownership Owned Percent
-------------------------------------------- -------------------- ------------------- -----------
Principal Shareholders
FMR Corp Direct 483,300 10.9%
82 Devonshire Street
Boston, Massachusetts 02109
Dimensional Fund Advisors Direct 251,200 5.6%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Directors and Executive Officers
Kevin L. Cornwell (1)(3)(4) Direct 101,176 2.3%
Options 524,824 10.6%
-------
Total 626,000 12.6%
Ernst G. Hoyer (1)(2)(3)(4)(5) Direct 20,000 0.5%
Options 50,000 1.1%
------
Total 70,000 1.6%
Stephen W. Bennett (1)(2)(3)(4)(5) Direct 4,500 0.1%
Options 60,000 1.3%
------
Total 64,500 1.4%
Paul O. Richins (4) Direct 6,904 0.2%
Options 37,525 0.8%
------
Total 44,429 1.0%
Barbara A. Payne (2)(3)4)(5) Direct 5,350 0.1%
Options 30,000 0.7%
------
Total 35,350 0.8%
All officers and directors Direct 137,930 3.1%
as a group (6 persons) Options 721,924 14.0%
-------
Total 859,854 16.6%
________________________________________
(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.
5
Section 16(a) Beneficial Ownership Reporting 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 four meetings during 2002 and one meeting to date in
2003. All of the directors attended all meetings during their respective
incumbencies.
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 held two formal meetings during 2002. In addition,
the Committee met informally about once per month. At its formal meetings, the
Committee passed resolutions on behalf of the Board of Directors.
The Audit Committee met twice during 2002 and once to date in 2003 to
review the results of the 2001 and 2002 audits by UTMD's independent auditor,
Tanner + Co. The Audit Committee selects the Company's 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
2002. In each meeting, after receiving the Company's routine compliance reports,
the Board reviewed compliance by UTMD 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 2002. 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, shareholders' nominations for election as directors must be
submitted in writing to the Company at its principal offices not less than 30
days prior to 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 tenth 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/her, 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 intends to appear in person or by proxy at the
Annual Meeting, a description of all arrangements or understandings 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 in
early 2003 to review management 2002 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 culminated in recommendations at the January 2003
Board meeting.
6
Report of the Audit Committee
The Audit Committee of the Board of Directors is composed of three
directors, all of whom are independent as defined in Nasdaq Stock Market Rule
4200(a)(15). The members of the Audit Committee are Stephen W. Bennett, Ernst G.
Hoyer and Barbara A. Payne. The Audit Committee has adopted a written charter,
which was attached as an appendix to the 2002 Proxy Statement. Ernst G. Hoyer is
the designated Financial Expert on UTMD's Audit Committee, consistent with The
Sarbanes-Oxley Act of 2002.
The Audit Committee oversees the financial reporting process for UTMD on
behalf of the Board of Directors. In fulfilling its oversight responsibilities,
the Audit Committee reviewed the annual financial statements included in the
annual report and filed with the Securities and Exchange Commission. The Audit
Committee confirmed that the independent auditors have been reviewing the
financial information included in the Company's 10-Q reports.
The Audit Committee met twice during 2002 and once to date in 2003 to
review the results of the 2001 and 2002 audits by UTMD's independent auditor,
Tanner + Co. In accordance with Statement on Auditing Standards No. 61,
discussions were held with management and the independent auditors regarding the
acceptability and the quality of the accounting principles used in the reports.
These discussions included the clarity of the disclosures made therein, the
underlying estimates and assumptions used in the financial reporting, and the
reasonableness of the significant judgments and management decisions made in
developing the financial statements. In addition, the Audit Committee has
discussed with the independent auditors their independence from the Company and
its management, including the matters in the written disclosures required by
Independence Standards Board Standard No. 1 and The Sarbanes-Oxley Act of 2002.
The Audit Committee has also met with Company management and its
independent auditors and discussed issues related to the overall scope and
objectives of the audits conducted, the internal controls used by the Company,
the openness and honesty of management, auditor verification of information
provided by management, quality control procedures used by auditors in
performing the independent audit, the selection of the Company's independent
auditors and any possible conflicts of interest. The committee elicited
recommendations for improving UTMD's internal control procedures. The
independent auditors had no such recommendations.
Pursuant to the reviews and discussions described above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2002, for filing with the Securities and Exchange
Commission.
Signed and adopted by the Audit
Committee this 2nd day of March, 2003: Ernst G. Hoyer
Stephen W. Bennett
Barbara A. Payne
7
Executive Officer Compensation
The following table sets forth, for each of the last three fiscal years,
cash compensation received by the Company's Chief Executive Officer. No other
executive officer received salary and bonus for services that exceeded $100,000
for the fiscal year ended December 31, 2002:
Summary Compensation Table
Annual Compensation Long-Term Compensation
----------------------------------------------------------------- --------------------------------------
Awards Payouts
----------------------- ------- --------------------------------- ------------------------ -------------- ----------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All
Annual Restricted Underlying Other
Comp- Stock Options/ LTIP Compen-
Name and Principal Salary Bonus ensation Award(s) SARs Payouts sation
Position Year ($) ($) ($)(1) ($) (#) ($) ($)
----------------------- ------- ----------- ---------- ---------- ----------- ------------ -------------- ----------
Kevin L. Cornwell 2002 233,769 245,100 5,300 -- -- -- --
Chairman & Chief 2001 223,079 197,800 4,080 -- -- -- --
Executive Officer 2000 207,957 120,250 4,393 -- -- -- --
----------------------- ------- ----------- ---------- ---------- ----------- ------------ -------------- ----------
(1) Amounts are Company 401(k) matching contributions, and in years 2002 and
2000, reimbursement under UTMD's pet insurance plan.
Option/SAR Grants in Last Fiscal Year
During the most recent fiscal year, there were no option or SAR grants
to any executive named in the Summary Compensation Table.
The following table sets forth information respecting the exercise of
options during the last completed fiscal year by each executive named in the
Summary Compensation Table above, and the December 31, 2002 fiscal year-end
values of unexercised options, based on the closing price of $19.10 for the
Company's Common Stock on the Nasdaq Stock Market on December 31, 2002:
Aggregate Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at FY-End (#) at FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
----------------------------------------------------------------------------------------------------------------
Kevin L. Cornwell 0 0 534,375 / 5,625 $5,193,125 / $70,875
----------------------------------------------------------------------------------------------------------------
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.
8
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 time off).
(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. UTMD 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. UTMD's Management Bonus Plan, which pays sales, research and
development, and management bonuses, is generated out of an annual pretax
profit-sharing pool, calculated after the year-end 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% growth in pretax earnings, the sales, research and development, and
management bonus pool will accrue 6% of pretax, prebonus earnings, which will be
paid under recommendation of the Compensation and Option Committee and approved
by the Board.
9
UTMD'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 2002, eighty-seven
participants were included in the plan. The Management Bonus Plan also funded
extraordinary performance bonuses paid to seven employees during the year,
attendance bonuses paid to 102 non-exempt employees, and holiday gifts 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.
For 2002, executive management listed in the table on page 8 received a
total bonus of $245,100, which was equal to about 51% of aggregate income and
about 39% of the pool accrued per the formula above. Actual individual bonuses
result from the Compensation and Option Committee's assessment and the Board's
approval 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. The Board
of Directors considers this policy highly contributory to growth in future
shareholder value. The number of options awarded in 2002 reflects the judgment
of the Board 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. 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 substantially smaller amounts, than shares actually repurchased in
the open market during the same time period. In 1994, shareholders approved the
1994 Employee Stock Option Plan under which up to two million shares could be
granted to employees within a ten-year term. To date, nearing the expiration of
the term of the 1994 Plan, 1,367,000 of the two million authorized option share
limit remains. During the same period, UTMD has repurchased over seven million
of its shares in the open market.
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. During 2002, the Board of Directors approved
awards to 103 employees of options to purchase a total of 74,100 shares at an
average price of $14.94 per share. No options in 2002 were awarded to executive
management listed on page 8.
Of the 74,100 options granted to employees in 2002, options representing
15,800 shares have been canceled after termination of services. Employee options
vest over a four-year period, with a ten-year exercise period. Management
expects to recommend additional options be awarded on an annual basis to the
Company's key employees 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. In January 2003, the Board of Directors authorized the CEO to
award to employees, during 2003, options to purchase a total of 80,000 shares.
On January 31, 2003, options for 52,200 shares were awarded at an exercise price
of $17.71 per share. No options were granted to executive management listed on
page 8.
(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 2002 at a cost of about $86,000. Of this total amount,
executive management received $4,800. For 2003, the Board of Directors has
approved continuing the matching formula of 40% of employee contributions, up to
certain limits, 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
10
generally paid by plan participants. Prior to 1998, all employees, including
executive officers and senior managers, paid premiums on the same basis. Between
1998 and 2002, employees being paid wages at a rate of $9.50 or less per hour
were provided a 25% discount to the standard premium rates. In 2003, employees
with a base annual salary over $45,000 began paying 10-20% more than the
standard premium rates, and employees being paid at a rate of $10.50 or less per
hour were provided the 25% discount to standard premiums paid by other
employees.
Executive Officer Compensation
Utilizing the compensation objectives and vehicles outlined previously, the
Compensation and Option Committee, comprised of all three outside directors,
established base compensation for the CEO. The Committee used surveys of similar
companies selected from among the companies with which UTMD's stock is compared
in the Stock Performance Chart on page 14, based on variations in industry type,
geographic location, size, and profitability as the Committee deemed
appropriate. 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. 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 and
non-financial goals. Financial goals included net sales, gross profit margin,
operating margin, after-tax profits, 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 earnings per share growth, reacting to competitive
challenges, developing business initiatives to further support critical mass in
a consolidating marketplace, promoting the Company's participation in socially
responsible programs, protecting intellectual property, maintaining compliance
with regulatory requirements, achieving a high regard for the integrity of the
Company and its management, and minimizing issues that represent significant
business risk factors.
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
2002, all financial measures set in the operating plan at the beginning of the
year were met. UTMD achieved annual performance records in gross profit margin,
operating profit margin, and net profit margin. As a result, net profits and
earnings per share substantially exceeded plan. Management has achieved its
primary financial objective of 20% compounded annual growth in earnings per
share for the last five consecutive years. Based on the recommendation of the
Compensation and Option Committee in early 2003, the Board of Directors awarded
the CEO a bonus for 2002 of $245,100 under the Management Bonus Plan. In
addition, the Board set the CEO's 2003 base salary at $244,400.
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. No CEO
options have been awarded since 1999.
The foregoing report has been furnished by: Stephen W. Bennett
Ernst G. Hoyer
Barbara A. Payne
11
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 or her family, or his or her
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 UTMD.
Employment Agreements, Termination of Employment, and Change in Control
The Company is required to pay Mr. Cornwell additional compensation 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. Under the agreement, the additional compensation that the Company is
required to pay Mr. Cornwell is equal to his last three years' income inclusive
of salary and bonus, and the appreciation of stock value for awarded options
above the option exercise price. In the event of a change in control, the
Company will also pay Mr. Cornwell incentive compensation equal to about 1% of
the excess value per share paid by an acquiring company that exceeds $14.00 per
share.
The Company is required to pay all other optionees under employee and
outside director's option plans, the appreciation of stock value for awarded
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 United
States. 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 UTMD.
Outside Directors' Compensation
In 2002, outside (non-employed) directors received cash compensation of
$17,000 each ($21,000 for executive committee members) plus reimbursement of
expenses in attending meetings.
In 1994, shareholders approved the 1993 Directors' Stock Option Plan under
which up to 80,000 shares per year could be granted to outside directors over a
ten-year term. To date, nearing the expiration of the ten-year term, 644,000 of
the aggregate 800,000 option share limit remains. Current outside directors,
sensitive to the issue of shareholder dilution, have not approved an award of
outside director options since 1999. Since the last award of options to outside
directors, UTMD has reduced its outstanding shares by 3.5 million shares, and
the market price per share has more than doubled. The purpose of the Directors'
Stock Option Plan, as ratified and approved by the shareholders at the 1994
annual meeting, was to aid the Company in retaining outside directors without
interlocking interests, and to provide directors with an incentive to use their
best efforts to promote the success of UTMD's business consistent with all
shareholders' interests.
Current outside directors have not exercised any of their previously
awarded options. Outside director options outstanding represent about 14% 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.
12
Disclosure Respecting the Company's Equity Compensation Plans
The following table summarizes, as of the end of the most recent fiscal
year, compensation plans, including individual compensation arrangements, under
which equity securities of the Company are authorized for issuance, aggregated
for all compensation plans previously approved by shareholders and for all plans
not previously approved by shareholders:
Number of Securities
Remaining Available
Number of Securities for Future Issuance
To Be Issued upon Weighted-Average under Equity
Exercise of Exercise Price of Compensation Plans
Outstanding Options, Outstanding Options, (excluding securities
Warrants and Rights Warrants and Rights reflected in column
Plan Category (a) (b) (a))
(c)
----------------------- ----------------------- -----------------------
Equity compensation plans
approved by security holders 988,000 $9.40 2,060,000
Equity compensation plans not
approved by security holders - (Not applicable) -
------- ---------------- ---------
Total 988,000 $9.40 2,060,000
======= =========
13
Stock Performance Chart
The following chart compares what an investor's five-year cumulative total
return (assuming reinvestment of dividends) would have been assuming initial
$100 investments on December 31, 1997, for the Company's Common Stock and the
two indicated indices. The Company's Common Stock traded on the Nasdaq National
Market from December 1983 until December 26, 1996, when it began trading on the
New York Stock Exchange. On March 8, 2000, the Company's stock began trading
once again on the Nasdaq National Market.
Cumulative shareholder return data respecting the Nasdaq Stock Market (U.S.
and Foreign) are included as the comparable broad market index. The peer group
index is all Nasdaq Stocks with Standard Industrial Classification (SIC) codes
3840-3849. UTMD's primary SIC code is 3841. In past years, UTMD has used as its
peer index Nasdaq Stocks with SIC codes 3800 through 3899 for U.S. Companies.
UTMD changed to a narrower peer group, Nasdaq companies with SIC codes
3840-3849, all of which are in the medical devices business. The prior index
included a broader category of companies including those in the measuring
instruments, photo, optical goods and timepieces industries, in addition to
companies in the medical devices industry.
[GRAPHIC OMITTED]
Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02
------ ------ ------ ------ ------ ------
Utah Medical Products, Inc. 100 96.3 99.1 110.1 199.8 280.4
Nasdaq Stock Market (US & Foreign) 100 138.5 258.2 155.8 122.8 84.6
Nasdaq Stocks (SIC 3840-3849) Medical Devices, 100 111.3 134.8 139.1 152.9 123.8
Instruments and Supplies
Nasdaq Stocks (SIC 3800-3899) Measuring Instruments, 100 101.4 169.3 148.7 150.3 107.7
Photo, Med & Optical Goods; Timepieces
14
--------------------------------------------------------------------------------
PROPOSAL NO. 2. APPROVAL OF 2003 EMPLOYEES' and DIRECTORS' INCENTIVE PLAN
--------------------------------------------------------------------------------
The following summary is qualified in its entirety by the provisions of the
plan, a copy of which is attached to the Proxy Statement as Appendix "A."
Summary
In February 2003, the Board of Directors of UTMD adopted the 2003
Employees' and Directors' Incentive Plan ("Plan") to allow continuing granting
of options and stock purchase rights to employees and directors. The
shareholders of UTMD must approve this plan in order for it to become effective.
The ability to award options under the current plans will expire in less than
one year.
Background
In May 1994, UTMD's shareholders approved incentive stock option plans for
employees, directors and its CEO to purchase up to an aggregate maximum of
3,200,000 shares of Common Stock. The three plans have a ten-year life for
granting options. Under those plans, as of December 31, 2002, a total of 235,000
option shares have been exercised and an additional 905,000 awarded shares
remain unexercised, leaving 2,060,000 option shares still available for award
under the plans approved by shareholders in 1994. However, the ability to grant
options under these plans is about to end because those plans expire in
September 2003 and January 2004.
In addition to the 235,000 share dilution from the plans gaining 1994
shareholder approval, 371,000 shares were exercised during the last ten years
from options under earlier option plans, for a total dilution to shareholders
from UTMD option plans since 1993 of 606,000 shares. However, during the same
ten-year period, UTMD has reduced its outstanding shares from 11,848,000 on
January 1, 1993, to 4,443,000 on January 1, 2003. This occurred because UTMD's
share repurchases exceeded issues of shares from option exercises and therefore
have eliminated any dilution from option plans, which was part of the Board's
rationale for UTMD's share repurchase program.
In addition to the 905,000 awarded but still unexercised shares from the
1994 approved plans, there are 83,000 remaining unexercised option shares held
by employees from earlier plans, totaling 988,000 total unexercised option
shares outstanding. Current outside directors, holding 140,000 shares, received
all of their options from the 1994 approved plans and have yet to exercise any
shares as of December 31, 2002. The CEO holds 540,000 unexercised options, and
other employees hold 308,000 unexercised shares.
In recent years, the Board of Directors has approved 80,000 to 100,000
option shares to be awarded out of shareholder approved plans to employees each
year. No options have been awarded to outside directors or the CEO since 1999.
Subsequent to December 31, 2002, the Board of Directors authorized option
awards to employees, during 2003, of up to a total of 80,000 shares. On January
31, 2003, options for 52,200 shares were awarded to employees at an exercise
price of $17.71 per share. No options were awarded to outside directors or the
CEO. Between January 1, 2003 and March 7, 2003, employees have exercised 18,251
option shares from the plans approved by shareholders in 1994.
General
The Board of Directors believes that it is important that management,
including outside directors, as well as other key employees have a stake in the
Company as shareholders and, as a long-term goal, intends to provide the
opportunity for key employees and outside directors to purchase additional
Common Stock of the Company. The Plan is intended to advance the interests of
the Company by (a) attracting competent directors, executive personnel, and
other employees, (b) ensuring the retention of the services of existing
directors and key employees, and (c) providing incentives to all of such
personnel to devote the utmost effort and skill to the advancement and
betterment of the Company by permitting them to participate in the ownership of
the Company and thereby permitting them to share in increases in the value of
the Company that they help produce. Options are awarded at the current market
15
price of the stock on the day that they are awarded. The Company has issued no
options under the Plan.
Under the Plan, incentive stock options, nonstatutory stock options, and
stock purchase rights may be granted by the administrators of the Plan to
employees, including executive officers, directors, including advisors engaged
by the Company to render services to it, as may be determined in the best
interests of the Company by the administrators of the Plan. Under the Plan, a
maximum of 200,000 shares may be sold on the exercise of options or the purchase
of stock pursuant to stock purchase agreements, plus an annual increase to be
added on the first day of the Company's fiscal year beginning in 2004, equal to
the lesser of 100,000 shares or 2.5% of the issued and outstanding common stock
on such date. The identification of individuals entitled to receive awards, the
terms of the awards, and the number of shares subject to individual awards are
determined by the administrators of the Plan, in their sole discretion;
provided, however, that in no event may the aggregate fair market value of
shares of Common Stock for which an ISO is first exercisable in any calendar
year by any eligible employee exceed $100,000 and no employee may accrue the
right to purchase stock under a stock purchase right in excess of $25,000 in any
calendar year.
The Plan will be administered either by the Board of Directors or by a
committee (the "Committee") to be appointed from time to time by the Board of
Directors. Awards granted under the Plan may be incentive stock options ("ISOs")
as defined in the Internal Revenue Code (the "Code"), options that do not
qualify as ISOs, and stock purchase rights, and are awarded at specified times,
or to employees of the Company who, in the opinion of the Board or the
Committee, have contributed, or are expected to contribute, materially to the
Company's success.
The exercise price of options granted under the Plan will be based on the
trading price for the Company's Common Stock at the time of grant and, in the
case of ISOs, may not be less than 100% of the fair market value of the Common
Stock on the date the option is granted (110% of the fair market value in the
case of 10% stockholders). Options granted under the Plan expire not later than
ten years after the date of grant (five years in the case of ISOs granted to 10%
stockholders). The option price may be paid by cash or, at the discretion of the
Committee, by delivery of Common Stock or options already owned by the optionee
(valued at their fair market value at the date of exercise), or a combination
thereof.
The aggregate number of shares of Common Stock with respect to which
options or stock awards may be granted under the Plan, the number of shares
covered by each outstanding option, and the purchase price per share shall be
adjusted for any increase or decrease in the number of issued shares of Common
Stock of the Company resulting from a recapitalization, reorganization, merger,
consolidation, exchange of shares, stock dividend, stock split, reverse stock
split, or other subdivision or consolidation of shares or other increase or
decrease in such shares effected without receipt by the Company of the fair
market value thereof (an "Event of Dilution"), in amounts to prevent substantial
dilution or enlargement of rights granted to or available for eligible
participants in the Plan. In the case of an ISO, the ratio of the option price
immediately after the change to the fair market value of the stock subject to
the option immediately after the corporation transaction must not be more
favorable to the optionee on a share-by-share basis than the ratio of the old
option price to the fair market value of the stock subject to the option
immediately before such transaction. All such adjustments shall be made by the
Board or the Committee, whose good faith determination shall be binding absent
manifest error.
The Board of Directors of the Company may from time to time alter, amend,
suspend, or discontinue the Plan with respect to any shares of Common Stock as
to which options or stock awards have not been granted. However, no such
alteration or amendment (unless approved by the shareholders) shall (a) increase
(except in the event of an Event of Dilution) the maximum number of shares for
which options or stock awards may be granted under the Plan either in the
aggregate or to any eligible employee; (b) reduce (except in the event of an
Event of Dilution) the minimum option prices that may be established under the
Plan; (c) extend the period or periods during which options may be granted or
exercised; (d) materially modify the requirements as to eligibility for
participation in the Plan; (e) change the provisions relating to Events of
Dilution; or (f) materially increase the benefits accruing to the eligible
participants under the Plan.
16
A participant to whom a nonstatutory option is granted will not realize
income at the time of the grant. Upon exercise of the option, the excess of the
fair market value of the stock on the date of exercise over the exercise price
will be taxable to the optionee as ordinary income. The tax basis to the
optionee for the stock acquired is the exercise price plus the amount recognized
as income. The Company will be entitled to a deduction equal to the amount of
the ordinary income realized by the optionee in the taxable year which includes
the end of the optionee's taxable year in which she/he realizes the ordinary
income. When shares acquired pursuant to the exercise of the option are disposed
of, the holder will realize additional capital gain or loss equal to the
difference between the sales proceeds and her/his tax basis in the stock.
If a participant to whom an option is granted exercises her/his option by
payment of the exercise price in whole or in part with previously owned Common
Stock of the Company, the optionee will not realize income with respect to the
number of shares received on exercise that equals the number of shares delivered
by her/him. The optionee's basis for the delivered shares will carry over to the
option shares received. With regard to the number of nonstatutory option shares
received that exceeds the number of shares delivered, the optionee will realize
ordinary income at the time of exercise; the optionee's tax basis in these
additional option shares will equal the amount of ordinary income realized plus
the amount of any cash paid.
Recipients of ISOs will not be required to recognize income at the time of
the grant of the options or at the time of exercise of the options as long as
the stock received on exercise is held for at least two years from the date of
the grant of the ISOs or one year from the date of exercise (although the
difference between the fair market value of the stock and the exercise price
paid at the time of exercise must be taken into account for alternative minimum
tax purposes). If the stock received upon exercise of an ISO is disposed of
prior to the expiration of either of such time periods, the employee will be
required to recognize as ordinary income the amount by which the fair market
value of the Common Stock at the time of exercise exceeds the exercise price of
the ISOs.
Under the Plan, the Board of Directors can grant stock purchase rights for
the purchase of Common Stock on agreed terms, payable out of employee payroll
deductions or otherwise. Stock purchase rights can be granted alone or in tandem
with other awards under the Plan. Unless the administrator determines otherwise,
stock purchased under a stock purchase agreement is subject to repurchase by the
Company upon the voluntary or involuntary termination of service of the
recipient. The purchase price for shares repurchased pursuant to the repurchase
option shall be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to the Company. Stock purchase
rights will generally be taxed in the same manner as ISOs. Thus, the employee
will not recognize income on the grant or exercise of the stock purchase right
and the basis of the stock received is the purchase price. If the employee
disposes of stock acquired by a stock purchase right before the expiration of
the later of two years after the granting of the stock purchase right or one
year from the exercise of such right, the employee must recognize ordinary
income in the year of disposition in amount equal to the difference between the
stock fair market value and the exercise price.
If the employee holds the stock for the requisite holding periods, the
employee must include in income at the time of sale (or death of the employee)
the lesser of (a) the excess of the fair market value at the time of grant over
the exercise price, or (b) the excess of the amount realized on the sale (or
fair market value at time of death) over the exercise price. Any additional gain
or loss realized on the disposition will be long-term capital gain or loss.
17
--------------------------------------------------------------------------------
INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
The Board of Directors retained Tanner + Co. as the Company's auditor and
independent certified public accountants for the years ended December 31, 2000,
2001 and 2002. 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
2003 will be made by the Company's Board of Directors, with the advice and
recommendation 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 auditors.
It is anticipated that representatives of Tanner + Co. will be present at
the Annual Meeting and have the opportunity to make a statement, if they desire
to do so, and to be available to respond to appropriate questions.
Audit Fees
During 2002, UTMD paid Tanner + Co. $38,450 for professional services
rendered for the audit of its annual financial statements and for reviews of the
financials included in UTMD's quarterly reports on Form 10-Q.
Financial Information Systems Design and Implementation
No services were rendered by, or fees paid to, Tanner + Co. in 2002 for
Financial Information Systems Design and Implementation.
All Other Fees
During 2002, UTMD paid Tanner + Co. $22,410 for tax filing, preparation,
and tax advisory services.
Auditor Independence
The Audit Committee has considered whether the provision of the services
rendered for nonaudit matters is compatible with maintaining Tanner + Co.'s
independence and concluded that its independence was not impaired by performing
such work for the Company.
--------------------------------------------------------------------------------
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 2004. Shareholders may present
proposals for inclusion in the Proxy Statement to be mailed in connection with
the 2004 Annual Meeting of Shareholders of the Company, provided such proposals
are received by the Company no later than November 21, 2003, and are otherwise
in compliance with applicable laws and regulations and the governing provisions
of the Articles of Incorporation and Bylaws of the Company.
18
--------------------------------------------------------------------------------
MISCELLANEOUS
--------------------------------------------------------------------------------
Other Business
Management does not know of any business other than that referred to in the
Notice that 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.
Whether or not you sign a proxy, we encourage you to attend 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 21, 2003 Chairman and CEO
19
Appendix "A" to Proxy Statement
Utah Medical Products, Inc.
UTAH MEDICAL PRODUCTS, INC.
2003 EMPLOYEES' AND DIRECTORS' INCENTIVE PLAN
Utah Medical Products, Inc., a Utah corporation (the "Company"), hereby
adopts this "2003 Employees' and Directors' Incentive Plan" (the "Plan").
1. Purpose of the Plan. The Board has adopted this Plan with the intent,
and directs that it be administered as necessary, to attract and retain the best
available personnel for positions of key responsibility; to provide additional
incentive to Employees and Directors, and to promote the success of the
Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan in accordance with section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under the corporate laws of the state
in which the Company is incorporated, federal and state securities laws,
the Code, the regulations and policies of any stock exchange or quotation
system on which the Common Stock is listed or quoted, and the Applicable
Laws of any foreign country or jurisdiction where Options or Stock Purchase
Rights are or will be granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the Board
in accordance with section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means Utah Medical Products, Inc., a Utah corporation.
(h) "Director" means a member of the Board.
(i) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(j) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any
leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor. For purposes of Incentive Stock Options, no
such leave may exceed 90 days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract. If reemployment upon expiration
of a leave of absence approved by the Company is not so guaranteed, then
three months following the 91st day of such leave, any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock
Option. Neither service as a Director nor payment of a Director's fee by
the Company shall be sufficient to constitute "employment" by the Company.
1
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) if the Common Stock is listed on any established stock
exchange or a national market system, including the Nasdaq National
Market or the Nasdaq SmallCap Market of the Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such exchange
or system on the day of determination, as reported by Nasdaq, The Wall
Street Journal, or such other source as the Administrator deems
reliable;
(ii) if the Common Stock is regularly quoted in an inter-dealer
quotation medium, but selling prices are not reported, the Fair Market
Value of a Share of Common Stock shall be the mean between the high
bid and low asked prices for the Common Stock on the day of
determination, as reported by such inter-dealer quotation medium, The
Wall Street Journal, or such other source as the Administrator deems
reliable; or
(iii) in the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(m) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(n) "Inside Director" means a Director who is an Employee.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option or Stock Purchase
Right grant. The Notice of Grant is part of, and subject to the terms of,
the Option Agreement.
(q) "Officer" means a person who is an executive officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules
and regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise
price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "Outside Director" means a Director who meets the definition of
both a "Non-Employee Director" (as defined in Rule 16b-3 of the Exchange
Act) and "Outside Director" (as defined in Section 162(m) of the Code).
2
(x) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(y) "Plan" means this 2003 Employees' and Directors' Incentive Plan,
as the same may be amended and restated from time to time.
(z) "Restricted Stock" means Shares of Common Stock acquired pursuant
to a grant of Stock Purchase Rights under section 11 of the Plan.
(aa) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms
and restrictions applying to stock purchased under a Stock Purchase
Right. The Restricted Stock Purchase Agreement is subject to the terms
and conditions of the Plan and the Notice of Grant.
(bb) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being
exercised with respect to the Plan.
(cc) "Section 16(b)" means Section 16(b) of the Exchange Act.
(dd) "Service Provider" means an Employee or Director.
(ee) "Share" means a share of Common Stock, as adjusted in
accordance with section 15 of the Plan.
(ff) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to section 11 of the Plan, as evidenced by a Notice of
Grant.
(gg) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of section 15 of
the Plan, the maximum aggregate number of Shares on which Options may be granted
and which may be sold on the exercise of such Options and under Restricted Stock
Purchase Agreements under the Plan is 200,000 Shares, plus an annual increase to
be added on the first day of the Company's fiscal year beginning in 2004, equal
to the lesser of 100,000 Shares or 2.5% of the issued and outstanding Common
Stock on such date. The Shares may be authorized, but unissued, or reacquired
Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares that were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) The Board may designate different Committees to administer
the Plan with respect to different groups of Service Providers.
(ii) To the extent that the Administrator determines it to be
desirable to qualify Options granted hereunder as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the
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Plan shall be administered by a Committee of two or more "Outside
Directors" within the meaning of Section 162(m) of the Code.
(iii) To the extent desirable to qualify transactions hereunder
as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other than as provided above, the Plan shall be administered
by the Board or a Committee, which Committee shall be constituted to
satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of Shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include the exercise price, the
time or times when Options or Stock Purchase Rights may be exercised
(which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right or the Shares
of Common Stock relating thereto, based in each case on such factors
as the Administrator, in its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock Purchase
Right to the then-current Fair Market Value if the Fair Market Value
of the Common Stock covered by such Option or Stock Purchase Right
shall have declined since the date the Option or Stock Purchase Right
was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to establish, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to
subplans established for the purpose of satisfying applicable foreign
laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to section 17(c) of the Plan), including the discretionary
authority to extend the post-termination exercisability period of
Options longer than is otherwise provided for in the Plan;
(xi) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
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(xii) to correct any defect, supply any omission, or reconcile
any inconsistency in the Plan or in any Option Agreement, in a manner
and to the extent it shall deem necessary, all of which determinations
and interpretations made by the Administrator shall be conclusive and
binding on all Optionees, any other holders of Options, and on their
legal representatives and beneficiaries;
(xiii) except to the extent prohibited by or impermissible in
order to obtain treatment desired by the Administrator under
Applicable Law or rule, to allocate or delegate all or any portion of
its powers and responsibilities to any one or more of its members or
to any person(s) selected by it, subject to revocation or modification
by the Administrator of such allocation or delegation; and
(xiv) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
(a) Designation. Each Option shall be designated in the Option
Agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. However, notwithstanding such designation, to the extent that the
aggregate Fair Market Value of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by the Optionee during any
calendar year (under all Plans of the Company and any Parent or Subsidiary)
exceeds $100,000, such Options shall be treated as Nonstatutory Stock
Options. For purposes of this section 6(a), Incentive Stock Options shall
be taken into account in the order in which they were granted. The Fair
Market Value of the Shares shall be determined as of the time the Option
with respect to such Shares is granted.
(b) No Right of Continuing Service or Employment. Neither the Plan nor
any Option or Stock Purchase Right shall confer upon an Optionee any right
with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at
any time, with or without cause.
7. Term of Plan. Subject to section 21 of the Plan, the Plan shall become
effective upon its adoption by the Board. It shall continue in effect for a term
of 10 years unless terminated earlier under section 17 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be 10 years
from the date of grant or such shorter term as may be provided in the Option
Agreement. Moreover, in the case of an Incentive Stock Option granted to an
Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than 10% of the total combined voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Incentive
Stock Option shall be five years from the date of grant or such shorter term as
may be provided in the Option Agreement.
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9. Option Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator and specified in the Option Agreement, subject to the
following:
(i) In the case of an Incentive Stock Option:
(1) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than 10% of
the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of
grant.
(2) granted to any Employee other than an Employee described
in subsection 9(a)(i)(1) immediately above, the per Share
exercise price shall be no less than 100% of the Fair Market
Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case
of a Nonstatutory Stock Option intended to qualify as
"performance-based compensation" within the meaning of Section 162(m)
of the Code, the per Share exercise price shall be no less than 100%
of the Fair Market Value per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value
per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions that must be satisfied
before the Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the
time of grant as set forth in the Option Agreement. Such consideration may
consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares, provided Shares acquired from the Company have
been owned by the Optionee for more than six months on the date of
surrender and have a Fair Market Value on the date of surrender equal
to the aggregate exercise price of the Shares as to which said Option
shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program
or arrangement;
(vii) any combination of the foregoing methods of payment; or
6
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
Notwithstanding the form of consideration determined by the Administrator
at the time of grant, the Administrator shall have the authority, in its
sole and absolute discretion, to accept other forms of consideration as the
method of payment.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the
Administrator and set forth in the Option Agreement. Unless the
Administrator provides otherwise, vesting of Options granted hereunder
shall be tolled during any unpaid leave of absence. An Option may not be
exercised for a fraction of a Share. An Option shall be deemed exercised
when the Company receives: (i) written or electronic notice of exercise (in
accordance with the Option Agreement) from the person entitled to exercise
the Option, and (ii) full payment for the Shares with respect to which the
Option is exercised. Full payment may consist of any consideration and
method of payment authorized by the Administrator and permitted by the
Option Agreement and the Plan. Shares issued upon exercise of an Option
shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse or in the name
of a family trust of which the Optionee is a trustee. Until the Shares are
issued (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company), no right to vote or
receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after
the Option is exercised; provided that if the Company shall be advised by
counsel that certain requirements under the federal, state or foreign
securities laws must be met before Shares may be issued under this Plan,
the Company shall notify all persons who have been issued Options, and the
Company shall have no liability for failure to issue Shares under any
exercise of Options because of delay while such requirements are being met
or the inability of the Company to comply with such requirements. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the Shares are issued, except as provided in
section 15 of the Plan. Exercising an Option in any manner shall decrease
the number of Shares thereafter available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period
of time as is specified in the Option Agreement to the extent that the
Option is vested on the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for three months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as
to his or her entire Option, the Shares covered by the unvested portion of
the Option shall revert to the Plan. If, after termination, the Optionee
does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in
the Option Agreement to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Option Agreement). In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for 12
months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the
Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.
7
(d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in
the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquires the right to exercise the Option by
bequest or inheritance, but only to the extent that the Option is vested on
the date of death. In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for 12 months following the
Optionee's termination. If, at the time of death, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall immediately revert to the Plan. The Option may
be exercised by the executor or administrator of the Optionee's estate or,
if none, by the person(s) entitled to exercise the Option under the
Optionee's will or the laws of descent or distribution. If the Option is
not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it
shall advise the offeree in writing or electronically, by means of a Notice
of Grant, of the terms, conditions and restrictions related to the offer,
including the number of Shares that the offeree shall be entitled to
purchase, the price to be paid, and the time within which the offeree must
accept such offer. The offer shall be accepted by execution of a Restricted
Stock Purchase Agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination
of the purchaser's service with the Company for any reason (including death
or Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser plus interest at the rate of 10% per year from the date of the
original purchase and may be paid by cancellation of any indebtedness of
the purchaser to the Company. The repurchase option shall lapse at a rate
determined by the Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder and shall be a stockholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in section 15 of the Plan.
12. Withholding. If the grant or exercise of an Option or a Stock Purchase
Right pursuant to this Plan, or any other event in connection with any such
grant or exercise, creates an obligation to withhold income and employment taxes
pursuant to the Applicable Laws, such obligation may, at the sole and absolute
discretion of the Administrator at the time of the grant of the Option or Stock
Purchase Right and to the extent permitted by the terms of the Option or Stock
Purchase Right and the then-governing provisions of the Code and the Exchange
Act, be satisfied (a) by the holder of the Option or Stock Purchase Right
delivering to the Company an amount of cash equal to such withholding
obligation; (b) by the Company withholding from any compensation or other amount
owing to the holder of the Option or Stock Purchase Right the amount (in cash,
stock or other property as the Company may determine) of the withholding
obligation; (c) by the Company withholding Shares of stock subject to the Option
or Stock Purchase Right with a Fair Market Value equal to such obligation; or
(d) by the holder of the Option or Stock Purchase Right either delivering Shares
of stock that have been owned by the holder for more than six months or
canceling Options or other rights to acquire stock from the Company that have
8
been held for more than six months with a Fair Market Value equal to such
requirements. In all events, delivery of Shares of stock issuable on exercise of
the Option or on grant of the Stock Purchase Right shall be conditioned upon and
subject to the satisfaction or making provision for the satisfaction of the
withholding obligation of the Company resulting from the grant or exercise of
the Option, grant of the Stock Purchase Right, or any other event in accordance
with the foregoing. The Company shall be further authorized to take such other
action as may be necessary, in the opinion of the Company, to satisfy all
obligations for the payment of such taxes.
13. Nontransferability of Options and Stock Purchase Rights.
(a) An Option or Stock Purchase Right may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than
by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee, all save and
except only (i) an Optionee's family member who has acquired the Option or
Stock Purchase Right through a gift or a transfer for value pursuant to a
domestic relations order in settlement of marital property rights or a
transfer to an entity in which more that 50% of the voting interests owned
by an Optionee's family members or the Optionee in exchange for an interest
in that entity, all as more particularly provided in the general
instructions to Form S-8 or any successor form under the Securities Act of
1933; or (ii) unless determined otherwise by the Administrator, in which
case such Option or Stock Purchase Right shall contain such additional
terms and conditions as the Administrator deems appropriate.
(b) An Incentive Stock Option may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will
or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee. An Incentive Stock Option
can only be exercised by Optionee. In the event of the death of Optionee
while an eligible employee of the Company or within three months after
termination thereof, this Option can be exercised by the executor or
personal representative of the estate of Optionee or such other person who
has acquired this Option as a bequest or by inheritance from Optionee.
14. Grants to Directors and Officers. To the extent the Company has a class
of securities registered under Section 12 of the Exchange Act, Options or Stock
Purchase Rights granted under the Plan to Directors and Officers (as used in
Rule 16b-3 promulgated under the Exchange Act or any amendment or successor rule
of like tenor) intended to qualify for the exemption from Section 16(b) of the
Exchange Act provided in Rule 16b-3 shall, in addition to being subject to the
other restrictions and limitations set forth in this Plan, be made as follows:
(a) Requirements for Grant to Officer or Director. A transaction
whereby there is a grant of an Option or Stock Purchase Right pursuant to
this Plan to an Officer or Director must satisfy one of the following:
(i) The transaction must be approved by the Board or duly
authorized Committee composed solely of two or more Outside Directors
of the Company.
(ii) The transaction must be approved or ratified, in compliance
with Section 14 of the Exchange Act, by either: (1) the affirmative
vote of the holders of a majority of the securities of the Company
present or represented and entitled to vote at a meeting of the
stockholders of the Company held in accordance with the Applicable
Laws of the state of incorporation of the Company; or (2) if allowed
by applicable state law, the written consent of the holders of a
majority, or such greater percentage as may be required by Applicable
Laws of the state of incorporation of the Company, of the securities
of the Company entitled to vote. If the transaction is ratified by the
stockholders, such ratification must occur no later than the date of
the next annual meeting of stockholders.
(iii) The stock acquired must be held by the Officer or Director
for a period of six months subsequent to the date of the grant;
provided that if the transaction involves a derivative security (as
defined in Section 16 of the Exchange Act), this condition shall be
satisfied if at least six months elapse from the date of acquisition
of the derivative security to the date of disposition of the
derivative security (other than on exercise or conversion) or its
underlying equity security.
9
(b) Approval Required for Disposition of Securities. Any transaction
involving the disposition by the Company of its securities in connection
with Options or Stock Purchase Rights granted pursuant to this Plan shall:
(i) be approved by the Board or duly authorized Committee
composed solely of two or more Outside Directors; or
(ii) be approved or ratified, in compliance with Section 14 of
the Exchange Act, by either: (1) the affirmative vote of the holders
of a majority of the securities of the Company present or represented
and entitled to vote at a meeting duly held in accordance with the
Applicable Laws of the state of incorporation of the Company; or (2)
if allowed by applicable state law, the written consent of the holders
of a majority, or such greater percentage as may be required by
Applicable Laws of the state of incorporation of the Company, of the
securities of the Company entitled to vote; provided that such
ratification occurs no later than the date of the next annual meeting
of stockholders.
All of the foregoing restrictions and limitations are based on the governing
provisions of the Exchange Act and the rules and regulations promulgated
thereunder as of the date of adoption of this Plan. If, at any time, the
governing provisions are amended to permit an Option or Stock Purchase Right to
be granted or exercised pursuant to Rule 16b-3 or any amendment or successor
rule of like tenor without one or more of the foregoing restrictions or
limitations, or the terms of such restrictions or limitations are modified, the
Administrator may award Options or Stock Purchase Rights to Directors and
Officers and may modify outstanding Options or Stock Purchase Rights in
accordance with such changes, all to the extent that such action by the
Administrator does not disqualify the Options or Stock Purchase Rights from
exemption under the provisions of Rule 16b-3 or any amendment or successor rule
of similar tenor.
15. Adjustments upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of Shares of Common Stock covered
by each outstanding Option and Stock Purchase Right, the number of Shares
of Common Stock that have been authorized for issuance under the Plan but
as to which no Options or Stock Purchase Rights have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option or Stock Purchase Right, the number of Shares that may be added
annually to the Shares reserved under the Plan by the Board (pursuant to
section 3), as well as the price per Share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued Shares of
Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued Shares of Common Stock
effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company, and
repurchases of its own shares by the Company shall not be deemed to have
been effected without receipt of consideration within the meaning of the
preceding clause. Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of Shares
of stock of any class, or securities convertible into Shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of Shares of Common Stock subject to
an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify
each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for
10
an Optionee to have the right to exercise his or her Option until 10 days
prior to such transaction as to all of the Optioned Stock covered thereby,
including Shares as to which the Option would not otherwise be exercisable.
In addition, the Administrator may provide that any Company repurchase
option applicable to any Shares purchased upon exercise of an Option or
Stock Purchase Right shall lapse as to all such Shares, provided the
proposed dissolution or liquidation takes place at the time and in the
manner contemplated. To the extent it has not been previously exercised, an
Option or Stock Purchase Right will terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with
or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent Option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. With
respect to Options granted to an Outside Director pursuant to section 14
that are assumed or substituted for, if following such assumption or
substitution the Optionee's status as a Director or a director of the
successor corporation, as applicable, is terminated other than upon a
voluntary resignation by the Optionee, then the Optionee shall fully vest
in and have the right to exercise the Option as to all of the Optioned
Stock, including Shares as to which it would not otherwise be vested or
exercisable.
In the event that the successor corporation refuses to assume or
substitute for the Option or Stock Purchase Right, the Optionee shall fully
vest in and have the right to exercise the Option or Stock Purchase Right
as to all of the Optioned Stock, including Shares as to which it would not
otherwise be vested or exercisable. If an Option or Stock Purchase Right
becomes fully vested and exercisable in lieu of assumption or substitution
in the event of a merger or sale of assets, the Administrator shall notify
the Optionee in writing or electronically that the Option or Stock Purchase
Right shall be fully vested and exercisable for a period of 15 days from
the date of such notice, and the Option or Stock Purchase Right shall
terminate upon the expiration of such period.
For the purposes of this subsection, the Option or Stock Purchase
Right shall be considered assumed if, following the merger or sale of
assets, the Option or right confers the right to purchase or receive, for
each Share of Optioned Stock subject to the Option or Stock Purchase Right
immediately prior to the merger or sale of assets, the consideration
(whether stock, cash or other securities or property) received in the
merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice
of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the
consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right, to be solely common stock of the successor
corporation or its Parent equal in Fair Market Value to the per Share
consideration received by holders of Common Stock in the merger or sale of
assets.
16. Date of Grant. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.
17. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) Stockholder Approval. The Company shall obtain stockholder
approval of any Plan amendment to the extent necessary and desirable to
comply with Applicable Laws.
11
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the
Optionee and the Company. Termination of the Plan shall not affect the
Administrator's ability to exercise the powers granted to it hereunder with
respect to Options granted under the Plan prior to the date of such
termination.
18. Conditions upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
shall comply with Applicable Laws and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person
exercising such Option or Stock Purchase Right to represent and warrant at
the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation
is required.
19. Inability To Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
20. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
21. Stockholder Approval. The Plan shall be subject to approval by the
stockholders of the Company within 12 months after the date the Plan is adopted.
Such stockholder approval shall be obtained in the manner and to the degree
required under Applicable Laws.
SECRETARY'S CERTIFICATE
The undersigned, the duly constituted and elected secretary of Utah Medical
Products, Inc., hereby certifies that pursuant a majority written consent of
stockholders effective May 9, 2003, in accordance with the requirements of law
and the Company's articles of incorporation and bylaws, the foregoing Utah
Medical Products, Inc. 2003 Employees' and Directors' Incentive Plan was
approved by the affirmative vote of the holders of a majority of the Shares of
Common Stock.
DATED this ______ day of ____________________, 2003.
----------------------------
Kevin L. Cornwell, Secretary
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