Kirschner Medical faces arbitration over stock swap

August 14, 1991|By Timothy J. Mullaney

Kirschner Medical Corp. has been slapped with an arbitration action for allegedly duping the former owners of a Kirschner subsidiary, who sold their company to Kirschner in 1989 in exchange for Kirschner stock whose value plummeted as Kirschner posted big losses in 1989 and 1990.

In a filing with the U.S. Securities and Exchange Commission, the Timonium-based medical equipment manufacturer said that it has done nothing wrong and intends to fight the complaint. "We have nothing additional to say," said John Barham, a company spokesman.

The action was brought before the American Arbitration Association in Washington July 30, according to a report Kirschner gave the SEC late last week. The action was filed two years after Kirschner announced that it had completed the purchase of M. P. Video Inc., a Massachusetts-based maker of medical imaging equipment used in laser surgery and orthopedic arthroscopic operations.

M. P. Video's owners, Melvin and Roberta Prenovitz, say that Kirschner's public financial statements either left out or distorted important financial information about Kirschner during the time the deal was being negotiated, and that Kirschner officials also misled them.

The complaint says that the misleading information gave an artificially high value to Kirschner's stock. When the company posted a major loss in the fourth quarter of 1989, followed by another big loss in the last three months of 1990, the value of the 52,300 shares of Kirschner stock the Prenovitzes got for their company fell sharply.

Kirschner stock closed at $22.50 a share the day the acquisition was announced. It closed yesterday at $16 a share, down $1. But in February, when the company's fortunes looked most bleak, the stock hit a 52-week low of $5.75 a share.

The Prenovitzes also contend that Kirschner did not give M. P. Video the operating capital that had been agreed upon during the merger talks.That kept M. P. Video's profits low, depriving its former owners of the right to earn more shares of Kirschner stock, the complaint said.

The complaint asks for "$7.25 million in actual damages, minus sales proceeds and the fair market value of Kirschner stock held by the claimants, such damages to be trebled," the SEC filing said. The Prenovitzes also want Kirschner to pay their attorney fees.

Mr. Barham said that no hearing has yet been scheduled on the complaint. The Prenovitzes couldn't be reached for comment. A secretary at M. P. Video said that they are not employed there, and they did not return a message left on their home answering machine.

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