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SRI board lending detailed
By KRIS HUNDLEY, Times Staff Writer SRI/Surgical Express Inc., the Tampa surgical supply company that is being investigated by the Securities and Exchange Commission, has disclosed in an SEC filing that its chief executive received a $3-million personal loan last year from a longtime board member. It's not the first time close relationships between SRI and its directors have been beneficial. Lee R. Kemberling, the board member who made the personal loan to SRI founder and chief executive Dick Isel, has received nearly $800,000 in business from SRI over the past six years for his Clearwater company that manufactures wastewater recovery equipment. Another board member fared even better. Gary L. Heiman, president of Standard Textile Co. Inc. of Cincinnati, was on SRI's board from September 1998 to February 2001. During those years, SRI bought $23.8-million worth of reusuable textiles from Heiman's company. Isel, who attracted the SEC's attention last fall when his company restated its earnings, defended his board's transactions. "We've disclosed them every year and told people if they have any questions to raise them," he said. "No one's raised them." Isel, who founded SRI's predecessor company in 1991 and took it public in July 1996, is the company's largest shareholder, with more than 14 percent of its stock. Kemberling, an early investor in the company, owns 5.7 percent. Heiman holds a 5.6 percent share. Of six directors, only two are considered outside directors with no ties to SRI. In the most recent filing Wednesday, SRI said that while the personal loan between Isel and Kemberling is outstanding, Kemberling might not be considered an "independent director" according to NASD rules. Filings in previous years had not mentioned his status. The current filing said Kemberling still serves on the company's audit committee, however, because of his long-standing knowledge of the company and major ownership stake. Kemberling, 76, said he didn't know why the personal loan even had to be mentioned in SRI's filing. He said the loan was to fund Isel's investment in an unrelated company. The loan is secured by a pledge of 200,000 SRI shares owned by Isel. Regarding SRI's business with Kemco, Kemberling's company, Isel said most of the purchases were made before Kemberling joined the board in 1996. "We only buy from Kemco now when we need to replace or upgrade equipment," Isel said of the $770,000 worth of components bought from Kemco over the past six years. "I'd welcome anybody who could provide me the same products at his price." Isel said SRI's purchases from Standard Textile were in a different category. Heiman joined the board after SRI bought a recycling facility from Standard, and part of the deal was that SRI would also purchase textiles from Standard. Isel said Standard is one of the few companies that specializes in medical textiles and is a leader with sales of about $500-million. Heiman was out of the country and could not be reached for comment. "Has he been a great supplier? Absolutely. He kept prices down," Isel said. "He also has sales reps calling on hospitals all over the country, which has been an opportunity for us to grow our business." But Isel said he became uncomfortable buying supplies from a board member when it became clear that Standard would have to raise its prices. "His three-year term was up and I said, "Do you want to be a supplier or a board member?' " Isel said. "He wanted to be a supplier, and now he's asking for a price increase." Isel, whose employees have been answering SEC questions about an accounting error for the past five months, took queries about inside board dealings in stride. But Kemberling, whose wastewater treatment company is privately owned, bristled slightly at the questioning. "SRI is a heck of a good company and I'm waiting for investors to bail out so I can buy some more," he said. "I'd prefer to see it private. I'd like to be an owner." After revising projected first-quarter earnings down to 10 cents from 12 cents a share, SRI's stock dropped $1.34 Thursday to close at $12.31. -- Kris Hundley can be reached at hundley@sptimes.com or (727) 892-2996.
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From the Times Business report
From the AP
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