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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2002 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
MERIT MEDICAL SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Utah 0-18592 87-0447695
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(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
1600 West Merit Parkway
South Jordan, Utah 84095
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (801) 253-1600
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Title of Class: Common Stock, No Par Value
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
Indicate by check mark whether the registrant is an accelerated filer
(as defined in rule 12b-2 of the Act) Yes X No
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The aggregate market value of the Common Stock held by non-affiliates
of the Registrant, on June 28, 2002, which is the last day of the Registrant's
most recently completed second fiscal quarter (based upon the closing sale price
of the Common Stock on the NASDAQ National Market System on June 28, 2002), was
approximately $251million. Shares of Common Stock held by each officer and
director and by each person who may be deemed to be an affiliate have been
excluded.
As of March 25, 2003 the Registrant had 14,117,405 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference in
Part III of this Report: the Registrant's definitive Proxy Statement relating to
the Annual Meeting of Shareholders scheduled for May 22, 2003.
TABLE OF CONTENTS
PART I ....................................................................................... 1
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS .............................................. 1
Item 1 Business............................................................................. 1
GENERAL ...................................................................................... 1
PRODUCTS ..................................................................................... 2
MARKETING AND SALES .......................................................................... 7
CUSTOMERS .................................................................................... 8
RESEARCH AND DEVELOPMENT ..................................................................... 9
MANUFACTURING ................................................................................ 9
COMPETITION .................................................................................. 9
PATENTS, PATENT APPLICATIONS, LICENSES, TRADEMARKS AND COPYRIGHTS ............................ 10
REGULATION ................................................................................... 10
EMPLOYEES .................................................................................... 11
AVAILABLE INFORMATION ........................................................................ 11
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES ............................................................................. 11
FACTORS THAT MAY AFFECT FUTURE RESULTS ....................................................... 12
Item 2. Properties .......................................................................... 15
Item 3. Legal Proceedings ................................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders ................................. 16
PART II ...................................................................................... 16
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters ................ 16
Item 6. Selected Financial Data ............................................................. 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17
Item 7A. Quantitative and Qualitative Disclosure About Market Risk ........................... 21
Item 8. Financial Statements and Supplementary Data ......................................... 22
Item 9. Changes and Disagreements with Accountants on Accounting and Financial Disclosure ... 44
PART III ..................................................................................... 45
Items 10, 11, 12, 13 and 15 .................................................................. 45
Item 14 Controls and Procedures ........................................................... 45
PART IV ...................................................................................... 45
Item 16. Exhibits, Financial Statement Schedule and Reports on Form 8-K ..................... 46
Signatures ................................................................................... 48
Certification Pursuant To Rule 13a-14 under the Securities Exchange Act of 1934 .............. 49
PART I.
DISCLOSURE REGARDING FORWARD -LOOKING STATEMENTS
This Report includes "Forward-Looking Statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact are "Forward-Looking Statements" for purposes of
these provisions, including any projections of earnings, revenues or other
financial items, any statements of the plans and objectives of management for
future operations, any statements concerning proposed new products or services,
any statements regarding future economic conditions or performance, and any
statements of assumptions underlying any of the foregoing. All Forward-Looking
Statements included in this document are made as of the date hereof and are
based on information available to the Company as of such date. The Company
assumes no obligation to update any Forward-Looking Statement. In some cases,
Forward-Looking Statements can be identified by the use of terminology such as
"may," "will," "expects," "plans," "anticipates," "intends" or "believes,"
"estimates," "potential," or "continue," or the negative thereof or other
comparable terminology. Although the Company believes that the expectations
reflected in the Forward-Looking Statements contained herein are reasonable,
there can be no assurance that such expectations or any of the Forward-Looking
Statements will prove to be correct, and actual results could differ materially
from those projected or assumed in the Forward-Looking Statements. Future
financial condition and results of operations, as well as any Forward-Looking
Statements are subject to inherent risks and uncertainties, including market
acceptance of the Company's products, product introductions, potential product
recalls, delays in obtaining regulatory approvals, cost increases, fluctuations
in and obsolescence of inventory, price and product competition, availability of
labor and materials, development of new products and techniques that render the
Company's products obsolete, product liability claims, foreign currency
fluctuations, changes in health care markets related to health care reform
initiatives and other factors referred to in the Company's press releases and
reports filed with the Securities and Exchange Commission (the "SEC"). All
subsequent Forward-Looking Statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by these
cautionary statements. Additional factors that may have a direct bearing on the
Company's operating results are described under "Factors That May Affect Future
Results" beginning on page 12.
Item 1. Business.
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GENERAL
Merit Medical Systems, Inc. (the "Company" or "Merit," "we," or "us")
was formed in 1987 by members of its current management for the purpose of
producing single-use medical products of high quality and superior value
primarily for use in diagnosis and treatment of cardiovascular disease. The
Company's products are designed to provide physicians and other health care
professionals with devices that enable them to perform interventional and
diagnostic procedures safely and effectively. Initially, the Company's expertise
in product design and its proprietary technology and skills in injection and
insert molding enabled it to introduce innovative new products and capture
significant market share. The Company subsequently combined its plastics molding
capability with the application of proprietary electronics and sensor-based
technologies to develop a line of angioplasty inflation products with electronic
sensing and display features. These devices are now included in a group of
sensor-based products that address a broad range of needs related to diagnostic
and interventional catheterization procedures performed in hospitals. Since
1997, the Company has expanded its product offerings to include catheters, guide
wires, sheath introducers, needles, safety products and drug infusion devices.
The Company's strategy is to offer a broad line of innovative,
disposable products for diagnosis and intervention in radiology and cardiology.
Merit continues to increase market acceptance and penetration for both its
existing and new products in the United States and in international markets.
Longer term, the Company's strategy is to extend the application of its
sensor-based technologies, plastics molding, catheter, guide wire, and
electronic capabilities and to develop products for diagnostic and
interventional procedures in additional markets such as neuroradiology,
nephrology, pain management and critical care. The Company's sales of
stand-alone products in combination with custom kits have increased as additions
have been made to the Company's product lines. In 2002, approximately 51% of the
Company's sales were made directly to the United States hospitals and
approximately 26% of sales were made to custom packagers, distributors and
O.E.M. companies who also distribute to the United States hospitals.
Approximately 23% of the Company's sales in 2002 were made in international
markets.
1
The Company was organized in July 1987 as a Utah corporation. In July
1994, the Company purchased a controlling interest in Merit Sensor Systems, Inc.
(formerly Sentir, Inc.), a California-based manufacturer of silicon sensors, and
during 1999, the Company purchased the remaining interest in Sentir, Inc. The
Company also has established subsidiaries in Ireland, Germany, France, the
United Kingdom, Belgium, and the Netherlands to conduct its international
business. On January 31, 1997, the Company purchased the operating assets and
product lines of Universal Medical Instruments Corp. ("UMI"). On August 20,
1999, the Company purchased the operating assets and product lines of the
Angleton, Texas division of Mallinckrodt Inc. ("Mallinckrodt"). Unless otherwise
specified or evident from the context, references to the Company include its
consolidated subsidiaries. The Company's principal offices are located in a
manufacturing and office facility at 1600 West Merit Parkway, South Jordan, Utah
84095, and its telephone number is (801) 253-1600. See "Item 2. Properties."
PRODUCTS
The Company's products have been designed and developed in response to
the needs of customers and patients. These needs have been identified primarily
through observation of procedures in cardiac catheterization and radiology
laboratories, consultation with the Company's medical advisors and consultants
and direct communication with customers. Since 1988, the Company has developed
and introduced several product lines, including the following:
o control syringes (CCS(TM), Smart o a torque device,
Tip(TM)and Inject8(TM)),
o inflation devices (IntelliSystem(R), o contrast management systems
Monarch(R), Basix(R),and BasixCOMPAK (Miser(R)and In-Line(TM)Contrast
(TM) including new 30-atmosphere Management System(TM)),
versions),
o specialty syringes (Medallion(R)and o angiography needles (Majestik(R)
VacLok(R)) Series,Majestik(R)Shielded
Needle),
o high-pressure tubing and connectors o blood containment devices
(Excite(TM), flexible, braided, (Captiva(R)),
rigid, pvc, and Sherlock(TM)),
o waste handling and disposal o pericardiocentesis catheters and
products (Merit Disposal Depot(R), procedure trays,
Backstop(R)and ShortStop(R)),
o a disposable blood pressure o thrombolytic infusion catheters
transducer (Meritrans(R)), (Fountain(R)and Mistique(TM))
and accessories (Squirt(R)),
o disposable hemostasis valves o diagnostic angiographic pigtail
(MBA(TM), Passage(R), Access-9,(TM) catheters, diagnostic cardiology
Access Plus(TM), Double-Play(TM) and radiology catheters
and Inspector(TM)), (SofTouch(R)and Performa(R)),
o manifolds and stopcocks (Marquis(R) o sheath introducers (DialEase(TM)),
Series), and
o diagnostic guide wires
(Inqwire(R), and RadStat(TM)).
These products are sold separately and in custom kits consisting primarily of
selected combinations of products.
The Company has not experienced any significant product liability
claims; however, the sale and use of its products entails an inherent risk that
product liability claims may be asserted against the Company. The Company
maintains product liability insurance in the amount of $5,000,000 per occurrence
and in the aggregate, which may not be adequate for expenses or liabilities
actually incurred.
The following paragraphs contain a brief description of, and provide
other information regarding, Merit's key products:
2
Inflation Devices and Angioplasty Accessories. Inflation devices are
large, specialized syringes used in interventional catheterization procedures to
inflate balloon-tipped catheters. Each of the Company's inflation devices
incorporates patented, proprietary design features which contribute to ease of
use, including allowing the clinicians to engage or release the syringe plunger
with one hand while increasing or decreasing pressure. Each syringe also
provides a clear view of the fluid path that simplifies debubbling and
contributes to accurate measurement of pressure.
The Company's IntelliSystem(R) 25 inflation device, which was the first
such device to incorporate electronic sensing and display features, consists of
a disposable 20cc inflation syringe and an internal pressure transducer which
connects to a monitor outside of the sterile field. The IntelliSystem(R) monitor
measures, times, records, and digitally displays information concerning the
pressure, duration and number of each inflation and deflation of the angioplasty
balloon. The Company believes that electronic sensing display of such
information is much more accurate and precise than that which can be obtained
from conventional analog gauges. The data is stored and may be displayed,
retrieved, graphed and printed.
The patented IntelliSystem II(TM) color monitor is an advanced balloon
inflation system. It gives physicians several highly desirable options,
including: a large touch screen, an instant readout of positive and negative
pressures, and an enlarged graphing display to show extremely subtle changes in
pressure measurements. In addition, the readouts are available in four languages
by touching the screen. Management believes Merit the only company with digital
technology sensitive enough to show minute changes in pressure.
The Monarch(R) is a disposable inflation device which digitally
displays data concerning pressure and duration of inflations and deflations on a
small digital readout mounted on the barrel of the inflation syringe. The small
monitor does not offer the same display, storage or printing capabilities of the
IntelliSystem(R) & IntelliSystem II(TM) but offers the convenience of portable,
digital operation. In 2002, Merit launched a 30 atmosphere version to provide
clinicians with additional options.
The Basix(R) 25 and the BasixCOMPAK(TM) are disposable inflation
syringes which incorporate a conventional analog pressure gauge mounted on the
barrel of the inflation syringe. The Basix(R) more closely resembles devices
marketed by the Company's competitors but includes the Company's proprietary
design features and benefits. The Company believes that the Basix(R) and
BasixCOMPAK(TM) represent a significant addition to its line of inflation
devices and will contribute to increased sales where both clinical outcomes and
price are a priority.
Hemostasis Valves. The MBA(TM), Passage(R), AccessPlus(TM), Double
Play(TM), and the Inspector(R) hemostasis valves are used in conjunction with
the Company's inflation devices and as a component of the Company's angioplasty
packs. These valves are made of polycarbonate plastic for clarity and include
Sherlock(TM) connectors. The devices differ in size and function. The MBA(TM)
features a valve mechanism that minimizes blood loss during exchange of wires,
catheters and other tools through the valve. The Access Plus(TM) and Access
9(TM) are large-bore configurations. The Double Play(TM) incorporates a double
"Y" configuration for kissing-balloon techniques. And the Inspector(R) is a
single-lumen, flow-through configuration.
Torque Device. The Merit torque device is a guide wire steering tool
with a tapered design and contrasting colors for improved visibility. The torque
device typically is included as a component of the Company's angioplasty packs.
Control Syringes. The Company's disposable control syringes are
utilized for one-handed control of the injection of contrast media and other
fluids during angiography, angioplasty and stent placement. (A stent is a tube
that is inserted into a vessel or passage to keep it open and prevent closure
due to stricture or external pressure). The control syringes are molded from
polycarbonate material, which is stronger than glass and other plastics used in
the industry. The Company offers different models and sizes of the control
syringes with varying features, according to physician preference. These
features include different configurations of syringe handles, plungers and
connectors which allow operation of the syringe in a fixed or rotating position
and varying volume sizes, including a popular 8ml model, Inject8(TM) and the
new, streamlined Inject10(TM). In response to customer, Merit launched
latex-free control syringes in 1998.
3
Specialty Syringes. Merit's Medallion(R) syringes, a line of
disposable, latex-free, color-coded specialty syringes, are used for injection
of medications, flushing manifolds and other general purposes. These syringes
are molded of polycarbonate material for added strength and are available in
hundreds of sizes, colors and custom printing combinations. The color-coding
minimizes medication errors by allowing a clinician to assign a color for each
medication to be dispensed and to differentiate syringes by their contents. The
syringes also can be custom printed to the specifications of the user. The
Company believes that the design, color coding and materials used in its
specialty syringes contribute to patient safety and more efficient procedures.
The specialty syringes are sold separately and are an important component of the
Company's custom kits.
60ml VacLok(R). The 60ml VacLok(R) syringe is used to create negative
pressure. There are many clinical applications for a negative pressure syringe,
including: abscess drainage and biopsy, balloon preparation, nephrostomy
drainage, and more.
Large-Bore Stopcock(TM). The Large-Bore(TM) Stopcock launched in 2001
is designed to facilitate movement of fluid. The large internal diameter
(0.120") is designed for moving drainage fluid from the body. Like all Merit
stopcocks, the large-bore version incorporates a clear body for easy
visualization and a large, easy-to-manipulate handle.
Marquis(TM) Series Stopcock. The Company's Marquis(TM) Series Stopcock
offers improvements to competitive stopcock devices, including a large,
easy-grip handle. The Marquis(TM) Series Stopcock is used in connection with
Sherlock(TM) connectors to provide improved connections during procedures.
Manifolds. The administration of saline, imaging and contrast fluids
and the management of blood-pressure monitoring, fluid injection and waste
collection in angiography or angioplasty procedures is accomplished through a
series of valves on a manifold which control the flow of various fluids. The
Company has designed its own manifold consisting of two, three, four or five
valves. When compared to manifolds sold by competitors, the Company believes its
manifold offers greater ease of use, simplified identification of flow direction
and leak-free operation under the pressures of manual or mechanical injection of
fluids. The Merit Manifold is sold separately but is also a key component of the
Company's custom kits.
Percu-Stay(R) - Catheter Fixation Device. Percu-Stay(R) is a one piece
catheter tube securing device and site dressing for percutaneous drainage sites.
The product provides a comfortable, low-profile fixation device for catheters
and tubes. The device is used in interventional radiology, special procedures,
cardiology, urology, home health care, and skilled nursing facilities.
MDD600(TM). The Merit Drainage Depot(TM) was launched in 2001 and is
specifically designed to temporarily collect fluids. It incorporates a drainage
spout for quick and easy fluid disposal, and an internal anti-reflux valve to
help prevent fluid from backing up the line. The bag also comes packaged with an
adjustable velcro strap that can be used to attach the device to the patient's
waist or leg.
High-Pressure Contrast Injection Line and Sherlock(TM) Connectors.
During angiographic and diagnostic radiology procedures, contrast media must be
injected through a catheter into a patient's artery or vein. This is sometimes
accomplished by a mechanical injector which can generate pressures up to 1200
pounds per square inch ("psi"), and requires tubing that can withstand these
pressures. The Company offers high-pressure, specialty tubing with proprietary
Sherlock(TM) connectors. In 1998, the Company launched Excite(TM), a new line of
clear, flexible, high-pressure tubing that combines the features of tubing
clarity and strength. Sherlock(TM) connectors allow coupling and uncoupling of
tubing with injectors, syringes and manifolds without over-tightening or
breakage. The Company is currently offering specialty tubing that can handle
pressures ranging from 500 to 1200 psi. The specialty tubing with Sherlock(TM)
connectors is an important component of custom kits.
RadStat(TM) Radial Artery Compression Device. The RadStat(TM) Radial
Artery Compression Device is intended to be used to apply direct pressure to the
radial artery puncture site after diagnostic and interventional procedures. In
addition to rapid controlled hemostasis, the RadStat(TM) immobilizes the wrist
comfortably, permitting rapid patient ambulation.
4
Waste Containment Systems. Because of heightened awareness of the risks
associated with blood and related waste materials, hospitals have moved toward
closed systems whenever possible. To address these concerns, the Company has
designed a waste containment bag which connects to a manifold in a closed system
and collects waste materials such as blood and other fluids during angioplasty
or other procedures. The Merit Disposal Depot(TM) is self-contained for ease of
disposal and reduces the risk of contamination. The Backstop(R) is a unique and
proprietary alternative fluid disposal basin designed to reduce exposure to
blood-borne pathogens. In 2002, Merit launched the DugOut(TM), a large volume
(1000 ml) line extension to the Backstop(R). The DugOut(TM) also contains an
additional compartment for the storage of accessories.
Contrast Management Systems. The Miser(TM) and the In-Line(TM) Contrast
Management System have been designed to increase catheterization lab
efficiencies by reducing contrast media waste. This small system helps save
hospitals thousands of dollars a year in wasted contrast.
Majestik(R) Angiographic Needles. The angiography needle creates the
percutaneous (through the skin) access site for virtually all invasive
diagnostic and interventional procedures performed in cardiology and radiology.
The needle provides the initial point of entry site for the introducer sheath,
guide wires, catheters and any other interventional devices. The Merit
Majestik(R) Needle helps the physician achieve precision vascular access with
one of the sharpest angiography needles on the market.
Majestik(R) Shielded Angiography Needles. The Needlestick Safety and
Prevention Act passed by the United States Congress in November 2000 requires
healthcare employers to document their exposure control plan and evaluate
safety-engineered products to protect clinicians. In 2002, Merit launched a new
line of shielded, 18-gauge angiography introducer needles that meet the
requirements of the law. The Majestik(R) shielded needle is one of the first
safety-engineered devices designed to promote safer needles in cardiology and
radiology. Access Safety Kits (A.S.K. Merit) were launched in early 2003 and
include protected scalpels and needles used for vascular access.
Fountain(R) and Mistique(TM) Infusion Catheters. Vascular occlusion is
a common anomaly that affects millions of patients each year. Both the
Fountain(R) catheter and the Mistique(TM) catheters deliver therapeutic
solutions to dissolve thrombolytic occlusions (blood clots) in peripheral
arteries, hemodialysis grafts and deep veins. The Fountain catheter utilizes an
occluding wire to effectively block off the end hole and direct the infusion
therapy uniformly through the laser-drilled side holes. The Mistique(TM) is
designed to be used over standard 0.035 or 0.038 guide wires to block off the
end hole and direct the infusion therapy uniformly through the side holes.
Squirt(R) Fluid Dispensing System. The Squirt(R) fluid dispensing
system is a unique and proprietary product designed specifically for therapeutic
infusion for controlled, accurate and consistent fluid delivery. Some Fountain
catheter configurations contain a Squirt(R) packaged with it.
InQwire(R) Diagnostic Guide Wires. Guide wires consist of a
small-diameter wire tightly wrapped in a coated wire coil. The technology needed
to produce these wires is considerable, and Merit utilizes its guide wire center
of excellence in Ireland to manufacture the Inquire Diagnostic Guide Wire. Guide
wires vary in length, outside diameter and tip configuration, and are used to
place either a diagnostic or therapeutic catheter into a patient's heart artery
or other area of the body.
RingMaster(TM). The RingMaster(TM) guide wire basin, launched in 2001,
allows clinicians to conveniently store guide wires to maintain sterility and
organization. It separates wires for quick selection, uses less table space than
conventional basins because it's stackable and it helps keep wires hydrated
throughout the procedure.
Vessel Dilators. Dilators are used to dilate puncture sites. They are
commonly used in radiology and cardiology over a 0.035" or 0.038" guide wire to
dilate the site prior to placing sheaths and catheters in the femoral artery.
DialEase(R) Introducer Sheath. The DialEase(TM) Sheath is a short
introducer ideally suited for dialysis graft intervention. It is commonly used
in conjunction with the Fountain(R) and Mistique(TM) therapeutic infusion
catheters to declot dialysis grafts.
5
Angiography Pigtail Catheter. In 1997, Merit acquired new product lines
and technologies from UMI, a small specialty medical manufacturing firm in
upstate New York. At that time the Company began marketing a new line of
thin-wall, (Teflon(R)), high-flow, pigtail angiographic catheters designed for
smaller patients.
Pericardiocentesis Kit. On occasion, the pericardial sack surrounding
the heart becomes filled with blood or fluid. To remove the fluid and the
potential for heart strangulation (tamponade), a catheter is placed in the
pericardial sack to drain the excess fluid. Merit offers a complete
pericardiocentesis kit which combines a high-flow drainage catheter with
virtually all components needed to place the device in the pericardial sack. The
kit combination saves the physician both time and money by having all components
in one convenient tray.
One-Step(TM) Centesis Catheter. The One Step(TM) Catheter launched in
the first quarter of 2002 and is intended to be used for short-term centesis
procedures. It incorporates a luer-locked introducer needle for secure,
one-handed placement. The tip of the introducer needle is echogenically enhanced
for visualization during ultrasound-guided placement. The transition between the
catheter and needle is smooth to facilitate insertion.
Resolve(TM) Universal Drainage Catheter with Locking Pigtail. The
Resolve(TM) Universal Drainage Catheter with locking pigtail and hydrophilic
coating is expected to be another key addition to Merit's offering of drainage
catheters and accessories in 2003. It is intended for percutaneous drainage of
body fluids where a locking pigtail is required for extended catheter placement.
With the unique, patented pigtail release mechanism there is no need to cut the
catheter for removal and exchange. With a new hub design, the clinician can
close the hub and lock the pigtail with one hand. There is no longer a
requirement to wind a locking suture around the hub to keep the pigtail locked
in place.
Resolve(TM) Universal Drainage Catheter with Non-Locking Pigtail. The
Resolve(TM) Universal Drainage Catheter with non-locking pigtail was also
launched in 2002. It is a standard drainage catheter designed to expand Merit's
offering of drainage products.
Meritrans(R) Pressure Transducer and Accessories. Diagnostic blood
pressure monitoring is a critical priority in virtually all diagnostic and
interventional procedures. The Meritrans(R) provides clinicians with reliable
and precise blood pressure measurement. The clear, flow-through design makes
flushing and debubbling simple and safe. The transducer is a vital component of
many custom kit configurations. Pressure Monitoring Tubing and Stopcocks are
common ancillary products to complement the Meritrans(R). Merit provides several
reusable accessories to support the Meritrans(R). The Merit Mentor(TM) is a
transducer calibration and troubleshooting device to insure accuracy and
repeatability of physiologic pressure measurements. Reusable transducer cables
connect the Meritrans(R) to the bedside monitor. Organizing brackets hold
multiple transducers to beds and IV poles.
Pressure Infusor Bag. In 2001, Merit signed a distribution agreement
for a line of Pressure Infusor Bags. These devices are used hospital-wide to
apply pressure to a sealed bag of fluid, such as IV solutions or blood products.
The pressure exerted is shown by a color-coded pressure gauge, and the device
has a valve that releases pressure to prevent inadvertent over-pressurization.
ShortStop(R). In 2000, Merit introduced the ShortStop(R), a small,
temporary sharps container with an adhesive base that fits on the back table in
a clinical lab. It is used for the temporary containment of needles, scalpels
and other sharp tools to help prevent inadvertent clinician injury.
Custom Kits. Custom kits allow physicians to obtain the medical devices
and accessories they most frequently use during angiography, angioplasty and
similar procedures in a convenient, pre-packaged and preassembled form. custom
kits also provide cost savings over purchasing single products and reduce the
hospital's administrative costs associated with maintaining inventory of
individual, sterile products.
Universal Fluid Dispensing Syringe. In 1997, the Company received
510(k) approval from the U.S. Food and Drug Administration ("the FDA") for use
of its digital inflation devices (IntelliSystem(R) and Monarch(R) products) for
a wide range of additional clinical applications such as discography, esophageal
6
dilatation, trigeminal nerve compression, and retinal detachment. Universal
fluid dispensing syringes incorporate patented, proprietary design features
which contribute to ease of use, including allowing the clinicians to engage or
release the syringe plunger with one hand while increasing or decreasing
pressure. Each syringe also provides a clear view of the fluid path that
simplifies debubbling and contributes to accurate measurement of pressure. When
used in other clinical applications such as discography, the IntelliSystem(R)
accurately dispenses fluid while documenting and graphing pressures in the disc.
The Company believes that electronic sensing display of such information is much
more accurate and precise than the tactile feel of standard syringes and that
which can be obtained from conventional analog gauges. The data is stored and
may be displayed, retrieved, graphed and printed.
Diagnostic Cardiology Catheters. Cardiac catheterization is performed
to diagnose the nature, severity, and precise location of blockages and other
abnormalities of the heart. This technique represents the most essential
diagnostic tool in the management of patients with cardiovascular disease. The
Company manufactures and sells a complete line of diagnostic catheters used for
these procedures.
Diagnostic Radiology Catheters. Radiology catheters are engineered and
designed with distinct tip configurations to access specific vessels and organs
outside the heart (head, kidneys, legs, etc). Merit acquired a strong radiology
catheter product portfolio from Mallickrodt's Angleton Division in 1999.
Vessel-Sizing Catheters. In 2000, Merit introduced a complete line of
adult vessel-sizing catheters, which are used by radiologists to measure the
internal diameter and length of a blood vessel under fluoroscopy. Procedures in
which these catheters are used include angioplasty, embolization, abdominal
aortic aneurysm (AAA) stent-grafts and vena cava filter placements. In 2001,
pediatric vessel-sizing catheters were introduced to complement the line.
Guide Catheters. The Company's acquisition of the operating assets and
product lines of Mallinckrodt's Angleton, division in 1999 brought a line of
high-quality guide catheters used in cardiology. Coronary angioplasty requires
the use of a guiding catheter to place the balloon within the vasculature. The
catheter is inserted through a sheath into the arterial system. Once in place,
the guiding catheter acts as a conduit for the guide wire, the dilating balloon
catheter, coronary stents and radiopaque dye that is used to provide
fluoroscopic visualization during the procedure.
MARKETING AND SALES
Target Market/Industry. Cardiovascular disease is the number-one health
problem in the United States. According to American Heart Association estimates,
nearly 60 million Americans, or approximately 25% of the population, have one or
more types of the disease. Cardiovascular disease accounts for an estimated one
million deaths annually, more than 40% of the U.S. total. A majority of the
Company's sales revenues are derived from products used in coronary angiography
and angioplasty procedures designed to treat cardiovascular disease. The Company
believes that transcatheter modalities (products and technologies utilizing
heart catheterization procedures) such as balloons, stents and defect repair
currently represent the greatest potential to diagnose and treat the disease.
The Company intends to build upon its existing market position in both catheter
technology and accessory products to continue its sales growth.
The global market for transcatheter products stands at a major
crossroad, even when considering the continued dynamic evolution in vascular
stent placement. The core diagnostic and therapeutic applications for basic
transcatheter technologies (balloons, stents and defect repair) are well
established, with the future growth of procedures and products dependent upon
demographic trends. This has not, however, prevented significant investment in
new technologies and applications designed to enhance patient outcomes and
enable the treatment of new populations that have been traditionally limited to
surgical intervention. Much of this additional investment relates to procedures,
devices and drugs for the treatment and prevention of coronary artery disease
that have been developed and are currently being used by physicians. These
procedures, devices and drugs include laser angioplasty, atherectomy procedures
and drug therapies, the effect of which may be to render certain of the
Company's products obsolete or to limit the markets for Merit products. However,
with the advent of vascular stents and other procedures, such as discography and
kyphoplasty, the Company has experienced continued growth in its proprietary
inflation technology. The Company is monitoring trends in the industry and
believes it is in a position to launch catheters and accessories to support
growing clinical applications.
7
There are a large number of projects focused on improving the diagnosis
of cardiovascular disease, solving the issue of restenosis and other less
invasive alternatives to open-heart surgery. In recent years researchers have
focused their interests on technologies and products that support the growth of
transcatheter approaches to reducing the morbidity and mortality of
cardiovascular disease, including: drug-coated stents, radiated stents and
balloons, anti-platelet therapy, gene therapy, percutaneous coronary
thrombectomy and transmyocardial revascularization. One area of specific
interest to the Company is transradial catheterization which is the introduction
of vascular catheters through the radial artery allowing for rapid ambulation
which ultimately reduces total patient cost. The Company plans to continue to
develop and launch innovative products to support these clinical trends.
Market Strategy. The Company's marketing strategy is focused on
identifying and introducing highly profitable, differentiated products that meet
customer needs. The Company has targeted selected hospital market segments in
cardiology and radiology where its products are used. Suggestions for new
products and product improvements may come from engineers, sales persons,
physicians and technicians who perform the clinical procedures.
When a product suggestion demonstrates sustainable competitive
advantage, meets customer needs, fits strategically and technologically with the
Company's business, and has a good potential financial return, a "project team"
is chartered with individuals from the Company's marketing, engineering,
manufacturing and quality assurance departments. This team identifies the
customer requirements, integrates the design, compiles all necessary
documentation and testing and prepares the product for market introduction. The
Company believes that one of its marketing strengths is its capacity to rapidly
conceive, design, develop, and introduce new products.
The United States Sales. The Company's direct sales force currently
consists of a vice president of sales, an executive sales manager, five regional
sales managers and 46 direct sales representatives located in major metropolitan
areas throughout the United States. The Company's sales people are trained by
personnel at the Company's facilities, by a senior sales person in their
respective territories, at regular national and regional sales meetings by
consulting cardiologists and employees of the Company, and by observation of
procedures in catheterization laboratories.
International Sales. Outside of the United States, approximately 100
independent dealer organizations and 17 direct sales representatives in Germany,
France, the United Kingdom, Belgium, Netherlands, and Ireland presently sell the
Company's products. In 2002, the Company's international sales grew by 8% and
accounted for approximately 23% of total sales. The Company has appointed a vice
president for international sales and established an international sales and
distribution office in Maastricht, The Netherlands. With the recent and planned
additions to its product lines, the Company believes that its international
sales will continue to increase.
International dealers are required to inventory products and sell
directly to customers within defined sales territories. Each of the Company's
products must be approved for sale under the laws of the country in which it is
sold. International dealers are responsible for compliance with all applicable
laws and regulations in their respective countries.
CUSTOMERS
The Company serves hospital-based cardiologists, radiologists,
anesthesiologists, physiatrists (pain management), neurologists, technicians and
nurses, all of whom influence the purchasing decision for Merit's products.
Hospitals also purchase the Company's products in the United States through
custom packagers and packers who assemble and combine products in custom kits
and packs. The Company's customers outside the United States are hospitals and
other end users in those countries where a direct sales force has been
established; In other countries where the Company does not have a direct sales
force, independent dealers in medical products resell to hospitals and other
customers.
In 2002, approximately 51% of the Company sales were made directly to
domestic hospitals, approximately 26% to custom packagers and packers and
approximately 23% to international markets. Sales to the Company's single
largest customer, a packer, accounted for approximately 7% of total sales during
the year ended December 31, 2002. Merit manufactures products for other medical
device companies through its OEM program. During the year ended December 31,
2002, OEM sales represented approximately 9.5% of Merit's total revenue.
8
RESEARCH AND DEVELOPMENT
The Company believes that one of its strengths is its ability to
quickly adapt its expertise and experience in injection molding and to apply its
electronic and sensor technologies as well as its recently developed and
acquired technologies of guide wires and catheters to a perceived need for a new
product or product improvement. The Company's development efforts are presently
focused on disposable, innovative single-patient or single-use items, which can
be included in the Company's custom kits or sold separately. Longer-term
projects include the use of sensor-based technologies in a variety of
applications and additional inflation devices with added capacities and
features. There is a new focus on interventional vascular access products, such
as needles, guide wires, and catheters. Several of the Company's executive
officers also devote a substantial portion of their time to research and
development. Research and development expenses were $4,007,622, $4,117,839 and
$3,864,171 in 2002, 2001 and 2000, respectively. The Company did not conduct any
customer-sponsored research and development during those periods. The Company
anticipates that its research and development expenses will range between
approximately 3% and 4% of net sales during the year ended December 31, 2003.
MANUFACTURING
Many of the Company's products are manufactured utilizing its
proprietary technology and expertise in plastic injection and insert molding.
Tooling of molds is contracted with third parties, but the Company designs and
owns all of its molds. The Company utilizes its experience in injection and
insert molding technologies in the manufacture of most of the custom components
used in its products.
The electronic monitors and sensors used in the Company's
IntelliSystem(R) and Monarch(R) inflation devices are assembled from standard
electronic components or purchased from suppliers. In July 1994, the Company
acquired a 73% interest and in August 1999 the Company acquired the remaining
interest in Merit Sensor Systems, Inc., which develops and markets silicon
sensors. Merit Sensor Systems, Inc. is presently providing virtually all of the
sensors utilized by the Company in its digital inflation devices.
The Company's products are manufactured at several facilities including
South Jordan, Utah; Santa Clara, California; Galway, Ireland; Angleton, Texas
and a leased expansion facility in Murray, Utah. See "Item 2. Properties."
Merit's variety of suppliers for raw materials and components necessary
for the manufacture of its products, as well as its long term relationships with
such suppliers, helps to ensure the stability in its manufacturing process.
Historically, Merit has not been materially affected by interruptions with such
suppliers. Further, contingency plans are in place to engage back-up suppliers
so that materials and components continue to be available.
COMPETITION
The radiology and cardiology markets encompass a large number of
suppliers of many different sizes. The Company competes with small firms, such
as Possis Medical and Microtherapeutics; medium-sized companies like Cook, Arrow
and Angio Dynamics; and large, international, multi-supply medical companies,
such as Johnson & Johnson, Boston Scientific, Guidant, Medtronic and C.R. Bard.
Many of the Company's competitors have substantially greater financial,
technical and marketing resources than the Company.
The principal competitive factors in the markets in which the Company's
products are sold are quality, performance, service and price. The Company
believes that its products have achieved rapid market acceptance due, in part,
to the quality of materials and workmanship, innovative design and ease of
operation, and the Company's prompt attention to customer inquiries. The
Company's products are priced competitively, but generally not below prices for
competing products.
The Company believes, based on available industry data with respect
to the number of procedures performed, that it is one of two market leaders in
9
the United States for control syringes, tubing and manifold kits (together with
NAMIC USA Corporation, a subsidiary of Boston Scientific), and is the leader in
the U.S. market for inflation devices and hemostasis accessories. The Company
also believes that the recent and planned additions to its product lines will
enable it to compete more effectively in both U.S. and international markets.
The Company's new IntelliSystem(R) II color monitor provides considerable
improvements, including sensitivity, in Merit's existing, patented digital
technology. The Company is the only provider of digital inflation technology in
the world. There is no assurance, however, that the Company will be able to
maintain its existing competitive advantages or to compete successfully in the
future.
A substantial majority of the Company's revenues are presently derived
from sales of products used in coronary angiography and angioplasty procedures.
Other procedures, devices and drugs for the treatment and prevention of coronary
artery disease have been developed and are currently being used such as laser
angioplasty, atherectomy procedures and drug therapies, the effect of which may
be to render certain of the Company's products obsolete or to limit the markets
for its products. However, with the advent of vascular stents and other
procedures such as discography, the Company has experienced continued growth in
its proprietary inflation technology.
PATENTS, LICENSES, TRADEMARKS AND COPYRIGHTS
The Company considers its proprietary technology to be important in the
development and manufacture of its products and seeks to protect its technology
through a combination of patents and confidentiality agreements with its
employees and others. Merit has received 92 issued U.S. and foreign patents, and
many more are pending. Two U.S. patents were issued in 1991 covering the
mechanical aspects of the Company's angioplasty inflation devices which relate
to the ability of the user to engage or release the syringe plunger while
increasing or decreasing pressure, and two U.S. patents were obtained in 1992
and 1993 covering digital control aspects of the Company's IntelliSystem(R)
inflation device and for displaying, storing and retrieving inflation data. The
Company has obtained other patents covering each of its Monarch(R) and Basix(R)
inflation devices and additional features of the IntelliSystem(R). Patents
granted to the Company prior to 1995, expire 17 years after the date of grant,
and patents granted to the Company after 1995 expire 20 years after the date of
application.
Corresponding patent applications covering the claims included in the
Company's U.S. patents and patent applications have been initiated in several
foreign countries. The Company deems its patents and patents pending to be
materially important to its business but does not believe its business is
dependent on securing such patents. Moreover, although certain of the Company's
key patents will expire in 2008 and other patents will expire thereafter, the
Company expects that related products will continue to be valuable, in part
because of proprietary innovations made since the issue of the initial patent.
The Company negotiated a license in 1992 with respect to patents concerning
technology utilized in its IntelliSystem(R) and Monarch(R) inflation devices in
consideration of a 5.75% ongoing royalty, not to exceed $450,000 annually.
Royalties paid in each of 2001, 2000 and 1999 were $450,000.
While the Company has obtained U.S. patents and filed additional U.S.
and foreign patent applications as discussed above, there can be no assurance
that issued patents will provide the Company with any significant competitive
advantages or will not be challenged by third parties or that the patents of
others will not have an adverse effect on the ability of the Company to conduct
its business. The Company could incur substantial costs in seeking enforcement
of its patents against infringement or the unauthorized use of its proprietary
technology by others or in defending itself against similar claims of others.
Insofar as the Company relies on trade secrets and proprietary know-how to
maintain its competitive position, there can be no assurance that others may not
independently develop similar or superior technologies.
The Company has registered or applied for registration of several trade
names or trademarks. See "Products" above. The Company also places copyright
notices on its instructional and advertising materials and has registered
copyrights relating to certain software used in its electronic inflation
devices.
REGULATION
The development, testing, packaging, labeling and marketing of medical
devices and the manufacturing procedures relating to these devices are regulated
under the Federal Food, Drug and Cosmetic Act and additional regulations
promulgated thereunder by the FDA. In general, these statutes and regulations
10
require that manufacturers adhere to certain standards designed to ensure the
safety and effectiveness of medical devices. The Company employs a director of
regulatory affairs and a director of quality assurance who are responsible for
compliance with all applicable FDA regulations. Although the Company believes it
is currently in material compliance with these requirements, the Company's
business could be adversely affected by a failure to comply with all applicable
FDA and other government regulations presently existing or promulgated in the
future.
The FDA's Good Manufacturing Practices standards regulate the Company's
manufacturing processes, require the maintenance of certain records and provide
for unscheduled inspections of the Company's facilities. Certain requirements of
state, local and foreign governments must also be complied with in the
manufacture and marketing of the Company's products.
New medical devices may also be subject to either the Section 510(k)
Pre-Market Notification regulations or the Pre-Market Approval ("PMA")
regulations promulgated by the FDA and similar regulatory authorities in foreign
countries. New products in either category require extensive documentation,
careful engineering and manufacturing controls to ensure quality. Products
needing PMA approval require extensive pre-clinical and clinical testing and
clearance by the FDA prior to marketing. Products subject to the Section 510(k)
of the Federal Food Drug and Cosmetic Act require FDA clearance prior to
marketing Federal Food Drug and Cosmetic Act. To date, the Company's products
have required only compliance with Section 510(k). The Company's products are
subject to foreign regulatory approvals before they may be marketed abroad. The
Company places the "CE" mark on devices and products sold in Europe. The Company
has received ISO 9001, EN46001, and ISO 13485 certification for its South
Jordan, Murray, Utah facilities, and Angleton facilities. The Company has
received its ISO 9001 and EN46001 for its Galway, Ireland facility. The Company
has also received ISO 9002 certification for its Merit Sensor Systems, Inc.
facility in Santa Clara, California.
EMPLOYEES
As of March 18, 2003, the Company employed 1,098 persons, including 818
in manufacturing, 118 in sales and marketing, 79 in engineering, research and
development and 83 in administration.
Many of the Company's present employees are highly skilled. The
Company's failure or success will depend, in part, upon its ability to retain
such employees. Management is of the opinion that an adequate supply of skilled
employees is available. The Company has from time to time experienced rapid
turnover among its entry-level assembly workers as well as occasional shortages
of such workers, resulting in increased labor costs and administrative expenses
related to hiring and training of replacement and new entry-level employees. All
employees are bound by policies of confidentiality. None of the Company's
employees is represented by a union or other collective bargaining group and
management of the Company believes that its relations with its employees are
good.
AVAILABLE INFORMATION
The Company files annual, quarterly and current reports and other
information with the SEC. These materials can be inspected and copied at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of these materials may also be obtained by mail at prescribed rates from
the SEC's Public Reference Room at the above address. Information about the
Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The
SEC also maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The address of the SEC's Internet site is http://www.sec.gov.
The Company makes available, free of charge, on its Internet website,
located at http://www.merit.com, its most recent Annual Report on Form 10-K, its
most recent Quarterly Report on Form 10-Q, any current reports on Form 8-K filed
since the Company's most recent Annual Report on Form 10-K and any amendments to
such reports as soon as reasonably practicable following the electronic filing
of such report with the SEC. In addition, the Company provides electronic or
paper copies of its filings free of charge upon request.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
For financial information relating to the Company's foreign and
domestic sales, transfers between geographic areas, net income and identifiable
assets, see Note 11 to the Consolidated Financial Statements included in this
report.
11
FACTORS THAT MAY AFFECT FUTURE RESULTS
The business, operations and financial condition of the Company are
subject to certain risks and uncertainties. Should one or more of these risks or
uncertainties materialize, or should any underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated, projected
or expected. Among the key factors that may have a direct bearing on the
Company's business, operations and financial condition are the factors
identified below:
The Company's products may be subject to recall or product liability claims.
Merit's products are used in connection with surgical procedures and in
other medical contexts in which it is important that those products function
with precision and accuracy. If the Company's products do not function as
designed, or are designed improperly, the Company may be forced by regulatory
agencies to withdraw such products from the market. In addition, if medical
personnel or their patients suffer injury as a result of any failure of the
Company's products to function as designed, or an inappropriate design, the
Company may be subject to lawsuits seeking significant compensatory and punitive
damages. Any product recall or lawsuit seeking significant monetary damages may
have a material effect on the Company's business and financial condition.
Substantially all of Merit's products are backed by a limited warranty
for returns due to defects in quality and workmanship. Merit maintains a reserve
for these future returned products, but the actual costs of such returns may
significantly exceed the reserve, which could have a material adverse effect on
the Company's operations.
Termination of relationships with the Company's suppliers, or failure of such
suppliers to perform, could disrupt the Company's business.
Merit relies on raw materials, component parts, finished products, and
services supplied by outside third parties in connection with its business. For
example, substantially all of the Company's products are sterilized by two
entities. In addition, some of the Company's products are manufactured or
assembled by third parties. If a supplier of significant raw materials,
component parts, finished goods or services were to terminate its relationship
with the Company, or otherwise cease supplying raw materials, component parts,
finished goods or services consistent with past practice, the Company's ability
to meet its obligations to its end customers may be disrupted. A disruption with
respect to numerous products, or with respect to a few significant products,
could have a material adverse effect on the Company's business and financial
condition.
The Company may be unable to compete in its markets, particularly if there is a
significant change in relevant practices and technology.
The market for each of the Company's existing and potential products is
highly competitive. The Company faces competition from several companies, many
of which are larger, better established and have greater financial, technical
and other resources and greater market presence than does Merit. Such resources
and market presence may enable the Company's competition to more effectively
market competing products or to market competing products at reduced prices in
order to gain market share.
In addition, Merit's ability to compete successfully is dependent, in
part, upon the Company's ability to respond effectively to changes in technology
and to develop and market new products which achieve significant market
acceptance. Competing companies with substantially greater resources than the
Company are actively engaged in research and development of diagnostic and
interventional methods, treatments and procedures that could limit the market
for the Company's products and eventually make certain products obsolete. A
reduction in the demand for a significant number of the Company's products, or a
few key products, could have a material adverse effect on the Company's business
and financial condition.
A significant adverse change in, or failure to comply with, governing
regulations could adversely affect the Company's business.
12
Substantially all of the Company's products are "devices," as defined
in the Federal Food, Drug and Cosmetic Act ("FDA"), and the manufacture,
distribution, record keeping, labeling and advertisement of Merit's products is
subject to regulation by the "FDA" in the United States and its equivalent
regulatory agencies in various foreign countries in which Merit's products are
manufactured, distributed, labeled, offered and sold. Further, the Company is
subject to continual review and periodic inspections at its current facilities
with respect to the FEA's Good Manufacturing Practices and similar requirements
of foreign countries. Merit's business and financial condition could be
adversely affected if it is found to be out of compliance with governing
regulations. In addition, if such regulations are amended to become more
restrictive and costly to comply with, the costs of compliance could adversely
affect the Company's business and financial condition.
Limits on reimbursement imposed by governmental and other programs may adversely
affect the Company's business.
The cost of a significant portion of medical care is funded by
governmental, social security or other insurance programs. Limits on
reimbursement imposed by such programs may adversely affect the ability of
hospitals and others to purchase Merit products. In addition, limitations on
reimbursement for procedures which utilize Merit products could adversely affect
sales.
The Company is subject to work stoppage, transportation and related risks.
Merit manufactures its products at various locations in the United
States and in Ireland and sells its products throughout the United States,
Europe and other parts of the world. The Company depends on third-party
transportation companies to deliver supplies necessary to manufacture Merit
products from vendors to the Company's various facilities and to move Merit
products to customers, operating divisions and other subsidiaries located within
and outside the United States. Merit's manufacturing operations, and the
operations of the transportation companies on which the Company depends, may be
adversely affected by natural disasters and significant human events, such as a
war, terrorist attack, riot, strike, slowdown or similar event. Any disruption
in the Company's manufacturing or transportation could materially adversely
affect the Company's ability to meet customer demands or its operations
generally.
The Company may be unable to protect its proprietary technology or may infringe
on the proprietary technology of others.
The Company's ability to remain competitive is dependent, in part, upon
its ability to prevent other companies from using its proprietary technology
incorporated into its products. The Company seeks to protect its technology
through a combination of patents and trade secrets, as well as license,
proprietary know-how and confidentiality agreements. The Company may be unable,
however, to prevent others from using its proprietary information, or continue
to use such information itself, for numerous reasons, including the following:
o Merit's issued patents may not be sufficiently broad to prevent others
from copying its proprietary technologies;
o Merit's issued patents may be challenged by third parties and deemed to
be overbroad or unenforceable;
o Merit's products may infringe on the patents of others, requiring it to
alter or discontinue its manufacture or sale of such products;
o Costs associated with seeking enforcement of Merit's patents against
infringement, or defending itself against allegations of infringement,
may be significant;
o Merit's pending patent applications may not be granted for various
reasons, including overbreadth or conflict with an existing patent; and
o Other persons may independently develop, or have developed, similar or
superior technologies.
A significant portion of the Company's revenues are derived from a few products
and procedures.
13
A significant portion of the Company's revenues are attributable to
sales of its inflation devices. During the year ended December 31, 2002, sales
of the Company's inflation devices (including inflation devices sold in custom
kits) accounted for approximately 33% of the Company's total revenues. Any
material decline in market demand for the Company's inflation devices could have
an adverse effect on the Company's business and financial condition.
In addition, the products that account for a majority of the Company's
historical revenues are designed for use in connection with a few related
medical procedures, including angioplasty and stent placement procedures. If
subsequent developments in medical technology or drug therapy make such
procedures obsolete, or alter the methodology of such procedures so as to
eliminate the usefulness of the Company's products, the Company may experience a
material decrease in demand for its products and experience deteriorating
financial performance.
Fluctuations in Euro exchange rates may negatively impact the Company's
financial results
Fluctuations in the rate of exchange between the Euro and the U.S.
Dollar could have a negative impact on the Company's margins and financial
results. For example, during 2000, the exchange rate between the Euro and the U.
S. Dollar dropped by approximately 13.2%, resulting in a reduction in the
Company's gross revenues of $1,076,695 and 1.2% in gross profit for the year
ended December 31, 2000. During 2001, the exchange rate between the Euro and the
U. S. Dollar resulted in a reduction of the Company's gross revenues of $467,283
and 0.4% in gross profit. However, in 2002, the exchange rate resulted in an
increase of gross revenues of $497,644 and 0.4% in gross profit.
For the year ended December 31, 2002, approximately $10.1 million, or
8.7%, of Merit's sales were denominated in Euros. If the rate of exchange
between the Euro and the U.S. Dollar declines, the Company may not be able to
increase the prices it charges its European customers for products whose prices
are denominated in Euros. Furthermore, the Company may be unable or elect not to
enter into hedging transactions which could mitigate the effect of declining
exchange rates. As a result, as the rate of exchange between Euros and the U.S.
Dollars declines, the Company's financial results may be negatively impacted.
The Company may be unable to successfully manage growth, particularly if
accomplished through acquisitions.
Successful implementation of Merit's business strategy will require
that the Company effectively manage any associated growth. To manage growth
effectively, the Company's management will need to continue to implement changes
in certain aspects of the Company's business, to enhance the Company's
information systems and operations to respond to increased demand, to attract
and retain qualified personnel and to develop, train and manage an increasing
number of management-level and other employees. Growth could place an increasing
strain on the Company's management, financial, product design, marketing,
distribution and other resources, and the Company could experience operating
difficulties. Any failure to manage growth effectively could have a material
adverse effect on the Company's results of operations and financial condition.
To the extent that the Company grows through acquisition, it will face
the additional challenges of integrating its current operations, culture,
informational management systems and other characteristics with that of the
acquired entity. The Company may incur significant expenses in connection with
negotiating and consummating one or more transactions, and it may inherit
certain liabilities in connection with the acquisition as a result of its
failure to conduct adequate due diligence or otherwise. In addition, the Company
may not realize competitive advantages, synergies or other benefits anticipated
in connection with such acquisition(s). If the Company does not adequately
identify targets for, or manage issues related to our future acquisitions, such
acquisitions may have a negative adverse effect on the Company's business and
financial results.
The market price of the Common Stock has been, and may continue to be, volatile.
14
The market price of the Common Stock has been, and may continue to be, highly
volatile for various reasons, including the following:
o Merit's announcement of new products or technical innovations, or
similar announcements by its competitors;
o Development of new procedures that use, or do not use, Merit's
technology;
o Quarter-to-quarter variances in the Company's financial results;
o Claims involving potential infringement of patents and other
intellectual property rights;
o Analyst and other projections or recommendations regarding the Common
Stock or medical technology stocks generally;
o Any restatement of the Company's financials statements or any
investigation into the Company by the SEC or another regulatory
authority; and
o A general decline, or rise, of stock prices in the capital markets
generally.
The Company is dependent upon key personnel.
The Company's continued success is dependent on key management
personnel, including Fred P. Lampropoulos, the Company's Chairman of the Board,
President and Chief Executive Officer. Mr. Lampropoulos is not subject to any
agreement prohibiting his departure, and the Company does not maintain key man
life insurance with his life. The loss of Mr. Lampropoulos, or of certain other
key management personnel, could materially adversely affect the Company's
business and operations. The Company's success also depends, among other
factors, on the successful recruitment and retention of key operations,
manufacturing, sales and other personnel.
Item 2. Properties.
-----------
The Company is the owner of approximately 26 acres of real property
situated in the City of South Jordan, Utah, surrounding an additional 10 acres
of leased real property on which is located the Company's 175,000 square foot
principal office and manufacturing facility. The Company sold the 10-acre site
to a developer in order to facilitate construction of such facility and entered
into a 25-year lease agreement (beginning in 1995) to finance the new facility.
Monthly lease payments are approximately $122,000. The Company also holds an
option to purchase the facility, exercisable at market value after 10 years and
25 years. The facility was constructed to the Company's specifications and the
Company estimates that it is presently utilizing approximately 80% of the
capacity.
The Company owns a building of approximately 26,500 square feet with
approximately three acres of land, in Galway, County Galway, Republic of
Ireland, as its principal office and manufacturing facility for European
operations. Of the three acres of land, the Company added 1.6 acres in January
2003 in preparation for a possible facility expansion which could be started as
early as 2003. The existing Galway facility is used as the administrative
headquarters to support the Company's European direct sales force. The facility
also houses a research and development team, which has developed a PTCA guide
wire and a new diagnostic guide wire, and is developing other new products.
Beginning in the fourth quarter of 1997, the Company initiated manufacturing
operations for several new and existing products at the Galway facility,
including custom kits, the BASIX(R) inflation device and the Company's PTCA
guide wire. In 1998, the Company began the manufacture of the Company's
hemostasis valve products in Ireland. Toward the end of 2001 the Company
finished an R&D project and began manufacturing a new diagnostic guide wire. The
Company's Galway property has been improved and equipped on terms favorable to
the Company in connection with economic development incentives and grants
provided by the Irish Government.
The Company leases a manufacturing facility of approximately 50,000
square feet located in Murray, Utah. The Murray facility is used for production
of several of the Company's well-established products. The leases related to the
Murray facility expire in 2003 and 2004 and require the Company to make monthly
lease payments of approximately $30,000. The Company also leases 8,500 square
feet of manufacturing and office space located in Santa Clara, California for
the production of sensors. The lease runs through September 2004 at a monthly
cost of approximately $17,000 per month.
In August 1999, the Company purchased the operating assets and product
lines of Mallinckrodt's Angleton, Texas division, including approximately 19
acres of land and a 75,000 square foot building.
15
The Company believes that its facilities are generally adequate for
its present and currently anticipated level of operations.
Item 3. Legal Proceedings.
------------------
In the course of conducting its business operations, the Company is,
from time to time, involved in litigation and other disputes. Management does
not currently anticipate that any pending litigation or dispute will have a
materially adverse effect on the Company's operations.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 2002.
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters.
---------------------------------------------------------------------
MARKET PRICE FOR THE COMMON STOCK
The Common Stock is traded on the NASDAQ National Market System under
the symbol "MMSI." The following table sets forth high and low closing sale
price for the Common Stock for the periods indicated.
Quarter Ended High* Low*
March 31, 2001 $ 4.16 $ 3.28
June 30, 2001 $ 6.00 $ 4.00
September 30, 2001 $ 15.20 $ 5.49
December 31, 2001 $ 15.56 $ 10.16
March 31, 2002 $ 16.86 $ 11.64
June 39, 2002 $ 20.74 $ 15.05
September 30, 2002 $ 20.49 $ 16.00
December 31, 2002 $ 24.06 $ 18.62
* Effective as of August 27, 2001, and again as of April 11, 2002, the
Company effected a 5 for 4 forward stock split of the Common Stock by means of a
stock split of one additional share of Common Stock for each four shares of
Common Stock outstanding. Data related to periods prior to the effective dates
of the two stock splits have been adjusted to reflect the terms of such stock
splits.
OUTSTANDING SHARES AND NUMBER OF SHAREHOLDERS
As of March 25, 2003, the number of shares of Common Stock outstanding
was 14,117,405, held by approximately 200 shareholders of record, not including
shareholders whose shares are held in securities position listings.
16
DIVIDENDS
The Company has never declared or paid cash dividends on the Common
Stock. The Company presently intends to retain any future earnings for use in
its business and, therefore, does not anticipate paying any dividends on the
Common Stock in the foreseeable future. In addition, the Company's revolving
line of credit contains covenants prohibiting the declaration and distribution
of a cash dividend at any time prior to the termination of such line of credit.
Item 6. Selected Financial Data
-----------------------
Year Ended December 31,
------------------------------------------------------------
2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
Operating Data:
Sales $ 116,227 $ 104,036 $ 91,448 $ 77,960 $ 68,377
Cost of Sales 67,712 65,938 60,824 47,918 42,434
Gross Profit 48,515 38,098 30,624 30,042 25,943
Selling, General and Administrative
Expenses 27,732 24,040 23,300 20,407 17,528
Research and Development
Expenses 4,008 4,118 3,864 3,618 3,244
Severance Costs -- -- 331 -- --
Income from Operations 16,775 9,940 3,129 6,017 5,171
Other Expense 13 938 2,355 1,256 881
Gain on Sale of Land -- (786) -- -- --
Income Before Income Tax Expense 16,762 9,788 774 4,761 4,290
Income Tax Benefit (Expense) (5,452) (3,052) 53 (1,454) (1,687)
Minority Interest in Subsidiary -- -- -- (81) (152)
Net Income $ 11,310 $ 6,736 $ 827 $ 3,226 $ 2,451
Net Income Per Share (Diluted) $ 0.77 $ 0.50 $ 0.07 $ 0.27 $ 0.21
Weighted Average Shares
Outstanding (Diluted) 14,759 13,430 12,283 11,821 11,700
Balance Sheet Data:
Working Capital $ 34,582 $ 26,911 $ 32,447 $ 33,934 $ 15,780
Total Assets 78,305 66,659 71,447 72,360 50,665
Long-Term Debt 17 5,727 24,102 27,817 3,389
Stockholders' Equity $ 63,399 $ 47,658 $ 34,773 $ 32,690 $ 29,086
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
----------------------------------------------------------------------
OVERVIEW
Year 2002 was Merit's most successful year in Merit's history in terms
of revenue and profitability. Not only did the Company's revenues grow by 12%
during 2002, but virtually every area of the Company's financial performance
improved in 2002, including net income, which increased 68% over the year ended
December 31, 2001 (previously the year in which the Company had achieved its
highest level of net income).
17
Merit experienced continued record growth and improvements in 2002.
The Company's productivity increased to over $109,000 of sales per employee for
the year ended December 31, 2002, up 65% from just three years ago. From January
2000 to December 2002, the Company's revenues increased over 67% and the Company
introduced 15 new products, while decreasing inventory by more than 35%. The
reduction in inventory and the higher employee productivity, along with Merit's
upgraded MIS systems and new incentive pay system, worked together to make the
Company much more productive. The productivity gains are especially evident in
the gross margin improvements. Gross margins as a percentage of sales improved
510 basis points during the year ended December 31, 2002. The improvement in the
Company's financial condition is reflected by the recent retirement of the
Company's long-term and short-term debt. Since August 2000 (the month in which
the Company's long-term debt reached its highest point), the Company paid off
$32 million in long-term debt in just 19 months. Since March 27, 2002 the
Company's line of credit has been paid in full, and in the 11 months since, the
Company has paid cash for all its capital investments including the purchase of
the facility and land in Galway, Ireland and accumulated almost $15 million in
cash. All of these accomplishments have contributed to a record year for Merit.
Higher employee productivity resulted in part from a Company-wide
incentive pay program that compensates each employee for achievement of
individual, team and/or Company goals, the benefit from which the Company shares
with its employees. The Company's new Oracle system, with which the Company's
employees are now experienced, has contributed to the Company's increased
productivity. Rising from the Company's struggles during 1999, management is
continuing to leverage long-term investments in: (1) product breadth, quality
and innovation (2) direct sales forces in the United States and Europe and (3)
quality systems and facilities.
With the Company's cash flow improving and its debt paid off (as of
February 28, 2003, the Company had retired all of its long-term debt), Merit is
positioned to take advantage of many opportunities now becoming available to the
Company. Merit recently added to its product line several products developed
outside the Company because management believes that the Company's marketing and
sales capabilities are the best vehicle for those products to get the focused
exposure they need. Management believes there are many more opportunities for
growth within the Company in addition to the continued growth of the market in
which the Company`s products are sold. Furthermore, management believes market
acceptance of the Company's new and existing products, (particularly newly
acquired products, technologies and/or businesses), if achieved, will further
enhance and leverage the position Merit has attained.
RESULTS OF OPERATIONS
The following table sets forth certain operational data as a percentage of sales
for the periods indicated:
2002 2001 2000
------ ------ ------
Sales 100.0% 100.0% 100.0%
Gross margin 41.7 36.6 33.5
Selling, general and administrative 23.9 23.1 25.5
Research and development 3.4 4.0 4.2
Income from operations 14.4 9.6 3.4
Income before income tax expense 14.4 9.4 .8
Net income 9.7 6.5 .9
Sales increased by $12.2 million, or 11.7%, in 2002, compared to an
increase of $12.6 million, or 13.8%, in 2001, and an increase of $13.5 million,
or 17.3%, in 2000. The increase in sales for 2002 resulted primarily from a 13%
increase in custom kit revenues, a 13% increase in stand-alone products
revenues, an 11% increase in inflation device revenues, and 6% increase catheter
product revenues. The Company's revenues increased notwithstanding the fact that
the markets for many of the Company's products are experiencing slight pricing
declines; therefore substantially all of the increase in revenues was
attributable to increased unit sales. Sales growth from 2000 through 2002 was
also favorably affected by the introduction of new products and increased sales
of existing products sold separately and packaged in custom kits, and increased
penetration of the market by Merit's inflation devices. International sales in
18
2002 were approximately $27.1 million, or 23% of total sales, compared to $23.8
million, or 23% of total sales, in 2001, and $21.8 million, or 24% of total
sales, in 2000. These increases were primarily a result of the addition of the
Angleton product lines and ongoing growth in European direct sales, as well as
greater acceptance of the Company's products in other international markets.
Direct sales in France, Germany, the U.K., Belgium, the Netherlands and Ireland
were $12.3 million, $10.6 million and $8.6 million in 2002, 2001 and 2000,
respectively.
Gross profit as a percentage of sales was 41.7%, 36.6%, and 33.5% in
2002, 2001, and 2000, respectively. The increase in the gross margin percentage
in 2002 over 2001 was due primarily to increased efficiency and productivity
gains achieved by the operations group in the Company's Utah facilities. A lower
head count in both direct labor and overhead areas of production contributed to
higher efficiency and productivity. The Company has also reduced the material
costs from many of its principal vendors. Management presently anticipates that
the Company will be able to improve upon the level of gross margins achieved
during 2002, as demonstrated by the 43.4% gross margin reported by the Company
for the fourth quarter of 2002. The Company is operating in a generally
declining price market. There is also a general cost-increasing manufacturing
environment. Merit has been able to battle this difficult situation with
ever-increasing production volumes until 2000. Beginning in early 1999, the
Company suffered through the implementation of a comprehensive new software
system, which led to difficulties in efficiently operating the purchasing,
planning and manufacturing processes of the business. Merit also made a
purposeful effort to increase its safety stock levels of inventory in
preparation for higher, anticipated sales orders ahead of Y2K. The combination
of these increased production demands created a build-up of capacity in labor
and overhead. As the end of 1999 approached, however, the Company needed to
reduce production levels to match cash-flow expectations. The reduced production
volumes created higher overhead costs per unit, lower gross margins, and lower
bottom-line results. Another important factor negatively affecting gross margins
was the large (13.2%) drop in the value of the Euro in relation to the U.S.
Dollar during 2000, which reduced revenues and gross profit of the European
operation by $1.1 million and reduced overall gross margins by 1.2%. In December
1999, the Company began the difficult process of downsizing the labor and
overhead capacities in the operation of its Utah facilities. The Company
eliminated the large excess negative production variances that were caused by
the slowdown in production volumes. This result was accomplished by the
attrition of approximately 240 people from its high point in December of 1999,
or an average reduction of 100 people in 2000 compared to 1999.
Selling, general and administrative expenses increased $3.7 million,
or 15.4%, in 2002 over 2001 and $.7 million, or 3.2%, in 2001 over 2000. These
additional expenditures were related principally to increased costs of expanding
the direct sales force market, marketing support and their management both in
the United States and Europe. Another important factor in the increase from 2001
to 2002 was expenses associated with the development of new business
opportunities such as acquisitions, product distribution agreements, national
accounts and the O.E.M portion of Merit's business. These increases in costs
have caused selling, general and administrative expenses as a percentage of
sales to increase to 23.9 % in 2002 from 23.1% in 2001.
Research and development expenses for 2002 were $4.0 million, a
decrease of 2.7%, compared to $4.1 million for 2001, an increase of 6.6%
compared to $3.9 million in 2000. R&D expenses declined during 2002 as a result
of the completion of R&D activities in Ireland relating to the Company's guide
wire product line and the transition of much of the R&D resources to
manufacturing of the new diagnostic guide wire product line. Most of the
increase from 2000 to 2001 was due to an increase of the R&D capabilities in
Galway, Ireland, with the Company's developing guide wire technology. Research
and development costs as a percentage of sales were 3.4%, 4.0% and 4.2% for
2002, 2001 and 2000, respectively. Management believes that the development of
10 to 12 projects at any given time is an appropriate level of R&D for the
Company, and is likely to provide 8 to 10 new products a year through R&D,
regulatory, manufacturing, marketing and sales introduction.
In 2002, higher sales, better gross margins and lower research costs
per dollar of sales combined to increase income from operations (up 69%), income
before tax (up 71%), and net income (up 68% to record levels), compared to 2001.
The effective tax rate for 2002 was 32.5%, up slightly from 31.2% in
2001, mostly because the foreign sales corporation and R&D tax benefits were
diluted by a 71% increase in income before taxes. In 2000, significantly lower
margins more than offset the gains in sales as well as the reduction in SG&A and
R&D expenses, the net effect of which was income from operations of $3.1
million. The income tax benefit for 2000 was $52,712, an effective rate of
(-6.8%). This negative tax rate was due principally to R&D tax credits which the
Company was able to realize in the fourth quarter of 2000, including a portion
of which related to prior years. Management expects the effective tax rate for
2003 to rise substantially to as much as 36% due to a higher incremental tax
rate, further dilution and some reduction in the foreign sales and R&D tax
benefits.
19
Effective January 1, 2002, the Company has adopted Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets. Under SFAS No. 142, the Company no longer amortizes goodwill from
business acquisitions and reviews annually the impairment of goodwill, or more
frequently if impairment indicators arise. The Company has completed its initial
testing of goodwill as of January 1, 2002 and determined that there was no
impairment. The Company has elected to perform its annual testing of goodwill
impairment as of July 1. As of July 1, 2002, the Company updated its testing of
goodwill for impairment and determined that there was no impairment. The
unamortized amount of goodwill at December 31, 2001, was approximately $4.8
million.
With the adoption of SFAS No. 142, the Company reassessed the useful
lives and residual values of all acquired intangible assets to make any
necessary amortization period adjustments. Based on that assessment, no
adjustments were made to the amortization period or residual values of other
intangible assets.
Other recently adopted or issued financial accounting standards are as
follows, SFAS No. 144, Accounting for the impairment or Disposal of Long-Lived
Assets, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, SFAS No.146, Accounting for Costs Associated with Exit or Disposal
Activities, SFAS No. 148, Accounting for Stock-Based Compensation Transition and
Disclosure. See discussion of the effect of these accounting standards in
footnote 1 of the consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Capital Commitments
The following table summarizes the Company's capital commitments and
contractual obligations as of December 31, 2002, including long-term debt,
operating lease payments, and office lease payments, as well as the future
periods in which such payments are currently anticipated to become due:
Contractual Obligations Payment due by period (in thousands)
Less than 1 After 5
Total Year 1-3 Years 4-5 Years Years
------ ------ ------ ------ ------
Long-term debt 417 400 17 -- --
Operating leases 28,383 2,532 4,359 3,785 17,707
Royalty obligations 2,988 513 1,050 975 450
------ ------ ------ ------ ------
Total contractual cash obligations 31,788 3,445 5,426 4,760 18,157
====== ====== ====== ====== ======
Additional information regarding the Company's capital commitments,
and contractual obligations including royalty payments, is contained in Notes 7,
8 and 12 of the Notes to the Company's Consolidated Financial Statements,
commencing on page 38 below.
As of December 31, 2002, the Company's working capital was $34.6
million, an increase of over 28.1%, from the Company's net working capital on
December 31, 2001 of $26.9 million. As of December 31, 2002, the Company had a
current ratio of 4.0 to 1, compared to 3.5 to 1, as of December 31, 2001. The
increase in working capital during 2002 was primarily due to the accumulation of
almost $9.3 million in cash generated from operations. The Company had $0
outstanding under its line of credit at December 31, 2002. Merit has financed
leasehold improvements and equipment acquisitions through secured notes payable
and capital lease arrangements with an outstanding balance of $416,875 at
December 31, 2002. For the year ended December 31, 2002, the Company generated
cash from operations in the amount of $21.4 million, the most in the history of
the Company.
Historically, the Company has incurred significant expenses in
connection with product development and introduction of new products. This was
particularly true in 1999 with regard to an increase in inventory, plant and
equipment associated with the Company's acquisition of the operating assets and
20
product lines of the Angleton, Texas division of Mallinckrodt, as well as
several new product introductions. The Company's principal sources of funding
for these and other expenses has been cash generated from the Company's
operations, secured loans on equipment, bank lines of credit and sales of
equity. Management believes that its present sources of liquidity and capital
are adequate for the pursuit of its currently anticipated operations.
Critical Accounting Policies and Estimates
The SEC has requested that all registrants discuss their most critical
accounting policies in their MD&A. The SEC has indicated that a "critical
accounting policy" is one which is both important to the representation of the
Company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. The
Company bases estimates on past experience and on various other assumptions that
are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. The following are the
Company's most critical accounting policies:
Inventory Obsolescence Reserve: The Company writes down its inventory
for estimated obsolescence for unmarketable and/or slow moving products that may
expire prior to being sold. If market conditions become less favorable than
those projected by management, additional inventory write-downs may be required.
Allowance for Doubtful Accounts: The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of customers
to make required payments. The allowance is based upon historical experience and
a review of individual customer balances. If the financial condition of the
Company's customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required.
Stock-Based Compensation: The Company accounts for its stock
compensation arrangements under the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, (APB 25) and intends
to continue to do so. Accordingly, no compensation cost has been recognized for
its stock compensation arrangements. If the compensation cost for the Company's
compensation plans had been determined consistent with Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation,
the Company's net income and net income per common and common share equivalent
would have changed to the pro forma amounts indicated below:
2002 2001 2000
Net income:
As reported $ 11,310,030 $ 6,735,978 $ 826,557
Pro forma 9,873,717 5,379,236 140,145
Net income per common share:
Basic:
As reported $ 0.83 $ 0.53 $ 0.07
Pro forma 0.72 0.42 0.00
Diluted:
As reported 0.77 0.50 0.07
Pro forma 0.67 0.40 (0.01)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2002, 2001, and 2000: dividend yield of 0%;
expected volatility of 63.24%, 63.48%, and 61.04% for 2002, 2001, and 2000,
respectively; risk-free interest rates ranging from 4.48% to 6.71%; and expected
lives ranging from 2.33 to 4.58 years.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------
The Company's principal market risk relates to changes in the value of
the Euro relative to the value of the U.S. Dollar. The Company's Consolidated
Financial Statements are denominated in, and the Company's principal currency
is, the U.S. Dollar. A portion of the Company's revenues in 2002 ($10.1 million,
representing approximately 8.7% of aggregate revenues) came from sales that were
21
denominated in Euros. Certain of the Company's expenses are also denominated in
Euros, partially offsetting any risk associated with fluctuations of the
Euro/Dollar exchange rate. Because of the Company's Euro-denominated revenues
and expenses, in a year in which the Company's Euro-denominated revenues exceed
its Euro-based expenses, the value of such Euro-denominated net income increases
if the value of the Euro increases relative to the value of the U.S. Dollar, and
decreases if the value of the Euro decreases relative to the value of the United
States. For example, in 2000, a 13.2% drop in the value of the Euro in relation
to the U.S. Dollar led to reduced Company revenues and gross profit of $1.1
million. By contrast, in 2002, an increase in the value of the Euro relative to
the U.S. Dollar led to increased revenue and gross profit of approximately
$500,000.
At December 31, 2002, the Company had a net exposure (representing the
difference between Euro denominated receivables and Euro denominated payables)
of approximately $600,000. In order to partially offset such risk, at December
31, 2002, the Company entered into a 30 day EURO hedge contract. The Company
enters into similar hedging transactions various times during the year to
partially offset exchange rate risks it bears throughout the year. The Company
does not purchase or hold derivative financial instruments for speculative or
trading purposes. During the year ended December 31, 2002, the Company
experienced a net loss of $37,097 on hedging transactions it executed during
2002 in an effort to limit its exposure to fluctuations in the Euro/Dollar
exchange rate.
As of December 31, 2002, the Company had no variable rate debt, (but
had approximately $5.1 million of variable rate debt as of December 31, 2001),
all denominated in U. S. Dollars. As long as the Company does not have variable
rate debt, the Company's interest expense would not be affected by changes in
interest rates.
Item 8. Financial Statements and Supplemental Data
22
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Merit Medical Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Merit Medical
Systems, Inc. and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2002. Our audits also
included the financial statement schedule listed in the table of contents at
Item 16. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Merit Medical Systems, Inc. and
subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Notes 1 and 5, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets, on January
1, 2002.
/s/ DELOITTE & TOUCHE LLP
- --------------------------
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
February 26, 2003
23
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
- -------------------------------------------------------------------------------
ASSETS 2002 2001
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 9,683,578 $ 341,690
Short-term investments 217,451 85,286
Trade receivables--net of allowance for uncollectible
accounts: 2002--$476,294; 2001--$408,851 15,247,892 14,748,021
Other receivables 1,209,804 98,081
Employee and related party receivables 299,751 266,905
Inventories 18,699,217 20,823,616
Prepaid expenses and other assets 667,151 514,786
Deferred income tax assets 143,265 723,299
------------ ------------
Total current assets 46,168,109 37,601,684
------------ ------------
PROPERTY AND EQUIPMENT:
Land 2,034,522 1,252,066
Building 5,118,683 1,500,000
Manufacturing equipment 25,577,837 23,289,880
Furniture and fixtures 10,823,852 9,963,045
Leasehold improvements 4,345,620 5,659,457
Automobiles 87,536 91,573
Construction-in-progress 3,008,734 1,738,540
------------ ------------
Total 50,996,784 43,494,561
Less accumulated depreciation and amortization (25,584,648) (21,671,501)
------------ ------------
Property and equipment--net 25,412,136 21,823,060
------------ ------------
OTHER ASSETS:
Patents and trademarks--net of accumulated amortization:
2002--$1,153,965; 2001--$1,118,822 1,927,160 2,434,632
Goodwill 4,764,596 4,764,596
Deposits 33,213 34,843
------------ ------------
Total other assets 6,724,969 7,234,071
------------ ------------
TOTAL ASSETS $ 78,305,214 $ 66,658,815
============ ============
(Continued)
24
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001
------------ ------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 400,182 $ 598,086
Trade payables 4,121,577 4,659,295
Accrued expenses 6,618,407 4,817,595
Advances from employees 161,529 128,624
Income taxes payable 284,148 486,763
------------ ------------
Total current liabilities 11,585,843 10,690,363
DEFERRED INCOME TAX LIABILITIES 2,443,156 1,654,383
LONG-TERM DEBT 16,693 5,727,381
DEFERRED CREDITS 860,931 928,280
------------ ------------
Total liabilities 14,906,623 19,000,407
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 12)
STOCKHOLDERS' EQUITY:
Preferred stock--5,000,000 shares authorized as of
December 31, 2002 and 2001, no shares issued
Common stock--no par value; 20,000,000 shares
authorized; 13,864,052 and 13,377,021 shares issued
at December 31, 2002 and 2001, respectively 30,265,963 25,958,295
Retained earnings 33,663,083 22,353,053
Accumulated other comprehensive loss (530,455) (652,940)
------------ ------------
Total stockholders' equity 63,398,591 47,658,408
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 78,305,214 $ 66,658,815
============ ============
See notes to consolidated financial statements. (Concluded)
25
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
- --------------------------------------------------------------------------------
2002 2001 2000
------------- ------------- -------------
NET SALES $ 116,227,201 $ 104,035,806 $ 91,447,512
COST OF SALES 67,711,728 65,938,044 60,823,459
------------- ------------- -------------
GROSS PROFIT 48,515,473 38,097,762 30,624,053
------------- ------------- -------------
OPERATING EXPENSES:
Selling, general, and administrative 27,732,363 24,040,297 23,300,352
Research and development 4,007,622 4,117,839 3,864,171
Severance costs 330,975
------------- ------------- -------------
Total operating expenses 31,739,985 28,158,136 27,495,498
------------- ------------- -------------
INCOME FROM OPERATIONS 16,775,488 9,939,626 3,128,555
------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest income 96,942 40,530 39,091
Interest expense (94,106) (978,009) (2,319,500)
Miscellaneous income (expense) (16,045) 786,248 (74,301)
------------- ------------- -------------
Other expense--net (13,209) (151,231) (2,354,710)
------------- ------------- -------------
INCOME BEFORE INCOME TAXES 16,762,279 9,788,395 773,845
INCOME TAX BENEFIT (EXPENSE) (5,452,249) (3,052,417) 52,712
------------- ------------- -------------
NET INCOME $ 11,310,030 $ 6,735,978 $ 826,557
============= ============= =============
EARNINGS PER COMMON SHARE:
Basic $ .83 $ .53 $ .07
============= ============= =============
Diluted $ .77 $ .50 $ .07
============= ============= =============
AVERAGE COMMON SHARES:
Basic 13,627,181 12,677,611 12,077,023
============= ============= =============
Diluted 14,759,128 13,429,585 12,282,664
============= ============= =============
See notes to consolidated financial statements.
26
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
- --------------------------------------------------------------------------------
Accumulated
Common Stock Other Compre- Retained
Total Shares Amount hensive Loss Earnings
------------ ------------ ------------ ------------ ------------
BALANCE--JANUARY 1, 2000 $ 32,690,136 11,861,308 $ 18,428,572 $ (528,954) $ 14,790,518
Comprehensive income:
Net income 826,557 -- -- -- 826,557
Other comprehensive loss--
Foreign currency translation
adjustment (net of tax) (95,184) -- -- (95,184) --
------------
Comprehensive income 731,373 -- -- -- --
Tax benefit attributable to
appreciation of common
stock options exercised 172,818 -- 172,818 -- --
Issuance of common stock
under Employee Stock
Purchase Plans 350,248 100,269 350,248 -- --
Options and warrants exercised 933,605 229,156 933,605 -- --
Shares surrendered in
exchange for the payment of
payroll tax liabilities (9,109) (1,674) (9,109) -- --
Shares surrendered in exchange
for the extinguishment
of related party receivable (45,004) (10,229) (45,004) -- --
Shares surrendered in exchange
for the exercise of
stock options (51,365) (9,755) (51,365) -- --
------------ ------------ ------------ ------------ ------------
BALANCE--DECEMBER 31, 2000 34,772,702 12,169,075 19,779,765 (624,138) 15,617,075
Comprehensive income:
Net income 6,735,978 -- -- -- 6,735,978
Other comprehensive loss--
Foreign currency translation
adjustment (net of tax) (28,802) -- -- (28,802) --
------------
Comprehensive income 6,707,176 -- -- -- --
Tax benefit attributable to
appreciation of common
stock options exercised 2,514,392 -- 2,514,392 -- --
Deferred compensation (37,084) (7,450) (37,084) -- --
Issuance of common stock
under Employee Stock
Purchase Plans 257,702 55,599 257,702 -- --
Options and warrants exercised 5,019,939 1,295,349 5,019,939 -- --
Shares surrendered in exchange
for the payment of
payroll tax liabilities (537,375) (43,305) (537,375) -- --
Shares surrendered in exchange
for the extinguishment
of related party receivable (214,558) (24,284) (214,558) -- --
Shares surrendered in exchange
for the exercise of
stock options (824,486) (67,963) (824,486) -- --
------------ ------------ ------------ ------------ ------------
BALANCE--DECEMBER 31, 2001 47,658,408 13,377,021 25,958,295 (652,940) 22,353,053
Comprehensive income:
Net income 11,310,030 -- -- -- 11,310,030
Other comprehensive income--
Foreign currency translation
adjustment (net of tax) 122,485 -- -- 122,485 --
------------
Comprehensive income 11,432,515 -- -- -- --
Tax benefit attributable to
appreciation of common
stock options exercised 2,684,444 -- 2,684,444 -- --
Sale of treasury stock 142,096 7,450 142,096 -- --
Issuance of common stock
under Employee Stock
Purchase Plans 349,622 23,616 349,622 -- --
Options and warrants exercised 1,927,525 492,990 1,927,525 -- --
Shares surrendered in
exchange for the payment of
payroll tax liabilities (468,668) (20,524) (468,668) -- --
Shares surrendered in exchange
for the exercise of
stock options (327,351) (16,501) (327,351) -- --
------------ ------------ ------------ ------------ ------------
BALANCE--DECEMBER 31, 2002 $ 63,398,591 13,864,052 $ 30,265,963 $ (530,455) $ 33,663,083
============ ============ ============ ============ ============
See notes to consolidated financial statements.
27
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
- --------------------------------------------------------------------------------
2002 2001 2000
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,310,030 $ 6,735,978 $ 826,557
------------ ------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,576,609 4,767,588 4,486,291
(Gain) losses on sales and abandonment of
property and equipment 4,022 (784,729) 49,833
Write-off of certain patents and trademarks 391,217 93,291
Amortization of deferred credits (195,472) (203,131) (166,609)
Deferred income taxes 1,293,735 (45,152) 389,635
Tax benefit attributable to appreciation of
common stock options exercised 2,684,444 2,514,392 172,818
Changes in operating assets and liabilities, net of
effects from acquisitions:
Short-term investments (132,165) (85,286)
Trade receivables (499,871) (1,512,163) (685,726)
Employee and related party receivables (32,846) (40,809) 17,145
Inventories 2,124,399 4,449,812 2,274,934
Prepaid expenses and other assets (152,364) 148,315 6,112
Other receivables (1,111,723) 668,036 (462,946)
Deposits 1,630 6,430 10,046
Trade payables (537,718) (176,222) 86,085
Accrued expenses 1,800,812 1,346,556 378,759
Advances from employees 32,905 31,846 (19,316)
Income taxes payable (202,615) 453,343 (236,021)
------------ ------------ ------------
Total adjustments 10,044,999 11,632,117 6,301,040
------------ ------------ ------------
Net cash provided by operating activities 21,355,029 18,368,095 7,127,597
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment (7,954,191) (4,091,399) (4,690,107)
Patents and trademarks (97,467) (263,427) (406,229)
Acquisitions -- -- (607,129)
Proceeds from the sale of property and equipment 2,575 952,308 1,347,613
------------ ------------ ------------
Net cash used in investing activities (8,049,083) (3,402,518) (4,355,852)
------------ ------------ ------------
(Continued)
28
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
- --------------------------------------------------------------------------------
2002 2001 2000
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on revolving credit facility $ (5,115,241) $(17,884,761) $ (2,907,596)
Proceeds from:
Issuance of common stock 1,586,140 3,915,780 1,223,379
Deferred credits 128,123 175,572 132,513
Principal payments on notes payable to
financial institutions and capital leases (793,352) (1,164,444) (1,316,089)
Sale (purchase) of treasury stock for deferred
compensation 37,084 (37,084) --
------------ ------------ ------------
Net cash used in financing activities (4,157,246) (14,994,937) (2,867,793)
------------ ------------ ------------
EFFECT OF EXCHANGE RATES ON CASH 193,188 (41,334) (160,279)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 9,341,888 (70,694) (256,327)
CASH AND CASH EQUIVALENTS:
Beginning of year 341,690 412,384 668,711
------------ ------------ ------------
End of year $ 9,683,578 $ 341,690 $ 412,384
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION--Cash paid during
the year for:
Interest (including capitalized interest of
approximately $17,000, $105,000, and $128,000
during 2002, 2001, and 2000, respectively) $ 109,002 $ 1,286,872 $ 2,309,634
============ ============ ============
Income taxes $ 2,396,885 $ 127,553 $ 172,202
============ ============ ============
(Continued)
29
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
o During 2001 and 2000, the Company entered into capital lease obligations
and notes payable for approximately $271,000 and $508,000, respectively,
for manufacturing equipment.
o During 2002, 2001, and 2000, options to purchase 20,524, 43,305, and 1,674
shares of the Company's common stock were surrendered in exchange for the
Company's recording of payroll tax liabilities in the amount of
approximately $469,000, $537,000, and $9,000.
o During 2002, 2001, and 2000, 16,501, 67,963, and 9,755 shares of Company
common stock with a value of approximately $327,000, $824,000, and $51,000,
respectively, were surrendered in exchange for the exercise of stock
options.
See notes to consolidated financial statements. (Concluded)
30
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization--Merit Medical Systems, Inc. (Merit) and its wholly-owned
subsidiaries, Merit Holdings, Inc. (MHI), and Merit Sensor Systems,
Inc. collectively own 100% of Merit Medical Systems LP (MMSLP).
Combined with its other wholly-owned subsidiary, Merit Medical
International, Inc. (MMI), Merit, MHI, and Merit Sensor Systems, Inc.
collectively own 100% of Merit Services, Inc. (MSI) (collectively, the
Company). The Company develops, manufactures, and markets disposable
medical products primarily for use in the diagnosis and treatment of
cardiovascular disease which is considered to be one segment line of
business. The Company manufactures its products in plants located in
the United States and in Ireland. The Company has export sales to
dealers and has direct sales forces in the United States, and Western
Europe (see Note 11).
The consolidated financial statements of the Company have been prepared
in accordance with accounting principles generally accepted in the
United States of America. The following is a summary of the more
significant of such policies.
Use of Estimates in Preparing Financial Statements--The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Principles of Consolidation--The consolidated financial statements
include those of Merit, MMI, MHI, MSI, MMSLP and Merit Sensor systems,
Inc. Intercompany balances and transactions have been eliminated.
Receivables--The allowance for uncollectible accounts receivable is
based on the Company's historical bad debt experience and on
management's evaluation of collectibility of the individual outstanding
balances.
Revenue Recognition--The Company recognizes revenues from product sales
when the goods are shipped or delivered depending on when title and
risk passes to the customer. Provisions for certain product returns and
31
discounts to customers are provided for as reductions in determining
sales in the same period the related sales are recorded.
Inventories--Inventories are stated at the lower of cost (computed on a
first-in, first-out basis) or market.
Income Taxes--The Company utilizes an asset and liability approach for
financial accounting and reporting for income taxes. Deferred income
taxes are provided for temporary differences in the bases of assets and
liabilities as reported for financial statement and income tax
purposes.
Intangible Assets--Effective January 1, 2002, the Company has adopted
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill
and Other Intangible Assets. Under SFAS No. 142, the Company no longer
amortizes goodwill from acquisitions and reviews annually the
impairment of goodwill, or more frequently if impairment indicators
arise. The Company has completed its initial testing of goodwill as of
January 1, 2002 and determined that there was no impairment. The
Company has elected to perform its annual testing of goodwill
impairment as of July 1. As of July 1, 2002, the Company updated its
testing of goodwill for impairment and determined that there was no
impairment. The unamortized amount of goodwill at December 31, 2001,
was approximately $4.8 million.
With the adoption of SFAS No. 142, the Company reassessed the useful
lives and residual values of all acquired intangible assets to make any
necessary amortization period adjustments. Based on that assessment, no
adjustments were made to the amortization period or residual values of
other intangible assets.
Long-Lived Assets--In August 2001, the FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS
No. 144 supercedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, but
retains the requirements relating to recognition and measurements of an
impairment loss and resolves certain implementation issues resulting
from SFAS No. 121. SFAS No. 144 was adopted by the Company on January
1, 2002 and did not have a material impact on the results of operations
or financial condition of the Company.
The Company periodically reviews the carrying amount of its long-lived
assets for impairment. An asset is considered impaired when estimated
future cash flows are less than the carrying amount of the asset. In
the event the carrying amount of such asset is considered not
recoverable, the asset is adjusted to its fair value. Fair value is
generally determined based on discounted future cash flow. There were
no impairments of long-lived assets as of December 31, 2002 or 2001.
Property and Equipment--Property and equipment is stated at the
historical cost of construction or purchase. Construction costs include
payroll-related costs, an allocation of general and administrative
costs, and interest capitalized during construction. Maintenance and
repairs of property and equipment are charged to operations as
incurred. Depreciation and amortization are computed using the
straight-line method over estimated useful lives as follows:
Building 25 years
Automobiles 4 years
Manufacturing equipment 5 to 12 years
Furniture and fixtures 3 to 10 years
Leasehold improvements 4 to 25 years
Accrued Expenses--Accrued expenses consist of the following at
December 31, 2002 and 2001:
December 31,
------------------------
2002 2001
---------- ----------
Payroll taxes $ 317,522 $ 377,254
Payroll 940,088 706,538
Bonuses 1,445,888 883,056
Commissions 304,943 278,675
Vacation 1,025,407 836,380
Other accrued expenses 2,584,559 1,735,692
---------- ----------
Total $6,618,407 $4,817,595
========== ==========
Deferred Credits--Deferred credits consist of grant money received from
the Irish government and deferred gains on sales leaseback
transactions. Grant money is received for a percentage of expenditures
32
on eligible property and equipment, specific research and development
projects, and costs of hiring and training employees. Amounts related
to the acquisition of property and equipment are amortized as a
reduction of depreciation expense over the lives of the corresponding
property. Deferred gains on sales leaseback transactions are amortized
as a reduction of rent expense over periods ranging from six to 10
years (see Note 8).
Research and Development--Research and development costs are expensed
as incurred.
Stockholders' Equity--On March 27, 2002, the Company's Board of
Directors approved a five-for-four split of the Company's common stock
effective April 11, 2002 for stockholders of record as of April 8,
2002. Additionally, on August 14, 2001, the Company's Board of
Directors approved a five-for-four split of the Company's common stock
effective August 27, 2001 for stockholders of record as of August 24,
2001. All historical share and per share amounts have been restated to
reflect these stock splits.
Earnings per Common Share--Net income per common share is computed by
both the basic method, which uses the weighted average number of the
Company's common shares outstanding, and the diluted method, which
includes the dilutive common shares from stock options and warrants, as
calculated using the treasury stock method.
Financial Instruments--The Company's financial instruments, when valued
using market interest rates, would not be materially different from the
amounts presented in the consolidated financial statements.
Stock-Based Compensation--The Company accounts for its stock
compensation arrangements under the provisions of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB
25) and intends to continue to do so. Accordingly, no compensation cost
has been recognized for its stock compensation arrangements. If the
compensation cost for the Company's compensation plans had been
determined consistent with Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, the Company's
net income and net income per common and common share equivalent would
have changed to the pro forma amounts indicated below:
2002 2001 2000
Net income:
As reported $ 11,310,030 $ 6,735,978 $ 826,557
Pro forma 9,873,717 5,379,236 140,145
Net income per common share:
Basic:
As reported $ 0.83 $ 0.53 $ 0.07
Pro forma 0.72 0.42 0.00
Diluted:
As reported $ 0.77 $ 0.50 $ 0.07
Pro Forma 0.67 0.40 (0.01)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 2002, 2001, and 2000:
dividend yield of 0%; expected volatility of 63.24%, 63.48%, and 61.04%
for 2002, 2001, and 2000, respectively; risk-free interest rates
ranging from 4.48% to 6.71%; and expected lives ranging from 2.33 to
4.58 years.
Statements of Cash Flows--For purposes of the statements of cash flows,
the Company considers interest bearing deposits with an original
maturity date of three months or less to be cash equivalents.
Concentration of Credit Risk--Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily
of temporary cash and cash equivalents and accounts receivable. The
Company provides credit, in the normal course of business, primarily to
hospitals and independent third-party packers and distributors. The
Company performs ongoing credit evaluations of its customers and
maintains allowances for potential credit losses.
Foreign Currency Translation Adjustment--The financial statements of
the Company's foreign subsidiaries, which are included within MHI, are
measured using local currencies as the functional currency, with the
exception of Ireland, which uses a U.S. dollar functional currency.
Assets and liabilities are translated into U.S. dollars at year-end
rates of exchange and results of operations are translated at average
rates for the year. Gains and losses resulting from these translations
are included in accumulated other comprehensive loss as a separate
component of stockholders' equity.
Accumulated Other Comprehensive Loss--Accumulated other comprehensive
loss consists entirely of foreign currency translation adjustments.
Recently Issued Financial Accounting Standards--SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as
33
amended, requires that all derivative instruments be recognized as
either assets or liabilities at fair market value. The Company adopted
this statement beginning January 1, 2001. The effect on the Company's
financial statements of adopting this statement was not significant.
In June 2002, SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities, was issued. SFAS No. 146 requires recording
costs associated with exit or disposal activities at their fair values
when a liability has been incurred. Under previous guidance, certain
exit costs were accrued upon management's commitment to an exit plan,
which is generally before a liability has been incurred. The Company
will adopt SFAS No. 146 as of January 1, 2003. The adoption of SFAS No.
146 is not expected to materially impact the Company's consolidated
results of operations, financial position, or cash flow.
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation--Transition and Disclosure. SFAS No. 148
amends SFAS No. 123 to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The provisions of SFAS
No. 148 are effective for financial statements for fiscal years and
interim periods ending after December 15, 2002. The disclosure
provisions of SFAS No. 148 have been adopted by the Company (see
Stock-Based Compensation above). SFAS No. 148 did not require the
Company to change to the fair value based method of accounting for
stock-based compensation.
In November 2002, the Financial Accounting Standards Board (FASB)
issued Financial Accounting Standards Board Interpretation No. ("FIN")
45, Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, which requires
the guarantor to recognize as a liability the fair value of the
obligation at the inception of the guarantee. The disclosure
requirements in FIN 45 are effective for financial statements of
interim or annual periods ending after December 15, 2002. Management
believes the Company has no guarantees that are required to be
disclosed in the financial statements. The recognition provisions are
to be applied on a prospective basis to guarantees issued after
December 31, 2002. The adoption of the recognition provisions of FIN 45
is not expected to have a material impact on the Company's financial
statements.
Short-term Investments--Trading securities are recorded at estimated
fair value with unrealized gains and losses included in miscellaneous
income. The basis of cost used in determining realized gains and losses
is specific identification. The estimated fair value of all securities
is determined by quoted market prices.
Deferred Compensation--During 2001, the Company established certain
non-qualified deferred compensation plans for eligible participants
(the "deferred compensation plans"). The deferred compensation plans
permit each participant to defer a portion of their salary until the
future. The deferred salary may be invested on behalf of the
participant in marketable securities, money market funds or the
company's own stock. However, as the Company is the owner of the
invested assets, such assets are reflected in the consolidated balance
sheet as cash equivalents and short-term investments at December 31,
2002. Common stock of the Company held for the deferred compensation
plans is reported as treasury stock at cost. The deferred compensation
obligation is classified as an accrued expense and adjusted, with a
corresponding charge (or credit) to compensation cost, to reflect
changes in the fair value of the underlying assets. Because the
deferred compensation obligation may be settled by delivery of cash,
shares of Company stock, or diversified assets, Company shares acquired
are not included in basic earnings per share but are included in the
calculation of diluted earnings per share. All shares of treasury stock
were sold during the year ended December 31, 2002.
2. SEVERANCE COSTS
During the year ended December 31, 2000, the Company terminated
approximately 30 employees and correspondingly accrued a termination
cost of approximately $331,000. This amount is included in operating
expenses as severance costs.
3. ACQUISITIONS
On May 18, 2000, the Company acquired certain assets of
Electro-Catheter Corporation (Elecath) for a purchase price of $607,129
in cash. Elecath develops, manufactures and sells a broad range of
cardiovascular catheters for use primarily in the Electro physiology,
Cath Lab and Critical Care departments of hospitals. The cost of this
acquisition exceeded the estimated fair value of the acquired assets by
$533,793. Such excess was allocated to goodwill.
34
4. INVENTORIES
Inventories consist of the following at December 31, 2002 and 2001:
2002 2001
------------ ------------
Finished goods $ 10,223,180 $ 13,716,474
Work-in-process 2,343,500 3,001,250
Raw materials 8,900,959 7,501,253
Less reserve for obsolete inventory (2,768,422) (3,395,361)
------------ ------------
Total $ 18,699,217 $ 20,823,616
============ ============
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and intangibles consisted of the following at December 31,
2002 and 2001:
2002 2001
---------- ----------
Patents, net of accumulated amortization of $594,160
and $656,710, respectively $1,557,006 $1,957,617
Trademarks, net of accumulated amortization of $181,293
and $155,058, respectively 157,662 193,065
License agreements, net of accumulated amortization
of $378,512 and $307,054, respectively 212,492 283,950
---------- ----------
Total $1,927,160 $2,434,632
========== ==========
Cost in excess of the fair value of assets acquired
(goodwill) $4,764,596 $4,764,596
========== ==========
35
The following table reconciles net income and earnings per share
information for the years ended December 31, 2002, 2001, and 2000, for
the non-amortization provision of goodwill for SFAS No. 142
Year Ended December 31
2001 2000
------------- -------------
Reported net income $ 6,735,978 $ 826,557
Add back--goodwill amortization, net of tax 196,589 184,388
------------- -------------
Adjusted net income $ 6,932,567 $ 1,010,945
============= =============
Basic earnings per share:
Reported earnings per common share $ 0.53 $ 0.07
Add back--goodwill amortization, net of tax 0.02 0.02
------------- -------------
Adjusted earnings per common share $ 0.55 $ 0.09
============= =============
Diluted earnings per share:
Reported earnings per common share $ 0.50 $ 0.07
Add back--goodwill amortization, net of tax 0.02 0.01
------------- -------------
Adjusted earnings per common share $ 0.52 $ 0.08
============= =============
Aggregate amortization expense for the years ended December 31, 2002,
2001, and 2000 is approximately $227,000, $298,000, and $279,000,
respectively.
Estimated amortization expense for the intangible assets for the
current year and five succeeding fiscal years is as follows:
Estimated amortization expense:
Year ended December 31:
2003 174,376
2004 154,068
2005 151,047
2006 150,522
2007 148,536
36
6. INCOME TAXES
Deferred income tax assets and liabilities at December 31, 2002 and
2001 consist of the following temporary differences and carry forward
items:
Current Long-Term
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Deferred income tax assets:
Allowance for uncollectible
accounts receivable $ 174,700 $ 163,540 $ -- $ --
Accrued compensation expense 509,339 263,126 -- --
Inventory capitalization for
tax purposes 107,202 106,937
Inventory obsolescence reserve 855,315 1,427,188
Tax credits -- -- 249,328 813,599
Net operating losses of subsidiaries 66,283 120,779 227,957 278,639
Other 114,846 65,004 325,117 444,915
----------- ----------- ----------- -----------
Total deferred income tax assets 1,827,685 2,146,574 802,402 1,537,153
Deferred income tax liabilities:
Prepaid expenses (1,683,603) (1,419,916)
Property and equipment -- -- (3,005,013) (2,880,088)
Other (817) (3,359) (240,545) (311,448)
----------- ----------- ----------- -----------
Net $ 143,265 $ 723,299 $(2,443,156) $(1,654,383)
=========== =========== =========== ===========
Income tax expense (benefit) differs from amounts computed by applying
the statutory Federal rate to pretax income as follows:
2002 2001 2000
----------- ----------- -----------
Computed Federal income tax expense at
statutory rate of 35% $ 5,866,798 $ 3,425,938 $ 270,846
State income taxes 384,358 159,770 25,153
Creation of tax credits (355,684) (399,001) (444,551)
Tax benefit of foreign sales corporation (118,057) (141,565) (53,139)
Income of subsidiaries recorded at
foreign tax rates (286,424) (63,517) (13,746)
Other--including the effect of graduated rates (38,742) 70,792 162,725
----------- ----------- -----------
Total income tax expense (benefit) $ 5,452,249 $ 3,052,417 $ (52,712)
=========== =========== ===========
37
The components of the provision for income taxes are as follows:
2002 2001 2000
----------- ----------- -----------
Current expense (benefit):
Federal $ 3,614,502 $ 2,608,391 $ (423,470)
State 435,612 370,707 (29,922)
Foreign 108,400 118,471 11,045
----------- ----------- -----------
4,158,514 3,097,569 (442,347)
----------- ----------- -----------
Deferred expense (benefit):
Federal 1,029,364 (57,070) 196,470
State 139,787 (124,908) 132,281
Foreign 124,584 136,826 60,884
----------- ----------- -----------
1,293,735 (45,152) 389,635
----------- ----------- -----------
Total $ 5,452,249 $ 3,052,417 $ (52,712)
=========== =========== ===========
7. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
Revolving Credit Facility--The Company maintains a long-term revolving
credit facility (the Facility) with a bank, which enables the Company
to borrow funds at variable interest rates. The credit facility was
voluntarily reduced to $500,000 in August 2002. The Facility is fully
due and payable on June 30, 2006. The weighted average interest rate
applied to the outstanding balance at December 31, 2001 was 3.42%.
Under the terms of the Facility, among other things, the Company is
required to maintain a ratio of total liabilities to tangible net worth
not to exceed 2.0 to 1.0, maintain a ratio of current assets to current
liabilities of at least 1.5 to 1.0, maintain minimum working capital of
$25,000,000, and is restricted from paying dividends to shareholders.
For the years ended December 31, 2002 and 2001, management of the
Company believes the Company was in compliance with all debt covenants.
As of December 31, 2002 and 2001, the Company owed $-0- and $5,115,239
under the Facility, respectively. The Facility is collateralized by
trade receivables, inventories, property and equipment, and intangible
assets.
Long-term Debt--Long-term debt consists of the following at December
31, 2002 and 2001:
2002 2001
---------- ----------
Notes payable to financial institutions;
payable in monthly installments
through 2004, including
interest at rates ranging
from 6.26% to 8.89%; collateralized by equipment $ 416,875 $1,210,228
Revolving credit facility (see above) -- 5,115,239
---------- ----------
Total 416,875 6,325,467
Less current portion 400,182 598,086
---------- ----------
Long-term portion $ 16,693 $5,727,381
========== ==========
Scheduled maturities of long-term debt at December 31, 2002 are as
follows:
Year ending December 31:
2003 $400,182
2004 16,693
--------
Total $416,875
========
8. COMMITMENTS AND CONTINGENCIES
Leases--The Company has noncancelable operating lease agreements for
off-site office and production facilities and equipment. The leases for
the off-site
38
office and production facilities are for five years and have renewal
options of one to five years. The terms of the leases for equipment
range from five to seven years. Total rental expense on these operating
leases and on the Company's new manufacturing and office building (see
below) for the years ended December 31, 2002, 2001, and 2000
approximated $2,978,000, $2,539,000, and $2,539,000, respectively.
In June 1993, the Company entered into a 25 year lease agreement with a
developer for a new manufacturing and office building. Under the
agreement, the Company was granted an option to purchase the building
at fair market value after 10 years and, if not exercised, after 25
years. In connection with this lease agreement, in 1993 the Company
sold to the developer 10 acres of land on which the building was
constructed. The $166,136 gain on the sale of the land has been
recorded as a deferred credit and is being amortized as a reduction of
rent expense over ten years. In connection with the lease agreement,
the Company issued to the developer warrants to purchase 242,908 shares
of the Company's common stock at $3.17 per share subject to carrying
cost increases of 3% per year ($3.90 as of December 31, 2002). These
warrants were exercised in January 2003 with total proceeds to the
Company of approximately $950,000.
On December 22, 2000, the Company sold certain of its manufacturing
equipment with a net carrying value of approximately $1,210,000 to a
financial institution. The Company then entered into a six-year
operating lease agreement for the same equipment. The approximate
$70,000 gain on sale has been recorded as a deferred credit and is
being amortized as a reduction of rental expense over six years. The
future minimum lease payments for operating leases as of December 31,
2002 are as follows:
Operating
Leases
Year ending December 31:
2003 $ 2,532,429
2004 2,331,998
2005 2,027,040
2006 2,007,087
2007 1,777,555
Thereafter 17,706,965
-----------
Total minimum lease payments $28,383,074
===========
Irish Government Development Agency Grants--Through December 31, 2002,
the Company had entered into several grant agreements with the Irish
Government Development Agency of which approximately $-0- and $98,000
remained in receivables at December 31, 2002 and 2001, respectively.
The Company has recorded the grants related to research and development
projects and costs of hiring and training employees as a reduction of
operating expenses in 2002, 2001, and 2000 in the amounts of
approximately $163,000, $36,000, and $67,000, respectively. Grants
related to the acquisition of property and equipment purchased in
Ireland are amortized as a reduction to depreciation expense over lives
corresponding to the depreciable lives of such property. The balance of
deferred credits for the periods ended December 31, 2002 and 2001 are
approximately $710,000 and $804,000, respectively. During 2002, 2001,
and 2000, approximately $167,000, $175,000, and $149,000, respectively,
of the deferred credit was amortized as a reduction of operating
expenses.
Preferred Share Purchase Rights--In August 1997, the Company declared a
dividend of one preferred share purchase right (a "Right") for each
outstanding share of Common Stock which entitles the holder of a Right
to purchase one one-hundredth of a share of Series A Junior
Participating Preferred Stock at an exercise price of $40 in the event
a person or group acquires, or announces an intention to acquire, 15%
or more of the Company's common stock. Until such an event, the Rights
are not exercisable and are transferable with the common stock and may
be redeemed at a price of $.0001 per Right.
Litigation--In the ordinary course of business, the Company is involved
in litigation and claims which management believes will not have a
materially adverse effect on the Company's financial position or
results of operations.
Other--As of December 31, 2002, the Company had entered a nonbinding
agreement to purchase land adjacent to its Ireland production facility.
During January 2003, this agreement was finalized and the land was
purchased for $742,052
39
9. EARNINGS PER COMMON SHARE (EPS)
The following table sets forth the computation of basic diluted
earnings per common share:
Net Per Share
Income Shares Amount
----------- ----------- -----------
Year ended December 31, 2002:
Basic EPS $11,310,030 13,627,181 $ 0.83
Effect of dilutive stock options and warrants -- 1,131,947 --
----------- ----------- -----------
Diluted EPS $11,310,030 14,759,128 $ 0.77
=========== =========== ===========
Year ended December 31, 2001:
Basic EPS $ 6,735,978 12,677,611 $ 0.53
Effect of dilutive stock options and warrants -- 751,974 --
----------- ----------- -----------
Diluted EPS $ 6,735,978 13,429,585 $ 0.50
=========== =========== ===========
Year ended December 31, 2000:
Basic EPS $ 826,557 12,077,023 $ 0.07
Effect of dilutive stock options and warrants -- 205,641 --
----------- ----------- -----------
Diluted EPS $ 826,557 12,282,664 $ 0.07
=========== =========== ===========
10. EMPLOYEE STOCK PURCHASE PLAN AND STOCK OPTIONS AND WARRANTS
The Company offers to its employees an Employee Stock Purchase Plan
(ESPP) which allows the employee on a quarterly basis to purchase
shares of the Company's common stock at the lesser of 85% of the market
value on the offering commencement date or offering termination date.
The Company has a qualified and non-qualified ESPP. The total number of
shares available to employees to purchase under the qualified plan is
671,875 of which 432,176 have been purchased as of December 31, 2002.
The total number of shares available to employees to purchase under the
non-qualified plan is 109,375 of which 17,227 have been purchased as of
December 31, 2002.
The Company has a long-term incentive plan which provides for the
issuance of incentive stock options, nonstatutory stock options, and
certain corresponding stock appreciation rights. The maximum number of
shares of common stock for which options may be granted is 3,750,000.
Options may be granted to directors, officers, outside consultants, and
key employees of the Company and may be granted upon such terms and
such conditions as the Compensation Committee in its sole discretion
shall determine. Options vest 20% per year over either a 4.5 or 5 year
life with contractual lives of 5 and 10 years, respectively. In no
event, however, shall the exercise price be less than the fair market
value on the date of grant.
40
Changes in stock options and warrants (see Note 8) for the years ended
December 31, 2002, 2001, and 2000 are as follows:
Options Warrants
--------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
2002:
Granted 83,750 $ 16.84 -- --
Exercised 492,990 3.91
Forfeited/expired 28,615 6.96
Outstanding at December 31 2,071,070 7.04 242,908 $ 3.90
Exercisable 881,874 5.87 242,908 3.90
Weighted average fair value of
options granted during year -- $ 6.39 -- --
Weighted average fair value of
shares issued under Employee
Stock Purchase Plan -- $ 2.61 -- --
Options Warrants
--------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
2001:
Granted 1,414,889 $ 8.04 -- --
Exercised 1,295,349 3.87 -- --
Forfeited/expired 310,531 5.26 -- --
Outstanding at December 31 2,508,925 6.11 242,908 $ 3.78
Exercisable 805,466 3.66 242,908 3.78
Weighted average fair value of
options granted during year -- $ 4.39 -- --
Weighted average fair value of
shares issued under Employee
Stock Purchase Plan -- $ 0.82 -- --
41
Options Warrants
--------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
2000:
Granted 758,750 $ 2.88 -- --
Exercised 229,156 4.08
Forfeited/expired 194,438 4.44 -- --
Outstanding at December 31 2,699,916 3.93 242,908 $ 3.67
Exercisable 1,281,563 4.46 242,908 3.67
Weighted average fair value of
options granted during year -- $ 1.28 -- --
Weighted average fair value of
shares issued under Employee
Stock Purchase Plan -- $ 0.62 -- --
The following table summarizes information about stock options and
warrants outstanding at December 31, 2002:
Options and Warrants
Options and Warrants Outstanding Exercisable
---------------------------------------------------------------------- ----------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (in years) Price Exercisable Price
Options:
$2.88 - $7.22 1,378,955 4.91 $ 3.66 700,112 $ 3.61
$13.53 - $20.00 692,115 8.79 13.77 181,762 14.56
Warrants:
$3.90 242,908 2.04 3.90 242,908 3.90
11. SEGMENT REPORTING AND FOREIGN OPERATIONS
During the years ended December 31, 2002, 2001, and 2000, the Company
had foreign sales of approximately $27,062,000, $23,801,000, and
$21,773,000 or approximately 23%, 23%, and 24%, respectively, of total
sales, primarily in Japan, Germany, France, and the United Kingdom.
The Company operates primarily in one segment in which it develops,
manufactures, and markets disposable medical products, principally for
use in the diagnosis and treatment of cardiovascular disease. Major
operations outside the United States include a manufacturing facility
in Ireland, a distribution facility in the Netherlands, and sales
subsidiaries in Europe. The following is a summary of the Company's
foreign operations by geographic area for fiscal years 2002, 2001, and
2000:
42
Transfers
Sales to Between Net
Unaffiliated Geographic Income Identifiable
Customers Areas Revenue (Loss) Assets
------------- ------------- ------------- ------------- -------------
Fiscal year ended December 31, 2002:
United States, Canada, and
international distributors $ 99,694,349 $ 1,787,099 $ 101,481,448 $ 11,415,816 $ 66,733,647
Europe direct and European
distributors 16,532,852 9,077,730 25,610,582 117,886 13,200,294
Eliminations -- (10,864,829) (10,864,829) (223,672) --
------------- ------------- ------------- ------------- -------------
Consolidated $ 116,227,201 $ -- $ 116,227,201 $ 11,310,030 $ 79,933,941
============= ============= ============= ============= =============
Fiscal year ended December 31, 2001:
United States, Canada, and
international distributors $ 89,208,943 $ 1,770,388 $ 90,979,331 $ 7,807,510 $ 57,151,956
Europe direct and European
distributors 14,826,863 6,101,400 20,928,263 (884,181) 9,506,859
Eliminations -- (7,871,788) (7,871,788) (187,351) --
------------- ------------- ------------- ------------- -------------
Consolidated $ 104,035,806 $ -- $ 104,035,806 $ 6,735,978 $ 66,658,815
============= ============= ============= ============= =============
Fiscal year ended December 31, 2000:
United States, Canada, and
international distributors $ 80,380,485 $ 1,060,749 $ 81,441,234 $ 2,301,524 $ 61,897,460
Europe direct and European
distributors 11,067,027 4,906,800 15,973,827 (1,608,513) 9,549,171
Eliminations -- (5,967,549) (5,967,549) 133,546 --
------------- ------------- ------------- ------------- -------------
Consolidated $ 91,447,512 $ -- $ 91,447,512 $ 826,557 $ 71,446,631
============= ============= ============= ============= =============
Transfers between geographic areas are accounted for at amounts which
are generally above cost and consistent with the rules and regulations
of governing tax authorities. Such transfers are eliminated in the
consolidated financial statements. Net income by geographic areas
reflects foreign earnings reported by the foreign entities.
Identifiable assets are those assets that can be directly associated
with a particular foreign entity and thus do not include assets used
for general corporate purposes.
12. ROYALTY AGREEMENTS
Pursuant to a 1992 settlement agreement, the Company entered into a
license agreement with another medical product manufacturer (the
Licensor), whereby the Licensor granted to the Company a nonexclusive
right and license to manufacture and sell products which are subject to
the patents issued to the Licensor. For the rights and license granted
under the agreement, the Company paid the Licensor a nonrefundable
prepaid royalty in the amount of $600,000. In addition to the prepaid
royalty, the Company agreed to pay the Licensor a continuing royalty of
5.75% of sales (which will not exceed $450,000 for any calendar year)
made in the United States, of products covered by the license
agreement. Royalties of $450,000 were paid or accrued in each of the
years ended December 31, 2002, 2001, and 2000.
During 2002, the Company entered into a license agreement with another
medical product manufacturer (the Licensor), whereby the Licensor
granted to the Company an exclusive worldwide license to manufacture
and sell products which are subject to the patents issued to the
Licensor. For the rights and license granted under the agreement, the
Company agreed to pay the Licensor a royalty of 5% of net sales, which
will not exceed $62,500 for calendar year 2003 and $75,000 per year for
calendar year 2004 through 2006.
13. EMPLOYEE BENEFIT PLAN
The Company has a contributory 401(k) savings and profit sharing plan
(the Plan) covering all full-time employees who are at least 18 years
43
of age. The Plan has no minimum service requirement. The Company may
contribute at its discretion matching contributions based on the
employees' compensation. Contributions made by the Company to the Plan
for the years ended December 31, 2002, 2001, and 2000 totaled
approximately $499,000, $361,000, and $258,000, respectively.
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly data for the years ended December 31, 2002, 2001, and 2000 is
as follows:
Quarter Ended
-----------------------------------------------------------------------
2002 March 31 June 30 September 30 December 31
Net sales $ 28,672,168 $ 28,789,370 $ 29,341,129 $ 29,424,534
Gross profit 11,151,780 12,033,078 12,556,666 12,773,949
Income from operations 3,483,243 4,104,019 4,624,051 4,564,175
Income tax expense 1,095,974 1,376,107 1,509,412 1,470,756
Net income 2,326,907 2,701,814 3,125,403 3,155,906
Basic earnings per common share 0.17 0.20 0.23 0.23
Diluted earnings per common share 0.16 0.18 0.21 0.21
2001
Net sales $ 26,788,373 $ 26,264,015 $ 25,694,128 $ 25,289,290
Gross profit 9,219,374 9,426,157 9,725,611 9,726,620
Income from operations 2,083,229 2,177,236 2,730,338 2,948,823
Income tax expense 460,737 785,935 854,528 951,217
Net income 1,186,425 1,858,793 1,744,996 1,945,764
Basic earnings per common share 0.10 0.15 0.14 0.14
Diluted earnings per common share 0.10 0.14 0.13 0.13
2000
Net sales $ 22,080,435 $ 23,552,859 $ 23,330,203 $ 22,484,015
Gross profit 7,634,050 7,616,239 7,958,848 7,414,916
Income from operations 289,575 647,698 1,224,604 966,678
Income tax expense (benefit) (68,347) 19,254 169,026 (172,645)
Net income (loss) (159,482) 44,927 394,397 546,715
Basic and diluted earnings
(loss) per common share (0.02) 0.01 0.03 0.05
SUPPLEMENTARY FINANCIAL DATA
The supplementary financial information required by Item 302 of
Regulation S-K is contained in Note 14 to the Consolidated Financial
Statements of the Company set forth above.
Item 9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure
None
44
PART III
Item 10, 11, 12, 13 and 15
These items are incorporated by reference to the Company's definitive
Proxy Statement relating to the Annual Meeting of Shareholders scheduled for May
22, 2003. The definitive Proxy Statement will be filed with the Commission not
later than 120 days after December 31, 2002, pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended.
Item 14. Controls and Procedures
(a) Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of our disclosure controls and procedures, as such term
is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), within 90 days of the filing date of this
report. Based on this evaluation, our principal executive officer and principal
financial officer concluded that our disclosure controls and procedures are
effective in alerting them on a timely basis to material information relating to
our Company (including its consolidated subsidiaries) required to be included in
our reports filed or submitted under the Exchange Act
There have been no significant changes (including corrective actions with regard
to significant deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the evaluation referenced in paragraph (a) above.
PART IV
Item 16. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Documents filed as part of this report:
(1) Financial Statements. The following consolidated financial
statements and the notes thereto, and the Independent
Auditors' Report are incorporated by reference as provided in
Item 8 of this report:
-- Independent Auditors' Report
-- Consolidated Balance Sheets as of December 31, 2002 and
2001
-- Consolidated Statements of Operations for the Years Ended
December 31, 2002, 2001 and 2000
-- Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 2002, 2001 and 2000
-- Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000
-- Notes to Consolidated Financial Statements
(2) Financial Statement Schedule
-- Schedule II - Valuation and qualifying account
45
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
Additions
Balance at Charged to Balance at
Beginning Costs End of
Description of Year Expenses Deductions Year
ALLOWANCE FOR UNCOLLECTIBLE
ACCOUNTS:
2000 $ (305,475) $ (626,263) $ 491,463 $ (440,275)
2001 (440,275) (50,892) 82,316 (408,851)
2002 (408,851) (81,026) 13,583 (476,294)
RESERVE FOR INVENTORY
OBSOLESCENCE:
2000 $ (1,120,289) $ (1,555,963) $ 689,937 $ (1,986,315)
2001 (1,986,315) (3,119,864) 1,710,818 (3,395,361)
2002 (3,395,361) (1,830,633) 2,457,572 (2,768,422)
All other schedules have been omitted because they are not required, not
applicable, or the information is otherwise set forth in the financial
statements or notes thereto.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
The following exhibits required by Item 601 of Regulation S-K
are filed herewith or have been filed previously with the SEC
as indicated below:
46
Description Exhibit No.
----------------------------------------------------------------------- ------------------------------
3.1 Articles of Incorporation of the Company, as amended and [Form 10-Q filed August 14,
restated* 1996, Exhibit No. 1]
3.2 Bylaws of the Company* [Form S-18 filed October 19,
1989, Exhibit No. 2]
4 Specimen Certificate of the Company's Common Stock, no par value* [Form S-18 filed October 19,
1989, Exhibit No. 10]
10.1 Merit Medical Systems, Inc. Long Term Incentive Plan (as amended [Form 10-Q filed August 14,
and restated) dated March 25, 1996* 1996, Exhibit No. 2]
10.2 Merit Medical Systems, Inc. 401(k) Profit Sharing Plan (as [Form S-1 filed February 14,
amended effective January 1, 1991* 1992, Exhibit No. 8]
10.3 License Agreement, dated April 8, 1992 between the Company and [Form S-1 filed February 14,
Utah Medical Products, Inc.* 1992, Exhibit No. 5]
10.4 Lease Agreement dated as of June 8, 1993 for office and [Form 10-K for year ended
manufacturing facility* December 31, 1994, Exhibit
No. 10.5]
10.5 Amended and Restated Loan Agreement with Zions First National [Form 10-K for year ended
Bank dated August 11, 1999 December 31, 1995, Exhibit
No. 10.5
10.6 Amendment to Loan Agreement with Zion's First National Bank [Form 10-K for year ended
3/11/2002 December 31, 2000, Exhibit
No. 10.10]
10.7 Fifth Amendment to Loan Agreement with Zions First National Bank
Date November 15, 2002 Filed herewith
10.8 Employment agreement between the Company and Fred P. Lampropoulos Filed herewith
10.9 Employment agreement between the Company and Kent W. Stanger Filed herewith
10.10 Employment agreement between the Company and B. Leigh Weintraub Filed herewith
10.11 Employment agreement between the Company and Brian Ferrand Filed herewith
23.1 Consent of Independent Auditors Filed herewith
99.1 Certification of Chief Executive Office Filed herewith
99.2 Certification of Chief Financial Officer Filed herewith
* These exhibits are incorporated herein by reference.
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on March
29, 2003.
MERIT MEDICAL SYSTEMS, INC.
By: /s/: FRED P. LAMPROPOULOS, PRESIDENT
-------------------------------------------
Fred P. Lampropoulos, President and
Chief Executive Officer
ADDITIONAL SIGNATURE AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on March 28, 2003. In addition,
each person whose signature to this report appears below hereby constitutes and
appoints Fred P. Lampropoulos and Kent W. Stanger, and each of them, as his true
and lawful attorney-in-fact and agent, with full power of substitution, to sign
on his behalf individually and in the capacity stated below and to perform any
acts necessary to be done in order to file all amendments and post-effective
amendments to this report, and any and all instruments or documents filed as
part of or in connection with this report or the amendments thereto and each of
the undersigned does hereby ratify and confirm all that said attorney-in-fact
and agent, or his substitutes, shall do or cause to be done by virtue hereof.
Signature Capacity in Which Signed
--------- ------------------------
/s/: FRED P. LAMPROPOULOS President, Chief Executive Officer and Director
- ----------------------------
Fred P. Lampropoulos
March 28,2003
/s/: KENT W. STANGER Chief Financial Officer, Secretary, Treasurer
- ---------------------------- and Director (Principal financial and
Kent W. Stanger accounting officer)
March 28,2003
/s/: RICHARD W. EDELMAN Director
- ----------------------------
Richard W. Edelman
March 28,2003
/s/: REX C. BEAN Director
- ----------------------------
Rex C. Bean
March 28,2003
/s/: JAMES J. ELLIS Director
- ----------------------------
James J. Ellis
March 28,2003
/s/: MICHAEL E. STILLABOWER Director
- ----------------------------
Michael E. Stillabower
March 28,2003
48
CERTIFICATIONS
I, Fred P. Lampropoulos, certify that:
1. I have reviewed this annual report on Form 10-K of Merit Medial
Systems, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 28,2003 /s/ Fred P. Lampropoulos
-------------------------------------------------
Fred P. Lampropoulos, Chief Executive Officer
49
I, Kent W. Stanger, certify that:
1. I have reviewed this annual report on Form 10-K of Merit Medical
Systems, Inc.;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 28,2003 /s/ Kent W. Stanger
--------------------------------------------
Kent W. Stanger, Chief Financial Officer
50
Exhibit 10.7 Fifth Amendment to Loan Agreement with Zions First National Bank
Dated November 15, 2002
This Fifth Amendment to Loan Agreement (this "Amendment") is made and
entered into by and between MERIT MEDICAL SYSTEMS, INC., MERIT HOLDINGS, INC.,
and SENTIR SEMICONDUCTOR, INC. (collectively referred to as "Borrowers") and
ZIONS FIRST NATIONAL BANK ("Lender").
Recitals
A. Borrowers and Lender entered into that certain Amended and Restated
Loan Agreement dated August 11, 1999 (the "Agreement").
B. The Agreement has been amended by a First Amendment to Loan
Agreement dated March 14, 2000, a Second Amendment to Loan Agreement dated March
5, 2001, a Third Amendment to Loan Agreement dated July 1, 2001, and a Fourth
Amendment to Loan Agreement dated September 7, 2001 (collectively, the "Previous
Amendments").
C. Borrowers and Lender desire to further modify and amend the
Agreement as provided herein.
Amendment
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Borrowers and Lender hereby agree and amend and
modify the Agreement as follows:
1. Definitions. Except as otherwise expressly provided herein, terms
assigned defined meanings in the Agreement, as amended by the Previous
Amendments, shall have the same defined meanings in this Amendment.
2. Amended Definition. The definition of "Facility Amount" in Section
1.1 of the Agreement, as previously amended, is amended in its entirety to read
as follows:
"Facility Amount" means five hundred thousand dollars ($500,000.00).
3. Conditions to Effectiveness of Amendment. The amendments set forth
above shall become effective, as of the date and year set forth below, on such
date (the "Fifth Amendment Effective Date") when the following conditions shall
have been satisfied in a form and substance acceptable to Lender:
a. This Amendment and all other documents contemplated by this
Amendment to be delivered to Lender prior to funding have been fully
executed and delivered to Lender.
b. All other conditions precedent provided in or contemplated
by the Agreement, the Security Documents, or any other agreement or
document has been performed.
c. As of the Fifth Amendment Effective Date, the following
shall be true and correct: (1) all 0representations and warranties made
by Borrowers in the Agreement are true and correct as of the Fifth
Amendment Effective Date; and (2) no Event of Default has occurred
under the Agreement and no conditions exist and no event has occurred,
which, with the passage of time or the giving of notice, or both, would
constitute an Event of Default under the Agreement.
4. Collateral. The Loan and the Promissory Note are secured by the
collateral identified in and contemplated by the Agreement, including, without
limitation, the various Security Agreements dated August 11, 1999 and any other
Security Agreements subsequently executed by Borrowers and by the Collateral
described in Section 3.1 Collateral of the Agreement, as amended by the Previous
Amendments.
5. Representations and Warranties. Each Borrower hereby affirms and
again makes the representations and warranties set forth in Article 5
Representations and Warranties of the Agreement as of the Fifth Amendment
Effective Date. Each Borrower represents and warrants that there have been no
changes to the Organizational Documents of such Borrower since August 11, 1999.
6. Authorization. Each Borrower represents and warrants that the
execution, delivery, and performance by such Borrower of this Amendment and all
agreements, documents, obligations, and transactions herein contemplated have
been duly authorized by all necessary action on the part of such Borrower and
are not inconsistent with such Borrower's Organizational Documents or any
resolution of the Board of Directors of such Borrower, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract, or other instrument to which such Borrower is a party or by
which it is bound, and that upon execution and delivery hereof, this Amendment
will constitute a legal, valid, and binding agreement and obligation of each
Borrower, enforceable in accordance with their respective terms.
7. Payment of Expenses and Attorney's Fees. Borrowers shall pay all
reasonable expenses of Lender relating to the negotiation, drafting of
documents, and documentation of this Amendment, including, without limitation,
title insurance, recording fees, filing fees, and reasonable attorney's fees and
legal expenses. If such expenses are not promptly paid, Lender is authorized and
directed, upon execution of this Amendment and fulfillment of all conditions
precedent hereunder, to disburse a sufficient amount of the Loan proceeds to pay
in full these expenses.
8. Agreement Remains in Full Force and Effect. Except as expressly
amended or modified by this Amendment, the Agreement, as previously amended by
the Previous Amendments, remains in full force and effect.
9. Counterpart Execution. This Amendment may be executed in several
counterparts, without the requirement that all parties sign each counterpart.
Each of such counterparts shall be an original, but all counterparts together
shall constitute one and the same instrument.
10. Integrated Agreement; Amendment. This Amendment, together with the
Agreement, the Restated Promissory Note, the Security Documents, the Previous
Amendments, and the other agreements, documents, obligations, and transactions
contemplated by the Agreement, the Previous Amendments, and this Amendment,
constitute the entire agreements and understandings between the parties and
supersede all other prior and contemporaneous agreements and may not be altered
or amended except by written agreement signed by the parties. PURSUANT TO UTAH
CODE SECTION 25-5-4, BORROWERS ARE NOTIFIED THAT THESE AGREEMENTS ARE A FINAL
EXPRESSION OF THE AGREEMENT BETWEEN LENDER AND BORROWERS AND THESE AGREEMENTS
MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY ALLEGED ORAL AGREEMENT. All other
prior and contemporaneous agreements, arrangements, and under-standings between
the parties hereto as to the subject matter hereof are, except as otherwise
expressly provided herein, rescinded.
Dated: November 15, 2002.
MERIT MEDICAL SYSTEMS, INC.
By: /s/ Kent Stanger
-----------------------------------------------------------
Kent Stanger
Chief Financial Officer
MERIT HOLDINGS, INC.
By: /s/ Kent Stanger
-----------------------------------------------------------
Kent Stanger
Chief Financial Officer
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SENTIR SEMICONDUCTOR, INC.
By: /s/ Kent Stanger
-----------------------------------------------------------
Kent Stanger
Chief Financial Officer
ZIONS FIRST NATIONAL BANK
/s/ Jim C. Stanchfield
By:-----------------------------------------------------------
Jim C. Stanchfield
Vice President
3
Exhibit 10.8 Employee Agreement between the Company and Fred P. Lampropoulos
EMPLOYMENT AGREEMENT
AGREEMENT by and between Merit Medical Systems, Inc., a Utah
corporation (the "Company") and Fred P. Lampropoulos (the "Executive"), dated as
of the 1st day of April 1998.
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
The Board of Directors further believes it is appropriate to provide for
severance payments and benefits for the Executive in the event of termination of
employment not related to a Change of Control under the circumstances
hereinafter set forth. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
A G R E E M E N T:
NOW, THEREFORE, it is hereby agreed as follows:
1. Certain Definitions.
(a) The "Effective Date" shall mean the earlier of the first date
during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs or the termination of an
Executive's employment unrelated to a Change of Control as provided in Section 5
hereof. Anything in this Agreement to the contrary notwithstanding, if a Change
of Control occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment
(i) was at the request of a third party who has taken steps
reasonably calculated to effect a Change of Control; or
(ii) otherwise arose in connection with or anticipation of a
Change of Control, then for all purposes of this Agreement the "Effective Date"
shall mean the date immediately prior to the date of such termination of
employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
1
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either
(i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock"); or
(ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control
(i) any acquisition directly from the Company;
(ii) any acquisition by the Company;
(iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company; or
(iv) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of
this Section 2; or
(b) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination,
2
(i) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be;
(ii) no Person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination; and
(iii) at least a majority of the members of the Board of
Directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive
in its employ, and the Executive hereby agrees to remain in the employ of the
Company, subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere w0ith the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
3
(b) Compensation.
(i) Base Salary. During the Employment Period the Executive
shall receive an annual base salary ("Annual Base Salary"), which shall be paid
at a monthly rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base Salary
shall be reviewed no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter at least annually.
Any increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term "Annual Base Salary" as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "Affiliated Companies" shall include any company
controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's average annual cash bonus for the last three full fiscal years prior
to the Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year) (the "Average Annual
Bonus"). Each such Annual Bonus shall be paid no later than the end of the third
month of the fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Executive shall elect to defer the receipt of such
Annual Bonus.
(iii) Incentive Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its Affiliated
Companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its Affiliated Companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its Affiliated
Companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its Affiliated
Companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its Affiliated Companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its Affiliated
Companies.
(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its Affiliated Companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its Affiliated Companies.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
Affiliated Companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its Affiliated Companies.
4
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its Affiliated Companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its Affiliated Companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its Affiliated Companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its Affiliated Companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 11(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure results form incapacity due to physical
mental illness), after a written demand for substantial performance is delivered
to the Executive by the Board or the Chief Executive Officer of the Company
which specifically identifies the manner in which the Board or Chief Executive
Officer believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willfull engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
5
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any other
action by the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than as provided in Section 4(a)(i)(B) hereof or
the Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement.
Anything in this Agreement to the contrary notwithstanding, a termination by the
Executive for any reason during the 30-day period immediately following the
first anniversary of the Effective Date shall be deemed to be a termination for
Good Reason for all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 11(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which
(i) indicates the specific termination provision in this
Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated, and
(iii) if the Date of Termination (as defined below) is other
than the date of receipt of such notice, specifies the termination date (which
date shall not be more than 30 days after the giving of such notice). The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of the receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6
6. Obligations of the Company upon Termination.
(a) Good Reason; Other than for Cause, Death or Disability. If, during
the Employment Period, the Company shall terminate the Executive's employment
other than for Cause, Death or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts:
(A) the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, (2) the
product of (x) any bonus or portion thereof which has been earned but deferred
(and annualized for any fiscal year consisting of less than twelve full months
or during which the Executive was employed for less than twelve full months),
for the most recently completed fiscal year during the Employment Period, if
any, and (y) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the denominator of
which is 365 and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2), and (3) shall be hereinafter referred to
as the "Accrued Obligations;" and
(B) the amount equal to the sum of (x) the Executive's
Annual Base Salary and (y) the Average Annual Bonus multiplied by the number of
whole or fractional years remaining in the Employment Period; and
(ii) for the remainder of the Employment Period after
the Executive's Date of Termination, or such longer period as
may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to
those which would have been provided to them in accordance
with the plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to
the Executive, as in effect generally at any time thereafter
with respect to other peer executives of the Company and its
Affiliated Companies and their families, provided, however,
that if the Executive becomes reemployed with another employer
and is eligible to receive medical and other welfare benefits
described herein shall be secondary to those provided under
such other plan during such applicable period of eligibility.
For purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained
employed until expiration of the Employment Period and to have
retired on the last day of such period;
(iii) the Company shall, at its sole expense as
incurred, provide the Executive with outplacement services the
scope and provider of which shall be selected by the Executive
in his sole discretion; and
(iv) the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other
amounts or benefits required to be paid or provided or which
the Executive is eligible to receive under any plan, program,
policy or practice or contract or agreement of the Company and
its Affiliated Companies (such other amounts and benefits
shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
7
Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and Affiliated Companies to the estates and
beneficiaries of peer executives of the Company and such Affiliated Companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its Affiliated
Companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Company and its Affiliated Companies to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its Affiliated Companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
(e) Other than in Connection with a Change in Control. If the
Executive's employment is terminated other than in connection with a Change of
Control and other than for Cause, Death or Disability, or by the Executive for
Good Reason, the Company shall pay or provide to the Executive the Accrued
Obligations and Other Benefits to which the Executive is entitled, plus a sum
equal to the Executive's Annual Base Salary and Average Annual Bonus.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its Affiliated Companies
and for which the Executive may qualify, nor, subject to Section 11(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its Affiliated
Companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its Affiliated Companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not the Executive obtains other
employment.
9. Confidential Information. Executive shall hold in a fiduciary capacity
for the benefit of the Company all secret or confidential information, knowledge
or data relating to the Company or any of its Affiliated Companies, and their
respective businesses, which shall have been obtained by the Executive during
the Executive's employment by the company or any of its Affiliated Companies and
which shall not be or become public knowledge (other than by acts by the
8
Executive or representatives of the Executive in violation of this Agreement).
After termination of the Executive's employment with the Company, the Executive
shall not, without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 9 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
10. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such success had taken place. As
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which assumed and
agrees to perform this Agreement by operation of law, or otherwise.
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Utah, without reference to principles of conflict
of laws. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Fred P. Lampropoulos
10664 South Trail Ridge Circle
Sandy, Utah 84092
If to the Company:
Merit Medical Sys0tems, Inc.
1600 West Merit Parkway
South Jordan, Utah 84095
Attention: Kent W. Stanger, Chief Financial Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
9
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be0 deemed to be a
waiver of such provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date, this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in it name on its behalf, all
as of the date and year first-above written.
/s/ FRED P. LAMPROPOULOS
-----------------------------------------
MERIT MEDICAL SYSTEMS, INC.
By /s/ KENT W. STANGER
-----------------------------------------
Its Chief Financial Officer
----------------------------------------
10
Exhibit 10.9 Employee Agreement between the Company and Kent W. Stanger.
EMPLOYMENT AGREEMENT
AGREEMENT by and between Merit Medical Systems, Inc., a Utah
corporation (the "Company") and Kent W. Stanger(the "Executive"), dated as of
the 1st day of April, 1998.
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Co0mpany and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
The Board of Directors further believes it is appropriate to provide for
severance payments and benefits for the Executive in the event of termination of
employment not related to a Change of Control under the circumstances
hereinafter set forth. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
A G R E E M E N T:
NOW, THEREFORE, it is hereby agreed as follows:
1. Certain Definitions.
(a) The "Effective Date" shall mean the earlier of the first date
during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs or the termination of an
Executive's employment unrelated to a Change of Control as provided in Section 5
hereof. Anything in this Agreement to the contrary notwithstanding, if a Change
of Control occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment
(i) was at the request of a third party who has taken steps
reasonably calculated to effect a Change of Control; or
(ii) otherwise arose in connection with or anticipation of a
Change of Control, then for all purposes of this Agreement the "Effective Date"
shall mean the date immediately prior to the date of such termination of
employment.
1
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the second anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate two years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either
(i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock"); or
(ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control
(i) any acquisition directly from the Company;
(ii) any acquisition by the Company;
(iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company; or
(iv) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of
this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination,
2
(i) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
su0bstantially all of the Company's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be;
(ii) no Person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination; and
(iii) at least a majority of the members of the Board of
Directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive
in its employ, and the Executive hereby agrees to remain in the employ of the
Company, subject to the terms a0nd conditions of this Agreement, for the period
commencing on the Effective Date and ending on the second anniversary of such
date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
3
(b) Compensation.
(i) Base Salary. During the Employment Period the Executive
shall receive an annual base salary ("Annual Base Salary"), which shall be paid
at a monthly rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base Salary
shall be reviewed no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter at least annually.
Any increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term "Annual Base Salary" as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "Affiliated Companies" shall include any company
controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's average annual cash bonus for the last three full fiscal years prior
to the Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year) (the "Average Annual
Bonus"). Each such Annual Bonus shall be paid no later than the end of the third
month of the fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Executive shall elect to defer the receipt of such
Annual Bonus.
(iii) Incentive Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its Affiliated
Companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its Affiliated Companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its Affiliated
Companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its Affiliated
Companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its Affiliated Companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its Affiliated
Companies.
4
(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its Affiliated Companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its Affiliated Companies.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
Affiliated Companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its Affiliated Companies.
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its Affiliated Companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its Affiliated Companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its Affiliated Companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its Affiliated Companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 11(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure results form incapacity due to physical
mental illness), after a written demand for substantial performance is delivered
5
to the Executive by the Board or the Chief Executive Officer of the Company
which specifically identifies the manner in which the Board or Chief Executive
Officer believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willfull engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any other
action by the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than as provided in Section 4(a)(i)(B) hereof or
the Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
6
(v) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement.
Anything in this Agreement to the contrary notwithstanding, a termination by the
Executive for any reason during the 30-day period immediately following the
first anniversary of the Effective Date shall be deemed to be a termination for
Good Reason for all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 11(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which
(i) indicates the specific termination provision in this
Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated, and
(iii) if the Date of Termination (as defined below) is other
than the date of receipt of such notice, specifies the termination date (which
date shall not be more than 30 days after the giving of such notice). The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of the receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other than for Cause, Death or Disability. If, during
the Employment Period, the Company shall terminate the Executive's employment
other than for Cause, Death or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts:
(A) the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, (2)
the product of (x) any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year consisting of less
than twelve full months or during which the Executive was employed for
less than twelve full months), for the most recently completed fiscal
year during the Employment Period, if any, and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365
and (3) any compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) and any accrued vacation
pay, in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations;" and
7
(B) the amount equal to the sum of (x) the Executive's
Annual Base Salary and (y) the Average Annual Bonus multiplied by the
number of whole or fractional years remaining in the Employment Period;
and
(ii) for the remainder of the Employment Period after
the Executive's Date of Termination, or such longer period as may be
provided by the terms of the appropriate plan, program, practice or
policy, the Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to
the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its Affiliated
Companies and their families, provided, however, that if the Executive
becomes reemployed with another employer and is eligible to receive
medical and other welfare benefits described herein shall be secondary
to those provided under such other plan during such applicable period
of eligibility. For purposes of determining eligibility (but not the
time of commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive
shall be considered to have remained employed until expiration of the
Employment Period and to have retired on the last day of such period;
(iii) the Company shall, at its sole expense as
incurred, provide the Executive with outplacement services the scope
and provider of which shall be selected by the Executive in his sole
discretion; and
(iv) the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts
or benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its Affiliated Companies (such
other amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and Affiliated Companies to the estates and
beneficiaries of peer executives of the Company and such Affiliated Companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its Affiliated
Companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
8
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Company and its Affiliated Companies to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its Affiliated Companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
(e) Other than in Connection with a Change in Control. If the
Executive's employment is terminated other than in connection with a Change of
Control and other than for Cause, Death or Disability, or by the Executive for
Good Reason, the Company shall pay or provide to the Executive the Accrued
Obligations and Other Benefits to which the Executive is entitled, plus a sum
equal to the Executive's Annual Base Salary and Average Annual Bonus.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its Affiliated Companies
and for which the Executive may qualify, nor, subject to Section 11(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its Affiliated
Companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its Affiliated Companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not the Executive obtains other
employment.
9. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its Affiliated Companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the company or any of its Affiliated
Companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 9 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
9
10. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such success had taken place. As
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which assumed and
agrees to perform this Agreement by operation of law, or otherwise.
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Utah, without reference to principles of conflict
of laws. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Kent W. Stanger
235 East 1875 North
Centerville, Utah 84014
If to the Company:
Merit Medical Systems, Inc.
1600 West Merit Parkway
South Jordan, Utah 84095
Attention: Kent W. Stanger, Chief Financial Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
10
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date, this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in it name on its behalf, all as of the
date and year first-above written.
/s/ KENT W. STANGER
MERIT MEDICAL SYSTEMS, INC.
By /s/ FRED P. LAMPROPOULOS
----------------------------------
Its President
---------------------------------
11
Exhibit 10.10 Employee Agreement between the Company and B. Leigh Weintraub
EMPLOYMENT AGREEMENT
AGREEMENT by and between Merit Medical Systems, Inc., a Utah
corporation (the "Company") and B. Leigh Weintraub (the "Executive"), dated as
of the 1st day of April, 1998.
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
The Board of Directors further believes it is appropriate to provide for
severance payments and benefits for the Executive in the event of termination of
employment not related to a Change of Control under the circumstances
hereinafter set forth. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
A G R E E M E N T:
NOW, THEREFORE, it is hereby agreed as follows:
1. Certain Definitions.
(a) The "Effective Date" shall mean the earlier of the first date
during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs or the termination of an
Executive's employment unrelated to a Change of Control as provided in Section 5
hereof. Anything in this Agreement to the contrary notwithstanding, if a Change
of Control occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment
(i) was at the request of a third party who has taken steps
reasonably calculated to effect a Change of Control; or
(ii) otherwise arose in connection with or anticipation of a
Change of Control, then for all purposes of this Agreement the "Effective Date"
shall mean the date immediately prior to the date of such termination of
employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date he0reof and ending on the second anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate two years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
1
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either
(i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock"); or
(ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control
(i) any acquisition directly from the Company;
(ii) any acquisition by the Company;
(iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company; or
(iv) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of
this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination,
(i) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
2
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be;
(ii) no Person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination; and
(iii) at least a majority of the members of the Board of
Directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive
in its employ, and the Executive hereby agrees to remain in the employ of the
Company, subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the second anniversary of such
date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
3
(b) Compensation.
(i) Base Salary. During the Employment Period the Executive
shall receive an annual base salary ("Annual Base Salary"), which shall be paid
at a monthly rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base Salary
shall be reviewed no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter at least annually.
Any increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term "Annual Base Salary" as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "Affiliated Companies" shall include any company
controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's average annual cash bonus for the last three full fiscal years prior
to the Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year) (the "Average Annual
Bonus"). Each such Annual Bonus shall be paid no later than the end of the third
month of the fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Executive shall elect to defer the receipt of such
Annual Bonus.
(iii) Incentive Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its Affiliated
Companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its Affiliated Companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its Affiliated
Companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its Affiliated
Companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its Affiliated Companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its Affiliated
Companies.
4
(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its Affiliated Companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its Affiliated Companies.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
Affiliated Companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its Affiliated Companies.
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its Affiliated Companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its Affiliated Companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its Affiliated Companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its Affiliated Companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 11(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's
d0uties with the Company on a full-time basis for 180 consecutive business days
as a result of incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company or its insurers
and acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
5
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure results form incapacity due to physical
mental illness), after a written demand for substantial performance is delivered
to the Executive by the Board or the Chief Executive Officer of the Company
which specifically identifies the manner in which the Board or Chief Executive
Officer believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willfull engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any other
action by the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than as provided in Section 4(a)(i)(B) hereof or
the Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
6
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement.
Anything in this Agreement to the contrary notwithstanding, a termination by the
Executive for any reason during the 30-day period immediately following the
first anniversary of the Effective Date shall be deemed to be a termination for
Good Reason for all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 11(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which
(i) indicates the specific termination provision in this
Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated, and
(iii) if the Date of Termination (as defined below) is other
than the date of receipt of such notice, specifies the termination date (which
date shall not be more than 30 days after the giving of such notice). The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of the receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other than for Cause, Death or Disability. If, during
the Employment Period, the Company shall terminate the Executive's employment
other than for Cause, Death or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts:
7
(A) the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, (2)
the product of (x) any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year consisting of less
than twelve full months or during which the Executive was employed for
less than twelve full months), for the most recently completed fiscal
year during the Employment Period, if any, and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365
and (3) any compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) and any accrued vacation
pay, in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations;" and
(B) the amount equal to the sum of (x) the Executive's
Annual Base Salary and (y) the Average Annual Bonus multiplied by the
number of whole or fractional years remaining in the Employment Period;
and
(ii) for the remainder of the Employment Period after the
Executive's Date of Termination, or such longer period as may be
provided by the terms of the appropriate plan, program, practice or
policy, the Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to
the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its Affiliated
Companies and their families, provided, however, that if the Executive
becomes reemployed with another employer and is eligible to receive
medical and other welfare benefits described herein shall be secondary
to those provided under such other plan during such applicable period
of eligibility. For purposes of determining eligibility (but not the
time of commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive
shall be considered to have remained employed until expiration of the
Employment Period and to have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred,
provide the Executive with outplacement services the scope and provider
of which shall be selected by the Executive in his sole discretion; and
(iv) the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its Affiliated Companies (such
other amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and Affiliated Companies to the estates and
8
beneficiaries of peer executives of the Company and such Affiliated Companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its Affiliated
Companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Company and its Affiliated Companies to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its Affiliated Companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
(e) Other than in Connection with a Change in Control. If the
Executive's employment is terminated other than in connection with a Change of
Control and other than for Cause, Death or Disability, or by the Executive for
Good Reason, the Company shall pay or provide to the Executive the Accrued
Obligations and Other Benefits to which the Executive is entitled, plus a sum
equal to the Executive's Annual Base Salary and Average Annual Bonus.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its Affiliated Companies
and for which the Executive may qualify, nor, subject to Section 11(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its Affiliated
Companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its Affiliated Companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
9
8. Full Settlement. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not the Executive obtains other
employment.
9. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its Affiliated Companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the company or any of its Affiliated
Companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 9 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
10. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such success had taken place. As
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which assumed and
agrees to perform this Agreement by operation of law, or otherwise.
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Utah, without reference to principles of conflict
of laws. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
B. Leigh Weintraub
12987 South Brookhaven Cove
Draper, Utah 84020
10
If to the Company:
Merit Medical Systems, Inc.
1600 West Merit Parkway
South Jordan, Utah 84095
Attention: Kent W. Stanger, Chief Financial Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date, this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in it name on its behalf, all as of the
date and year first-above written.
/s/ B. LEIGH WEINTRAUB
----------------------------------
MERIT MEDICAL SYSTEMS, INC.
By /s/ FRED P. LAMPROPOULOS
----------------------------------
Its President
---------------------------------
11
Exhibit 10.11 Employee Agreement between the Company and Brian Ferrand
EMPLOYMENT AGREEMENT
AGREEMENT by and between Merit Medical Systems, Inc., a Utah
corporation (the "Company") and Brian Ferrand (the "Executive"), dated as of the
1st day of April, 1998.
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
The Board of Directors further believes it is appropriate to provide for
severance payments and benefits for the Executive in the event of termination of
employment not related to a Change of Control under the circumstances
hereinafter set forth. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
A G R E E M E N T:
NOW, THEREFORE, it is hereby agreed as follows:
1. Certain Definitions.
(a) The "Effective Date" shall mean the earlier of the first date
during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs or the termination of an
Executive's employment unrelated to a Change of Control as provided in Section 5
hereof. Anything in this Agreement to the contrary notwithstanding, if a Change
of Control occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment
(i) was at the request of a third party who has taken steps
reasonably calculated to effect a Change of Control; or
(ii) otherwise arose in connection with or anticipation of a
Change of Control, then for all purposes of this Agreement the "Effective Date"
shall mean the date immediately prior to the date of such termination of
employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the second anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate two years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give notice
to the Executive that the Change of Control Period shall not be so extended.
1
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either
(i) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock"); or
(ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control
(i) any acquisition directly from the Company;
(ii) any acquisition by the Company;
(iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company; or
(iv) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of
this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination,
(i) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be;
(ii) no Person (excluding any corporation resulting from such
Business Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
2
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination; and
(iii) at least a majority of the members of the Board of
Directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive
in its employ, and the Executive hereby agrees to remain in the employ of the
Company, subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the second anniversary of such
date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned at any time during the 120-day period immediately preceding the
Effective Date and (B) the Executive's services shall be performed at the
location where the Executive was employed immediately preceding the Effective
Date or any office or location less than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period the Executive
shall receive an annual base salary ("Annual Base Salary"), which shall be paid
at a monthly rate, at least equal to twelve times the highest monthly base
salary paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company and its affiliated companies in
respect of the twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base Salary
3
shall be reviewed no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter at least annually.
Any increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term "Annual Base Salary" as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "Affiliated Companies" shall include any company
controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's average annual cash bonus for the last three full fiscal years prior
to the Effective Date (annualized in the event that the Executive was not
employed by the Company for the whole of such fiscal year) (the "Average Annual
Bonus"). Each such Annual Bonus shall be paid no later than the end of the third
month of the fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Executive shall elect to defer the receipt of such
Annual Bonus.
(iii) Incentive Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its Affiliated
Companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the Company and its Affiliated Companies for the
Executive under such plans, practices, policies and programs as in effect at any
time during the 120-day period immediately preceding the Effective Date or if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its Affiliated
Companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its Affiliated
Companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its Affiliated Companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its Affiliated
Companies.
(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its Affiliated Companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its Affiliated Companies.
4
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
Affiliated Companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its Affiliated Companies.
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its Affiliated Companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its Affiliated Companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its Affiliated Companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its Affiliated Companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 11(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure results form incapacity due to physical
mental illness), after a written demand for substantial performance is delivered
to the Executive by the Board or the Chief Executive Officer of the Company
which specifically identifies the manner in which the Board or Chief Executive
Officer believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willfull engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company.
5
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or any other
action by the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than as provided in Section 4(a)(i)(B) hereof or
the Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement;
or
(v) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement.
Anything in this Agreement to the contrary notwithstanding, a termination by the
Executive for any reason during the 30-day period immediately following the
first anniversary of the Effective Date shall be deemed to be a termination for
Good Reason for all purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 11(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which
(i) indicates the specific termination provision in this
Agreement relied upon,
6
(ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated, and
(iii) if the Date of Termination (as defined below) is other
than the date of receipt of such notice, specifies the termination date (which
date shall not be more than 30 days after the giving of such notice). The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of the receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination.
(a) Good Reason; Other than for Cause, Death or Disability. If, during
the Employment Period, the Company shall terminate the Executive's employment
other than for Cause, Death or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the following
amounts:
(A) the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, (2)
the product of (x) any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year consisting of less
than twelve full months or during which the Executive was employed for
less than twelve full months), for the most recently completed fiscal
year during the Employment Period, if any, and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365
and (3) any compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon) and any accrued vacation
pay, in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations;" and
(B) the amount equal to the sum of (x) the Executive's
Annual Base Salary and (y) the Average Annual Bonus multiplied by the
number of whole or fractional years remaining in the Employment Period;
and
(ii) for the remainder of the Employment Period after the
Executive's Date of Termination, or such longer period as may be
provided by the terms of the appropriate plan, program, practice or
policy, the Company shall continue benefits to the Executive and/or the
7
Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to
the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its Affiliated
Companies and their families, provided, however, that if the Executive
becomes reemployed with another employer and is eligible to receive
medical and other welfare benefits described herein shall be secondary
to those provided under such other plan during such applicable period
of eligibility. For purposes of determining eligibility (but not the
time of commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive
shall be considered to have remained employed until expiration of the
Employment Period and to have retired on the last day of such period;
(iii) the Company shall, at its sole expense as
incurred, provide the Executive with outplacement services the scope
and provider of which shall be selected by the Executive in his sole
discretion; and
(iv) the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts
or benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its Affiliated Companies (such
other amounts and benefits shall be hereinafter referred to as the
"Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and Affiliated Companies to the estates and
beneficiaries of peer executives of the Company and such Affiliated Companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its Affiliated
Companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Company and its Affiliated Companies to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its Affiliated Companies and their families.
8
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
(e) Other than in Connection with a Change in Control. If the
Executive's employment is terminated other than in connection with a Change of
Control and other than for Cause, Death or Disability, or by the Executive for
Good Reason, the Company shall pay or provide to the Executive the Accrued
Obligations and Other Benefits to which the Executive is entitled, plus a sum
equal to the Executive's Annual Base Salary and Average Annual Bonus.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its Affiliated Companies
and for which the Executive may qualify, nor, subject to Section 11(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its Affiliated
Companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its Affiliated Companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
8. Full Settlement. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not the Executive obtains other
employment.
9. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its Affiliated Companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the company or any of its Affiliated
Companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 9 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
9
10. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such success had taken place. As
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor to its business and/or assets as aforesaid which assumed and
agrees to perform this Agreement by operation of law, or otherwise.
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Utah, without reference to principles of conflict
of laws. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Brian Ferrand
12855 East Summit Drive
Scottsdale, Arizona 85259
If to the Company:
Merit Medical Systems, Inc.
1600 West Merit Parkway
South Jordan, Utah 84095
Attention: Kent W. Stanger, Chief Financial Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
10
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date, this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in it name on its behalf, all as of the
date and year first-above written.
/s/ BRIAN FERREND
------------------------------------
MERIT MEDICAL SYSTEMS, INC.
By /s/ FRED P. LAMPROPOULOS
----------------------------------
Its President
---------------------------------
11
Exhibit 23.1 - ------------ INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-48227, 33-46964, 33-10509, 333-92053, 333-58112, and 333-58162 of Merit Medical Systems, Inc. on Form S-8 of our report dated February 26, 2003, appearing in this Annual Report on Form 10-K of Merit Medical Systems, Inc. and subsidiaries for the year ended December 31, 2002. /s/ DELOITTE & TOUCHE LLP - ------------------------------ Salt Lake City, Utah March 28, 2003
Exhibit 99.1 Certification of Chief Executive Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Merit Medical Systems, Inc. (the
"Company") on Form 10-K for the fiscal year ended December 31, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Fred P. Lampropoulos, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Fred. P. Lampropoulos
- -------------------------
Fred. P. Lampropoulos
Chief Executive Officer
March 28, 2003
A signed original of this written
statement required by Section 906
of the Sarbanes-Oxley Act of 2002
has been provided to the Company
and will be retained by the
Company and furnished to the
Securities and Exchange Commission
or its staff upon request.
Exhibit 99.2 Certification of Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Merit Medical Systems, Inc. (the
"Company") on Form 10-K for the fiscal year ended December 31, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Kent W. Stanger, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Kent W. Stanger
- -------------------
Kent W. Stanger
Chief Financial Officer
March 28, 2003
A signed original of this written
statement required by Section 906
of the Sarbanes-Oxley Act of 2002
has been provided to the Company
and will be retained by the
Company and furnished to the
Securities and Exchange Commission
or its staff upon request.