SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997.
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____.
Commission File Number 0-18592
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MERIT MEDICAL SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
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Utah 87-0447695
(State or other jurisdiction of incorporation (I.R.S. Identification No.)
or organization)
1600 West Merit Parkway, South Jordan UT, 84095
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(Address of Principal Executive Offices)
(801) 253-1600
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Common Stock 7,282,841
- -------------- -------------------------------
TITLE OR CLASS Number of Shares Outstanding at
August 12, 1997
MERIT MEDICAL SYSTEMS, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 .............................................1
Consolidated Statements of Operations for the three and six months
ended June 30, 1997 and 1996.......................................3
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996.......................................4
Notes to Consolidated Financial Statements.........................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............10
Item 6. Exhibits and Reports on Form 8-K...............................11
SIGNATURES..................................................................11
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
MERIT MEDICAL SYSTEMS, INC.
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CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
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June 30,
1997 December 31,
ASSETS (Unaudited) 1996
- ------ ------------ --------------
CURRENT ASSETS:
Cash $ 536,664 $ 1,262,950
Trade receivables - net 8,448,047 7,379,079
Employee and related party receivables 291,103 327,425
Irish Development Agency grant receivable 756,393 416,891
Inventories 14,409,683 13,852,360
Prepaid expenses and other assets 798,602 518,823
Deferred income tax assets 716,005 729,060
------------- -------------
Total current assets 25,956,497 24,486,588
------------- -------------
PROPERTY AND EQUIPMENT:
Land 1,103,813 1,107,351
Building 996,198 1,043,804
Automobiles 142,291 144,535
Manufacturing equipment 10,008,473 8,656,145
Furniture and fixtures 4,053,570 3,816,402
Leasehold improvements 4,396,514 2,673,897
Construction-in-progress 3,344,302 5,193,993
------------- -------------
Total 24,045,161 22,636,127
Less accumulated depreciation
and amortization (8,541,379) (7,605,728)
------------- -------------
Property and equipment - net 15,503,782 15,030,399
------------- -------------
OTHER ASSETS:
Intangible assets - net 1,872,685 1,839,532
Cost in excess of the fair value
of assets acquired - net 600,460
Prepaid royalty - net 150,000 192,857
Deposits 240,517 169,177
Total other assets 2,863,662 2,201,566
TOTAL $ 44,323,941 $ 41,718,553
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Continued on Page 2
See Notes to Consolidated Financial Statements
1
MERIT MEDICAL SYSTEMS, INC.
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CONSOLIDATED BALANCE SHEETS (Continued)
JUNE 30, 1997 AND DECEMBER 31, 1996
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LIABILITIES AND STOCKHOLDERS' EQUITY June 30,
1997 December 31,
(Unaudited) 1996
------------ -------------
CURRENT LIABILITIES:
Line of credit 4,806,644 4,533,873
Current portion of long-term debt 1,451,663 1,388,576
Trade payables 2,303,272 2,709,869
Accrued expenses 2,748,776 2,969,246
Advances from employees 77,447 107,907
Income taxes payable 425,842 15,906
------------ -------------
Total current liabilities 11,813,644 11,725,377
DEFERRED INCOME TAX LIABILITIES 851,891 852,578
LONG-TERM DEBT 4,377,434 4,822,126
DEFERRED CREDITS 1,604,386 1,467,660
------------ -------------
Total liabilities 18,647,355 18,867,741
------------ -------------
MINORITY INTEREST IN SUBSIDIARY 372,083 363,689
------------ -------------
STOCKHOLDERS' EQUITY:
Common stock - no par value;
10,000,000 shares authorized;
7,271,146 and 6,942,290 shares
issued at June 30, 1997
and December 31, 1996, respectively 16,803,729 14,184,975
Retained earnings 8,792,264 8,316,237
Foreign currency translation adjustment (291,490) (14,089)
------------ -------------
Total stockholders' equity 25,304,503 22,487,123
------------ -------------
TOTAL $44,323,941 $41,718,553
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See Notes to Consolidated Financial Statements
2
MERIT MEDICAL SYSTEMS, INC.
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CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 and 1996 (Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
---------------------------------------------------
SALES $ 15,326,070 $12,652,128 $ 29,159,213 $ 24,782,143
COST OF SALES 9,423,324 7,431,664 17,875,177 14,444,334
---------- ---------- ---------- ----------
GROSS MARGIN 5,902,746 5,220,464 11,284,036 10,337,809
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Selling, general and administrative 3,928,977 3,621,522 7,768,415 7,039,554
Research and development 1,165,286 575,469 2,075,339 1,191,313
----------- --------- ---------- -----------
TOTAL 5,094,263 4,196,991 9,843,754 8,230,867
----------- --------- ---------- -----------
INCOME FROM OPERATIONS 808,483 1,023,473 1,440,282 2,106,942
OTHER EXPENSE 230,772 184,132 410,305 346,746
---------- --------- ---------- -----------
INCOME BEFORE INCOME TAX EXPENSE 577,711 839,341 1,029,977 1,760,196
INCOME TAX EXPENSE 296,470 312,743 545,556 638,605
MINORITY INTEREST IN (INCOME)
LOSS OF SUBSIDIARY 2,719 (40,140) (8,394) (102,686)
---------- --------- --------- -----------
NET INCOME $ 283,960 $ 486,458 $ 476,027 $ 1,018,905
========== ========= ========= ===========
NET INCOME PER COMMON
AND COMMON EQUIVALENT SHARE $ 0.04 $ 0.07 $ 0.07 $ 0.15
========== ========= ========= ===========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 7,334,727 7,107,358 7,194,421 7,024,424
========== ========= ========= ===========
See Notes to Consolidated Financial Statements
3
MERIT MEDICAL SYSTEMS, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 and 1996 (Unaudited)
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June 30, June 30,
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 476,027 $ 1,018,905
----------- -----------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,242,618 1,204,057
Bad debt expense 61,130 14,143
(Gains) losses on sales and abandonment of
property and equipment (3,477) 2,150
Amortization of deferred credit (20,972)
Deferred income taxes 12,368 (44,002)
Minority interest in income of subsidiary 8,394 102,686
Changes in operating assets and liabilities net of
effects from purchase of
UMI:
Trade receivables (1,130,098) (665,769)
Employee and related party receivables 36,322 34,742
Irish Development Agency grant receivable (164,437) (119,100)
Inventories 116,521 (828,754)
Prepaid expenses (279,779) (300,761)
Deposits and other (71,340) 8,466
Trade payables (406,597) (482,957)
Accrued expenses (220,470) 462,973
Advances from employees (30,460) 43,044
Income taxes 409,936 49,040
Other (277,401) (39,163)
----------- -----------
Total adjustments (717,742) (559,205)
----------- -----------
Net cash provided by (used in) operating activities (241,715) 459,700
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment (1,044,906) (1,230,254)
Cash payment in connection with assets purchased from UMI (59,736)
Intangible assets (112,854) (326,888)
Proceeds from the sale of property and equipment 18,588
----------- -----------
Net cash used in investing activities (1,198,908) (1,557,142)
----------- -----------
Continued on page 5
See Notes to Consolidated Financial Statements
4
MERIT MEDICAL SYSTEMS, INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (Unaudited)
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June 30, June 30,
1997 1996
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Deferred credit 320,404
Line of credit 272,771
Issuance of common stock 1,118,754 704,801
Long-term debt 2,200,000
Principal payments on:
Long-term debt (659,821) (689,833)
Line of credit (1,245,256)
Deferred credit (17,367) (34,734)
----------- -----------
Net cash provided by financing activities 714,337 1 ,255,382
----------- -----------
NET INCREASE (DECREASE) IN CASH (726,286) 157,940
CASH AT BEGINNING OF PERIOD 1,262,950 270,841
----------- -----------
CASH AT END OF PERIOD $ 536,664 $ 428,781
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the period for:
Interest (including capitalized interest
of $63,338 and $85,291, respectively) $ 461,352 $ 315,065
=========== ===========
Income taxes $ 123,252 $ 633,567
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
During the six months ended June 30, 1997 and 1996 the Company issued notes
payable totaling $278,216 and $1,345,830 respectively, for manufacturing
equipment, furniture and fixtures, land and building.
The Company purchased certain assets from an unrelated company, Universal
Medical Instruments (UMI), during the six months ended June 30, 1997. In
connection with this transaction, the following assets were recorded:
Inventory $ 673,844
Property and equipment 259,354
----------
933,198
Purchase price-consisting of 152,424
shares of the Company's common stock
valued at $1,500,000 and $59,736 in cash 1,559,736
----------
Cost in excess of the fair value of
assets acquired $ 626,538
==========
See Notes to Consolidated Financial Statements
5
MERIT MEDICAL SYSTEMS, INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. Basis of Presentation. In the opinion of management, the accompanying
consolidated financial statements contain all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of the financial
position of the Company as of June 30, 1997 and December 31, 1996, and the
results of its operations and cash flows for the three and six months ended June
30, 1997 and 1996. The results of operations for the three and six months ended
June 30, 1997 and 1996 are not necessarily indicative of the results for a full
year period.
2. Inventories. Inventories at June 30, 1997 and December 31, 1996 consisted of
the following:
June 30, December 31,
1997 1996
-------------- -------------
Raw materials $ 4,704,880 $4,025,497
Work-in-process 4,960,135 3,806,150
Finished goods 4,744,668 6,020,713
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Total $ 14,409,683 $13,852,360
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3. Income Taxes. The effective tax for the three and six months ended June 30,
1997, is higher than the federal statutory tax rate largely due to losses
incurred by the Company's Irish subsidiary for which a tax benefit was recorded
at a rate of 10% vs. a 35% statutory rate.
4. Recently Issued Financial Accounting Standards. In February 1997, the
Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share".
This standard established standards for computing and presenting earnings per
share (EPS). SFAS No. 128 simplifies the approach for computing earnings per
share previously found in Accounting Principles Board Opinion (APB) Opinion No.
15. It replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the face of
the income statement for all entities with complex capital structures. Under the
new statement basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. Diluted EPS is computed similarly to
fully diluted EPS pursuant to APB Opinion No. 15. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods with earlier application not permitted. The
computation of basic EPS under SFAS No. 128 would have resulted in net income
per common share of $ .04 and $.07 for three and six months ended June 30, 1997,
respectively. Diluted EPS computed under FASB No. 128 would have resulted in net
income per common share of $ .04 and $.07 for the three and six months ended
June 30,1997, respectively.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
which establishes standards for reporting and display of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. SFAS No. 130 requires that all items to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. It does not require a specific format for that
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. The impact on the Company of the adoption
of SFAS 130 has not yet been fully determined.
6
MERIT MEDICAL SYSTEMS, INC.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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In June 1997, the FASB issued SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information" which establishes standards for the way that
public businesses report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 also establishes standards for related disclosures
about products and services, geographical areas, and major customers. It
supersedes SFAS No. 14 but retains the requirement to report information about
major customers. It amends SFAS No. 94 to remove the special disclosure
requirements for previously unconsolidated subsidiaries. SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997. In the initial year of application, comparative information for earlier
years is to be restated. It need not be applied to interim financial statements
in the initial year of its application, but comparative information for interim
periods in the initial year of application is to be reported in financial
statements for interim periods in the second year of application. The adoption
of SFAS No. 131 will result in additional disclosures but is not expected to
have a material impact on the Company's results of operations or financial
condition.
7
MERIT MEDICAL SYSTEMS, INC.
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ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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Operations. The Company achieved significant increases in sales for the three
and six months ended June 30, 1997 compared to the same periods in 1996. The
following table sets forth certain operational data as a percentage of sales for
the three and six months ended June 30, 1997 and 1996.
Three Months Ended Six Months Ended
June 30 June 30
--------- ---------
1997 1996 1997 1996
---- ---- ---- ----
Sales 100.0% 100.0% 100.0% 100.0%
Gross Margin 38.5 41.3 38.7 41.7
Selling, General and Administrative 25.6 28.6 26.6 28.4
Research & Development 7.6 4.5 7.1 4.8
Income From Operations 5.3 8.1 4.9 8.5
Other Expense 1.5 1.5 1.4 1.4
Net Income 1.9 3.8 1.6 4.1
Sales. Sales for the second quarter of 1997 ended June 30 were $15,326,070
compared to $12,652,128 for the same period last year, which represents a gain
of 21 percent. The Company's custom kit business grew by 18 percent during the
three-month period compared to the quarter ended June 30, 1996, while sales of
other devices including inflation devices, syringes, manifolds and needles grew
by 28 percent. Growth in all segments reflects continued market share gains and
acceptance of the Company's products, as well as procedural growth, particularly
in foreign markets. The Company's first product from the acquisition of
Universal Medical Instruments (UMI), introducer needles, has been well received,
with sales on an annualized basis approaching $1.5 million. Sales from
international operations rose by 23 percent for the three-month period compared
to the prior year's same quarter. These sales represented 22 percent of total
sales for the second quarter compared with 10 percent of total sales for the
prior year's same period. For the six-month period ended June 30, 1997 total
sales were $29,159,213 compared with $24,782,143 for the same period in 1996, a
gain of 18 percent. These gains were led by sales of the Company's manifold
devices, which rose 57 percent and stopcocks, which grew by 133 percent, while
custom kits grew by 9 percent. International sales were up 22 percent over the
prior year's period, and accounted for 23 percent of the Company's total revenue
mix compared with 22 percent of total revenues last year.
Gross Margin. Gross margin as a percentage of sales for the second quarter of
1997 was 38.5% compared to 41.3% for the same period in 1996. For the six months
ended June 30, 1997 gross margin was 38.7% as compared to 41.7% for the same
period in 1996. The decrease in gross margin for the three and six months ended
June 30, 1997 was primarily due to direct and indirect manufacturing labor
costs, which included wage increases in response to competition for direct labor
employees, price competition affecting several products, especially in European
markets, and a strong U.S. dollar affecting the translation of its foreign
European sales into U.S. dollars. Gross margin was also affected by startup and
transition costs in the Company's newly organized Vascular Access Division and
an expected decline in sales at Sentir, as Sentir's customers have been reducing
inventories.
8
MERIT MEDICAL SYSTEMS, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
- --------------------------------------------------------------------------------
Operating Expenses. Operating expenses were 33.2% of sales for the three months
ended June 30, 1997 and 1996. For the six months of 1997 operating expenses
increased slightly to 33.8% as compared to 33.2% for the same period in 1996.
Selling, general and administrative expenses as a percentage of sales declined
to 25.6% and 26.6% for the three and six months ended June 30, 1997 compared to
28.6% and 28.4% for the same periods in 1996. The improvement was primarily due
to economies of scale associated with increasing sales volumes and a continuous
Company-wide focus on achieving greater individual productivity. Although
selling, general and administrative expenses have declined, research and
development costs have increased approximately $600,000 for the second quarter
of 1997 compared to 1996. For the six months ended June 30, 1997 research and
development increased approximately $900,00 compared with 1996. The substantial
increase in research and development is part of the Company's long-term growth
strategy of expanding its business to new market segments within cardiology and
radiology with a view to increasing sales, margins and profitability.
Operating Income. During the quarter ended June 30, 1997, the Company reported
income from operations of $808,483 compared to $1,440,282, for the comparable
period in 1996. Operating income for the first six months of 1997 was $1,203,473
vs. $2,106,942 for the same period in 1996. The decrease in earnings for the
three and six months ended June 30, 1997 was attributable to the investment in
research and development, lower gross margins, increased production costs in
Europe for the release of a PTCA guidewire, and the transition to a direct sales
force in Canada, the Netherlands, Belgium and Luxemburg.
Liquidity and Capital Resources. At June 30, 1997, the Company's working capital
was $14.1 million which represented a current ratio of 2.2 to 1. During 1995,
the Company increased an available secured bank line of credit to $8.5 million
and obtained $2.2 million in term debt which was drawn down in February, 1996.
The line of credit bears interest at .25 percent over the bank's prime rate and
contains various conditions and restrictions. At June 30, 1997, the outstanding
balance under the line of credit was $4.8 million. Historically, the Company has
incurred significant expenses in connection with product development and
introduction of new products. Substantial capital has also been required to
finance growth in inventories and receivables. The Company's principal source of
funding for these and other expenses has been the sale of equity and cash
generated from operations, secured loans on equipment and bank lines of credit.
The Company believes that its present sources of liquidity and capital are
adequate for its current operations.
9
MERIT MEDICAL SYSTEMS, INC.
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PART II - OTHER INFORMATION
Item: 4 Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders (the "Annual Meeting")
on May 21, 1997 in South Jordan Utah. The following items of business were
considered at the Annual Meeting:
A: Election of Directors
Six persons were elected as members of the Board of Directors to serve
until the next annual meeting in 1998 or until their respective successors have
been duly elected and qualified. They are as follows:
Shares
Voted For
---------
Fred P. Lampropoulos 5,475,334
Kent W. Stanger 5,475,334
Rex C. Bean 5,475,334
Richard W. Edelman 5,475,334
James Ellis 5,475,334
Michael Stillabower 5,475,334
B. Amendment of the Company's Articles of Incorporation to classify the
Board of Directors into three classes and to provide for staggered terms.
A proposal to amend the Company's Articles of Incorporation to
classify the Board of Directors into three classes and to provide for staggered
terms was presented at the Annual Meeting and such proposal was approved by the
shareholders of the Company. The number of shares voted for such proposal was
3,161,677. The number of shares voted against such proposal was 970,848. The
number of shares abstaining from voting or broker non votes was 1,043,445.
C. Amendment of the Company's Articles of Incorporation to increase the
number of shares of capital stock which the Company is authorized to issue from
10,000,000 shares of Common Stock to 25,000,000 shares of capital stock,
including 20,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock.
A proposal to amend the Company's Articles of Incorporation to
increase the number of shares of capital stock which the Company is authorized
to issue from 10,000,000 shares of Common Stock to 25,000,000 shares of capital
stock was presented at the Annual Meeting and such proposal was approved by the
shareholders of the Company. The number of shares voted for the proposal was
2,962,020. The number of shares voted against such proposal was 977,908. The
number of shares abstaining from voting or broker non votes was 1,126,521.
D. Selection of Auditors.
A proposal to ratify the appointment of Deloitte & Touche LLP as the
independent auditor of the Company for 1997 was presented at the Annual Meeting
and such proposal was approved by the shareholders of the Company. The number of
shares voted for the proposal was 5,730,470. The number of shares voted against
such proposal was 4,450. The number of shares abstaining from voting was 16,777.
10
MERIT MEDICAL SYSTEMS, INC.
PART II - OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K - none
(b) Exhibits
S - K No. Description Exhibit No.
-------- ----------- -----------
3 Articles of Incorporation as Amended 1
27 Financial Data Schedule 2
SIGNATURES
Pursuant to the requirements 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.
MERIT MEDICAL SYSTEMS, INC.
REGISTRANT
Date: AUGUST 12, 1997
FRED P. LAMPROPOULOS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: AUGUST 12, 1997
KENT W. STANGER
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
11
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
MERIT MEDICAL SYSTEMS, INC.
Pursuant to the provisions of the Utah Revised Business Corporation Act,
the undersigned corporation (the "Corporation") hereby adopts the following
Articles of Amendment to its Articles of Incorporation:
I.
The name of the corporation is Merit Medical Systems, Inc.
II.
The following Amendments to the Articles of Incorporation were adopted by
the shareholders of the Corporation on May 21, 1997 in the manner prescribed by
the Utah Revised Business Corporation Act:
A. Article IV of the Articles of Incorporation is hereby amended to
read as follows:
ARTICLE IV
AUTHORIZED SHARES
The total number of shares of capital stock which the
corporation shall have authority to issue is 25 million (25,000,000)
of which five million (5,000,000) shall be shares of preferred
stock, no par value (hereinafter called "Preferred Stock") and 20
million (20,000,000) shall be shares of common stock, no par value
(hereinafter called "Common Stock").
The designation, powers, preferences and relative,
participating, optional or other special rights, and qualifications,
1
limitations or restrictions thereof, of each class of stock, and the
express grant of authority to the board of directors to amend these
Articles of Incorporation to fix the designation, powers,
preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of
each share of Preferred Stock which are not fixed by these Articles
of Incorporation, are as follows:
A. PREFERRED STOCK
1. Number; Series. The Preferred Stock may be issued in one or
more series, from time to time, with each such series to have such
designation, powers, preferences and relative, participating,
optional or other special rights and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in an
amendment to these Articles of Incorporation providing for the issue
of such series. The board of directors of the corporation is hereby
expressly vested with authority to amend the Articles of
Incorporation, without shareholder action or approval, to: (a)
create one or more series of Preferred Stock, fix the number of
shares of each such series (within the total number of authorized
shares of Preferred Stock available for designation as a part of
such series), and designate and determine, in whole or part, the
preferences, limitations, and relative rights of each series of
Preferred Stock; (b) alter or revoke the preferences, limitations
and relative rights granted to or imposed upon any wholly unissued
series of Preferred Stock; or (c) increase or decrease the number of
shares constituting any series of Preferred Stock (the number of
shares of which was originally fixed by the board of directors)
either before or after the issuance of shares of the series,
provided that the number may not be decreased below the number of
shares of such series then outstanding, or increased above the total
number of authorized shares of the Preferred Stock available for
designation as a part of such series. Without limiting the
foregoing, the authority of the board of directors with respect to
each such series shall include, but not be limited to, the
determination or fixing of the following:
(i) The distinctive designation and number of shares
comprising such series, which number may (except where otherwise
provided by the board of directors in creating such series) be
increased or decreased (but not below the number of shares then
outstanding) from time to time by like action of the board of
directors;
2
(ii) The dividend rate of such series, the conditions
and times upon which such dividends shall be payable, the relation
which such dividends shall bear to the dividends payable on any
other class or classes of stock or series thereof, or on the other
series of the same class, and whether dividends shall be cumulative
or noncumulative;
(iii) The conditions upon which the shares of such
series shall be subject to redemption by the corporation and the
times, prices and other terms and provisions upon which the shares
of the series may be redeemed;
(iv) Whether or not the shares of the series shall be
subject to the operation of retirement or sinking fund provisions to
be applied to the purchase or redemption of such shares and, if such
retirement or sinking fund be established, the annual amount thereof
and the terms and provisions relative to the operation thereof;
(v) Whether or not the shares of the series shall be
convertible into or exchangeable for shares of any other class or
classes, with or without par value, or of any other series of the
same class and, if provision is made for conversion or exchange, the
times, prices, rates, adjustments and other terms and conditions of
such conversion or exchange;
(vi) Whether or not the shares of the series shall have
voting rights, in addition to the voting rights provided by law,
and, if so, subject to the limitations hereinafter set forth, the
terms of such voting rights;
(vii) The rights of the shares of the series in the
event of voluntary or involuntary liquidation, dissolution or upon
distribution of assets of the corporation;
(viii) Any other powers, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, of the shares of such series,
as the board of directors may deem advisable.
2. Dividends. The holders of the shares of Preferred Stock
of each series shall be entitled to receive, when and as declared by
the board of directors, out of the funds legally available
3
for the payment of dividends, dividends at the rate fixed by the
board of directors for such series for the current period and, if
cumulative, for all prior periods for which such dividends are
cumulative.
Whenever, at any time, dividends on the then outstanding
Preferred Stock as may be required with respect to any series
outstanding shall have been paid or declared and set apart for
payment on the then outstanding Preferred Stock, and after complying
with respect to any retirement or sinking fund or funds for all
applicable series of Preferred Stock, the board of directors may,
subject to the provisions of the resolution or resolutions creating
the series of Preferred Stock, declare and pay dividends on the
Common Stock as provided in paragraph B.1. of this Article IV, and
the holders of shares of Preferred Stock shall not be entitled to
share therein, except as otherwise provided in the amendment
creating any series.
3. Liquidation; Dissolution. The holders of the Preferred
Stock of each series shall be entitled upon liquidation or
dissolution of the corporation to such preferences as are provided
in the amendment creating such series of Preferred Stock, and no
more, before any distribution of the assets of the corporation shall
be made to the holders of shares of the Common Stock. Whenever the
holders of shares of the Preferred Stock shall have been paid the
full amounts to which they shall be entitled, the holders of shares
of the Common Stock shall be entitled to share in all assets of the
corporation remaining as provided in paragraph B.2. of this Article
IV. If, upon such liquidation, dissolution or winding up, the assets
of the corporation distributable as aforesaid among the holders of
Preferred Stock of all series shall be insufficient to permit full
payment to them of said preferential amounts, then such assets shall
be distributed ratably among such holders in proportion to the
respective total amounts which they shall be entitled to receive as
provided in this paragraph 3.
4. Voting. Except as otherwise provided by an amendment to
the Articles of Incorporation creating any series of Preferred Stock
or by the general corporation law of Utah, the Common Stock issued
and outstanding shall have and possess the exclusive power to vote
for the election of directors and for all other purposes as provided
in paragraph B.3. of this Article IV.
4
5. Preemptive Rights. Except as may be provided in the
amendment adopted by the board of directors providing for the issue
of any series of Preferred Stock, no holder of shares of the
Preferred Stock of the corporation shall, as such holder, be
entitled as of right to subscribe for, purchase or receive any part
of any new or additional issue of stock of any class, whether now or
hereafter authorized, or of bonds, debentures or other securities
convertible into or exchangeable for stock, but all such additional
shares of stock of any class, or bonds, debentures or other
securities convertible into or exchangeable for stock, may be issued
and disposed of by the board of directors on such terms and for such
consideration, so far as may be permitted by law, and to such
persons, as the board of directors in its absolute discretion may
deem advisable.
B. COMMON STOCK
1. Dividends. Subject to the rights of the holders of
Preferred Stock, and subject to any other provisions of the Articles
of Incorporation, holders of Common Stock shall be entitled to
receive such dividends and other distributions in cash, stock or
property of the corporation as may be declared thereon by the board
of directors from time to time out of assets or funds of the
corporation legally available therefor.
2. Liquidation; Dissolution. In the event of any liquidation,
dissolution or winding up of the affairs of the corporation, whether
voluntary or involuntary, after payment or provision for payment of
the debts and other liabilities of the corporation and after payment
or provision for payment to the holders of each series of Preferred
Stock of all amounts required in accordance with paragraph A.3. of
this Article IV, the remaining assets and funds of the corporation
shall be divided among and paid to the holders of Common Stock.
3. Voting.
(a) At every meeting of the shareholders every holder of
Common Stock shall be entitled to one vote in person or by proxy for
each share of such Stock standing in his name on the stock transfer
records of the corporation.
(b) No shareholder shall have the right to cumulate
votes in the election of directors.
5
4. Preemptive Rights. No holder of shares of Common Stock of
the corporation shall, as such holder, be entitled as of right to
subscribe for, purchase or receive any part of any new or additional
issue of stock of any class, whether now or hereafter authorized, or
of bonds, debentures or other securities convertible into or
exchangeable for stock, but all such additional shares of stock of
any class, or bonds, debentures or other securities convertible into
or exchangeable for stock, may be issued and disposed of by the
board of directors on such terms and for such consideration, so far
as may be permitted by law, and to such persons, as the board of
directors in its absolute discretion may deem advisable.
B. Article VI of the Articles of Incorporation is hereby amended to
read as follows:
ARTICLE VI
DIRECTORS
The board of directors shall consist of such number of
members, which number shall not be less than three and not more than
nine as may be determined and established from time to time by the
board of directors and shall be divided into three classes, as
nearly equal in size as possible. No increase in the maximum number
of members shall be made except upon the affirmative vote of not
less than two-thirds of the outstanding capital stock of the
corporation entitled to vote thereon. The initial terms of directors
first elected or reelected by the shareholders after the adoption of
this amendment and revision of the Articles of Incorporation shall
be for the following terms of office:
Class A Directors - One Year
Class B Directors - Two Years
Class C Directors - Three Years
Upon the expiration of the initial term specified for each
class of directors, their successors shall be elected for three-year
terms or until such time as their successors shall be elected and
qualified, with one class of directors to be elected each year.
6
Vacancies on the board of directors, whether the result of
removal (with or without cause), death, resignation or otherwise,
shall be filled by majority vote of the remaining members of the
board of directors, regardless of whether such remaining members
constitute a quorum.
The corporation shall nominate persons to serve as members of
the board of directors upon the expiration of the term of each class
of directors, which nominations shall be submitted to the
shareholders at the annual meeting of shareholders for approval. Any
nominations for election to the board of directors shall be
received, with respect to any annual meeting of shareholders, not
later than the date specified by the board of directors for
submission of such nominations. Failure to submit timely nominations
shall prevent consideration of the nominations at such annual
shareholders' meetings.
Directors of the corporation may be removed "for cause" only
upon the affirmative vote of the holders of a majority of the
outstanding capital stock entitled to vote thereon. A director may
be removed for cause only after a finding that (i) the director
engaged in fraudulent or dishonest conduct or gross abuse of
authority or discretion, with respect to the corporation and (ii)
removal is in the best interests of the corporation. Directors of
the corporation may be removed for any reason other than cause only
upon the affirmative vote of the holders of not less than two-thirds
of the outstanding capital stock of the corporation entitled to vote
thereon.
III.
The number of shares of the capital stock of the Corporation outstanding
and entitled to be cast on the foregoing Amendments by the shareholders of the
Corporation was 7,239,681 shares of common stock (the "Common Stock"). No other
class of shares was issued and outstanding.
IV.
The number of shares of the Common Stock voted for the Amendment to
Article IV was 2,962,020 shares; 977,908 shares of the Common Stock were voted
against such Amendment. The number of shares of the Common Stock voted for the
Amendment to Article VI was 3,161,677 shares; 970,848 shares of the Common Stock
were voted against such Amendment.
7
DATED this 12 day of June , 1997.
Merit Medical Systems, Inc., a Utah corporation
By: /s/ KENT W. STANGER
-------------------------------------------
Kent W. Stanger, Chief Financial Officer,
Secretary and Treasurer
8
5
6-MOS
DEC-31-1997
JAN-01-1997
JUN-30-1997
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