NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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May 26, 1999
MERIT MEDICAL SYSTEMS, INC.
[MERIT LOGO]
You are cordially invited to attend the Annual Meeting of Shareholders
of Merit Medical Systems, Inc. (the "Company"), which will be held on Wednesday,
May 26, 1999 at 3:00 p.m., at the Company's corporate offices at 1600 West Merit
Parkway, South Jordan, Utah (the "Annual Meeting"), for the following purposes:
(1) To elect two directors of the Company, each to serve for a term of
three years or until their respective successors have been duly elected
and qualified;
(2) To consider and vote upon a proposal to approve the Merit Medical
Systems, Inc. 1999 Omnibus Stock Incentive Plan.
(3) To consider and vote upon a proposal to ratify the appointment of
Deloitte & Touche as independent auditor of the Company for the fiscal
year ending December 31, 1999; and
(4) To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on April 20,
1999 as the record date for the determination of shareholders entitled to
receive notice of and to vote at the Annual Meeting and at any adjournment or
postponement thereof.
By Order of the Board of Directors,
KENT W. STANGER
April 26, 1999 Chief Financial Officer, Secretary and Treasurer
IMPORTANT
Whether or not you expect to attend the Annual Meeting in person, to
assure that your shares will be represented, please complete, date, sign and
return the enclosed proxy without delay in the enclosed envelope, which requires
no additional postage if mailed in the United States. Your proxy will not be
used if you are present at the Annual Meeting and desire to vote your shares
personally.
MERIT MEDICAL SYSTEMS, INC.
1600 Merit Parkway
South Jordan, Utah 84095
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PROXY STATEMENT
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Annual Meeting of Shareholders
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May 26, 1999
SOLICITATION OF PROXIES
This Proxy Statement is being furnished to the shareholders of Merit
Medical Systems, Inc., a Utah corporation (the "Company"), in connection with
the solicitation by the Board of Directors of the Company of proxies from
holders of outstanding shares of the Company's common stock, no par value (the
"Common Stock"), for use at the Annual Meeting of Shareholders of the Company to
be held on Wednesday, May 26, 1999 and at any adjournment or postponement
thereof (the "Annual Meeting"). This Proxy Statement, the Notice of Annual
Meeting of Shareholders and the accompanying form of proxy are first being
mailed to shareholders of the Company on or about April 26, 1999.
The Company will bear all costs and expenses relating to the
solicitation of proxies, including the costs of preparing, printing and mailing
to shareholders this Proxy Statement and accompanying material. In addition to
the solicitation of proxies by use of the mails, the directors, officers and
employees of the Company, without receiving additional compensation therefor,
may solicit proxies personally or by telephone or facsimile. Arrangements will
be made with brokerage firms and other custodians, nominees and fiduciaries for
the forwarding of solicitation materials to the beneficial owners of the shares
of Common Stock held by such persons, and the Company will reimburse such
brokerage firms, custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred by them in connection therewith.
VOTING
The Board of Directors has fixed the close of business on April 20,
1999 as the record date for determination of shareholders entitled to receive
notice of and to vote at the Annual Meeting (the "Record Date"). As of the
Record Date, there were issued and outstanding 7,529,352 shares of Common Stock.
The holders of record of the shares of Common Stock on the Record Date entitled
to be voted at the Annual Meeting are entitled to cast one vote per share on
each matter submitted to a vote at the Annual Meeting.
Proxies
Shares of the Common Stock which are entitled to be voted at the Annual
Meeting and which are represented by properly executed proxies will be voted in
accordance with the instructions indicated on such proxies. If no instructions
are indicated, such shares will be voted FOR the election of each of the two
director nominees for their respective terms; FOR the approval of the Merit
Medical Systems, Inc. 1999 Omnibus Incentive Plan (the "Incentive Plan"); FOR
the ratification of the appointment of Deloitte & Touche to be the Company's
independent auditor for the fiscal year ending December 31, 1999; and in the
discretion of the proxy holder as to any other matters which may properly come
before the Annual Meeting. A shareholder who has executed and returned a proxy
may revoke it at any time prior to its exercise at the Annual Meeting by
executing and returning a proxy bearing a later date, by filing with the
Secretary of the Company, at the address set forth above, a written notice of
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revocation bearing a later date than the proxy being revoked, or by voting the
Common Stock covered thereby in person at the Annual Meeting.
Vote Required
A majority of the issued and outstanding shares of Common Stock
entitled to vote, represented in person or by proxy, is required for a quorum at
the Annual Meeting. Abstentions and broker non-votes will be counted as
"represented" for the purpose of determining the presence or absence of a
quorum. Under Utah law, once a quorum is established, shareholder approval with
respect to a particular proposal is generally obtained when the votes cast in
favor of a proposal exceed the votes cast against the proposal. Accordingly,
abstentions and broker non-votes will not generally have the effect of being
considered as votes cast against any matter considered at the Annual Meeting. In
the election of directors, the two nominees receiving the highest number of
votes will be elected.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
At the Annual Meeting, two directors of the Company are to be elected
to serve for a term of three years or until their successors shall be duly
elected and qualified. Each of the nominees for director, identified below, is
currently a director of the Company. If any of the nominees should be
unavailable to serve, which is not now anticipated, the proxies solicited hereby
will be voted for such other persons as shall be designated by the present Board
of Directors. The two nominees receiving the highest number of votes at the
Annual Meeting will be elected.
Nominees for Election as Directors
Certain information with respect to each director nominee is set forth
below.
Rex Bean, 68, has been a director of the Company since 1988. Mr. Bean
retired from the U.S. Air Force in 1987 and is principally engaged in the
management of private investments. Mr. Bean is nominated to serve a three-year
term.
Richard W. Edelman, 58, has been a director of the Company since 1988.
He is Senior Vice President of Southwest Securities, Inc., a stock brokerage
firm located in Dallas, Texas. From 1996 to 1998 he was Managing Director of
Rodman & Renshaw, Inc., a stock brokerage firm. From 1987 to 1996 he was
employed by Southwest Securities, Inc., as Senior Vice President. Prior to
joining Southwest Securities, Inc., in 1987, Mr. Edelman was a securities
analyst and vice president for Schneider, Bernet and Hickman, a Dallas Texas
securities firm. Mr Edelman obtained an MBA degree from Columbia University, New
York City, in 1966. Mr. Edelman is nominated to serve a three-year term.
Directors Whose Terms of Office Continue
Fred Lampropoulos, 50, has been Chairman of the Board, President and
Chief Executive Officer of the Company since its formation in July 1987. From
1983 to June 1987, Mr Lampropoulos was Chairman of the Board and President of
Utah Medical Products, Inc. ("Utah Medical"), a medical device company. Mr
Lampropoulos' term as a director expires in 2000.
Kent W. Stanger, 44, has been Chief Financial Officer, Secretary,
Treasurer and a director of the Company since 1987. Prior to joining the
Company, Mr. Stanger was the Controller for Utah Medical from 1985 to August
1987. Prior to 1985, he was the corporate controller for Laser Corporation,
American Laser and Modulaire Industries, Inc. Mr. Stanger is a certified public
accountant. Mr. Stanger's term as a director expires in 2000.
James J. Ellis, 65, has been a director of the Company since November
1995. He has been Managing Partner of Ellis/Rosier Financial Services since
1992. Mr. Ellis served as General Manager of MONY Financial Services, Dallas,
Texas from 1979 until his retirement in 1992. He also serves as a director of
Jack Henry & Associates, a publicly traded company. Mr. Ellis term as a
director expires in 2001.
2
Michael E. Stillabower, M.D., 55, has been as a director of the Company
since March 1996. Dr. Stillabower has been a physician in private practice in
Wilmington, Delaware since 1980. Since 1988, he has also been Chief, Cardiology,
Medical Center of Delaware where he has held a number of appointments including
Director, Coronary Care Unit, from 1984 to 1988. In May 1995 he was appointed
Clinical Associate Professor of Medicine, Jefferson Medical College in
Philadelphia, Pennsylvania, where he obtained his M.D. degree in 1976. He is an
Elected Fellow of the American College of Cardiology and of other professional
associations and is actively engaged in cardiology research, instruction and
publication of related papers and abstracts. Dr. Stillabower's term as a
director expires in 2001.
Committees, Meetings and Reports
The Board of Directors has a standing Audit Committee and an Executive
Compensation Committee. The members of the Audit Committee are Rex C. Bean
(Chairman), James J. Ellis and Richard W. Edelman. The members of the Executive
Compensation Committee are James J. Ellis (Chairman), Rex C. Bean and Richard W.
Edelman. The Company has no nominating committee.
The Audit Committee met once during the 1998 year. The functions of the
Audit Committee are: (i) to review and approve the selection of, and all
services performed by, the Company's independent auditor; (ii) to review the
Company's internal controls; and (iii) to review, act and report to the Board of
Directors with respect to the scope of audit procedures, accounting practices
and internal accounting and financial controls of the Company.
The Executive Compensation Committee met five times during the 1998
year. The Executive Compensation Committee has oversight responsibility for all
executive compensation and benefit programs of the Company. The Executive
Compensation Committee reviews and approves all executive compensation and
benefit plans, including the Company's Incentive Plan.
During the fiscal year ended December 31, 1998 there were 10 meetings
held by the Board of Directors of the Company. No director attended fewer than
75 percent of the total number of meetings of the Board and of any committee on
which he served.
Section 16(a) Beneficial ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors to file
with the Securities and Exchange Commission (the "Commission") initial reports
of ownership and reports of changes in Ownership of Common Stock and other
securities which are derivative of the Common Stock. Executive officers and
directors are required by Commission regulations to furnish the Company with
copies of all Section 16(a) reports they file. Based solely upon a review of the
copies of such forms furnished to the Company and written representations from
the Company's executive officers and directors, the Company believes that all
Section 16(a) reports required to be filed by the Company's officers and
directors were properly filed.
Director Compensation
Directors who are not employees of the Company receive an annual
retainer of $5,000 and a director's fee of $1,000 per meeting attended in person
and $250 for telephonic Board meetings. All directors also are reimbursed by the
Company for their out-of-pocket travel and related expenses incurred in
attending all Board and committee meetings.
EXECUTIVE OFFICERS
In addition to Messrs. Lampropoulos and Stanger, whose biographies are
included elsewhere in this Proxy Statement, certain information is furnished
with respect to the following executive officers of the Company:
B. Leigh Weintraub, 49, was appointed Chief Operating Officer in
February 1997 and was appointed Vice President of Operations in April 1995. She
was Director or Vice President of Regulatory Affairs and Quality Assurance of
the Company from August 1993 to 1995. From 1992 to August 1993, she was Director
3
of Regulatory Affairs and Clinical Programs for Endomedix, a medical device
company based in Irvine, California. From 1988 to 1992, Ms. Weintraub was
employed by Baxter Healthcare Corporation as Manager of Quality Strategies and
Quality Engineering and as Project Engineer, Quality Engineering. Ms. Weintraub
completed an executive MBA program at Pepperdine University in April 1993.
Brian L. Ferrand, 44, has been Vice President of Sales of the Company
since June 1993. He was Director of Sales of the Company from May 1992 to May
1993 and was National Sales Manager of the Company from December 1991 to April
1992. From 1987 to December 1991, Mr. Ferrand was employed by Medical Marketing
Associates and held positions as medical products sales representative, sales
manager, and vice president of Marketing and sales.
Compensation of Executive Officers
The compensation of Fred P. Lampropoulos, the Company's Chief Executive
Officer, and the Company's other named executive officers ("Named Executive
Officers") during the fiscal year ended December 31, 1998 is shown on the
following pages in three tables and discussed in a report from the Compensation
Committee of the Board of Directors.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
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Annual Compensation Awards
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Fiscal Options/ All Other
Name and Position Year Salary Bonus SARs (#) Compensation(1)
- -----------------------------------------------------------------------------------------------------------------------
Fred P. Lampropoulos 1998 $262,985 $ 200 107,500 (3) $20,433 (2)
Chairman of the Board and 1997 250,000 9,615 107,500 (3) 4,385
Chief Executive Officer 1996 245,000 8,071 42,500 (3) 4,367
Brian L. Ferrand 1998 207,692 30,000 0 7,692 (2)
Vice President of Sales 1997 198,904 10,846 40,000 4,319
1996 174,038 37,880 15,000 4,340
B. Leigh Weintraub 1998 181,058 13,968 0 0
Vice President of Operations 1997 182,411 16,525 10,000 4,358
1996 142,254 13,016 25,000 3,063
Kent W. Stanger 1998 181,731 0 7,500 (3) 3,365 (2)
Chief Financial Officer, 1997 175,000 673 17,500 (3) 4,139
Secretary, Treasurer and Director 1996 162,500 4,615 22,500 (3) 3,472
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4
(1) Amounts shown reflect contributions made by the Company for the benefit of
the Named Executive Officers under the Company's 401(k) Profit Sharing
Plan.
(2) Accrued Vacation paid with cash in lieu of benefit.
(3) Includes stock options granted under the formula plan for the Board of
Directors. (7,500/yr)
Option Grants in Last Fiscal Year
The following table sets forth individual grants of stock options made
to the Named Executive Officers during the fiscal year ended December 31, 1998.
As of December 31, 1998 the Company had not granted any stock appreciation
rights:
Potential Realizable Value
at Assumed Annual Rates
of Stock Price
Percent of Appreciation for
Total Option Option Term
Granted to --------------------------
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price Date 5% 10%
- --------------------------- ------------ ------------- -------- ---------- ------- -------
Fred P. Lampropoulos....... 100,000 49.5% $5.88 11/07/2003 162,315 358,675
7,500(1) 3.7% 7.50 05/27/2003 15,540 34,343
Kent W. Stanger............ 7,500(1) 3.7% 7.50 05/27/2003 15,540 34,343
- ---------------------------
(1) Reflects stock options granted under the formula plan provisions of the
Incentive Plan.
Aggregated Option Exercises in Last Fiscal Year and Year End Option Values
The following table sets forth the number of shares of Common Stock
acquired during the fiscal year ended December 31, 1998 upon the exercise of
stock options, the value realized upon such exercise, the number of unexercised
stock options held on December 31, 1998 and the aggregate value of such options
held by the Named Executive Officers:
Number of Unexercised Value of Unexercised
Options at In-the-Money Options
Number of December 31, 1998 at December 31, 1998(1)
Shares Value -------------------------- ---------------------------
Acquired Realized on
Name on Exercise Exercise(1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- ----------- ----------- ----------- ------------- ----------- -------------
Fred P. Lampropoulos..... 2,500 $ 3,344 70,500 197,000 $ 7,000 $76,750
Kent W. Stanger.......... 5,000 6,938 44,500 18,000 12,625 9,250
Brian L. Ferrand......... 0 0 29,000 36,000 1,625 6,500
B. Leigh Weintraub....... 25,000 19,875 12,000 23,000 1,625 6,500
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(1) Reflects the difference between the exercise price of the Options granted
and the value of the Common Stock on December 31, 1998. The closing sale
price of the Common Stock on December 31, 1998 as reported by NASDAQ was
$6.625 per share.
5
Certain Relationships and Related Transactions
During fiscal 1998 the Company loaned to Fred P. Lampropoulos, Chairman
of the Board, President, and Chief Executive Officer, for personal reasons, the
sum of $225,000 payable in five annual installments with interest at the
Company's blended borrowing rate. The note evidencing the loan and a related
pledge agreement provide for collateral in the form of 62,950 shares of the
Company's Common Stock.
Change of Control Employment Agreements
In March 1998, the Board of Directors of the Company approved Change in Control
Employment Agreements ("Employment Agreement") for each of the Named Executive
Officers of the Company. These Employment Agreements provide certain benefits in
the event of a change of control of the Company, as well as payments and
benefits in the event of termination of employment under certain circumstances.
The Employment Agreements provide for the continued employment of the
Named Executive Officers for two years following a change in control (three
years in the case of Mr. Lampropoulos) (the "Employment Period") in essentially
the position held prior to the change in control and at an annual base salary
and average annual bonus which is based on the salary paid during the last
fiscal year and the average of the bonuses paid during the three fiscal years
prior to the change of control. In addition, during the Employment Period, the
Named Executive Officers are entitled to participate in all retirement plans,
benefit plans and other employee benefits in effect prior to the change in
control or, if more favorable, in those benefit programs provided to employees
after the change of control.
Upon termination of employment following a change of control, other
than for death, disability or cause, or if the Named Executive Officer
terminates employment for good reason, the Named Executive Officer is entitled
to receive the sum of (i) his or her base salary and bonus through the date of
termination (ii) any accrued or deferred compensation or benefits, (iii) an
amount equal to the Named Executive Officer's annual base salary and average
annual bonus multiplied by the number of whole or factional years remaining in
the Employment Period, and (iv) continued coverage during the remainder of the
Employment Period under the Company's benefit plans, programs practices or
policies. The Employment Agreements provide that the Named Executive Officer may
voluntarily terminate employment during a 30- day window period following the
first 12-months of the Employment Period and that such a termination will be
deemed for good reason. If termination of the Employment of a Named Executive
Officer occurs which is not related to a change in control and is for other than
death, disability or cause, the Named Executive Officer is entitled to receive
the sum of (I) and (ii), above, plus a sum equal to his or her annual base
compensation and average bonus (based on the base salary paid during the last
fiscal year and bonuses paid during the last three fiscal years).
If termination of employment of a Named Executive Officer occurs by reason of
death or disability, he or she shall be entitled to payment of base salary and
bonus through the date of termination, any deferred or accrued benefits and such
other death or disability benefits equal to the most favorable benefits provided
by the Company to other employees and their families. If the Named Executive
Officer is terminated for cause during the Employment Period, the Company shall
be obligated to pay to the Named Executive Officer his or her annual base salary
through the date of termination, the amount of any compensation previously
deferred, and any other benefits due through the date of termination, in each
case to the extent not previously paid.
Report of the Executive Compensation Committee
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Exchange Act, that incorporates by reference, in whole or in part, subsequent
filings including, without limitation, this Proxy Statement, the following
Report of the Executive Compensation Committee and the Performance Graph set
forth on page nine hereof shall not be deemed to be incorporated by reference
into any such filings.
General. The Company's executive compensation program is administered by the
Executive Compensation Committee, which is responsible for establishing the
policies and amounts of compensation for the Company's executive officers. The
Executive Compensation Committee, composed of three independent directors, has
oversight responsibility for executive compensation and executive benefit
programs of the Company, including the Predecessor Plan and Incentive Plan.
6
Executive Compensation Principles. The Company's executive compensation
program is designed to align executive compensation with the values, objectives
and performance of the Company. The executive compensation program is designed
to achieve the following objectives:
o Attract and retain highly qualified individuals who are capable
of making significant contributions to the long-term success of
the Company.
o Reward executive officers for long-term strategic management and
the enhancement of shareholder value.
o Promote a performance-oriented environment that encourages
Company and individual achievement.
Executive Compensation Program. The Company's executive compensation
program consists of both cash and equity-based compensation. The components of
the Company's executive compensation program and the policies which govern their
implementation are outlined briefly below.
Cash Compensation. The Company's cash compensation policy is
designed to provide competitive levels of compensation to attract and retain
qualified individuals and to reward individual initiative and achievement. The
Company's existing executive compensation program is a base compensation plan
with a discretionary bonus compensation element.
The salary for Fred P. Lampropoulos, the President and Chief
Executive Officer, is based generally upon comparisons with levels of
compensation paid to chief executive officers of other comparably sized medical
device manufacturers. The overall performance of the Company and the Company's
progress towards achieving specific objectives are also important factors in
setting compensation for Mr. Lampropoulos. Specific objectives in Fiscal 1998
focused on new strategic market expansion and related product development. The
Company's efforts to reduce costs and increase the efficiency of its operations
and Mr. Lampropoulos' performance in achieving those objectives were also
considered. On December 1, 1998 Mr. Lampropoulos' base salary was set at
$305,000.
Cash compensation for executive officers other than the Chief
Executive Officer is based generally upon comparisons with comparably sized
medical device manufacturers and is targeted at the mid-range of the salary
levels of those manufacturers. Compensation of executive officers is based, in
part, upon their respective responsibilities as compared to similar positions in
comparable companies. The Executive Compensation Committee also considers
individual merit and the Company's performance. It is the practice of the
Committee to solicit and review recommendations of the Chief Executive Officer
when determining salary levels for executive officers other than the Chief
Executive Officer.
Equity-Based Compensation. The Predecessor Plan and the
Incentive Plan is designed to promote and advance the interests of the Company
and its shareholders by strengthening the mutuality of interests between the
executive officers of the Company and the Company's shareholders. The Company
has limited the payment of executive incentive compensation in the form of
annual cash bonuses, preferring to make stock-based grants under the Predecessor
Plan. Since executive incentive compensation is based on shares of Common Stock,
the value of those awards to executive officers increases as the value of the
Common Stock increases. During the 1998 fiscal year, discretionary option grants
were made to the chief executive officer. In addition, Mr. Lampropoulos and Mr.
Stanger, as directors of the Company, were each granted options to purchase
7,500 shares of Common Stock pursuant to the nondiscretionary formula plan
provisions of the Predecessor Plan.
Benefits. The Company's policy is to provide an attractive benefit
package to all employees. Executive officers of the Company are generally
eligible to participate, on the terms and conditions applicable to all eligible
employees of the Company, in the Merit Medical Systems 401(k) Profit Sharing
Plan, a contributory savings and profit sharing plan for all Company employees
over the age of 21 who have completed one year of service, and in the Company's
Employee Stock Purchase Plan. Certain executive officers may elect to defer
certain awards or compensation under the Company's employee benefit plans.
EXECUTIVE COMPENSATION COMMITTEE
James J. Ellis, Chairman
Richard W. Edelman
Rex C. Bean
7
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth information as of April 4, 1999 with
respect to the beneficial ownership of shares of the Common Stock by each person
known by the Company to be the beneficial owner of more than 5% of the Common
Stock, by each director, by each director nominee, by each executive officer
named in the Summary Compensation Table and by all directors and officers as a
group. Unless otherwise noted, each person named has sole voting and investment
power with respect to the shares indicated. Percentages are based on 7,529,352
shares outstanding.
Beneficial Ownership
-----------------------------
Number of Percentage
Shares of Class
Vertical Group, L.P.(3). . . . . . . . . . . . . . . . . . 799,100 10.6%
Fred P. Lampropoulos(1)(2). . . . . . . . . . . . . . . .. 640,395 8.4
Kent W. Stanger(1)(2) . . . . . . . . . . . . . . . . . .. 323,291 4.3
Rex C. Bean(2). . . . . . . . . . . . . . . . . . . . . .. 292,297 3.9
Richard W. Edelman(2). . . . . . . . . . . . . . . . . . . 62,276 *
James J. Ellis(2) . . . . . . . . . . . . . . . . . . . .. 45,900 *
Brian L. Ferrand(1)(2) . . . . .. . . . . . . . . . . . .. 32,755 *
B. Leigh Weintraub(1)(2) . . . . . . . . . . . . . . . . 20,409 *
Michael E. Stillabower, M.D.(2). . . . . . . . . . . . . . 30,500 *
All officers and directors as a group (8 persons) 1,447,823 18.5%
- ----------------------
* Represents holdings of less than 1%
(1) The computations above include the following share amounts which are held
in the Company's 401(k) Profit Sharing Plan on behalf of participants
thereunder: Fred P. Lampropoulos,12,309 shares; Kent W. Stanger,10,257
shares; B. Leigh Weintraub,1,190 shares; and all officers and directors as
a group, 23,756 shares.
(2) The computations above include the following share amounts which are
subject to options exercisable with in 60 days, none of which have been
exercised: Fred P. Lampropoulos,112,500 shares; Kent W. Stanger, 46,500
shares; Rex C. Bean, 31,500 shares; Richard W. Edelman, 31,500 shares;
James J. Ellis 22,500 shares; Michael E. Stillabower M.D., 22,500 shares;
Brian L. Ferrand, 31,000 shares; B. Leigh Weintraub, 17,000 shares; and all
officers and directors as a group, 315,000 shares.
(3) Based on a Schedule 13G dated August 4, 1998
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PROPOSAL NUMBER 2 -- APPROVAL OF THE
MERIT MEDICAL SYSTEMS, INC.
1999 OMNIBUS STOCK INCENTIVE PLAN
Your Board of Directors Recommends
a Vote "For" This Proposal
The Board of Directors has adopted and recommends that you vote to approve
the Merit Medical Systems, Inc. 1999 Omnibus Stock Incentive Plan (the
"Incentive Plan"). The Incentive Plan will, if approved, be substituted in part
for the Merit Medical Systems, Inc. Long-Term Incentive Stock Option Plan (the
"Predecessor Plan") and, therefore, shares of Common Stock previously authorized
for the granting of stock options under the Predecessor Plan but not granted
prior to May 26, 1999 will no longer be available under the Predecessor Plan but
will, instead, be available under the Incentive Plan. Any stock options
previously granted under the Predecessor Plan will remain outstanding pursuant
to the terms of the Predecessor Plan. If the Incentive Plan is not approved, the
Predecessor Plan will remain in effect in its present form. The terms of the
Incentive Plan are summarized below. Capitalized terms used herein will, unless
otherwise defined, have the meanings assigned to them in the text of the
Incentive Plan.
General
The Incentive Plan is intended to promote the interests of the Company and
the stockholders of the Company by providing directors, officers, employees and
others who are expected to contribute to the success of the Company with
appropriate incentives and rewards to encourage them to enter into and continue
in the employ of the Company and to acquire a proprietary interest in the
long-term success of the Company thereby aligning their interest more closely to
the interest of the stockholders.
The Incentive Plan is intended to comply with the requirements of Rule
16b-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as
amended. In addition, the Plan is intended to provide performance-based
compensation so as to be eligible for compliance with Section 162(m) ("Section
162(m)") which denies a deduction by an employer for certain compensation in
excess of $1 million per year paid by a publicly traded corporation to the
following individuals who are employed at the end of the employer's taxable year
("Covered Employees"): the chief executive officer and the four most highly
compensated executive officers (other than the chief executive officer), for
whom compensation disclosure is required under the proxy rules. Certain
compensation, including compensation based on the attainment of performance
goals, is excluded from this deduction limit if certain requirements are met.
Among the requirements for compensation to qualify for this exception is that
the material terms pursuant to which the compensation is to be paid be disclosed
to and approved by the stockholders in a separate vote prior to the payment.
Accordingly, if the Incentive Plan is approved by stockholders and the other
conditions of Section 162(m) relating to performance-based compensation are
satisfied, compensation paid to Covered Employees pursuant to the Incentive Plan
will not be subject to the deduction limit of Section 162(m).
Summary of Terms
The Incentive Plan authorizes an aggregate of 1,600,000 shares of Common
Stock that may be subject to awards, subject to adjustment as described below;
however, upon approval of the Incentive Plan, no future options may be granted
under the Predecessor Plan and 84,390 shares of Common Stock previously
available for stock options under the Predecessor Plan but not covered by
outstanding stock options will no longer be available under the Predecessor Plan
but will, instead, be available under the Incentive Plan. Accordingly, only an
additional 1,600,000 shares of Common Stock would be available for awards under
the Incentive Plan in excess of the number of shares currently available under
the Predecessor Plan. Such shares may be authorized and unissued shares,
treasury shares or shares acquired by the Company for purposes of the Incentive
Plan. Generally, shares subject to an award that remain unissued upon expiration
or cancellation of the award will be available for other awards under the
Incentive Plan. The total number of shares of Common Stock subject to awards
(including awards paid in cash but denominated in shares of Common Stock)
granted to any Participant in the Incentive Plan during any taxable year of the
Company will not exceed 200,000. In the event that the Compensation Committee of
the Board of Directors (the "Committee") determines that any dividend or other
distribution, stock split, recapitalization, reorganization, merger or other
similar corporate transaction or event affects the Common Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Participants under the Incentive Plan, then the Committee will make
such equitable changes or adjustments as it deems necessary to the aggregate
9
number of shares available under the Incentive Plan, the limit on individual
awards, the number of shares subject to each outstanding award, and the exercise
price of each outstanding option or stock appreciation right.
Awards under the Incentive Plan may be made in the form of (i) Incentive
Stock Options, (ii) Non-Qualified Stock Options, (iii) Stock Appreciation
Rights, (iv) Restricted Stock, (v) Phantom Stock and (vi) Stock Bonuses. Awards
may be granted to such directors, officers, employees and others expected to
contribute to the long-term success of the Company and its subsidiaries as the
Committee shall, in its discretion, select.
The Incentive Plan will be administered by the Committee which shall, at
all times, consist of two or more persons each of whom is an "outside director"
within the meaning of Section 162(m) and a non-employee director within the
meaning of Rule 16b-3. The Committee is authorized, among other things, to
construe, interpret and implement the provisions of the Incentive Plan, to
select the persons to whom awards will be granted, to determine the terms and
conditions of such awards and to make all other determinations deemed necessary
or advisable for the administration of the Incentive Plan.
Awards Under the Plan
Stock Options. Unless the Committee expressly provides otherwise, an option
will not be exercisable prior to one year after the date of grant and will
become exercisable as to 25% of the shares subject thereto on each of the first
through fourth anniversaries of the grant. The Committee will determine each
option's expiration date; provided, however, that no incentive stock opinion may
be exercised more than ten years after the date of grant. The purchase price per
share payable upon the exercise of an option (the "option exercise price") will
be established by the Committee, but may be no less than the Fair Market Value
of a share of Common Stock on the date of grant. The option exercise price is
payable (i) in cash, by certified check, bank cashier's check or wire transfer,
(ii) by delivering instructions to a broker to deliver promptly to the Company
the amount of sale or loan proceeds to pay the full amount of the Purchase
Price, (iii) by delivering shares of Common Stock owned by the Participant with
appropriate stock powers, (iv) by electing to have the Company retain shares of
Common Stock which would otherwise be issued on the exercise of the Option, (v)
any combination of the foregoing forms or (vi) by such other payment method as
the Committee may prescribe.
Stock Appreciation Rights. Stock appreciation rights may be granted in
connection with all or any part of, or independently of, any option granted
under the Incentive Plan. A stock appreciation right granted independently of
any option will be subject to the same vesting rules as described above for
options. A stock appreciation right granted in tandem with any stock option will
be exercisable only when and to the extent the option to which it relates is
exercisable. The grantee of a stock appreciation right has the right to
surrender the stock appreciation right and receive from the Company, in cash, an
amount equal to the excess of the Fair Market Value of a share of Common Stock
over the exercise price of the stock appreciation right for each share of Common
Stock in respect of which such stock appreciation right is being exercised.
Restricted Stock. The Committee may grant restricted shares of Common Stock
to such persons, in such amounts, and subject to such terms and conditions
(including the attainment of performance goals) as the Committee shall determine
in its discretion. Awards of Restricted Stock granted to Executive Officers of
the Company will be contingent on the attainment by the Company or a subsidiary
of the Company, if applicable, of one or more pre-established performance goals
(the "Performance Goals") established by the Committee. The Performance Goals
may be based on the attainment by the Company (and/or its subsidiaries, if
applicable) of any one or more of the following criteria: (i) a specified
percentage return on total stockholder equity of the Company; (ii) a specified
percentage increase in earnings per share from continuing operations of Common
Stock; (iii) a specified percentage increase in net income of the Company; and
(iv) a specified percentage increase in profit before taxation of the Company.
Phantom Stock. The Committee may grant shares of Phantom Stock to such
persons, in such amounts, and subject to such terms and conditions (including
the attainment of performance goals) as the Committee shall determine in its
discretion. If the requirements specified by the Committee are met, the grantee
of such an award will receive a cash payment equal to the Fair Market Value of
the shares covered thereby plus the dividends that would have been paid on such
shares had they actually been outstanding following the grant date. Awards of
Phantom Stock granted to Executive Officers of the Company will be contingent on
the attainment by the Company or a subsidiary of the Company, if applicable, of
any one or more of the Performance Goals noted above.
10
Stock Bonus. The Committee may grant bonuses comprised of shares of Common
Stock free of restrictions to such persons, in such amounts, as the Committee
shall determine in its discretion. No Executive Officer shall be eligible to
receive a Stock Bonus under the Incentive Plan unless a prior determination of
eligibility is made by the Committee.
The Board may suspend, discontinue, revise, terminate or amend the
Incentive Plan at any time; provided, however, that stockholder approval will be
obtained if and to the extent that the Board deems it appropriate to satisfy
Section 162(m).
In the event of a Change in Control, all outstanding awards will become
fully vested and/or immediately exercisable.
Plan Benefits
The Company cannot now determine the exact number of Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted
Stock, Phantom Stock and Stock Bonuses to be granted in the future to the
executive officers named under the "Executive Officer Compensation--Summary
Compensation Table" above, to all current executive officers as a group, or to
all employees (including executive officers). See "Executive Officer
Compensation--Options Granted in Last Fiscal Year" above for the number of
options granted under the Stock Option Plan to the executive officers named in
the Summary Compensation Table in the year ended December 31, 1998. During the
year ended December 1998, options to purchase 115,000 shares of Common Stock
were granted to all current executive officers as a group.
Certain Federal Income Tax Consequences
The following discussion is a brief summary of the principal United States
Federal income tax consequences under current Federal income tax laws relating
to awards under the Incentive Plan. This summary is not intended to be
exhaustive and, among other things, does not describe state, local or foreign
income and other tax consequences.
Non-Qualified Stock Options. An optionee will not recognize any taxable
income upon the grant of a Non-Qualified Stock Option. The Company will not be
entitled to a tax deduction with respect to the grant of a Non-Qualified Stock
Option. Upon exercise of a Non-Qualified Stock Option, the excess of the Fair
Market Value of the Common Stock on the exercise date over the option exercise
price will be taxable as compensation income to the optionee and will be subject
to applicable withholding taxes. The Company will generally be entitled to a tax
deduction at such time in the amount of such compensation income. The optionee's
tax basis for the Common Stock received pursuant to the exercise of a
Non-Qualified Stock Option will equal the sum of the compensation income
recognized and the exercise price.
In the event of a sale of Common Stock received upon the exercise of a
Non-Qualified Stock Option, any appreciation or depreciation after the exercise
date generally will be taxed as capital gain or loss and will be long-term
capital gain or loss if the holding period for such Common Stock is more than
one year.
Incentive Stock Options. An optionee will not recognize any taxable income
at the time of grant or timely exercise of an Incentive Stock Option and the
Company will not be entitled to a tax deduction with respect to such grant or
exercise. Exercise of an Incentive Stock Option may, however, give rise to
taxable compensation income subject to applicable withholding taxes, and a tax
deduction to the Company, if the Incentive Stock Option is not exercised
consistent with requirements applicable to Incentive Stock Options or if the
optionee subsequently engages in a "disqualifying disposition," as described
below.
A sale or exchange by an optionee of shares acquired upon the exercise of
an Incentive Stock Option more than one year after the transfer of the shares to
such optionee and more than two years after the date of grant of the Incentive
Stock Option will result in any difference between the net sale proceeds and the
exercise price being treated a long-term capital gain (or loss) to the optionee.
If such sale or exchange takes place within two years after the date of grant of
the Incentive Stock Option or within one year from the date of transfer of the
Incentive Stock Option shares to the optionee, such sale or exchange will
generally constitute a "disqualifying disposition" of such shares that will have
the following results: any excess of (i) the lesser of (a) the Fair Market
11
Value of the shares at the time of exercise of the Incentive Stock Option and
(b) the amount realized on such disqualifying disposition of the shares over
(ii) the option exercise price of such shares, will be ordinary income to the
optionee, subject to applicable withholding taxes, and the Company will be
entitled to a tax deduction in the amount of such income. Any further gain or
loss after the date of exercise generally will qualify as capital gain or loss
and will not result in any deduction by the Company.
Restricted Stock. A grantee will not recognize any income upon the receipt
of Restricted Stock unless the holder elects under Section 83(b) of the Code,
within thirty days of such receipt, to recognize ordinary income in an amount
equal to the Fair Market Value of the Restricted Stock at the time of receipt.
If the election is made, the holder will not be allowed a deduction for amounts
subsequently required to be returned to the Company. If the election is not
made, the holder will generally recognize ordinary income, on the date that the
restrictions to which the Restricted Stock are subject are removed, in an amount
equal to the Fair Market Value of such shares on such date, less any amount paid
for the shares. At the time the holder recognizes ordinary income, the Company
generally will be entitled to a deduction in the same amount.
Generally, upon a sale or other disposition of Restricted Stock with
respect to which the holder has recognized ordinary income (i.e., a Section
83(b) election was previously made or the restrictions were previously removed),
the holder will recognize capital gain or loss in an amount equal to the
difference between the amount realized on such sale or other disposition and the
holder's basis in such shares. Such gain or loss will be long-term capital gain
or loss if the holding period for such shares is more than one year.
Other Awards. The grant of a Stock Appreciation Right or Phantom Stock
award will not result in income for the grantee or in a tax deduction for the
Company. Upon the settlement of such a right or award, the grantee will
recognize ordinary income equal to the aggregate value of the payment received,
and the Company generally will be entitled to a tax deduction in the same
amount. A Stock Bonus generally will result in compensation income for the
grantee and a tax deduction for the Company, equal to the Fair Market Value of
the shares of Common Stock granted.
In as much as awards under the Incentive Plan will be granted at the sole
discretion of the Committee and that performance goal criteria may vary from
year to year and from Participant to Participant, benefits under the Incentive
Plan are not determinable. Compensation paid and other benefits granted for the
1998 fiscal year are set forth above in the section entitled "Executive Officer
Compensation" commencing on page 4.
12
Merit Medical Systems, Inc.
Comparison of Five Year-Cummulative Total Returns
Performance Graph - included on hard copy only.
Prepared by the Center for Research in Security Prices - U of Chicago
Produced on 04/09/99 including data to 12/31/98
[PERFORMANCE GRAPH OMITTED]
Proforma here included graphical representation of the following data:
- -----------------------------------------------------------------------------------------------------------------------
L E G E N D
=======================================================================================================================
Index Description 12/31/93 12/31/94 12/29/95 12/31/96 12/31/97 12/31/98
MERIT MEDICAL SYSTEMS, INC. 100.0 81.4 125.6 158.1 116.3 123.3
Nasdaq Stock Market (US Companies) 100.0 97.8 138.3 170.0 208.5 293.8
Nasdaq Stocks (SIC 3840-3849 US Companies) 100.0 106.6 162.5 152.3 173.8 194.5
Surgical, Medical, and Dental Instruments and Supplies
Notes: A. The lines represent monthly index levels derived from compounded
daily returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on
the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a
trading day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/31/93.
- ------------------------------------------------------------------------------------------------------------------------
13
PROPOSAL NO. 3 -- RATIFICATION OF SELECTION OF AUDITOR
The Audit Committee has recommended, and the Board of Directors has
selected, the firm of Deloitte & Touche, independent certified public
accountants, to audit the financial statements of the Company for the fiscal
year ending December 31, 1999 subject to ratification by the shareholders.
Deloitte & Touche has acted as independent auditor for the Company since 1987.
The Board of Directors anticipates that one or more representatives of Deloitte
& Touche will be present at the Annual Meeting and will have an opportunity to
make a statement if they so desire and will be available to respond to
appropriate questions.
The Board of Directors recommends that shareholders vote FOR
ratification of the appointment of Deloitte & Touche as the Company's
independent auditor.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors knows of
no other matters to be presented for action at the Annual Meeting. If, however,
any further business should properly come before the Annual Meeting, the persons
named as proxies in the accompanying form will vote on such business in
accordance with their best judgment.
PROPOSALS OF SHAREHOLDERS
Proposals which shareholders intend to present at the Annual Meeting of
Shareholders to be held in calendar year 2000 must be received by Kent W.
Stanger, Chief Financial Officer, Secretary and Treasurer of the Company, at the
Company's executive offices (1600 West Merit Parkway, South Jordan, Utah 84095)
no later than December 31, 1999.
ADDITIONAL INFORMATION
The Company will provide without charge to any person from whom a proxy
is solicited by the Board of Directors, upon the written request of such person,
a copy of the Company's 1998 Annual Report on Form 10-K, including the financial
statements and schedules thereto (as well as exhibits thereto, if specifically
requested), required to be filed with the Securities and Exchange Commission.
Written requests for such information should be directed to Kent W. Stanger,
Chief Financial Officer, Secretary and Treasurer of the Company, at the address
indicated above.
PROXY
14
MERIT MEDICAL SYSTEMS, INC.
1600 West Merit Parkway
South Jordan, Utah 84095
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Fred P. Lampropoulos and Kent W.
Stanger, and each of them, as proxies, with full power of substitution, and
hereby authorizes them to represent and vote, as designated below, all shares of
the Common Stock of Merit Medical Systems, Inc., a Utah corporation (the
"Company"), held of record by the undersigned on April 20, 1999 at the Annual
Meeting of Shareholders (the "Annual Meeting") to be held at the offices of the
Company on May 26, 1999 at 3:00 P.M. local time, or at any adjournment or
postponement thereof, upon the matters set forth below, all in accordance with
and as more fully described in the accompanying Notice of Annual Meeting of
Shareholders and Proxy Statement, receipt of which is hereby acknowledged.
1. ELECTION OF TWO DIRECTORS, each to serve for a term of three years or
until their respective successors shall have been duly elected and qualified.
|_| FOR all nominees listed below (except as marked to the contrary).
|_| WITHHOLD AUTHORITY to vote for all nominees listed below.
(INSTRUCTION: To withhold authority to vote for any individual
nominee, strike a line through the nominee's namein the list
below.)
REX BEAN RICHARD W. EDELMAN
2. To consider and vote upon a proposal to approve the Merit Medical
Systems, Inc. 1999 Omnibus Incentive Stock Plan.
3. To consider and vote upon a proposal to ratify the appointment of
Deloitte & Touche as the independent auditor of the Company.
|_| FOR |_| AGAINST |_| ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF TWO DIRECTORS, FOR THE APPROVAL OF THE
INCENTIVE PLAN AND FOR THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE
AS THE INDEPENDENT AUDITOR OF THE COMPANY.
Please complete, sign and date this proxy where indicated and return it
promptly in the accompanying prepaid envelope.
DATED: 1999
------------------------- -------------------------------------
Signature
-------------------------------------
Signature if held jointly
(Please sign above as the shares are issued. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized
person.)
15
