<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/x/ Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1999 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
MERIT MEDICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
UTAH 0-18592 87-0447695
- ---------------------------- --------------------- -------------------
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
1600 WEST MERIT PARKWAY
SOUTH JORDAN, UTAH 84095
------------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (801) 253-1600
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
--------------
Common Stock, No Par Value
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. / /
The aggregate market value of the Common Stock held by
non-affiliates of the Registrant, based upon the closing sale price of the
Common Stock on the NASDAQ National Market System on March 27, 2000, was
approximately $60,628,323. Shares of Common Stock held by each officer and
director and by each person who may be deemed to be an affiliate have been
excluded.
As of March 27, 2000 the Registrant had 7,683,372 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in
Parts II, III and IV of this Report. The Registrant's definitive Proxy
Statement relating to the Annual Meeting of Shareholders scheduled for May 24,
2000 (Part III).
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I................................................................................... 1
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS.......................................... 1
Item 1. BUSINESS....................................................................... 1
GENERAL........................................................................ 1
PRODUCTS....................................................................... 2
Inflation Devices...................................................... 2
Control Syringes....................................................... 3
Specialty Syringes..................................................... 3
High Pressure Contrast Injection Line and Sherlock Connectors.......... 3
Manifolds.............................................................. 3
Waste Containment Systems.............................................. 3
Hemostasis Valves...................................................... 3
Torque Device.......................................................... 4
Stopcock............................................................... 4
Majestik Angiographic Needles.......................................... 4
Contrast Management Systems............................................ 4
Angiographic Needles................................................... 4
Captiva Blood Containment Device....................................... 4
Fountain Infusion Catheters or Systems................................. 4
Tomcat (PTCA) Guide Wire............................................... 4
Squirt................................................................. 4
Angiography Pigtail Catheter........................................... 4
Pericardiocentesis..................................................... 4
Meritrans Pressure Transducers......................................... 5
Custom Kits............................................................ 5
Diagnostic Cardiology Catheters........................................ 5
Diagnostic Radiology Catheters......................................... 5
Percutaneous Sheath Introducers........................................ 5
Diagnostic Guide Wire.................................................. 5
Guide Catheters........................................................ 5
Keep Accessory Organizer............................................... 5
MARKETING AND SALES............................................................ 5
Market Strategy........................................................ 5
U.S. Sales............................................................. 6
International Sales.................................................... 6
CUSTOMERS...................................................................... 6
RESEARCH AND DEVELOPMENT....................................................... 7
MANUFACTURING.................................................................. 7
COMPETITION.................................................................... 7
PATENTS, PATENT APPLICATIONS, LICENSES, TRADEMARKS AND COPYRIGHTS.............. 8
REGULATION..................................................................... 8
EMPLOYEES...................................................................... 9
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES.......................................................... 9
Item 2. PROPERTIES..................................................................... 9
Item 3. LEGAL PROCEEDINGS.............................................................. 10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................ 10
PART II ............................................................................... 11
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS........... 11
Item 6. SELECTED FINANCIAL DATA........................................................ 11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................................... 11
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK........................ 11
ii
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................................... 11
Item 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE...................................................................... 11
PART III ................................................................................ 11
Items 10, 11, 12 and 13................................................................... 11
PART IV ................................................................................ 13
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................. 13
SIGNATURES................................................................................ 14
Exhibit 23.1 Consent of Independent Public Accountants.................................... 15
</TABLE>
iii
<PAGE>
PART I
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Report includes "Forward-Looking Statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact are "Forward-Looking Statements" for
purposes of these provisions, including any projections of earnings, revenues
or other financial items, any statements of the plans and objectives of
management for future operations, any statements concerning proposed new
products or services, any statements regarding future economic conditions or
performance, and any statements of assumptions underlying any of the
foregoing. All forward- looking statements included in this document are made
as of the date hereof and are based on information available to Merit as of
such date. Merit assumes no obligation to update any forward-looking
statement. In some cases, Forward-Looking Statements can be identified by the
use of terminology such as "may," "will," "expects," "plans," "anticipates,"
"intends" or "believes," "estimates," "potential," or "continue," or the
negative thereof or other comparable terminology. Although the Company
believes that the expectations reflected in the Forward-Looking Statements
contained herein are reasonable, there can be no assurance that such
expectations or any of the Forward-Looking Statements will prove to be
correct, and actual results could differ materially from those projected or
assumed in the Forward-Looking Statements. Future financial condition and
results of operations, as well as any Forward-Looking Statements are subject
to inherent risks and uncertainties, including market acceptance of the
Company's products, potential product recalls, delays in obtaining regulatory
approvals, cost increases, fluctuations in and obsolescence of inventory,
price and product competition, availability of labor and materials, foreign
currency fluctuations, changes in health care markets related to health care
reform initiatives and other factors referred to in the Company's press
releases and reports filed with the Securities and Exchange Commission. All
subsequent Forward-Looking Statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by these
cautionary statements.
ITEM 1. BUSINESS.
GENERAL
Merit Medical Systems, Inc. (the "Company") was formed in 1987 by
members of its current management for the purpose of producing single-use
medical products of high quality and superior value primarily for use in
diagnosis and treatment of cardiovascular disease. The Company's products are
designed to provide physicians and other health care professionals with
devices that enable them to perform interventional and diagnostic procedures
safely and effectively. Initially, the Company's expertise in innovative
product design and its proprietary technology and skills in injection and
insert molding enabled it to introduce innovative new products and capture
significant market share. The Company subsequently combined its plastics
molding capability with the application of proprietary electronics and
sensor-based technologies to develop a line of angioplasty inflation products
with electronic sensing and display features. These devices are now included
in a series of sensor-based products that address a broad range of needs
related to diagnostic and interventional catheterization procedures performed
in hospitals. Since 1997 the Company has expanded its product offerings to
include catheters, guide wires, sheath introducers, needles and drug infusion
devices.
The Company's strategy is to offer a broad line of innovative,
disposable products for diagnosis and intervention in radiology and
cardiology. Merit continues to increase market acceptance and penetration for
both its existing and new products in the U.S. and in international markets.
Longer term, the Company's strategy is to extend the application of its
sensor-based technologies, plastics molding, catheter, guide wire, and
electronic capabilities and to develop products for diagnostic and
interventional procedures in additional markets such as neuroradiology,
nephrology, pain management and critical care. The Company's sales of
stand-alone products in combination with custom kits have increased as
additions have been made to the Company's product lines. In 1999,
approximately 51% of the Company's sales were made directly to U.S. hospitals
and approximately 25% of sales were made to custom packagers, distributors
and O.E.M. companies who also distribute to U.S. hospitals. Approximately 24%
of the Company's sales in 1999 were made in international markets.
1
<PAGE>
The Company was organized in July 1987 as a Utah corporation. In
July 1994, the Company purchased a controlling interest in Sentir, Inc., a
California-based manufacturer of silicon sensors, ("Sentir") and during 1999
the Company purchased the remaining interest. The Company also has
established subsidiaries in Ireland, Germany, France, the United Kingdom,
Belgium, and in Sentir the Netherlands to conduct its international business.
On January 31, 1997, the Company purchased the operating assets and product
lines of Universal Medical Instruments Corp. ("UMI"). On August 20, 1999 the
Company purchased the operating assets and product lines of the Angleton
division of Mallinckrodt Inc. ("Mallinckrodt"). The Company's principal
offices are located in a manufacturing and office facility at 1600 West Merit
Parkway, South Jordan, Utah 84095, and its telephone number is (801)
253-1600. See "Item 2. Properties."
PRODUCTS
The Company's products have been designed and developed in response
to the needs of customers and patients. These needs have been identified
primarily through observation of procedures in the cardiac catheterization
and radiology laboratories, consultation with the Company's medical advisors
and consultants and through direct communication with customers. Since 1988,
the Company has developed and introduced several product lines, including
control syringes (CCS-TM- and Smart Tip-TM-), inflation devices
(Intellisystem-Registered Trademark- Monarch-Registered Trademark-,
Basix-TM-, and basixCOMPAK-TM- including new 25-atmosphere versions),
specialty syringes (Medallion-Registered Trademark-,and VacLok-Registered
Trademark-, high-pressure tubing and connectors (Excite-TM-, Flexible,
Braided, rigid, pvc, and Sherlock-TM-) , waste handling and disposal products
(Merit Disposal Depot-Registered Trademark- and Backstop-Registered
Trademark-), a disposable blood pressure transducer (Meritrans-Registered
Trademark-), disposable hemostasis valves (Passage-Registered Trademark-,
Access-9,-TM- Access Plus-TM-, and MBA-TM-), manifolds and stopcocks
(Marquis-Registered Trademark- Series), a torque device, contrast management
systems (Miser-Registered Trademark- and In-Line Contrast Management
System-TM-), angiography needles (Majestik-Registered Trademark- Series),
blood containment devices (Captiva-Registered Trademark-),
pericardiocentesis catheters and procedure trays, PTCA Guide wires
(TomCat-Registered Trademark-) and extension wires, thrombolytic infusion
catheters (Fountain-Registered Trademark-) and accessories (Squirt-TM-),
diagnostic angiographic pigtail catheters, and diagnostic cardiology and
radiology catheters, (SofTouch-Registered Trademark- and Performa-Registered
Trademark-, sheath introducers (DialEase-TM-), diagnostic guide wires, and
guide catheters, (Trax-Registered Trademark- and Trax-Registered Trademark-
Cavern). These products are sold separately and in custom kits consisting
primarily of selected combinations of products.
The Company has not experienced any product liability claims;
however, the sale and use of its products entails an inherent risk that
product liability claims may be asserted against the Company. The Company
maintains product liability insurance in the amount of $5,000,000 per
occurrence and in the aggregate, which may not be adequate for expenses or
liabilities actually incurred.
INFLATION DEVICES. Inflation devices are specialized syringes used
in interventional catheterization procedures to inflate and deflate
balloon-tipped catheters. The Company has received 510(k) approved from the
U.S. Food and Drug Administration ("the FDA") for use of its digital
inflation devices for a wide range of additional clinical applications such
as discography, esophageal dilitation, trigeminal nerve compression, and
retinal detachment. Each of the Company's inflation devices and universal
fluid dispensing syringes incorporates proprietary design features which
contribute to ease of use, including allowing the clinicians to engage or
release the syringe plunger with one hand while increasing or decreasing the
pressure. Each syringe also provides a clear view of the fluid path that
simplifies debubbling and contributes to accurate measurement of pressure.
The Company's IntelliSystem 25 inflation device, which was the
first such device to incorporate electronic sensing and display features,
consists of a disposable 20cc inflation syringe and an integral pressure
transducer which connects to an electronic monitor outside of the sterile
field. To aid the marketing process and encourage use of the Company's
products, the electronic monitor is provided without charge to large volume
customers using the IntelliSystem. The IntelliSystem measures, times, records
and digitally displays information concerning the pressure, duration and
number of each inflation and deflation of the angioplasty balloon. When used
in other clinical applications such as discography, the Intellisystem
accurately dispenses fluid while documenting and graphing pressures in the
disc. The Company believes that electronic sensing and display of such
information is much more accurate and precise than that which can be obtained
from conventional analog gauges. The data is stored and may be displayed,
retrieved, graphed and printed.
2
<PAGE>
The Monarch 25 is a disposable inflation device which digitally
displays data concerning pressure and duration of inflations and deflations
on a small electronic monitor mounted on the barrel of the inflation syringe.
The monitor does not offer all of the same display, storage or printing
capabilities of the IntelliSystem but offers the convenience of portable
operation.
The Basix 25 and the new basixCOMPAK are disposable inflation
devices which incorporate a conventional analog pressure gauge mounted on the
barrel of the inflation syringe. The Basix more closely resembles devices
marketed by the Company's competitors but includes the Company's proprietary
design features and benefits. The Company believes that the Basix and
basixCOMPAK represent a significant addition to its line of inflation devices
that will contribute to sales where both clinical and economic outcomes are a
priority.
CONTROL SYRINGES. The Company's disposable control syringes are
utilized for one-handed control of the injection of contrast media and other
fluids during angiography, angioplasty and stent placement. The control
syringes are molded from polycarbonate material which is stronger than glass
and other plastics used in the industry. The Company offers different models
and sizes of the control syringes with varying features, according to
physician preference. These features include different configurations of
syringe handles, plungers and connectors which allow operation of the syringe
in a fixed or rotating position and varying volume sizes. In response to
customer demand, Merit launched latex-free control syringes in 1998.
SPECIALTY SYRINGES. Merit's Medallion syringes, a line of
disposable, latex-free, color-coded specialty syringes are used for injection
of medications, flushing of manifolds and other general purposes. These
syringes are molded of polycarbonate material for added strength and are
available in hundreds of sizes, colors and custom printing combinations. The
color coding allows a clinician to assign a color for each medication to be
dispensed and to differentiate syringes by their contents. The syringes can
also be custom printed to the specifications of the user. In response to
customer requests, the Company has developed and added additional sizes of
its specialty syringes which have applications in dispensing various
medications required in a broader range of peripheral procedures. The Company
believes that the design, color coding and materials used in its specialty
syringes contribute to patient safety and more efficient procedures. The
specialty syringes are sold separately but are an important component of the
Company's custom kits.
HIGH-PRESSURE CONTRAST INJECTION LINE AND SHERLOCK CONNECTORS.
During angiographic and diagnostic radiology procedures, contrast media must
be injected through a catheter into the blood vessel. This is sometimes
accomplished by a mechanical injector which can generate pressures up to 1200
pounds per square inch ("psi"), and requires tubing that can withstand these
pressures. The Company offers high-pressure, specialty tubing with
proprietary Sherlock connectors. In 1998 the Company launched Excite-TM-, a
new line of clear, flexible high-pressure tubing that combines the features
of tubing clarity and strength. Sherlock connectors allow coupling and
uncoupling of tubing with injectors, syringes and manifolds without
over-tightening or breakage. The Company is currently offering specialty
tubing which can handle pressures ranging from 500 to 1200 psi. The specialty
tubing with Sherlock connectors is an important component of custom kits.
MANIFOLDS. The administration of saline, imaging and contrast
fluids and the management of blood-pressure monitoring, fluid injection and
waste collection in angiography or angioplasty procedures is accomplished
through a series of valves on a manifold which control the flow of various
fluids in different directions. The Company has designed its own manifold
consisting of two, three, four or five valves. The Company believes its
manifold offers greater ease of use, simplified identification of flow
direction and leak-free operation under the pressures of manual or mechanical
injection of fluids when compared to manifolds sold by competitors. The Merit
Manifold is sold separately but is also a key component of the Company's
custom kits.
WASTE CONTAINMENT SYSTEMS. Because of heightened awareness of the
risks, associated with blood and related waste materials, hospitals have
moved toward closed systems whenever possible. To address these concerns, the
Company has designed a waste containment bag which connects to a manifold and
collects waste materials such as blood and other fluids during angiography,
angioplasty or other procedures. The Merit Disposal Depot-TM- is
self-contained for ease of disposal and reduces risk of contamination. The
Backstop-TM- is a unique and proprietary alternative fluid disposal basin
designed to reduce exposure to blood-borne pathogens.
3
<PAGE>
HEMOSTASIS VALVES. The Passage, Access 9, Access Plus and MBA
hemostasis valves are used in conjunction with the Company's inflation
devices and as a component of the Company's angioplasty packs. These valves
are made with polycarbonate plastic for clarity and include Sherlock
connectors. The devices differ in size and function. The MBA features a valve
mechanism that minimizes blood loss.
TORQUE DEVICE. The Merit torque device is a guide wire steering
tool with a tapered design and contrasting colors for improved visibility.
The torque device typically is included as a component of the Company's
angioplasty packs.
MARQUIS SERIES STOPCOCK. The Company's Marquis Series Stopcock
offers improvements to competitive stopcock devices, including a large, easy
grip handle. The Marquis Series Stopcock is used in connection with Sherlock
connectors to provide improved connections during procedures.
CONTRAST MANAGEMENT SYSTEMS. The Miser and the In-Line Contrast
Management System have been designed to increase catheterization lab
efficiencies by reducing contrast media waste.
MAJESTIK ANGIOGRAPHIC NEEDLES. The angiography needle creates the
percutaneous (through the skin) access site for all angiography and
angioplasty procedures. This site is the point of entry for the introducer
sheath, guide wires, catheters and any other interventional devices. The
Merit Majestik Needle helps the physician achieve precision vascular access
with one of the sharpest angiography needles on the market.
CAPTIVA BLOOD CONTAINMENT DEVICE. The Captiva helps protect health
care workers from the potential of blood-borne pathogens by minimizing the
escape of blood during an initial needle puncture in vascular access
procedures. This product is complementary to the angiographic needles and can
be utilized in virtually every diagnostic and interventional case where
needle introducers are used.
FOUNTAIN INFUSION CATHETER. The Fountain catheter delivers
therapeutic solutions to help remove blood clots (thrombi) in peripheral
vessels. This catheter is used to treat peripheral arterial occlusions,
hemodialysis graft occlusions, and deep vein thrombosis. This product
incorporates the Squirt fluid dispensing system for controlled fluid delivery.
TOMCAT (PTCA) GUIDE WIRE. Tomcat guide wires are used in
percutaneous transluminal coronary angioplasty (PTCA) and stent deployment
procedures. Guide wires are used to guide and place balloon angioplasty and
stent deployment catheters into coronary arteries. This new product
complements our existing lines of inflation devices and accessories currently
used in balloon angioplasty procedures, and was designed, developed and
manufactured in the Company's Ireland facility.
SQUIRT WOUND IRRIGATION. In any traumatic wound, the risk of
infection is greatly decreased by the removal of bacteria and soil from the
site. Merit launched a new line of Squirt wound irrigation products in 1998
designed for the emergency room to deliver large volumes of irrigation fluid.
The product features a proprietary, one-handed Squirt fluid delivery syringe,
an adjustable nozzle and splash protecting shield.
ANGIOGRAPHY PIGTAIL CATHETER. In 1997 Merit acquired new product
lines and technologies from UMI, a small specialty medical manufacturing firm
in upstate New York. At that time the Company began marketing a new line of
thin-wall, FEP (Teflon), high-flow, pigtail angiographic catheters ideally
suited for smaller patients.
PERICARDIOCENTESIS. Merit offers a complete pericardiocentesis kit
which combines a high-flow drainage catheter and virtually all components
needed to place the device in the pericardial sack. This combination saves
the physician both time and money by having all components in one convenient
tray. On occasion, the sack surrounding the heart becomes filled with blood
or fluid. To remove the fluid and the potential for cardiac tamponade, a
catheter is placed in the pericardial sack. The Company designed,
manufactured and launched two proprietary kits (pigtail and straight)
including the catheter and necessary components to perform the procedure.
4
<PAGE>
MERITRANS PRESSURE TRANSDUCERS. Diagnostic blood pressure
monitoring is a clinical priority in virtually all diagnostic and
interventional procedures. The Meritrans provides clinicians with reliable
and precise blood-pressure measurement. The clear, flow-through design makes
flushing and debubbling simple and safe. The transducer is a critical
component in many custom kit configurations.
CUSTOM KITS. Custom kits allow physicians to obtain the medical
devices and accessories that they most frequently use during angiography,
angioplasty and similar procedures in a convenient, pre-packaged and
pre-assembled form. Custom kits also provide cost savings over purchasing
single products and reduce the hospital's administrative costs associated
with maintaining an inventory of individual, sterile products.
DIAGNOSTIC CARDIOLOGY CATHETERS. Cardiac catheterization is
performed to diagnose the nature, severity, and precise location of blockages
and other abnormalities of the heart. This technique represents the most
essential diagnostic tool in the management of patients with cardiovascular
disease. The Company manufactures and sells a complete line of diagnostic
catheters used for these procedures.
DIAGNOSTIC RADIOLOGY CATHETERS. Radiology catheters are engineered
and designed with distinct tip configurations to access specific vessels and
organs outside the heart (head, kidneys, etc). Merit acquired a strong
radiology catheter product portfolio from Mallickrodt's Angleton Division in
1999.
PERCUTANEOUS SHEATH INTRODUCERS. Sheaths are used to create the
access through which guide wires and catheters are passed into the
vasculature. Most sheaths incorporate a valve hub to minimize bleeding and a
side port for drug delivery. The Company acquired the Performa line of sheath
introducers from Mallinckrodt in 1999.
DIAGNOSTIC GUIDE WIRES. Guide wires are relatively simple,
spring-type products that provide the necessary firmness and control to
advance catheters to the site where angiograms will be taken. Guide wires
vary in length, outside diameter and tip configuration. The Company
distributes an OEM wire made to exact specifications.
GUIDE CATHETERS. Coronary angioplasty requires the use of a guiding
catheter to place the balloon within the arterial system. The catheter is
inserted through the sheath into the arterial system. Once in place, the
guiding catheter acts as a conduit for the guide wire, the dilating balloon
catheter, coronary stents and the radiopaque dye that is used to provide
fluoroscopic visualization during the procedure. The Mallinckrodt acquisition
brought with it a line of high-quality guide catheters used in cardiology.
The Company intends to dedicate resources to expand this offering.
KEEP ACCESSORY ORGANIZER. In 1999 the Company designed and launched
a unique, proprietary accessory organizer that affixes to the sterile field
to hold guide wires, catheters and cables. The product was launched late in
the year and increased sales are projected for 2000 and beyond.
MARKETING AND SALES
MARKET STRATEGY. The Company's marketing strategy is strongly
focused on identifying and introducing highly profitable, differentiated
products that meet customer needs. The Company has targeted selected hospital
market segments in cardiology and radiology where its products are used.
Suggestions for new products and product improvements may come from
engineers, sales persons, physicians and other technicians who perform the
clinical procedures.
When a product suggestion demonstrates sustainable competitive
advantage, meets customer needs, fits strategically and technologically, and
has good potential financial return, a "project team" is chartered with
individuals from the Company's marketing, engineering, manufacturing and
quality assurance departments . This team identifies the customer
requirements, integrates the design, compiles all necessary documentation and
testing and prepares the product for market introduction. The Company
strongly believes that one of its marketing strengths is its capacity to
rapidly conceive, design, develop, and introduce new products.
5
<PAGE>
Cardiovascular disease is the number-one health problem in the U.S.
According to American Heart Association estimates, nearly 60 million
Americans, or approximately 25% of the population, has one or more types of
the disease. Cardiovascular disease accounts for an estimated one million
deaths annually, more than 40% of the U.S. total. Transcatheter modalities
currently represent the greatest potential to diagnose and treat the disease.
The Company intends to leverage its strong market position in both catheter
technology and accessory products to continue sales growth.
The global market for transcatheter products stands at a major
crossroad, even when considering the continued dynamic evolution in vascular
stent placement. Laser techniques have not demonstrated the success that was
expected in the last few years. The core diagnostic and therapeutic
applications for basic transcatheter technologies (balloons, stents and
defect repair) are well established, with the future growth of procedures and
products dependant upon demographic trends. This has not, however, prevented
significant investment of new technologies and applications designed to
enhance patient outcomes and enable the treatment of new populations that
have been traditionally limited to surgical intervention. The Company
believes it is well positioned to monitor these trends and launch catheters
and accessories to support growing clinical applications.
There are a large number of projects focused on improving the
diagnosis of cardiovascular disease, solving the issue of restenosis and
other less invasive alternatives to open-heart surgery. In recent years
researchers have focused their interests on technologies and products that
support the growth of transcatheter approaches to reducing the morbidity and
mortality of cardiovascular disease, including: radiated stents and balloons,
anti-platelet therapy, gene therapy, percutaneous coronary thrombectomy and
transmyocardial revascularization. One area of specific interest to the
Company is transradial catheterization. The Company will continue to develop
and launch innovative products to support these clinical trends.
U.S. SALES. The Company's direct sales force currently consists of
a vice president of sales, two executive sales managers, five regional sales
managers and 46 direct sales representatives located in major metropolitan
areas throughout the U.S. The Company's sales people are trained by Company
personnel at the Company's facilities, by a senior sales person in their
respective territories, at regular national and regional sales meetings by
consulting cardiologists and employees of the Company, and by observation of
procedures in catheterization laboratories.
INTERNATIONAL SALES. Outside of the U.S., the Company's products
are presently sold by 42 independent dealer organizations and 15 direct sales
representatives in Germany, France, the United Kingdom, Canada, Belgium,
Netherlands, and Ireland. In 1999, the Company's international sales grew by
21% and accounted for approximately 24% of total sales. The Company has
appointed a vice president for international sales and established an
international sales and distribution office in Maastricht, The Netherlands.
With the recent and planned additions to its product lines, the Company
believes that international sales will continue to increase.
International dealers are required to inventory products and sell
directly to customers within defined sales territories. Each of the Company's
products must be approved for sale under the laws of the country in which it
is sold. International dealers are responsible for compliance with all
applicable laws and regulations in their respective countries.
CUSTOMERS
The Company serves hospital-based cardiologists, radiologists,
anesthesiologists, physiatrists (pain management), neurologists, ER
physicians, technicians and nurses who influence the purchasing decision for
Merit's products. Hospitals also purchase the Company's products in the U.S.
through custom packagers and packers who assemble and combine products in
custom kits and packs. The Company's customers outside the U.S. are hospitals
and other end users in those countries where a direct sales force has been
established, and in other countries are independent dealers in medical
products who resell to hospitals and other customers.
In 1999, approximately 51% of the Company sales were made
directly to domestic hospitals, 25% to custom packagers and packers and 24%
to international markets. Sales to the Company's single largest customer, a
foreign dealer, accounted for 6.2% of total sales during the year ended
December 31, 1999. In 1999 OEM sales represented
6
<PAGE>
4.4 % of Merit's total revenue. The Company is investing heavily in people
and programs to expand the OEM business. Merit recognizes the growth
opportunity in this area.
RESEARCH AND DEVELOPMENT
The Company believes that one of its important strengths is its
ability to quickly adapt its expertise and experience in injection molding
and to apply its electronic and sensor technologies to a perceived need for a
new product or product improvement. The Company's development efforts are
presently focused on disposable, innovative single-patient or single-use
items which can be included in the Company's custom kits or sold separately.
Longer-term projects include use of sensor-based technologies in a variety of
applications and additional inflation devices with added capacities and
features. There is a new focus on interventional vascular access products,
such as needles, guide wires, and catheters. Certain of the Company's
executive officers also devote a substantial portion of their time to
research and development. Research and development expenses were $3,618,041,
$3,244,477 and, $4,446,795, in 1999, 1998 and 1997, respectively. There was
no customer-sponsored research and development. The Company anticipates that
such expenses will range between approximately 4.0% to 6.0% of sales for 2000.
MANUFACTURING
Many of the Company's products are manufactured utilizing its
proprietary technology and expertise in plastic injection and insert molding.
Tooling of molds is contracted with third parties but the Company designs and
owns all of its molds. The Company utilizes its experience in injection and
insert molding technologies in the manufacture of most of the custom
components used in its products.
The electronic monitors and sensors used in the Company's
IntelliSystem and Monarch inflation devices are assembled from standard
electronic components or purchased from suppliers. In July 1994, the Company
acquired a 73% interest and in August 1999 the Company acquired the remaining
interest in Sentir, which is engaged in development and marketing of silicon
sensors. Sentir was founded in 1991 by the Company's President and Chief
Executive Officer, Fred P. Lampropoulos, to develop micromachine technology
and silicon sensors. Sentir is presently providing virtually all of the
sensors utilized by the Company in digital inflation devices.
The Company's products are manufactured at several facilities,
including South Jordan, Utah; Galway, Ireland; Angleton, Texas and a leased
expansion facility in Murray, Utah. See "Item 2. Properties."
COMPETITION
The principal competitive factors in the markets in which the
Company's products compete are quality, performance, service and price. The
Company believes that its products have achieved rapid market acceptance due,
in part, to the quality of materials and workmanship, innovative design and
ease of operation, the Company's attention to customer service and product
managers who respond promptly to customer inquiries. The Company's products
are priced competitively, but not below prices for competing products.
There are several companies which are in the business of designing,
manufacturing and marketing devices similar to the Company's products, most
of which have substantially greater financial, technical and marketing
resources than the Company. There are several companies which compete with
the Company in the U.S. market for products and accessories used in
cardiology and radiology procedures. The Company believes, based on available
industry data with respect to the number of procedures performed, that it is
one of two market leaders in the U.S. for control syringes, tubing and
maiforld kits (together with NAMIC USA Corporation, a subsidiary of Boston
Scientific), and is the leader in the U.S. market for inflation devices and
hemostasis accessories. The Company also believes that the recent and planned
additions to its product lines will enable it to compete more effectively in
both U.S. and international markets. There is no assurance, however, that the
Company will be able to maintain its existing competitive advantages or to
compete successfully in the future.
7
<PAGE>
A substantial majority of the Company's revenues are presently
derived from sales of products used in coronary angiography and angioplasty
procedures. Other procedures, devices and drugs for the treatment and
prevention of coronary artery disease have been developed and are currently
being used such as laser angioplasty, vascular stents, atherectomy procedures
and drug therapies, the effect of which may be to render certain of the
Company's products obsolete or to limit the markets for its products. The
radiology and cardiology markets encompass a large number of suppliers of
many different sizes. The Company competes with small firms, such as Possis
Medical and Microtherapeutics; medium sized companies like Cook, Arrow and
Angio Dynamics; and large, international, multi- supply medical companies,
such as Johnson & Johnson, Boston Scientific, Guidant and C.R. Bard.
PATENTS, PATENT APPLICATIONS, LICENSES, TRADEMARKS AND COPYRIGHTS
The Company considers its proprietary technology to be important in
the development and manufacture of its products and seeks to protect its
technology through a combination of patents and confidentiality agreements
with its employees and others. Two U.S. patents were issued in 1991 covering
the mechanical aspects of the Company's angioplasty inflation devices which
relate to the ability of the user to engage or release the syringe plunger
while increasing or decreasing pressure, and two U.S. patents were obtained
in 1992 and 1993 covering digital control aspects of the Company's
IntelliSystem inflation device and for displaying, storing and retrieving
inflation data. The Company has obtained other patents covering each of its
Monarch and Basix inflation devices and additional features of the
IntelliSystem.
Corresponding patent applications covering the claims included in
the Company's U.S. patents and patent applications have been initiated in
several foreign countries. The Company deems its patents and patents pending
to be materially important to its business but does not believe its business
is dependent on securing such patents. The Company negotiated a license in
1992 with respect to patents concerning technology utilized in its
IntelliSystem and Monarch inflation devices in consideration of a 5.75%
ongoing royalty not to exceed $450,000 annually. Royalties paid in each of
1999, 1998 and 1997 were $450,000.
While the Company has obtained U.S. patents and filed additional
U.S. and foreign patent applications as discussed above, there can be no
assurance that issued patents will provide the Company with any significant
competitive advantages or will not be challenged by third parties or that the
patents of others will not have an adverse effect on the ability of the
Company to conduct its business. The Company could incur substantial costs in
seeking enforcement of its patents against infringement or the unauthorized
use of its proprietary technology by others or in defending itself against
similar claims of others. Insofar as the Company relies on trade secrets and
proprietary know-how to maintain its competitive position, there can be no
assurance that others may not independently develop similar or superior
technologies.
The Company has registered or applied for registration of several
tradenames or trademarks. See "Products." (Page 2). The Company also places
copyright notices on its instructional and advertising materials and has
registered copyrights relating to certain software used in its electronic
inflation devices.
REGULATION
The development, testing, packaging, labeling and marketing of
medical devices and the manufacturing procedures relating to these devices
are regulated under the Federal Food, Drug and Cosmetic Act and additional
regulations promulgated thereunder by the FDA. In general, these statutes and
regulations require that manufacturers adhere to certain standards designed
to ensure the safety and effectiveness of medical devices. The Company
employs a director of regulatory affairs who is responsible for compliance
with all applicable FDA regulations. Although the Company believes it is
currently in material compliance with all applicable FDA requirements, the
Company's business could be adversely affected by failure to comply with all
applicable FDA and other government regulations presently existing and
promulgated in the future.
8
<PAGE>
The FDA's Good Manufacturing Practices standards regulate the
Company's manufacturing processes, require the maintenance of certain records
and provide for unscheduled inspections of the Company's facilities. Certain
requirements of state, local and foreign governments must also be complied
with in the manufacture and marketing of the Company's products.
New medical devices may also be subject to either the Section
510(k) Pre-Market Notification regulations or the Pre-Market Approval ("PMA")
regulations of the FDA and similar regulatory authorities in foreign
countries. New products in either category require extensive documentation,
careful engineering and manufacturing controls to ensure quality. Products
needing PMA approval require extensive pre-clinical and clinical testing and
clearance by the FDA prior to marketing. Products subject to the Section
510(k) Pre-Market Notification regulations require FDA clearance prior to
marketing. To date, the Company's products have required only compliance with
the Section 510(k) Pre-Market Notification regulations. The Company's
products are subject to foreign regulatory approvals before they may be
marketed abroad. The Company places the "CE" mark on devices and products
sold in Europe. The Company has received ISO 9001 certification for its South
Jordan facility, as well as ISO 9002 for its Galway, Ireland facility.
EMPLOYEES
As of March 23, 2000, the Company employed 1,214 persons, including
947 in manufacturing, 107 in sales and marketing, 79 in engineering, research
and development and 81 in administration.
Many of the Company's present employees are highly skilled. The
Company's failure or success will depend, in part, upon its ability to retain
such employees. Management is of the opinion that an adequate supply of
skilled employees is available. The Company has from time to time experienced
rapid turnover among its entry level assembly workers as well as occasional
shortages of such workers, resulting in increased labor costs and
administrative expenses related to hiring and training of replacement and new
entry-level employees. The Company has confidentiality agreements with its
key employees, including each of its executive officers. None of the
Company's employees are represented by a union or other collective bargaining
group and management of the Company believes that its relations with its
employees are good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
For financial information relating to the Company's foreign and
domestic sales, transfers between geographic areas, net income and
identifiable assets, see Note 8 to the Consolidated Financial Statements
incorporated by reference in this report.
ITEM 2. PROPERTIES.
The Company is the owner of approximately 35 acres of real property
situated in the City of South Jordan, Utah, which surrounds the site of its
175,000 square foot principal office and manufacturing facility where it
relocated and consolidated its operations in November 1994. The Company sold
to the developer ten acres of land on which the facility was constructed and
entered into a 25-year lease agreement to finance the new facility. Monthly
lease payments are approximately $122,117. The Company also holds an option
to purchase the facility, exercisable at market value after ten years and, if
not exercised, after 25 years. The new facility has been constructed to the
Company's specifications and is presently 90% utilized.
The Company is leasing a building of approximately 26,500 square
feet in Galway, County Galway, Republic of Ireland as its principal office
and manufacturing facility for European operations. This facility is used as
the administrative headquarters to support the European direct sales force.
The facility also houses a research and development team which has developed
a new PTCA guide wire and is developing other new products. Beginning in the
fourth quarter of 1997, the Company initiated manufacturing operations for
several new and existing products at the Galway facility, including custom
kits, the BASIX inflation device and the Company's PTCA guide wire. In 1998
Merit began the manufacture of the hemostasis valve products in Ireland. The
property has been improved and equipped
9
<PAGE>
on terms favorable to the Company in connection with economic development
grant incentives and grants provided by the Irish Government. This lease is
for 20 years at approximately $135,000 per year, less a 40% subsidy from the
Irish government, available through 2000. The Company also has a purchase
option exercisable on terms deemed favorable to the Company through the term
of the lease.
In October 1997, the Company began manufacturing operations in a
facility of approximately 25,000 square feet of manufacturing space formerly
occupied by the Company in Murray, Utah and shifted production of several
well-established products to this facility. In 1998 Merit added an additional
25,000 square feet of manufacturing space to its Murray location. The
additional manufacturing space was obtained to create room at the Company's
principal manufacturing facility for production of new products. The leases
are for a term of five years with monthly lease payments of approximately
$26,365.
In August 1999, the Company purchased the operating assets of
Mallinckrodt's Angleton division, including approximately 19 acres of land
and 75,000 square feet of building in Angleton, Texas, from Mallinckrodt.
The Company believes that its facilities are generally adequate for
its present level of operations and for anticipated increases in the level of
operations.
ITEM 3. LEGAL PROCEEDINGS.
In the course of business, the Company is involved in litigation
and claims which management believes are not considered material to the
Company's operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS.
The "Market Information" included in the Company's Annual Report to
Shareholders for the year ended December 31, 1999, furnished herewith to the
Commission as Exhibit 13.1 to this Report, is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA.
The "Selected Financial Data" included in the Company's Annual
Report to Shareholders for the year ended December 31, 1999, furnished
herewith to the Commission as Exhibit 13.1 to this Report, is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The "Management's Discussion and Analysis of Financial Condition"
included in the Company's Annual Report to Shareholders for the year ended
December 31, 1999 furnished herewith to the Commission as Exhibit 13.1 to
this Report, is incorporated herein by reference.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The "Market Risk Disclosure" included in the Company's Report to
Shareholders for the year ended December 31, 1999, furnished herewith to the
Commission as Exhibit 13.1 to this Report, is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's consolidated financial statements and notes included
in the Company's Annual Report to Shareholders for the year ended December
31, 1999, furnished herewith to the Commission as Exhibit 13.1 to this
Report, are incorporated herein by reference.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEMS 10, 11, 12 AND 13.
These items are incorporated by reference to the Company's
definitive Proxy Statement relating to the Annual Meeting of Shareholders
scheduled for May 24, 2000. The definitive Proxy Statement will be filed with
the Commission not later than 120 days after December 31, 1999, pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended.
11
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
FINANCIAL STATEMENTS. The following financial statements are
incorporated by reference as provided in Item 8 of this report:
-- Independent Auditors' Report
-- Consolidated Balance Sheets as of December 31, 1999 and
1998
-- Consolidated Statements of Operations for the Years
Ended December 31, 1999, 1998 and 1997
-- Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997
-- Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997
-- Notes to Consolidated Financial Statements
(b) Reports on Form 8-K:
None.
(c) Exhibits:
The following exhibits required by Item 601 of Regulation S-K
are filed herewith or have been filed previously with the Commission
as indicated below:
<TABLE>
<CAPTION>
DESCRIPTION EXHIBIT NO.
----------------------------------------------------------------------- ------------------------------
<S> <C>
3.1 Articles of Incorporation of the Company, as amended and restated* [Form 10-Q filed August 14,
1996, Exhibit No. 1]
3.2 Bylaws of the Company* [Form S-18 filed October 19,
1989, Exhibit No. 2]
4 Specimen Certificate of the Company's Common Stock, no par value* [Form S-18 filed October 19,
1989, Exhibit No. 10]
10.1 Merit Medical Systems, Inc. Long Term Incentive Plan (as amended and [Form 10-Q filed August 14,
restated) dated March 25, 1996* 1996, Exhibit No. 2]
10.2 Merit Medical Systems, Inc. 401(k) Profit Sharing Plan (as amended [Form S-1 filed February 14,
effective January 1, 1991* 1992, Exhibit No. 8]
10.3 License Agreement, dated April 8, 1992 between the Company and Utah [Form S-1 filed February 14,
Medical Products, Inc.* 1992, Exhibit No. 5]
10.4 Lease Agreement dated as of June 8, 1993 for office and manufacturing [Form 10-K for year ended
facility* December 31, 1994, Exhibit
No. 10.5]
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION EXHIBIT NO.
----------------------------------------------------------------------- ------------------------------
<S> <C>
10.5 Loan Agreement with Zions First National Bank dated October 10, [Form 10-K for year ended
1995* December 31, 1995, Exhibit
No. 10.5
10.6 Amendment to Loan Agreement with Zions First National Bank dated [Form 10-K for year ended
October 10, 1997 December 31, 1997, Exhibit
No. 10.5]
10.7 Amendment to Loan Agreement with Zions First National Bank dated [Form 10-K for year ended
October 10, 1998 December 31, 1998, Exhibit
No.10.7]
10.8 Amendment to Loan Agreement with Zions First National Bank dated Filed herewith
August 11, 1999
10.9 Agreement of sale by and between Merit Medical Systems, Inc. and [Form 8-K dated August 20,
Mallinckrodt Inc. dated August 20, 1999 1999, Exhibit No. 10.1]
13.1 Annual Report to Shareholders for the year ended December 31, 1999. Filed herewith
Certain portions of this exhibit are incorporated by
reference into this Report on Form 10-K; except as so incorporated by
reference, the Annual Report to Shareholders is not deemed filed as
part of this Report on Form 10-K.
23.1 Consent of Independent Auditors Filed herewith
27 Financial Data Schedule - Twelve months ended December 31, 1999 Filed herewith
</TABLE>
- ---------------------
* These exhibits are incorporated herein by reference.
(d) Financial Statement Schedules: There are no financial statement
schedules required to be filed with this report.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 29, 2000.
MERIT MEDICAL SYSTEMS, INC.
By: FRED P. LAMPROPOULOS, PRESIDENT
---------------------------------
Fred P. Lampropoulos, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on March 29,2000.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED
<S> <C>
FRED P. LAMPROPOULOS President, Chief Executive Officer and Director
- ---------------------------------------------------
Fred P. Lampropoulos
KENT W. STANGER Chief Financial Officer, Secretary, Treasurer and
- --------------------------------------------------- Director (Principal financial and accounting officer)
Kent W. Stanger
RICHARD W. EDELMAN Director
- ---------------------------------------------------
Richard W. Edelman
REX C. BEAN Director
- ---------------------------------------------------
Rex C. Bean
JAMES J. ELLIS Director
- ---------------------------------------------------
James J. Ellis
MICHAEL E. STILLABOWER Director
- ---------------------------------------------------
Michael E. Stillabower
</TABLE>
14
<PAGE>
AMENDED AND RESTATED
LOAN AGREEMENT
Between
ZIONS FIRST NATIONAL BANK
Lender
and
MERIT MEDICAL SYSTEMS, INC.
MERIT HOLDINGS, INC.
SENTIR SEMICONDUCTOR, INC.
Borrowers
Effective Date: August 11, 1999
<PAGE>
AMENDED AND RESTATED
LOAN AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Article 1 - Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Article 2 - Loan Description . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 2.1. Amount of Loan . . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 2.2. Nature and Duration of Loan. . . . . . . . . . . . . . . . . . . .4
Section 2.3. Promissory Note. . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 2.4. Prepayment of Loan . . . . . . . . . . . . . . . . . . . . . . . .5
Section 2.5. Limitations on Advances. . . . . . . . . . . . . . . . . . . . . .5
Section 2.6. Notice and Manner of Borrowing . . . . . . . . . . . . . . . . . .5
Section 2.7. Loan Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Article 3 - Security for Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 3.1. Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 3.2. Security for Obligations Under Loan Agreement. . . . . . . . . . .6
Section 3.3. Perfection of Security Interest. . . . . . . . . . . . . . . . . .6
Section 3.4. Release of Lender as Condition to Lien Termination . . . . . . . .6
Article 4 - Conditions to Loan Disbursements . . . . . . . . . . . . . . . . . . . .6
Section 4.1. Conditions to Loan Disbursements . . . . . . . . . . . . . . . . .6
Section 4.2. No Default, Adverse Change, False or Misleading Statement. . . . .7
Article 5 - Representations and Warranties . . . . . . . . . . . . . . . . . . . . .7
Section 5.1. Organization and Qualification . . . . . . . . . . . . . . . . . .7
Section 5.2. Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 5.3. No Governmental Approval Necessary . . . . . . . . . . . . . . . .9
Section 5.4. Accuracy of Financial Statements . . . . . . . . . . . . . . . . .9
Section 5.5. No Pending or Threatened Litigation. . . . . . . . . . . . . . . .9
Section 5.6. Full and Accurate Disclosure . . . . . . . . . . . . . . . . . . 10
Section 5.7. Compliance With ERISA. . . . . . . . . . . . . . . . . . . . . . 10
Section 5.8. Compliance With All Other Applicable Law . . . . . . . . . . . . 11
Section 5.9. Environmental Representations and Warranties . . . . . . . . . . 11
Section 5.10. Operation of Business. . . . . . . . . . . . . . . . . . . . . . 11
Section 5.11. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . 11
Article 6 - Borrowers' Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 11
i
<PAGE>
Section 6.1. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6.2. Continued Compliance With ERISA. . . . . . . . . . . . . . . . . 12
Section 6.3. Continued Compliance With Applicable Law . . . . . . . . . . . . 12
Section 6.4. Prior Consent for Amendment or Change. . . . . . . . . . . . . . 12
Section 6.5. Payment of Taxes and Obligations . . . . . . . . . . . . . . . . 12
Section 6.6. Financial Statements and Reports . . . . . . . . . . . . . . . . 13
Section 6.7. Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . 13
Section 6.8. Restriction on Acquisitions. . . . . . . . . . . . . . . . . . . 14
Section 6.9. Negative Pledge. . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.10. Mergers, Consolidations, and Purchase and Sale of Assets. . . . 15
Section 6.11. Dividends and Loans . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.13. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 6.14. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 6.15. Operation of Business. . . . . . . . . . . . . . . . . . . . . . 16
Section 6.16. Maintenance of Records and Properties. . . . . . . . . . . . . . 16
Section 6.17. Notice of Claims . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6.18. Environmental Covenants. . . . . . . . . . . . . . . . . . . . . 17
Article 7 - Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.1. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7.2. No Waiver of Event of Default. . . . . . . . . . . . . . . . . . 19
Article 8 - Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 8.1. Remedies upon Event of Default . . . . . . . . . . . . . . . . . 19
Section 8.2. Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . 19
Section 8.3. No Waiver of Rights. . . . . . . . . . . . . . . . . . . . . . . 20
Article 9 - General Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.1. Governing Agreement. . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.2. Borrowers' Obligations Cumulative. . . . . . . . . . . . . . . . 20
Section 9.3. Payment of Expenses and Attorney's Fees. . . . . . . . . . . . . 20
Section 9.4. Right to Perform for Borrowers . . . . . . . . . . . . . . . . . 21
Section 9.5. Assignability. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.6. Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . 21
Section 9.7. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.8. Severability of Invalid Provisions . . . . . . . . . . . . . . . 21
Section 9.9. Interpretation of Loan Agreement . . . . . . . . . . . . . . . . 22
Section 9.10. Survival and Binding Effect of Representations, Warranties, and
Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.11. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.12. Environmental Indemnification. . . . . . . . . . . . . . . . . . 22
Section 9.13. Interest on Expenses and Indemnification, Collateral, Order of
Application. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.14. Limitation of Consequential Damages. . . . . . . . . . . . . . . 23
ii
<PAGE>
Section 9.15. Waiver and Release of Claims . . . . . . . . . . . . . . . . . . 23
Section 9.16. Revival Clause . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.17. Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.18. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 9.19. Duplicate Originals. . . . . . . . . . . . . . . . . . . . . . . 27
Section 9.20. Amendment and Restatement. . . . . . . . . . . . . . . . . . . . 28
Section 9.21. Integrated Agreement and Subsequent Amendment. . . . . . . . . . 28
</TABLE>
EXHIBITS
Exhibit A - Promissory Note
iii
<PAGE>
AMENDED AND RESTATED
LOAN AGREEMENT
This Amended and Restated Loan Agreement is made and entered into by and
between Zions First National Bank (hereinafter "Lender") and Merit Medical
Systems, Inc., a Utah corporation ("Merit Medical"), Merit Holdings, Inc., a
Utah corporation ("Merit Holdings"), and Sentir Semiconductor, Inc., a Utah
corporation ("Sentir") (Merit Medical, Merit Holdings and Sentir are
collectively called the "Borrowers").
Lender and Borrowers have entered into a Loan Agreement dated October
10, 1995 (as previously amended, the "Original Loan Agreement"). Lender and
Borrowers desire to amend and restate the Original Loan Agreement in the form
of this Amended and Restated Loan Agreement.
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Lender and Borrowers agree as follows:
ARTICLE 1 - DEFINITIONS
SECTION 1.1. DEFINITIONS
Terms defined in the singular shall have the same meaning when used in
the plural and vice versa. As used herein, the term:
"Banking Business Day" means any day not a Saturday, Sunday, legal
holiday in the State of Utah, or day on which national banks in the State of
Utah are authorized to close.
"Borrowing Base" means the sum of (a) 75% of the net book value, as
determined by Lender, of all accounts receivable of Borrowers in which Lender
has a first priority, fully perfected security interest, (b) 45% of the net
book value, as determined by Lender, of all inventory of Borrowers in which
Lender has a first priority, fully perfected security interest, (c) 70% of
the appraised value, acceptable to Lender, of all real property of Borrowers
in which Lender has a first priority, fully perfected lien, (d) 70% of the
appraised value, acceptable to Lender, of all equipment of Borrowers in which
Lender has a first priority, fully perfected security interest, and (e) (i)
55% of the net book value, as determined by Lender, of all equipment of
Borrowers for which there is not an appraisal acceptable to Lender and in
which Lender has a fully perfected security interest minus (ii) the
outstanding principal amount owing by Borrowers in respect of all such
equipment which is subject to a security interest superior to the security
interest of Lender in such equipment.
"Collateral" shall have the meaning set forth in Section 3.1 COLLATERAL.
"Computation Period" means any period of four consecutive fiscal
quarters of Merit Medical ending on the last day of a fiscal quarter.
<PAGE>
"EBITDA" means, for any Computation Period, consolidated earnings of
Merit Medical before interest, taxes, depreciation, and amortization;
earnings, interest, taxes, depreciation, and amortization shall have the
meanings used in accordance with generally accepted accounting principles
consistent with those used in the preparation of the financial statements
previously submitted to Lender by Borrowers. For purposes of calculating
EBITDA, if Merit Medical has made an acquisition during the Computation
Period for which the calculation is to be made, such calculation shall be
made as if such acquisition had occurred on the first day of such Computation
Period.
"Effective Date" shall mean the date the parties intend this Loan
Agreement to become binding and enforceable, which is the date stated at the
conclusion of this Loan Agreement.
"Environmental Condition" shall mean any condition involving or relating
to Hazardous Materials and/or the environment affecting the Real Property,
whether or not yet discovered, which could or does result in any damage,
loss, cost, expense, claim, demand, order, or liability to or against
Borrowers or Lender by any third party (including, without limitation, any
government entity), including, without limitation, any condition resulting
from the operation of any Borrower's business and/or operations in the
vicinity of the Real Property and/or any activity or operation formerly
conducted by any person or entity on or off the Real Property.
"Environmental Health and Safety Law" shall mean any legal requirement
that requires or relates to:
a. advising appropriate authorities, employees, and the public of
intended or actual releases of Hazardous Materials, violations of discharge
limits or other prohibitions, and of the commencement of activities, such
as resource extraction or construction, that do or could have significant
impact on the environment;
b. preventing or reducing to acceptable levels the release of
Hazardous Materials;
c. reducing the quantities, preventing the release, or minimizing
the hazardous characteristics of wastes that are generated;
d. assuring that products are designed, formulated, packaged, and
used so that they do not present unreasonable risks to human health or the
environment when used or disposed of;
e. protecting resources, species, or ecological amenities;
f. use, storage, transportation, sale, or transfer of Hazardous
Materials or other potentially harmful substances;
2
<PAGE>
g. cleaning up Hazardous Materials that have been released,
preventing the threat of release, and/or paying the costs of such clean up
or prevention; or
h. making responsible parties pay for damages done to the health of
others or the environment or permitting self-appointed representatives of
the public interest to recover for injuries done to public assets.
"Event of Default" has the meaning set forth in Section 7.1 EVENTS OF
DEFAULT.
"Facility Amount" means twenty-eight million dollars ($28,000,000.00) as
such amount is reduced by two hundred fifty thousand dollars ($250,000.00) on
the last day of each quarter commencing with the quarter ending March 31, 2001.
"Hazardous Materials" means (i) "hazardous waste" as defined by the
Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976 (42 U.S.C. Section 6901 et. seq.), including any future
amendments thereto, and regulations promulgated thereunder, and as the term
may be defined by any contemporary state counterpart to such act; (ii)
"hazardous substance" as defined by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et. seq.),
including any future amendments thereto, and regulations promulgated
thereunder, and as the term may be defined by any contemporary state
counterpart of such act; (iii) asbestos; (iv) polychlorinated biphenyls; (v)
underground or above ground storage tanks, whether empty or filled or
partially filled with any substance; (vi) any substance the presence of which
is or becomes prohibited by any federal, state, or local law, ordinance,
rule, or regulation; and (vii) any substance which under any federal, state,
or local law, ordinance, rule or regulation requires special handling or
notification in its collection, storage, treatment, transportation, use or
disposal.
"Loan" means the loan to be made pursuant to Article 2 LOAN DESCRIPTION.
"Loan Agreement" means this agreement, together with any exhibits,
amendments, addendums, and modifications.
"Organizational Documents" means, in the case of a corporation, its
Articles of Incorporation and By-Laws; in the case of a general partnership,
its Articles of Partnership; in the case of a limited partnership, its
Articles of Limited Partnership; in the case of a limited liability company,
its Articles of Organization and Operating Agreement, if any; in the case of
a limited liability partnership, its Articles of Limited Liability
Partnership; and all amendments, modifications, and changes to any of the
foregoing which are currently in effect.
"Performance Pricing Ratio" means the ratio of (a) borrowed debt of
Borrowers as of the last day of the Computation Period most recently ended to
(b) EBITDA for the Computation Period most recently ended.
3
<PAGE>
"Promissory Note" means the promissory note to be executed by Borrowers
pursuant to Section 2.3 PROMISSORY NOTE in the form of Exhibit A hereto,
which is incorporated herein by reference, and any and all renewals,
extensions, modifications, and replacements thereof.
"Real Property" means any and all real property or improvements thereon
owned or leased by Borrowers or in which Borrowers have any other interest of
any nature whatsoever.
"Reducing Available Borrowing Base" has the meaning set forth in Section
2.5 LIMITATIONS OR ADVANCES.
"Security Documents" means all security agreements, assignments,
pledges, deeds of trust, mortgages, and other documents which create or
evidence any security interest, assignment, lien or other encumbrance in
favor of Lender to secure any or all of the obligations created or
contemplated by this Loan Agreement, the Promissory Note, the Security
Documents, or any other agreements, documents, obligations, and transactions
contemplated by this Loan Agreement.
ARTICLE 2 - LOAN DESCRIPTION
SECTION 2.1. AMOUNT OF LOAN
Upon fulfillment of all conditions precedent set forth in this Loan
Agreement, and so long as no Event of Default exists, and no other breach has
occurred under this Loan Agreement or any Security Documents, Lender agrees
to loan Borrowers an amount equal to the Facility Amount.
SECTION 2.2. NATURE AND DURATION OF LOAN
The Loan shall be a reducing revolving loan payable in full upon the
date and upon the terms and conditions provided in the Promissory Note.
Lender and Borrowers intend the Loan to be in the nature of a line of credit
under which Borrowers may repeatedly draw funds on a revolving basis in
accordance with the terms and conditions of this Loan Agreement and the
Promissory Note. The right of Borrowers to draw funds and the obligation of
Lender to advance funds shall not accrue until all of the conditions set
forth in Article 4 CONDITIONS TO LOAN DISBURSEMENTS have been fully
satisfied, and shall terminate: (a) upon occurrence of an Event of Default
or (b)upon maturity of the Promissory Note, unless the Promissory Note is
renewed or extended by Lender, in which case such termination shall occur
upon the maturity of the final renewal or extension of the Promissory Note.
Upon such termination, any and all amounts owing to Lender pursuant to the
Promissory Note and this Loan Agreement shall thereupon be due and payable in
full.
SECTION 2.3. PROMISSORY NOTE
The Loan shall be evidenced by the Promissory Note of Borrowers to
Lender. The Promissory Note shall be executed and delivered to Lender upon
execution and delivery of this Loan Agreement. Proceeds of the Promissory
Note may be disbursed by Lender by wire transfer.
4
<PAGE>
SECTION 2.4. PREPAYMENT OF LOAN
Borrowers may prepay all or any portion of the Loan at any time, subject
to any prepayment penalty set forth in the Promissory Note. Any prepayment
received by Lender after 2:00 p.m. mountain standard or daylight time
(whichever is in effect on the date the prepayment is received) shall be
deemed received on the following Banking Business Day.
SECTION 2.5. LIMITATIONS ON ADVANCES
Notwithstanding anything to the contrary in this Loan Agreement or the
Promissory Note, no advances shall be made on the Loan under the Promissory
Note if, after making the requested advance, the total, principal amount of
all advances outstanding will exceed the lesser of the following (the
"Reducing Available Borrowing Base"):
(i) the Facility Amount,
(ii) an amount equal to (a) 3.5 times EBITDA for the Computation Period
most recently ended less (b) other borrowed debt of Borrowers, and
(iii) the Borrowing Base.
Borrowers will at all times maintain personal and real property so that
the total, aggregate, principal amount of all advances at any time
outstanding and unpaid shall be in compliance with this formula. If at any
time the total, aggregate, principal amount of all such advances outstanding
and unpaid exceeds the amount allowable under this formula, Borrowers shall
immediately make payment to Lender in a sufficient amount to bring the amount
of such advances back into formula.
SECTION 2.6. NOTICE AND MANNER OF BORROWING
Borrowers shall give Lender same day notice of any advances requested
under the Promissory Note.
SECTION 2.7. LOAN FEE
Borrowers shall pay to Lender a fee for the Loan for so long as this
Loan Agreement is in effect. The loan fee shall be an amount equal to three
hundred seventy-five thousandths percent (.375%) per annum of the unused
portion of the Loan, calculated on the average unused portion of the Loan for
each calendar quarter. The loan fee shall be payable quarterly, in arrears,
and shall be due upon receipt of a statement therefor from Lender.
5
<PAGE>
ARTICLE 3 - SECURITY FOR LOAN
SECTION 3.1. COLLATERAL
The Loan and Promissory Note shall be secured by such collateral as and
to the extent provided in the Security Documents (the "Collateral"), which
shall include, without limitation, the following:
a. A security interest in all accounts receivable, inventory,
equipment, general intangibles, and patents of Borrowers.
b. A deed of trust upon real property of Merit Medical located in
Salt Lake County, Utah.
SECTION 3.2. SECURITY FOR OBLIGATIONS UNDER LOAN AGREEMENT
All obligations of Borrowers under this Loan Agreement are secured by
the Collateral.
SECTION 3.3. PERFECTION OF SECURITY INTEREST
Borrowers agree to execute and deliver any financing statements and
other documents (properly endorsed, if necessary) reasonably requested by
Lender for perfection or enforcement of any security interest or lien, and to
give good faith, diligent cooperation to Lender, and to perform such other
acts reasonably requested by Lender for perfection and enforcement of any
security interest or lien. Lender is authorized to file, record, or
otherwise utilize such documents as it deems necessary to perfect and/or
enforce any security interest or lien granted hereunder.
SECTION 3.4. RELEASE OF LENDER AS CONDITION TO LIEN TERMINATION
In recognition of Lender's right to have all its attorneys fees and
expenses incurred in connection with this Loan Agreement secured by the
Collateral, notwithstanding payment in full of the Loan and all other
obligations secured by the Collateral, Lender shall not be required to
release, reconvey, or terminate any security interest, trust deed, mortgage,
assignment, or other lien on the Collateral unless and until Borrowers have
executed and delivered to Lender general releases in form and substance
satisfactory to Lender.
ARTICLE 4 - CONDITIONS TO LOAN DISBURSEMENTS
SECTION 4.1. CONDITIONS TO LOAN DISBURSEMENTS
Lender's obligation to disburse any of the Loan proceeds is expressly
subject to, and shall not arise until all of the conditions set forth below
have been satisfied. All of the documents referred to below must be in a
form and substance acceptable to Lender.
6
<PAGE>
a. This Loan Agreement, the Promissory Note, the Security
Documents, and all other documents contemplated by this Loan Agreement to
be delivered to Lender prior to funding have been fully executed and
delivered to Lender.
b. All of the documents contemplated by this Loan Agreement which
require filing or recording have been properly filed and recorded so that
all of the liens and security interests granted to Lender in connection
with the Loan will be properly created and perfected and will have a
priority acceptable to Lender.
c. All other conditions precedent provided in or contemplated by
this Loan Agreement, the Security Documents, or any other agreement or
document have been performed.
d. As of the date of disbursement of all or any portion of the Loan
proceeds, the following shall be true and correct: (1) all representations
and warranties made by Borrowers in this Loan Agreement are true and
correct as of the date of such disbursement; and (2) no Event of Default
has occurred under the Loan Agreement and no conditions exist and no event
has occurred, which, with the passage of time or the giving of notice, or
both, would constitute an Event of Default under this Loan Agreement.
All conditions precedent set forth in this Loan Agreement, the Security
Documents, or in any other document relating to the Loan are for the sole
benefit of Lender and may be waived unilaterally by Lender.
SECTION 4.2. NO DEFAULT, ADVERSE CHANGE, FALSE OR MISLEADING STATEMENT
Lender's obligation to advance any funds at any time pursuant to this
Loan Agreement and the Promissory Note shall, at Lender's sole discretion,
terminate upon the occurrence of any Event of Default or upon the occurrence
of any material adverse change in any Borrower's organization or affairs or
in any matter concerning which an agreement, covenant, representation, or
warranty has been made herein, or upon the determination by Lender that any
of any Borrower's representations made herein or in connection with this Loan
Agreement were false or materially misleading when made. Upon the exercise
of such discretion, Lender shall be relieved of all further obligations under
this Loan Agreement, the Promissory Note, and all other agreements,
documents, obligations, and transactions contemplated by this Loan Agreement.
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES
SECTION 5.1. ORGANIZATION AND QUALIFICATION
7
<PAGE>
Merit Medical represents and warrants that it is a corporation duly
organized and existing in good standing under the laws of the State of Utah.
Merit Medical represents and warrants that it is duly qualified to do
business in each jurisdiction where the conduct of its business requires
qualification.
Merit Medical represents and warrants that it has the full power and
authority to own its property and to conduct the business in which it engages
and to enter into and perform its obligations under this Loan Agreement, the
Promissory Note, any Security Documents, and all agreements, documents,
obligations, and transactions contemplated by this Loan Agreement.
Merit Medical represents and warrants that it has delivered to Lender or
Lender's counsel accurate and complete copies of its Organizational Documents
which are operative and in effect as of the Effective Date.
Merit Holdings represents and warrants that it is a corporation duly
organized and existing in good standing under the laws of the State of Utah.
Merit Holdings represents and warrants that it is duly qualified to do
business in each jurisdiction where the conduct of its business requires
qualification.
Merit Holdings represents and warrants that it has the full power and
authority to own its property and to conduct the business in which it engages
and to enter into and perform its obligations under this Loan Agreement, the
Promissory Note, any Security Documents, and all agreements, documents,
obligations, and transactions contemplated by this Loan Agreement.
Merit Holdings represents and warrants that it has delivered to Lender
or Lender's counsel accurate and complete copies of its Organizational
Documents which are operative and in effect as of the Effective Date.
Sentir represents and warrants that it is a corporation duly organized
and existing in good standing under the laws of the State of Utah.
Sentir represents and warrants that it is duly qualified to do business
in each jurisdiction where the conduct of its business requires qualification.
Sentir represents and warrants that it has the full power and authority
to own its property and to conduct the business in which it engages and to
enter into and perform its obligations under this Loan Agreement, the
Promissory Note, any Security Documents, and all agreements, documents,
obligations, and transactions contemplated by this Loan Agreement.
Sentir represents and warrants that it has delivered to Lender or
Lender's counsel accurate and complete copies of its Organizational Documents
which are operative and in effect as of the Effective Date.
8
<PAGE>
SECTION 5.2. AUTHORIZATION
Each Borrower represents and warrants that the execution, delivery, and
performance by such Borrower of this Loan Agreement, the Promissory Note, the
Security Documents and all agreements, documents, obligations, and
transactions herein contemplated have been duly authorized by all necessary
action on the part of such Borrower and are not inconsistent with such
Borrower's Organizational Documents or any resolution of the Boards of
Directors of such Borrower, do not and will not contravene any provision of,
or constitute a default under, any indenture, mortgage, contract, or other
instrument to which such Borrower is a party or by which such Borrower is
bound, and that upon execution and delivery hereof and thereof, this Loan
Agreement, the Promissory Note and the Security Documents will constitute
legal, valid, and binding agreements and obligations of such Borrower,
enforceable in accordance with their respective terms.
SECTION 5.3. NO GOVERNMENTAL APPROVAL NECESSARY
Each Borrower represents and warrants that no consent by, approval of,
giving of notice to, registration with, or taking of any other action with
respect to or by any federal, state, or local governmental authority or
organization is required for such Borrower's execution, delivery, or
performance of this Loan Agreement, the Promissory Note, the Security
Documents or any other agreements, documents, obligations, or transactions
contemplated by this Loan Agreement.
SECTION 5.4. ACCURACY OF FINANCIAL STATEMENTS
Each Borrower represents and warrants that all of its financial
statements heretofore delivered to Lender have been prepared in accordance
with generally accepted accounting principles consistently applied and fully
and fairly represent such Borrower's financial condition as of the date
thereof, and fully and fairly represent the results of such Borrower's
operations for the period or periods covered thereby. Each Borrower
represents and warrants that since the date of the most recent financial
statements delivered to Lender, there has been no material adverse change in
its financial condition.
Each Borrower represents and warrants that all of its pro forma
financial statements heretofore delivered to Lender have been prepared
consistently with such Borrower's actual financial statements and fully and
fairly represent such Borrower's anticipated financial condition as of the
date thereof, and fully and fairly represent the anticipated results of such
Borrower's operations for the period or periods covered thereby.
SECTION 5.5. NO PENDING OR THREATENED LITIGATION
Each Borrower represents and warrants that except as Lender has been
otherwise advised in writing, together with an analysis by such Borrower's
counsel, there are no actions, suits, or proceedings pending or, to such
Borrower's knowledge, threatened against or affecting such Borrower in any
court or before any governmental commission, board, or authority which, if
adversely determined, would have a material adverse affect on such Borrower's
financial condition,
9
<PAGE>
conduct of its business, or ability to perform its obligations under this
Loan Agreement, the Promissory Note, the Security Documents or any other
agreement, document, obligation, or transaction contemplated by this Loan
Agreement.
SECTION 5.6. FULL AND ACCURATE DISCLOSURE
Each Borrower represents and warrants that this Loan Agreement, the
financial statements referred to herein, any loan application submitted to
Lender, and all other statements furnished by such Borrower to Lender in
connection herewith contain no untrue statement of a material fact and omit
no material fact necessary to make the statements contained therein or herein
not misleading. Each Borrower represents and warrants that it has not failed
to disclose in writing to Lender any fact that materially and adversely
affects, or is reasonably likely to materially and adversely affect, such
Borrower's business, operations, properties, prospects, profits, condition
(financial or otherwise), or ability to perform its obligations under this
Loan Agreement, the Promissory Note, the Security Documents, or any other
agreement, document, obligation, or transaction contemplated by this Loan
Agreement.
SECTION 5.7. COMPLIANCE WITH ERISA
Each Borrower represents and warrants that such Borrower is in
compliance in all material respects with all applicable provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, and
the regulations and published interpretations thereunder. Neither a
Reportable Event as set forth in Section 4043 of ERISA or the regulations
thereunder ("Reportable Event") nor a prohibited transaction as set forth in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as
amended, has occurred and is continuing with respect to any employee benefit
or other plan established, maintained, or to which contributions have been
made by such Borrower or any trade or business (whether or not incorporated)
which together with such Borrower would be treated as a single employer under
Section 4001 of ERISA ("ERISA Affiliate") for its employees which is covered
by Title IV of ERISA ("Plan"); no notice of intent to terminate a Plan has
been filed nor has any Plan been terminated; no circumstances exist that
constitute grounds under Section 4042 of ERISA entitling the Pension Benefit
Guaranty Corporation ("PBGC") to institute proceedings to terminate, or
appoint a trustee to administrate a Plan, nor has the PBGC instituted any
such proceedings; neither such Borrower nor any ERISA Affiliate has
completely or partially withdrawn under Section 4201 or 4204 of ERISA from
any Plan described in Section 4001(a)(3) of ERISA which covers employees of
such Borrower or any ERISA Affiliate ("Multi-employer Plan"); and such
Borrower and each ERISA Affiliate has met its minimum funding requirements
under ERISA with respect to all of its Plans and the present fair market
value of all Plan assets exceeds the present value of all vested benefits
under each Plan, as determined on the most recent valuation date of the Plan
and in accordance with the provisions of ERISA and the regulations thereunder
for calculating the potential liability of such Borrower or any ERISA
Affiliate to the PBGC or the Plan under Title IV of ERISA; and neither such
Borrower nor any ERISA Affiliate has incurred any liability to the PBGC under
ERISA.
10
<PAGE>
SECTION 5.8. COMPLIANCE WITH ALL OTHER APPLICABLE LAW
Each Borrower represents and warrants that it has complied with all
applicable statutes, rules, regulations, orders, and restrictions of any
domestic or foreign government, or any instrumentality or agency thereof
having jurisdiction over the conduct of such Borrower's business or the
ownership of its properties, which may have a material impact or affect upon
the conduct of such Borrower's business or the ownership of its properties.
SECTION 5.9. ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants that, except as Lender has been
otherwise previously advised by such Borrower, no Hazardous Materials are now
located on, in, or under the Real Property, nor is there any Environmental
Condition on, in, or under the Real Property and neither Borrowers nor, to
such Borrower's knowledge, after due inquiry and investigation, any other
person has ever caused or permitted any Hazardous Materials to be placed,
held, used, stored, released, generated, located or disposed of on, in or
under the Real Property, or any part thereof, nor caused or allowed an
Environmental Condition to exist on, in or under the Real Property. Each
Borrower further represents and warrants that no investigation,
administrative order, consent order and agreement, litigation or settlement
with respect to Hazardous Materials and/or Environmental Condition is
proposed, threatened, anticipated or in existence with respect to the Real
Property.
SECTION 5.10. OPERATION OF BUSINESS
Each Borrower represents and warrants that such Borrower possesses all
licenses, permits, franchises, patents, copyrights, trademarks, and trade
names, or rights thereto, to conduct its business substantially as now
conducted and as presently proposed to be conducted, and such Borrower is not
in violation of any valid rights of others with respect to any of the
foregoing.
SECTION 5.11. PAYMENT OF TAXES
Each Borrower represents and warrants that such Borrower has filed all
tax returns (federal, state, and local) required to be filed and has paid all
taxes, assessments, and governmental charges and levies, including interest
and penalties, on the Collateral and on such Borrower's property, business
and income, except such as are being contested in good faith by proper
proceedings and as to which adequate reserves are maintained.
ARTICLE 6 - BORROWERS' COVENANTS
Borrowers make the following agreements and covenants, which shall
continue so long as this Loan Agreement is in effect and so long as any
Borrower is indebted to Lender for obligations arising out of, identified in,
or contemplated by this Loan Agreement.
11
<PAGE>
SECTION 6.1. USE OF PROCEEDS
Each Borrower shall use the proceeds of the Loan solely for the purposes
identified to Lender in applying for the Loan.
No Borrower shall, directly or indirectly, use any of the proceeds of
the Loan for the purpose of purchasing or carrying any margin stock within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System, or to extend credit to any person or entity for the purpose of
purchasing or carrying any such margin stock or for any purpose which
violates, or is inconsistent with, Regulation X of said Board of Governors,
or for any other purpose not permitted by Section 7 of the Securities
Exchange Act of 1934, as amended, or by any of the rules and regulations
respecting the extension of credit promulgated thereunder.
SECTION 6.2. CONTINUED COMPLIANCE WITH ERISA
Each Borrower covenants that, with respect to all Plans (as defined in
5.7 COMPLIANCE WITH ERISA) which such Borrower currently maintains or to
which such Borrower is a party or which such Borrower may hereafter adopt,
such Borrower shall continue to comply with all applicable provisions of
ERISA and with all representations made in 5.7 COMPLIANCE WITH ERISA,
including, without limitation, conformance with all funding standards,
prohibited transaction rules, multi-employer plan rules, and necessary
reserve requirements.
SECTION 6.3. CONTINUED COMPLIANCE WITH APPLICABLE LAW
Each Borrower shall conduct its business in a lawful manner and in
compliance with all applicable federal, state, and local laws, ordinances,
rules, regulations, and orders; shall maintain in good standing all licenses
and organizational or other qualifications reasonably necessary to its
business and existence; and shall not engage in any business not authorized
by and not in accordance with its Organizational Documents and other
governing documents.
SECTION 6.4. PRIOR CONSENT FOR AMENDMENT OR CHANGE
No Borrower shall modify, amend, waive, or otherwise alter such
Borrower's corporate structure or fail to enforce its Organizational
Documents, or other governing documents without Lender's prior written
consent.
SECTION 6.5. PAYMENT OF TAXES AND OBLIGATIONS
Each Borrower shall pay when due all taxes, assessments, and
governmental charges and levies on the Collateral and on such Borrower's
property, business, and income, and all material obligations of such Borrower
of whatever nature, except such as are being contested in good faith by
proper proceedings and as to which adequate reserves are maintained.
12
<PAGE>
SECTION 6.6. FINANCIAL STATEMENTS AND REPORTS
Each Borrower shall provide Lender with such financial statements and
reports as Lender may reasonably request, and such statements and reports
shall be prepared in accordance with generally accepted accounting principles
and shall fully and fairly represent such Borrower's financial condition and
the results of its operations for the period or periods covered. As to all
financial statements and reports which such Borrower has furnished or may in
the future furnish to Lender, such Borrower acknowledges and agrees that it
has a fiduciary duty to ensure that such statements and reports are accurate
and complete.
Until requested otherwise by Lender, Borrowers shall provide the
following financial statements and reports to Lender:
a. Annual audited financial statements with an unqualified opinion
for each fiscal year of each Borrower from an independent accounting firm
and in a form acceptable to Lender, to be delivered to Lender within one
hundred twenty (120) days of the end of the fiscal year. Each Borrower
shall also submit to Lender copies of any management letters or other
reports submitted to such Borrower by independent certified public
accountants in connection with examination of the financial statements of
such Borrower made by such accountants.
b. Quarterly 10 Q reports for each Borrower in a form acceptable
to Lender, to be delivered to Lender within forty-five (45) days of the end
of the fiscal quarter. The quarterly 10 Q reports shall include a
certification by the chief financial officer or chief executive officer of
such Borrower that they have been prepared in accordance with generally
accepted accounting principles.
c. Within thirty (30) days of the end of each month, Borrowers
shall submit to Lender a Borrowing Base Certificate in a form provided by
or acceptable to Lender demonstrating that the outstanding balance on the
Loan is in compliance with the terms and conditions of this Loan Agreement.
d. Within forty-five (45) days of the end of each fiscal quarter,
Borrowers shall submit to Lender a compliance certificate in a form
acceptable to Lender certifying and showing that Borrowers are in
compliance with the financial covenants provided in Section 6.7 FINANCIAL
COVENANTS and containing a listing of all new patent applications filed by
any Borrower and all new patents issued to any Borrower. The compliance
certificate shall be signed by the chief executive officer or chief
financial officer of each Borrower.
SECTION 6.7. FINANCIAL COVENANTS
a. WORKING CAPITAL. Merit Medical will maintain at all times an
excess of current assets over current liabilities of not less than
twenty-five million dollars ($25,000,000.00).
13
<PAGE>
Current assets means the assets treated as current assets in accordance
with generally accepted accounting principles consistent with those used in
the preparation of the financial statements submitted to Lender by Merit
Medical. Current liabilities means all liabilities treated as current
liabilities in accordance with generally accepted accounting principles
consistent with those used in the preparation of the financial statements
previously submitted to Lender by Merit Medical, including, without
limitation, (1) all obligations payable on demand or within one year after
the date on which the determination is made, and (2) final maturities and
sinking fund payments required to be made within one year after the date on
which the determination is made, but excluding all such liabilities or
obligations which are renewable or extendable at the option of Borrowers to a
date more than one year from the date of determination.
b. DEBT TO EQUITY RATIO. Merit Medical will maintain at all times a
ratio of total liabilities to tangible net worth of not greater than two to
one (2:1).
Tangible net worth means the excess of total assets over total
liabilities, total assets and total liabilities each to be determined in
accordance with generally accepted accounting principles consistent with
those applied in the preparation of the financial statements previously
submitted by Merit Medical to Lender excluding, however, from the
determination of total assets all assets which would be classified as
intangible assets under generally accepted accounting principles, including,
without limitation, goodwill, licenses, patents, trademarks, trade names,
copyrights, and franchises.
c. BORROWED DEBT TO EBITDA. Merit Medical shall maintain a ratio of
(a) borrowed debt of Borrowers as of the last day of the Computation Period
most recently ended to (b) EBITDA for the Computation Period most recently
ended of not greater than three and five-tenths to one (3.5:1) as of the last
day of each Computation Period.
SECTION 6.8. RESTRICTION ON ACQUISITIONS
Any acquisition by any Borrower in excess of one million dollars
($1,000,000.00) must be approved in writing by Lender prior to such
acquisition.
SECTION 6.9. NEGATIVE PLEDGE
No Borrower will create, incur, assume, or suffer to exist any mortgage,
deed of trust, pledge, lien, security interest, hypothecation, assignment,
deposit arrangement, or other preferential arrangement, charge, or
encumbrance (including, without limitation, any conditional sale, other title
retention agreement, or finance lease) of any nature, upon or with respect to
any of its properties or assets, now owned or hereafter acquired, or sign or
file, under the Uniform Commercial Code of any jurisdiction, a financing
statement under which such Borrower appears as debtor, or sign any security
agreement authorizing any secured party thereunder to file such financing
statement, except those contemplated by this Loan Agreement and liens for
taxes and assessments not yet due and payable or, if due and payable, those
being contested in good faith by appropriate proceedings and for which
appropriate reserves are maintained. Notwithstanding anything to the
contrary in this Loan Agreement or any of the Security Documents, Borrowers
may purchase, sell, lease back, or
14
<PAGE>
otherwise finance the acquisition of equipment (which does not constitute
inventory) upon terms and conditions as may give rise to one or more purchase
money security interest (s) in and upon such purchased, leased, or acquired
equipment, or which constitute a sale/lease back arrangement. The continued
existence, attachment, or perfection of such purchase money security interest
shall in no way be deemed to violate any undertaking, representation,
warranty, or covenant of Borrowers to Lender.
SECTION 6.10. MERGERS, CONSOLIDATIONS, AND PURCHASE AND SALE OF ASSETS
No Borrower shall wind up, liquidate, or dissolve itself, reorganize,
merge, or consolidate with or into, or convey, sell, assign, transfer, lease,
or otherwise dispose of (whether in one transaction or a series of
transactions) all or substantially all of its assets (whether now owned or
hereafter acquired) to any person or entity, or acquire all or substantially
all of the assets or the business of any person or entity.
SECTION 6.11. DIVIDENDS AND LOANS
Merit Medical shall not (a) declare or pay any dividends, (b) purchase,
redeem, retire or otherwise acquire for value any of their capital stock now
or hereafter outstanding, (c) make any distribution of assets to its
stockholders, investors, or equity holders, whether in cash, assets, or in
obligations of Merit Medical, (d) allocate or otherwise set apart any sum for
the payment of any dividend or distribution on, or for the purchase,
redemption, or retirement of any shares of their capital stock or equity
interests, or (e) make any other distribution by reduction of capital or
otherwise in respect of any shares of their capital stock or equity
interests, without, in each case, the prior written consent of Lender, which
consent shall not be unreasonably withheld..
No Borrower shall make any loans or pay any advances of any nature
whatsoever to any person or entity, except advances in the ordinary course of
business to employees, vendors, suppliers, and contractors.
SECTION 6.12. INVENTORY, ACCOUNTS RECEIVABLE, AND PATENTS.
Each Borrower shall furnish to Lender:
a. A monthly accounts receivable aging report within thirty (30)
days of the end of each month, in a form acceptable to Lender.
b. A quarterly accounts payable aging report within thirty (30)
days of the end of each quarter, in a form acceptable to Lender.
c. A monthly inventory report within thirty (30) days of the end of
each month, in a form acceptable to Lender.
15
<PAGE>
d. At least semi-annually and at other reasonable times as
requested by Lender, a list of the names, addresses and phone numbers of
all account debtors on such Borrower's accounts, in a form acceptable to
Lender.
e. A quarterly report showing all patent applications filed by such
Borrower during the quarter most recently ended and all new patents issued
to such Borrower during the quarter most recently ended, to be delivered to
Lender within forty-five (45) days of the end of each quarter.
Each Borrower hereby authorizes Lender to verify such Borrower's
accounts through written or verbal verification methods at the discretion of
Lender.
SECTION 6.13. INSURANCE
Each Borrower shall maintain insurance with financially sound and
reputable insurance companies or associations in such amounts and covering
such risks as are usually carried by companies engaged in the same or a
similar business and similarly situated, which insurance may provide for
reasonable deductibility from coverage thereof.
SECTION 6.14. INSPECTION
Each Borrower shall at any reasonable time and from time to time, permit
Lender or any representative of Lender to examine and make copies of and
abstracts from the records and books of account of, and visit and inspect the
properties and assets of, such Borrower, and to discuss the affairs,
finances, and accounts of such Borrower with any of such Borrower's officers
and directors and with such Borrower's independent accountants.
SECTION 6.15. OPERATION OF BUSINESS
Each Borrower shall maintain all licenses, permits, franchises, patents,
copyrights, trademarks, and trade names, or rights thereto, to conduct its
business substantially as now conducted and as presently proposed to be
conducted, and such Borrower shall not violate any valid rights of others
with respect to any of the foregoing. Each Borrower shall continue to engage
in a business of the same general type as now conducted.
SECTION 6.16. MAINTENANCE OF RECORDS AND PROPERTIES
Each Borrower shall keep adequate records and books of account in which
complete entries will be made in accordance with generally accepted
accounting principles consistently applied, reflecting all financial
transactions of such Borrower. Each Borrower shall maintain, keep and
preserve all of its properties (tangible and intangible) necessary or useful
in the proper conduct of its business in good working order and condition,
ordinary wear and tear excepted.
16
<PAGE>
SECTION 6.17. NOTICE OF CLAIMS
Each Borrower shall promptly notify Lender in writing of all actions,
suits or proceedings filed or threatened against or affecting such Borrower
in any court or before any governmental commission, board, or authority
which, if adversely determined, would have a material adverse effect on such
Borrower's financial condition, conduct of business, or ability to perform
its obligations under this Loan Agreement, the Promissory Note, the Security
Documents or any other agreement, document, obligation, or transaction
contemplated by this Loan Agreement.
SECTION 6.18. ENVIRONMENTAL COVENANTS
Each Borrower covenants that it will:
a. Not permit the presence, use, disposal, storage or release of
any Hazardous Materials on, in, or under the Real Property, except in the
ordinary course of such Borrower's business under conditions that are
generally recognized to be appropriate and safe and that are in strict
compliance with all applicable Environmental Health and Safety Laws.
b. Not permit any substance, activity or Environmental Condition
on, in, under or affecting the Real Property which is in violation of any
Environmental Health and Safety Laws.
c. Comply with the provisions of all Environmental Health and
Safety Laws.
d. Notify Lender immediately of any discharge of Hazardous
Materials, Environmental Condition, or environmental complaint or notice
received from any governmental agency or any other party.
e. Upon any discharge of Hazardous Materials or upon the occurrence
of any Environmental Condition, immediately contain and remove the same in
strict compliance with all Environmental Health and Safety Laws, promptly
pay any fine or penalty assessed in connection therewith, and immediately
notify Lender of such events.
f. Permit Lender to inspect the Real Property for Hazardous
Materials and Environmental Conditions, to conduct tests thereon, and to
inspect all books, correspondence, and records pertaining thereto.
g. From time to time upon Lender's request, and at such Borrower's
expense, provide a report (including all validated and unvalidated data
generated for such reports) of a qualified independent environmental
engineer acceptable to Lender, satisfactory to Lender in scope, form, and
content, and provide to Lender such other and further assurances reasonably
satisfactory to Lender, that such Borrower is in compliance with these
covenants concerning Hazardous Materials and Environmental Conditions, and
that any past violation
17
<PAGE>
thereof has been corrected in compliance with all applicable Environmental
Health and Safety Laws.
h. Immediately advise Lender of any additional, supplemental, new,
or other information concerning any Hazardous Materials or Environmental
Conditions relating to the Real Property.
ARTICLE 7 - DEFAULT
SECTION 7.1. EVENTS OF DEFAULT
Time is of the essence of this Loan Agreement. The occurrence of any of
the following events shall constitute a default under the Promissory Note and
this Loan Agreement and shall be termed an "Event of Default":
a. Any Borrower shall fail to pay when due, any principal of, or
interest on, the Promissory Note or any fee, expense or other payment
required under this Loan Agreement, the Promissory Note, the Security
Documents, or any agreement, document, obligation, or transaction
contemplated by this Loan Agreement, and any such payment remains unpaid
for a period of ten (10) Banking Business Days thereafter.
b. Any Borrower shall fail in the performance of any obligation,
covenant, agreement, or liability created by this Loan Agreement, the
Promissory Note, the Security Documents, or any agreement, document,
obligation, or transaction contemplated by this Loan Agreement, and such
failure remains uncured for a period of ten (10) days after Lender gives
Borrowers written notice of such failure.
c. Any representation, warranty, or financial statement made by or
on behalf of any Borrower in this Loan Agreement, the Security Documents,
or any document contemplated by this Loan Agreement is materially false or
materially misleading when made or furnished.
d. Any material indebtedness of any Borrower to Lender or others
under any note, indenture, agreement, or undertaking is accelerated.
e. Default or an event which, with the passage of time or the
giving of notice or both would constitute a default, occurs on any material
indebtedness of any Borrower under any note, indenture, agreement, or
undertaking.
f. Any Borrower becomes dissolved or terminated.
g. A receiver, trustee, or custodian is appointed for any part of
any Borrower's property, or any part of such Borrower's property is
assigned for the benefit of creditors.
18
<PAGE>
h. Any proceeding is commenced or petition filed under any
bankruptcy or insolvency law by or against any Borrower.
i. Any judgment or regulatory fine is entered against any Borrower
which may materially affect such Borrower.
j. Any Borrower becomes insolvent or fails to pay its debts as they
mature.
k. Default occurs or any Borrower fails to comply with any term in
any of the Security Documents.
l. Any material adverse change occurs in any Borrower's condition,
or any event occurs which may cause a material adverse change in such
Borrower's condition.
SECTION 7.2. NO WAIVER OF EVENT OF DEFAULT
No course of dealing or delay or failure to assert any Event of Default
shall constitute a waiver of that Event of Default or of any prior or
subsequent Event of Default.
ARTICLE 8 - REMEDIES
SECTION 8.1. REMEDIES UPON EVENT OF DEFAULT
Upon the occurrence of an Event of Default, and at any time thereafter, all
or any portion of the obligations due or to become due from Borrowers to Lender,
whether arising under this Loan Agreement, the Promissory Note, the Security
Documents or otherwise, at the option of Lender and without notice to Borrowers
of the exercise of such option, shall accelerate and become at once due and
payable in full, and Lender shall have all rights and remedies created by or
arising from this Loan Agreement, the Promissory Note, the Security Documents,
all other documents contemplated by this Loan Agreement, and all other rights
and remedies existing at law, in equity, or by statute.
Additionally, Lender shall have the right, immediately and without prior
notice or demand, to set off against any Borrower's obligations to Lender,
whether or not due, all money and other amounts owed by Lender in any
capacity to any Borrower, including, without limitation, checking accounts,
savings accounts, and other depository accounts, and Lender shall be deemed
to have exercised such right of setoff and to have made a charge against any
such money or amounts immediately upon occurrence of an Event of Default,
even though such charge is entered on Lender's books subsequent thereto.
SECTION 8.2. RIGHTS AND REMEDIES CUMULATIVE
The rights and remedies herein conferred are cumulative and not
exclusive of any other rights or remedies, and shall be in addition to every
other right, power, and remedy that Lender may have,
19
<PAGE>
whether specifically granted herein, or hereafter existing at law, in equity,
or by statute; and any and all such rights and remedies may be exercised from
time to time and as often and in such order as Lender may deem expedient.
SECTION 8.3. NO WAIVER OF RIGHTS
No delay or omission in the exercise or pursuance by Lender of any
right, power, or remedy shall impair any such right, power, or remedy or
shall be construed to be a waiver thereof.
ARTICLE 9 - GENERAL PROVISIONS
SECTION 9.1. GOVERNING AGREEMENT
In the event of conflict or inconsistency between this Loan Agreement
and the Security Documents or other agreements, documents, obligations, or
transactions contemplated by this Agreement (excluding the Promissory Note),
the terms, provisions and intent of this Loan Agreement shall govern.
SECTION 9.2. BORROWERS' OBLIGATIONS CUMULATIVE
Every obligation, covenant, condition, provision, warranty, agreement,
liability, and undertaking of any Borrower contained in this Loan Agreement,
the Promissory Note, the Security Documents, and all agreements, documents,
obligations, and transactions contemplated by this Loan Agreement shall be
deemed cumulative and not in derogation or substitution of any of the other
obligations, covenants, conditions, provisions, warranties, agreements,
liabilities, or undertakings of such Borrower contained herein or therein.
SECTION 9.3. PAYMENT OF EXPENSES AND ATTORNEY'S FEES
Borrowers shall pay all reasonable expenses of Lender relating to the
negotiation, drafting of documents, and documentation of the Loan, including,
without limitation, title insurance, recording fees, filing fees, and
reasonable attorneys fees and legal expenses.
Upon occurrence of an Event of Default, Borrowers agree to pay all
costs, and expenses, including reasonable attorney fees and legal expenses,
incurred by Lender in enforcing, or exercising any remedies under, this Loan
Agreement, the Promissory Note, or the Security Documents, or any other
rights and remedies.
Borrowers agree to pay all expenses, including reasonable attorney fees
and legal expenses, incurred by Lender in any bankruptcy proceedings of any
type involving any Borrower, this Loan Agreement, the Security Documents, or
the Collateral, including, without limitation, expenses incurred in modifying
or lifting the automatic stay, determining adequate protection, use of cash
collateral or relating to any plan of reorganization.
20
<PAGE>
SECTION 9.4. RIGHT TO PERFORM FOR BORROWERS
Lender may, in its sole discretion and without any duty to do so, elect
to discharge taxes, tax liens, security interests, or any other encumbrance
upon the Collateral or any other property or asset of any Borrower, to pay
any filing, recording, or other charges payable by any Borrower, or to
perform any other obligation of any Borrower under this Loan Agreement or
under the Security Documents.
SECTION 9.5. ASSIGNABILITY
No Borrower may assign or transfer this Loan Agreement, the Promissory
Note, the Security Documents or any agreement, document, obligation, or
transaction contemplated by this Loan Agreement, and any such purported
assignment or transfer is void.
Lender may assign or transfer this Loan Agreement, the Promissory Note,
the Security Documents, and any agreement, document, obligation, or
transaction contemplated by this Loan Agreement.
SECTION 9.6. THIRD PARTY BENEFICIARIES
The Loan, this Loan Agreement, the Promissory Note, the Security
Documents, and all other agreements, documents, obligations, and transactions
contemplated by this Loan Agreement are made for the sole and exclusive
benefit of Borrowers and Lender and are not intended to benefit any other
third party. No third party may claim any right or benefit or seek to
enforce any term or provision of this Loan Agreement, the Loan, the
Promissory Note, the Security Documents, or any other agreement, document,
obligation, or transaction contemplated by this Loan Agreement.
SECTION 9.7. GOVERNING LAW
This Loan Agreement, the Promissory Note, the Security Documents, and
all agreements, documents, obligations, and transactions contemplated by this
Loan Agreement shall be governed by and construed in accordance with the laws
of the State of Utah, except to the extent that any such document expressly
provides otherwise.
SECTION 9.8. SEVERABILITY OF INVALID PROVISIONS
With respect to this Loan Agreement, the Promissory Note, the Security
Documents, and all agreements, documents, obligations, and transactions
contemplated by this Loan Agreement, any provision hereof or thereof which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction only, be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
thereof, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
21
<PAGE>
SECTION 9.9. INTERPRETATION OF LOAN AGREEMENT
The article and section headings in this Loan Agreement are inserted for
convenience only and shall not be considered part of the Loan Agreement nor
be used in its interpretation.
All references in this Loan Agreement to the singular shall be deemed to
include the plural when the context so requires, and vice versa. References
in the collective or conjunctive shall also include the disjunctive unless
the context otherwise clearly requires a different interpretation.
SECTION 9.10. SURVIVAL AND BINDING EFFECT OF REPRESENTATIONS, WARRANTIES, AND
COVENANTS
All agreements, representations, warranties, and covenants made herein
by Borrowers shall survive the execution and delivery of this Loan Agreement
and shall continue in effect so long as any obligation to Lender contemplated
by this Loan Agreement is outstanding and unpaid, notwithstanding any
termination of this Loan Agreement. All agreements, representations,
warranties, and covenants made herein by Borrowers shall survive any
bankruptcy proceedings involving any Borrower. All agreements,
representations, warranties, and covenants in this Loan Agreement shall bind
the party making the same, and its successors and, in Lender's case, assigns,
and all rights and remedies in this Loan Agreement shall inure to the benefit
of and be enforceable by each party for whom made, and their respective
successors and, in Lender's case, assigns.
SECTION 9.11. INDEMNIFICATION
Borrowers shall indemnify Lender for any and all claims and liabilities,
and for damages which may be awarded or incurred by Lender, and for all
reasonable attorney fees, legal expenses, and other out-of-pocket expenses
incurred in defending such claims, arising from or related in any manner to
the negotiation, execution, or performance by Lender of this Loan Agreement,
the Promissory Note, the Security Documents, or any of the agreements,
documents, obligations, or transactions contemplated by this Loan Agreement,
but excluding any such claims based upon breach or default by Lender or gross
negligence or willful misconduct of Lender.
Lender shall have the sole and complete control of the defense of any
such claims. Lender is hereby authorized to settle or otherwise compromise
any such claims as Lender in good faith determines shall be in its best
interests.
SECTION 9.12. ENVIRONMENTAL INDEMNIFICATION
Borrowers shall indemnify Lender for any and all claims and liabilities,
and for damages which may be awarded or incurred by Lender, and for all
reasonable attorney fees, legal expenses, and other out-of-pocket expenses
arising from or related in any manner, directly or indirectly, to (1)
Hazardous Materials located on, in, or under the Real Property; (2) any
Environmental Condition on, in, or under the Real Property; (3) violation of
or non-compliance with any Environmental Health and Safety Law; (4) any
breach or violation of Section 5.9 ENVIRONMENTAL REPRESENTATIONS AND
WARRANTIES and/or Section 6.18 ENVIRONMENTAL COVENANTS; and/or (5) any
activity or omission,
22
<PAGE>
whether occurring on or off the Real Property, whether prior to or during the
term of the loans secured hereby, and whether by Borrowers or any other
person or entity, relating to Hazardous Materials or an Environmental
Condition. The indemnification obligations of Borrowers under this Section
shall survive any reconveyance, release, or foreclosure of the Real Property,
any transfer in lieu of foreclosure, and satisfaction of the obligations
secured hereby.
Lender shall have the sole and complete control of the defense of any
such claims. Lender is hereby authorized to settle or otherwise compromise
any such claims as Lender in good faith determines shall be in its best
interests.
SECTION 9.13. INTEREST ON EXPENSES AND INDEMNIFICATION, COLLATERAL, ORDER OF
APPLICATION
All expenses, out-of-pocket costs, attorneys fees and legal expenses,
amounts advanced in performance of obligations of Borrowers, and
indemnification amounts owing by Borrowers to Lender under or pursuant to
this Agreement, the Promissory Note, and/or any Security Documents shall be
due and payable upon demand. If not paid upon demand, all such expenses,
out-of-pocket costs, attorneys fees and legal expenses, and indemnification
amounts shall bear interest at the default rate provided in the Promissory
Note from the date of disbursement until paid to Lender, both before and
after judgment. All such amounts advanced in performance of obligations of
Borrowers shall bear interest at the default rate provided in the Promissory
Note from the date of disbursement until paid to Lender, both before and
after judgment. Lender is authorized to disburse funds under the Promissory
Note for payment of all such obligations.
Payment of all such obligations shall be secured by the Collateral and
by any Security Documents.
All payments, recoveries, and advances on the Promissory Note shall be
applied to payment of the foregoing obligations, the Promissory Note, and all
other amounts owing to Lender by Borrowers in such order and priority as
determined by Lender. Payments on the Promissory Note shall be applied first
to accrued interest and the remainder, if any, to principal.
SECTION 9.14. LIMITATION OF CONSEQUENTIAL DAMAGES
Lender and its officers, directors, employees, representatives, agents,
and attorneys, shall not be liable to any Borrower for consequential damages
arising from or relating to any breach of contract, tort, or other wrong in
connection with the negotiation, documentation, administration or collection
of the Loan.
SECTION 9.15. WAIVER AND RELEASE OF CLAIMS
Each Borrower (i) represents that it has no defenses to or setoffs
against any indebtedness or other obligations owing to Lender or its
affiliates (the "Obligations"), nor claims against Lender or its affiliates
for any matter whatsoever, related or unrelated to the Obligations, and (ii)
releases Lender and its affiliates from all claims, causes of action, and
costs, in law or equity, existing as of
23
<PAGE>
the date of this Loan Agreement, which such Borrower has or may have by
reason of any matter of any conceivable kind or character whatsoever, related
or unrelated to the Obligations, including the subject matter of this Loan
Agreement. This provision shall not apply to claims for performance of
express contractual obligations owing to any Borrower by Lender or its
affiliates.
SECTION 9.16. REVIVAL CLAUSE
If the incurring of any debt by any Borrower or the payment of any money
or transfer of property to Lender by or on behalf of such Borrower should for
any reason subsequently be determined to be "voidable" or "avoidable" in
whole or in part within the meaning of any state or federal law (collectively
"voidable transfers"), including, without limitation, fraudulent conveyances
or preferential transfers under the United States Bankruptcy Code or any
other federal or state law, and Lender is required to repay or restore any
voidable transfers or the amount or any portion thereof, or upon the advice
of Lender's counsel is advised to do so, then, as to any such amount or
property repaid or restored, including all reasonable costs, expenses, and
attorneys fees of Lender related thereto, the liability of such Borrower
shall automatically be revived, reinstated and restored and shall exist as
though the voidable transfers had never been made.
SECTION 9.17. ARBITRATION
ARBITRATION DISCLOSURES:
1. ARBITRATION IS FINAL AND BINDING ON THE PARTIES AND SUBJECT TO ONLY
VERY LIMITED REVIEW BY A COURT.
2. IN ARBITRATION THE PARTIES ARE WAIVING THEIR RIGHT TO LITIGATE IN
COURT, INCLUDING THEIR RIGHT TO A JURY TRIAL.
3. DISCOVERY IN ARBITRATION IS MORE LIMITED THAN DISCOVERY IN COURT.
4. ARBITRATORS ARE NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR
LEGAL REASONING IN THEIR AWARDS. THE RIGHT TO APPEAL OR SEEK MODIFICATION
OF ARBITRATORS' RULINGS IS VERY LIMITED.
5. A PANEL OF ARBITRATORS MIGHT INCLUDE AN ARBITRATOR WHO IS OR WAS
AFFILIATED WITH THE BANKING INDUSTRY.
6. IF YOU HAVE QUESTIONS ABOUT ARBITRATION, CONSULT YOUR ATTORNEY OR THE
AMERICAN ARBITRATION ASSOCIATION.
(a) Any claim or controversy ("Dispute") between or among the parties
and their assigns, including but not limited to Disputes arising out of or
relating to the Loan, the Collateral, this Loan Agreement, the Promissory
Note, the Security Documents, the Guarantee, this Section 9.17
24
<PAGE>
ARBITRATION, this arbitration provision ("arbitration clause"), or any
related agreements or instruments relating hereto or delivered in connection
herewith ("Related Documents"), and including but not limited to a Dispute
based on or arising from an alleged tort, shall at the request of any party
be resolved by binding arbitration in accordance with the applicable
arbitration rules of the American Arbitration Association ("the
Administrator"). The provisions of this arbitration clause shall survive any
termination, amendment, or expiration of any of the aforesaid documents or
Related Documents. The provisions of this arbitration clause shall supersede
any prior arbitration agreement between or among the parties. If any
provision of this arbitration clause should be determined to be
unenforceable, all other provisions of this arbitration clause shall remain
in full force and effect.
(b) The arbitration proceedings shall be conducted in Salt Lake City,
Utah, at a place to be determined by the Administrator. The Administrator
and the arbitrator(s) shall have the authority to the extent practicable to
take any action to require the arbitration proceeding to be completed and the
arbitrator(s)' award issued within one-hundred-fifty (150) days of the filing
of the Dispute with the Administrator. The arbitrator(s) shall have the
authority to impose sanctions on any party that fails to comply with time
periods imposed by the Administrator or the arbitrator(s), including the
sanction of summarily dismissing any Dispute or defense with prejudice. The
arbitrator(s) shall have the authority to resolve any Dispute regarding the
terms of any of the aforesaid documents, this arbitration clause or Related
Documents, including any claim or controversy regarding the arbitrability of
any Dispute. All limitations periods applicable to any Dispute or defense,
whether by statute or agreement, shall apply to any arbitration proceeding
hereunder and the arbitrator(s) shall have the authority to decide whether
any Dispute or defense is barred by a limitations period and, if so, to
summarily enter an award dismissing any Dispute or defense on that basis.
The doctrines of compulsory counterclaim, res judicata, and collateral
estoppel shall apply to any arbitration proceeding hereunder so that a party
must state as a counterclaim in the arbitration proceeding any claim or
controversy which arises out of the transaction or occurrence that is the
subject matter of the Dispute. The arbitrator(s) may in the arbitrator(s)'
discretion and at the request of any party: (1) consolidate in a single
arbitration proceeding any other claim or controversy involving another party
that is substantially related to the Dispute where that other party is bound
by an arbitration clause with the Lender, such as borrowers, guarantors,
sureties, and owners of collateral; (2) consolidate in a single arbitration
proceeding any other claim or controversy that is substantially similar to
the Dispute; and (3) administer multiple arbitration claims or controversies
as class actions in accordance with the provisions of Rule 23 of the Federal
Rules of Civil Procedure.
(c) The arbitrator(s) shall be selected in accordance with the rules
of the Administrator from panels maintained by the Administrator. A single
arbitrator shall have expertise in the subject matter of the Dispute. Where
three arbitrators conduct an arbitration proceeding, the Dispute shall be
decided by a majority vote of the three arbitrators, at least one of whom
must have expertise in the subject matter of the Dispute and at least one of
whom must be a practicing attorney. The arbitrator(s) shall award to the
prevailing party recovery of all costs and fees (including attorneys' fees
and costs, arbitration administration fees and costs, and arbitrator(s)'
fees). The arbitrator(s), either during the pendency of the arbitration
proceeding or as part of the arbitration award, also may grant provisional or
ancillary remedies including but not limited to an award of injunctive
relief, foreclosure, sequestration, attachment, replevin, garnishment, or the
appointment of a receiver.
25
<PAGE>
(d) Judgment upon an arbitration award may be entered in any court
having jurisdiction, subject to the following limitation: the arbitration
award is binding upon the parties only if the amount does not exceed four
million dollars ($4,000,000.00); if the award exceeds that limit, either
party may demand the right to a court trial. Such a demand must be filed
with the Administrator within thirty (30) days following the date of the
arbitration award; if such a demand is not made within that time period, the
amount of the arbitration award shall be binding. The computation of the
total amount of an arbitration award shall include amounts awarded for
attorneys' fees and costs, arbitration administration fees and costs, and
arbitrator(s)' fees.
(e) No provision of this arbitration clause, nor the exercise of any
rights hereunder, shall limit the right of any party to: (1) judicially or
non-judicially foreclose against any real or personal property collateral or
other security; (2) exercise self-help remedies, including but not limited to
repossession and setoff rights; or (3) obtain from a court having
jurisdiction thereover any provisional or ancillary remedies including but
not limited to injunctive relief, foreclosure, sequestration, attachment,
replevin, garnishment, or the appointment of a receiver. Such rights can be
exercised at any time, before or during initiation of an arbitration
proceeding, except to the extent such action is contrary to the arbitration
award. The exercise of such rights shall not constitute a waiver of the
right to submit any Dispute to arbitration, and any claim or controversy
related to the exercise of such rights shall be a Dispute to be resolved
under the provisions of this arbitration clause. Any party may initiate
arbitration with the Administrator; however, if any party initiates
litigation and another party disputes any allegation in that litigation, the
disputing party--upon the request of the initiating party--must file a demand
for arbitration with the Administrator and pay the Administrator's filing
fee. The parties may serve by mail a notice of an initial motion for an
order of arbitration.
(f) Notwithstanding the applicability of any other law to any of the
aforesaid documents, the arbitration clause, or Related Documents between or
among the parties, the Federal Arbitration Act, 9 U.S.C. Section 1 ET SEQ.,
shall apply to the construction and interpretation of this arbitration clause.
SECTION 9.18. NOTICES
All notices or demands by any party to this Loan Agreement shall, except
as otherwise provided herein, be in writing and may be sent by certified
mail, return receipt requested. Notices so mailed shall be deemed received
when deposited in a United States post office box, postage prepaid, properly
addressed to the applicable Borrower or Lender at the mailing addresses
stated herein or to such other addresses as such Borrower or Lender may from
time to time specify in writing. Any notice so addressed and otherwise
delivered shall be deemed to be given when actually received by the addressee.
26
<PAGE>
Mailing addresses:
Lender:
Zions First National Bank
Commercial Loan Department
P.O. Box 25822
One South Main Street
Salt Lake City, Utah 84125
Attention: Greg O. Nordfelt
With a copy to:
Callister Nebeker & McCullough
Gateway Tower East Suite 900
10 East South Temple
Salt Lake City, Utah 84133
Attention: Glen F. Strong, Esq.
Borrowers:
Merit Medical Systems, Inc.
1600 West Merit Parkway
South Jordan, Utah 84095
Attention: Kent Stanger
Merit Holdings, Inc.
1600 West Merit Parkway
South Jordan, Utah 84095
Attention: Kent Stanger
Sentir Semiconductor, Inc.
1600 West Merit Parkway
South Jordan, Utah 84095
Attention: Kent Stanger
SECTION 9.19. DUPLICATE ORIGINALS
Two or more duplicate originals of this Loan Agreement and the Security
Documents may be signed by the parties, each duplicate of which shall be an
original but all of which together shall constitute one and the same
instrument.
27
<PAGE>
SECTION 9.20. AMENDMENT AND RESTATEMENT
Upon the effectiveness of this Loan Agreement (i) the outstanding "Loan"
made under the Original Loan Agreement shall be deemed to have been made as
the Loan under this Loan Agreement and such Loan shall be deemed to be
evidenced by the Promissory Note, (ii) the Original Loan Agreement shall be
deemed to be restated in the form of this Loan Agreement (except such
provisions thereof which by their terms survive any termination thereof), and
(iii) Lender shall return to Borrower the "Promissory Note" under the
Original Loan Agreement marked to show that such note has been superseded.
SECTION 9.21. INTEGRATED AGREEMENT AND SUBSEQUENT AMENDMENT
This Loan Agreement, the Promissory Note, the Security Documents, and
the other agreements, documents, obligations, and transactions contemplated
by this Loan Agreement constitute the entire agreement between Lender and
Borrowers, and may not be altered or amended except by written agreement
signed by Lender and Borrowers. PURSUANT TO UTAH CODE SECTION 25-5-4,
BORROWERS ARE NOTIFIED THAT THESE AGREEMENTS ARE A FINAL EXPRESSION OF THE
AGREEMENT BETWEEN LENDER AND BORROWERS AND THESE AGREEMENTS MAY NOT BE
CONTRADICTED BY EVIDENCE OF ANY ALLEGED ORAL AGREEMENT.
All prior and contemporaneous agreements, arrangements and
understandings between the parties hereto as to the subject matter hereof
are, except as otherwise expressly provided herein, rescinded.
Effective Date: August 11, 1999.
Lender:
Zions First National Bank
By:
-----------------------------------------
Title:
--------------------------------------
Borrowers:
Merit Medical Systems, Inc.
By:
-----------------------------------------
Title:
--------------------------------------
28
<PAGE>
Merit Holdings, Inc.
By:
-----------------------------------------
Title:
--------------------------------------
Sentir Semiconductor, Inc.
By:
-----------------------------------------
Title:
--------------------------------------
29
<PAGE>
EXHIBIT A
PROMISSORY NOTE
30
<PAGE>
Exhibit 13.1
ANNUAL REPORT
Merit Medical Systems, Inc.
TABLE OF CONTENTS
<TABLE>
<S> <C>
LETTER FROM THE PRESIDENT 1
PRODUCTS & TECHNOLOGY 4
SELECTED FINANCIAL DATA 17
MANAGEMENT'S DISCUSSION & ANALYSIS 18
FINANCIAL INFORMATION 21
CORPORATE INFORMATION 39
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Data:
Sales $77,959,576 $68,377,357 $60,579,011 $50,455,766 $42,587,284
Gross profit 30,041,761 25,943,484 22,812,895 21,136,149 17,599,286
Income before taxes 4,761,429 4,290,346 1,775,516 3,630,152 2,000,695
Net income 3,225,590 2,451,159 797,532 2,162,608 1,221,237
Net income per share $0.43 $0.33 $0.11 $0.31 $0.18
Weighted average
shares outstanding 7,565,673 7,488,225 7,369,668 7,051,911 6,851,164
Balance Sheet Data:
Working capital $33,933,698 $15,779,725 $14,737,971 $12,761,211 $ 9,518,971
Total assets 72,360,469 50,664,786 45,269,678 41,718,553 34,503,858
Long-term debt 27,817,308 3,388,835 3,913,686 4,822,126 1,778,953
Stockholders' equity $32,690,136 $29,086,368 $25,802,149 $22,487,123 $19,264,525
</TABLE>
ABOUT THE COVER
MERIT'S MBA HEMOSTASIS VALVE IS AN EXCELLENT EXAMPLE OF UTILIZING MERIT'S
HIGHLY TECHNICAL PRO-ENGINEERING DESIGN CAPABILITY AND ITS EXPERTISE IN
INJECTION MOLDING OF PLASTICS.
Corporate Headquarters
Merit Medical Systems, Inc.
1600 West Merit Parkway
South Jordan, Utah 84095
801-253-1600
www.merit.com
<PAGE>
[PHOTO]
THE ACQUIRED TECHNOLOGY IN CATHETER MANUFACTURING HAS ENABLED MERIT TO
COMBINE THAT KNOW-HOW WITH ITS EXISTING CATHETER MANUFACTURING EXPERTISE TO
DEVELOP NEW, DYNAMIC PRODUCTS, SOME OF WHICH WILL BE INTRODUCED LATER IN 2000.
PRESIDENT'S LETTER
Dear Fellow Shareholders:
In many ways, 1999 has proven to be one of the most rewarding years in
Merit's history. Your company achieved record sales and earnings again this
year and brought its revenues to a new benchmark of over $75 million. In
addition, Merit introduced over 14 new products, as well as a line of
catheters, guide wires and other products acquired in August. Also introduced
last year were several versions of Merit's Fountain-TM- Infusion Catheter,
the MBA Hemostasis Valve which greatly reduces blood loss in interventional
procedures, and the Inject8-TM- Coronary Control Syringe that is specifically
designed for use with small catheters in coronary diagnostic and therapeutic
procedures. All of these products are now contributing to the growth and
success of your company.
In August last year, Merit completed the acquisition of Mallinckrodt
Inc.'s catheter-manufacturing unit. The products acquired consist of
diagnostic and interventional catheters, diagnostic guide wires, guide
catheters, introducer sheaths and needles. The products gained in this
acquisition highly complement Merit's other products, which are necessary to
perform diagnostic and therapeutic procedures both in cardiology and
radiology. In 2000, this acquisition should contribute substantively to
Merit's revenues. Additionally, this transaction has proven to be immediately
profitable for Merit and, along with new product introductions, will be
essential to Merit's bottom-line growth going forward.
The acquired technology in catheter manufacturing has enabled Merit to
combine that know-how with its existing expertise to develop new, dynamic
products, some of which will be introduced later in 2000. These new devices
will have proprietary features and will address niche markets in
interventional radiology where little competition exists.
FINANCIAL PERFORMANCE
Merit's total revenues for 1999 grew by 14 percent to $78.0 million
and net income rose 32 percent to $3.2 million, or $0.43 per share, compared
with $68.4 million in revenues and $2.5 million in net income, or $0.33 per
share, for 1998. Margins improved from 37.9 percent in 1998 to 38.5 percent
last year as a result of a product mix shift toward higher margin products.
During the year, Merit focused to a greater degree on core market
niches where new, higher margin products have been introduced. Merit's
products not sold in kits, or stand-alone devices, grew by 35 percent
including the new catheter lines,
1
<PAGE>
MERIT'S RECORD SALES AND EARNINGS ARE A RESULT OF SEVERAL DYNAMIC CHANGES
THAT MERIT HAS BEEN IMPLEMENTING OVER THE LAST SEVERAL YEARS.
the Fountain Infusion Catheter, the MBA Hemostasis Valve and pressure
sensors. Sales from custom kits grew by 5 percent, while sales of inflation
devices grew 6 percent.
GROWTH STRATEGY
For the second consecutive year, Merit Medical produced record sales
and earnings. Several dynamic changes are being implemented to facilitate our
growth strategy. For example, there has been very little change in Merit's
domestic sales force over the last five years. In 1999 the decision was made
to increase the number of representatives from about 40 to about 60 over the
next 18 months, in order to accommodate the additional 1100 catalog items
that were added with the catheter acquisition from Mallinckrodt. This action
should result in more focused sales calls and higher market penetration.
In 1997 a manufacturing facility was built in Ireland to better
address the needs of Merit's overseas customers. The Ireland manufacturing
facility has resulted in a research and development technology center and a
low-cost manufacturing environment, both of which continue to benefit the
Company in terms of new product development and tax reductions. Last year
customer service and distribution of those products was moved to Maastricht,
The Netherlands, generating better efficiencies to customers and reducing
shipping costs, as well as creating room for expansion in the Ireland
facility.
In 1995 Merit formed its European sales force. One of the founders of
our company, Ms. Darla Gill, recently has been retained to live in Europe and
bring her considerable marketing and organizational skills to bear on the
sales team. We feel that with this new leadership strategy, effective at the
beginning of 2000, the European operation will become more effective.
LOOKING AHEAD
The investments have been made and the pieces are in place to support
Merit's plans for expansion. There are more opportunities for growth now than
ever before in Merit's history. Small, developing companies may have
difficulty bringing an exciting new product to market, while other, larger
companies evolve and divest portions of their businesses. These situations
create considerable opportunities for Merit to forge its own destiny.
2
<PAGE>
[PHOTO]
THERE ARE MORE POSSIBILITIES FOR GROWTH NOW THAN EVER BEFORE, CREATING MANY
CONSIDERABLE OPPORTUNITIES FOR MERIT TO FORGE ITS OWN DESTINY.
Acquiring products, services and know-how allows us to participate in
emerging and growth markets such as spinal injections and discography, where
it is thought there are potentially one million procedures per year, and
interventional cardiology and radiology niches with new product ideas that
would be less productive for larger companies to develop. In the spinal
markets, Merit is responding to both increased demand from spinal surgeons
for its IntelliSystem-Registered Trademark- and Monarch-Registered
Trademark- pressure-controlled injection systems, and also to an increase in
interest from spinal product OEM customers. The Company is pursuing the
possibility for other opportunities in this emerging spinal market which
could employ both existing and to-be-developed technology.
In the interventional cardiology and radiology niches, Merit currently
has approximately 15 new products in the development pipeline which should
emerge this year. Some of these products are a direct result of the
technology acquired from Mallinckrodt last summer. These new catheter
products address market niches ranging in size from $20 million to $75
million annually worldwide. Merit's expertise in developing proprietary
products with added features and benefits should allow the Company to gain
substantial market share in these niches.
We enter 2000 with the necessary ingredients to move Merit forward
into the next century: a clearly focused market strategy, a strong product
pipeline that complements our existing leadership positions in cardiology and
radiology niches, and a wonderfully dedicated group of very talented
employees. We still face considerable hurdles, some of which are to reduce
inventories of existing products that will necessitate making some
adjustments, as well as to become more efficient and streamlined in both our
manufacturing operations and our overall organization. Merit may find it
desirable in the future to take advantage of some growth opportunities which
may result in adjustments for short periods of time, but which we believe
will fare well in the longer-term plans your management has for the growth of
this company.
We are grateful to all our employees for their tremendous
contributions over the past year, and to you, our shareholders, for your
continuing interest in and support of Merit Medical.
Best personal regards,
/s/ Fred P. Lampropoulos
Fred P. Lampropoulos
Chairman, President and CEO
3
<PAGE>
PRODUCTS AND TECHNOLOGY
[PHOTO]
4
<PAGE>
[PHOTO]
IN A CLINICAL SETTING, THE MBA HAS BEEN SHOWN TO GREATLY REDUCE THE NEED FOR
PATIENTS TO BE GIVEN ADJUNCT TREATMENTS, MEDICATIONS OR REQUIRE TRANSFUSIONS
FOLLOWING LENGTHY PROCEDURES, RESULTING IN COST SAVINGS AND PATIENT BENEFIT.
FEATURED PRODUCTS
MBA HEMOSTASIS VALVE
Late in 1999 Merit introduced its new hemostasis valve, Merit's
Bleedback Alternative-TM-, or MBA. At least 2.6 million interventional
cardiology and radiology procedures worldwide annually use some type of
hemostasis valve to prevent arterial bleeding during catheter insertion. Most
hemostasis valves restrict blood flow after the catheter is inserted and the
valve is manually closed. The MBA has a patented, double-valve system that
results in virtually bloodless procedures while the valve is open during
guide wire or catheter insertion and manipulation.
In lengthy cases where several different types of wires and catheters
must be exchanged through an open hemostasis valve, excessive arterial
bleeding can occur, resulting in the need for prolonged patient recovery or a
transfusion. In a clinical setting, the MBA has been shown to greatly reduce
the need for patients to be given adjunct treatments, medications or
transfusions following lengthy procedures, resulting in considerable cost
savings and patient benefit. The MBA not only will protect the patient from
blood loss but also will help the physicians and clinicians more safely deal
with blood-borne pathogen issues. In addition, highly technical,
interventional procedures require hemostasis valves with a larger lumen size
to introduce their devices into a patient's vascular system. The MBA has a
large inner lumen and can accommodate catheters up to 9 French size. Some
other models accommodate devices to only 7 French size.
The types of procedures in which the MBA might be used are both
coronary and peripheral balloon angioplasty, coronary and peripheral stent
placement, coronary atherectomies, rotational angioplasty, intravascular
ultrasound and neurological procedures.
The MBA is attached to a guiding catheter and manifold system, which
governs the flow of fluids being used during the procedure. Once the Touhey
valve wheel on the MBA is fully open, the interventional device or wire can
then be placed through the seals of the MBA. Once in place through the
guiding catheter, the interventional device or wire can be manipulated easily
without having to open or close the MBA. To lock the interventional device or
wire in place, the Touhey may be closed.
Merit has received FDA clearance to market this device in the United
States. In addition, the European CE Mark has been granted for sale of the
MBA abroad. The MBA is a prime example of Merit's strategy to introduce
proprietary, higher margin products to benefit both patients and clinicians.
5
<PAGE>
[PHOTO]
6
<PAGE>
[PHOTO]
THERE ARE APPROXIMATELY 8 MILLION ANGIOGRAMS PERFORMED EACH YEAR WORLDWIDE,
WHICH REPRESENTS THE MOST ESSENTIAL DIAGNOSTIC TOOL IN THE MANAGEMENT OF
PATIENTS WITH VASCULAR DISEASE.
DIAGNOSTIC CATHETERS
Last year, Merit acquired from Mallinckrodt, Inc. a complete line of
diagnostic catheters used to perform angiograms. The newly acquired catheters
highly complement Merit's lines of existing disposable products and reflect
the same point of sale to cardiologists and radiologists around the world.
The acquisition of this new catheter line makes Merit a full-line supplier of
cardiology and radiology products, giving hospitals and national buying
groups a consolidated purchasing opportunity. In addition to the diagnostic
catheters, Merit has acquired considerable technology that will enable it to
design and fabricate new interventional catheter products. These new
products, scheduled for introduction in 2000 and 2001, will offer new design
features that should expand Merit's market participation in radiology markets
worldwide.
There are approximately 8 million diagnostic procedures, called
angiograms, that are performed each year worldwide in both cardiology and
radiology with an estimated market of $7 billion. These procedures involve an
injection of radiopaque fluid, or contrast media, into a patient's coronary
or peripheral blood vessels. A skilled physician can then determine the
nature, severity and precise location of plaque deposits and blockages, in
addition to other abnormalities. Angiography currently represents the most
essential diagnostic tool in the management of patients with vascular disease.
Angiography is performed in either a cardiac catheterization or
radiology laboratory by using fluoroscopy. The physician inserts a long, thin
diagnostic catheter through a sheath introducer inserted in the femoral
artery or, less frequently, the brachial artery. Within the last decade, a
newer insertion technique with access through the radial artery in the wrist
has gained popularity because patients can be discharged from the hospital
sooner.
During an angiogram, the catheter is threaded through the vessel to
the proper site within the patient's vascular system. At that point, a
radiopaque dye, or contrast agent, is injected through the catheter to the
site, where the dye is carried through the circulatory system and fluoro-type
x-rays are taken. In the resulting two-dimensional, digital pictures, the dye
"outlines" areas where plaque deposits on the inner walls of the arteries or
other abnormalities are either limiting or blocking the flow of blood.
7
<PAGE>
[PHOTO]
8
<PAGE>
GUIDE WIRES ARE USED IN ABOUT 50 MILLION DIAGNOSTIC AND INTERVENTIONAL
PROCEDURES ANNUALLY WORLDWIDE, WITH GUIDE WIRE SALES OF ABOUT $600 MILLION.
Angiography catheters are primarily 4, 5 and 6 French diameters and
100cm in length. However, these devices can vary by configuration, tip size,
and material in order to accommodate the site and nature of the procedure.
Tip sizes range from 3.5 to 6 French. Nylon and polyethylene are the
principal materials for these types of catheters. Multiple catheters may be
used, with an average of 3, during a single cardiology procedure. List prices
range from $15 to $45 each, with an average price of about $19.
DIAGNOSTIC GUIDE WIRES
Complementing the diagnostic catheters purchased from Mallinckrodt in
August 1999, Merit also purchased a line of diagnostic guide wires in the
same transaction. Diagnostic guide wires have numerous applications. The term
"diagnostic guide wire" implies that these wires are used only in diagnostic
procedures when, in actuality, they are used with interventional procedures
as well, such as drainage procedures, micropuncture procedures, and vascular
access. These procedures total at least 50 million annually worldwide and
represent a market estimated to be approximately $600 million in guide wire
sales alone, with an average of 1.3 guide wires used per procedure.
The clinical application will not always be vascular in nature. Guide
wires are tools used to access virtually any area in the human body.
Frequently, organs and body cavities are accessed with a needle directly
through the skin (percutaneous). Ultimately, the guide wire will allow
dilators, catheters, diagnostic and therapeutic devices to be directed and
passed over the guide wire into the vasculature, organ or body cavity.
Guide wires require a considerable amount of technical expertise to
manufacture, which Merit has been developing over the last several years. The
guide wires must have either a fixed or moveable core with an adjacent safety
wire, and the core must be tapered. Some wires must have varied tip
configurations to meet the needs of the physicians performing specific tasks.
"J" tip configurations, when straightened, must be able to return to their
original shape after manual straightening. The core wires are covered with
pre-coated wire coils, which are welded in a smooth and atraumatic fashion.
In addition, the wires must also be radiopaque for viewing under fluoroscopy.
9
<PAGE>
[PHOTO]
10
<PAGE>
THE INJECT8-TM- CORONARY CONTROL SYRINGE IS THE ONLY SYRINGE DESIGNED
SPECIFICALLY TO ADDRESS THE NEEDS OF PHYSICIANS AND CLINICIANS IN
CATHETERIZATION LABORATORIES AROUND THE WORLD.
Merit's guide wires are supremely complementary to the diagnostic and
therapeutic catheters that it purchased last year from Mallinckrodt. For
every diagnostic or therapeutic procedure in which one or more of Merit's
catheters are used, at least one of Merit's guide wires could be used as
well. It is Merit's goal in 2000 to continue to grow this product line and
increase sales of its guide wires.
INJECT8-TM- CORONARY CONTROL SYRINGE
The Inject8-TM- Coronary Control Syringe is the only 8ml syringe on
the market and was introduced in December 1999 to be used primarily for
coronary angiography and interventional procedures using a guiding catheter.
There are over 3 million of these procedures worldwide each year. This unique
syringe was specifically designed to address the needs of physicians and
clinicians in catheterization laboratories around the world.
The need for an 8ml syringe was not realized until physicians began
performing procedures involving the use of smaller catheters-4 and 5 French
sizes. With these smaller catheters, physicians must use either a 6ml or a
10ml-sized syringe, which injects either too little or too much contrast
solution into the coronary vascular system. In addition, due to the way in
which the syringes are designed, clinicians must exert considerable hand
pressure on the plungers of these syringes in order to inject contrast into
the vessels with enough force to produce a readable x-ray.
Using too little contrast with a 6ml syringe results in the blood
vessels not being displayed clearly during fluoroscopy, possibly jeopardizing
the diagnosis. In addition, contrast solution is very expensive, and using a
standard-sized syringe can yield excess contrast that must be thrown away.
Merit's response to the changing market environment was to develop a
unique syringe, the Inject8, which provides a solution to the problems
clinicians were experiencing. The 8ml volume provides just enough contrast to
sufficiently highlight the blood vessels. This has been shown to reduce
hospital costs by hundreds or even thousands of dollars each year in
hospitals that have large angiography case loads. In addition, the Inject8's
unique design generates twice the pressure with 40% less force required,
making it easier to use while minimizing hand fatigue.
FDA clearance and European CE Mark authorizations were received
earlier in 1999 during the Inject8 product development cycle. While this
product was just recently introduced, sales have accelerated rapidly for the
first quarter of 2000. One of Merit's higher-margin products, the Inject8
promises to be a favorite with hospital management and clinicians alike.
11
<PAGE>
[PHOTO]
12
<PAGE>
[PHOTO]
IN ADDITION TO WORLD-CLASS INJECTION AND INSERT MOLDING OF PLASTICS, MERIT
HAS ALSO DEVELOPED THE CAPABILITIES TO MANUFACTURE WAFERS AND SEMICONDUCTOR
FABRICATION; CATHETERS, INCLUDING LASER DRILLING AND TIPPING; GUIDE WIRES;
NEEDLES; AND CUSTOM KITS.
MARKET ADAPTATION
In the past ten years, Merit Medical has witnessed dramatic advances
in the diagnosis and treatment of vascular-related diseases. With the aging
population, last year almost 12 million procedures for vascular disease were
performed worldwide, resulting in a market valued at over $13 billion
annually. Progressive medical device manufacturers like Merit have adapted to
the new clinical advances by providing differentiated, progressive products
to help improve patient outcomes worldwide.
Merit's products can be used in procedures such as percutaneous
transluminal coronary angioplasty (PTCA), or placing a stent, which is a
tiny, stainless steel mesh tube used to prop open the artery, as well as
other interventional procedures and a wide range of diagnostic procedures.
Merit is the world leader in sales of inflation devices, which inflate an
angioplasty balloon or expand a stent for placement. Other procedures
including diagnostic angiograms and thrombolysis procedures may use Merit's
catheters, guide wires, fluid delivery systems and manifolds, waste
management products, syringes, needles, and pressure monitoring systems.
ADVANCED TECHNOLOGY
In 1988 Merit began its manufacturing process with a simple coronary
control syringe with a "feels like glass" feature that soon became a market
favorite. Since that time Merit's offering of differentiated ancillary
products has grown to thousands of catalog numbers. Merit has become a leader
in many of the disposable products used for diagnostic and therapeutic
cardiology and radiology. Each new product introduction expands Merit's core
expertise and technology base. In addition to world-class injection molding
and insert molding of plastic medical devices, Merit has also developed wafer
and semiconductor fabrication for pressure transducers and inflation devices;
catheter manufacturing capability, including laser drilling and tipping for
therapeutic infusion catheters and angiography catheters; guide wire
manufacturing; needle fabrication; and custom kit manufacturing.
13
<PAGE>
[PHOTO]
14
<PAGE>
[PHOTO]
ONE OF MERIT'S PRIMARY GOALS LAST YEAR WAS TO AUGMENT ITS PRODUCT OFFERINGS
AND INTRODUCE NEW, HIGHER-MARGIN PRODUCTS WITH UNIQUE DESIGN OR PERFORMANCE
FEATURES THAT WOULD FACILITATE BETTER PATIENT OUTCOMES, WHILE SAVING HOSPITAL
COSTS.
Merit accomplishes these complicated processes in four manufacturing
facilities located around the world. The home office and main manufacturing
plant is located in South Jordan, Utah, and consists of approximately 175,000
square feet of manufacturing/warehouse and office space. A second
manufacturing plant is located in Galway, Ireland with warehousing and
customer service in Maastricht, The Netherlands, in order to better serve our
European customers. The primary catheter manufacturing process is housed in a
70,000 square-foot facility in Angleton, Texas, and the wafer and
semiconductor fabrication facility is located in Santa Clara, California.
NEW PRODUCT DEVELOPMENT
In order to keep pace with the rapid changes in the health care
market, Merit has developed an extremely active new product development
program. In August 1999, Merit completed the acquisition of Mallinckrodt's
world-class catheter manufacturing facility in Angleton, Texas. With this
acquisition Merit launched a complete offering of high-quality diagnostic
catheters and other products used in cardiology and radiology. The technology
acquired also enabled Merit to expand its technology base. One of Merit's
primary goals last year was to augment its product offerings and introduce
new, higher-margin products with unique design or performance features that
would facilitate better patient outcomes, while saving hospital costs.
Merit's 1999 product introductions included the following:
- - More than a thousand diagnostic catheters for cardiology and radiology
- - Nearly 300 guide catheter configurations
- - A unique 8ml control syringe, "Inject8," which optimizes flow through
very small catheters
- - The MBA--a new and highly differentiated hemostasis valve that minimizes
patient blood loss and helps protect clinicians from the risk of blood-borne
pathogens
- - More than 50 additions to the Fountain Infusion System product line (40 and
50 cm infusion segments for the 5 French diameter line, and a complete 4
French product line) used to deliver clot-dissolving solutions into most
major blood vessels excluding the heart
- - Many improvements and product line additions to the Majestik-TM- needle
family, including a 9cm needle for use in larger patients, both Pillari and
butterfly configurations, and new molded hub improvements
15
<PAGE>
[PHOTO]
PHYSICIANS AND CLINICIANS CAN NOW UTILIZE MERIT'S NEW INTELLISYSTEM-Registered
Trademark- II COLOR MONITOR THAT PROVIDES GREATLY INCREASED PRESSURE MEASURING
CAPABILITIES FOR DELICATE PROCEDURES SUCH AS BALLOON ANGIOPLASTY, DISCOGRAPHY
AND KYPHOPLASTY.
- - The Keep-TM-, a unique accessory organizer for catheterization and
radiology laboratories
- - A complete offering of both pigtail and straight pericardiocentesis
catheters with kits, which are used to drain excess fluid from around the
heart muscle
- - A complete line of high-flow diagnostic pigtail catheters made of
Teflon-Registered Trademark- for pediatric patients
- - More than 30 new, percutaneous sheath introducer and vessel dilator
configurations, which are used to enter blood vessels prior to introducing a
catheter or guide wire
- - Almost 100 different diagnostic guide wire models, which are threaded
through a patient's blood vessel to the desired location, facilitating
catheter placement
- - Several PTCA guide wire models including a wire extension
CONTINUING INNOVATION
As Merit moves into the new millennium, the commitment grows stronger to
customers and their patients to provide critically needed, innovative products
and system solutions to help clinicians manage and treat circulatory diseases.
Merit anticipates introducing many more new products in 2000 and 2001. At the
forefront is a product that is poised to transform the drainage catheter
segment, a market estimated at approximately $75 million annually worldwide.
Other products scheduled for launch in 2000 include the following:
- - An angiographic marker band and vessel sizing catheter
- - A new line of micro-access sheath introducers for use with small catheters
- - The IntelliSystem-Registered Trademark- II Color Monitor with fiberoptic
printer and remote monitor capability for use with the IntelliSystem
inflation device
- - ShortStop-TM---a temporary sharps container for use in the catheterization
or radiology laboratory
- - Several new hemostasis valve products, including the Inspector-TM- in-line
model, Double-Play-TM---double "Y" hemostasis valve, and a new
lever-operated hemostasis valve
- - Manifolds with integral check relief valves and stand-alone check relief
valve configurations
- - A new, improved VacLok-TM- syringe
Given the level of investment Merit is making in new product development
and new business acquisition, the Company is well positioned to continue
providing clinicians with an exciting and innovative portfolio of products.
Merit is fully dedicated to raising the bar in quality products for cardiology
and radiology.
16
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Data:
Sales $77,959,576 $68,377,357 $60,579,011 $50,455,766 $42,587,284
Cost of sales 47,917,815 42,433,873 37,766,116 29,319,617 24,987,998
Gross profit 30,041,761 25,943,484 22,812,895 21,136,149 17,599,286
Selling, general,
and administrative
expenses 20,406,927 17,528,002 15,726,651 14,311,049 12,808,805
Research and development
expenses 3,618,041 3,244,477 4,446,795 2,533,171 2,330,324
Income from operations 6,016,793 5,171,005 2,639,449 4,291,929 2,460,157
Other expense 1,255,364 880,659 863,933 661,777 459,462
Income before
income tax expense 4,761,429 4,290,346 1,775,516 3,630,152 2,000,695
Income tax expense 1,454,762 1,687,379 944,981 1,277,431 700,418
Minority interest
in (income) loss
of subsidiary (81,077) (151,808) (33,003) (190,113) (79,040)
Net income 3,225,590 2,451,159 797,532 2,162,608 1,221,237
Net income per share $0.43 $0.33 $0.11 $0.31 $0.18
Weighted average
shares outstanding 7,565,673 7,488,225 7,369,668 7,051,911 6,851,164
Balance Sheet Data:
Working capital $33,933,698 $15,779,725 $14,737,971 $12,761,211 $ 9,518,971
Total assets 72,360,469 50,664,786 45,269,678 41,718,553 34,503,858
Long-term debt 27,817,308 3,388,835 3,913,686 4,822,126 1,778,953
Stockholders' equity $32,690,136 $29,086,368 $25,802,149 $22,487,123 $19,264,525
</TABLE>
17
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION & ANALYSIS
OVERVIEW
In many ways the past year has been the best in the history of the
Company. The Company made significant progress toward its goal of evolving
into a larger, more technically advanced, full line diagnostic and
interventional supplier of the best medical products available to the world's
cardiology and radiology markets. This was accomplished by the introduction
and expansion of its first new line of catheters (Fountain infusion
catheters). Probably even more important was the successful identification,
acquisition and integration of the Angleton catheter business which fit well
into this strategy. The Company was able to synergistically leverage its
well-developed sales force, product and service reputation, regulatory
capabilities and market share by economically adding the catheters,
guidewires, sheath introducers and new specialty needles to the broad line of
accessory products the Company had internally developed over the past decade.
This acquisition also added valuable catheter technology which Merit can now
apply to several new product lines of catheters to compete effectively in
some very interesting niches of interventional radiology. There are three new
catheter lines in development which will be introduced in 2000 and 2001.
1999 was a record-breaking year for both the top and bottom line and
Merit was able to achieve substantially all of its major financial
objectives: Sales growth to $78 million, up 14%. In spite of continuing price
pressures the Company achieved an increase in gross margin percentage for a
second year. The increasing profitability in Ireland resulted in a
significant improvement in Merit's effective tax rate of 30.6%, down from
39.3% in 1998. Merit accomplished an important acquisition of Mallinckrodt
Inc.'s Angleton, Texas catheter division with its accompanying products and
technology. All of these factors contributed to the Company achieving its
goal of making $0.43 per share, an increase in earnings of 32% compared to
1998.
One of the challenges facing the Company in the coming year has to do
with all the many new product additions that must be integrated into the
organization. These include the many products that have been or will soon be
introduced from the Company's R&D efforts as well as all the product
additions from the Angleton acquisition (1100 new catalog items) and very
possibly with other acquisitions to follow. After several years of a fairly
stable sales force, the need is high to expand the domestic sales force to
appropriately sell the breadth and depth of Merit's new expanded product line
and to more effectively serve its customers. Another challenge is to manage
the now large and important asset that is the inventory of these products, as
well as the capital needed to fund it. Management believes an important goal
for the future will be to reduce inventory levels of existing products. A
reduction in inventory will require some adjustments to the operations area
of the Company as production volumes decline temporarily.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
operational data as a percent of sales:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Gross profit 38.5 37.9 37.7
Selling, general and administrative 26.2 25.6 26.0
Research and development 4.6 4.7 7.3
Income from operations 7.7 7.6 4.4
Income before income tax expense 6.1 6.3 2.9
Net Income 4.1 3.6 1.3
</TABLE>
18
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION & ANALYSIS
Sales increased by $9,582,219, or 14.0%, in 1999 compared to an
increase of $7,798,346, or 12.9%, in 1998, and an increase of $10,123,245, or
20.1%, in 1997. Sales growth from 1997 through 1999 was favorably affected by
the introduction of new products and increased sales of existing products
sold separately and packaged in custom kits, and increased penetration of the
market by Merit's inflation devices. The acquisition of the Angleton catheter
product lines in late August 1999 gave a $3.9 million boost to revenue in
1999. International sales in 1999 were approximately $18.3 Million or 24%,
compared to $15.2 million, or 22%, in 1998, and $13.7 million or 23%, in
1997. These increases were primarily a result of the ongoing growth in the
direct sales in Europe, as well as greater acceptance of the Company's
products in other international markets. Direct sales in France, Germany, the
U.K., Belgium, the Netherlands and Canada were $8,217,814, $7,334,793 and
$6,615,697 in 1999, 1998 and 1997, respectively.
Gross profit as a percent of sales was 38.5%, 37.9%, and 37.7% in
1999, 1998, and 1997, respectively. Margins improved in 1999 compared to 1998
and slightly in 1998 compared to 1997, principally through increased
production volumes, automation and efficiencies in manufacturing, and tighter
price controls on some of the Company's lower margin products. Part of the
increased production volumes resulted in a significant increase in
inventories.
Selling, general and administrative expense increased $2,878,926, or
16.4%, in 1999 over1998 and $1,801,351, or 11.5%, in 1998 over 1997. These
additional expenditures were related principally to the costs of implementing
and supporting the Company's new Oracle system and the development of new
business opportunities such as acquisitions, product distribution agreements,
national accounts and the O.E.M segment of the business. These investments in
growth caused selling, general and administrative expenses as a percent of
sales to increase to 26.2% in 1999, compared to 25.6% in 1998 after declining
from 26.0% in 1997.
Research and development expenditures for 1999 were $3,618,041, an
increase of 12%, compared to $3,244,477 in 1998. Over half of this increase
was due to the addition of the R&D capabilities in Angleton, Texas with the
Company's newly acquired catheter technologies. R&D expenses declined in 1998
by 27%, compared to $4,446,795 in 1997. This decrease was due primarily to
the conversion of much of the R&D expenses in Ireland to production resources
for the manufacture of the newly introduced line of guide wires. Research and
development costs as a percent of sales were 4.6%, 4.7% and 7.3% for 1999,
1998 and 1997, respectively.
The higher sales and gross margins, together with modest increases in
operating expenses positively affected income from operations in 1999 which
increased to $6,016,792, up 16.4%, compared to $5,171,005 in 1998, and up
95.9% from $2,639,449 in 1997. The income tax provision for 1999 was
$1,454,762, an effective rate of 30.6%, compared to $1,687,379, or 39.3 % in
1998 and $944,981 or 53.2% in 1997. The Company's consolidated effective tax
rate in 1997 was higher than 1998 and 1999, principally because the tax
benefits of losses associated with the start-up of international operations
were limited to Ireland's manufacturing tax rate of 10%. The effective tax
rate improved significantly in 1998 and 1999 as the Ireland facility became
profitable and the 10% tax rate became a benefit.
19
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION & ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999 the Company's working capital was $33,933,698,
an increase of over 115%, representing a current ratio of 4.7 to 1. This
increase was due in part to replacing the Company's $7.6 million line of
credit in August 1999 with a new $28 million six-year line. The Company also
negotiated a reduction in the interest rate and fees for its line of credit,
significantly reducing the cost of this capital. The Company had $25,907,596
outstanding under its line of credit at December 31, 1999. The entire
increase of $18.3 million in the line of credit can be attributed to the
Company's two acquisitions, the Angleton division of Mallinckrodt and the
minority interest in Sentir, and to the $7.15 million increase in inventory.
Merit has financed leasehold improvements and equipment acquisitions through
secured notes payable and capital lease arrangements with an outstanding
balance of $2,911,629 at December 31, 1999. For the year ended December 31,
1999 the Company generated cash from operations in the amount of $313,578.
Historically, the Company has incurred significant expenses in
connection with product development and introduction of new products. This
was particularly true in 1999 with regard to an increase in inventory, plant
and equipment associated with the Company's acquisition and new product
introductions. The Company's principal source of funding for these and other
expenses has been the cash generated from operations, secured loans on
equipment, bank lines of credit and sales of equity. The Company believes
that its present sources of liquidity and capital are adequate for its
current operation.
MARKET RISK DISCLOSURES
The Company does not engage in holding significant derivative
financial instruments. The Company does experience risk associated with
foreign currency fluctuations, and interest rate risk associated with its
variable rate debt; however, such risks have not been material to the Company
and, accordingly, the Company has not deemed it necessary to enter into any
significant agreements to hedge such risks. The Company may enter into such
agreements in the event that such risks become material in the future.
Y2K ISSUES
As of the date of this report, Merit had encountered no significant
problems in any of its operations in connection with the year 2000 date
change. Merit will continue to monitor all systems to ensure performance
beyond this date change.
20
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 668,711 $ 851,910
Trade receivables - net of allowance for uncollectible
accounts: 1999 - $305,475; 1998 - $197,331 12,550,132 10,436,485
Employee and related party receivables 502,803 472,994
Irish Development Agency grant receivable 93,059 198,445
Inventories 27,521,087 17,785,743
Prepaid expenses and other assets 564,213 636,124
Deferred income tax assets 1,052,745 739,595
Income tax refund receivable 210,112
Total current assets 43,162,862 31,121,296
PROPERTY AND EQUIPMENT:
Land 1,365,985 1,065,985
Building 1,500,000
Automobiles 133,316 89,469
Manufacturing equipment 17,617,798 13,669,599
Furniture and fixtures 8,883,297 7,963,835
Leasehold improvements 5,114,964 5,035,288
Construction-in-progress 1,669,725 1,182,669
Total 36,285,085 29,006,845
Less accumulated depreciation and amortization (14,277,666) (12,043,130)
Property and equipment - net 22,007,419 16,963,715
OTHER ASSETS:
Patents, trademarks, and customer lists - net of accumulated
amortization: 1999 - $1,179,246; 1998 - $1,014,617 2,319,581 2,333,456
Cost in excess of the fair value of assets acquired - net
of accumulated amortization: 1999 - $138,022; 1998 - $31,615 4,819,288 150,673
Prepaid royalty - net of accumulated amortization:
1999 - $600,000; 1998 - $578,572 21,428
Deposits 51,319 74,218
Total other assets 7,190,188 2,579,775
TOTAL ASSETS $ 72,360,469 $ 50,664,786
(Continued)
</TABLE>
21
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
<S> <C> <C>
CURRENT LIABILITIES:
Line of credit $ 7,634,607
Current portion of long-term debt $ 1,001,917 1,808,970
Trade payables 4,749,432 3,573,333
Accrued expenses 3,092,280 2,055,849
Advances from employees 116,094 74,090
Income taxes payable 269,441 194,722
Total current liabilities 9,229,164 15,341,571
DEFERRED INCOME TAX LIABILITIES 1,722,094 1,275,651
LONG-TERM DEBT 27,817,308 3,388,835
DEFERRED CREDITS 901,767 1,023,861
Total liabilities 39,670,333 21,029,918
MINORITY INTEREST IN SUBSIDIARY 548,500
COMMITMENTS AND CONTINGENCIES (Notes 6, 10, and 11)
STOCKHOLDERS' EQUITY:
Preferred stock - 5,000,000 shares authorized as of
December 31, 1999 and 1998, no shares issued
Common stock - no par value; 20,000,000 shares
authorized; 7,591,236 and 7,508,914 shares issued
at December 31, 1999 and 1998, respectively 18,428,572 17,793,094
Retained earnings 14,790,518 11,564,928
Accumulated other comprehensive loss (528,954) (271,654)
Total stockholders' equity 32,690,136 29,086,368
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 72,360,469 $ 50,664,786
</TABLE>
See notes to consolidated financial statements.
(Concluded)
22
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
NET SALES $ 77,959,576 $ 68,377,357 $ 60,579,011
COST OF SALES 47,917,815 42,433,873 37,766,116
GROSS PROFIT 30,041,761 25,943,484 22,812,895
OPERATING EXPENSES:
Selling, general, and administrative 20,406,927 17,528,002 15,726,651
Research and development 3,618,041 3,244,477 4,446,795
Total operating expenses 24,024,968 20,772,479 20,173,446
INCOME FROM OPERATIONS 6,016,793 5,171,005 2,639,449
OTHER INCOME (EXPENSE):
Interest income 50,391 33,662 28,223
Interest expense (1,293,023) (826,778) (854,859)
Miscellaneous expense (12,732) (87,543) (37,297)
Other expense - net (1,255,364) (880,659) (863,933)
INCOME BEFORE INCOME TAX EXPENSE 4,761,429 4,290,346 1,775,516
INCOME TAX EXPENSE (1,454,762) (1,687,379) (944,981)
MINORITY INTEREST IN INCOME OF
SUBSIDIARY (81,077) (151,808) (33,003)
NET INCOME $ 3,225,590 $ 2,451,159 $ 797,532
EARNINGS PER COMMON SHARE -
Basic and diluted $ .43 $ .33 $ .11
AVERAGE COMMON SHARES -
Basic 7,541,562 7,420,224 7,263,253
Diluted 7,565,673 7,488,225 7,369,668
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
Accumulated
Other
Compre-
Common Stock hensive Retained
Total Shares Amount Loss Earnings
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $ 22,487,123 6,942,290 $ 14,184,975 $ (14,089) $ 8,316,237
Comprehensive income:
Net income 797,532 797,532
Other comprehensive loss - Foreign
currency translation adjustment (net of tax) (476,502) (476,502)
Comprehensive income 321,030
Tax benefit attributable to appreciation
of common stock options exercised 222,887 222,887
Issuance of common stock for cash 273,202 35,582 273,202
Options and warrants exercised 1,316,812 227,200 1,316,812
Issuance of common stock under
Employee Stock Purchase Plans 245,129 42,056 245,129
Stock issued in connection with
UMI acquisition 975,000 152,424 975,000
Shares surrendered in exchange for the
recording of payroll tax liabilities (7,534) (861) (7,534)
Shares surrendered in exchange for the
exercise of stock options (31,500) (3,600) (31,500)
BALANCE, DECEMBER 31, 1997 25,802,149 7,395,091 17,178,971 (490,591) 9,113,769
Comprehensive income:
Net income 2,451,159 2,451,159
Other comprehensive income - Foreign
currency translation adjustment (net of tax) 218,937 218,937
Comprehensive income 2,670,096
Tax benefit attributable to appreciation
of common stock options exercised 33,398 33,398
Issuance of common stock for cash 81,850 13,819 81,850
Issuance of common stock under Employee
Stock Purchase Plans 267,549 52,425 267,549
Options and warrants exercised 370,914 64,840 370,914
Shares surrendered in exchange for the
recording of payroll tax liabilities (4,588) (569) (4,588)
Shares surrendered in exchange for the
exercise of stock options (135,000) (16,692) (135,000)
BALANCE, DECEMBER 31, 1998 29,086,368 7,508,914 17,793,094 (271,654) 11,564,928
Comprehensive income:
Net income 3,225,590 3,225,590
Other comprehensive loss - Foreign
currency translation adjustment (net of tax) (257,300) (257,300)
Comprehensive income 2,968,290
Tax benefit attributable to appreciation of
common stock options exercised 245,200 245,200
Issuance of common stock for cash 62,600 10,990 62,600
Issuance of common stock under Employee
Stock Purchase Plans 312,027 66,330 312,027
Options and warrants exercised 114,746 22,080 114,746
Shares surrendered in exchange for the
recording of payroll tax liabilities (1,583) (264) (1,583)
Shares surrendered in exchange for the
exercise of stock options (97,512) (16,814) (97,512)
BALANCE, DECEMBER 31, 1999 $ 32,690,136 7,591,236 $ 18,428,572 $ (528,954) $ 14,790,518
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,225,590 $ 2,451,159 $ 797,532
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,757,539 2,923,484 2,796,425
Losses on sales and abandonment of
property and equipment 8,339 46,897 11,245
Amortization of deferred credits (215,894) (114,607) (91,155)
Deferred income taxes 450,734 435,489 (22,951)
Tax benefit attributable to appreciation of
common stock options exercised 245,200 33,398 222,887
Minority interest in income of subsidiary 81,077 151,808 33,003
Changes in operating assets and liabilities, net of
effects from acquistions:
Trade receivables (2,113,647) (837,042) (2,220,364)
Employee and related party receivables (29,809) (184,182) 38,613
Irish Development Agency grant receivable 105,386 549,443 (330,997)
Income tax refund receivable (210,112)
Inventories (7,150,393) (3,250,303) (79,236)
Prepaid expenses and other assets 71,911 (97,865) (19,436)
Deposits and other 22,899 (27,606) 122,565
Trade payables 1,176,099 134,984 872
Accrued expenses 771,936 (358,201) 133,378
Advances from employees 42,004 (7,155) (26,662)
Income taxes payable 74,719 (174,973) 353,789
Total adjustments (2,912,012) (776,431) 921,976
Net cash provided by operating activities 313,578 1,674,728 1,719,508
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for:
Property and equipment (4,750,608) (4,138,219) (1,046,890)
Intangible assets (269,388) (522,671) (521,270)
Acquisitions (11,322,916) (70,486)
Proceeds from the sale of property and equipment 584,688 22,645
Net cash used in investing activities (16,342,912) (4,076,202) (1,616,001)
</TABLE>
(Continued)
25
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (payments on) line of credit $ (7,567,655) $ 3,009,880 $ 90,854
Proceeds from:
Issuance of common stock 390,278 580,725 1,835,143
Long-term debt 25,907,596 677,802
Deferred credits 93,800
Principal payments on:
Long-term debt (2,403,143) (2,172,753) (1,764,343)
Deferred credits (37,899) (74,917)
Net cash provided by financing activities 16,420,876 2,057,755 86,737
EFFECT OF EXCHANGE RATES ON CASH (574,741) 218,937 (476,502)
NET DECREASE IN CASH AND
CASH EQUIVALENTS (183,199) (124,782) (286,258)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 851,910 976,692 1,262,950
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 668,711 $ 851,910 $ 976,692
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION - Cash paid during
the year for:
Interest (including capitalized interest of
$143,406, $93,142, and $109,701 during
1999, 1998, and 1997, respectively $ 1,288,301 $ 995,417 $ 782,676
Income taxes $ 684,109 $ 1,393,465 $ 591,192
</TABLE>
(Continued)
26
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
- - During 1999, 1998, and 1997, the Company entered into capital lease
obligations and notes payable for $50,015, $867,629, and $1,270,259,
respectively, for manufacturing equipment.
- - In connection with the sale in 1998 of the Company's manufacturing facility
in Castlerea, Ireland, the buyer assumed debt of the Company in the amount of
$258,275.
- - During 1999, 1998, and 1997, options to purchase 264, 569, and 861 shares of
the Company's common stock were surrendered in exchange for the Company's
recording of payroll tax liabilities in the amount of $1,583, $4,588, and
$7,534, respectively.
- - During 1999, 1998, and 1997, 16,814, 16,692 and 3,600 shares, respectively,
of Company common stock with a value of $97,512, $135,000, and $31,500,
respectively, were surrendered in exchange for the exercise of stock options.
- - During 1997, the Company acquired UMI for 152,424 shares of Company
restricted common stock. In connection with this acquisition, the Company
recorded the following as of the acquisition date:
<TABLE>
<S> <C>
Fair value of assets acquired $ 863,198
Cost in excess of fair market value 182,288
Total purchase price $ 1,045,486
</TABLE>
- - During 1999, the Company acquired substantially all of the assets of the
"Angelton Division" of Mallinckrodt Inc. (Angelton) in a purchase transaction
for $7,867,699 in cash. In conjunction with the acquisition, liabilities were
assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired (including goodwill
of $1,949,383) $8,132,194
Cash paid 7,867,699
Liabilities assumed $ 264,495
</TABLE>
- - Additionally, during 1999, the Company acquired the minority interest in its
subsidiary, Sentir, Inc. (Sentir) in a purchase transaction of $3,455,217 in
cash. The minority interest carried by the Company at the date of acquisition
was $629,577. In conjunction with the acquisition, liabilities were assumed
as follows:
<TABLE>
<S> <C>
Fair value of assets acquired (including goodwill
of $2,825,640) $3,574,016
Cash paid 3,455,217
Liabilities assumed $ 118,799
</TABLE>
See Notes to Consolidated Financial Statements. (Concluded)
27
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Merit Medical Systems, Inc. (Merit) and its wholly owned
subsidiaries, Merit Holdings, Inc. (MHI), Merit Medical International, Inc.
(MMI), and Sentir, (collectively, the Company) develop, manufacture, and market
disposable medical products primarily for use in the diagnosis and treatment of
cardiovascular disease which is considered to be one segment line of business.
The Company manufactures its products in plants located in the United States
and, beginning in 1997, commenced manufacturing operations in Ireland. The
Company has export sales to dealers and has direct sales forces in the United
States, Canada, and Western Europe (see Note 8).
The consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The following is a summary of the more significant of such policies.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS - The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
those of Merit, MMI, MHI, and Sentir. All material intercompany balances and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION - Sales are recognized at the time the products are shipped.
INVENTORIES - Inventories are stated at the lower of cost (computed on a
first-in, first-out basis) or market.
INCOME TAXES - The Company utilizes an asset and liability approach for
financial accounting and reporting for income taxes. Deferred income taxes are
provided for temporary differences in the bases of assets and liabilities as
reported for financial statement and income tax purposes.
LONG-LIVED ASSETS - The Company evaluates the carrying value of long-term assets
based on current and anticipated undiscounted cash flows and recognizes
impairment when such cash flows will be less than the carrying values. There
were no impairments as of December 31, 1999 or 1998.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation and amortization are computed using the straight-line method over
estimated useful lives as follows:
<TABLE>
<S> <C>
Building 20 years
Automobiles 4 years
Manufacturing equipment 5 to 12 years
Furniture and fixtures 3 to 10 years
Leasehold improvements 4 to 25 years
</TABLE>
INTANGIBLE ASSETS - Costs associated with obtaining patents, issued and pending,
and trademarks have been capitalized and are amortized over the patent or
trademark period or charged to expense if not approved. Costs associated with
obtaining customer lists are amortized over two years. Cost in excess of fair
value of assets acquired has been allocated to goodwill, which is amortized over
twelve to twenty years. Amortization of intangibles is done on a straight-line
basis.
RESEARCH AND DEVELOPMENT - Research and development costs are expensed as
incurred.
EARNINGS PER COMMON SHARE - Net income per common share is computed by both the
basic method, which uses the weighted average number of the Company's common
shares outstanding, and the diluted method, which includes the dilutive common
shares from stock options and warrants, as calculated using the treasury stock
method. The amounts of such options and warrants are not significant and,
accodingly, the Company's basic and diluted earnings per share are the same.
28
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL INSTRUMENTS - The Company's financial instruments, when
valued using market interest rates, would not be materially different from the
amounts presented in the consolidated financial statements.
STOCK-BASED COMPENSATION - The Company accounts for its stock compensation
arrangements under the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and intends to continue to do so. The
Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.
STATEMENTS OF CASH FLOWS - For purposes of the statements of cash flows, the
Company considers interest bearing deposits with an original maturity date of
three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of temporary cash
and cash equivalents and accounts receivable. The Company maintains its excess
cash primarily in interest-bearing deposits and limits the amount of credit
exposure to any one financial institution. The Company provides credit, in the
normal course of business, primarily to hospitals and independent third-party
packers and distributors. The Company performs ongoing credit evaluations of its
customers and maintains allowances for potential credit losses.
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - The financial statements of the
Company's foreign subsidiaries are generally measured using local currencies as
the functional currency. Assets and liabilities are translated into U.S. dollars
at year-end rates of exchange and results of operations are translated at
average rates for the year. Gains and losses resulting from these translations
are included in accumulated other comprehensive loss as a separate component of
stockholders' equity.
COMPREHENSIVE LOSS - Accumulated other comprehensive loss consists entirely of
foreign currency translation adjustments.
RECLASSIFICATIONS - Certain reclassifications have been made to the prior year
amounts to conform to classifications adopted in the current year.
2. ACQUISITIONS
On January 31, 1997, the Company acquired certain assets of Universal Medical
Instrument Corporation (UMI) in exchange for 152,424 shares of the Company's
restricted common stock.
The Company's acquisition of UMI's assets was accounted for as a purchase and,
accordingly, the results of operations of UMI are included in the Company's
consolidated financial statements from the date of acquisition. The total
purchase price, including related costs, was allocated to the assets acquired
based on their fair values with the excess purchase price over the fair value of
assets acquired of $182,288 being allocated to goodwill, which is being
amortized on a straight-line basis over 12 years. The pro forma financial
information reflecting this transaction has not been presented as it is not
materially different from the Company's historical results.
On July 27, 1999, the Company acquired the 28% minority interest in its
subsidiary, Sentir, for a purchase price of $3,574,016 consisting of $3,455,217
in cash and the assumption of liabilities in the amount of $118,799. Of the
$3,574,016 purchase price, $226,463 was paid to related parties. The acquisition
has been accounted for using the purchase method of accounting; as such, 100
percent of Sentir's results of operations have been included in the accompanying
consolidated financial statements from the date of acquisition. Previous to the
acquisition date, the minority interest's share of operations was excluded from
net income on the consolidated statements of operations. The cost of this
acquisition exceeded the estimated fair value of the acquired net assets by
$2,825,640. Such excess has been allocated to goodwill and is being amortized on
a straight-line basis over 20 years.
29
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On August 20, 1999, the Company acquired substantially all of the assets and
assumed certain liabilities of the Angelton Division of Mallinckrodt, Inc.
(Angelton) for a purchase price of $8,132,194, consisting of $7,867,699 in
cash and the assumption of liabilities in the amount of $264,495. Angelton is
a manufacturer and marketer of medical catheters, introducers, guide wires,
and needles. The acquisition has been accounted for using the purchase method
of accounting; as such, Angelton's results of operations have been included
in the accompanying consolidated financial statements from the date of
acquisition. The cost of this acquisition exceeded the estimated fair value
of the acquired net assets by $1,949,383. Such excess has been allocated to
goodwill and is being amortized on a straight-line basis over 20 years.
The unaudited pro forma results of operations of the Company for the years ended
December 31, 1999 and 1998 (assuming the acquisition of Angelton had occurred as
of January 1, 1998) are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net sales $ 87,606,126 $ 79,368,263
Net income 3,944,207 3,816,143
Net income per share (basic and diluted) $ 0.52 $ 0.51
</TABLE>
3. INVENTORIES
Inventories consist of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Finished goods $ 16,816,578 $ 7,458,133
Work-in-process 3,270,163 1,954,696
Raw materials 8,554,635 8,981,007
Less reserve for obsolete inventory (1,120,289) (608,093)
Total $ 27,521,087 $ 17,785,743
</TABLE>
4. INCOME TAXES
Deferred income tax assets and liabilities at December 31, 1999 and 1998
consisted of the following temporary differences and carryforward items:
<TABLE>
<CAPTION>
Current Long-Term
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Deferred income tax assets:
Allowance for uncollectible
accounts receivable $ 123,026 $ 79,809
Accrued compensation expense 200,799 126,603
Tax credits 79,668 $ 126,563 $ 24,681
Inventory capitalization for
tax purposes 338,753 116,574
Inventory obsolescence reserve 241,150 210,026
Net operating losses of
subsidiaries 90,254 70,000 298,323 368,690
Other 65,078 56,915 367,025 72,713
Total deferred income tax assets 1,059,060 739,595 791,911 466,084
Deferred income tax liabilities:
Tax credits (6,315)
Differences between tax basis
and financial reporting basis
of property and equipment (2,514,005) (1,741,735)
Net $1,052,745 $739,595 $(1,722,094) $(1,275,651)
</TABLE>
30
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1999 the Company had net operating loss carryforwards from
its foreign subsidiaries of approximately $390,000 most of which has no
expiration date.
Income tax expense for the years ended December 31, 1999, 1998, and 1997 differs
from amounts computed by applying the statutory Federal rate to pretax income as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Computed Federal income tax expense at
statutory rate of 35% $ 1,666,500 $ 1,501,621 $ 621,431
State income taxes 124,352 186,948 124,878
Creation of tax credits (140,369) (133,529) (164,319)
Tax benefit of foreign sales corporation (109,579) (96,808) (106,574)
(Gains) losses of subsidiaries recorded
at foreign rates (115,803) 183,622 496,685
Other - including the effect of graduated rates 29,661 45,525 (27,120)
Total income tax expense $ 1,454,762 $ 1,687,379 $ 944,981
Consisting of:
Current $ 1,004,028 $ 1,251,890 $ 967,932
Deferred 450,734 435,489 (22,951)
Total $ 1,454,762 $ 1,687,379 $ 944,981
</TABLE>
5. LINE OF CREDIT AND LONG-TERM DEBT
LINE OF CREDIT - as of December 31, 1998, the Company had a short-term line
of credit for $10,500,000. The credit line was collateralized by trade
receivables, inventories, property and equipment, and intangible assets and
accrued interest at the bank's prime rate. As of December 31, 1998, the
Company owed $7,634,607 under this line of credit.
REVOLVING CREDIT FACILITY - In August 1999, the Company paid off the
short-term line of credit and entered into a $28 million long-term revolving
credit facility with a bank, which expires and is fully due and payable in
June 2005 and enables the Company to borrow funds at variable interest rates.
The weighted average interest rate applied to the outstanding balance at
December 31, 1999 was 7.55%. Under the terms of the line, among other things,
the Company is required to maintain positive earnings for each fiscal quarter
during the term of the loan, maintain a ratio of total liabilities to
tangible net worth not to exceed 2.0 to 1.0, maintain a ratio of current
assets to current liabilities of at least 1.5 to 1.0, maintain minimum
working capital of $25,000,000, and is restricted from paying dividends to
shareholders. As of December 31, 1999, the Company owed $25,907,596 under
this credit facility. The revolving credit facility is collateralized by
trade receivables, inventories, property and equipment and intangible assets.
LONG-TERM DEBT - Long-term debt consisted of the following at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Notes payable to financial institutions; payable in monthly
installments through 2004, including interest at rates
ranging from 6.5% to 8.89%; collateralized by equipment $ 2,634,977 $ 4,699,219
Capital lease obligations (see Note 6) 276,652 498,586
Revolving credit facility (see above) 25,907,596
Total 28,819,225 5,197,805
Less current portion 1,001,917 1,808,970
Long-term portion $ 27,817,308 $ 3,388,835
</TABLE>
31
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 1999, management of the Company believes the Company was
in compliance with all debt covenants.
Scheduled maturities of long-term debt at December 31, 1999 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000 $ 1,001,917
2001 897,686
2002 508,684
2003 361,252
2004 61,249
Thereafter 25,988,437
Total $ 28,819,225
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
LEASES - The Company has noncancelable operating lease agreements for
off-site office and production facilities and equipment. The leases for the
off-site office and production facilities are for 5 years and have renewal
options of one to five years. The Company subleased these facilities during
1997 for approximately $97,000. Total rental expense on these operating
leases and on the Company's new manufacturing and office building (see below)
for the years ended December 31, 1999, 1998, and 1997 approximated
$3,094,000, $3,293,000, and $2,783,000, respectively.
In June 1993, the Company entered into a 25 year lease agreement with a
developer for a new manufacturing and office building. Under the agreement,
the Company was granted an option to purchase the building at fair market
value after 10 years and, if not exercised, after 25 years. In connection
with this lease agreement, the Company in 1993 sold to the developer 10 acres
of land on which the building was constructed. The $166,136 gain on the sale
of the land has been recorded as a deferred credit and is being amortized as
a reduction of rent expense over ten years. In connection with the lease
agreement, the Company issued to the developer warrants to purchase 155,461
shares of the Company's Common Stock at $4.95 per share subject to carrying
cost increases of 3% per year ($5.57 as of December 31, 1999). The warrants
expire in 2005.
The Company leases certain manufacturing and office equipment under long-term
capital lease agreements. Capital leases are collateralized by equipment with
a recorded cost approximating $848,500 and $967,000 with accumulated
amortization of approximately $157,000 and $200,000 as of December 31, 1999
and 1998, respectively.
The future minimum lease payments, together with the present value of the net
minimum lease payments as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
<S> <C> <C>
Year ending December 31:
2000 $ 2,606,087 $ 149,427
2001 1,944,113 151,896
2002 1,535,145
2003 1,473,821
2004 1,471,229
Thereafter 21,141,113
Total minimum lease payments $ 30,171,508 301,323
Less amount representing interest and executory costs (24,671)
Present value of net minimum lease payments (see Note 5) $ 276,652
</TABLE>
32
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
IRISH GOVERNMENT DEVELOPMENT AGENCY GRANTS - Through December 31, 1999, the
Company had entered into several grant agreements with the Irish Government
Development Agency, of which $93,059 and $198,445 remained in receivables at
December 31, 1999 and 1998, respectively. The grant agreements reimburse the
Company for a portion of the cost of property and equipment purchased in
Ireland, specific research and development projects in Ireland, and costs of
hiring and training employees located in Ireland. The Company has recorded the
grants related to research and development projects and costs of hiring and
training employees as a reduction of operating expenses in 1999, 1998, and 1997
in the amounts of $154,548, $164,423, and $146,476, respectively. Grants related
to the acquisition of property and equipment purchased in Ireland are recorded
as deferred credits and are amortized to income over lives corresponding to the
depreciable lives of such property. During 1999, 1998, and 1997, $142,161,
$97,993, and $74,541, respectively, of the deferred credit was amortized as a
reduction of operating expenses.
PREFERRED SHARE PURCHASE RIGHTS - In August 1997, the Company declared a
dividend of one preferred share purchase right (a "Right") for each outstanding
share of Common Stock which entitles the holder of a Right to purchase one
one-hundredth of a share of Series A Junior Participating Preferred Stock at an
exercise price of $40 in the event a person or group acquires or announces an
intention to acquire 15% or more of the Company's Common Stock. Until such an
event, the Rights are not exercisable and are transferable with the Common Stock
and may be redeemed at a price of $.0001 per Right.
LITIGATION - In the course of business, the Company is involved in litigation
and claims which management believes are not considered material to the
Company's operations.
7. EMPLOYEE STOCK PURCHASE PLAN AND STOCK OPTIONS AND WARRANTS
The Company offers to its employees an Employee Stock Purchase Plan which allows
the employees on a quarterly basis to purchase shares of the Company's Common
Stock at the lesser of 85% of the market value on the offering commencement date
or offering termination date. The total number of shares available to employees
to purchase under this plan is 250,000, of which 172,749 had been purchased as
of December 31, 1999.
The Company has a long-term incentive plan which provides for the issuance of
incentive stock options, nonstatutory stock options, and certain corresponding
stock appreciation rights. The maximum number of shares of Common Stock for
which options may be granted is 2,400,000. Options may be granted to directors,
officers, outside consultants, and key employees of the Company and may be
granted upon such terms and such conditions as the Compensation Committee in its
sole discretion shall determine. In no event, however, shall the exercise price
be less than the fair market value on the date of grant. Changes in stock
options and warrants for the years ended December 31, 1999, 1998, and 1997 are
as follows:
<TABLE>
<CAPTION>
Options Warrants
Weighted Weighted
Average or Average or
Range of Range of
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
1999:
Granted 448,900 $5.84
Exercised 22,080 4.96
Forfeited/expired 61,150 5.70
Outstanding at December 31 1,513,440 7.02 155,461 $5.57
Exercisable 740,480 7.20 155,461 5.57
Weighted average fair value of
options and warrants granted
during year $2.98
</TABLE>
33
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Weighted average fair value of
shares issued under Employee
Stock Purchase Plan $0.83
<CAPTION>
Options Warrants
Weighted Weighted
Average or Average or
Range of Range of
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
1998:
Granted 203,500 $6.41
Exercised 64,840 5.80
Forfeited/expired 47,990 6.41
Outstanding at December 31 1,147,770 6.76 155,461 $5.41
Exercisable 486,230 7.45 155,461 5.41
Weighted average fair value of
options and warrants granted
during year $3.14
Weighted average fair value of
shares issued under Employee
Stock Purchase Plan $0.90
<CAPTION>
Options Warrants
Weighted Weighted
Average or Average or
Range of Range of
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
1997:
Granted 522,700 $6.65
Exercised 227,200 5.80
Forfeited/expired 43,100 7.19 60,000 $7.65
Outstanding at December 31 1,057,100 7.04 155,461 5.25
Exercisable 315,100 7.48 155,461 5.25
Weighted average fair value of
options and warrants granted
during year $3.33
Weighted average fair value of
shares issued under Employee
Stock Purchase Plan 1.03
</TABLE>
34
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options and warrants
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options and Warrants
Options and Warrants Outstanding Exercisable
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (in years) Price Exercisable Price
<S> <C> <C> <C> <C> <C>
Options:
$5.63 - $7.25 1,001,440 3.32 $ 6.05 392,280 $ 6.22
$7.5 - $10.63 512,000 2.21 8.13 348,200 8.31
Warrants:
$5.57 155,461 5.00 5.57 155,461 5.57
</TABLE>
The Company accounts for stock options granted using Accounting Principles
Board (APB) Opinion 25. Accordingly, no compensation cost has been recognized
for its fixed stock option plans. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with SFAS No. 123, the
Company's net income and net income per common and common equivalent share
would have changed to the pro forma amounts indicated below (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net income:
As reported $ 3,225,590 $ 2,451,159 $ 797,532
Pro forma 2,480,928 1,840,182 385,340
Net income per common (both basic and diluted) share:
As reported $0.43 $0.33 $0.11
Pro forma 0.33 0.25 0.05
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998, and 1997: dividend yield of 0%;
expected volatility of 56.0%, 55.2%, and 57.5% for 1999, 1998, and 1997,
respectively; risk-free interest rates ranging from 4.58% to 7.36%; and
expected lives ranging from 2.33 to 4.5 years.
8. SEGMENT REPORTING AND FOREIGN OPERATIONS
During the years ended December 31, 1999, 1998, and 1997, the Company had
sales of approximately $18,336,000, $15,198,000, and $13,722,000 or
approximately 24%, 22%, and 23%, respectively, of total sales primarily in
Japan, Germany, France, and the United Kingdom.
The Company operates primarily in one segment in which it develops,
manufactures, and markets disposable medical products, principally for use in
the diagnosis and treatment of cardiovascular disease. Major operations
outside the United States include a leased manufacturing and distribution
facility in Ireland and sales subsidiaries in Europe. The following is a
summary of the Company's foreign operations by geographic area for fiscal
years 1999, 1998, and 1997:
35
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Transfers
Sales to Between Net
Unaffiliated Geographic Income Identifiable
Customers Areas Revenue (Loss) Assets
<S> <C> <C> <C> <C> <C>
Fiscal year ended December 31, 1999:
United States, Canada, and
international distributors $69,595,418 $ 1,288,485 $70,883,903 $3,761,605 $62,666,167
Europe direct 8,364,158 4,281,400 12,645,558 (319,784) 9,694,302
Eliminations (5,569,885) (5,569,885) (216,231)
Consolidated $77,959,576 None $77,959,576 $3,225,590 $72,360,469
Fiscal year ended December 31, 1998:
United States, Canada, and
international distributors $60,407,019 $ 1,386,073 $61,793,092 $3,373,280 $41,547,669
Europe direct 7,970,338 2,546,099 10,516,437 (593,677) 9,117,117
Eliminations (3,932,172) (3,932,172) (328,444)
Consolidated $68,377,357 None $68,377,357 $2,451,159 $50,664,786
Fiscal year ended December 31, 1997:
United States, Canada, and
international distributors $54,226,210 $ 860,482 $55,086,692 $2,774,516 $36,584,122
Europe direct 6,352,801 838,219 7,191,020 (2,110,415) 8,685,556
Eliminations (1,698,701) (1,698,701) 133,431
Consolidated $60,579,011 None $60,579,011 $ 797,532 $45,269,678
</TABLE>
Transfers between geographic areas are accounted for at amounts which are
generally above cost and consistent with the rules and regulations of
governing tax authorities. Such transfers are eliminated in the consolidated
financial statements. Net income by geographic areas reflects foreign
earnings reported by the foreign entities. Identifiable assets are those
assets that can be directly associated with a particular foreign entity and
thus do not include assets used for general corporate purposes.
9. RELATED PARTY TRANSACTIONS
Receivables from employees and related parties at December 31, 1999 and 1998
totaled approximately $503,000 and $473,000, respectively, (including
approximately $267,000 and $249,000, respectively, from officers of the
Company).
10. ROYALTY AGREEMENT
On April 8, 1992, the Company settled litigation involving, among other
things, allegations that certain of the Company's inflation device products
infringed patents issued to another medical product manufacturing company
(the Licensor).
36
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to the settlement, the Company entered into a license agreement with
the Licensor, whereby the Licensor granted to the Company a nonexclusive
right and license to manufacture and sell products which are subject to the
patents issued to the Licensor. For the rights and license granted under the
agreement, the Company paid the Licensor a nonrefundable prepaid royalty in
the amount of $600,000. The royalty was paid upon execution of the agreement
and represents a prepaid royalty covering the first seven years of the
agreement, which concluded during the year ended December 31, 1999. In
addition to the prepaid royalty, the Company agreed to pay the Licensor a
continuing royalty beginning January 1, 1992 of 5.75% of sales (which will
not exceed $450,000 for any calendar year) made in the United States, of
products covered by the license agreement. Royalties of $450,000 were paid or
accrued in each of the years ended December 31, 1999, 1998, and 1997.
The Licensor released the Company from all damages, claims, or rights of
action which the Licensor may have had related to the alleged infringement of
the patents issued to the Licensor. The Company also agreed to not proceed
against the Licensor for the alleged misappropriation by the Licensor of the
Company's confidential and proprietary information.
11. EMPLOYEE BENEFIT PLAN
The Company has a contributory 401(k) savings and profit sharing plan (the
Plan) covering all full-time employees who are at least 21 years of age and
have a minimum of six months of service to the Company. The Company may
contribute at its discretion matching contributions up to 2.25% of the
employees' compensation. Additional employer contributions are determined at
the discretion of the Board of Directors. Contributions made by the Company
to the Plan for the years ended December 31, 1999, 1998, and 1997 totaled
approximately $88,000, $18,000, and $223,000, respectively.
The Plan purchased unissued shares of the Company's CommonStock at market
value during each of the three years ended December 31, 1999 as follows:
<TABLE>
<CAPTION>
Market
Shares Value
<S> <C> <C>
Years ended December 31:
1999 10,990 $ 62,600
1998 13,819 81,850
1997 35,582 273,202
</TABLE>
12. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued. This statement establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
The Company principally hedges the following currencies: Belgian Francs,
French Francs, German Marks, Dutch Gilders, and Irish Pounds. The Company
enters into forward foreign exchange contracts to protect the Company from
the risk that the eventual net dollar cash flows resulting from transactions
with foreign customers and suppliers may be adversely affected by changes in
currency exchange rates. Such contracts are not significant.
SFAS No. 133, as amended by SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. Management of the Company is currently
evaluating the effects of this accounting standard.
******
37
<PAGE>
MERIT MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Merit Medical Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Merit
Medical Systems, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Companies as of
December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999
in conformity with accounting principles generally accepted in the United
States of America.
/s/ Deloitte & Touche LLP
March 6, 2000
Salt Lake City, Utah
38
<PAGE>
EXECUTIVE OFFICERS
Fred P. Lampropoulos
Chairman, President/Chief Executive Officer
Kent W. Stanger
Secretary-Treasurer, Chief Financial Officer
Leigh Weintraub
Chief Operating Officer
Brian L. Ferrand
Vice President, Sales
BOARD OF DIRECTORS
Fred P. Lampropoulos
Chairman, President/Chief Executive Officer
Kent W. Stanger
Secretary-Treasurer, Chief Financial Officer
Rex C. Bean, Private Investor
Ogden, Utah
Richard W. Edelman, Senior Vice President
Southwest Securities
Dallas, Texas
James J. Ellis, Managing Partner
Ellis/Rosier & Associates
Dallas, Texas
Michael E. Stillabower, M.D.
Chief, Cardiology, Christiana Care Health Systems;
Member, Cardiology Consultants PA
Wilmington, Delaware
CORPORATE OFFICES
Merit Medical Systems, Inc.
1600 West Merit Parkway
South Jordan, Utah 84095
(801) 253-1600
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
Salt Lake City, Utah
LEGAL COUNSEL
Parr Waddoups Brown Gee & Loveless
Securities/General Counsel
Workman, Nydegger & Jensen
Patent Counsel
FORM 10-K
Merit Medical Systems, Inc. filed an annual report on Form 10-K with the
Securities and Exchange Commission for the fiscal year ended December 31, 1999.
A copy may be obtained by written request from Kent W. Stanger, Secretary, at
the Company's offices.
ANNUAL MEETING
All shareholders are invited to attend our Annual Meeting on Wednesday, May 24,
2000 at 3:00 p.m. at the Company's corporate offices in South Jordan, Utah.
STOCK TRANSFER AGENT/REGISTRAR
Zions First National Bank
Stock Transfer Department
P. O. Box 30880
Salt Lake City, Utah 84130
PRIMARY MARKET MAKERS
Piper Jaffray Cos., Inc. Olsen Payne & Company
Dain Rauscher, Inc. Investec Ernst & Company
Schwab Capital Markets Sherwood Securities, Inc.
Herzog, Heine, Geduld, Inc. Island System Corporation
Knight Securities L.P. Sutro & Co., Inc.
Wilson-Davis & Co., Inc. Hill, Thompson, Magid & Co.
Spear, Leeds & Kellogg
MARKET INFORMATION
The Company's common stock is traded on the NASDAQ National Market System under
the symbol "MMSI." As of December 31, 1999, there were 7,591,236 shares of
common stock outstanding. The following chart sets forth the high and low
closing sale prices for the Company's common stock for the last two years:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1999
First Quarter $5.75 $5.75
Second Quarter 5.00 4.97
Third Quarter 6.81 5.75
Fourth Quarter 7.50 7.13
1998
First Quarter $7.63 $5.50
Second Quarter 9.13 6.25
Third Quarter 9.00 5.50
Fourth Quarter 9.00 7.00
</TABLE>
As of March 31, 2000, the Company had approximately 300 shareholders of
record, not including shareholders whose shares are held in securities
position listings.
The Company has never declared or paid any cash dividends on its common
stock. The Company intends to retain any earnings for use in its business and
does not anticipate paying any cash dividends in the foreseeable future.
INVESTOR RELATIONS CONTACT
Nancy Schultz, Director, Corporate Communications
(801) 253-1600
FOR MORE INFORMATION, CONTACT
Kent W. Stanger, Chief Financial Officer
Merit Medical Systems, Inc.
(801) 253-1600
39
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report may include "Forward-Looking Statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical fact are "Forward-Looking
Statements" for purposes of these provisions, including any projections of
earnings, revenues or other financial items, any statements of the plans and
objectives of management for future operations, any statements concerning
proposed new products or services, any statements regarding future economic
conditions or performance, and any statements of assumptions underlying any
of the foregoing. All Forward-Looking Statements included in this document
are made as of the date hereof and are based on information available to
Merit as of such date. Merit assumes no obligation to update any
Forward-Looking Statement. In some cases, Forward-Looking Statements can be
identified by the use of terminology such as "may," "will," "expects,"
"plans," "anticipates," "intends," "believes," "estimates," "potential," or
"continue," or the negative thereof or other comparable terminology. Although
the Company believes that the expectations reflected in the Forward-Looking
Statements contained herein are reasonable, there can be no assurance that
such expectations or any of the Forward-Looking Statements will prove to be
correct, and actual results could differ materially from those projected or
assumed in the Forward-Looking Statements. Future financial condition and
results of operations, as well as any Forward-Looking Statements are subject
to inherent risks and uncertainties, including market acceptance of the
Company's products, potential product recalls, delays in obtaining regulatory
approvals, cost increases, price and product competition, availability of
labor and materials, foreign currency fluctuations, changes in health care
markets related to health care reform initiatives and other factors referred
to in the Company's press releases and reports filed with the Securities and
Exchange Commission. All subsequent Forward-Looking Statements attributable
to the Company or persons acting on its behalf are expressly qualified in
their entirety by these cautionary statements.
40
<PAGE>
EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-48227, 33-46964, 33-10509 and 333- 92053 of Merit Medical Systems, Inc. on
Form S-8 of our report dated March 6, 2000, incorporated by reference in this
Annual Report on Form 10-K of Merit Medical Systems, Inc. for the year ended
December 31, 1999.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
March 28, 2000
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEDICAL
SYSTEMS, INC.'S CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT FOR THE
TWELVE MONTH PERIOD ENDING DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 688,711
<SECURITIES> 0
<RECEIVABLES> 12,855,607
<ALLOWANCES> (305,475)
<INVENTORY> 27,521,087
<CURRENT-ASSETS> 43,162,862
<PP&E> 36,285,085
<DEPRECIATION> (14,277,666)
<TOTAL-ASSETS> 72,360,469
<CURRENT-LIABILITIES> 9,229,164
<BONDS> 27,817,308
0
0
<COMMON> 18,428,572
<OTHER-SE> 13,944,123
<TOTAL-LIABILITY-AND-EQUITY> 72,360,469
<SALES> 77,959,576
<TOTAL-REVENUES> 77,959,576
<CGS> 47,917,815
<TOTAL-COSTS> 47,917,815
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 152,471
<INTEREST-EXPENSE> 1,293,023
<INCOME-PRETAX> 4,761,429
<INCOME-TAX> 1,454,762
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,225,590
<EPS-BASIC> 0.43
<EPS-DILUTED> 0.43
</TABLE>
