Merit Medical Systems,Inc. (NASDAQ:MMSI) Files An 8-K Entry into a Material Definitive Agreement

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SPECIAL NOTEREGARDING FORWARD-LOOKING
STATEMENTS

The information included in this Current Report contains
forward-looking statements about Merit Medical Systems,Inc., a
Utah corporation (Merit), that involve substantial risks
and uncertainties. Merit intends such statements, and all
subsequent forward-looking statements attributable to Merit, to
be expressly qualified in their entirety by these cautionary
statements and covered by the safe harbor provisions for
forward-looking statements contained in Section21E of the
Securities Exchange Act of 1934, as amended, or the Exchange
Act, and Section27A of the Securities Act of 1933, as amended,
or the Securities Act. All statements included in this Current
Report, other than statements of historical facts, are
forward-looking statements for purposes of these provisions,
including projections of earnings, revenues, expesnes or other
financial items, statements of the plans and objectives of
Merits management for future operations, statements concerning
proposed new products or services, statements regarding the
integration, development or commercialization of any business
or assets acquired from other parties, statements regarding
regulatory matters, including any product recall, statements
regarding future economic conditions or performance, and
statements of assumptions underlying any of the foregoing.
These statements involve known and unknown risks, uncertainties
and other factors that may cause Merits actual results, levels
of activity, performance or achievement to be materially
different from those expressed or implied by the
forward-looking statements. In some cases, forward-looking
statements can be identified by the use of terminology such as
anticipate, believe, continue, estimate, expect, forecast,
intend, may, might, plan, potential, project, will, would,
seek, should, could, can, predict, potential, continue,
objective or other forms of these words or similar words or
expressions, or the negative thereof or other comparable
terminology. However, not all forward-looking statements
contain such identifying words.

All forward-looking statements included in this Current Report
speak only as of the date made, are based on information
available to Merit as of such date, and are subject to change.
Merit assumes no obligation to update or revise any
forward-looking statement. If Merit does update or correct one
or more forward-looking statements, readers should not conclude
that it will make additional updates or corrections. Merits
actual results will likely differ, and may differ materially,
from anticipated results. Readers should not unduly rely on any
such forward-looking statements.

Item 1.01 Entry into Material Definitive
Agreement.

As noted in Merits Current Report on Form8-K dated July6, 2016,
Merit entered into the Second Amended and Restated Credit
Agreement on July6, 2016 (the Second Amended Credit
Agreement) with the lenders who are or may become a party
thereto (collectively, the Lenders), Wells Fargo Bank,
National Association (the Agent), as administrative
agent, swingline lender and Lender, and Wells Fargo Securities,
LLC, as sole lead arranger and sole bookrunner. The Second
Amended Credit Agreement was included as an exhibit to Merits
Quarterly Report on Form10-Q for the fiscal quarter ended
June30, 2016 filed with the Securities and Exchange Commission
(SEC) on August8, 2016.

Merit entered into the First Amendment to the Second Amended
Credit Agreement, dated September28, 2016, with the Agent and
the Lenders and subsidiary guarantors identified therein (the
First Amendment). The First Amendment was included as an
exhibit to Merits Annual Report on Form10-K filed with the SEC
on March1, 2017.

On March20, 2017, Merit entered into the Second Amendment to
the Second Amended Credit Agreement with the Agent, certain
consenting Lenders and the subsidiary guarantors identified
therein (the Second Amendment). The Second Amendment
amends the Second Amended Credit Agreement by, among other
things, providing Merit with flexibility to determine how it
will apply the net proceeds received from equity issuances to
prepay outstanding indebtedness under the Second Amended Credit

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Agreement. Specifically, the Second Amendment allows Merit to
use such net proceeds in one of the following four ways:

(1) to repay outstanding term loans with the excess, if any,
being used to repay outstanding revolving credit loans;

(2) to repay outstanding revolving credit loans with the
excess, if any, being used to repay outstanding term loans;

(3) to repay outstanding revolving credit loans (with a
corresponding, permanent reduction in Merits revolving credit
commitment, which is currently $275.0 million) with the excess,
if any, being used to repay outstanding term loans; and

(4) (for any equity issuance where the net proceeds exceed $50
million) to repay at least $50 million aggregate principal
amount of outstanding term loans with the excess, if any, being
used to repay outstanding revolving credit loans.

To the extent Merit exercises the second or fourth option above
in connection with any equity issuance prior to December31,
2017, it will be required to have a leverage ratio of 3.5 to
1.0 or less at the end of each subsequent fiscal quarter
through March31, 2018. To the extent Merit exercises the first,
third or fourth option above in connection with net proceeds
received from an issuance of equity securities in 2017, the
amount of Merits permitted acquisition basket under the Second
Amended Credit Agreement would be restored by an amount equal
to the amount of such prepayment, up to a maximum basket amount
of $50.0 million.

As of December31, 2016, Merit had $180.0 million of revolving
credit loans outstanding, before giving effect to $38.0 million
of additional revolving credit loans borrowed to finance Merits
acquisition of substantially all of the assets of Catheter
Connections,Inc. in January2017.

The foregoing summary of the principal terms of the Second
Amendment is not complete and is qualified in their entirety by
the actual terms and conditions of the Second Amendment, a
conformed copy of which is filed as Exhibit10.1 to this Current
Report on Form8-K.

Item 2.03 Creation of a Direct Financial Obligation or
an Obligation under an Off-Balance Sheet Arrangement of a
Registrant.

The information set forth above under Item 1.01 is hereby
incorporated by reference into this Item 2.03.

Item 7.01 Regulation FD Disclosure.

On March20, 2017, Merit announced the commencement of an
offering of up to $125.0 million of shares of its common stock,
which amount does not include additional shares that may be
offered to an over-allotment option granted to the
participating underwriters in connection therewith (the
Offering). A copy of the press release announcing the
commencement of the Offering is attached as Exhibit99.1 to this
Current Report on Form8-K.

In connection with the Offering, Merit intends to provide
prospective investors the following disclosure summarizing its
business and results of operations and noting certain recent
developments:

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Our Business

We are a leading manufacturer and marketer of disposable
medical devices used in an array of interventional, diagnostic
and therapeutic medical procedures, particularly in cardiology,
radiology and endoscopy. Our mission is to be the most
customer-focused company in healthcare. We are determined to
make a difference by understanding our customers needs, and
innovating and delivering a diverse range of products that
improve the lives of people and communities throughout the
world. We fundamentally believe that long-term value is created
for our customers, employees, shareholders, and communities
when we focus outward and are determined to deliver an
exceptional customer experience.

We design, develop, market, and manufacture, through our own
operations and contract manufacturers, approximately 180
medical products (classified into more than 20,000 individual
product catalog numbers) that we believe offer a high level of
quality, value and safety to our customers, as well as the
patients they serve. Our products are sold to approximately
10,000 customers in approximately 120 countries around the
world and we have a direct sales force presence in 20
countries.

Our products are used in the following clinical areas:
diagnostic and interventional cardiology; interventional
radiology; neurointerventional radiology and surgery; vascular,
general and thoracic surgery; electrophysiology; cardiac rhythm
management; interventional pulmonology; interventional
nephrology; orthopaedic spine surgery; interventional oncology
and pain management; outpatient access centers; computed
tomography; ultrasound; and interventional gastroenterology.

We currently report our operations in two operating segments:
cardiovascular and endoscopy. Within those operating segments,
we offer products focused in the following four core product
groups:

peripheral intervention, which includes products designed to
alleviate patient suffering from peripheral vascular and
nonvascular diseases;

cardiac intervention, which includes products designed to aid
in the treatment of various cardiac conditions specific to
interventional cardiology and electrophysiology, including
cardiac rhythm management and cardiac resynchronization
therapy;

interventional oncology and spine, which includes vertebral
augmentation products for the treatment of vertebral
compression fractures as well as medical devices used to treat
metastatic spine tumors; and

endoscopy, which integrates advanced non-vascular stent
technology with balloon dilators, inflation devices, guide
wires, procedure kits, and other devices used by
gastroenterologists, endoscopists, pulmonologists, and thoracic
and general surgeons.

In addition, our interventional radiology and other special
procedure labs perform a variety of invasive diagnostic and
interventional procedures and we provide certain specialty
procedure products.

We provide our products to hospitals and clinic-based
cardiologists, radiologists, neurologists, nephrologists,
vascular surgeons, orthopaedic surgeons, interventional
gastroenterologists and pulmonologists, thoracic surgeons,
physiatrists (pain management physicians), general surgeons,
thoracic surgeons, oncologists, electrophysiologists,
technicians, and nurses. Hospitals and acute care facilities in
the United States generally purchase our products through our
direct sales force, distributors, OEM partners, or custom
procedure tray manufacturers who assemble and combine our
products in custom kits and packs. Outside the United States,
hospitals and acute care facilities generally purchase our
products through our direct sales force, or, in the absence of
a sales force, through independent distributors or OEM
partners.

Our business strategy focuses on four target areas as follows:

enhancing growth and profitability through research and
development, sales model optimization, strategic acquisitions
and alliances, cost discipline, and operational focus;

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optimizing our operational capability through lean processes,
cost effective environments, and asset utilization;

targeting high-growth, high-return opportunities by
understanding, innovating, acquiring and delivering in
peripheral, cardiac, interventional oncology and spine, and
endoscopy product groups; and

maintaining a highly disciplined, customer-focused enterprise
guided by strong core values to globally address unmet or
underserved healthcare needs.

We believe that successful introduction and adoption of new
products should help us continue to strengthen our product
portfolio, help us to achieve greater market penetration, and
if successful, drive top-line growth. We believe the following
products, which we introduced to our product portfolio in the
United States or Europe since the third quarter of 2015 or are
developing, will help us continue our growth objectives in
2017:

CorVocet Biopsy System

SwiftNINJA Steerable Microcatheter

Elation GI Pulmonary Balloons

TWISTER PLUS Rotatable Retrieval Device

PreludeEASE Hydrophilic Sheath Introducer

PreludeSync Radial Compression Device

HeRO Graft

Super HeRO

True Form Guide Wires

Heartspan Transseptal Sheath

Amplatz Guide Wires

Merit PAK Pedal Access

Critical Care Products (acquired from Argon Medical
Devices,Inc.)

Dual Cap Disinfection and Protection (acquired from Catheter
Connections,Inc.)

The success of our products is enhanced by the extensive
experience of our management team in the healthcare industry,
our experienced direct sales force and distributors, our
ability to provide custom procedural solutions such as kits,
trays and procedural packs at the request of our customers, and
our dedication to offering facility-unique solutions in the
markets we serve worldwide.

Sales of our products in the U.S. accounted for approximately
61% of our net sales in the year ended December31, 2016. In the
U.S., we have a dedicated, direct sales organization of 128
employees who are primarily focused on selling to end-user
physicians, hospitals and clinics, major buying groups and
integrated healthcare networks. Internationally, we employ 158
sales representatives, and we also contract with independent
dealer organizations and custom procedure tray manufacturers to
distribute our products worldwide, including territories in
Europe, Africa, the Middle East, Asia, South and Central
America, Oceania, and Canada. In 2016, our international sales
accounted for approximately 39% of our net sales.

During the year ended December31, 2016, net sales generated by
our top ten selling products accounted for approximately 39% of
our total net sales. Sales of our inflation devices accounted
for approximately 12%, 14% and 14% of our net sales for the
years ended December31, 2016, 2015 and 2014, respectively. As
of December31, 2016, we employed approximately 4,150 people.

Our Results of Operations

For the year ended December31, 2016, we reported net sales of
approximately $603.8 million ($608.8 million on a constant
currency basis, using applicable 2015 foreign exchange rates),
up approximately $61.7 million, or 11.4% (up 12.3% on a
constant currency basis, using applicable

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2015 foreign exchange rates), over 2015 net sales of
approximately $542.1 million ($553.4 million on a constant
currency basis, using applicable 2014 foreign exchange rates).
For the year ended December31, 2016, we had core revenue, or
net sales excluding sales attributable to the HeRO Graft,
acquired in February2016, and DFINE,Inc., acquired in July2016,
of approximately $583.3 million, as compared to $542.1 million
for the year ended December31, 2015.

Gross profit as a percentage of sales, or gross margin,
increased to 43.9% for the year ended December31, 2016, as
compared to 43.5% for the year ended December31, 2015. Non-GAAP
gross margin increased to 46.9% for the year ended December31,
2016, as compared to 45.6% for the year ended December31, 2015.

Net income for the year ended December31, 2016 was
approximately $20.1 million, or $0.45 per share, as compared to
$23.8 million, or $0.53 per share, for the year ended
December31, 2015. Non-GAAP net income for the year ended
December31, 2016 was approximately $45.1 million, or $1.01
non-GAAP earnings per share, as compared to $38.5 million, or
$0.87 non-GAAP earnings per share, for the year ended
December31, 2015.

For additional information, including a discussion of trends
that we expect to impact our business in 2017, please review
the section entitled Managements Discussion and Analysis of
Financial Condition and Results of Operations in the 2016
Annual Report, which is incorporated by reference herein.
Additionally, please see the sections in this prospectus
supplement entitled Non-GAAP Financial Measures and Summary
Consolidated Financial Information for further information
regarding the non-GAAP measures presented above, including
tables reconciling such measures to their corresponding GAAP
measures.

Recent Developments

Acquisitions

On January31, 2017, we acquired substantially all the assets,
including intellectual property covered by approximately 40
patents and pending applications, and assumed certain
liabilities, of Catheter Connections,Inc., or Catheter
Connections, in exchange for a payment of $38.0 million.
Catheter Connections, which is based in Salt Lake City, Utah,
developed and marketed the DualCap System, an innovative family
of disinfecting products designed to protect patients from
intravenous infections resulting from infusion therapy.

On January31, 2017, we completed the acquisition of the
critical care division of Argon Medical Devices,Inc., or Argon.
As part of the acquisition, we acquired several Argon
subsidiaries located in Singapore, Japan and Europe, a
manufacturing facility in Singapore, as well as approximately
100 registered trademarks and other intellectual property, and
inventory located in the United States. The products within the
acquired Argon critical care division include pressure
monitoring transducers and various catheters. The transaction
consideration was valued at approximately $10.0 million.

We currently estimate that the two acquisitions noted above
will result in incremental intangible amortization expense of
approximately $3.3 million to $4.3 million in 2017, of which we
expect to recognize approximately $0.5 million to $0.7 million
in the first quarter of 2017. Similarly, we currently estimate
that inventory write-up from these acquisitions will reduce our
GAAP gross margin by approximately $1.0 million to $1.4 million
in 2017, of which $0.4 million to $0.7 million would be
reflected in the first quarter of 2017. These estimates are
preliminary, based on currently available information, and
subject to change as we continue to finalize the valuation of
acquired assets and purchase accounting for these acquisitions.
All of these amounts are on a GAAP basis, before tax and would
be added back for non-GAAP reporting. We continue to evaluate
acquisition opportunities as part of our growth strategy.

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Legal Expenses Related to DOJ
Subpoena

We currently expect that our results in the first quarter of
2017 will be impacted by legal expenses related to our ongoing
efforts to respond to the subpoena we received from the
Department of Justice in October2016. As previously reported,
we incurred approximately $1.0 million of such expenses in the
fourth quarter of 2016, and we currently expect that these
expenses will be approximately $4.5 million to $4.7 million for
the first quarter of 2017. We expect that these expenses will
be in a similar range in subsequent quarters or potentially
higher, depending on the progress of the investigation and
other factors beyond our control. All of these amounts are on a
GAAP basis, before tax and would be added back for non-GAAP
reporting.

For further information related to the subpoena we received
from the Department of Justice in October2016, please refer to
Item 3 (Legal Proceedings) of our 2016 Annual Report, which is
incorporated by reference herein.

Product Recall

In February2017, we initiated a recall of four lots, or
batches, of our Prelude Short Sheath Introducer. We do not
currently expect that this recall will have a material impact
on our operations or revenues.

In connection with the product recall noted at the end of the
Recent Developments disclosure above, Merit provided
prospective investors with the following amended risk factor
related to product liability claims and recalls.

Our products may be subject to product liability
claims and recalls

Our products are used in connection with invasive procedures
and in other medical contexts that entail an inherent risk of
product liability claims. If medical personnel or their
patients suffer injury or death in connection with the use of
our products, whether as a result of a failure of our products
to function as designed, an inappropriate design, inadequate
disclosure of product-related risks or information, improper
use, or for any other reason, we could be subject to lawsuits
seeking significant compensatory and punitive damages. Product
liability claims may be brought by individuals or by groups
seeking to represent a class. We have previously faced claims
by patients claiming injuries from our products. To date, these
claims have not resulted in material harm to our operations or
financial condition. The outcome of this type of personal
injury litigation is difficult to assess or quantify. We
maintain product liability insurance; however, there is no
assurance that this coverage will be sufficient to satisfy any
claim made against us. Moreover, any product liability claim
brought against us could result in significant costs, divert
our managements attention from other business matters or
operations, increase our product liability insurance rates, or
prevent us from securing insurance coverage in the future. As a
result, any lawsuit seeking significant monetary damages may
have a material adverse effect on our business, operations or
financial condition.

In addition, the occurrence of such an event or claim, or the
discovery of a defect in products that have been delivered to
our customers, could result in a correction, removal or recall
of products from the market or a safety alert relating to such
products. For instance, in February2017, we initiated a recall
of four lots, or batches, of our Prelude Short Sheath
Introducer, a product which accounted for less than 0.5% of our
net sales in 2016, after being notified by a physician of two
incidents where that product malfunctioned and after conducting
an investigation into the cause of the malfunctions. We
notified the FDA of the malfunctions and related patient
injuries in accordance with medical device reporting
regulations and have modified our manufacturing process to
reduce the risk of future recurrence. We also are in the
process of gathering the affected products. The FDA has not yet
classified the recall or advised whether they will require us
to take any additional actions. Recalls such as this could
result in significant costs, reduce our revenue, divert
managements attention from our business, and harm our
reputation.

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Finally, in connection with the Offering, Merit provided
prospective investors with the following non-GAAP information.

Non-GAAP Financial Information

Although our financial statements are prepared in accordance
with accounting principles which are generally accepted in the
United States of America, or GAAP, this prospectus supplement
includes non-GAAP financial measures which are derived on the
basis of methodologies other than in accordance with GAAP. Such
measures include:

constant currency revenue;

core revenue;

non-GAAP net income;

non-GAAP earnings per share; and

non-GAAP gross margin.

Our management team believes that the non-GAAP financial
measures referred to in this prospectus supplement provide
investors with useful information regarding the underlying
business trends and performance of our ongoing operations and
can be useful for period-over-period comparisons of such
operations. Additionally, our management team uses these
non-GAAP financial measures to evaluate our profitability and
efficiency, to compare operating results to prior periods, to
evaluate changes in the operating results of each of our
operating segments, and to measure and allocate financial
resources internally. However, our management does not consider
such non-GAAP measures in isolation or as an alternative to
such measures determined in accordance with GAAP.

You should consider any non-GAAP measures referred to in this
prospectus supplement in addition to, and not as a substitute
for, financial reporting measures prepared in accordance with
GAAP. Such non-GAAP financial measures exclude some, but not
all, items that may affect our net sales, net income, earnings
per share, and gross margin. In addition, they are subject to
inherent limitations as they reflect the exercise of judgment
by management about which items are excluded. We believe it is
useful to exclude such items in the calculation of constant
currency revenue, core revenue, non-GAAP net income, non-GAAP
earnings per share, and non-GAAP gross margin (in each case, as
illustrated under the caption Summary Consolidated Financial
Information) because such amounts in any specific period may
not directly correlate to the underlying performance of our
business operations and can vary significantly between periods
as a result of factors such as new acquisitions, non-cash
expense related to amortization of previously acquired tangible
and intangible assets, unusual compensation expenses, and
expenses resulting from litigation or governmental proceedings.
We may incur similar types of expenses in the future, and the
non-GAAP financial information included in this prospectus
supplement should not be viewed as a statement or indication
that these types of expenses will not recur. Additionally, the
non-GAAP financial measures used in this prospectus supplement
may not be comparable with similarly titled measures of other
companies.

We urge investors and potential investors to review the
reconciliations of our non-GAAP financial measures to the
comparable GAAP financial measures, and not to rely on any
single financial measure to evaluate our business or results of
operations. .

In the below table, we have included certain unaudited,
non-GAAP financial measures with reconciliations to the most
directly comparable GAAP financial measures during the periods
shown. You should consider any non-GAAP measures referred to in
this prospectus supplement in addition to, and not as a
substitute for, financial reporting measures prepared in
accordance with GAAP. For additional information, see Non-GAAP
Financial Measures.

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Notes:

(1) During the year ended December 31, 2016, we had net sales
of $603.8 million (or $608.8 million on a constant currency
basis, using applicable 2015 foreign exchange rates) an
increase of 11.4% (or 12.3% on a constant currency basis, using
applicable 2015 foreign exchange rates) over net sales for the
year ended December 31, 2015 of $542.1 million. During the year
ended December 31, 2015, we had net sales of $542.1 million (or
$553.4 million on a constant currency basis, using applicable
2014 foreign exchange rates) an increase of 6.4% (or 8.6% on a
constant currency basis, using applicable 2014 foreign exchange
rates) over net sales for the year ended December 31, 2014 of
$509.7 million.

Constant currency revenue, or net sales on a constant currency
basis, is a non-GAAP financial measure prepared by translating
the current-period reported net sales of subsidiaries whose
functional currency is other than the U.S. dollar at the
applicable foreign exchange rates in effect during the
comparable prior period. Our constant currency revenue
adjustment of $4.9 million for the year ended December 31, 2016
was calculated using the applicable average foreign exchange
rates for the year ended December 31, 2015 and our constant
currency revenue adjustment of $11.3 million for the year ended
December 31, 2015 was calculated using the applicable average
foreign exchange rates for the year ended December 31, 2014.

(2) We define core revenue as reported net sales excluding net
sales attributable to the HeRO Graft, acquired in February
2016, and DFINE, Inc., acquired in July 2016. The following
tables show our core revenue, or non-GAAP net sales, for the
years ended December 31, 2016, 2015 and 2014 and, to illustrate
quarterly impact, the three-month periods ended December 31,
2016 and 2015 and reconcile our core revenue to our GAAP net
sales during the same periods.

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(3) Non-GAAP net income and non-GAAP earnings per share include
net income adjusting for amortization of intangibles, inventory
mark-up and severance expenses related to acquisitions,
acquisition-related costs, and other adjustments as illustrated
further below.

The following tables set forth our non-GAAP net income and
non-GAAP earnings per share for the years ended December 31,
2016, 2015 and 2014 and reconcile such information to our GAAP
net income and earnings per share during the same periods.

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(a) Reflects the tax effect of each non-GAAP adjustment.

(b) The non-GAAP adjustments referenced do not reflect
stock-based compensation expense of approximately $2.5 million,
$2.2 million and $1.5 million for the years ended December 31,
2016, 2015 and 2014, respectively.

(c) Represents selling, general and administrative expenses
related to acquisitions during the period.

(d) Represents changes in the fair value of contingent
consideration liabilities and contingent receivables as a
result of acquisitions.

(e) Represents abandoned patents.

(f) Costs incurred in responding to an inquiry from the U.S.
Department of Justice. See Item 3 (Legal Proceedings) of our
2016 Annual Report for more information.

(g) Costs associated with the termination of our agreement with
a third-party contract manufacturer in Tijuana, Mexico.

(h) Represents impairment charges of certain non-tangible
assets.

(4) Gross margin refers to our gross profit as a percentage of
net sales.

(5) Non-GAAP gross margin is calculated by adjusting our gross
profit by amounts recorded for amortization of intangible
assets, inventory mark-up and severance expense related to
acquisitions.

The following tables show our non-GAAP gross margins for the
periods noted and reconcile such measures to our GAAP gross
margin for the same period. We have also included a table
showing non-GAAP gross margins on a quarter-by-quarter basis
from the fourth quarter of 2015 to the fourth quarter of 2016
to illustrate quarterly changes in our gross margins.

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The information set forth in this Item 7.01 is intended to be
furnished and shall not be deemed filed for purposes of Section
18 of the Securities Exchange Act of 1934, as amended, or
otherwise subject to the liabilities of that section, nor shall
it be deemed incorporated by reference in any filing under the
Securities Act, except as expressly set forth by specific
reference in such filing.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

10.1 Second Amendment to Second Amended and Restated Credit
Agreement, dated March 20, 2017, with the Lenders party thereto
and Wells Fargo Bank, National Association.

99.1 Press release issued by Merit Medical Systems, Inc., dated
March 20, 2017, entitled Merit Medical Announces Commencement
of Offering of Common Stock.

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