Item 1.01. Entry into a Material Definitive Agreement.
On May 26, 2020, Merit Medical Systems, Inc., a Utah corporation (the “Company”), entered into an agreement (the “Agreement”) with Starboard Value LP and certain of its affiliates (collectively, “Starboard”). Starboard beneficially owns 4,841,860 shares, or approximately 8.7% of the Company’s outstanding common stock (the “Common Stock”). Pursuant to the Agreement, the Company agreed to nominate Lonny J. Carpenter and David K. Floyd (the “Starboard Independent Appointees”) and James T. Hogan (together with the Starboard Independent Appointees, the “Independent Appointees”) for election to the Company’s board of directors (the “Board”) at the Company’s 2020 annual meeting of shareholders (the “2020 Annual Meeting”), for terms expiring at the Company’s 2023 annual meeting of shareholders and, if the 2020 Annual Meeting is not held by June 30, 2020, to accept the resignation of each of Nolan E. Karras, Kent W. Stanger and David M. Liu, M.D. from the Board and appoint the Independent Appointees to the Board to fill the resulting vacancies until the Independent Appointees stand for election at the 2020 Annual Meeting. Subject to the execution of a customary non-disclosure agreement by each of the Independent Appointees, the Independent Appointees may attend any meetings of the Board held following the date of the Agreement and prior to the election or the appointment, as applicable, of the Independent Appointees to the Board as non-voting observers.
In connection with the Agreement, Franklin J. Miller, M.D. has tendered his resignation from the Board, effective immediately following the conclusion of the 2020 Annual Meeting and following Dr. Miller’s resignation, the Board will appoint Lynne N. Ward, a current director of the Company whose term will expire at the 2020 annual meeting, to fill the unexpired portion of Dr. Miller’s term expiring at the Company’s 2021 annual meeting of shareholders. None of the decisions of Drs. Miller and Liu or Messrs. Karras and Stanger to resign from the Board or to not stand for re-election to the Board were due to any disagreement with the Company, the Board or the management of the Company on any matter relating to the Company’s operations, policies, practices or otherwise.
Pursuant to the Agreement, no later than fifteen (15) days following the date of the 2020 Annual Meeting, the Board will appoint a new Lead Independent Director; provided, however, that the Board will not appoint the new Lead Independent Director until the earlier of the appointment of the Independent Appointees to the Board (if applicable) or the conclusion of the 2020 Annual Meeting so that the Independent Appointees may vote on such appointment.
The Agreement also provides for customary director replacement rights for the Starboard Independent Appointees during the Standstill Period (as defined below), provided that Starboard maintains beneficial ownership above the lesser of (i) three percent (3%) of the then-outstanding shares of Common Stock and (ii) 1,661,521 shares of the Common Stock.
In connection with the Agreement, Starboard will withdraw its nomination of directors for election at the 2020 Annual Meeting and will vote in favor of the slate of directors nominated by the Board for election, and each of the Company’s other proposals, at the 2020 Annual Meeting; provided, however, that if either Institutional Shareholder Services Inc. (“ISS”) or Glass, Lewis & Co., LLC (“Glass Lewis”) recommends otherwise with respect to any of the Company’s proposals at the 2020 Annual Meeting (other than proposals relating to the election of directors), Starboard shall be permitted to vote in accordance with the ISS or Glass Lewis recommendation. Starboard also agreed to appear in person or by proxy at any special meeting of shareholders held during the Standstill Period and, to the extent such special meeting includes the election of directors, vote all shares of Common Stock beneficially owned by Starboard at such special meeting in accordance with the Board’s recommendation on any proposal relating to the appointment, election or removal of directors.
Under the terms of the Agreement, Starboard has agreed to abide by customary standstill restrictions until the earlier of (i) fifteen (15) business days prior to the deadline for the submission of shareholder nominations for directors for the Company’s 2021 annual meeting of shareholders or (ii) one hundred (100) days prior to the first anniversary of the 2020 Annual Meeting (the “Standstill Period”), including that Starboard will not, among other things, (A) engage in any solicitation of proxies of holders of the Company’s securities, (B) seek any additional representation on the Board or (C) make any offer or proposal (with or without conditions) with respect to any merger, tender (or exchange) offer, acquisition, recapitalization, restructuring, disposition or other business combination involving the Company or any of its subsidiaries.