Employee Stock Purchase Plan Stock Options and Warrants

12 Months Ended

Dec. 31, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Employee Stock Purchase Plan Stock Options and Warrants

EMPLOYEE STOCK PURCHASE PLAN STOCK OPTIONS AND WARRANTS.

Our stock-based compensation primarily consists of the following plans:

2006 Long-Term Incentive Plan. In May 2006, our Board of Directors adopted and our shareholders approved, the Merit Medical Systems, Inc. 2006 Long-Term Incentive Plan (the “2006 Incentive Plan”). The 2006 Incentive Plan provides for the granting of stock options, stock appreciation rights, restricted stock, stock units (including restricted stock units) and performance awards. Options may be granted to directors, officers, outside consultants and key employees and may be granted upon such terms and such conditions as the Compensation Committee of our Board of Directors determines. Options will typically vest on an annual basis over a three to five year life (or one year if performance based) with contractual lives of seven to ten years. As of December 31, 2012, a total of approximately 1.3 million shares remained available to be issued under the 2006 Incentive Plan.

Employee Stock Purchase Plan. We have a qualified and a non-qualified Employee Stock Purchase Plan (“ESPP”), which has an expiration date of June 30, 2016. As of December 31, 2012, the total number of shares of Common Stock that remained available to be issued under our qualified plan was approximately 257,000 shares and 69,000 shares for our non-qualified plan. ESPP participants purchase shares on a quarterly basis at a price equal to 95% of the market price of the Common Stock at the end of the applicable offering period.

Stock-Based Compensation Expense. The stock-based compensation expense before income tax expense for the years ended December 31, 2012, 2011 and 2010, consisted of the following (in thousands):

	2012		2011		2010
Cost of goods sold	$	245	$	241	$	201
Research and development	119		86		56
Selling, general, and administrative	1,553		1,317		1,037
Stock-based compensation expense before taxes	$	1,917	$	1,644	$	1,294

We recognize stock-based compensation expense (net of a forfeiture rate) for those awards which are expected to vest on a straight-line basis over the requisite service period. We estimate the forfeiture rate based on our historical experience and expectations about future forfeitures. As of December 31, 2012, the total remaining unrecognized compensation cost related to non-vested stock options, net of expected forfeitures, was approximately $4.5 million and is expected to be recognized over a weighted average period of 3.2 years.

In applying the Black-Scholes methodology to the option grants, the fair value of our stock-based awards granted were estimated using the following assumptions for the periods indicated below:

	2012				2011				2010
Risk-free interest rate	0.54	%	-	0.95%	0.68	%	-	1.34%	2.24%
Expected option life	4.2		-	6.0 years	4.2		-	6.0 years	6.0 years
Expected dividend yield	—%				—%				—%
Expected price volatility	42.01	%	-	44.56%	42.11	%	-	45.29%	41.4%

The average risk-free interest rate is determined using the U.S. Treasury rate in effect as of the date of grant, based on the expected term of the stock option. We determine the expected term of the stock options using the historical exercise behavior of employees. The expected price volatility was determined using a weighted average of daily historical volatility of our stock price over the corresponding expected option life and implied volatility based on recent trends of the daily historical volatility. For options with a vesting period, compensation expense is recognized on a straight-line basis over the service period, which corresponds to the vesting period. Compensation expense is recognized immediately for options that are fully vested on the date of grant. During the years ended December 31, 2012, 2011 and 2010, approximately 128,000, 844,000 and 125,000 stock-based compensation grants were made, respectively, for a total fair value of approximately $677,000, $4.3 million and $705,000, net of estimated forfeitures, respectively.

The table below presents information related to stock option activity for the years ended December 31, 2012, 2011 and 2010 (in thousands):

	2012		2011		2010
Total intrinsic value of stock options exercised	$	3,472	$	9,433	$	1,928
Cash received from stock option exercises	3,325		7,197		1,330
Net income tax benefit from the exercises of stock options	877		3,122		399

Changes in stock options for the year ended December 31, 2012, consisted of the following (shares and intrinsic value in thousands):

	Number of Shares		Weighted Average Exercise Price		Remaining Contractual Term (in years)	Intrinsic Value
2012:
Beginning balance	4,077		$	11.96
Granted	128		13.04
Exercised	(610	)	8.51
Forfeited/expired	(60	)	14.82
Outstanding at December 31	3,535		12.55		3.0	$	6,161
Exercisable	2,521		12.55		3.0	6,156
Ending vested and expected to vest	3,521		12.21		2.2	5,635

The weighted average grant-date fair value of options granted during the years ended December 31, 2012, 2011 and 2010 was $5.31, $5.28 and $5.64, respectively.

The following table summarizes information about stock options outstanding at December 31, 2012 (shares in thousands):

				Options Outstanding				Options Exercisable
Range of Exercise				Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$	7.79	-	$11.05	932	1.74	$	9.83	932	$	9.83
$	11.41	-	$12.02	922	2.24	11.69		812	11.71
$	12.10	-	$13.75	1,042	5.59	13.59		206	13.63
$	13.82	-	$17.34	639	1.90	16.05		571	16.30
$	7.79	-	$17.34	3,535				2,521