<PAGE>
REGISTRATION NO. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CONMED CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C>
NEW YORK 16-0977505
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification Number)
</TABLE>
310 BROAD STREET
UTICA, NEW YORK 13501
(315) 797-8375
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
EUGENE R. CORASANTI, CHAIRMAN OF THE BOARD AND PRESIDENT
CONMED CORPORATION
310 BROAD STREET
UTICA, NEW YORK 13501
(315) 797-8375
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
COPIES TO:
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<S> <C> <C>
ROBERT B. HIDEN, JR., ESQ. ROBERT E. REMMELL, ESQ. FREDERICK W. KANNER, ESQ.
SULLIVAN & CROMWELL STEATES REMMELL STEATES & DZIEKAN DEWEY BALLANTINE
250 PARK AVENUE 4 OXFORD CROSSING, SUITE 104 1301 AVENUE OF THE AMERICAS
NEW YORK, NY 10177 NEW HARTFORD, NY 13413 NEW YORK, NY 10019
(212) 558-4000 (315) 724-6175 (212) 259-8000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of the Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
[CAPTION]
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.01
per share................. 3,392,500 shares(1) $23.125 (3) $78,451,562.50(3) $15,691(3)
</TABLE>
(1) Includes 442,500 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(3) In accordance with Rule 457(c), the proposed maximum offering price per
share is based on the average of the high and low prices reported in the
consolidated reporting system as of a specified date within five business
days prior to the date of filing this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
(Redherring appears on left hand side of page rotated. Language is as
follow.)
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the securities
laws of any such State.
SUBJECT TO COMPLETION, DATED DECEMBER 22, 1995
PROSPECTUS
2,950,000 Shares
(Conmed logo appears here)
Common Stock
Of the 2,950,000 shares of Common Stock offered hereby, 2,800,000 shares
are being offered by CONMED Corporation ("CONMED" or the "Company") and 150,000
shares are being offered by the Selling Shareholder. See "The Selling
Shareholder." The Company will not receive any of the proceeds from the sale of
shares by the Selling Shareholder. The Common Stock of the Company is traded on
The Nasdaq Stock Market's National Market (the "Nasdaq National Market") under
the symbol "CNMD." The last reported sale price of the Company's Common Stock,
as reported on the Nasdaq National Market on December 20, 1995, was $24.59 per
share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) SHAREHOLDER (2)
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Per Share....................... $ $ $ $
Total (3)....................... $ $ $ $
</TABLE>
(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company and the Selling Shareholder
estimated at $ and $ , respectively.
(3) The Company has granted the Underwriters a 30-day option to purchase from
the Company up to 442,500 additional shares of Common Stock on the same
terms as set forth above solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Shareholder will be $ , $ , $ and
$ , respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for shares of
Common Stock will be available for delivery on or about February , 1996 at the
offices of Smith Barney Inc., 14 Wall Street, New York, New York 10005.
Smith Barney Inc.
Needham & Company, Inc.
UBS Securities Inc.
February , 1996
<PAGE>
[INSERT PICTURES OF PRODUCTS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"). SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN. SEE "RISK
FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMPANY'S COMMON STOCK, PAR VALUE $0.01 PER SHARE
("COMMON STOCK"), OFFERED HEREBY.
THE COMPANY
The Company is a leading provider of advanced electrosurgical systems and
electrocardiogram ("ECG") electrodes and accessories. The Company also
manufactures and markets a line of instruments for use in minimally-invasive
surgical ("MIS") procedures, as well as products used for intravenous ("IV")
therapy. Ninety percent of the Company's revenues are derived from the sale of
single-use, disposable products. The Company's products are used in a variety of
clinical settings, such as operating rooms, physicians' offices and critical
care areas of hospitals. For the nine months ended September 29, 1995 and after
giving pro forma effect to the Birtcher, Master Medical and NDM Acquisitions
(each, as defined below) discussed below under "Recent Acquisitions", net sales
from the United States comprised 87% of total net sales and net sales outside
the United States comprised 13% of total net sales.
The Company is divided into three divisions: Electrosurgical Systems,
Patient Care and Minimally-Invasive Surgery. Each division has its own dedicated
salesforce. Through its Electrosurgical Systems Division, the Company develops,
manufactures and markets a comprehensive range of electrosurgical generators,
argon beam coagulation systems, electrosurgical ground pads and electrosurgical
pencils. The Company's Patient Care Division develops, manufactures and markets
a broad line of ECG electrodes (adult, infant, premie, stress test and
diaphoretic), ECG cables and lead wires, IV stabilization dressings and IV fluid
drip rate gravity controllers. The Company will enter the wound care market with
the NDM Acquisition. The Company's Minimally-Invasive Surgery Division develops,
manufactures and markets a line of MIS products, including an electronic trocar
system, suction irrigators, scissors and suction coagulators.
The Company has used strategic business acquisitions to increase its market
share in certain product lines, broaden its product offerings and realize
economies of scale. During the last three years, the Company has completed three
significant business acquisitions, as discussed below under "Recent
Acquisitions." In addition, in October 1995, the Company entered into a
definitive agreement to acquire substantially all the assets of NDM through an
acquisition that is scheduled to be completed in the first quarter of 1996.
These completed acquisitions, together with internal growth, resulted in net
sales growth of approximately 70% over the past two years.
According to the American Hospital Association and the American College of
Surgeons, in 1993 more than 23 million surgical procedures were performed in the
over 5,300 general hospitals in the United States, with another approximately
three million procedures being performed in the approximately 1,800 free
standing ambulatory surgery centers. The Company believes that a majority of
these operations involved electrosurgery. The American Hospital Association data
also show that of the hospitals in the United States, there are approximately
96,000 intensive care beds, including neonatal, pediatric, cardiac and
medical/surgical intensive care. The Company believes that a majority of these
beds are equipped for ECG monitoring. In addition, the Company believes that
demographic trends, such as the aging of the U.S. population, also have a
favorable effect on the demand for the Company's disposable medical products,
since older people generally require more medical care and undergo more surgical
procedures.
The principal elements of the Company's growth strategy are to (i) expand
its core business primarily through increased sales to its existing customers
and sales of its products to new customers, (ii) continue to introduce new
products and product enhancements of existing products into the health care
market by taking advantage of its technical expertise, (iii) continue to
evaluate acquisition opportunities that could increase market share and/or add
new products in related medical device fields, and (iv) continue to improve
operating margins by consolidating its product lines, integrating its
manufacturing facilities and streamlining its processes.
The Company's principal executive offices are located at 310 Broad Street,
Utica, New York 13501, and its telephone number is (315) 797-8375.
3
<PAGE>
RECENT ACQUISITIONS
In July 1993, the Company acquired the business and certain assets of
Medtronic Andover Medical, Inc., a manufacturer of ECG monitoring and diagnostic
electrodes and ECG cables and lead wires, for a cash purchase price of
approximately $21.8 million plus the assumption of approximately $1.2 million of
liabilities (the "Andover Acquisition").
In March 1995, the Company acquired Birtcher Medical Systems, Inc.
("Birtcher") for approximately 1.6 million shares of Common Stock in a
transaction valued at approximately $27.1 million (the "Birtcher Acquisition").
With the Birtcher Acquisition, the Company added the argon beam coagulation
technology to its existing lines of electrosurgical products and strengthened
the Company's position as a leading supplier of electrosurgical systems to the
medical industry.
In May 1995, the Company acquired the business and certain assets and
liabilities of The Master Medical Corporation ("Master Medical") for a cash
purchase price of approximately $9.5 million plus the assumption of net
liabilities totalling approximately $0.5 million (the "Master Medical
Acquisition"). The Master Medical Acquisition added a line of single-use IV
fluid drip rate gravity controllers to the Company's product line.
In October 1995, the Company signed an asset purchase agreement whereby the
Company will acquire substantially all the business and certain assets of New
Dimensions in Medicine, Inc. ("NDM") for a cash purchase price of approximately
$32.0 million plus the assumption of net liabilities of approximately $5.1
million (the "NDM Acquisition"). Through the NDM Acquisition, which is expected
to close in the first quarter of 1996 and which is subject to the approval of
the shareholders of NDM, the Company will acquire the business of NDM relating
to the design, manufacture and marketing of a broad line of ECG electrode
products, disposable electrosurgical products and a broad line of various
Hydrogel wound care products.
THE OFFERING
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<CAPTION>
<S> <C>
Common Stock offered by:
Company......................................................... 2,800,000 shares(1)
Selling Shareholder............................................. 150,000 shares
Common Stock to be outstanding after the Offering................. 13,895,786 shares(1)(2)
Use of proceeds................................................... Net proceeds to the Company of approximately
$63.8 million will be used for the repayment
of bank debt primarily incurred in connection
with the Birtcher, Master Medical and NDM
Acquisitions. See "Use of Proceeds."
Nasdaq National Market Symbol..................................... CNMD
</TABLE>
(1) Does not include up to 442,500 shares of Common Stock that may be sold by
the Company pursuant to the Underwriters' over-allotment option. See
"Underwriting."
(2) Based upon the number of shares of Common Stock outstanding as of December
1, 1995. Does not include (i) 698,470 shares of Common Stock subject to the
warrant (the "Zimmer Warrant") to purchase Common Stock held by Zimmer, Inc.
("Zimmer") and (ii) 1,274,032 shares of Common Stock issuable upon exercise
of outstanding stock options as of December 31, 1995 pursuant to the
Company's stock option plans.
UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS (I) ASSUMES
NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION AND (II) EXCLUDES (A)
1,274,032 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF OUTSTANDING OPTIONS
AS OF DECEMBER 31, 1995 PURSUANT TO THE COMPANY'S STOCK OPTION PLANS AND (B)
698,470 SHARES OF COMMON STOCK SUBJECT TO THE ZIMMER WARRANT. UNLESS OTHERWISE
INDICATED, ALL SHARE AND PER SHARE AMOUNTS HAVE BEEN ADJUSTED TO GIVE EFFECT TO
THE COMPANY'S THREE-FOR-TWO STOCK SPLITS IN THE FORM OF STOCK DIVIDENDS PAID ON
DECEMBER 27, 1994 AND NOVEMBER 30, 1995. AS USED HEREIN, UNLESS THE CONTEXT
OTHERWISE REQUIRES, THE TERM "COMPANY" REFERS TO CONMED CORPORATION AND ITS
SUBSIDIARIES.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA FOR
YEARS ENDED THE YEAR ENDED NINE MONTHS ENDED
DECEMBER 27, DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 30, SEPTEMBER 30, SEPTEMBER 29,
1991 1992 1993 1994 1994(1) 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF INCOME (LOSS)(2)
Net sales............... $ 38,458 $ 42,602 $ 53,641 $ 71,064 $135,357 $52,649 $71,886
Cost of sales........... 20,449 22,549 30,218 38,799 75,625 28,902 37,960
Selling and
administrative
expense............... 10,633 12,556 17,402 20,979 37,127 15,775 18,703
Litigation and product
restructure........... -- -- 5,700(3) -- 14,941(4) -- --
Research and development
expense............... 1,275 1,695 2,222 2,352 4,186 1,693 2,115
Income (loss) from
operations............ 6,101 5,802 (1,901) 8,934 3,478 6,279 13,108
Interest income
(expense), net........ (123) 290 (214) (628) 250 (484) (1,436)
Income (loss) before
income taxes.......... 5,978 6,092 (2,115) 8,306 3,728 5,795 11,672
Provision (benefit) for
income taxes.......... 2,033 1,986 (719) 2,890 1,342 2,028 4,125
Net income (loss)....... $ 3,945 $ 4,106 $ (1,396) $ 5,416 $ 2,386 $ 3,767 $ 7,547
Earnings (loss) per
common and common
equivalent share...... $ .46 $ .42 $ (.15) $ .56 $ .17 $ .40 $ .66
Weighted average number
of common shares and
equivalents
outstanding........... 8,526 9,702 9,426 9,624 14,044 9,500 11,396
<CAPTION>
PRO FORMA FOR THE
NINE MONTHS ENDED
SEPTEMBER 29,
1995(1)
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CONSOLIDATED STATEMENTS
OF INCOME (LOSS)(2)
Net sales............... $99,681
Cost of sales........... 52,637
Selling and
administrative
expense............... 24,370
Litigation and product
restructure........... --
Research and development
expense............... 2,482
Income (loss) from
operations............ 20,192
Interest income
(expense), net........ 188
Income (loss) before
income taxes.......... 20,380
Provision (benefit) for
income taxes.......... 7,337
Net income (loss)....... $13,043
Earnings (loss) per
common and common
equivalent share...... $ .89
Weighted average number
of common shares and
equivalents
outstanding........... 14,696
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 29,
DECEMBER 30, 1995
1994 ACTUAL
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BALANCE SHEET DATA (2):
Working capital.................................................................... $18,159 $32,231
Total assets....................................................................... 62,104 118,146
Long-term debt (less current portion).............................................. 6,875 27,840
Total shareholders' equity......................................................... 43,061 71,224
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 29, 1995
PRO FORMA(1)
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BALANCE SHEET DATA (2):
Working capital.................................................................... $ 39,395
Total assets....................................................................... 158,594
Long-term debt (less current portion).............................................. --
Total shareholders' equity......................................................... 135,064
</TABLE>
(1) Gives effect to the Birtcher Acquisition, the Master Medical Acquisition,
the NDM Acquisition and the Offering as if each occurred on January 1, 1994
for the year ended December 30, 1994 and for the nine month period ended
September 29, 1995. The pro forma financial information is based on certain
assumptions and adjustments described in the Notes to Unaudited Pro Forma
Consolidated Financial Statements and should be read in conjunction
therewith and with the historical financial statements of the Company,
Birtcher, Master Medical and NDM, including the notes thereto, incorporated
by reference herein. The pro forma financial information does not purport to
present the financial position or the results of operations of the Company
had the transactions assumed therein occurred on the dates specified, nor is
it necessarily indicative of the results of operations which may be achieved
in the future.
(2) Includes the results of (i) CONMED Andover Medical, Inc. ("CONMED Andover
Medical"), the subsidiary formed as a result of the Andover Acquisition from
July 12, 1993; (ii) Birtcher from March 14, 1995; and (iii) Master Medical
from May 22, 1995, in each such case from the date of acquisition.
(3) Includes litigation charge of $5,000 relating to a patent infringement case
involving the Company's line of coated electrosurgical accessory blades and
a product restructure charge of $675 for the write-off of obsolete
inventory.
(4) The historic Birtcher financial statements for the fiscal year ended June
30, 1994 included a $14,941 restructuring charge for closure of Birtcher's
Boston facility and divestiture of the Solos product line.
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE
FOLLOWING FACTORS IN EVALUATING AN INVESTMENT IN THE COMMON STOCK OFFERED
HEREBY.
COMPETITIVE MARKET
The market for the Company's products is competitive. The Company faces
competition from other manufacturers and from suppliers of products employing
other technologies. Competitive pricing pressures or the introduction of new
products by the Company's competitors could have an adverse effect on the
Company's revenues and profitability. In addition, the Company operates in an
industry that engages in extensive research efforts. Some of the companies with
which the Company now competes or may compete in the future have or may have
more extensive research, marketing and manufacturing capabilities and
significantly greater technical and personnel resources than the Company, and
may be better positioned to continue to improve their technology in order to
compete in an evolving industry. See "Business -- Competition."
EFFECTS OF ACQUISITIONS AND INTEGRATION OF ACQUIRED BUSINESSES
An important element of the Company's business strategy has been to expand
through acquisitions. The Company's future success is partially dependent upon
its ability to effectively integrate acquired businesses with the Company's
operations. In addition, the financial performance of the Company is now and
will continue to be subject to various risks associated with the acquisition of
businesses, including the financial effects associated with the integration of
such businesses. There can be no assurance that past or future acquisitions will
be successfully integrated or that any such acquisition will otherwise be
successful. The Company has entered into a definitive agreement to acquire
certain assets of NDM which the Company presently expects to close in the first
quarter of 1996, although there can be no assurance that such transaction will
be consummated. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- General" and "Business -- Strategy."
POSSIBLE FLUCTUATIONS IN DEMAND FOR PRODUCTS AND DEPENDENCE ON NEW PRODUCTS
Demand for and use of the Company's electrosurgical equipment may fluctuate
as a result of changes in surgeon preferences, the introduction of new
electrosurgery products or new features to existing products, the introduction
of alternative surgical technology and advances in surgical procedures and
discoveries or developments in the health care industry. In addition, the
growing trend toward managed care has increased cost-containment efforts of
hospital purchasing departments. There can be no assurances that demand for the
Company's products will not be adversely affected by such fluctuations and
trends.
LOSS OF PATENTS AND COSTS OF PATENT LITIGATION
Much of the technology used in the markets in which the Company competes is
covered by patents. The Company has 85 U.S. patents and numerous corresponding
foreign patents on products expiring at various dates from 1996 through 2012 and
has additional patents pending. See "Business -- Research and Development
Activities." The loss of the Company's patents could reduce the value of the
related products. In addition, the cost to prosecute infringements of the
Company's patents or the cost to defend the Company against patent infringement
actions by others could be substantial. In 1993, a jury in a U.S. District Court
trial in Salt Lake City, Utah found that the Company's line of coated
electrosurgical accessory blades infringed a patent held by a competitor. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Years Ended December 30, 1993 and
December 25, 1992."
SUBSTANTIAL GOVERNMENT REGULATION OF PRODUCTS
All of the Company's products are classified as medical devices subject to
regulation by the Food and Drug Administration (the "FDA"). As a manufacturer of
medical devices, the Company's manufacturing processes and facilities are
subject to on-sight inspection and continuing review by the FDA to insure
compliance with "Good Manufacturing Processes," and the Company's products can
be subject to recalls. Many of the Company's products are also subject to
industry-set standards. Foreign sales are also subject to substantial government
regulation. See "Business -- Government Regulation."
POSSIBLE VOLATILITY OF STOCK PRICE
Market prices of securities of medical device companies, including the
Common Stock of the Company, have been highly volatile. There may be significant
volatility in the market price of the Common Stock due to factors that may or
may
6
<PAGE>
not relate to the Company's performance. The market price of the Common Stock
may be significantly affected by factors such as the announcement of new
products or technological innovations by the Company or its competitors,
acquisitions in the industry and quarterly variations in the Company's results
of operations. See "Price Range of Common Stock."
RISK OF PRODUCT LIABILITY ACTIONS
The nature of the Company's products as medical devices and today's
litigious environment in the United States should be regarded as potential risks
that could significantly and adversely affect the Company's financial condition
and results of operations. The Company maintains insurance to protect against
claims associated with the use of its products, but there can be no assurance
that its insurance coverage would adequately cover any claim asserted against
the Company. See "Business -- Legal Proceedings."
USE OF PROCEEDS
The net proceeds to the Company from the Offering, after payment of the
Company's fees and expenses incurred in connection with the Offering, are
estimated to be approximately $63.8 million (assuming a public offering price of
$24.00 per share and that the Underwriters' overallotment option is not
exercised). The Company will use the net proceeds from the Offering to repay
outstanding debt under the Company's principal bank credit agreements (the
"Credit Agreement"). The net proceeds of approximately $10.1 million (assuming a
public offering price of $24.00 per share) resulting from the exercise of the
over-allotment option, if exercised, will be used to repay amounts outstanding
under the Credit Agreement and for working capital and other general corporate
purposes. Pending utilization of the net proceeds, if any, from the sale of the
Common Stock pursuant to the Underwriters' over-allotment option, the Company
will invest the net proceeds in short-term interest-bearing obligations of
investment grade.
The borrowings under the Credit Agreement, of which $33.8 million was
outstanding as of September 29, 1995 and $66.0 million of which is expected to
be outstanding immediately prior to the closing of the Offering, include a term
portion that matures on January 1, 2001 with quarterly principal payments
commencing on April 1, 1996 and that bears interest at LIBOR plus 1.25% (7.23%
at November 30, 1995) and a revolving portion that bears interest at LIBOR plus
1.25% (7.23% at November 30, 1995). Borrowings outstanding under the Credit
Agreement were incurred primarily to finance the Birtcher Acquisition and the
Master Medical Acquisition and the expected additional borrowings under the
Credit Agreement are expected to be incurred primarily to finance the NDM
Acquisition. After completion of the Offering, the Company expects to have a
continuing $15 million revolving commitment under the Credit Agreement.
DIVIDEND POLICY
The Board of Directors presently intends to retain future earnings to
finance the development of the Company's business and does not presently intend
to declare cash dividends. Should this policy change, the declaration of
dividends will be determined by the Board in light of conditions then existing,
including the Company's financial requirements and condition and provisions
affecting the declaration and payment of dividends contained in debt agreements.
The Credit Agreement prohibits the Company's payment of cash dividends and
further subjects the Company to compliance with various financial covenants.
7
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PRICE RANGE OF COMMON STOCK
The Common Stock of the Company is traded on the Nasdaq National Market
under the symbol "CNMD". The following table sets forth the high and low last
reported sale prices for the indicated periods, adjusted to give effect to the
three-for-two stock splits in the form of stock dividends paid on December 27,
1994 and November 30, 1995:
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
Fiscal 1993:
First Quarter............................................................................................ $10.44 $ 6.56
Second Quarter........................................................................................... 7.11 4.44
Third Quarter............................................................................................ 6.44 3.11
Fourth Quarter........................................................................................... 5.56 4.00
Fiscal 1994:
First Quarter............................................................................................ $ 6.89 $ 4.44
Second Quarter........................................................................................... 6.44 5.11
Third Quarter............................................................................................ 8.44 5.56
Fourth Quarter........................................................................................... 13.67 8.00
Fiscal 1995:
First Quarter............................................................................................ $15.17 $11.17
Second Quarter........................................................................................... 16.67 9.67
Third Quarter............................................................................................ 23.33 15.67
Fourth Quarter (through December 20, 1995)............................................................... 24.59 20.00
</TABLE>
On December 20, 1995, the last reported sale price of the Common Stock, as
reported on the Nasdaq National Market, was $24.59 per share. As of December 1,
1995, there were 1,323 shareholders of record of the Company's Common Stock.
8
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 29, 1995, and (i) to give pro forma effect to the NDM
Acquisition and (ii) as adjusted for the NDM Acquisition, the sale by the
Company of 2,800,000 shares of Common Stock offered hereby at an assumed
offering price of $24.00 per share of Common Stock and the application of the
net proceeds therefrom.
<TABLE>
<CAPTION>
SEPTEMBER 29, 1995
PRO FORMA
(NDM PRO FORMA
ACTUAL ACQUISITION ONLY) AS ADJUSTED
<S> <C> <C> <C>
(IN THOUSANDS)
Short-term debt (1)................................................................ $ 6,000 $ 13,000 $ 2,000
Long-term debt (less current portion) (1).......................................... $27,840 $ 53,000 $ --
Shareholders' equity:
Preferred stock, par value $.01 per share; authorized 500,000 shares; none
outstanding................................................................... -- -- --
Common Stock, par value $.01 per share; authorized 20,000,000 shares; outstanding
11,095,786 shares actual and pro forma and 13,895,786 shares pro forma as
adjusted (2)(3)............................................................... 111 111 139
Paid-in capital.................................................................. 44,097 44,097 107,909
Retained earnings................................................................ 27,016 27,016 27,016
Total shareholders' equity.................................................... 71,224 71,224 135,064
Total capitalization (3).................................................... $99,064 $ 124,224 $ 135,064
</TABLE>
(1) Short-term and long-term debt are secured by substantially all of the
Company's property and assets, including buildings, equipment, accounts
receivable, patents and trademarks and inventory.
(2) Does not include (i) 698,470 shares of Common Stock subject to the Zimmer
Warrant (see "Description of Capital Stock -- Common Stock Warrant") and
(ii) 1,274,032 shares of Common Stock issuable upon exercise of outstanding
stock options as of December 31, 1995 pursuant to the Company's stock option
plans.
(3) See Notes 3, 5, 7, 9, 10 and 11 of Notes to the Company's consolidated
financial statements in the Form 10-K for information on certain commitments
and contingencies.
9
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited Pro Forma Consolidated Statements of Income for the
year ended December 29, 1994 and the nine months ended September 29, 1995, have
been prepared to reflect adjustments to the Company's historical results of
operations to give pro forma effect to (i) the Birtcher Acquisition, (ii) the
Master Medical Acquisition, (iii) the NDM Acquisition, and (iv) the Offering, as
if each had occurred as of the beginning of each period presented. The attached
unaudited Pro Forma Consolidated Balance Sheet as of September 29, 1995 gives
pro forma effect to the NDM Acquisition and the Offering as if each had occurred
on that date.
These pro forma statements have been prepared by the Company based on the
audited financial statements of Birtcher for the year ended June 30, 1994, the
audited financial statements of Master Medical for the year ended December 31,
1994, the audited financial statements of NDM for the ten-week period ended
December 31, 1994 and the audited financial statements of MEI Diversified Inc.
(NDM's predecessor) for the forty-two week period ended October 14, 1994.
Additionally the pro forma statements have been prepared utilizing the unaudited
financial statements of Birtcher for the six month period ended December 31,
1994 and the period January 1, 1995 through March 14, 1995 (date of
acquisition), the unaudited financial statements of Master Medical for the
period January 1, 1995 through May 19, 1995 (date of acquisition) and the
unaudited financial statements of NDM for the nine months ended September 30,
1995.
The Company has accounted for the Birtcher and Master Medical Acquisitions
as purchases. The NDM Acquisition, which is subject to NDM shareholder approval,
is expected to close in the first quarter of 1996. The NDM Acquisition will be
accounted for using the purchase method of accounting, under which tangible and
identifiable intangible assets acquired and liabilities assumed will be recorded
at their respective fair values.
Adjustments to the Pro Forma Consolidated Statement of Income include such
adjustments as are necessary to allocate the Birtcher, Master Medical and NDM,
purchase prices based on the estimated fair market value of the assets acquired
and the liabilities assumed and to give effect to events that are directly
attributable to the Birtcher, Master Medical and NDM Acquisitions, which are
expected to have a continuing impact on the Company and are factually
supportable. The adjustments related to the Pro Forma Consolidated Statement of
Income assume the transactions were consummated on the beginning of each period
presented.
The purchase accounting adjustments made in connection with the development
of the Unaudited Pro Forma Consolidated Financial Information have not been
finalized.
These pro forma statements are not necessarily indicative of the results of
operations which would have been attained had each of the acquisitions been
consummated on the dates indicated or which may be attained in the future. These
pro forma statements should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
historical financial statements and notes thereto of the Company, Birtcher,
Master Medical and NDM, incorporated herein by reference.
10
<PAGE>
CONMED CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
BIRTCHER &
HISTORICAL MASTER PRO HISTORICAL
CONMED MEDICAL ADJUSTMENTS FORMA NDM ADJUSTMENTS
<S> <C> <C> <C> <C> <C> <C>
Net sales............................. $71,886 $ 7,971 $ (104)(2) $79,753 $ 23,034 $(3,106)(9)(10)(11)
Cost of sales......................... 37,960 4,727 344(2) 42,369 13,116 (2,848)(9)(10)(12)
(662)(3)
Selling and administrative expense.... 18,703 3,620 120(4) 20,228 9,489 (5,347)(9)(11)(12)
(1,461)(3)
(754)(5)
Research and development expense...... 2,115 600 (448)(2) 2,167 315(9)(11)(12)
(100)(3)
58,778 8,947 (2,961) 64,764 22,605 (7,880)
Income (loss) from operations......... 13,108 (976) 2,857 14,989 429 4,774
Interest (expense) income, net........ (1,436) (90) (329)(6) (1,855) (424) (1,544)(13)
4,011(14)
Other income (expense), net........... 272 (272)(11)
Income (loss) before income tax....... 11,672 (1,066) 2,528 13,134 277 6,969
Provision (benefit) for income tax.... 4,125 0 612(7) 4,737 173 2,427(15)
Net income (loss)..................... $7,547 $ (1,066) $ 1,916 $ 8,397 $ 104 $ 4,542
Earnings per common and common
equivalent share.................... $ .66 $ .71
Weighted average number of common
shares and equivalents
outstanding......................... 11,396 500(8) 11,244 2,800(14)
<CAPTION>
PRO
FORMA
<S> <C>
Net sales............................. $99,681
Cost of sales......................... 52,637
Selling and administrative expense.... 24,370
Research and development expense...... 2,482
79,489
Income (loss) from operations......... 20,192
Interest (expense) income, net........ 188
Other income (expense), net........... 0
Income (loss) before income tax....... 20,380
Provision (benefit) for income tax.... 7,337
Net income (loss)..................... $13,043
Earnings per common and common
equivalent share.................... $ .89
Weighted average number of common
shares and equivalents
outstanding......................... 14,696
</TABLE>
See accompanying notes to the Unaudited Pro Forma Consolidated Financial
Information
for an explanation of the pro forma adjustments.
11
<PAGE>
CONMED CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 30, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
BIRTCHER &
HISTORICAL MASTER PRO HISTORICAL
CONMED MEDICAL ADJUSTMENTS FORMA NDM ADJUSTMENTS
<S> <C> <C> <C> <C> <C> <C>
Net sales...................... $71,064 $ 36,688 $ (416)(2) $107,336 $ 32,280 $ (4,259)(9)(10)(11)
1,377(2)
Cost of sales.................. 38,799 22,600 (2,099)(3) 60,677 18,902 (3,954)(9)(10)(12)
Selling and administrative 479(4)
expense...................... 20,979 13,176 (6,042)(3) 28,592 15,644 (7,109)(9)(11)(12)
Litigation and product
restructure.................. 14,941(1) 14,941(1)
Research and development (1,793)(2)
expense...................... 2,352 3,843 (635)(3) 3,767 419(9)(11)(12)
62,130 54,560 (8,713) 107,977 34,546 (10,644)
Income (loss) from
operations................... 8,934 (17,872) 8,297 (641) (2,266) 6,385
Interest (expense) income, (2,150)(13)
net.......................... (628) (637) (795)(6) (2,060) (475) 4,935(14)
Other income (expense), net.... (152) 152(11)
Income (loss) before income
tax.......................... 8,306 (18,509) 7,502 (2,701) (2,893) 9,322
Provision (benefit) for income
tax.......................... 2,890 0 (3,862)(7) (972) 221 2,093(15)
Net income (loss).............. $5,416 $(18,509) $11,364 $ (1,729) $ (3,114) $ 7,229
Earnings (loss) per common and
common equivalent share...... $ .56 $ (.15)
Weighted average number of
common shares and equivalents
outstanding.................. 9,624 1,620(8) 11,224 2,800(14)
<CAPTION>
PRO
FORMA
<S> <C>
Net sales...................... $135,357
Cost of sales.................. 75,625
Selling and administrative
expense...................... 37,127
Litigation and product
restructure.................. 14,941(1)
Research and development
expense...................... 4,186
131,879
Income (loss) from
operations................... 3,478
Interest (expense) income,
net.......................... 250
Other income (expense), net.... 0
Income (loss) before income
tax.......................... 3,728
Provision (benefit) for income
tax.......................... 1,342
Net income (loss).............. $ 2,386
Earnings (loss) per common and
common equivalent share...... $ .17
Weighted average number of
common shares and equivalents
outstanding.................. 14,044
</TABLE>
See accompanying notes to the Unaudited Pro Forma Consolidated Financial
Information
for an explanation of the pro forma adjustments.
12
<PAGE>
CONMED CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 29, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO
CONMED NDM ADJUSTMENTS FORMA
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash.............................................................. $ 1,602 $ 1,977 $ (22)(16)(18) $ 3,557
Accounts receivable, net.......................................... 21,752 4,412 (197)(16) 25,967
Inventories....................................................... 20,490 7,376 (2,089)(16)(17) 25,777
Deferred income tax............................................... 712 712
Prepaid expenses.................................................. 790 194 (39)(16) 945
Total current assets.......................................... 45,346 13,959 (2,347) 56,958
Property, plant and equipment....................................... 19,325 10,622 (1,035)(16)(17) 28,912
Covenant not to compete............................................. 1,263 1,263
Goodwill............................................................ 46,700 17,249(17) 63,949
Patents, and other assets........................................... 5,512 8,682 (6,682)(16)(17) 7,512
Total assets.................................................. $118,146 $ 33,263 $ 7,185 $158,594
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt................................. $ 6,000 $ 4,505 $ (8,505)(16)(18)(19) $ 2,000
Accounts payable.................................................. 2,473 1,632 (60)(16)(17) 4,045
Income taxes payable.............................................. 621 621
Accrued payroll and withholdings.................................. 2,822 1,475 2,200(17) 6,497
Accrued pension................................................... 162 162
Other current liabilities......................................... 1,037 1,994 1,207(16)(17)(19) 4,238
Total current liabilities..................................... 13,115 9,606 (5,158) 17,563
Long-term debt (less current portion)............................... 27,840 4,800 (32,640)(16)(18)(19) 0
Deferred income taxes............................................... 1,011 1,011
Accrued pension..................................................... 276 276
Deferred compensation............................................... 826 826
Long-term leases.................................................... 3,125 3,125
Other long-term liabilities......................................... 729 729
Total liabilities............................................. 46,922 14,406 (37,798) 23,530
Shareholders' Equity:
Common stock...................................................... 111 43 (15)(17)(19) 139
Paid in capital................................................... 44,097 18,457 45,355(17)(19) 107,909
Retained earnings................................................. 27,016 357 (357)(17) 27,016
Total shareholders' equity.................................... 71,224 18,857 44,983 135,064
Total liabilities and shareholders' equity.................... $118,146 $ 33,263 $ 7,185 $158,594
</TABLE>
See accompanying notes to the Unaudited Pro Forma Consolidated Financial
Information
for explanation of pro forma adjustments.
13
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
GENERAL
The attached Pro Forma Consolidated Statements of Income for the nine
months ended September 29, 1995 and the year ended December 30, 1994 give effect
to the Birtcher and Master Medical Acquisitions, which were completed on March
14, 1995 and May 19, 1995, respectively, and the NDM Acquisition. The foregoing
Pro Forma Consolidated Balance Sheet as of September 29, 1995 gives effect to
the NDM Acquisition as if it had occurred on that date. No pro forma adjustments
are necessary for the Birtcher and Master Medical Acquisitions on the September
29, 1995 Pro Forma Consolidated Balance Sheet since those transactions were
completed prior to September 29, 1995.
BIRTCHER AND MASTER MEDICAL ACQUISITIONS
1. The historic Birtcher financial statements for the fiscal year ended
June 30, 1994 included a $14,941 restructuring charge for closure of Birtcher's
Boston facility and divestiture of the Solos product line.
2. Prior to the Birtcher Acquisition, the Company supplied certain
partially completed manufactured items to Birtcher. Sales to Birtcher in 1994
and for the period in 1995 up to the acquisition date amounted to $416 and $104,
respectively. These amounts have been eliminated from Sales and Cost of sales in
the Pro Forma Combined Statements of Income. Additionally, cost of sales and
research and development expense have been adjusted to conform to the Company's
presentation.
3. The Birtcher and Master Medical Acquisitions involved medical products
companies with product lines similar to those manufactured and sold by the
Company. Effective with the respective acquisition dates of the two businesses,
the Company immediately reduced duplicate facilities, and eliminated duplicate
manufacturing, selling, administrative and research costs by closing excess
plants and by terminating redundant staff. The following adjustments are made to
the historical Birtcher and Master Medical amounts to reflect the cost
reductions as of the beginning of the period presented:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Cost of sales.................................................................... $(2,099) $ (662)
Selling and administrative expense............................................... (6,042) (1,461)
Research and development expense................................................. (635) (100)
</TABLE>
4. Selling and administrative expense has been increased $479 for the year
ended December 30, 1994 and $120 for the nine months ended September 29, 1995
reflecting the additional amortization of intangible assets resulting from
purchase accounting adjustments using the straight-line method over the
estimated remaining useful lives of the acquired assets. Birtcher patents are
amortized over a ten-year period corresponding to the average life remaining on
significant patents. Birtcher goodwill is amortized over a 40-year period while
Master Medical goodwill is amortized over a 15-year period.
5. Birtcher settled two legal actions related to the acquisition by the
Company for a total of $754 in 1995 prior to the acquisition date. This amount
has been adjusted from the historical Birtcher amounts in the Pro Forma
Consolidated Statement of Income for the nine months ended September 1995
because the amounts do not pertain to operating activities.
6. Additional interest expense of $795 and $329 for the year ended December
30, 1994 and for the nine months ended September 29, 1995, respectively, has
been added to the Pro Forma Consolidated Statements of Income to reflect the
additional borrowings outstanding due to the Master Medical Acquisition as if
the transaction had occurred as of the beginning of the periods presented.
7. No income tax provisions were provided by Birtcher or Master Medical as
Birtcher had operated at a loss while Master Medical formerly operated as a
subchapter S corporation and therefore did not record tax expense at the
corporate level. An adjustment has been made for the estimated tax effect of
Birtcher and Master Medical's historical results and pro forma adjustments.
8. The acquisition of Birtcher was effected by the issuance of
approximately 1,620,000 shares of the Company's common stock for all of the
outstanding shares of Birtcher common and preferred stock. Pro forma adjustments
to the weighted average number of shares and equivalents have been made as if
the transaction had occurred as of the beginning of the respective periods.
14
<PAGE>
NDM ACQUISITION
9. NDM manufactures and markets a therapeutic device for treatment of deep
vein thrombosis commonly referred to as a "foot pump". The Company is not
acquiring this small product line and has eliminated the amounts applicable as
follows:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Net sales............................................................................ $(344) $(460)
Cost of sales........................................................................ (731) (287)
Selling and administrative expense................................................... (410) (232)
Research and development expense..................................................... (232) (61)
</TABLE>
10. NDM manufactured a line of electrosurgical ground pads for Birtcher and
continues to manufacture these ground pads for the Company. Sales from NDM to
Birtcher and the Company amounted to $1,067 and $943 for the year ended December
30, 1994 and for the nine months ended September 29, 1995, respectively. These
amounts have been eliminated from Sales and Cost of sales in the Pro Forma
Consolidated Statements of Income.
11. NDM's revenue and expense classifications are presented using different
policies than those used by the Company. The increases (decreases) necessary to
reclassify such items in accordance with the Company's policies are as follows:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Net sales........................................................................ $(2,848) $(1,703)
Selling and administrative expense............................................... (3,838) (2,573)
Research and development expense................................................. 1,142 598
Other income (expense), net...................................................... 152 (272)
</TABLE>
12. The NDM Acquisition involves a medical products company with products
substantially similar to products currently manufactured and marketed by the
Company. Management of the Company has developed a plan to be implemented on the
day of the acquisition which will eliminate duplicate personnel and other
duplicate costs and therefore increase the efficiency of the combined operation.
Patents are amortized over a thirteen year period while goodwill is amortized
over a 40-year period. Assuming the purchase had occurred as of the beginning of
each period presented, the adjustments are as follows:
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Cost of sales.................................................................... $(2,156) $(1,618)
Selling and administrative expense............................................... (2,861) (2,542)
Research and development expense................................................. (491) (222)
</TABLE>
13. Historical interest expense for NDM of $475 and $424 for the year ended
December 30, 1994 and the nine months ended September 29, 1995, respectively,
have been eliminated as the related debt will not be assumed. Interest expense
of $2,625 and $1,968 for the year ended December 30, 1994 and the nine months
ended September 29, 1995, respectively, have been added to reflect a borrowing
of $35,000 under the Company's term loan and revolving credit facility as if the
borrowing had occurred as of the beginning of each period presented.
14. The Company plans to offer 2,800,000 common shares in a primary stock
offering to retire substantially all the debt of the Company incurred as a
result of acquisitions. Assuming the net proceeds to the Company amount to
$22.80 per share, the debt would be eliminated. Assuming the offering as of the
beginning of each period presented, interest expense of $4,685 and $3,823 for
the year ended December 30, 1994 and the nine months ended September 29, 1995,
respectively, has been eliminated. Additionally, interest income of $250 and
$188 has been added to the respective periods reflecting the accumulation of
cash through positive cash flow.
15. Entry to reflect the estimated tax effect of NDM's historical results
and the pro forma adjustments.
16. The Company will not acquire the debt of NDM or the assets and
liabilities associated with the foot pump product line. Adjustments to the
historical NDM balance sheet at September 29, 1995 to eliminate these items are
as follows:
15
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Current portion of long-term debt............................................... $(4,505)
Long-term debt (less current portion)........................................... (4,800)
Cash............................................................................ (22)
Accounts receivable, net........................................................ (197)
Inventories..................................................................... (1,089)
Other current assets............................................................ (39)
Property, plant and equipment................................................... (35)
Patents and other assets........................................................ (30)
Accounts payable................................................................ (60)
Accrued liabilities............................................................. (293)
</TABLE>
17. The NDM Acquisition will be effected by the payment of $32,000 subject
to adjustment based on the net book value of the assets and liabilities
acquired. The transaction will be accounted for as a purchase. The total
purchase price, historical book value and preliminary adjustments of book value,
assuming the acquisition occurred on September 29, 1995, are summarized as
follows:
<TABLE>
<CAPTION>
<S> <C>
Purchase price of net assets acquired.......................................... $ 32,000
Adjustments to determine goodwill:
Historical net book value of NDM............................................. (18,857)
Eliminate debt not acquired.................................................. (9,305)
Eliminate the net assets of the foot pump line............................... 1,059
Adjust inventory to fair market value........................................ 1,000
Adjust property, plant and equipment to fair market value.................... 1,000
Adjust patents to fair market value.......................................... 6,652
Increase liabilities for change in control costs and financial, legal,
accounting and similar expenses........................................... 3,700
Total adjustments.............................................................. (14,751)
Goodwill....................................................................... $ 17,249
</TABLE>
18. The purchase price will be financed through an advance under a bank
loan commitment for a term loan of $65,000. Additionally, the Company will
refinance its existing debt under this commitment. The entire term loan is
payable over five years at an interest rate of 1.25% over LIBOR. The Company has
also received a bank commitment for a $15,000 revolving line of credit with
similar interest amounts.
19. Through a primary offering of 2,800,000 shares of the Company's Common
Stock, the Company intends to receive proceeds of $67,200 less transaction costs
of $3,360. The net equity amount, assuming the transaction occurred on September
29, 1995, would be accounted for as an increase in Common Stock of $28 and an
increase in Paid in capital of $63,812. The cash proceeds would be used to
eliminate substantially all of the debt of the Company.
16
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The information below sets forth selected historical financial information
for the Company for each of the four years in the period ended December 30, 1994
and for the nine month periods ended September 30, 1994 and September 29, 1995.
Such information for the years ended December 25, 1992, December 31, 1993 and
December 30, 1994 and as of December 31, 1993 and December 30, 1994 have been
derived from and should be read in conjunction with the consolidated financial
statements of the Company, including the notes thereto, incorporated herein by
reference from the Company's Form 10-K and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" herein. Such information for
the year ended December 27, 1991 and as of December 27, 1991 and December 25,
1992 have been derived from the audited financial statements not incorporated by
reference or included herein. The selected historical financial information for
the nine month periods ended September 30, 1994 and September 29, 1995 are
unaudited but, in the opinion of management, reflect all adjustments (comprising
only normal recurring accruals) necessary for a fair presentation of the
consolidated operating results and financial position for such interim periods.
Results for interim periods are not necessarily indicative of results for the
full year or for any other period. The Company has not declared any cash
dividends in the past five years.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 27, DECEMBER 25, DECEMBER 31, DECEMBER 30, SEPTEMBER 30,
1991 1992 1993 1994 1994
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (1)
Net sales.................................... $ 38,458 $ 42,602 $ 53,641 $ 71,064 $52,649
Cost of sales................................ 20,449 22,549 30,218 38,799 28,902
Selling and administrative expense........... 10,633 12,556 17,402 20,979 15,775
Litigation and product restructure........... -- -- 5,700(2) -- --
Research and development expense............. 1,275 1,695 2,222 2,352 1,693
Income (loss) from operations................ 6,101 5,802 (1,901) 8,934 6,279
Interest income (expense), net............... (123) 290 (214) (628) (484)
Income (loss) before income taxes............ 5,978 6,092 (2,115) 8,306 5,795
Provision (benefit) for income taxes......... 2,033 1,986 (719) 2,890 2,028
Net income (loss)............................ $ 3,945 $ 4,106 $ (1,396) $ 5,416 $ 3,767
Earnings (loss) per common and common
equivalent share........................... $ .46 $ .42 $ (.15) $ .56 $ .40
Weighted average number of common shares and
equivalents outstanding.................... 8,526 9,702 9,426 9,624 9,500
<CAPTION>
SEPTEMBER 29,
1995
<S> <C>
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (1)
Net sales.................................... $ 71,886
Cost of sales................................ 37,960
Selling and administrative expense........... 18,703
Litigation and product restructure........... --
Research and development expense............. 2,115
Income (loss) from operations................ 13,108
Interest income (expense), net............... (1,436)
Income (loss) before income taxes............ 11,672
Provision (benefit) for income taxes......... 4,125
Net income (loss)............................ $ 7,547
Earnings (loss) per common and common
equivalent share........................... $ .66
Weighted average number of common shares and
equivalents outstanding.................... 11,396
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 25, DECEMBER 31, DECEMBER 30,
1991 1992 1993 1994
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (1):
Working capital............................ $ 22,094 $ 23,827 $ 15,399 $ 18,159
Total assets............................... 38,338 41,939 57,338 62,104
Long-term debt (less current portion)...... 107 30 9,375 6,875
Total shareholders' equity................. 33,951 38,669 37,490 43,061
<CAPTION>
SEPTEMBER 29,
1995
<S> <C>
BALANCE SHEET DATA (1):
Working capital............................ $ 32,231
Total assets............................... 118,146
Long-term debt (less current portion)...... 27,840
Total shareholders' equity................. 71,224
</TABLE>
(1) Includes the results of (i) CONMED Andover Medical, the subsidiary formed as
a result of the Andover Acquisition, from July 12, 1993; (ii) Birtcher from
March 14, 1995; and (iii) Master Medical from May 22, 1995, in each such
case from the date of acquisition.
(2) Includes litigation charge of $5,000 relating to a patent infringement case
involving the Company's line of coated electrosurgical accessory blades and
a product restructure charge of $675 for the write-off of obsolete
inventory.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Selected
Historical Financial Information, which is included elsewhere in this
Prospectus.
GENERAL
The Company is a leading provider of advanced electrosurgical systems and
ECG electrodes and accessories. The Company's net sales have approximately
doubled from 1993 to 1995 primarily as a result of the Company's acquisitions of
businesses and product lines. The Company intends to continue to evaluate
acquisition opportunities that could increase market share and/or add new
products in related medical device fields.
In August 1989, the Company purchased Aspen Laboratories, Inc., a
manufacturer and distributor of electrosurgical generators and related
electrosurgical products, from Zimmer, a subsidiary of Bristol-Myers Company for
approximately $6.0 million plus a warrant to purchase 698,470 shares of Common
Stock. In February 1991, the Company acquired the Concept electrosurgical
disposables business (including the Techswitch brand) of Linvatec Corporation, a
subsidiary of Bristol-Myers Squibb Company, for approximately $4.0 million.
Through these acquisitions the Company acquired many of the lines of
electrosurgical generators and disposable products it now sells.
In July 1993, the Company acquired the business and certain assets of
Medtronic Andover Medical, Inc., a manufacturer of ECG monitoring and diagnostic
electrodes and ECG cables and lead wires, for a cash purchase price of
approximately $21.8 million plus the assumption of approximately $1.2 million of
liabilities. In November 1994, the Company purchased the assets associated with
a product line involving the manufacture and sale of disposable ECG electrodes
from Becton Dickinson Vascular Access, Inc. for approximately $2.0 million.
These acquisitions expanded the ECG product offerings of the Company and have
given the Company the additional market share necessary to become a leading
supplier of ECG disposables to the domestic ECG disposables industry.
In March 1995, the Company acquired Birtcher for approximately 1.6 million
shares of Common Stock in a transaction valued at approximately $27.1 million.
With the Birtcher Acquisition, the Company added the argon beam coagulation
technology to its existing lines of electrosurgical products and strengthened
the Company's position as a leading supplier of electrosurgical systems to the
medical industry.
In May 1995, the Company acquired the business and certain assets and
liabilities of Master Medical for a cash purchase price of approximately $9.5
million plus the assumption of net liabilities totalling approximately $0.5
million. The Master Medical Acquisition added a line of single-use IV fluid drip
rate gravity controllers to the Company's product line.
In October 1995, the Company signed an asset purchase agreement whereby the
Company will acquire substantially all the business and certain assets of NDM
for a cash purchase price of approximately $32.0 million plus the assumption of
net liabilities of approximately $5.1 million. Through the NDM Acquisition,
which is expected to close in the first quarter of 1996 and which is subject to
the approval of the shareholders of NDM, the Company will acquire the business
of NDM relating to the design, manufacture and marketing of a broad line of ECG
electrode products, disposable electrosurgical products and a broad line of
various Hydrogel wound care products.
From time to time, the Company explores acquisition opportunities and
conducts discussions and negotiations regarding acquisition proposals. There are
no current acquisition proposals pending and there can be no assurance that any
future acquisitions will result from discussions and negotiations.
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RESULTS OF OPERATIONS
The following table presents, as a percent of net sales, certain categories
included in the Company's consolidated statements of income for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 25, DECEMBER 31, DECEMBER 30, SEPTEMBER 30, SEPTEMBER 29,
1992 1993 1994 1994 1995
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expense:
Cost of sales.................................... 52.9 56.3 54.6 54.9 52.8
Selling and administrative expense............... 29.5 32.4 29.5 30.0 26.0
Litigation and product restructure............... -- 10.6 -- -- --
Research and development expense................. 4.0 4.2 3.3 3.2 3.0
Income (loss) from operations...................... 13.6 (3.5) 12.6 11.9 18.2
Interest income (expense), net..................... 0.7 (0.4) (0.9) (0.9) (2.0)
Income (loss) before income taxes.................. 14.3 (3.9) 11.7 11.0 16.2
Net income (loss).................................. 9.6 (2.6) 7.6 7.2 10.5
</TABLE>
NINE MONTHS ENDED SEPTEMBER 29, 1995 AND SEPTEMBER 30, 1994
The Company had net sales of $71,886,000 for the nine months ended
September 29, 1995 compared to $52,649,000 for the nine months ended September
30, 1994, an increase of 36.5%. The increase was substantially a result of the
effects of the Birtcher and Master Medical Acquisitions.
The Company's gross margin was 47.2% for the nine months ended September
29, 1995 compared to 45.1% for the nine months ended September 30, 1994. The
increase in gross margin was primarily a result of economies of scale due to the
Birtcher and Master Medical Acquisitions.
Selling and administrative expense increased during the first nine months
of 1995 when compared with the first nine months of 1994 due primarily to the
effects of the Birtcher and Master Medical Acquisitions. However, as percentage
of net sales, selling and administrative expense declined to 26.0% from 30.0% in
the prior comparable period due to economies of scale resulting from
acquisitions of Birtcher and Master Medical.
The Company incurred $1,436,000 in interest expense in the first nine
months of 1995 compared to $484,000 in 1994. This change was primarily a result
of the effects of the debt incurred as a result of the Birtcher and Master
Medical Acquisitions.
The estimated effective income tax rates were approximately 35.3% in the
first nine months of 1995 and 35.0% in the first nine months of 1994.
YEARS ENDED DECEMBER 30, 1994 AND DECEMBER 31, 1993
Net sales in 1994 increased to $71,064,000 compared to $53,641,000 in 1993,
an increase of 32.5%. Approximately 75% of the total increase was a function of
the Andover Acquisition which occurred on July 12, 1993. Net sales of CONMED
Andover Medical's products are included with the Company's consolidated sales
for all of 1994 but since July 12, 1993 (the acquisition date). The remainder of
the increase was a result of increased volumes of product sold.
The gross margin percentage increased to 45.4% in 1994 compared to 43.7% in
1993. This increase in gross margin is a result of increasing economies of scale
and manufacturing efficiencies. During 1994, the Company consolidated its ECG
wire and plastic molding operations in one location which reduced manufacturing
expense as a percentage of net sales.
Selling and administrative expense increased 20.6% to $20,979,000 from
$17,402,000 as a result of increased sales activity. However, as a percentage of
net sales, selling and administrative expense declined to 29.5% in 1994 compared
to 32.4% in 1993. This improvement in selling and administrative expense as
compared to net sales was a result of economies of scale resulting from the
increased level of net sales and cost improvement programs including
consolidation of customer service and re-alignment of sales territories after
the Andover Acquisition.
As described below, during 1993, the Company recorded a pre-tax charge of
$5,700,000 for litigation and product restructure costs. No such costs were
incurred in 1994.
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Research and development expense increased 5.9% in 1994 compared to 1993.
The Company continues to conduct research activities in all of its product
lines, with a particular emphasis on surgical products for MIS procedures.
Net interest expense increased to $628,000 in 1994 from $214,000 in 1993.
The increase was primarily a result of the Andover Acquisition indebtedness
being outstanding for an entire year in 1994 and only approximately one-half
year in 1993. Further, 1993 had higher interest income amounts than 1994 as the
Company had higher invested cash balances in the first half of 1993 prior to the
Andover Acquisition.
The Company's effective tax rate in 1994 was 34.8% reflecting the federal
statutory rate of 34%, the effect of state income taxes and the benefit of a
foreign sales corporation.
YEARS ENDED DECEMBER 30, 1993 AND DECEMBER 25, 1992
The Company's net sales increased $11,039,000 (25.9%) in 1993 compared to
1992. The increase was substantially a result of including CONMED Andover
Medical's sales since its acquisition in the consolidated totals. Sales of core
products generally exhibited little growth in 1993 compared to 1992. Management
believes that sales in 1993 of core electrosurgical and patient care products
were affected by the uncertainties of future health care provider financing
caused by the national attention on health care reform.
The gross margin on net sales was 43.7% in 1993 compared to 47.1% in 1992.
This decline was caused primarily by CONMED Andover Medical products whose gross
margins were lower than traditional gross margins. Additionally, the gross
margin was affected by certain production inefficiencies from the start-up of
new laparoscopic product production.
Selling and administrative expense increased $4,846,000 primarily due to
including CONMED Andover Medical's selling and administrative expenses since its
acquisition. Further, the Company expanded its sales force and increased
marketing activities in early 1993 with respect to certain new laparoscopic
surgery products. It became apparent to management during 1993 that additional
enhancements to these products were required. Without the anticipated revenue of
these new products, management took action to reduce the related selling and
marketing costs. As a percentage of net sales, selling and administration
expense was 34.8% of net sales for the first six months of 1993 and 30.9% of net
sales for the second six months of 1993.
The Company's results of operations for 1993 were significantly impacted by
the outcome of a patent infringement litigation concerning certain specialty
coated electrosurgical accessory blades sold by the Company. During the fourth
quarter of 1993, the Company recorded a $5,000,000 charge relating to this
infringement, which included $2,100,000 of court awarded damages, legal fees and
write-down of related inventory. The $2,100,000 damage award was paid in the
second quarter of 1995 after the award was affirmed. Additionally, during the
fourth quarter of 1993, management determined that certain inventories of
electrosurgical pencils and laparoscopic surgery products were rendered obsolete
by product enhancements. The value of these inventories was approximately
$675,000 and was written off as a product restructure expense.
Research and development expense increased $527,000 primarily as a result
of the Andover Acquisition.
The Company had net interest expense of $214,000 in 1993 compared to net
interest income in 1992 of $290,000 due to the effects of funding the Andover
Acquisition. Cash paid for the Andover Acquisition was $21,800,000, of which
$8,300,000 was from the Company's own funds and $13,500,000 was from bank
borrowings.
The Company has recorded a net income tax benefit of $719,000 as a result
of the 1993 pre-tax loss compared to income tax expense in 1992 of $1,986,000.
LIQUIDITY AND CAPITAL RESOURCES
In 1995, cash flow from operations was used primarily to fund accounts
receivable and inventories related to the integration of the Birtcher and Master
Medical Acquisitions into the Company's operations. Cash used by operations was
$223,000 for the first nine months of 1995 while cash provided by operations was
$5,781,000 for the first nine months of 1994. Operating cash flows for the first
nine months of 1995 were aided by higher net income compared to the same period
in 1994. Depreciation and amortization in 1995 were increased due to the effects
of the Birtcher and Master Medical Acquisitions. Cash flows from operations for
the first nine months of 1995 were negatively impacted by increases in accounts
receivable, inventories and prepaid expenses and other assets. Payment of
accounts payable, the patent litigation award and other current liabilities also
reduced cash flow.
Cash flows from operations were $8,260,000 for 1994 compared to $5,673,000
for 1993. Operating cash flows in 1994 were impacted by higher net income as
well as increased depreciation expense and amortization caused by the Andover
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<PAGE>
Acquisition. Additionally, accruals for payroll and withholding increased
$1,327,000 causing a positive addition to operating cash flows for 1994.
Accounts receivable increases of $1,684,000 and inventory increases of $619,000
partially offset increases in cash flow from operations in 1994 and are due to
increased working capital requirements of the Company's expanded business.
Net cash used by investing activities was $13,305,000 in the first nine
months of 1995 compared to $1,334,000 in the first nine months of 1994. The
Master Medical Acquisition utilized $9,500,000 of cash. Additions to property,
plant and equipment for the first nine months of 1995 totaled $3,805,000.
Included in this amount was the purchase of land and a building for the
relocation of CONMED Andover Medical to Rome, New York for $1,200,000 for
manufacturing purposes.
The Company purchased $2,190,000 of new plant and equipment and the Company
invested $2,000,000 to purchase an ECG product line from Becton Dickinson
Vascular Access Inc. during 1994 resulting in a net use of cash for investing
activities. Financing activities resulted in a net use of cash as the Company
repaid $2,530,000 in long-term debt during 1994.
Cash flows provided by financing activities were $11,515,000 for the first
nine months of 1995. The Company refinanced its existing bank debt, as described
below, and received $26,590,000 in additional proceeds. Payments on debt and
other obligations included $2,871,000 on the Company's debt, $5,846,000 to
Birtcher's bank to liquidate debt assumed in the acquisition and $8,289,000 of
other Birtcher liabilities.
The Company's credit facility consists of a $30,000,000 secured term loan
and secured revolving line of credit of $10,000,000. As of September 29, 1995,
$28,500,000 was outstanding under the term loan and $5,340,000 on the revolving
line of credit. The existing term loan is payable over five years at an interest
rate of 1.625% over LIBOR. The revolving line of credit terminates on April 1,
1998 and carries an interest rate of 1.5% over LIBOR. In order to meet cash
requirements of the NDM Acquisition, the Company has obtained a commitment from
existing lenders to increase its aggregate credit facility to $80,000,000, which
is expected to consist of a $65,000,000 secured term loan and secured revolving
line of credit of $15,000,000.
Management believes that cash generated from operations, its current cash
resources and funds available under its banking agreement will provide
sufficient liquidity to ensure continued working capital for operations and
funding of capital expenditures through at least 1997 barring unforeseen
circumstances.
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BUSINESS
GENERAL
The Company is a leading provider of advanced electrosurgical systems and
ECG electrodes and accessories. The Company also manufactures and markets a line
of instruments for use in MIS procedures, as well as products used for IV
therapy. Ninety percent of the Company's revenues are derived from the sale of
single-use, disposable products. The Company's products are used in a variety of
clinical settings, such as operating rooms, physicians' offices and critical
care areas of hospitals. For the nine months ended September 29, 1995 and after
giving pro forma effect to the Birtcher, Master Medical and NDM Acquisitions,
net sales from the United States comprised 87% of total net sales and net sales
outside the United States comprised 13% of total net sales.
The Company is divided into three divisions: Electrosurgical Systems,
Patient Care and Minimally-Invasive Surgery. Each division has its own dedicated
salesforce. Through its Electrosurgical Systems Division, the Company develops,
manufactures and markets a comprehensive range of electrosurgical generators,
argon beam coagulation systems, electrosurgical ground pads and electrosurgical
pencils. The Company's Patient Care Division develops, manufactures and markets
a broad line of ECG electrodes (adult, infant, premie, stress test and
diaphoretic), ECG cables and lead wires, IV stabilization dressings and IV fluid
drip rate gravity controllers. The Company will enter the wound care market with
the NDM Acquisition. The Company's Minimally-Invasive Surgery Division develops,
manufactures and markets a line of MIS products, including an electronic trocar
system, suction irrigators, scissors and suction coagulators.
The Company has used strategic business acquisitions to increase its market
share in certain product lines, broaden its product offerings and realize
economies of scale. During the last three years, the Company has completed three
significant business acquisitions. In addition, in October 1995, the Company
entered into a definitive agreement to acquire substantially all the assets of
NDM through an acquisition that is scheduled to be completed in the first
quarter of 1996. These completed acquisitions, together with internal growth,
resulted in net sales growth of approximately 70% over the past two years.
INDUSTRY
The health care industry is undergoing significant and rapid change. Health
care delivery costs have increased dramatically in recent years as compared to
the overall rate of inflation. The growing influence of managed care has
resulted in increasing pressure on participants in the health care industry to
contain costs. Accordingly, health care providers have been purchasing medical
devices which improve productivity and contain costs.
Health care providers continue to utilize low-cost, disposable medical
devices, such as electrosurgical pencils and ground pads, ECG electrodes and
other patient care products. Disposable devices improve health care professional
productivity and, unlike reusable products, do not require costly,
labor-intensive sterilization or reassembling. The risks of transmission of
infectious diseases, such as AIDS, hepatitis and tuberculosis, and related
concerns about occupational safety of health care professionals have also
contributed to an increased demand for disposable, single-use products. In
addition, the combination of medical cost containment pressures and
patient-driven demands have resulted in greater use of minimally-invasive
procedures as an alternative to traditional open surgery. MIS procedures reduce
patient hospitalization and therapy, thereby reducing the cost to patients and
health insurers.
According to the American Hospital Association and the American College of
Surgeons, in 1993 more than 23 million surgical procedures were performed in the
over 5,300 general hospitals in the United States, with another approximately
three million procedures being performed in the approximately 1,800 free
standing ambulatory surgery centers. The Company believes that a majority of
these operations involved electrosurgery. The American Hospital Association data
also show that of the hospitals in the United States, there are approximately
96,000 intensive care beds, including neonatal, pediatric, cardiac and
medical/surgical intensive care. The Company believes that a majority of these
beds are equipped for ECG monitoring. In addition, the Company believes that
demographic trends, such as the aging of the U.S. population, also have a
favorable effect on the demand for the Company's disposable medical products,
since older people generally require more medical care and undergo more surgical
procedures.
In response to increased competitive pressures in the health care industry,
manufacturers of medical devices have been improving efficiency and productivity
and consolidating. The Company believes that consolidations in the industry have
increased primarily as a result of health care cost containment pressures.
Consolidations can reduce costs from synergies in manufacturing, corporate
overhead and research and development. The Company regards these developments as
presenting
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opportunities for medical device companies seeking to increase sales in core
product lines and expand into new product lines through acquisitions.
STRATEGY
The following are the principal elements of the Company's growth strategy:
GROWTH IN EXISTING BUSINESS
The Company intends to expand its core business primarily through increased
sales to its existing customers and sales of its products with new customers.
The Company's core business should benefit from the expansion of the
electrosurgery and patient care markets. The Company believes that it can
continue to improve its core business by capitalizing on its marketing
organization, its competitive position and its reputation for quality products.
In addition, the Company intends to continue developing a broader international
customer base in Europe and in growth markets, such as the Far East. The Company
also intends to expand its sales into the growing MIS market through the new
sales force dedicated exclusively to serving the MIS marketplace.
INTRODUCTION OF NEW PRODUCTS
The Company has a significant commitment to research and development. The
Company intends to continue to introduce new products and product enhancements
of its existing products into the health care market by taking advantage of its
technical expertise. In early 1995, the Company introduced the UNIVERSAL S/I(tm)
(suction/irrigation) and UNIVERSAL-PLUS(tm) laparoscopic instruments,
EXCALIBUR(Register mark) PLUS generator and the Hand-Trol Elite(tm) pencil. At
the American College of Surgeons in October 1995, the Company introduced four
new products, including: (i) the EXCALIBUR(Register mark) PLUS/PC generator,
(ii) the SELECT ONE(Register mark) Monopolor Laparoscopic Scissors, (iii) a
disposable smoke evacuation pencil, and (iv) the BEAMER PLUS ABC(Register mark)
module.
ACQUISITIONS OF BUSINESSES AND PRODUCT LINES
The Company believes that it can continue to realize net sales and income
growth through synergistic acquisitions of businesses and product lines. The
Company intends to continue to evaluate acquisition opportunities that could
increase market share and/or add new products in related medical device fields.
With the Birtcher Acquisition, the Company acquired the proprietary argon beam
coagulation ("ABC") technology and the ABC(Register mark) product line.
Clinicians have reported the benefits of ABC in certain clinical situations,
such as open-heart surgery, where there is a need to quickly coagulate bleeding
tissue. With the NDM Acquisition, the Company will acquire the line of Hydrogel
wound care products, including ClearSite(Register mark), which is a completely
transparent wound dressing that allows monitoring of the wound in the course of
healing without removing the wound dressing.
VERTICAL INTEGRATION AND PRODUCT CONSOLIDATION
The Company intends to continue to improve operating margins by
consolidating its product lines, integrating its manufacturing facilities and
streamlining its processes. In 1995, the Company moved the manufacturing
facilities of its CONMED Andover Medical subsidiary to the newly purchased Rome,
New York facility located near the Company's Utica headquarters, resulting in
cost savings that are expected to approximate $1.2 million per year. The
Company's manufacturing capacity would permit further consolidations to reduce
overhead and increase operating efficiencies (such as increasing capacity
utilization). The Company also is further automating its facilities.
ELECTROSURGERY DIVISION
The Company's electrosurgical products consist of electrosurgical pencils,
electrosurgical ground pads and electrosurgical generators. The Company also
distributes a wide range of accessories used with electrosurgical generators
such as forceps, adapters and cables. Most accessories of other electrosurgical
companies are compatible with the Company's generators, including specialty
accessories used in urologic surgery. During 1993, 1994 and 1995, net sales
attributable to the Electrosurgery Division represented 43%, 54% and 54%,
respectively, of the Company's net sales.
ELECTROSURGERY
Electrosurgery is the technique of using a high-frequency electric current
which, when applied to tissue through special instruments, can be used to cut
tissue, coagulate, or cut and coagulate simultaneously. An electrosurgical
system consists of a generator, an active electrode in the form of a pencil or
other instrument which the surgeon uses to apply the current from the
23
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generator to the target tissue and a ground pad to safely return the current to
the generator. Electrosurgery is routinely used in most forms of surgery,
including dermatologic and thoracic, orthopedic, urologic, neurosurgical,
gynecological, laparoscopic and other endoscopic procedures.
ABC is a special method of electrosurgery, which allows a faster and more
complete coagulation of many tissues as compared to conventional electrosurgery.
Unlike conventional electrosurgery, the current travels in a beam of ionized
argon gas, allowing the current to be dispersed onto the bleeding tissue without
the instrument touching the tissue. Clinicians have reported notable benefits of
ABC in certain clinical situations including open-heart surgery, liver, spleen
and trauma surgery and various other applications.
ELECTROSURGERY PRODUCTS
ELECTROSURGICAL PENCILS. The Company manufactures and markets
electrosurgical pencils, which are used by surgeons to introduce the
electrosurgical current to the target tissue. The pencils can be either
foot-controlled or hand-controlled; the majority of pencils sold by the Company
are hand-controlled. The Company manufactures primarily disposable
electrosurgical pencils, but also offers reusable pencils. In addition, the
Company sells a line of disposable blades used with electrosurgical pencils for
specific surgical applications, including cutting, coagulating and the resection
of diseased tissue.
ELECTROSURGICAL GROUND PADS. The Company manufactures and markets
disposable ground pads in adult, pediatric and infant sizes as well as a ground
pad specifically designed for prematurely born or low birth-weight infants
(premies), the PREMIE Ground Pad. The Company believes that its PREMIE Ground
Pad is the only disposable ground pad specifically made and marketed for these
special patients. The Company also manufactures and markets ground pads
specifically designed for use with its Aspen Return Monitor alarm system
(A.R.M.), as well as alarm systems of competitive generators. Most of the
Company's ground pads are made with its proprietary conductive adhesive polymer.
ELECTROSURGICAL GENERATORS. The Company offers both conventional
electrosurgical generators and the ABC(Register mark), which combines
conventional electrosurgical cutting and coagulation capabilities with the
Company's patented argon gas electrocoagulation technology. Most models include
a safety alarm, the A.R.M., which monitors the contact of the ground pad to the
patient's skin surface. Should the ground pad lose contact with the patient's
skin, or a rise in electrical resistance occur, the monitor will disable the
electrosurgical current until the problem is identified and corrected. Systems
such as this provide an increased level of safety to the patient.
The Company's line of conventional electrosurgical generators features the
EXCALIBUR(Register mark) PLUS, which incorporates the A.R.M. and offers
full-function capabilities for both monopolar and bipolar applications,
including general surgery as well as thoracic, urologic, laparoscopic and
neurosurgical procedures. In addition to the EXCALIBUR(Register mark) PLUS, the
conventional generators marketed by the Company include the SABRE(Register mark)
2400, a full-feature generator suitable for routine use in most surgical
procedures, and the SABRE(Register mark) 180, a low-power generator for surgical
procedures in a physician's office or clinic setting.
Hyfrecator Plus(Register mark) is a low-power electrosurgical generator
specifically designed for the physician's office based procedures, including
dermatology, plastic surgery, dental and oral surgery and otolaryngology. The
Hyfrecator Plus(Register mark) is the latest model of Hyfrecator(Register mark)
generator that has been marketed to physicians for over 50 years, and was
acquired in the Birtcher Acquisition. The Company markets a line of accessories
for the Hyfrecator Plus(Register mark).
ARGON BEAM COAGULATION SYSTEM. The Company's ABC(Register mark) products
include specialized electrosurgical generators, specialized disposable
handpieces and ground pads. The Company's proprietary ABC(Register mark) devices
provide non-contact argon gas electrocoagulation and conventional
electrosurgical cutting and coagulation capabilities. The models 6000 and 6400
ABC(Register mark) generators offer automatic gas-flow control as the power
settings are increased or decreased, and a full-function electrosurgical
generator with integrated argon beam coagulation capability. The Company's
Beamer ABC(Register mark) module is a gas cart which is used in conjunction with
an existing electrosurgical generator and is a lower cost alternative to the
fully featured ABC(Register mark) system. The Beamer ABC(Register mark) units
work in conjunction with the hospital's present electrosurgery unit.
PATIENT CARE DIVISION
The Company's patient care products consist of ECG monitoring electrodes,
intravenous flow controllers and catheter stabilization dressings, wound care
products and other miscellaneous products. During 1993, 1994 and 1995, net sales
attributable to the Patient Care Division represented 55%, 44% and 43%,
respectively, of the Company's net sales.
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ECG MONITORING
ECGS. An ECG is a representation of the electrical activity that stimulates
the contraction of the heart muscle. This electrical activity can be detected by
disposable electrodes which consist of a conductive element, a conductive gel
for contact to the skin and an adhesive backing material that keeps the
electrode adhered to the patient's skin for the required period of ECG
monitoring. ECG monitoring is used to diagnose irregularities in heart function.
Disposable ECG electrodes are placed on the patient's skin in various
patterns around the heart using 3, 5 or 10 electrodes per patient, depending
upon the specific type of monitoring technique. The electrodes provide a direct
contact to the skin surface by which the electrical activity of the heart can be
sensed and relayed to a special ECG monitor by way of its lead wire and cable
connections. ECG electrodes are used in the operating room and critical care
areas of hospitals and for diagnostic tests, including exercise stress testing
and ambulatory monitoring. Many ambulances and paramedic units have the
capability to monitor the ECG in emergency situations outside of the hospital.
ECG MONITORING PRODUCTS. The Company has developed and markets ECG
electrodes for various patients and applications, including prematurely born
infants, diaphoretic patients, stress test monitoring, ambulatory monitoring,
and special ECG electrodes for use in surgery. The strength of the product line
lies in specific design features that provide those characteristics required to
accurately detect the electrical signal and to remain in contact with the
patient's skin for extended periods of time. Several special monitoring
situations require electrodes that will not show a visible image under x-ray.
This will allow the patient to undergo special diagnostic or therapeutic
procedures with the use of x-ray and still have continuous monitoring of the
ECG. The Company has developed special electrodes for this purpose.
The Company also manufactures and markets ECG monitoring cables, reusable
and disposable lead wire products and accessories. ECG cables and lead wires are
reusable products designed to transmit ECG signals from the heart (converted
into electrical signals by an electrode) to an ECG monitor or recorder. Lead
wires connected directly to the electrodes are plugged into the patient end of
the cable. Cables are designed to accept from three to fifteen lead wires
depending on the level of monitoring required.
INTRAVENOUS THERAPY
IVS. A large percentage of patients admitted to hospitals will undergo some
type of IV therapy where medical fluids or blood are introduced into the
patient's bloodstream. As part of the nursing care to the patient, the catheter
or needle must be stabilized onto the skin to prevent movement of the catheter,
as well as be covered with a dressing to keep the entry site free from bacterial
contamination. The volume and speed of fluids administered to the patient in
surgery or medical units must be controlled for proper infusion of the fluids.
Typically, the flow of these intravenous fluids is controlled either by an
electronic pump or gravity controller or by a manually operated clamping
mechanism.
INTRAVENOUS THERAPY PRODUCTS -- VENI-GARD(REGISTER MARK) CATHETER
STABILIZATION DRESSING. VENI-GARD(Register mark) is a disposable, sterile
product designed to hold and secure an IV needle or catheter in place.
VENI-GARD(Register mark) provides a protective, sterile barrier over the entry
site by incorporating a transparent, semi-permeable membrane to allow an
unobstructed view of the entry site with a patented foam border to provide
stabilization of the catheter. This membrane also allows the evaporation of
moisture vapor but is impermeable to outside fluids. The
VENI-GARD(Register mark) product line also includes specialized products for
various applications in specialty segments of the IV therapy market including
those used in conjunction with Total Parenteral Nutrition (intravenous feeding)
and cardiovascular catheters.
-- DISPOSABLE IV FLUID DRIP RATE GRAVITY CONTROLLERS. With the Master
Medical Acquisition, the Company acquired Master Medical's line of disposable IV
fluid drip rate gravity controllers. These disposable devices are a
cost-effective alternative to electronic controllers or pumps. These devices are
available as add-on extension sets which are attached to the primary IV tubing
or as part of the full tubing set connecting the main IV bag to the patient's IV
catheter.
WOUND CARE MANAGEMENT
WOUND CARE. Wounds to the skin are referred to as acute, such as surgical
incisions and burns, or chronic, which are slow-healing conditions such as
chronic venous ulcers, pressure ulcers, diabetic ulcers and wounds from various
skin diseases. Traditionally, most open wounds have been treated with "dry"
dressings such as gauze or covered with various ointments. A recent trend has
been the use of occlusive dressings made from polymers called hydrocolloids and
hydrogels. These occlusive dressings keep the wound "moist" or hydrated in order
to promote healing. Wound care dressings are sold to hospitals as well as to
alternate care sites such as nursing homes and skilled nursing facilities.
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WOUND CARE PRODUCTS. As part of the NDM Acquisition, the Company will
acquire NDM's wound care business unit. NDM has developed a proprietary hydrogel
technology, which is currently manufactured and marketed under the name
ClearSite(Register mark). It is a transparent wound dressing that consists of
hydrogel and a flexible, continuous polyurethane film covering. Because
ClearSite(Register mark) is transparent, the health care provider is able to
monitor the course of healing without removing the wound dressing.
ClearSite(Register mark) absorbs wound exudate and, as the gel begins to
saturate, moisture vapor transpires into the atmosphere.
ClearSite(Register mark) is able to absorb 2 1/2 times its weight in wound
exudate and maintain its structural integrity and wound healing capabilities for
up to seven days.
In 1994, NDM introduced its island dressing form of
ClearSite(Register mark). The island dressing has a clear, breathable, pliable,
adhesive polyurethane film border. The Company also markets a wound care product
called Hydrogauze(Register mark), which is a gauze-like material that has been
impregnated with dehydrated ClearSite(Register mark) that hydrates upon contact
with wound exudate. Hydrogauze(Register mark) combines the look and feel of
gauze bandages with the wound healing advantages of ClearSite(Register mark)
hydrogel.
MINIMALLY-INVASIVE SURGERY DIVISION
Building on its expertise in electrosurgery, in 1991 the Company began
marketing its line of MIS products, consisting of electronic trocars and
multifunctional instruments. In 1993, 1994 and 1995, net sales attributable to
the Minimally-Invasive Surgery Division represented 2%, 2% and 3%, respectively,
of the Company's net sales.
MINIMALLY-INVASIVE SURGERY
MIS, or surgery performed without a major incision, results in less trauma
for the patient and produces important cost savings as a result of reduced
hospitalization and therapy. Laparoscopic surgery is an MIS procedure performed
on organs in the abdominal cavity such as the gallbladder, appendix and female
reproductive organs. During a laparoscopic procedure, devices called "trocars"
are used to puncture the abdominal wall and then removed, leaving in place a
trocar cannula. The trocar cannula provides access into the abdomen for the
camera systems and surgical instruments. The recent trend toward minimally
invasive surgery has led to the development of additional applications for
laparoscopic surgery that can utilize electrosurgery systems.
ELECTROSURGICAL PRODUCTS FOR LAPAROSCOPIC SURGERY
TroGARD(Register mark), a proprietary electronically controlled trocar
system for laparoscopic surgery, incorporates a blunt-tipped version of a trocar
(ordinarily a sharp pointed surgical instrument that punctures the abdominal
wall) and an Electronic Trocar Monitor ("ETM") for making the puncture through
the body wall. The TroGARD(Register mark) cuts through the body wall with
electrosurgical current rather than the sharp, pointed tips of conventional
trocars. The ETM automatically and immediately deactivates the electrosurgical
generator when the monitor senses that the trocar has entered the abdominal
cavity. Simultaneously, it sounds an audible alarm for the surgeon upon entry
into the abdominal cavity.
The Company also markets the UNIVERSAL S/I(tm) (suction/irrigation) and
UNIVERSAL-PLUS(tm) laparoscopic instruments, specialized suction/irrigation
electrosurgical instrument systems for use in laparoscopic surgery, which
consist of a disposable handle and valve/control assembly with a system of
interchangeable, single-use, disposable cannulae and instrument tips. The
UNIVERSAL-PLUS(tm) offers the surgeon a choice of hand-control or foot-control
of electrosurgery with suction/irrigation controls conveniently located on the
handle of the instrument. The UNIVERSAL S/I(tm) laparoscopic instrument system
provides high flow suction/irrigation, without electrosurgical capability, to
fit the preferences of a wide range of surgeons and laparoscopic techniques. The
Company also markets electrosurgical pencils, suction/irrigation accessories,
laparoscopic scissors, insufflation needles and ABC(Register mark) handpieces
for use in laparoscopic surgery.
MARKETING
The principal markets for the Company's products are the approximately
5,300 general hospitals and approximately 1,800 surgery centers in the United
States. Certain of the Company's products are sold to others in the medical
industry for private labeling. The total domestic sales and marketing force
consists of approximately 100 persons. The Company's salespeople have been with
the Company an average of five years.
The Company has located its salespeople (territory managers) in key
metropolitan areas. They are supervised and supported by district managers and
regional managers. Home office sales and marketing management provide the
overall direction for the sales of the Company's products. The sales force is
required to work closely with distributors where applicable and to maintain
close relationships with end-users. Domestically, the Company's products are
sold through approximately 20 national and regional hospital distributors, 150
to 250 local distributors, as well as directly to hospitals.
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The Company's domestic salesforce is structured into three groups,
Electrosurgical Systems, Patient Care and MIS. The Electrosurgical Systems
salesforce is responsible for selling the Company's electrosurgical products
which are typically used during surgical procedures. The Patient Care salesforce
is responsible for selling the Company's products which are typically used by
various patient care areas of a hospital. The primary patient care products are
ECG electrodes and the IV therapy products. The MIS salesforce is responsible
for selling the Company's laparoscopic products.
The Company's international sales efforts are conducted by five
international marketing managers. International sales accounted for 13.6% of the
Company's sales during 1994. Among the top foreign markets for the Company are
Japan, Germany, Canada, China and Korea. International sales grew in 1994 in all
regions and sales growth continued in 1995, with the strongest sales gains in
China and the Far East.
The Company focuses on keeping its salespeople highly trained and educated
in the applications for its products. The Company's salespeople call on key
departments such as the surgery, intensive care, cardiac care and neonatal
intensive care units and the emergency room. Therefore, it is essential that the
sales force has the ability to train doctors and nursing staff on the techniques
needed to take full advantage of the Company's products. A key element in the
sale of any Company product is the initial and ongoing inservice training
required of the end-user. The hiring criteria of the Company's salespeople
include requiring them to have a background in the sale of medical devices. The
field sales force is trained in the technical aspects of the Company's products
and their uses, and provides hospital personnel and surgeons with information
relating to the technical features and benefits of the Company's products.
RESEARCH AND DEVELOPMENT ACTIVITIES
The Company's research and development department consists of 34 employees.
The Company's research and development programs are focused on the development
of new products, as well as the enhancement of existing products through the
updating of technology and design. Product development efforts include product
extensions and improvements, electrosurgical applications in MIS procedures and
other single use medical products. During the three years 1992, 1993 and 1994,
the Company spent approximately $1,695,000, $2,222,000 and $2,352,000
respectively, for research and development. The Company's expenditures for
research and development in 1995 have increased over 1994, with expenses of
$2,115,000 for the nine month period ended September 29, 1995, because of the
research efforts for MIS and in other product areas.
The Company has 85 U.S. patents and numerous corresponding foreign patents
on its products expiring at various dates from 1996 through 2012 and has
additional patents pending. Due to technological change, the Company does not
solely rely on its patents, but believes that development of new products and
improvement of existing ones is and will be generally more important than patent
protection in maintaining its competitive position.
NEW PRODUCTS
At the American College of Surgeons meeting in October 1995, the Company
introduced four new products. The EXCALIBUR(Register mark) PLUS/PC (Power
Control) is the most recent generation of the Company's EXCALIBUR(Register mark)
generator and incorporates a unique feature not previously seen in
electrosurgical generators. The EXCALIBUR(Register mark) PLUS/PC has been
designed with a special software program that allows the surgeon to use any
standard handcontrolled pencil or instrument to directly increase or decrease
the power settings of the generator. The Company believes this is the first
technology of its kind applied to electrosurgery and has applied for patent
protection. The Company intends to begin marketing EXCALIBUR(Register mark)
PLUS/PC in the first quarter of 1996.
The Company has extended its line of electrosurgical instruments for
laparoscopic surgery with its SELECT ONE(Register mark) Monopolor Laparoscopic
Scissors. The laparoscopic scissors are single-use and disposable. The Company
released this product in early November 1995.
The third product introduced at the College of Surgeons meeting was the
disposable smoke evacuation pencil. This electrosurgical pencil has specially
designed channels to remove the smoke plume, generated by the cutting and
coagulation of tissue, from the surgical field. This feature addresses the
concerns of health care givers toward certain potential health hazards from
prolonged exposure to possible contaminants carried by the smoke plume generated
by the use of electrosurgery and lasers. The Company intends on beginning the
marketing of this product in the first quarter of 1996.
The BEAMER PLUS(tm) ABC(Register mark) module is an updated design of the
Company's current stand-alone ABC(Register mark) module, the
BEAMER(Register mark). The BEAMER PLUS(tm) adds increased flow capabilities and
flow control for use in laparoscopic surgery. The BEAMER PLUS(tm) is a more
economical unit for providing argon beam coagulation capability to most
electrosurgical generators. The Company anticipates marketing the BEAMER
PLUS(tm) in the first quarter of 1996.
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MANUFACTURING AND SUPPLY ARRANGEMENTS
The Company manufactures or assembles most of its products at its own
facilities. The Company operates in Utica and Rome, New York from owned
facilities aggregating approximately 250,000 square feet. Additionally, the
Aspen subsidiary operates from an owned facility of approximately 65,000 square
feet of space in Englewood, Colorado; the Birtcher subsidiary leases a 15,000
square foot warehouse and distribution center in El Paso, Texas pursuant to a
lease that expires in May 1997 and a 25,000 square foot manufacturing facility
in Juarez, Mexico pursuant to a lease that expires in June 1998; and the NDM
business is operated from an owned facility of approximately 100,000 square feet
in Dayton, Ohio. The Company believes its facilities are adequate in terms of
space and suitability for its needs over the next several years.
The Company's vertically integrated manufacturing process allows it to (i)
obtain cost efficiencies by purchasing raw materials for its disposable products
in bulk and converting those materials into the parts and pieces used in final
assembly and (ii) react quickly to changes in demand for the Company's products.
The Company believes that its manufacturing capabilities are significant in
terms of cost control, quality control and security of proprietary processes.
The Company uses various manual, semi-automated and automated equipment for
fabrication and assembly of its products and is continuing to further automate
its facilities to remain competitive.
The Company believes its production and inventory practices are generally
reflective of conditions in the industry. The Company's products are not
generally made to order or to individual customer specifications. Accordingly,
the Company schedules production and stocks inventory on the basis of experience
and its knowledge of customer order patterns, and its judgment as to anticipated
demand. Since customer orders must generally be filled promptly for immediate
shipment, backlog is not significant to an understanding of the Company's
business.
COMPETITION
The markets for the Company's surgical systems products and patient care
products are competitive, and many of the Company's competitors are
substantially larger and stronger financially than the Company. The major
competitors of the Company include ValleyLab (a division of Pfizer), 3M
Corporation, Johnson & Johnson and U.S. Surgical Corporation.
The Company believes that product design, development and improvement,
customer acceptance, marketing strategy, customer service and price are critical
elements to compete in the industry. Other medical procedures, such as those
involving laser technology and drugs, could at some point prove to be
interchangeable alternatives to the Company's electrosurgical products.
GOVERNMENT REGULATION
All the Company's products are classified as medical devices subject to
regulation by the FDA. The Company's new products require premarketing
notification to the FDA under a procedure known as 510(k). A 510(k) premarket
notification clearance indicates FDA agreement with an applicant's determination
that the product for which clearance has been sought is substantially equivalent
to another medical device that was on the market prior to 1976 or that has
received 510(k) premarketing notification clearance. Some products have been
continuously produced, marketed and sold since May 1976 and require no 510(k)
clearance. The Company's products are all either Class I or Class II products
with the FDA, meaning that the Company's products must meet certain FDA
standards and are subject to the 510(k) premarket notification clearance
discussed above, but are not required to be approved by the FDA.
The Company's European Community sales are subject to government
regulations known as the "CE" mark certification. The Company's electronic
devices (electrosurgical generators, Hyfrecators(Register mark) and
ABC(Register mark) units) have received a "CE" mark certification.
As a manufacturer of medical devices, the Company's manufacturing processes
and facilities are subject to periodic on-site inspections and continuing review
by the FDA to insure compliance with "Good Manufacturing Practices." Many of the
Company's products are subject to industry-set standards. Industry standards
relating to the Company's products are generally formulated by committees of the
Association for the Advancement of Medical Instrumentation. The Company believes
that its products presently meet applicable standards.
The Company is subject to product recall. During 1992, the Company
voluntarily recalled certain lots of its reusable electrosurgical pencils due to
a production matter which compromised the number of times the pencil could be
re-sterilized. The problem was rectified resulting in an immaterial cost to the
Company. In March 1993, the Company voluntarily recalled certain lots of its
TechSwitch electrosurgical pencils due to a production matter which caused a
small percentage of the
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pencils in the affected lots to function in an inconsistent manner. The
production matter was resolved and did not have a material effect on the
Company's financial condition.
EMPLOYEES
As of December 1, 1995 the Company had 868 full-time employees, of whom 631
were in manufacturing, 34 were in research and development, and the balance were
in sales, marketing, executive and administrative positions. None of the
Company's employees is represented by a union, and the Company considers its
employee relations to be excellent. The Company has never experienced any
strikes or work stoppages.
LEGAL PROCEEDINGS
From time to time the Company is a defendant in certain lawsuits alleging
product liability or other claims incurred in the ordinary course of business.
These claims are generally covered by various insurance policies, subject to
certain deductible amounts and maximum policy limits.
The Company's Birtcher subsidiary is voluntarily participating in an
environmental investigation at its former facility in El Monte, California. The
former facility is located in the El Monte Operable Unit of the San Gabriel
Valley Superfund Site. The Environmental Protection Agency has not named
Birtcher as a Potentially Responsible Party in this matter. In connection with
its accounting for the Birtcher Acquisition, the Company has established what it
believes is an appropriate reserve for this matter. Such reserve is the subject
of an adjustment in the purchase accounting for the Birtcher Acquisition. The
Company does not expect that the resolution of the environmental investigation
will have a material adverse effect on the Company's financial condition and
results of operations.
The Company's ABC(Register mark) technology is protected by patents in the
United States, Canada, United Kingdom, Germany and Japan. Three separate
companies have filed challenges to the validity of the United Kingdom, German
and Japanese patents. The Company is vigorously defending the validity of these
patents in those jurisdictions.
Manufacturers of medical products may face exposure to significant product
liability claims. To date, the Company has not experienced any material product
liability claims, but any such claims arising in the future could have a
material adverse effect on the Company's business or results of operations. The
Company currently maintains commercial product liability insurance of
$10,000,000 per incident and $10,000,000 in the aggregate annually, which the
Company, based on its experience, believes is adequate. This coverage is on a
claims-made basis. There can be no assurance that claims will not exceed
insurance coverage or that such insurance will be available in the future at a
reasonable cost to the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers of the Company and the members of the Company's
Board of Directors are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Eugene R. Corasanti 65 President and Chairman of the Board of Directors
William W. Abraham 64 Senior Vice President
Joseph B. Gross 37 Vice President-Operations
Jeffrey H. Palmer 52 Vice President-Sales
Robert D. Shallish, Jr. 47 Vice President-Finance and Assistant Secretary
Joseph J. Corasanti 32 Vice President-Legal Affairs, General Counsel and
Director
Frank R. Williams 47 Vice President-Technology Assessment
Thomas M. Acey 49 Secretary and Treasurer
Luke A. Pomilio 31 Controller
Harry Cone 75 Director
Robert E. Remmell 65 Director and Assistant Secretary
Bruce F. Daniels 61 Director
</TABLE>
EUGENE R. CORASANTI has served as Chairman, President and a Director of the
Company since its incorporation in 1970. Prior to that time he was an
independent public accountant. Mr. Corasanti holds a B.B.A. degree in Accounting
from Niagara University. Mr. Corasanti is also Chairman of the Board of
Directors of the Company. Eugene R. Corasanti's son, Joseph J. Corasanti, is a
Director and General Counsel of the Company.
WILLIAM W. ABRAHAM joined the Company in May 1977 as General Manager. He
has served as the Company's Vice President-Manufacturing and Engineering since
June 1983. In November of 1989 he was named Executive Vice President and on
March 24, 1993, he was named Senior Vice President of the Company. Mr. Abraham
holds a B.S. degree in Industrial Management from Utica College.
JOSEPH B. GROSS joined the Company as Manager of Manufacturing Engineering
in April 1988 and became Vice President-Operations in May 1992. Prior to his
employment with the Company, Mr. Gross was employed at Oneida Ltd. Silversmiths.
Mr. Gross holds a B.S. degree from the State University of New York-College of
Technology and a Master's degree in Business Administration from Rensselaer
Polytechnic Institute.
JEFFREY H. PALMER joined the Company as National Sales Manager in October
1988 and became Vice President-Sales in September 1989. Prior to his employment
with the Company, Mr. Palmer served as Director of Sales for the Medical
Products Division of AMSCO International for ten years. Mr. Palmer holds a B.A.
degree from Eastern Michigan University.
ROBERT D. SHALLISH, JR. joined the Company as Vice President-Finance in
December 1989 and has served as an Assistant Secretary since March 1995. Prior
to this he was employed as Controller of Genigraphics Corporation in Syracuse,
New York since 1984. He was employed by Price Waterhouse LLP as a certified
public accountant and senior manager from 1972 through 1984. Mr. Shallish
graduated with a B.A. degree in Economics from Hamilton College and holds a
Master's degree in Accounting from Syracuse University.
JOSEPH J. CORASANTI has served as Director and Vice President-Legal Affairs
of the Company since 1994 and as General Counsel of the Company since March
1993. Prior to that time he was an Associate Attorney with the law firm of
Morgan, Wenzel & McNicholas, Los Angeles, California from 1990 to March 1993 and
a law school student at Whittier College School of Law from 1986 to 1989. Mr.
Corasanti holds a B.A. degree in Political Science from Hobart College and a
J.D. degree from Whittier College School of Law. Joseph J. Corasanti is the son
of Eugene R. Corasanti, Chairman, President and Chief Executive Officer of the
Company.
FRANK R. WILLIAMS joined the Company in 1974 as Sales Manager and Director
of Marketing, became Vice President-Marketing and Sales in June 1983. In
September 1989 he became Vice President-Business Development and became Vice
President-Technology Assessment in November 1995. Mr. Williams graduated with a
B.A. degree from Hartwick College in 1970 as a biology major and did his
graduate study in Human Anatomy at the University of Rochester College of
Medicine.
THOMAS M. ACEY has been employed by the Company since August 1980 and has
served as the Company's Treasurer since August 1988 and as the Company's
Secretary since January 1993. Mr. Acey holds a B.S. degree in Public Accounting
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from Utica College and prior to joining the Company was employed by the
certified public accounting firm of Tartaglia & Benzo in Utica, New York.
LUKE A. POMILIO joined the Company as Controller in September 1995. Prior
to his employment with the Company, Mr. Pomilio served for two years as
Controller of Rome Cable Corporation, a wire and cable manufacturer. He was also
employed as a certified public accountant for seven years with Price Waterhouse
LLP where he served most recently as an audit manager. Mr. Pomilio graduated
with a B.S. degree in Accounting and Law from Clarkson University.
HARRY CONE has served as a Director of the Company since May 4, 1981. Mr.
Cone is a certified public accountant and was a partner in the firm of Sugarman
& Cone (and its predecessor), Utica, New York, from 1958 until 1986 when he
became semi-retired. Mr. Cone graduated with a B.B.A. degree in Accounting from
Syracuse University.
ROBERT E. REMMELL has served as a Director since June 9, 1983 and as
Assistant Secretary since June 1983. Mr. Remmell has been a partner since
January 1961 of Steates Remmell Steates & Dziekan, Utica, New York, the
Company's corporate counsel. The Company paid approximately $56,000 to Steates
Remmell Steates & Dziekan for services rendered during fiscal year 1995. Mr.
Remmell holds a B.A. degree from Utica College and a J.D. from Syracuse
University School of Law.
BRUCE F. DANIELS has served as a Director of the Company since August 25,
1992. Since 1993, Mr. Daniels has been the Controller of the Construction
Division of Chicago Pneumatic Tool Company, where he has been employed since
1974. From 1991 until 1993, he was the Controller of the International Division
of Chicago Pneumatic Tool Company and from 1981 until 1991, he was the
Controller of the Tool Division of Chicago Pneumatic Tool Company. Mr. Daniels
holds a B.S. degree in Business from Utica College.
THE SELLING SHAREHOLDER
Of the 2,950,000 shares of Common Stock offered hereby (excluding up to
442,500 shares that may be sold by the Company pursuant to the Underwriters'
over-allotment option), 150,000 shares are being sold by Eugene R. Corasanti,
the Company's President and Chairman of the Board of Directors (c/o the Company,
310 Broad Street, Utica, New York 13501). As of the date of this Prospectus,
Eugene R. Corasanti beneficially owned (or had the right to acquire through the
exercise of options exercisable within 60 days) 613,650 shares of Common Stock,
representing approximately 5.3% of the outstanding Common Stock. Upon completion
of this Offering, Eugene R. Corasanti will beneficially own (or have the right
to acquire through the exercise of options exercisable within 60 days) 463,650
shares of Common Stock, representing approximately 3.3% of the outstanding
Common Stock (after giving effect to the Offering).
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock currently consists of 20,000,000
shares of Common Stock, par value $0.01 per share, and 500,000 shares of
Preferred Stock, par value $0.01 per share.
COMMON STOCK
As of December 1, 1995, there were 11,095,786 shares of Common Stock issued
and outstanding held of record by 1,323 shareholders.
The Company is authorized by its Restated Certificate of Incorporation to
issue 20,000,000 shares of Common Stock. Subject to the preferences, limitations
and relative rights of holders of Preferred Stock described below, the holders
of Common Stock are entitled, among other things, (i) to share ratably in
dividends if, when, and as declared by the Board of Directors out of funds
legally available therefor, (ii) to one vote for each share held of record on
all matters at all meetings of shareholders, and (iii) in the event of
liquidation, dissolution or winding-up of the Company, to share ratably in the
distribution of assets remaining after payment of debts and expenses. Holders of
shares of Common Stock have no cumulative voting rights or preemptive rights to
subscribe for or purchase any additional shares of capital stock issued by the
Company. All issued and outstanding shares of the Common Stock are, and the
shares of Common Stock being issued and sold by the Company will be, validly
issued, fully paid and non-assessable by the Company. The Company's transfer
agent and registrar is Registrar and Transfer Company.
Under New York law, a corporation may declare and pay dividends or make
other distributions in cash or its bonds or its property on its outstanding
shares, except when currently the corporation is insolvent or would thereby be
made insolvent, or
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when the declaration, payment or distribution would be contrary to any
restriction contained in the certificate of incorporation. The Company's
Restated Certificate of Incorporation contains no such restriction. In general,
dividends may be declared or paid and other distributions may be made out of
surplus only, so that the net assets of the corporation remaining after such
declaration, payment or distribution shall at least equal the amount of its
stated capital.
The Board of Directors presently intends to retain future earnings to
finance the development of the Company's business and does not presently intend
to declare cash dividends. Should this policy change, the declaration of
dividends will be determined by the Board of Directors in the light of
conditions then existing, including the Company's financial requirements and
condition and provisions affecting the declaration and payment of dividends
contained in debt agreements. The Credit Agreement prohibits the Company's
payment of cash dividends and further subjects the Company to compliance with
various financial covenants.
PREFERRED STOCK
The Company is currently authorized to issue up to 500,000 shares of the
Preferred Stock, par value $.01 per share, none of which is issued and
outstanding, which may be issued in one or more series by the Board of Directors
without further action by shareholders. The Board of Directors is authorized to
fix as to any such series the dividend rate or rates, redemption prices,
preferences on liquidation, dissolution and winding-up, sinking fund terms (if
any), conversion or exchange rights (if any), voting rights and any other
preferences or special rights and qualifications. No shares of Preferred Stock
have been issued.
Depending upon the rights of such Preferred Stock, the issuance of
Preferred Stock could have an adverse effect on holders of Common Stock by
delaying or preventing a change in control of the Company, making removal of the
present management of the Company more difficult or resulting in restrictions
upon the payment of dividends and other distributions to the holders of Common
Stock.
COMMON STOCK WARRANT
On August 31, 1989, in connection with the acquisition of Aspen, the
Company issued to Zimmer a warrant covering shares of Common Stock (the "Zimmer
Warrant"). The Zimmer Warrant is currently exercisable in whole or in part for
698,470 shares of Common Stock at a price of $4.2951 per share. Certain
registration rights are afforded under the terms of the Zimmer Warrant. The
number of shares and the exercise price are subject to adjustment for stock
splits, dividends, distributions and combinations. A further adjustment of the
exercise price is provided in the event of the granting of rights or options
(other than with respect to the Company's 1983 Employee Stock Option Plan) or
the issuance or sale by the Company of shares at a price lower than the market
price (as defined) or the exercise price. Except under limited circumstances,
any unexercised portion of the Zimmer Warrant will expire on August 31, 2000.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
13,895,786 shares of Common Stock, an increase of 2,800,000 shares, or 25%, over
the shares outstanding prior to the offering. 1,098,195 shares of Common Stock
benefically owned by certain persons who may be deemed "affiliates" of the
Company for purposes of Rule 144 and Rule 145 under the Securities Act of 1933,
as amended (the "Securities Act"), are "restricted" shares not freely tradeable
without restriction or further registration under the Securities Act. Subject to
the agreement described under "Underwriting," all of these restricted shares are
eligible for sale in the open market in accordance with Rule 144 or Rule 145
under the Securities Act. See "The Selling Shareholders" and "Underwriting."
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned his or her shares for at
least two years, including persons who may be deemed "affiliates" of the Company
as the term "affiliate" is defined under the Securities Act, is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of the Common Stock (138,957
shares upon completion of the Offering) or (ii) the average weekly trading
volume in the Common Stock during the four calendar weeks preceding such sale.
Such sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and to the availability of current public information about
the Company. In addition, any person (or persons whose shares are aggregated)
who is not deemed an "affiliate" of the Company, and who has beneficially owned
his or her shares for at least three years, is entitled to sell such shares
under Rule 144 without regard to the volume limitations, manner of sale
provisions or notice requirements. Under Rule 145 as currently in effect, former
affiliates of Birtcher are free to publicly resell their shares in accordance
with the provisions of Rule 144, other than the two-year holding period
requirement.
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While no predictions can be made of the effect, if any, that open market
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time, sales of substantial amounts of the Common
Stock in the public market could adversely affect market prices and trading
activities in the Common Stock.
UNDERWRITING
Under the terms and subject to the conditions in the Underwriting
Agreement, dated the date hereof, each of the underwriters named below (the
"Underwriters") for whom Smith Barney Inc., Needham & Company, Inc. and UBS
Securities Inc. are acting as the Representatives (the "Representatives") has
severally agreed to purchase, and the Company and the Selling Shareholders have
agreed to sell to each Underwriter, shares of Common Stock which equal the
number of shares set forth opposite the name of such underwriter below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
<S> <C>
Smith Barney Inc....................................................................
Needham & Company, Inc..............................................................
UBS Securities Inc..................................................................
Total............................................................................. 2,950,000
</TABLE>
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page of this Prospectus and part to certain dealers at a price which represents
a concession not in excess of $ per share below the public offering price.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to the other Underwriters or to certain other dealers.
After the initial public offering, the public offering price and such
concessions may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 442,500
additional shares of Common Stock at the public offering price set forth on the
cover page of this Prospectus less underwriting discounts and commissions. The
Underwriters may exercise such option to purchase additional shares solely for
the purpose of covering over-allotments, if any, incurred in connection with the
sale of the shares of Common Stock offered hereby. To the extent such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares of Common Stock set forth opposite such
Underwriter's name in the preceding table bears to the total number of shares of
Common Stock in such table.
The Company, the Selling Shareholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The rules of the Commission generally prohibit the Underwriters from making
a market in the Common Stock during the two business days prior to commencement
of sales in this Offering (the "Cooling Off Period"). The Commission has,
however, adopted Rule 10b-6A ("Rule 10b-6A"), which provides an exemption from
such prohibition for certain passive market making transactions. Such passive
market making transactions must comply with applicable price and volume limits
and must be identified as passive market making transactions. In general,
pursuant to Rule 10b-6A, a passive market maker must display its bid for a
security at a price not in excess of the highest independent bid for the
security. If all independent bids are lowered below the passive market maker's
bid, however, such bid must then be lowered when certain purchase limits are
exceeded. Further, net purchases by a passive market maker on each day are
generally limited to a specified percentage of the passive market maker's
average daily trading volume in a security during a specified prior period and
must be discontinued when such limit is reached. Pursuant to the exemption
provided by Rule 10b-6A, certain of the Underwriters and selling group members
may engage in passive market making in the Common Stock during the Cooling Off
Period. Passive market making may stabilize the market price of the Common Stock
at a level above that which might otherwise prevail, and if commenced, may be
discontinued at any time.
The Company, the Selling Shareholders and certain of the Company's officers
and directors who beneficially own in the aggregate 1,210,095 shares of Common
Stock (approximately 10.9% of the outstanding Common Stock), have agreed that,
for a period of 120 days after the date of this Prospectus, they will not,
without the prior written consent of Smith Barney Inc., offer for sale, sell,
contract to sell or otherwise dispose (other than by gift to transferees who
agree to be subject to the same restrictions) of any Common Stock (or any
securities convertible into or exercisable or exchangeable for Common Stock) or
grant any options or warrants to purchase Common Stock, except that the Company
may issue stock options pursuant to its existing stock option plans and shares
pursuant to the exercise of the Zimmer Warrant, a registration statement
33
<PAGE>
on Form S-4 or S-8 or in private placement transactions exempt from the
registration requirements of the Securities Act so long as the transferee
thereof agrees to be subject to the same restrictions and one of the Company's
officers, who beneficially owns 33,750 shares of Common Stock, may sell up to
shares of Common Stock.
VALIDITY OF COMMON STOCK
The validity of the Common Stock offered hereby by the Company will be
passed on for the Company by Steates Remmell Steates & Dziekan, Utica, New York,
counsel of the Company, and by Sullivan & Cromwell, New York, New York, special
counsel to the Company, and for the Underwriters by Dewey Ballantine, New York,
New York. Robert E. Remmell, a partner of Steates Remmell Steates & Dziekan, is
an Assistant Secretary, a director and a shareholder of the Company.
EXPERTS
The consolidated financial statements of CONMED Corporation as of December
30, 1994 and December 31, 1993 and for each of the three years in the period
ended December 30, 1994, incorporated by reference in this Prospectus, have been
so included on the reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Birtcher Medical Systems, Inc. at
June 30, 1993 and 1994 and for each of the two years in the period ended June
30, 1994, incorporated by reference in this Prospectus, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report appearing
therein, and are included in reliance on such report given upon the authority of
such firm as experts in accounting and auditing.
The consolidated financial statements of The Master Medical Corporation at
December 31, 1993 and 1994 and for each of the two years in the period ended
December 31, 1994, incorporated by reference in this Prospectus, have been
audited by Mansperger Patterson & McMullin, CPA's, independent auditors, as set
forth in their report appearing therein, and are included in reliance on such
report given upon the authority of such firm as experts in giving said reports.
The consolidated financial statements of New Dimensions in Medicine, Inc.
as of December 31, 1994 and October 15, 1994 and for the ten-week period ended
December 31, 1994 and the consolidated financial statements of MEI Diversified
Inc. as of October 14, 1994 and December 31, 1993 and for the period ended
October 14, 1994 and for the two years in the period ended December 31, 1993,
incorporated by reference in this Prospectus, have been audited by Arthur
Andersen LLP, independent auditors, as set forth in their reports appearing
therein, and are included in reliance upon the authority of said firm as experts
in giving said reports.
Reference is made to said report on the consolidated financial statements
of New Dimensions in Medicine, Inc. which includes an explanatory paragraph
related to the ability of New Dimensions in Medicine, Inc. to continue as a
going concern. Although the consolidated financial statements of MEI
Diversified, Inc. incorporated in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, their report with respect thereto
contains a disclaimer of opinion. No reliance has therefore been placed on that
report as a basis for inclusion of those statements in this Prospectus.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices:
Seven World Trade Center, Suite 1300, New York, New York 10048; and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and copies
of such material can be obtained from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") of which this Prospectus forms a part, with
respect to the shares of Common Stock being offered hereby pursuant to the
Securities Act of 1933, as amended (the "Securities Act"). As permitted by the
rules and regulations of the Commission, this Prospectus omits certain
information, exhibits and undertakings contained in the Registration Statement.
Such additional information can be inspected at the principal office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of the
Registration Statement can be obtained from the Commission at prescribed rates
by writing to the Commission at such address.
34
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Prospectus the
following documents or information filed with the Commission:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 1994, as amended by the Company's Annual Report on Form 10-K/A
filed December 21, 1995 (the "Form 10-K");
(b) The Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, June 30 and September 29, 1995 (each, a "Form
10-Q" and, collectively, the "Form 10-Qs");
(c) the Company's Current Reports on Form 8-K filed March 29, 1995,
May 30, 1995, June 6, 1995, August 3, 1995, October 20, 1995 and December
21, 1995 (the "Form 8-Ks"); and
(d) all documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act on or after the date of this
Prospectus and prior to the termination of the offering made hereby.
Any statement contained herein or in any document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for the purpose of this Prospectus to the extent that a subsequent statement
contained herein or in any subsequently filed document which also is or is
deemed to be superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL
REQUEST OF ANY SUCH PERSON, A COPY OF ANY OR ALL OF THE INFORMATION INCORPORATED
HEREIN BY REFERENCE OTHER THAN EXHIBITS TO SUCH INFORMATION (UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH INFORMATION). THE
COMPANY'S PRINCIPAL EXECUTIVE OFFICES ARE LOCATED AT 310 BROAD STREET, UTICA,
NEW YORK 13501, AND ITS TELEPHONE NUMBER IS (315) 797-8375. REQUESTS FOR SUCH
COPIES SHOULD BE DIRECTED TO THE SECRETARY OF THE COMPANY AT ITS EXECUTIVE
OFFICES.
35
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES TO WHICH
IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary................................... 3
Risk Factors......................................... 6
Use of Proceeds...................................... 7
Dividend Policy...................................... 7
Price Range of Common Stock.......................... 8
Capitalization....................................... 9
Unaudited Pro Forma Consolidated Financial
Information........................................ 10
Selected Historical Financial Information............ 17
Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 18
Business............................................. 22
Management........................................... 30
The Selling Shareholder.............................. 31
Description of Capital Stock......................... 31
Shares Eligible for Future Sale...................... 32
Underwriting......................................... 33
Validity of Common Stock............................. 34
Experts.............................................. 34
Available Information................................ 34
Incorporation of Certain Documents by
Reference.......................................... 35
</TABLE>
2,950,000 Shares
(Conmed logo appears here)
Common Stock
PROSPECTUS
FEBRUARY , 1996
Smith Barney Inc.
Needham & Company, Inc.
UBS Securities Inc.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following are the estimated expenses of the issuance and distribution
of the securities being registered, all of which will be paid by the Registrant.
<TABLE>
<CAPTION>
SELLING
COMPANY SHAREHOLDER
<S> <C> <C>
SEC registration fee......................................................... $ 14,997 $ 694
NASD filing fee.............................................................. 7,921 424
Blue sky fees and expenses...................................................
Printing and engraving expenses..............................................
Legal fees and expenses......................................................
Accounting fees and expenses.................................................
Transfer agent fees and expenses.............................................
Nasdaq listing fee...........................................................
Miscellaneous................................................................
Total........................................................................ $ $
</TABLE>
* All amounts are estimated except for the SEC registration fee, NASD filing fee
and Nasdaq listing fee.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 722 of the New York Business Corporation Law (the "New York Law")
provides that a corporation may indemnify an officer or director, in the case of
third party actions, against judgments, fines, amounts paid in settlement and
reasonable expenses and, in the case of derivative actions, against amounts paid
in settlement and reasonable expenses, if the director or officer "acted, in
good faith, for a purpose which he reasonably believed to be in . . . the best
interests of the corporation" and, in the case of criminal actions, "had no
reasonable cause to believe that his conduct was unlawful." Statutory
indemnification may not be provided in derivative actions in respect of a
threatened action, or a pending action which is settled or otherwise disposed
of, or any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation, unless and only to the extent that the
court in which the action was brought, or, if no action was brought, any court
of competent jurisdiction, determines upon application that, in view of all of
the circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such portion of the settlement and expenses as the court deems
proper.
As contemplated by New York Law Section 721, the Company's Bylaws, as
amended on December 26, 1990, provide a broader basis for indemnification in
accordance with and as permitted by New York Law Article 7.
Section 6.6 of the Bylaws of the Company provides as follows:
Section 6.6 INDEMNIFICATION. The Corporation shall indemnify each
person made or threatened to be made a party to any action or proceeding,
whether civil or criminal, by reason of the fact that such person or such
person's testator or intestate is or was a director or officer of the
Corporation, or serves or served at the request of the Corporation, any
other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise in any capacity, against judgments, fines, penalties,
amounts paid in settlement and reasonable expenses, including attorneys'
fees, incurred in connection with such action or proceeding, or any appeal
therein, provided that no such indemnification shall be made if a judgment
or other final adjudication adverse to such person establishes that his or
her acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so
adjudicated, or that he or she personally gained in fact a financial profit
or other advantage to which he or she was not legally entitled, and
provided further that no such indemnification shall be required with
respect to any settlement or other nonadjudicated disposition of any
threatened or pending action or proceeding unless the Corporation has given
its prior consent to such settlement or other disposition.
The Corporation may advance or promptly reimburse upon request any
person entitled to indemnification hereunder for all expenses, including
attorneys' fees, reasonably incurred in defending any action or proceeding
in advance of the final disposition thereof upon receipt of an undertaking
by or on behalf of such person to repay such amount if such person is
ultimately found not to be entitled to indemnification or, where
indemnification is granted, to the extent the expenses so advanced or
reimbursed exceed the amount to which such person is entitled, provided,
however, that such
II-1
<PAGE>
person shall cooperate in good faith with any request by the Corporation
that common counsel be utilized by the parties to an action or proceeding
who are similarly situated unless to do so would be inappropriate due to
actual or potential differing interests between or among such parties.
Anything in these bylaws to the contrary notwithstanding, no
elimination of this bylaw, and no amendment of this bylaw adversely
affecting the right of any person to indemnification or advancement of
expenses hereunder, shall be effective until the 60th day following notice
to such person of such action, and no elimination of or amendment to this
bylaw shall deprive any person of his or her rights hereunder arising out
of alleged or actual occurrences, acts or failures to act prior to such
60th day.
The Corporation shall not, except by elimination or amendment of this
bylaw in a manner consistent with the preceding paragraph, take any
corporate action or enter into any agreement which prohibits, or otherwise
limits the rights of any person to, indemnification in accordance with the
provisions of this bylaw. The indemnification of any person provided by
this bylaw shall continue after such person has ceased to be a director,
officer or employee of the Corporation and shall inure to the benefit of
such person's heirs, executors, administrators and legal representatives.
The Corporation is authorized to enter into agreements with any of its
directors, officers or employees extending rights to indemnification and
advancement of expenses to such person to the fullest extent permitted by
applicable law as it currently exists, but the failure to enter into any
such agreement shall not affect or limit the rights of such person pursuant
to this bylaw, it being expressly recognized hereby that all directors,
officers and employees of the Corporation, by serving as such after the
adoption hereof, are acting in reliance hereon and that the Corporation is
estopped to contend otherwise.
In case any provision in this bylaw shall be determined at any time to
be unenforceable in any respect, the other provisions shall not in any way
be affected or impaired thereby, and the affected provision shall be given
the fullest possible enforcement in the circumstances, it being the
intention of the Corporation to afford indemnification and advancement of
expenses to its directors, officers and employees, acting in such
capacities or in the other capacities mentioned herein, to the fullest
extent permitted by law.
For purposes of this bylaw, the Corporation shall be deemed to have
requested a person to serve an employee benefit plan where the performance
by such person of his or her duties to the Corporation also imposes duties
on, or otherwise involves services by, such person to the plan or
participants or beneficiaries of the plan, and excise taxes assessed on a
person with respect to an employee benefit plan pursuant to applicable law
shall be considered indemnifiable expenses. For purposes of this bylaw, the
term "Corporation" shall include any legal successor to the Corporation,
including any corporation which acquires all or substantially all of the
assets of the Corporation in one or more transactions.
Reference is also made to Section 9 of the Underwriting Agreement filed as
Exhibit 1 to the Registration Statement for information concerning the
Underwriters' obligation to indemnify the Registrant and its officers and
directors in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
1* Form of Underwriting Agreement between the Company and the Selling Stockholder and the Underwriters
4.1 Bylaws of the Company (incorporated by reference to Exhibit A in the Company's Current Report on Form 8-K,
dated March 8, 1991 (File No. 0-16093)).
4.2 1992 Amendment to Certificate of Incorporation and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.2 in the Company's Annual Report on Form 10-K for the year ended
December 25, 1992).
4.4 Warrant to Purchase Common Stock, dated August 31, 1989, issued by the Company to Zimmer, Inc. covering
shares of Common Stock (incorporated by reference to Exhibit 4.6 of the Company's Registration Statement
on Form S-2 (File No. 33-40455)).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<C> <S>
4.5 Credit Agreement-Term Loan Facility, dated as of March 8, 1995, among CONMED Corporation, the Banks
signatory thereto and The Chase Manhattan Bank, N.A., as agent (incorporated by reference to Exhibit 99.1
of the Company's Current Report on Form 8-K filed March 29, 1995).
4.6 Credit Agreement-Revolving Credit Facility, dated as of March 8, 1995, among CONMED Corporation, the Banks
signatory thereto and The Chase Manhattan Bank, N.A., as agent (incorporated by reference to Exhibit 99.2
of the Company's Current Report on Form 8-K filed March 29, 1995).
5.1* Opinion of Steates Remmell Steates & Dziekan with respect to the securities being issued hereunder.
23(a) Consent of Price Waterhouse LLP.
23(b) Consent of Ernst & Young LLP.
23(c) Consent of Mansperger Patterson & McMullin CPA's.
23(d) Consent of Arthur Andersen LLP.
23(e) Consent of Steates Remmell Steates & Dziekan (included in the opinion filed as Exhibit 5.1 hereto).
24.1 Power of Attorney (included on page II-5).
</TABLE>
* Indicates to be filed by Amendment
(b) Financial Statement Schedules
The following schedules contain summary financial information extracted
from the consolidated financial statements of the Company and are qualified in
their entirety by reference to such financial statements.
<TABLE>
<CAPTION>
SCHEDULE PAGE
<S> <C>
Schedule II.................................................................................... S-1
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(3) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant, pursuant to the provisions described in Item 14 or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by any such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
or not such indemnification is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Utica and State of New
York, on the 21st day of December, 1995.
CONMED CORPORATION
By: /s/ EUGENE R. CORASANTI
NAME: EUGENE R. CORASANTI
TITLE: PRESIDENT, CHIEF EXECUTIVE
OFFICER AND
CHAIRMAN OF THE BOARD
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert D. Shallish, Jr. and Joseph J. Corasanti
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to the Registration Statement, and file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ EUGENE R. CORASANTI President, Chief Executive Officer and December 21, 1995
EUGENE R. CORASANTI Chairman of the Board (Principal
Executive Officer)
/s/ ROBERT D. SHALLISH, JR. Vice President Finance (Principal Financial December 21, 1995
ROBERT D. SHALLISH, JR. Officer)
/s/ JOSEPH J. CORASANTI Vice President Legal Affairs, General December 21, 1995
JOSEPH J. CORASANTI Counsel and Director
/s/ LUKE A. POMILIO Controller (Principal Accounting Officer) December 21, 1995
LUKE A. POMILIO
/s/ HARRY CONE Director December 21, 1995
HARRY CONE
/s/ ROBERT E. REMMELL Director December 21, 1995
ROBERT E. REMMELL
/s/ BRUCE F. DANIELS Director December 21, 1995
BRUCE F. DANIELS
</TABLE>
II-4
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
<S> <C> <C> <C> <C>
ADDITIONS
(1) (2)
BALANCE AT CHARGED TO CHARGED TO
DESCRIPTION BEGINNING OF PERIOD COSTS AND EXPENSES OTHER ACCOUNTS DEDUCTIONS
1994
Allowance for bad debts................ $ 347 $ (4)
Inventory reserves..................... $ 559 $144
1993
Allowance for bad debts................ $ 303 $ 44
Inventory reserves..................... $ 324 $235
1992
Allowance for bad debts................ $ 239 $ 64
Inventory reserves..................... $ 254 $ 70
<CAPTION>
COLUMN A COLUMN E
<S> <C>
BALANCE AT
DESCRIPTION END OF PERIOD
1994
Allowance for bad debts................ $ 343
Inventory reserves..................... $ 703
1993
Allowance for bad debts................ $ 347
Inventory reserves..................... $ 559
1992
Allowance for bad debts................ $ 303
Inventory reserves..................... $ 324
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
<C> <S> <C>
1* Form of Underwriting Agreement between the Company and the Selling Stockholder and the Underwriters
4.1 Bylaws of the Company (incorporated by reference to Exhibit A in the Company's Current Report on Form 8-K,
dated March 8, 1991 (File No. 0-16093)).
4.2 1992 Amendment to Certificate of Incorporation and Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.2 in the Company's Annual Report on Form 10-K for the year ended
December 25, 1992).
4.4 Warrant to Purchase Common Stock, dated August 31, 1989, issued by the Company to Zimmer, Inc. covering
shares of Common Stock (incorporated by reference to Exhibit 4.6 of the Company's Registration Statement
on Form S-2 (File No. 33-40455)).
4.5 Credit Agreement-Term Loan Facility, dated as of March 8, 1995, among CONMED Corporation, the Banks
signatory thereto and The Chase Manhattan Bank, N.A., as agent (incorporated by reference to Exhibit 99.1
of the Company's Current Report on Form 8-K filed March 29, 1995).
4.6 Credit Agreement-Revolving Credit Facility, dated as of March 8, 1995, among CONMED Corporation, the Banks
signatory thereto and The Chase Manhattan Bank, N.A., as agent (incorporated by reference to Exhibit 99.2
of the Company's Current Report on Form 8-K filed March 29, 1995).
5.1* Opinion of Steates Remmell Steates & Dziekan with respect to the securities being issued hereunder.
23(a) Consent of Price Waterhouse LLP.
23(b) Consent of Ernst & Young LLP.
23(c) Consent of Mansperger Patterson & McMullin CPA's.
23(d) Consent of Arthur Andersen LLP.
23(e) Consent of Steates Remmell Steates & Dziekan (included in the opinion filed as Exhibit 5.1 hereto).
24.1 Power of Attorney (included on page II-5).
</TABLE>
* Indicates to be filed by Amendment
<PAGE>
EXHIBIT 23(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
February 3, 1995 (except as to Note 13, which is as of December 18, 1995)
appearing on Page F-1 of CONMED Corporation's Annual Report on Form 10-K/A for
the year ended December 30, 1994. We also consent to the references to us under
the headings "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Syracuse, New York
December 20, 1995
<PAGE>
EXHIBIT 23(B)
CONSENT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated August 19, 1994, with respect to the financial
statements and schedules of Birtcher Medical Systems, Inc., included in the
Registration Statement on Form S-3 and related Prospectus of CONMED Corporation
for the registration of 3,392,500 shares of its common stock.
ERNST & YOUNG LLP
Irvine, California
December 21, 1995
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EXHIBIT 23(C)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectus constituting
part of this Registration Statement on Form S-3 of our report dated June 15,
1995, with respect to the financial statements ans supplemental schedules of The
Master Medical Corporation for the year ended December 31, 1994. We also consent
to the references to us under the headings "Experts" in such Prospectus.
MANSPERGER, PATTERSON & MCMULLIN, CPA'S
Tempe, Arizona
December 20, 1995
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EXHIBIT 23(D)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated February 24, 1995 (except with respect to the matters discussed in
Note 9, as to which the date is October 18, 1995) on the consolidated balance
sheets of New Dimensions in Medicine, Inc. (a Delaware corporation) and
subsidiaries as of December 31, 1994 and October 15, 1994 (the day after the
Effective Date of the Plan of Reorganization) and the related consolidated
statements of income, stockholders' equity and cash flows for the ten-week
period ending December 31, 1994 included in this registration statement. As
independent public accountants, we also hereby consent to the use of our report
dated February 24, 1995 on the consolidated balance sheets of MEI Diversified
Inc. (a Delaware corporation) and subsidiaries as of October 14, 1994 and
December 31, 1993, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the period ended October 14,
1994 and for each of the two years in the period ended December 31, 1993,
included herein and to all references to our firm included in this registration
statement.
ARTHUR ANDERSEN LLP
Cincinnati, Ohio
December 21, 1995
