<PAGE>
PROSPECTUS
3,350,000 Shares
[ConMed Logo appears here]
Common Stock
Of the 3,350,000 shares of Common Stock offered hereby, 2,495,411 shares
are being offered by CONMED Corporation ("CONMED" or the "Company") and 854,589
shares are being offered by the Selling Shareholders. See "The Selling
Shareholders." The Company will not receive any of the proceeds from the sale of
shares by the Selling Shareholders. 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 March 14, 1996, was $22.50 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.
[CAPTION]
<TABLE>
<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share........................................... $22.00 $1.10 $20.90
Total (3)........................................... $73,700,000 $3,685,000 $52,154,090
<CAPTION>
PROCEEDS TO
SELLING
SHAREHOLDERS (2)
<S> <C>
Per Share........................................... $20.90
Total (3)........................................... $17,860,910
</TABLE>
(1) The Company and the Selling Shareholders 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
Shareholders estimated at $650,000 and $10,000, respectively.
(3) The Company has granted the Underwriters a 30-day option to purchase from
the Company up to 502,500 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 and Proceeds to Company will be $84,755,000,
$4,237,750 and $62,656,340, 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 March 20, 1996 at the
offices of Smith Barney Inc., 14 Wall Street, New York, New York 10005.
Smith Barney Inc.
Needham & Company, Inc.
UBS Securities LLC
March 15, 1996
<PAGE>
[Pictures of the Company's products, including
electrosurgical ground pads, the Excaliber
Plus(Register mark) electrosurgical unit (ESU), the
smoke evacuation pencil, Universal Plus(Register mark)
laparoscopic instruments, Universal Plus(Register mark)
straight handle laparoscopic instruments, the
Trogard(Register mark) trocar system, ECG electrodes,
the Master-Flow Pumpette(Register mark) I.V. flow
controller and ECG cables and lead wires]
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. Eighty-five percent of the Company's revenues in 1995 were 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 fiscal year ended December 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 86% of total net sales
and net sales outside the United States comprised 14% 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. This Division expanded into 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/irrigation instruments, scissors and
electrosurgical probes with suction/irrigation capability.
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 four
significant business acquisitions, as discussed below under "Recent
Acquisitions." The completed acquisitions, together with internal growth,
resulted in net sales growth of approximately 135% over the past three years (or
approximately 210% after giving pro forma effect to the transactions described
under "Unaudited Pro Forma Consolidated Financial Information" herein).
According to American Hospital Association and American College of Surgeons
data, 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 should 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) introduce new products and
product enhancements of existing products into the health care market by taking
advantage of its technical expertise, (iii) evaluate acquisition opportunities
that could increase market share and/or add new products in related medical
device fields, and (iv) improve operating margins by consolidating its product
lines, integrating 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 $21.2 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 February 1996, the Company acquired substantially all the business and
certain assets of New Dimensions In Medicine, Inc. ("NDM") for a cash purchase
price of approximately $31.3 million plus the assumption of net liabilities of
approximately $4.6 million (the "NDM Acquisition"). Through the NDM Acquisition,
the Company acquired 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
<TABLE>
<S> <C>
Common Stock offered by:
Company......................................................... 2,495,411 shares(1)
Selling Shareholders............................................ 854,589 shares(2)
Common Stock to be outstanding after the Offering................. 14,350,105 shares(1)(3)
Use of proceeds................................................... Net proceeds to the Company of approximately
$51.6 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 502,500 shares of Common Stock that may be sold by
the Company pursuant to the Underwriters' over-allotment option. See
"Underwriting."
(2) The shares of Common Stock offered by the Selling Shareholders include
704,589 shares offered by Zimmer, Inc. ("Zimmer") upon exercise of Zimmer's
warrant (the "Zimmer Warrant") to purchase Common Stock. See "The Selling
Shareholders."
(3) Based upon the number of shares of Common Stock outstanding as of December
29, 1995 plus 3,350,000 shares of Common Stock to be issued in the Offering,
including 704,589 shares of Common Stock that will be issued upon the
exercise of the Zimmer Warrant and the 150,000 shares of Common Stock that
will be issued upon the exercise of Eugene R. Corasanti's stock options. See
"The Selling Shareholders." With the exception of the 150,000 stock options
being exercised by Eugene R. Corasanti in connection with this Offering,
does not include shares of Common Stock issuable upon exercise of
outstanding stock options (1,090,000 stock options as of December 29, 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)(A) EXCLUDES
1,240,000 SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF OUTSTANDING OPTIONS
AS OF DECEMBER 29, 1995 PURSUANT TO THE COMPANY'S STOCK OPTION PLANS AND (B)
ASSUMES NO ISSUANCE OF THE 704,589 SHARES OF COMMON STOCK CURRENTLY 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>
YEARS ENDED
DECEMBER 27, DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 29,
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME (LOSS)(2)
Net sales.......................................... $ 38,458 $ 42,602 $ 53,641 $ 71,064 $ 99,558
Cost of sales...................................... 20,449 22,549 30,218 38,799 52,402
Selling and administrative expense................. 10,633 12,556 17,402 20,979 25,570
Litigation and product restructure................. -- -- 5,700(3) -- --
Research and development expense................... 1,275 1,695 2,222 2,352 2,832
Income (loss) from operations...................... 6,101 5,802 (1,901) 8,934 18,754
Interest income (expense), net..................... (123) 290 (214) (628) (1,991)
Income (loss) before income taxes.................. 5,978 6,092 (2,115) 8,306 16,763
Provision (benefit) for income taxes............... 2,033 1,986 (719) 2,890 5,900
Net income (loss).................................. $ 3,945 $ 4,106 $ (1,396) $ 5,416 $ 10,863
Earnings (loss) per common and common equivalent
share............................................ $ .46 $ .42 $ (.15) $ .56 $ .94
Weighted average number of common shares and
equivalents outstanding.......................... 8,526 9,702 9,426 9,624 11,613
<CAPTION>
PRO FORMA FOR THE
YEAR ENDED
DECEMBER 29,
1995(1)
<S> <C>
CONSOLIDATED STATEMENTS OF INCOME (LOSS)(2)
Net sales.......................................... $ 132,927
Cost of sales...................................... 70,638
Selling and administrative expense................. 33,188
Litigation and product restructure................. --
Research and development expense................... 3,263
Income (loss) from operations...................... 25,838
Interest income (expense), net..................... (680)
Income (loss) before income taxes.................. 25,158
Provision (benefit) for income taxes............... 9,032
Net income (loss).................................. $ 16,126
Earnings (loss) per common and common equivalent
share............................................ $ 1.11
Weighted average number of common shares and
equivalents outstanding.......................... 14,585
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 29, 1995
ACTUAL PRO FORMA(1)
<S> <C> <C>
BALANCE SHEET DATA (2):
Working capital................................................................................ $ 37,350 $ 45,773
Total assets................................................................................... 119,403 160,420
Long-term debt (less current portion).......................................................... 26,340 9,740
Total shareholders' equity..................................................................... 75,002 130,102
</TABLE>
(1) Gives effect to the Birtcher Acquisition, the Master Medical Acquisition,
the NDM Acquisition and the Offering as if each occurred on December 31,
1994. 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.
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. 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 approximately 146 U.S. patents and numerous
corresponding foreign patents on products expiring at various dates from 1996
through 2013 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.
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 Practices." Failure to comply with
applicable requirements can result in fines, recall or seizure of products,
total or partial suspension of production, withdrawal of existing product
approvals or clearances, refusal to approve or clear new applications or notices
and criminal prosecution. 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."
6
<PAGE>
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 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."
7
<PAGE>
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 $51.6 million (assuming that the Underwriters'
over-allotment option is not exercised). The Company will use the net proceeds
from the Offering to reduce outstanding debt under the Company's principal bank
credit agreements (collectively, the "Credit Agreement"). The net proceeds of
approximately $10.5 million 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 $32.3 million was
outstanding as of December 29, 1995 and $65.0 million of which is currently
outstanding and 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% (6.63% at January 31, 1996) and a revolving portion that
bears interest at LIBOR plus 1.25% (6.63% at January 31, 1996). Borrowings
outstanding under the Credit Agreement were incurred primarily to finance the
Birtcher, Master Medical and NDM Acquisitions. After completion of the Offering
and the application of the net proceeds discussed hereunder, the Company will
have a continuing $15.0 million revolving commitment under the Credit Agreement
and expects to borrow from time to time in the future under such Credit
Agreement; PROVIDED that to the extent that the net proceeds from the Offering
exceed $49.0 million and are used to reduce outstanding debt under the Credit
Agreement, the amount of the continuing revolving commitment under the Credit
Agreement will be increased to $60.0 million.
The proceeds to the Company from the exercise of the Zimmer Warrant are
estimated to be approximately $3.0 million, and the proceeds to the Company from
the exercise of the 150,000 stock options to be exercised by Eugene R. Croissant
are estimated to be approximately $0.5 million. The Company will use the
proceeds from the exercise of the Zimmer Warrant and Mr. Corasanti's stock
options to repay amounts outstanding under the Credit Agreement. The Company
will not receive any of the proceeds from the sale of shares of Common Stock by
the Selling Shareholders.
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, is
secured by substantially all of the Company's property and assets and further
subjects the Company to compliance with various financial covenants.
8
<PAGE>
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 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........................................................................................... 25.00 20.00
Fiscal 1996:
First Quarter (through March 14, 1996)................................................................... $24.50 $20.25
</TABLE>
The last reported sale price of the Company's Common Stock, as reported on
the Nasdaq National Market on March 14, 1996, was $22.50 per share. As of
December 29, 1995, there were 1,365 shareholders of record of the Company's
Common Stock.
9
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 29, 1995, and such capitalization, as adjusted to give
pro forma effect to the NDM Acquisition and as further adjusted to reflect the
sale by the Company of approximately 2,500,000 shares of Common Stock offered
hereby, the exercise of the Zimmer Warrant and Eugene R. Corasanti's stock
options and the application of the net proceeds therefrom, as described under
"Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 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 $ --
Long-term debt (less current portion) (1)......................................... $ 26,340 $ 52,000 $ 9,740
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 11,000,105 shares actual and pro forma and 14,350,105 shares pro
forma as adjusted (2)(3)..................................................... 110 110 143
Paid in capital................................................................. 44,560 44,560 99,627
Retained earnings............................................................... 30,332 30,332 30,332
Total shareholders' equity................................................... 75,002 75,002 130,102
Total capitalization (3)................................................... $101,342 $ 127,002 $ 139,842
</TABLE>
(1) Short-term and long-term debt are secured by substantially all of the
Company's property and assets, including equipment, accounts receivable,
patents and trademarks and inventory.
(2) Pro forma as adjusted includes 704,589 shares of Common Stock subject to the
Zimmer Warrant (see "The Selling Shareholders" and "Description of Capital
Stock -- Common Stock Warrant") and 150,000 stock options to be exercised by
Eugene R. Corasanti and does not include 1,090,000 other stock options to
purchase shares of Common Stock outstanding as of December 29, 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 Current Report on Form 8-K filed February 26,
1996 for information on certain commitments and contingencies.
10
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited Pro Forma Consolidated Statement of Income for the
year ended December 29, 1995 has 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 (including the exercise of the Zimmer Warrant
and the exercise of 150,000 stock options by Eugene R. Corasanti), as if each
had occurred as of December 31, 1994. The attached unaudited Pro Forma
Consolidated Balance Sheet as of December 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
unaudited financial statements of Birtcher for 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 audited financial statements of the Company and NDM for the
years ended December 29 and 31, 1995, respectively.
The Company has accounted for the Birtcher, Master Medical and NDM
Acquisitions using the purchase method of accounting, under which tangible and
identifiable intangible assets acquired and liabilities assumed are 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
December 31, 1994. Allocations of the NDM purchase price have been determined
based upon preliminary estimates of fair market value and, therefore, are
subject to change. Differences between the amounts included herein and the final
allocations are not expected to be material.
These pro forma statements are not necessarily indicative of the financial
position or 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.
11
<PAGE>
CONMED CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 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........................... $99,558 $ 7,971 $ (104)(2) $107,425 $ 29,536 $(4,034)(9)(10)(11)
Cost of sales....................... 52,402 4,727 344(2) 56,811 17,675 (3,848)(9)(10)(12)
(662)(3)
Selling and administrative
expense........................... 25,570 3,620 120(4) 27,095 14,976 (8,883)(9)(11)(12)
(1,461)(3)
(754)(5)
Research and development expense.... 2,832 600 (448)(2) 2,884 379(9)(11)(12)
(100)(3)
80,804 8,947 (2,961) 86,790 32,651 (12,352)
Income (loss) from operations....... 18,754 (976) 2,857 20,635 (3,115) 8,318
Interest (expense) income, net...... (1,991 ) (90) (329)(6) (2,410) (577) (2,048)(13)
4,355(14)
Other income (expense), net......... 289 (289)(11)
Income (loss) before income tax..... 16,763 (1,066) 2,528 18,225 (3,403) 10,336
Provision (benefit) for income
tax............................... 5,900 0 612(7) 6,512 188 2,231(15)
Net income (loss)................... $10,863 $ (1,066) $ 1,916 $ 11,713 $ (3,591) $ 8,105
Earnings per common and common
equivalent share.................. $ .94 $ .99
Weighted average number of common
shares and equivalents
outstanding....................... 11,613 270(8) 11,883 2,702(14)
<CAPTION>
PRO
FORMA
<S> <C>
Net sales........................... $132,927
Cost of sales....................... 70,638
Selling and administrative
expense........................... 33,188
Research and development expense.... 3,263
107,089
Income (loss) from operations....... 25,838
Interest (expense) income, net...... (680)
Other income (expense), net.........
Income (loss) before income tax..... 25,158
Provision (benefit) for income
tax............................... 9,032
Net income (loss)................... $ 16,126
Earnings per common and common
equivalent share.................. $ 1.11
Weighted average number of common
shares and equivalents
outstanding....................... 14,585
</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
DECEMBER 29, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO
CONMED NDM ADJUSTMENTS FORMA
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash.............................................................. $ 1,539 $ 2,096 $ 478(16)(19) $ 4,113
Accounts receivable, net.......................................... 22,649 3,567 26,216
Income tax receivable............................................. 961 961
Inventories....................................................... 20,943 5,504 (1,000)(17) 25,447
Deferred income tax............................................... 2,678 2,678
Prepaid expenses.................................................. 476 295 771
Total current assets.......................................... 49,246 11,462 (522) 60,186
Property, plant and equipment....................................... 19,728 10,370 (1,000)(17) 29,098
Deferred income taxes............................................... 2,907 2,907
Covenant not to compete............................................. 1,153 1,153
Goodwill............................................................ 41,438 18,452(17) 59,890
Patents and other assets............................................ 4,931 8,281 (6,026)(17) 7,186
Total assets.................................................. $119,403 $ 30,113 $ 10,904 $160,420
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt................................. $ 6,000 $ 1,403 $ (7,403)(16)(18)(19) $ 0
Accounts payable.................................................. 2,351 2,562 1,295(16)(17) 6,208
Accrued payroll and withholdings.................................. 2,282 736 2,200(17) 5,218
Accrued pension................................................... 274 274
Other current liabilities......................................... 989 2,151 (427)(16)(17)(19) 2,713
Total current liabilities..................................... 11,896 6,852 (4,335) 14,413
Long-term debt (less current portion)............................... 26,340 8,100 (24,700)(16)(18)(19) 9,740
Accrued pension..................................................... 276 276
Deferred compensation............................................... 868 868
Long-term leases.................................................... 3,521 3,521
Other long-term liabilities......................................... 1,500 1,500
Total liabilities............................................. 44,401 14,952 (29,035) 30,318
Shareholders' Equity:
Common stock...................................................... 110 43 (10)(17)(19) 143
Paid in capital................................................... 44,560 18,457 36,610(17)(19) 99,627
Retained earnings................................................. 30,332 (3,339) 3,339(17) 30,332
Total shareholders' equity.................................... 75,002 15,161 39,939 130,102
Total liabilities and shareholders' equity.................... $119,403 $ 30,113 $ 10,904 $160,420
</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
1. The attached Pro Forma Consolidated Statement of Income for the year
ended December 29, 1995 gives effect to the Birtcher, Master Medical and NDM
Acquisitions, which were completed on March 14, 1995, May 19, 1995 and February
23, 1996, respectively, and the issuance of the shares of Common Stock discussed
in Note 19. The foregoing Pro Forma Consolidated Balance Sheet as of December
29, 1995 gives effect to the NDM Acquisition and the issuance of the shares of
Common Stock discussed in Note 19 as if such transactions had occurred on that
date. No pro forma adjustments are necessary for the Birtcher and Master Medical
Acquisitions on the December 29, 1995 Pro Forma Consolidated Balance Sheet since
those transactions were completed prior to December 29, 1995.
BIRTCHER AND MASTER MEDICAL ACQUISITIONS
2. Prior to the Birtcher Acquisition, the Company supplied certain
partially completed manufactured items to Birtcher. Net sales to Birtcher for
the period in 1995 up to the acquisition date amounted to $104. This amount has
been eliminated from Net sales and Cost of sales in the Pro Forma Combined
Statement 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>
<S> <C> <C>
Cost of sales.................................................................... $ (662)
Selling and administrative expense............................................... (1,461)
Research and development expense................................................. (100)
</TABLE>
4. Selling and administrative expense has been increased $120 for the year
ended December 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 year ended December 29, 1995 because
the amounts do not pertain to operating activities.
6. Additional interest expense of $329 for the year ended December 29, 1995
has been added to the Pro Forma Consolidated Statement of Income to reflect the
additional borrowings outstanding due to the Master Medical Acquisition as if
the transaction had occurred as of December 31, 1994.
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 1,590,000 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 December 31, 1994.
14
<PAGE>
NDM ACQUISITION AND THE OFFERING
9. Prior to the NDM Acquisition, NDM manufactured and marketed a
therapeutic device for treatment of deep vein thrombosis commonly referred to as
a "foot pump". The Company did not acquire this small product line and has
eliminated the amounts applicable as follows:
<TABLE>
<S> <C> <C>
Net sales......................................................................... $ (594)
Cost of sales..................................................................... (435)
Selling and administrative expense................................................ (2,032)
Research and development expense.................................................. (117)
</TABLE>
10. Prior to the NDM Acquisition, NDM manufactured a line of
electrosurgical ground pads for Birtcher and the Company. Net sales from NDM to
Birtcher and the Company amounted to $1,257 for the year ended December 29,
1995. This amount has been eliminated from Net sales and Cost of sales in the
Pro Forma Consolidated Statement 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>
<S> <C> <C>
Net sales........................................................................ $(2,183)
Selling and administrative expense............................................... (3,264)
Research and development expense................................................. 792
Other income (expense), net...................................................... (289)
</TABLE>
12. The NDM Acquisition involved 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 that it began to
implement on the date of the acquisition that will eliminate duplicate personnel
and other duplicate costs and therefore increase the efficiency of the combined
operation. The manufacturing operations at the NDM facility have continued after
the date of the acquisition. 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>
<S> <C> <C>
Cost of sales.................................................................... $(2,156)
Selling and administrative expense............................................... (3,587)
Research and development expense................................................. (296)
</TABLE>
13. Historical interest expense for NDM of $577 for the year ended December
29, 1995 has been eliminated as the related debt was not assumed. Interest
expense of $2,625 for the year ended December 29, 1995 has been added to reflect
a borrowing of $32,660 under the Company's term loan and revolving credit
facility as if the borrowing had occurred as of December 31, 1994.
14. The proceeds from the issuance of shares of Common Stock, as discussed
in Note 19, will be used to reduce debt of the Company incurred as a result of
acquisitions. Assuming the issuance as of December 31, 1994, interest expense of
$4,355 for the year ended December 29, 1995 has been eliminated.
15. Entry to reflect the estimated tax effect of NDM's historical results
and the pro forma adjustments.
16. The Company did 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 December 29, 1995 to eliminate these items are
as follows:
<TABLE>
<S> <C> <C>
Current portion of long-term debt................................................ $(1,403)
Long-term debt (less current portion)............................................ (8,100)
Cash............................................................................. (22)
Accounts payable................................................................. (205)
Accrued liabilities.............................................................. (427)
</TABLE>
15
<PAGE>
17. The NDM Acquisition was effected by the payment of the purchase price,
which is assumed to be $32,000 for purposes of the pro forma financial
information. The transaction was accounted for as a purchase. The total purchase
price, historical book value and preliminary adjustments of book value, assuming
the acquisition occurred on December 29, 1995, are summarized as follows:
<TABLE>
<S> <C>
Purchase price of net assets acquired.......................................... $ 32,000
Adjustments to determine goodwill:
Historical net book value of NDM............................................. (15,161)
Eliminate debt not acquired.................................................. (9,503)
Eliminate the net liabilities of the foot pump line.......................... (610)
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.......................................... 6,026
Increase liabilities for change in control costs and financial, legal,
accounting and similar expenses........................................... 3,700
Total adjustments.............................................................. (13,548)
Goodwill....................................................................... $ 18,452
</TABLE>
18. The purchase price for the NDM Acquisition was financed through an
advance under a $65,000 term loan. Additionally, the Company refinanced its
existing debt under this term loan. The entire term loan is payable over five
years at an interest rate of 1.25% over LIBOR. The Company has also received a
$15,000 revolving line of credit with a similar interest rate. See "Use of
Proceeds."
19. Through a primary offering of approximately 2,500,000 shares of Common
Stock, the Company expects to receive proceeds of $55,000 less transaction costs
of $3,400. The net equity amount, assuming the transaction occurred on December
29, 1995, would be accounted for as an increase in Common Stock of $25 and an
increase in Paid in capital of $51,575. In addition, the Company expects to
receive proceeds of $3,500 in connection with the exercise of the Zimmer Warrant
and Eugene R. Corasanti's stock options, which, assuming the exercise occurred
on December 29, 1995, would be accounted for as an increase in Common Stock of
$8 and an increase in Paid in capital of $3,492. The cash proceeds of the sale
of Common Stock by the Company would be used to reduce 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 five years in the period ended December 29,
1995. Such information for the years ended December 31, 1993, December 30, 1994
and December 29, 1995 and as of December 30, 1994 and December 29, 1995 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 Current Report on Form 8-K filed February
26, 1996 and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" herein. Such information for the years ended December 27,
1991 and December 25, 1992 and as of December 27, 1991, December 25, 1992 and
December 31, 1993 have been derived from the audited financial statements not
incorporated by reference or included herein. The Company has not declared any
cash dividends in the past five years.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 27, DECEMBER 25, DECEMBER 31, DECEMBER 30,
1991 1992 1993 1994
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (1):
Net sales................................................... $ 38,458 $ 42,602 $ 53,641 $ 71,064
Cost of sales............................................... 20,449 22,549 30,218 38,799
Selling and administrative expense.......................... 10,633 12,556 17,402 20,979
Litigation and product restructure.......................... -- -- 5,700(2) --
Research and development expense............................ 1,275 1,695 2,222 2,352
Income (loss) from operations............................... 6,101 5,802 (1,901) 8,934
Interest income (expense), net.............................. (123) 290 (214) (628)
Income (loss) before income taxes........................... 5,978 6,092 (2,115) 8,306
Provision (benefit) for income taxes........................ 2,033 1,986 (719) 2,890
Net income (loss)........................................... $ 3,945 $ 4,106 $ (1,396) $ 5,416
Earnings (loss) per common and common equivalent share...... $ .46 $ .42 $ (.15) $ .56
Weighted average number of common shares and equivalents
outstanding............................................... 8,526 9,702 9,426 9,624
<CAPTION>
DECEMBER 29,
1995
<S> <C>
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (1):
Net sales................................................... $ 99,558
Cost of sales............................................... 52,402
Selling and administrative expense.......................... 25,570
Litigation and product restructure.......................... --
Research and development expense............................ 2,832
Income (loss) from operations............................... 18,754
Interest income (expense), net.............................. (1,991)
Income (loss) before income taxes........................... 16,763
Provision (benefit) for income taxes........................ 5,900
Net income (loss)........................................... $ 10,863
Earnings (loss) per common and common equivalent share...... $ .94
Weighted average number of common shares and equivalents
outstanding............................................... 11,613
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 25, DECEMBER 31, DECEMBER 30,
1991 1992 1993 1994
<S> <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>
DECEMBER 29,
1995
<S> <C>
BALANCE SHEET DATA (1):
Working capital........................................... $ 37,350
Total assets.............................................. 119,403
Long-term debt (less current portion)..................... 26,340
Total shareholders' equity................................ 75,002
</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.
17
<PAGE>
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 increased
approximately 85% 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 the Zimmer Warrant. 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 $3.2 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 $21.2 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 February 1996, the Company acquired substantially all the business and
certain assets of NDM for a cash purchase price of approximately $31.3 million
plus the assumption of net liabilities of approximately $4.6 million. Through
the NDM Acquisition, the Company acquired 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.
18
<PAGE>
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
DECEMBER 31, DECEMBER 30, DECEMBER 29,
1993 1994 1995
<S> <C> <C> <C>
Net sales......................................................................... 100.0% 100.0% 100.0%
Operating expense:
Cost of sales................................................................... 56.3 54.6 52.6
Selling and administrative expense.............................................. 32.4 29.5 25.7
Litigation and product restructure.............................................. 10.6 -- --
Research and development expense................................................ 4.2 3.3 2.9
Income (loss) from operations..................................................... (3.5) 12.6 18.8
Interest income (expense), net.................................................... (0.4) (0.9) (2.0)
Income (loss) before income taxes................................................. (3.9) 11.7 16.8
Net income (loss)................................................................. (2.6) 7.6 10.9
</TABLE>
YEARS ENDED DECEMBER 29, 1995 AND DECEMBER 30, 1994
The Company had net sales of $99,558,000 in 1995 compared to $71,064,000 in
1994, an increase of $28,494,000 or 40.1%. The increase was substantially a
result of the effects of the Birtcher and Master Medical Acquisitions.
The Company's gross margin was 47.4% in 1995 compared to 45.4% in 1994.
This increase was primarily a result of the manufacturing efficiencies and
economies of scale realized through the Birtcher and Master Medical
Acquisitions. On a quarterly basis, gross margin percentage for the first
quarter of 1995 was 45.7% and approximated 47.8% for each of the remaining three
quarters of 1995.
Selling and administrative expense increased to $25,570,000 during 1995
compared to $20,979,000 in 1994, an increase of $4,591,000 or 21.9%, due
primarily to the effects of the Birtcher and Master Medical Acquisitions.
However, as a percentage of net sales, selling and administrative expense
declined to 25.7% from 29.5% in the prior comparable period due to economies of
scale resulting from the acquisitions of Birtcher and Master Medical.
Research and development expense increased 20.4% to $2,832,000 in 1995 as
compared to $2,352,000 in 1994. Research and development expenditures for 1995
reflect increased activities relative to integration and further development of
Birtcher products and the continued emphasis on the development of surgical
products for MIS procedures.
The Company incurred $1,991,000 in net interest expense in 1995 compared to
$628,000 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 35.2% in 1995
and 34.8% in 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.
19
<PAGE>
During 1993, the Company recorded a pre-tax charge of approximately
$5,700,000 for litigation and product restructure costs. No such costs were
incurred in 1994.
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 tax benefit from
a foreign sales corporation.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations was $5,059,000 for 1995 as compared to $8,260,000
provided from operations in 1994. Operating cash flows for 1995 were aided by
higher net income as compared to 1994. Additionally, depreciation and
amortization in 1995 increased due to the effects of the Birtcher and Master
Medical Acquisitions. Cash flows from operations for 1995 were negatively
impacted by increases in accounts receivable and inventories, and the timing of
payments for income taxes. The increases in accounts receivable and inventories
relate primarily to working capital requirements associated with the Birtcher
and Master Medical Acquisitions. Additionally, payment of the patent litigation
award also adversely impacted 1995 operating cash flows.
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
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 $14,695,000 in 1995 compared to
$4,190,000 in 1994. The Master Medical Acquisition utilized $9,500,000 of cash.
Additions to property, plant and equipment for 1995 totaled $5,195,000. 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 $7,560,000 for 1995. The
Company refinanced its existing bank debt and received $26,590,000 in additional
proceeds. Payments on debt and other obligations included $4,371,000 on the
Company's debt, $5,846,000 to Birtcher's bank to liquidate debt assumed in
connection with the Birtcher Acquisition and $12,141,000 to liquidate other
Birtcher liabilities assumed in connection with the acquisition.
The Company's available credit facility consists of a $65,000,000 secured
term loan and secured revolving line of credit of $15,000,000. As of December
29, 1995, $27,000,000 was outstanding under the term loan and $5,340,000 on the
revolving line of credit. The Company borrowed $32,660,000 under the term loan
to finance the cash requirements of the NDM Acquisition. The term loan is
payable over five years at an interest rate of 1.25% over LIBOR. The revolving
line of credit terminates on December 29, 1998 and carries an interest rate of
1.25% over LIBOR. See "Use of Proceeds."
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. Eighty-five percent of the Company's revenues in 1995 were 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 fiscal year ended December 29, 1995
and after giving pro forma effect to the Birtcher, Master Medical and NDM
Acquisitions, net sales from the United States comprised 86% of total net sales
and net sales outside the United States comprised 14% 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. This Division expanded into 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/irrigation instruments, scissors and
electrosurgical probes with suction/irrigation capability.
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 four
significant business acquisitions. The completed acquisitions, together with
internal growth, resulted in net sales growth of approximately 135% over the
past three years (or approximately 210% after giving pro forma effect to the
transactions described under "Unaudited Pro Forma Consolidated Financial
Information" herein).
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 American Hospital Association and American College of Surgeons
data, 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 should 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 to 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 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 acquired 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 improve operating margins by consolidating product
lines, integrating manufacturing facilities and streamlining its processes. In
1995, the Company moved the manufacturing facilities of its CONMED Andover
Medical subsidiary to a 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.
ELECTROSURGICAL SYSTEMS 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 Electrosurgical Systems Division represented 43%, 54% and
53%, 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
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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 44%,
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, lead wire
products and accessories. ECG cables and lead wires are 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. The Company also manufactures and markets disposable defibrillation
pads for use in cardio defibrillation.
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, as well as NeoDerm(Register mark) for use in
stabilizing epidural catheters.
INTRAVENOUS THERAPY PRODUCTS -- 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 expanded
into the wound care market. 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, active electrodes, 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 salesforce 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, and 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 15.5% of the
Company's sales during 1995. 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
salesforce 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 approximately
35 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 1993,
1994 and 1995, the Company spent approximately $2,222,000, $2,352,000 and
$2,832,000, respectively, for research and development.
The Company has approximately 146 U.S. patents and numerous corresponding
foreign patents on its products expiring at various dates from 1996 through 2013
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 hand-controlled 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 began marketing EXCALIBUR(Register mark) PLUS/PC in
January 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 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 began the marketing of this
product in January 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 began marketing the BEAMER PLUS(tm) in
January 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, New York from an owned facility and
from Rome, New York from a leased facility 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.
In connection with the NDM Acquisition, the Company agreed to assume all of
NDM's obligations under NDM's distribution agreement with Baxter Healthcare
Corporation ("Baxter"). Under the distribution agreement, which Baxter has
assigned to the Company, Baxter has the non-exclusive right to sell and
distribute NDM's critical care products and patient care products throughout the
United States. The agreement is effective until December 31, 1996 and is subject
to renewal, unless terminated by either party. Baxter is the largest distributor
of NDM's products, accounting for approximately 95% of NDM's sales to U.S.
hospitals.
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 FDA clearance under a
procedure known as 510(k) premarketing notification. A 510(k) premarketing
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)
premarketing 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) premarketing notification clearance
discussed above, but are not required to be approved by the FDA. FDA clearance
is subject to continual review, and later discovery of previously unknown
problems may result in restrictions on a product's marketing or withdrawal of
the product from the market.
The Company markets its products in a number of foreign markets.
Requirements pertaining to its products vary widely from country to country,
ranging from simple product registrations to detailed submissions such as those
required 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"
27
<PAGE>
mark certification. The Company believes that its products currently meet all
applicable standards for the countries in which they are marketed.
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 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.
Any change in existing federal, state or foreign laws or regulations, or in
the interpretation or enforcement thereof, or the promulgation or any additional
laws or regulations could have an adverse effect on the Company's financial
condition or results of operations.
EMPLOYEES
As of February 1, 1996, the Company had 880 full-time employees, of whom
633 were in manufacturing, 35 were in research and development, and the balance
were in sales, marketing, executive and administrative positions. None of the
Company's employees are 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 remedial 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, but it has
been named, along with several other companies, in an order issued by the
California Regional Water Quality Board. 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 and any
subsequent remedial obligation 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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<PAGE>
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, Chief Executive Officer 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 Chief Financial Officer, 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 President and Chairman of the Board of
the Company since its incorporation in 1970. Mr. Corasanti is also the Company's
Chief Executive Officer. Prior to that time he was an independent public
accountant. Mr. Corasanti holds a B.B.A. degree in Accounting from Niagara
University. Eugene R. Corasanti's son, Joseph J. Corasanti, is a Director, Vice
President-Legal Affairs 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 Chief Financial Officer and
Vice President-Finance in December 1989 and has also 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.
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 and 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.
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<PAGE>
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
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 an L.L.B. 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.
30
<PAGE>
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. The Company intends to propose an
amendment to its Restated Certificate of Incorporation at the 1996 Annual
Meeting of Shareholders to increase the number of authorized shares of Common
Stock, par value $0.01 per share, to 40,000,000 shares.
COMMON STOCK
As of December 29, 1995, there were 11,000,105 shares of Common Stock
issued and outstanding held of record by 1,365 shareholders. As of December 29,
1995, an additional 1,240,000 shares of Common Stock were reserved for issuance
pursuant to the Company's existing stock option plans. If the Company's 1992
Stock Option Plan is amended at the 1996 Annual Meeting of Shareholders, as
proposed, an additional 987,500 shares of Common Stock would be reserved for
issuance under the Company's 1992 Stock Option Plan.
The Company is authorized by its Restated Certificate of Incorporation to
issue 20,000,000 shares of Common Stock and would be authorized to issue
40,000,000 shares of Common Stock if the amendment that the Company intends to
propose at the 1996 Annual Meeting of Shareholders is approved. 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
and the Selling Shareholders 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 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 $0.01 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 the Zimmer Warrant. The Zimmer Warrant is currently
exercisable in whole or in part for up to 704,589 shares of Common Stock at a
price of
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<PAGE>
$4.2578 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. In connection with the Offering, Zimmer intends to
exercise the Zimmer Warrant and offer all the shares of Common Stock received in
connection with such exercise. See "The Selling Shareholders."
THE SELLING SHAREHOLDERS
Of the 3,350,000 shares of Common Stock offered hereby (excluding up to
502,500 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, Chief Executive Officer and Chairman of the Board of
Directors (c/o the Company, 310 Broad Street, Utica, New York 13501), upon
exercise of stock options and 704,589 shares of Common Stock are being sold by
Zimmer (727 North Detroit Street, Warsaw, Indiana 46850-0708) upon exercise of
the Zimmer Warrant, subject to adjustment as described in the following
paragraph. 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 3.2% of the outstanding Common Stock (after giving
effect to the Offering and the exercise of the Zimmer Warrant). As of the date
of this Prospectus, the 704,589 shares of Common Stock beneficially owned by
Zimmer represented approximately 5.9% of the outstanding Common Stock. Upon
completion of this Offering, Zimmer will not own any shares of Common Stock. See
"Description of Capital Stock -- Common Stock Warrant."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
14,350,105 shares of Common Stock, an increase of 3,350,000 shares, or 30%, over
the shares outstanding prior to the Offering. 1,093,345 shares of Common Stock
beneficially 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 not freely tradeable without restriction
or further registration under the Securities Act. Subject to the agreement
described under "Underwriting," all of these 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 (143,501
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.
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, or the perception that such sales will occur, could
adversely affect market prices and trading activities in the Common Stock.
32
<PAGE>
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 LLC 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>
NUMBER
UNDERWRITER OF SHARES
<S> <C>
Smith Barney Inc..................................... 764,000
Needham & Company, Inc............................... 763,000
UBS Securities LLC................................... 763,000
Bear, Stearns & Co. Inc.............................. 70,000
Alex. Brown & Sons Incorporated...................... 70,000
Credit Lyonnais Securities (USA) Inc................. 70,000
Crowell, Weedon & Co................................. 50,000
Cruttenden Roth Incorporated......................... 50,000
Dean Witter Reynolds Inc............................. 70,000
Donaldson, Lufkin & Jenrette
Securities Corporation......................... 70,000
First Albany Corporation............................. 50,000
C.L. King & Associates, Inc.......................... 50,000
WR Lazard, Laidlaw & Luther Incorporated............. 50,000
McDonald & Company Securities, Inc................... 50,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated... 70,000
The Ohio Company..................................... 50,000
Oppenheimer & Co., Inc............................... 70,000
PaineWebber Incorporated............................. 70,000
Pennsylvania Merchant Group Ltd ..................... 50,000
Principal Financial Securities, Inc.................. 50,000
Rodman & Renshaw, Inc................................ 50,000
Total.................. 3,350,000
</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 $.66 per share below the public offering price.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $.10 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 502,500
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.
This Offering is being made pursuant to the provisions of Article III,
Section 44(c)(8) of the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. ("NASD") because more than 10% of the net proceeds from
the Offering will be paid to members of the NASD or affiliates thereof. Credit
Lyonnais Cayman Island Branch, an affiliate of Credit Lyonnais Securities (USA),
Inc., a member of the NASD, will be receiving more than 10% of the net proceeds
of the Offering as a result of the use of such proceeds to repay outstanding
indebtedness under the Credit Agreement.
33
<PAGE>
The Company, the Selling Shareholders and certain of the Company's officers
and directors who beneficially own in the aggregate 1,179,445 shares of Common
Stock (approximately 10.2% 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 through the exercise of stock
options or 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 (i) stock options
pursuant to its existing stock option plans or the stock option plan as it is
proposed to be amended at the Company's 1996 Annual Meeting of Shareholders,
shares pursuant to the exercise of Eugene R. Corasanti's 150,000 options being
offered hereby and the Zimmer Warrant and shares under registration statements
on Form S-4 or S-8 and (ii) shares 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.
VALIDITY OF COMMON STOCK
The validity of the Common Stock offered hereby will be passed on for the
Company by Steates Remmell Steates & Dziekan, Utica, New York, counsel to 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
29, 1995 and December 30, 1994 and for each of the three years in the period
ended December 29, 1995, 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, 1995 and December 31, 1994 and for the year ended December
31, 1995 and the ten-week period ended December 31, 1994, and the consolidated
financial statements of NDM Acquisition Corp. as of October 14, 1994 and
December 31, 1993 and 1992 and for the period ended October 14, 1994 and the
years ended December 31, 1993 and 1992, 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 reports on the consolidated financial statements of New Dimensions In
Medicine, Inc. (formerly NDM Acquisition Corp.) which include an explanatory
paragraph related to the ability of New Dimensions In Medicine, Inc. to continue
as a going concern.
34
<PAGE>
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. 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.
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;
(b) the Company's Quarterly Reports on Form 10-Q for the fiscal
quarters ended March 31, June 30 and September 29, 1995;
(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, December 21,
1995, February 16, 1996, February 16, 1996, February 26, 1996 and March 8,
1996; 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>
[Pictures of the Company's products including the
Hyfrecator Plus(Register mark) Office ESU, Argon Beam
handpieces, the Beamer Plus(tm) Argon Beam module,
laparoscopic monopolar curved scissors, products in the
modular instrument system family, a hollow shaft
electrode, NeoDerm(Register mark) dressings, VENI-GARD
TM(Register mark) dressings and defibrillation pads]
CONMED CORPORATION DEVELOPS, MANUFACTURES, AND MARKETS ADVANCED ELECTROSURGICAL
AND SINGLE-USE MEDICAL PRODUCTS FOR SURGEONS AND OTHER CRITICAL-CARE PROVIDERS
LOCATED THROUGHOUT THE UNITED STATES AND THE WORLD.
<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 REPRESENTATIONS 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...................................... 8
Dividend Policy...................................... 8
Price Range of Common Stock.......................... 9
Capitalization....................................... 10
Unaudited Pro Forma Consolidated Financial
Information........................................ 11
Selected Historical Financial Information............ 17
Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 18
Business............................................. 21
Management........................................... 29
Description of Capital Stock......................... 31
The Selling Shareholders............................. 32
Shares Eligible for Future Sale...................... 32
Underwriting......................................... 33
Validity of Common Stock............................. 34
Experts.............................................. 34
Available Information................................ 35
Incorporation of Certain Documents by
Reference.......................................... 35
</TABLE>
3,350,000 Shares
[ConMed Logo appears here]
Common Stock
PROSPECTUS
MARCH 15, 1996
Smith Barney Inc.
Needham & Company, Inc.
UBS Securities LLC
