Securities and Exchange Commission
Washington, D.C.
20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 Commission file number 0-16093
CONMED CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-0977505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
310 Broad Street, Utica, New York 13501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (315) 797-8375
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the shares of the voting stock held by
non-affiliates of the Registrant was approximately $285,194,957 based upon the
average bid and asked prices of stock, which was $19.75 on March 12, 1997.
The number of shares of the Registrant's $0.01 par value common stock
outstanding as of March 12, 1997 was 14,998,351.
DOCUMENTS FROM WHICH INFORMATION IS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement, scheduled to be mailed on or about
April 21, 1997 for the annual meeting of stockholders to be held May 20, 1997,
are incorporated by reference into Part III.
<PAGE>
CONMED CORPORATION
TABLE OF CONTENTS
FORM 10-K
Part I
Item Number
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a
Vote of Security Holders
Part II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive
Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain
Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
Signatures
Exhibit Index
<PAGE>
PART I
CONMED CORPORATION
Item 1: Business
Forward Looking Statements
This Annual Report on Form 10-K contains statements that
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-K and include statements regarding the intent, belief or
current expectations of the Company, its directors or its officers primarily
with respect to the future operating performance of the Company. Investors are
cautioned that any such forward looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results or
developments may differ materially from those in the forward looking statements
as a result of various factors. Factors which may cause such differences to
occur include but are not limited to (i) whether gross margins continue to
increase or increase at a different rate than expected, (ii) whether the Company
can continue to increase revenue, (iii) customer demand, competition, the cost
of products and industry conditions, (iv) new competitors selling competing
products, and (v) the other risks and uncertainties in the Company's business.
General
CONMED Corporation ("CONMED" or the "Company") was incorporated
on February 10, 1970 in the State of New York. 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
minimally-invasive surgical ("MIS") procedures, as well as products used for IV
therapy and wound care. Eighty-five percent of the Company's revenues are
derived from the sale of single-use, disposable products. The Company's products
are used in a variety of clinical settings, such as operating rooms, physicians'
offices and critical care areas of hospitals.
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. 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 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.
<PAGE>
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. 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 totaling 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.
On February 23, 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 $31.6 million plus the assumption of net
liabilities of approximately $3.3 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. The completed
acquisitions, together with internal growth, resulted in net sales growth of
approximately 135% over the past three years.
Industry
The health care industry is undergoing significant and rapid
change. Health care delivery costs have increased dramatically in recent years
as compared to the overall rate of inflation. The growing influence of managed
care has resulted in increasing pressure on participants in the health care
industry to contain costs. Accordingly, health care providers have been
purchasing medical devices which improve productivity and contain costs.
Health care providers continue to utilize low-cost, disposable
medical devices, such as electrosurgical pencils and ground pads, ECG electrodes
and other patient care products. Disposable devices improve health care
professional productivity and, unlike reusable products, do not require costly,
labor-intensive sterilization or reassembling. The risks of transmission of
infectious diseases, such as AIDS, hepatitis and tuberculosis, and related
concerns about occupational safety of health care professionals have also
contributed to an increased demand for disposable, single-use products. In
addition, the combination of medical cost containment pressures and patient-
driven demands have resulted in greater use of minimally-invasive procedures as
an alternative to traditional open surgery. MIS procedures reduce patient
hospitalization and therapy, thereby reducing the cost to patients and health
insurers.
According to the American Hospital Association and the American
College of Surgeons, more than 23 million surgical procedures are performed
annually in the over 5,200 general hospitals in the United States, with another
approximate three million annual procedures being performed in the approximately
1,800 free standing ambulatory surgery centers. The Company believes that a
majority of these operations involve 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.
<PAGE>
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 opportunities for medical device companies seeking to
increase sales in core product lines and expand into new product lines through
acquisitions.
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 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. 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 1994, 1995 and 1996, net sales of electrosurgery
products represented 54%, 53% and 49%, respectively, of the Company's net sales.
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.
<PAGE>
Electrosurgical Generators. The Company offers a complete line of
electrosurgical generators for monopolar and bipolar applications, including
general surgery as well as thoracic, urologic, laparoscopic, orthopedic and
neurosurgical procedures. All models include a safety alarm, the A.R.M., which
monitors the contact of the ground pad to the patients' skin surface. The
EXCALIBUR(R) PLUS/PC (Power Control) is the most recent generation of the
Company's EXCALIBUR(R) generator and incorporates a unique feature not
previously seen in electrosurgical generators. The EXCALIBUR(R) 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. In addition to the EXCALIBUR(R) PLUS/PC, the conventional generators
marketed by the Company include the SABRE(R) 2400, a full-feature generator
suitable for routine use in most surgical procedures, and the SABRE(R) 180, a
low-power generator for surgical procedures in a physician's office or clinic
setting.
The Hyfrecator Plus(R) 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(R) is the latest model of Hyfrecator(R) 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(R).
Argon Beam Coagulation System. Argon Beam Coagulation ("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. The Company's ABC(R) products
include specialized electrosurgical generators, specialized disposable
handpieces and ground pads. The Company's proprietary ABC(R) devices provide
non-contact argon gas electrocoagulation and conventional electrosurgical
cutting and coagulation capabilities. The models 6000 and 6400 ABC(R) 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 Plus(TM) ABC(R) 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(R) system. The Beamer
Plus (TM) ABC(R) units work in conjunction with the hospital's present
electrosurgery unit.
Patient Care Products
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 1994, 1995, and
1996 net sales of patient care products represented 44%, 44%, and 48%,
respectively, of the Company's net sales.
<PAGE>
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.
<PAGE>
Intravenous Therapy Products -- VENI-GARD(R) Catheter
Stabilization Dressing. VENI-GARD(R) is a disposable, sterile product designed
to hold and secure an IV needle or catheter in place. VENI-GARD(R) 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(R) 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(R) for use in stabilizing
epidural catheters.
Disposable IV Fluid Drip Rate Gravity Controllers. With the
Master Medical acquisition, the Company acquired Master Medical's line of
disposable IV fluid drip rate gravity controllers. These disposable devices are
a cost-effective alternative to electronic controllers or pumps. These devices
are available as add-on extension sets which are attached to the primary IV
tubing or as part of the full tubing set connecting the main IV bag to the
patient's IV catheter.
Wound Care Management
Wound Care. Wounds to the skin are referred to as acute, such as
surgical incisions and burns, or chronic, which are slow-healing conditions such
as chronic venous ulcers, pressure ulcers, diabetic ulcers and wounds from
various skin diseases. Traditionally, most open wounds have been treated with
"dry" dressings such as gauze or covered with various ointments. A recent trend
has been the use of occlusive dressings made from polymers called hydrocolloids
and hydrogels. These occlusive dressings keep the wound "moist" or hydrated in
order to promote healing. Wound care dressings are sold to hospitals as well as
to alternate care sites such as nursing homes and skilled nursing facilities.
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(R). ClearSite(R) is a transparent wound dressing that consists of
hydrogel and a flexible, continuous polyurethane film covering. Because
ClearSite(R) is transparent, the health care provider is able to monitor the
course of healing without removing the wound dressing. ClearSite(R) absorbs
wound exudate and, as the gel begins to saturate, moisture vapor transpires into
the atmosphere. ClearSite(R) 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. Using its wound care technology, NDM has developed a number of
innovative products for its clinical markets including an island dressing form
of Clearsite(R) which has a clean, breathable, pliable, adhesive polyurethane
film border and Hydrogauze(R), a gauze-like material that has been impregnated
with dehydrated Clearsite(R) that hydrates upon contact with wound exudate.
Minimally-Invasive Surgical Products
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 1994, 1995 and 1996, net sales attributable to
the Minimally-Invasive Surgery Division represented 2%, 3% and 3%, respectively,
of the Company's net sales.
<PAGE>
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(R), 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(R) 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(R) handpieces for use in laparoscopic surgery.
Marketing
The principal markets for the Company's products are the
approximately 5,200 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 six years.
The Company has located its salespeople (territory managers) in
key metropolitan areas. They are supervised and supported by regional managers.
Home office sales and marketing management provide the overall direction for the
sales of the Company's products. The sales force is required to work closely
with distributors where applicable and to maintain close relationships with
end-users. Domestically, the Company's products are sold through approximately
20 national and regional hospital distributors, 150 to 250 local distributors,
and directly to hospitals.
<PAGE>
In response to competitive pressures in the health care industry,
hospitals and other health care providers have aligned themselves with group
purchasing organizations. Such organizations are able to negotiate competitive
pricing from healthcare suppliers based on the purchasing volume of its
affiliated membership. Terms of arrangements between group purchasing
organizations, affiliated members and healthcare suppliers vary. The Company has
a corporate sales department which is responsible for interacting with group
purchasing organizations. The Company believes that it has contracts with most
such organizations and that the lack of any individual group purchasing contract
will not impact the Company's competitiveness in the marketplace.
Prior to January 1, 1997, the Company's domestic salesforce was
structured into three groups, Electrosurgical Systems, Patient Care and MIS;
with each group responsible for selling only the products in these categories.
While this structure had been effective in maintaining business associated with
recent acquisitions, it was not efficient as the Company had multiple sales
people calling on individual customers. Accordingly, effective January 1, 1997,
the three groups were combined into one salesforce whereby each of the territory
managers sell the entire product line of the Company. The Company believes that
this new structure is growth-oriented, will permit greater attention to each
account and will facilitate focused selling of the Company's products.
The Company's international sales efforts are conducted by seven
area managers who coordinate with local distributors in over 60 countries.
International sales accounted for 14.5% of the Company's sales during 1996.
Among the top foreign markets for the Company are Japan, Germany, Canada, Italy
and Korea. International sales grew in 1995 in all areas and sales growth
continued in 1996, with the strongest sales gains in Europe and the Far East.
The Company focuses on keeping its salespeople highly trained and
educated in the applications for its products. The Company's salespeople call on
key departments such as the surgery, intensive care, cardiac care and neonatal
intensive care units and the emergency room. Therefore, it is essential that the
sales force has the ability to advise 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 32 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 1994, 1995 and 1996, the Company spent approximately $2,352,000,
$2,832,000 and $2,953,000, respectively, for research and development.
<PAGE>
The Company has approximately 152 U.S. patents and numerous
corresponding foreign patents on its products expiring at various dates from
1997 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
During 1996, the Company introduced a smoke evacuation system
which includes a evacuation (vacuum) unit with disposable electrosurgical
pencil, tubing and filter. 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 has signed an agreement that will permit it to bring
ClearSite(R) to the consumer market in 1997. Under this agreement, the Company
will supply a consumer bandage manufacturer with variations of its wound care
technology for marketing and distribution through retail outlets.
The Company will expand its MIS offerings with its introduction
of the TroGARD(R) Finesse(TM) trocar. The TroGARD(R) Finesse(TM) is a system
which includes a dilating, conical blunt tip trocar and multi-feature cannulas.
The Company believes that the TroGARD(R) Finesse(TM) will be competitive with
existing trocar systems in the areas of patient safety, ease of use and economy.
The Company expects to fully release the TroGARD(R) Finesse(TM) to the market in
the second quarter of 1997.
Manufacturing and Supply Arrangements
The Company manufactures or assembles most of its products at its
own facilities. 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.
<PAGE>
In connection with the NDM acquisition, the Company assumed NDM's
obligations under a non-exclusive distribution agreement with Allegiance
Healthcare Corporation (formerly Baxter Healthcare Corporation). Allegiance was
and continues to be the largest distributor of NDM products. This agreement
outlined certain terms and pricing for NDM's products distributed through
Allegiance. Effective December 31, 1996, this agreement expired and sales of NDM
products distributed through Allegiance became subject to the Company's
established dealer terms and pricing. Management believes that the terms and
pricing effective January 1, 1997 are materially consistent with that under the
former distribution agreement.
Competition
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. The major competitors of the Company include
ValleyLab (a division of Pfizer), 3M Corporation, Graphic Controls, 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. 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 and,
in certain instances, the reliance on or utilization of group purchasing
organizations and distributors. There can be no assurances that demand for the
Company's products will not be adversely affected by such fluctuations and
trends.
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.
<PAGE>
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(R) and ABC(R) units)
have received a "CE" 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.
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 December 31, 1996 the Company had 957 full-time employees,
of whom 668 were in manufacturing, 32 were in research and development, and the
balance were in sales, marketing, executive and administrative positions. None
of the Company's employees is represented by a union, and the Company considers
its employee relations to be excellent. The Company has never experienced any
strikes or work stoppages.
Item 2. Properties
The Company operates in Utica, New York from an owned facility of
approximately 130,000 square feet and in Rome, New York from a owned facility of
approximately 120,000 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 29,000 square foot
warehouse and distribution center in El Paso, Texas pursuant to a lease that
expires in April 1999 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.
Item 3. 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.
<PAGE>
The Company's Birtcher subsidiary is voluntarily participating in
an environmental investigation at its former facility in El Monte, California.
The former facility is located in the El Monte Operable Unit of the San Gabriel
Valley Superfund Site. The Environmental Protection Agency has not named
Birtcher as a Potentially Responsible Party in this matter. In connection with
its accounting for the Birtcher acquisition, the Company has established what it
believes is an appropriate reserve for this matter. Such reserve is the subject
of an adjustment in the purchase accounting for the Birtcher acquisition. The
Company does not expect that the resolution of the environmental investigation
will have a material adverse effect on the Company's financial condition or
results of operations.
The Company's ABC(R) 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. In the United Kingdom, the patent office ruled to
invalidate a portion of the claims stated in the Company's ABC(R) patent,
however, the majority of the significant claims remain valid and enforceable.
The Company is vigorously defending the validity of these patents in the above
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.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1996.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters
The Company's Common Stock, par value $.01 per share, is traded on the Nasdaq
National Market System (symbol - CNMD). At December 31, 1996, there were 1,505
owners of record of the Company's Common Stock.
The following table show the high-low last sales prices for the years ended
December 1995 and 1996, as reported by the Nasdaq National Market. The sales
prices have been adjusted to give retroactive effect to the three-for-two stock
split in the form of stock dividend paid on November 30, 1995.
1995
-----------------------------------------------
Period High Low
-----------------------------------------------
First Quarter $15.17 $11.17
Second Quarter 16.67 9.67
Third Quarter 23.33 15.67
Fourth Quarter 25.00 20.25
1996
----------------------------------------------
Period High Low
----------------------------------------------
First Quarter $25.63 $20.50
Second Quarter 34.00 24.50
Third Quarter 25.25 13.50
Fourth Quarter 20.88 16.00
The Company did not pay cash dividends on its Common Stock during 1995 and 1996.
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.
<PAGE>
Item 6. Selected Financial Data
FIVE - YEAR SUMMARY OF SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
1992 1993(2) 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Income (Loss)(1)
Net sales $ 42,602 $ 53,641 $ 71,064 $ 99,558 $125,630
Net income (loss) 4,106 (1,396) 5,416 10,863 16,286
Earnings (loss) per share (3) .42 (.15) .56 .94 1.12
Weighted average number of shares
and equivalents outstanding (3) 9,702 9,426 9,624 11,613 14,496
Consolidated Balance Sheet
Working capital $ 23,827 $ 15,399 $ 18,159 $ 37,350 $ 66,074
Total assets 41,939 57,338 62,104 119,403 170,083
Long-term debt (less current portion) 30 9,375 6,875 26,340 --
Shareholders' equity 38,669 37,490 43,061 75,002 158,635
</TABLE>
- --------------------
(1) Includes the results of (i) CONMED Andover Medical from July 12, 1993;
(ii) Birtcher from March 14, 1995 and Master Medical from May 22, 1995;
(iii) NDM from February 23, 1996, in each such case from the date of
acquisition.
(2) Includes litigation charge of $5,000 relating to a patent infringement
case involving CONMED's line of coated electrosurgical accessory blades
and a product restructure charge of $675 for the write-off of obsolete
inventory, net of related tax benefit of $1,930.
(3) Share and per share information have been adjusted to give retroactive
effect to the three-for-two stock splits in the form of stock dividends
paid to shareholders on December 27, 1994 and November 30, 1995.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
Company's consolidated results of operations and financial condition. The
discussion should be read in conjunction with the consolidated financial
statements and notes thereto.
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>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Operating expense:
Cost of sales 54.6 52.6 52.1
Selling and administrative expense 29.5 25.7 25.2
Research and development expense 3.3 2.9 2.4
Income from operations 12.6 18.8 20.4
Interest income (expense), net (0.9) (2.0) (0.2)
Income before income taxes 11.7 16.8 20.2
Net income 7.6 10.9 13.0
</TABLE>
1996 Compared to 1995
Sales for 1996 were $125,630,000, an increase of 26.2% compared
to sales of $99,558,000 in 1995. The increase is primarily a result of
incremental sales volume associated with the NDM acquisition, which became
effective February 23, 1996, and the Birtcher and Master Medical acquisitions
that were reflected in 1995 results only from March 14, 1995 and May 19, 1995,
their respective dates of acquisition.
Cost of sales increased to $65,393,000 in 1996 as compared to
$52,402,000 in 1995. The Company's gross margin percentage was 47.9% in 1996 as
compared to 47.4% in 1995. The effects of the Birtcher and Master Medical
acquisitions had a significant positive impact on the overall corporate gross
margin percentage which improved to an average of 47.8% for the last three
quarters of 1995. During 1996, the NDM acquisition resulted in further
manufacturing efficiencies. However, partially offsetting these gains in gross
margin percentage, were the effects of lower pricing on ECG electrodes and the
effects of the NDM product line, which generally have lower gross margin
percentages than the Company's overall gross margin percentage.
Selling and administrative expenses increased to $31,620,000 in
1996 as compared to $25,570,000 in 1995. As a percentage of sales, however,
selling and administrative expense decreased from 25.7% in 1995 to 25.2% in 1996
due to economies of scale resulting from the completed acquisitions.
<PAGE>
Research and development expense was $2,953,000 in 1996 as
compared to $2,832,000 in 1995. The Company continues to conduct research
activities in all of its product lines, with a particular emphasis on products
for minimally-invasive surgery.
Net interest expense was $217,000 in 1996 as compared to
$1,991,000 in 1995. In connection with the 1995 acquisitions of Birtcher and
Master Medical, the Company borrowed approximately $23,000,000 bringing
aggregate 1995 borrowing outstanding under its credit agreement to $32,340,000.
While an additional $32,660,000 was borrowed in connection with the February
1996 acquisition of NDM, all indebtedness of the Company under its credit
agreement was repaid in March 1996 following the Company's offering of 2,998,000
shares of common stock.
The Company's effective tax rate for 1996 was 36.0% as compared
to 35.2% in 1995.
1995 Compared to 1994
The Company had net sales of $99,558,000 for 1995 as 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 percentage was 47.4% in 1995 as
compared to 45.4% in 1994. This increase was primarily a result of manufacturing
efficiencies and economies of scale realized through the Birtcher and Master
Medical acquisitions. On a quarterly basis, the 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% in 1995 as compared to 29.5% in 1994, due to the economies of
scale resulting from the acquisitions of Birtcher and 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, as well as the continued emphasis on the
development of surgical products for MIS procedures.
The Company incurred $1,991,000 in interest expense in 1995
compared to $628,000 in 1994. This increase reflects the incremental debt
incurred as a result of the Birtcher and Master Medical acquisitions.
The Company's effective tax rate for 1995 was 35.2% as compared
to 34.8% in 1994.
<PAGE>
Liquidity and Capital Resources
Cash flows provided or used by operating, investing and financing
activities for 1995 and 1996 are disclosed in the Consolidated Statements of
Cash Flows. Net cash provided by operations was $25,908,000 for 1996 as compared
to $5,059,000 provided by operations in 1995. Operating cash flows for 1996 were
aided by higher net income compared to the same period in 1995. Depreciation and
amortization in 1996 increased primarily due to the effects of the completed
acquisitions. Operating cash flows for 1996 were negatively impacted by
increases in accounts receivable and other current assets, and a reduction in
accrued payroll and withholdings. Adding to cash flows from operations for this
period was a reduction in deferred income taxes and the income tax benefit of
stock option exercises.
Net cash used by investing activities was $36,618,000 in 1996
compared to $14,695,00 in 1995. Cash used for the 1996 acquisition of NDM was
$31,672,000. Additions to property, plant and equipment for 1996 amounted to
$4,946,000. During 1995, cash used for the Master Medical acquisition amounted
to $9,500,000 and additions to property, plant and equipment amounted to
$5,195,000.
Cash flows from financing activities were $29,344,000 for 1996.
In connection with the NDM acquisition on February 23, 1996, the Company
borrowed $32,660,000 bringing aggregate borrowings under its credit facility to
$65,000,000. On March 20, 1996, the Company completed an offering of common
stock which raised $61,735,000. Proceeds relating to the 1996 exercise of stock
options and a warrant to purchase the Company's common stock amounted to
$1,218,000 and $3,000,000, respectively. Subsequent to the Company's equity
offering, all indebtedness under the Company's credit agreement was repaid.
Payments on long-term debt and other obligations included $3,133,000 to
liquidate NDM obligations assumed on connection with the acquisition.
The Company's credit facility consists of a $60,000,000 secured
revolving line of credit which expires in March 2001. This facility carries an
interest rate of 0.5%-1.25% over LIBOR depending on defined cash flow
performance ratios. Nothing was outstanding under the credit agreement at
December 31, 1996.
Management believes that cash generated from operations, its
current cash resources and funds available under its credit agreement will
provide sufficient liquidity to ensure continued working capital for operations
and funding of capital expenditures in the foreseeable future.
Inflation
Management does not believe that inflation has had or is likely
to have any significant impact on the Company's operations.
Item 8. Financial Statements and Supplementary Data
The Company's 1996 Financial Statements, together with the report
thereon of Price Waterhouse LLP dated February 7, 1997, are included elsewhere
herein. See Item 14 for a list of Financial Statements and Financial Statement
Schedules.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
The Company and Price Waterhouse LLP have had no disagreements
which would be required to be reported under this Item 9.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to the Directors and Executive Officers
of the Company is incorporated herein by reference to the sections captioned
"Proposal One: Election of Directors" and "Directors and Executive Officers" in
CONMED Corporation's definitive Proxy Statement to be mailed on or about April
21, 1997 for the annual meeting of shareholders to be held on May 20, 1997.
Item 11. Executive Compensation
Information with respect to Executive Compensation is
incorporated herein by reference to the sections captioned "Compensation of
Executive Officers", "Stock Option Plans", and "Pension Plans" in CONMED
Corporation's definitive Proxy Statement to be mailed on or about April 21, 1997
for the annual meeting of shareholders to be held on May 20, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to Security Ownership of Certain
Beneficial Owners and Management is incorporated herein by reference to the
section captioned "Security Ownership of Certain Beneficial Owners and
Management" in CONMED Corporation's definitive Proxy Statement to be mailed on
or about April 21, 1997 for the annual meeting of shareholders to be held on May
20, 1997.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related
transactions is incorporated herein by reference to the section captioned
"Certain Relationships and Related Transactions" in CONMED Corporation's
definitive Proxy Statement to be mailed on or about April 21, 1997 for the
annual meeting of shareholders to be held on May 20, 1997.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Index to Financial Statements:
(a)(1) List of Financial Statements
Report of Independent Accountants
Consolidated Balance Sheets at December 1995 and 1996
Consolidated Statements of Income for the Years
Ended December 1994, 1995 and 1996
Consolidated Statements of Shareholders' Equity
for the Years Ended December 1994, 1995 and 1996
Consolidated Statements of Cash Flows for the
Years Ended December 1994, 1995 and 1996
Notes to Consolidated Financial Statements
(2) List of Financial Statement Schedules
Valuation and Qualifying Accounts (Schedule VIII)
All other schedules have been omitted because they
are not applicable, or the required information is
shown in the financial statements or notes thereto.
(3) List of Exhibits
The exhibits listed on the accompanying Exhibit Index on pages
19-20 below are filed as part of this Form 10-K.
(b) Reports on Form 8-K
(1) On December 6, 1996, the Company filed a report on Form 8-K
regarding the change in the Company's year from a 52-53 week
fiscal year ending on the last Friday in December in each year to
a calendar year ending on each December 31.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on the
date indicated below.
CONMED CORPORATION
March 21, 1997
By: /s/ EUGENE R. CORASANTI
------------------------
Eugene R. Corasanti
(Chairman of the Board,
Chief Executive Officer
and President)
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf of the
registrants and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Chairman of the Board,
Chief Executive Officer,
/s/ EUGENE R. CORASANTI President (Principal
- ---------------------------- Executive Officer) and
Eugene R. Corasanti Director March 21, 1997
Vice President-Finance
/s/ ROBERT D. SHALLISH, JR. and Chief Financial Officer
- ---------------------------- (Principal Financial Officer) March 21, 1997
Robert D. Shallish, Jr.
/s/ JOSEPH J. CORASANTI Vice President-Legal Affairs, March 21, 1997
- ---------------------------- General Counsel and Director
Joseph J. Corasanti
/s/ LUKE A. POMILIO Controller March 21, 1997
- ---------------------------- (Principal Accounting Officer)
Luke A. Pomilio
/s/ HARRY CONE Director March 21, 1997
- ----------------------------
Harry Cone
/s/ BRUCE F. DANIELS Director March 21, 1997
- ----------------------------
Bruce F. Daniels
/s/ ROBERT E. REMMELL Director March 21, 1997
- ----------------------------
Robert E. Remmell
</TABLE>
<PAGE>
LIST OF EXHIBITS
Exhibit No. Description of Instrument
- ----------- -------------------------
3.1 - Amended and Restated By-Laws, as adopted by the Board
of Directors on December 26, 1990 - incorporated herein
by reference to the exhibit in the Company's Current
Report on Form 8-K, dated March 7, 1991 (File No.
0-16093).
3.2 - 1992 Amendment to Certificate of Incorporation and
Restated Certificate of Incorporation of CONMED
Corporation - incorporated herein by reference to the
exhibit in the Company's Annual Report on Form 10-K for
the year ended December 25, 1992.
3.3 - 1996 Amendment to Certificate of Incorporation and
Restated Certificate of Incorporation of CONMED
Corporation.
4.1 - See Exhibit 3.1.
4.2 - See Exhibit 3.2.
4.3 - Amended and Restated Credit Agreement - Revolving
Credit Facility dated March 13, 1996 incorporated
herein by reference to the exhibit in the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 29, 1996.
4.4 - First Amendment of Credit Agreement dated March 13,
1996 - incorporated herein by reference to the exhibit
in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 29, 1996.
10.1 - Employment Agreement between the Company and Eugene R.
Corasanti, dated December 16, 1996.
10.2 - Amended and Restated Employee Stock Option Plan
(including form of Stock Option Agreement) --
incorporated herein by reference to the exhibit in the
Company's Annual Report on Form 10-K for the year ended
December 25, 1992.
<PAGE>
List of Exhibits
Exhibit No. Description of Instrument
- ----------- -------------------------
10.3 (a) Eugene R. Corasanti disability income plans with
Northwestern Mutual Life Insurance Company, dated
January 14, 1980 and March 7, 1981 -- policy
specification sheets -- incorporated herein by
reference to Exhibit 10.0(a) of the Company's
Registration Statement on Form S-2 (File No.
33-40455).
(b) William W. Abraham disability income plan with
Northwestern Mutual Life Insurance Company, dated
March 24, 1981 -- policy specification sheet --
incorporated herein by reference to Exhibit 10.0(b)
of the Company's Registration Statement on Form S-2
(File No. 33-40455).
(c) Eugene R. Corasanti life insurance plan with
Northwestern Mutual Life Insurance Company, dated
October 6, 1979 -- policy specification sheet --
incorporated herein by reference to Exhibit 10.9(c)
of the Company's Registration Statement on Form S-2
(File No. 33-40455).
(d) Eugene R. Corasanti life insurance plans with
Northwestern Mutual Life Insurance Company dated
August 25, 1991 -- Statements of Policy Cost and
Benefit Information, Benefits and Premiums,
Assignment of Life Insurance Policy as Collateral --
incorporated herein by reference to the Company's
Annual Report on Form 10-K for the year ended
December 27, 1991.
10.4 - 1992 Stock Option Plan (including form of Stock Option
Agreement). -- incorporated herein by reference to the
exhibit in the Company's Annual Report on Form 10-K for
the year ended December 25, 1992.
10.5 - Stock Option Plan for Non-Employee Directors of CONMED
Corporation
10.6 - Amendment to 1992 Stock Option Plan.
10.7 - Plan and Agreement of Merger dated as of December 5,
1994 among the Company, CONMED Acquisition Corporation
and Birtcher Medical Systems, Inc.- incorporated herein
by reference to appendix A of the Company's
registration statement on S-4 (File No. 33-87746)
10.8 - Asset Purchase Agreement by and between New Dimensions
In Medicine, Inc. and CONMED Corporation dated as of
the 18th day of October 1995 - incorporated herein by
reference to New Dimensions In Medicine, Inc's.
(Commission File No. 1-09156) Report on Form 8-K dated
October 18, 1995.
11 - Computation of weighed average number of shares of
common stock.
21 - Subsidiaries of the registrant.
23 - Consent of Independent Accountants.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of CONMED Corporation
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 17 of the Annual Report on Form
10-K present fairly, in all material respects, the financial position of CONMED
Corporation and its subsidiaries at December 31, 1996 and December 29, 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Syracuse, New York
February 7, 1997
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
December 1995 and 1996
(In thousands except share amounts)
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................................ $ 1,539 $ 20,173
Accounts receivable less allowance for doubtful accounts of
$400 in 1995 and $500 in 1996 ......................................................... 22,649 26,336
Income taxes receivable (Note 6) .......................................................... 961 766
Inventories (Notes 1 and 2) ............................................................... 20,943 23,187
Deferred income taxes (Note 6) ............................................................ 2,678 626
Prepaid expenses and other current assets ................................................. 476 740
-------- --------
Total current assets ......................................................... 49,246 71,828
Property, plant and equipment, net (Notes 1 and 3) ............................................ 19,728 26,458
Deferred income taxes (Note 6) ................................................................. 2,907 1,246
Covenant not to compete, net (Note 1) .......................................................... 1,153 713
Goodwill, net (Notes 1 and 10) ................................................................. 41,438 64,283
Patents, trademarks and other assets (Note 1) .................................................. 4,931 5,555
-------- --------
Total assets ................................................................. $119,403 $170,083
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 4) ................................................ $ 6,000 $ --
Accounts payable .......................................................................... 2,351 2,433
Accrued payroll and withholdings .......................................................... 2,282 2,037
Accrued pension (Note 9) .................................................................. 274 333
Other current liabilities ................................................................. 989 951
-------- --------
Total current liabilities ................................................... 11,896 5,754
Long-term debt (Note 4) ........................................................................ 26,340 --
Accrued pension (Note 9) ....................................................................... 276 276
Deferred compensation .......................................................................... 868 1,033
Long-term leases (Note 5) ..................................................................... 3,521 2,924
Other long-term liabilities (Note 5) ........................................................... 1,500 1,461
-------- --------
Total liabilities .......................................................... 44,401 11,448
-------- --------
(Continued)
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED BALANCE SHEETS
December 1995 and 1996
(In thousands except share amounts)
1995 1996
-------- --------
<S> <C> <C>
Commitments (Notes 3, 5, 7, 9, and 11)
Shareholders' equity (Notes 1 and 7):
Preferred stock, par value $.01 per share;
authorized 500,000 shares; none outstanding
Common stock, par value $.01 per share; 40,000,000 authorized;
11,000,105 and 14,988,783, issued and outstanding in
1995 and 1996, respectively ............................................................ 110 150
Paid-in capital ............................................................................ 44,560 111,867
Retained earnings .......................................................................... 30,332 46,618
-------- --------
Total shareholders' equity ................................................. 75,002 158,635
-------- --------
Total liabilities and shareholders' equity ................................. $119,403 $170,083
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 1994, 1995 and 1996
(In thousands except per share amounts)
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales (Note 8) ............................................... $ 71,064 $ 99,558 $ 125,630
--------- --------- ---------
Cost of sales .................................................... 38,799 52,402 65,393
Selling and administrative expense ............................... 20,979 25,570 31,620
Research and development expense ................................. 2,352 2,832 2,953
--------- --------- ---------
62,130 80,804 99,966
--------- --------- ---------
Income from operations ........................................... 8,934 18,754 25,664
Interest expense, net (Note 4) ................................... (628) (1,991) (217)
--------- --------- ---------
Income before income taxes ....................................... 8,306 16,763 25,447
Provision for income taxes
(Notes 1 and 6) ................................................ 2,890 5,900 9,161
--------- --------- ---------
Net income ....................................................... $ 5,416 $ 10,863 $ 16,286
========= ========= =========
Weighted average number of common shares
and equivalents outstanding (Note 1) .......................... 9,624 11,613 14,496
========= ========= =========
Earnings per common and
common equivalent share ....................................... $ .56 $ .94 $ 1.12
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 1994, 1995 and 1996
(In thousands)
Common Stock
----------------------- Paid-in Retained
Number Amount Capital Earnings
------ -------- -------- ---------
<S> <C> <C> <C> <C>
Balance at December 1993 ......................................... 9,027 $ 90 $ 23,346 $ 14,054
Exercise of stock options ....................................... 30 97
Tax benefit arising from exercise of stock options .............. 59
Cash payment in lieu of fractional shares for
stock split in the form of a stock dividend .................. (1)
Net income ...................................................... 5,416
------ -------- -------- ---------
Balance at December 1994 ......................................... 9,057 90 23,502 19,469
Exercise of stock options ....................................... 353 4 2,096
Tax benefit arising from exercise of stock options .............. 1,223
Stock issued in connection with Birtcher
acquisition (Note 10) ........................................ 1,590 16 17,739 10,863
------ -------- -------- ---------
Balance at December 1995 ......................................... 11,000 110 44,560 30,332
Issuance of shares (Note 7) ..................................... 2,998 30 61,705
Exercise of stock options and a warrant (Note 7) ................ 991 10 4,208
Tax benefit arising from exercise of stock options .............. 1,394 16,286
------ -------- -------- ---------
Balance at December 1996 ......................................... 14,989 $ 150 $111,867 $ 46,618
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 1994, 1995 and 1996
(In thousands)
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................................................... $ 5,416 $ 10,863 $ 16,286
-------- -------- --------
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation .................................................................... 2,457 2,861 3,670
Amortization .................................................................... 1,421 2,154 2,740
Increase (decrease) in cash flows from changes in assets and liabilities,
net of effects from acquisitions (Note 10):
Accounts receivable ......................................................... (1,684) (3,943) (1,552)
Inventories ................................................................. (619) (4,311) 360
Prepaid expenses and other current assets ................................... 58 (25) (264)
Accounts payable ............................................................ 274 452 82
Income tax receivable/payable ............................................... 394 (2,659) 195
Income tax benefit of stock option exercises ................................ 59 1,233 1,394
Accrued payroll and withholdings ............................................ 1,327 (487) (245)
Accrued pension ............................................................. (147) (33) 59
Accrued patent litigation ................................................... (355) (2,360) --
Other current liabilities ................................................... (210) 559 (38)
Deferred income taxes ....................................................... 182 1,398 3,713
Other assets/liabilities (net) .............................................. (313) (643) (492)
-------- -------- --------
2,844 (5,804) 9,622
-------- -------- --------
Net cash provided by operations ......................................... 8,260 5,059 25,908
-------- -------- --------
Cash flows from investing activities:
Acquisitions (Note 10) ........................................................ (2,000) (9,500) (31,672)
Acquisition of property, plant and equipment ................................. (2,190) (5,195) (4,946)
-------- -------- --------
Net cash used by investing activities .................................... (4,190) (14,695) (36,618)
-------- -------- --------
Cash flows from financing activities:
Proceeds of long term debt .................................................... -- 26,590 32,660
Proceeds from issuance of common stock ........................................ 97 3,328 65,953
Payments on long-term debt and other obligations .............................. (2,530) (22,358) (69,269)
-------- -------- --------
Net cash provided (used) by financing activities ......................... (2,433) 7,560 29,344
-------- -------- --------
Net increase (decrease) in cash and cash equivalents .................................. 1,637 (2,076) 18,634
Cash and cash equivalents at beginning of year ........................................ 1,978 3,615 1,539
-------- -------- --------
Cash and cash equivalents at end of year .............................................. $ 3,615 $ 1,539 $ 20,173
======== ======== ========
(Continued)
<PAGE>
<CAPTION>
CONMED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 1994, 1995 and 1996
(In thousands)
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information: Cash paid during the year for:
Interest ..................................................................... $ 641 $ 1,876 $ 941
Income taxes ................................................................. 2,470 2,466 5,347
Supplemental non-cash investing and financing activities:
As more fully discussed in Note 10, the Company acquired a business in 1995 through the exchange of 1,590,000 shares of
the Company's common stock and the assumption of $3,500,000 of net liabilities.
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CONMED CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and operations
The consolidated financial statements include the accounts of CONMED
Corporation and its subsidiaries (the Company). All intercompany transactions
have been eliminated. The Company is primarily engaged in the development,
manufacturing and marketing of disposable medical products and related devices
for various medical applications.
Statement of cash flows
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Fiscal year end
Prior to 1996, the Company's fiscal year ended on the last Friday in
December. Effective in 1996, the Company changed its fiscal year to end on
December 31.
Inventories
The inventories are stated at the lower of cost or market, cost being
determined on the first-in, first-out basis.
Property, plant and equipment
Property, plant and equipment are stated at cost and depreciated using
the straight-line method over the estimated useful lives of the related assets,
which range from four to forty years. Expenditures for repairs and maintenance
are charged to expense as incurred. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from the
accounts and any resultant gain or loss is recognized.
Patents and trademarks
Patents and trademarks are amortized over their expected useful lives of
3 to 17 years. Accumulated amortization of patents and trademarks was $867,000
and $1,123,000 at December 1995 and 1996, respectively.
Goodwill
Goodwill is amortized over periods ranging from 13 to 40 years.
Accumulated amortization of goodwill amounted to $2,171,000 and $4,074,000 at
December 1995 and 1996, respectively.
Covenant not to compete
Covenant not to compete is amortized over a 5 year period. Accumulated
amortization related to this asset amounted to $3,047,000 and $3,487,000 at
December 1995 and 1996, respectively.
<PAGE>
Earnings per common and common equivalent share
Earnings per common and common equivalent share was computed by dividing
net income by the weighted average number of shares of common stock and common
stock equivalents outstanding during the year.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain amounts previously reported have been reclassified to conform to
current year classifications.
NOTE 2 - INVENTORIES
The components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Raw materials .......................... $ 7,209 $ 7,079
Work in process ........................ 5,680 7,541
Finished goods ......................... 8,054 8,567
------- -------
$20,943 $23,187
======= =======
</TABLE>
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Details of property, plant and equipment are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Land and improvements ............................ $ 495 $ 1,007
Building and improvements ........................ 12,285 14,873
Machinery and equipment .......................... 20,460 27,250
Construction in progress ......................... 702 722
------- -------
33,942 43,852
Less: Accumulated depreciation ............. 14,214 17,394
------- -------
$19,728 $26,458
======= =======
</TABLE>
<PAGE>
Rental expense on operating leases was approximately $441,000, $445,000
and $327,000 for the years ended December 1994, 1995 and 1996, respectively. The
aggregate future minimum lease commitments for operating leases at December 31,
1996 amounted to $139,000, $79,000 and $26,000 payable in 1997, 1998 and 1999,
respectively.
NOTE 4 - LONG-TERM DEBT
At December 29, 1995, the Company had $32,340,000 outstanding
under its credit facility at interest rates ranging from LIBOR plus 1.50% to
LIBOR plus 1.625% (7.47% to 7.60% at December 29, 1995).
In connection with the February 23, 1996 acquisition of NDM (Note
10), the Company borrowed an additional $32,660,000 bringing aggregate
borrowings under the credit facility to $65,000,000. On March 20, 1996, the
Company completed an offering of common stock (Note 7) and applied the proceeds
to repayment of the Company's indebtedness.
The Company's credit facility consists of a $60,000,000 secured
revolving line of credit which expires in March 2001. This facility carries an
interest rate of 0.5%-1.25% over LIBOR depending on defined cash flow
performance ratios. There were no borrowings against this facility at December
31, 1996.
Total interest costs in 1994 and 1996 were $628,000 and $765,000,
respectively, all of which was expensed. Interest cost during 1995 was
$2,119,000, of which $73,000 was capitalized as interest during construction.
NOTE 5 - LEASES AND OTHER LONG-TERM LIABILITIES
Upon the Company's acquisition of Birtcher (Note 10), use of
certain manufacturing and administrative facilities previously occupied by
Birtcher was discontinued. A liability was established in connection with
Birtcher purchase accounting representing the aggregate future rental payments
net of committed sublease income at the date of acquisition.
Future minimum rental commitments, net of sublease income, for such leases at
December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
Minimum Minimum
Rental Rental
Payments Income Net
------ ------ ------
<S> <C> <C> <C>
1997 $1,444 $ 895 $ 549
1998 1,474 729 745
1999 1,534 590 944
2000 1,081 395 686
------ ------ ------
$5,533 $2,609 $2,924
====== ====== ======
</TABLE>
<PAGE>
Prior to its acquisition by the Company, Birtcher voluntarily began
participation in an environmental investigation at a former facility located 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.
Based on estimates prepared by the Company's environmental consultants, the
Company established a liability for site clean-up in connection with purchase
accounting for Birtcher. This liability is reflected in Other long-term
liabilities in the Consolidated Balance Sheets.
NOTE 6 - FEDERAL AND STATE INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Current tax expense:
Federal ............................... $2,416 $4,493 $6,398
State ................................. 292 356 311
------ ------ ------
2,708 4,849 6,709
Deferred income tax expense ................ 182 1,051 2,452
------ ------ ------
Provision for income taxes ........... $2,890 $5,900 $9,161
====== ====== ======
</TABLE>
A reconciliation between income taxes computed at the statutory
federal rate and the provision for income taxes follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Tax provision at statutory rate based
on income before taxes ................ 34.0% 34.7% 35.0%
Foreign sales corporation .................. (1.5) (1.7) (1.3)
State taxes ................................ 2.3 1.4 0.8
Nondeductible intangible amortization ...... 0.2 1.0 1.1
Other, net ................................. (0.2) (0.2) 0.4
---- ---- ----
34.8% 35.2% 36.0%
==== ==== ====
</TABLE>
<PAGE>
The tax effects of the significant temporary differences which
comprise the deferred tax assets and liabilities at December 1995 and 1996 are
as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Assets
Receivables ...................................... $ 617 $ 177
Inventory ........................................ 1,860 352
Deferred compensation ............................ 295 361
Employee benefits ................................ 201 218
Other ............................................ 258 439
Leases ........................................... 1,650 1,183
Goodwill and intangible assets ................... 1,304 892
Birtcher net operating losses .................... 6,084 5,529
Valuation allowance for deferred tax assets ...... (5,417) (5,417)
------- -------
6,852 3,734
------- -------
Liabilities
Depreciation .................................... 1,017 1,261
Interest charge DISC ............................ 109 84
Other ........................................... 141 517
------- -------
1,267 1,862
------- -------
$ 5,585 $ 1,872
======= =======
</TABLE>
Birtcher net operating losses are subject to certain limitations and
expire over the period 2008 to 2010. Management has established a valuation
allowance of $5,417,000 to reflect the uncertainty of realizing the benefit of
certain of these carry forwards. Utilization of Birtcher operating loss carry
forwards in excess of the net amount recorded at December 31, 1996 of $112,000
will serve to decrease Goodwill associated with the Birtcher acquisition.
<PAGE>
NOTE 7 - SHAREHOLDERS' EQUITY
On November 22, 1994 and October 31, 1995, the Board of Directors of the
Company declared three-for-two splits of the Company's common stock to be
effected in the form of stock dividends. Such dividends were payable on December
27, 1994 and November 30, 1995 to shareholders of record on December 8, 1994 and
November 13, 1995, respectively. Accordingly, common stock, retained earnings,
earnings per share, the number of shares outstanding, the weighted average
number of shares and equivalents outstanding and stock option data have been
restated to retroactively reflect the split.
On March 20, 1996, the Company completed a public offering of 2,998,000
shares of its common stock with net proceeds to the Company amounting to
$61,735,000.
Through the Company's 1989 acquisition of Aspen Laboratories, Inc.,
Bristol-Myers Squibb Company received a warrant to purchase 698,470 shares of
the Company's common stock at $4.29 per share. This warrant was exercised in
March 1996 with proceeds to the Company amounting to $3,000,000.
In connection with the acquisition of Birtcher (Note 10), Birtcher
incentive stock options outstanding as of the acquisition were exchanged for
options to purchase common stock of CONMED Corporation. Such options were
exercisable for a period of six months from the date of the acquisition.
Proceeds resulting from the exercise of options of 100,000 shares for $797,000
have been recorded as an increase to common stock and paid-in capital.
In 1983, the shareholders authorized 500,000 shares of preferred
stock, par value $.01 per share, which may be issued in one or more series by
the Board of Directors without further action by the shareholders. As of
December 31, 1996, no preferred stock had been issued.
The Company has reserved shares of common stock for issuance to
employees and directors under three Stock Option Plans (the "Plans"). Through
December 31, 1996, a total of 1,870,000 of these options had been granted at
$.89 to $30.75 per share. The option price on all outstanding options is equal
to the estimated fair market value of the stock at the date of grant. Stock
options are non-transferable other than on death and are exercisable beginning
one year from date of grant but for not more than ten years from date of grant.
As of December 31, 1996, 725,000 stock options were exercisable.
<PAGE>
The following is a summary of incentive stock option activity under the
Plans (in thousands except per share amounts):
<TABLE>
<CAPTION>
Number of Price per
Shares Share Total
----- ------------- --------
<S> <C> <C> <C>
Outstanding at December 1993 1,155 $ 0.89-15.00 $ 7,913
Granted during 1994 137 5.11-10.67 1,275
Forfeited (8) 5.11-12.22 (108)
Exercised (30) 0.89- 6.22 (97)
----- ------------- --------
Outstanding at December 1994 1,254 0.89-15.00 8,983
Granted during 1995 251 11.67-25.00 4,968
Forfeited (12) 7.67-21.75 (104)
Exercised (253) 0.89-12.22 (1,299)
----- ------------- --------
Outstanding at December 1995 1,240 0.89-25.00 12,548
Granted during 1996 197 16.50-30.75 4,545
Forfeited (10) 5.11-30.75 (81)
Exercised (292) 0.89-15.00 (1,208)
----- ------------- --------
Outstanding at December 1996 1,135 $ 2.33-30.75 $ 15,804
===== ============= ========
</TABLE>
At December 31, 1996, the number of shares exerciseable at less
than $10, between $10 and $20, and greater than $20 were 197,000, 699,000 and
239,000, respectively. The weighted average price per share and remaining life
for options in these categories were $5.56 and 6 years, $12.15 and 7 years, and
$27.08 and 9 years.
respectively.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation". SFAS 123 defines a fair value based method of
accounting for an employee stock option whereby compensation cost is measured at
the grant date based on the fair value of the award and is recognized over the
service period. A company may elect to adopt SFAS 123 or elect to continue
accounting for its stock option or similar equity awards using the method of
accounting prescribed by Accounting Principles Board Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees", where compensation cost is measured
at the date of grant based on the excess of the market value of the underlying
stock over the exercise price. The Company has elected to continue to account
for its stock-based compensation plans under the provisions of APB 25 and,
accordingly, no compensation expense has been recognized in the accompanying
financial statements relative to the Company's stock option plans.
SFAS 123 also calls for the pro forma disclosure of stock-based
compensation expense for those companies which elect to maintain their
accounting policy under APB 25. The Company has calculated the pro forma stock-
based compensation under the guidelines set forth in SFAS 123, and have
determined the effects to be immaterial for disclosure purposes.
<PAGE>
NOTE 8 - MAJOR CUSTOMERS AND EXPORT SALES
The Company's products are provided to medical professionals and
facilities directly and through medical supply distributors. Sales to one
distributor totaled 10.7%, 12.3% and 12.2% of the Company's sales in 1994, 1995
and 1996, respectively. During 1996, sales to another distributor totaled 14.5%
of the Company's sales and, in 1994, sales to a third distributor totaled 10.7%
of sales.
Sales outside of the United States accounted for approximately
13.6% of the Company's total sales in 1994, 15.5% in 1995 and 14.5% in 1996.
NOTE 9 - PENSION PLANS
The Company maintains defined benefit plans covering substantially all
employees. The Company makes annual contributions to the plans equal to the
maximum deduction allowed for federal income tax purposes.
Net pension cost for 1993, 1994 and 1995 included the following
components (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Service cost - benefits earned during the period .... $ 583 $ 758 $ 766
Interest cost on projected benefit obligation ....... 286 353 402
Actual (gain) loss on plan assets ................... (327) (959) (442)
Net amortization and deferral ....................... 86 685 138
----- ----- -----
Net pension cost ................................... $ 628 $ 837 $ 864
===== ===== =====
</TABLE>
<PAGE>
The following tables set forth the plans' funded status and
amounts recognized in the Company's Consolidated Balance Sheets at December 1995
and 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation
Vested benefits ................................................ $ 3,811 $ 4,057
Non-vested benefits ............................................ 216 241
------- -------
Accumulated benefits obligations ............................... 4,027 4,298
Additional amounts related to projected pay increases .......... 661 1,814
------- -------
Projected benefit obligations for service rendered to date .......... 4,688 6,112
Plan assets at fair value, consisting of debt and
equity securities .............................................. 4,014 4,405
------- -------
Plan benefit obligations in excess of plan assets ................... 674 1,707
Unrecognized net obligation at December 1986
being recognized over 25 years ................................. (80) (76)
Unrecognized prior service cost ..................................... (206) (195)
Unrecognized net gain (loss) from past experience different from that
assumed and effects of changes in assumptions .................. 162 (827)
------- -------
Accrued pension costs recognized in the
balance sheet .................................................. $ 550 $ 609
======= =======
</TABLE>
For 1994, 1995 and 1996 actuarial calculation purposes, the weighted
average discount rate was 7.0%, the expected long term rate of return was 8.0%
and the rate of increase in future compensation levels was 4.0%. Common stock of
the Company included in plan assets, at fair value, was approximately $459,000
and $377,000 at December 1995 and 1996, respectively.
<PAGE>
NOTE 10 - BUSINESS ACQUISITIONS
In November 1994, the Company acquired a specialty ECG monitoring
product line from Becton Dickinson Vascular Access Company in a purchase
transaction amounting to $2,000,000 in cash. The product line's operations have
been included with the Company's financial results since the acquisition date.
Goodwill is being amortized on a straight-line basis over a 40 year period and a
covenant not to compete is being amortized over a five year period.
On March 14, 1995, the Company acquired Birtcher Medical Systems, Inc.
("Birtcher") through an exchange of the Company's common stock for all of the
outstanding common and preferred stock of Birtcher. In connection with this
transaction, the Company issued 1,590,000 shares of common stock valued at
$17,750,000 and assumed approximately $3,500,000 of net liabilities.
Accordingly, the results of operations of the acquired business are included in
the consolidated results of the Company from the date of acquisition. The
acquisition was accounted for using the purchase method of accounting. Goodwill
associated with the acquisition is being amortized on a straight-line basis over
a 40 year period.
On May 22, 1995, the Company acquired the business and certain assets of
the Master Medical Corporation ("Master Medical") for a cash purchase price of
approximately $9,500,000 and assumption of $500,000 of liabilities. Accordingly,
the results of operations of the acquired business are included in the
consolidated results of the Company from the date of acquisition. The
acquisition was accounted for using the purchase method of accounting. Goodwill
associated with the acquisition is being amortized on a straight-line basis over
a 15 year period.
On February 23, 1996, the Company acquired the business and certain
assets of New Dimensions in Medicine, Inc. ("NDM") for a cash purchase price of
approximately $31.6 million and the assumption of $3.3 million of liabilities.
The acquisition is being accounted for using the purchase method of accounting.
Accordingly, the results of operations of the acquired business are included in
the consolidated results of the Company from the date of acquisition. Goodwill
associated with the acquisition is being amortized on a straight-line basis over
a 40 year period.
<PAGE>
On an unaudited pro forma basis, assuming the Birtcher, Master Medical
and NDM acquisitions had occurred as of the beginning of the periods presented,
the consolidated results of the Company would have been as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
For the Years Ended
December
1995 1996
--------- --------
<S> <C> <C>
Pro forma revenues ............................ $ 132,927 $128,130
========= ========
Pro forma net income .......................... $ 13,323 $ 16,507
========= ========
Pro forma earnings per common
and common equivalent share ............... $ 1.12 $ 1.14
========= ========
</TABLE>
The unaudited pro forma financial information presented above gives
effect to purchase accounting adjustments which have resulted or are expected to
result from the acquisitions. This pro forma information is not necessarily
indicative of the results that would actually have been obtained had the
companies been combined for the periods presented.
NOTE 11 - LEGAL MATTERS
From time to time, the Company has been named as 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 deductible amounts and maximum policy limits. Ultimate
liability with respect to these contingencies, if any, is not considered to be
material to the consolidated financial statements of the Company.
<PAGE>
NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for 1995 and 1996 are as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------
1995 March June September December
------- ------- --------- --------
<S> <C> <C> <C> <C>
Net sales $19,753 $25,875 $26,258 $27,672
Gross profit 9,028 12,377 12,521 13,230
Net income 1,840 2,818 2,889 3,316
Earnings per share .18 .24 .24 .27
<CAPTION>
Three Months Ended
----------------------------------------------------------------------
1996 March June September December
------- ------- --------- --------
<S> <C> <C> <C> <C>
Net sales $29,200 $31,790 $31,432 $33,208
Gross profit 14,033 15,285 14,963 15,956
Net income 3,272 4,224 4,033 4,757
Earnings per share .26 .28 .27 .31
<CAPTION>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE VIII - Valuation and Qualifying Accounts
(In thousands)
====================================================================================================================================
Column A Column B Column C Column D Column E
Additions
-----------------------------------
Description Balance at (1) (2) Deductions Balance at End
Beginning of Charged to Charged to of Period
Period Costs and Other Accounts
Expenses
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
1996
Allowance for
bad debts $ 400 $ 337 $(237) $ 500
Inventory
reserves $ 504 $ 267 $(309) $ 462
Deferred tax
asset valuation
allowance $5,417 $5,417
1995
Allowance for
bad debts $ 343 $ 85 $ (28) $ 400
Inventory
reserves $ 703 $ 245 $(444) $ 504
Deferred tax $5,417
asset valuation
allowance $ -- $5,417
1994
Allowance for $ (4) $ 343
bad debts $ 347
Inventory
reserves $ 559 $ 144 $ 703
</TABLE>
AMENDMENT TO THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION
The amendment amends the first paragraph of Article FOURTH of the
Certificate of Incorporation to read in its entirety as follows:
FOURTH. The aggregate number of shares of stock
which the Corporation shall have the authority to issue is
40,500,000 , of which 40,000,000 shares of the par value of $.01
per share shall be designated as Common Stock ("Common Stock"),
and 500,000 shares of the par value of $.01 per share shall be
designated as Preferred Stock ("Preferred Stock").
Language deleted by the amendment has been crossed out and
language added by the amendment has been underlined. The rest of Article FOURTH
will remain unchanged.
EMPLOYMENT AGREEMENT
December 16, 1996
Mr. Eugene R. Corasanti
310 Broad Street
Utica, New York 13501
Dear Mr. Corasanti:
In consideration of the mutual promises herein contained, CONMED
Corporation, a New York corporation (hereinafter the "Company"), and you hereby
agree that you will be employed by the Company on the following terms and
conditions:
1. Employment.
The Company hereby agrees that you will be employed to serve as
the President and Chief Executive Officer of the Company during the term of
employment set forth in Section 2 of this Agreement. You hereby agree to serve
as President and Chief Executive Officer of the Company during such term of
employment.
2. Term of Employment.
Subject to the provisions for early termination pursuant to
Section 5 of the Agreement, your term of employment under this Agreement shall
be for a period beginning January 1, 1997 and ending December 31, 2001.
3. Duties During Term of Employment.
During your term of employment under this Agreement, you shall
devote your full business time and attention and all reasonable efforts to the
affairs of the Company and its subsidiaries and affiliates and shall perform
such executive and administrative duties for the Company and subsidiaries and
affiliates as you may be called upon to perform, from time to time, by the Board
of Directors of the Company.
4. Compensation and Benefits.
(a) Base Annual Salary.
The Company shall pay to you during your term of employment under
this Agreement a base annual salary at the rate of at least $300,000 per year,
payable in equal weekly installments during each year of your term of
employment. It is understood that the Board of Directors of the Company may in
its discretion review from time to time your base annual salary and in its
discretion may from time to time increase your base annual salary and/or grant
bonuses if it determines that circumstances justify any such increase and/or
bonuses.
(b) Deferred Compensation.
In addition to your base annual salary, the Company shall
continue under this Agreement your deferred compensation account established
under your prior employment agreement with the Company, which shall be credited
with the amount of $100,000 on December 31, 1997 and on each subsequent December
31 during the term of this Agreement. This account shall also be credited on
December 31, 1996 and each December 31 thereafter with an amount equal to
<PAGE>
interest on the amount outstanding in the account on the day prior to such
December 31 at the rate of 10% per annum. Commencing at retirement, the Company
shall pay you, for 120 months, an amount equal to the amount then outstanding in
the deferred compensation account divided by the number of payments remaining to
be made. The account shall be reduced by the amount of any payments and shall
continue to be credited with interest annually on the amount outstanding in the
account. Such payments may be accelerated at the option of the Company. In the
event of your death the Company shall make payments to the beneficiary or
beneficiaries designated by you in writing to the Company or to your estate in
the absence of such designation or if no designated beneficiary should survive
you. Such payments to your beneficiary (or beneficiaries) or estate, as the case
may be, shall be made in the same manner as specified above, except that such
payments shall commence within one month of your death. In the event of the
death of the last designated beneficiary prior to the completion of all
payments, the balance credited to the deferred compensation account shall be
made to the estate of the last surviving beneficiary. You understand and agree,
and the Company agrees, that the deferred compensation account is solely a
bookkeeping account, does not represent a segregated amount of money for your
benefit, and that you shall not have by virtue of this Agreement a security
interest in the foregoing account or in any assets or funds of the Company.
(c) Benefit Plans.
You also shall be entitled to participate in all life and health
insurance plans, pension plans and other plans, benefits or bonus arrangements
provided by the Company from time to time during your term of employment under
this Agreement and made available by the Company to its executives generally, if
and to the extent that you are eligible to participate in accordance with the
provisions of any such plan or for such benefits. Specifically, you shall be
entitled to participate in the Company's stock option plans and shall continue
to be entitled to participate in the Company's pension and disability plans and
be provided with split-dollar life insurance coverage and reimbursement of club
memberships and automobile expenses as under present practices. In no event
shall the benefits provided you be less, in the aggregate, than those provided
you under present plans and practices. Life and health insurance benefits and
split-dollar life insurance coverage shall continue for your and your wife
during the terms of your lives. In addition, the Company shall reimburse you for
your reasonable personal legal and accounting expenses related to your estate
and tax planning and to preparing and filing your tax returns.
5. Early Termination of the Term of Employment.
(a) Early Termination Other Than for Just Cause.
If at any time during your term of employment under this
Agreement, the Board of Directors of the Company shall fail to reelect you as
the Chief Executive Officer of the Company, shall remove you from such office,
shall substantially reduce your duties and responsibilities or shall terminate
your employment under this Agreement, in each case other than for "just cause"
as such term is defined in paragraph (c) of this Section 5, such event shall be
deemed an early termination other than for just cause; provided, however, that
the appointment of a chief operating officer to undertake the duties and
responsibilities normally associated with such office shall not be deemed an
<PAGE>
early termination other than for just cause. After an early termination other
than for just cause, you shall have no obligations under this Agreement (other
than your obligations under Sections 7 and 8 of this Agreement), you shall have
no obligation to seek other employment in mitigation of damages in respect of
any period following the date of such early termination and you shall be
entitled to receive from the Company an immediate lump sum payment equal to the
result of multiplying (i) the greater of (A) three or (B) the number of years
and fractions thereof (rounded to the nearest month) then remaining in the term
of employment by (ii) the sum of (A) your base annual salary to which you are
then entitled and (B) an amount equal to the average of the bonuses, deferred
compensation and incentive compensation earned by you in each of the Company's
three fiscal years prior to the date of your early termination. If such lump sum
payment is not made in full within ten days of such early termination other than
for just cause, the Company shall also pay you interest on the amount of the
remaining payment at the prime rate of Chase Manhattan Bank, N.A. in effect from
time to time.
In addition, in the event of your early termination other than
for just cause, you shall be entitled to continued coverage under the benefit
plans of the Company specified in paragraph (c) of Section 4 of this Agreement
as if such early termination had not occurred, for a period equal to the greater
of (x) three years from the date of such early termination or (y) the remainder
of the term of employment. You shall also be entitled to receive payment of the
deferred compensation account as specified in paragraph (b) of Section 4 of this
Agreement, and you or your beneficiary or your estate shall be entitled to
receive from the Company all payments and benefits required pursuant to the
provisions of Section 6 of this Agreement, as if such early termination had not
occurred.
(b) Early Termination for Just Cause.
If at any time during your term of employment under this
Agreement, the Board of Directors of the Company shall fail to reelect you as
the Chief Executive Officer of the Company, shall remove you from such office,
shall substantially reduce your duties and responsibilities or shall terminate
your employment under this Agreement, in the case for "just cause" as such term
is defined in paragraph (c) of this Section 5, subject to the provisions of
Section 6 for additional payments and benefits in the event of your death or
permanent disability (as such term is defined in Section 6), the Company shall
only be obligated to pay you (i) your then base salary and to provide continued
coverage under the benefit plans of the Company specified in paragraph (c) of
Section 4 of this Agreement through the end of the month during which such early
termination occurs, and (ii) the deferred compensation account as specified in
paragraph (b) of Section 4 of this Agreement, plus an additional amount of
deferred compensation equal to a pro rata amount of such deferred compensation
under paragraph (b) of Section 4 for the year of your termination.
(c) Definition of Just Cause.
"Just cause" under this Agreement shall mean a breach by you of
your obligations under this Agreement, willful misconduct, dishonesty,
conviction of a crime (other than traffic or other similar violations or minor
misdemeanors), intoxication on the job or excessive absenteeism not related to
illness.
<PAGE>
6. Death or Disability.
If before the expiration date of your term of employment under
this Agreement you shall die, or become permanently disabled, the Company shall
be obligated to pay (in the case of death) to your beneficiary in writing or to
your estate in the absence or lapse of such designation, or (in the case of such
disability) to you or your representative, 100% of your annual base salary to
which you are then entitled to the end of such term of employment. In addition,
in the event of such disability, you shall continue to fully participate in all
benefit plans of the Company specified in paragraph (c) of Section 4 of this
Agreement to the expiration date of such term of employment, and in the case of
life and health insurance benefits and split-dollar life insurance coverage, the
benefits will continue for you and your wife during the terms of your lives. For
purposes of this Agreement, "permanent disability" means inability to perform
the services required under this Agreement due to physical or mental disability
which continues for 180 consecutive days. Evidence of such disability shall be
certified by a physician acceptable to both the Company and you.
7. Effect of Change in Control.
(a) Definition of Change in Control. "Change in Control" under
this Agreement shall mean the occurrence of any one of the following events:
(i) any "person" (as such term is defined in
Section 3(a)(9) of the Securities Exchange Act of 1934 (the
"Exchange Act") and as used in Sections 13(d)(3) and 14(d)(2) of
the Exchange Act) is or becomes a "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding
securities eligible to vote for the election of the Board (the
"Company Voting Securities"); provided, however, that the event
described in this paragraph (i) shall not be deemed to be a
Change in Control by virtue of any of the following acquisitions:
(A) by the Company or any of its subsidiaries, (B) by any
employee benefit plan sponsored or maintained by the Company or
any of its subsidiaries, (C) by any underwriter temporarily
holding securities pursuant to an offering of such securities,
(D) pursuant to a Non-Control Transaction (as defined in
paragraph (iii)) or (E) pursuant to any acquisition by you or any
group of persons including you;
(ii) individuals who, on January 1, 1997,
constitute the Board (the "Incumbent Directors") cease for any
reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to January 1,
1997, whose election or nomination for election was approved by a
vote (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a
nominee for director, without objection to such nomination) of at
least three-quarters of the Incumbent Directors who remain on the
Board, including those directors whose election or nomination for
election was previously so approved, shall also be deemed to be
an Incumbent Director; provided, however, that no individual
initially elected or nominated as a director of the Company as a
result of an actual or threatened election contest with respect
to directors or any other actual or threatened solicitation of
proxies or consents by or on behalf of any person other than the
Board shall be deemed to be an Incumbent Director;
<PAGE>
(iii) the consummation of a merger, consolidation,
share exchange or similar form of corporate reorganization of the
Company (or any such type of transaction involving the Company or
any of its subsidiaries that requires the approval of the
Company's stockholders, whether for the transaction or the
issuance of securities in the transaction or otherwise) (a
"Business Combination"), unless immediately following such
Business Combination: (A) more than 60% of the total voting power
of the corporation resulting from such Business Combination
(including, without limitation, any corporation which directly or
indirectly has beneficial ownership of 100% of the Company Voting
Securities) eligible to elect directors of such corporation is
represented by shares that were Company Voting Securities
immediately prior to such Business Combination (either by
remaining outstanding or being converted), and such voting power
is in substantially the same proportion as the voting power of
such Company Voting Securities immediately prior to the Business
Combination, (B) no person (other than any holding company
resulting from such Business Combination, any employee benefit
plan sponsored or maintained by the Company (or the corporation
resulting from such Business Combination)) immediately following
the consummation of the Business Combination becomes the
beneficial owner, directly or indirectly, of 25% or more of the
total voting power of the outstanding voting securities eligible
to elect directors of the corporation resulting from such
Business Combination, and (C) at least a majority of the members
of the board of directors of the corporation resulting from such
Business Combination were Incumbent Directors at the time of the
approval of the execution of the initial agreement providing for
such Business Combination (any Business Combination which
satisfies the conditions in clauses (A), (B) and (C) is referred
to hereunder as a "Non-Control Transaction"); or
(iv) the stockholders of the Company approve a plan
of complete liquidation or dissolution of the Company or the sale
of all or substantially all of its assets.
Notwithstanding the foregoing, a Change in Control of the Company
shall not be deemed to occur solely because any person acquires beneficial
ownership of more than 25% of the Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company which reduces the number
of Company Voting Securities outstanding; provided, that if after such
acquisition by the Company such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
Change in Control of the Company shall then occur.
Notwithstanding anything in this Agreement to the contrary, if
your employment is terminated prior to a Change in Control, and you reasonably
demonstrate that such termination was at the request or suggestion of a third
party who has indicated an intention or taken steps reasonably calculated to
effect a Change in Control (a "Third Party") and a Change in Control involving
the Third Party occurs, then for all purposes of this Agreement, the date of a
Change in Control shall mean the date immediately prior to the date of such
termination of employment.
<PAGE>
(b) Early Termination after a Change in Control. If at any time
during your term of employment under this Agreement and within two years after a
Change in Control your employment with the Company is terminated by the Company
other than for Cause or by you for Good Reason, such event shall be deemed an
early termination after a Change in Control; provided, however, that the
appointment, within two years of a Change in Control, of a chief operating
officer to undertake the duties and responsibilities normally associated with
such office shall not be deemed an early termination after a Change in Control.
"Cause" under this Agreement means (i) your willful and continued
failure to substantially perform your duties with the Company after a written
demand for substantial performance is delivered to you by the Company which
specifically identifies the manner in which the Company believes that you are
not substantially performing your duties or (ii) your willfully engaging in
illegal conduct which is materially and demonstrably injurious to the Company.
The Company must notify you of any event constituting Cause within ninety (90)
days following the Company's knowledge of its existence or such event shall not
constitute Cause under this Agreement.
"Good Reason" under this Agreement means (i) a material
diminution in your duties and responsibilities as in effect immediately prior to
the Change in Control, (ii) a breach by the Company of its obligations under
Section 4 of this Agreement, (iii) a failure by the Company to allow you to
participate in all life and health insurance plans, pension plans and other
plans, benefits or bonus arrangements provided by the Company (or other plans
providing you with no less favorable benefits) to the extent of, and on the same
basis as, your participation in such immediately prior to the Change in Control,
(iv) your being required to be based anywhere more than 25 miles from the
location of your office immediately prior to the Change in Control (except for
required travel on the Company's business substantially consistent with the
business travel obligations which you undertook on behalf of the Company
immediately prior to the Change in Control), or (v) any reason during the 30-day
period commencing one year after the date of a Change in Control. For purposes
of this Agreement, any good faith determination of Good Reason made by you shall
be conclusive; provided, however, that an isolated, insubstantial and
inadvertent action taken in good faith and which is remedied by the Company
promptly after receipt of notice thereof given by you shall not constitute Good
Reason. You must provide notice of termination of employment within ninety (90)
days of your knowledge of an event constituting Good Reason or such event shall
not constitute Good Reason under this Agreement.
After an early termination after a Change in Control, you shall
have no obligations under this Agreement (other than your obligations under
Sections 8 and 9 of this Agreement), you shall have no obligation to seek other
employment in mitigation of damages in respect of any period following the date
of such early termination and you shall be entitled to receive from the Company
the benefits described in paragraph (c) of this Section.
(c) Benefits upon Early Termination after a Change in Control. In
the event of an early termination after a Change in Control, you shall be
entitled to receive from the Company, in lieu of any other benefits provided by
this Agreement, to:
<PAGE>
(i) an immediate lump sum payment equal to three times the
sum of (A) the higher of (I) your base annual salary on the date
of your early termination or (II) your base annual salary in
effect immediately prior to the Change in Control plus (B) an
amount equal to the average of the bonuses, deferred compensation
and incentive compensation earned by you in each of the Company's
three fiscal years prior to the date of your early termination;
(ii) continued coverage under the benefit plans of the
Company in which you participated as of the date of such
termination for a period of two years from the date of such early
termination on the same basis as in effect on the date of such
early termination;
(iii) a lump sum payment, to be paid by the Company within 10
days of such early termination, equal to the aggregate amount
credited to your deferred compensation account pursuant to this
Agreement and any prior employment agreements with the Company;
and
(iv) awards, for the calendar year of your early termination
after a Change in Control, under incentive plans maintained by
the Company as of the date of such termination as though any
performance or objective criteria used in determining such awards
were satisfied.
(d) Certain Additional Payments by the Company.
(i) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment, award, benefit or distribution or acceleration of
awards, payments or benefits by the Company or its affiliated
companies to or for your benefit (whether paid, payable,
distributed or distributable or accelerated pursuant to the terms
of this Agreement or otherwise, but determined without regard to
any additional payments required under this Section 7) (a
"Payment") would be subject to the excise tax imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any interest or penalties are incurred by you with
respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then you shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by you of all taxes (including any
interest or penalties imposed with respect to such taxes)
including, without limitation, any income and employment taxes
(and any interest and penalties imposed with respect thereto) and
Excise Tax, imposed upon the Gross-Up Payment but before
deduction for any federal, state or local income tax upon the
Payments, you retain an amount (before deductions for any
federal, state or local income or employment taxes on the
Payments) equal to the sum of (x) the Payments and (y) an amount
equal to the product of any deductions disallowed because of the
inclusion of the Gross-Up Payment in your adjusted gross income
and the highest applicable marginal rate of federal income
taxation for the calendar year in which the Gross-Up Payment is
<PAGE>
to be made. Notwithstanding the foregoing, in the event it shall
be determined that you would be entitled to a Gross-Up Payment
and that you, after taking into account the Payments and the
Gross-Up Payment, would not receive net after-tax proceeds of at
least $50,000 (taking into account income and employment taxes
and any Excise Tax) in excess of the net after-tax proceeds to
you resulting from an elimination of the Gross-Up Payment and a
reduction of the Payments, in the aggregate, to an amount (the
"Reduced Amount") such that the receipt of Payments would not
give rise to any Excise Tax, then no Gross-Up Payment shall be
made to you and the Payments, in the aggregate, shall be reduced
as elected by you to the Reduced Amount. For purposes of
determining the amount of the Gross-Up Payment, you shall be
deemed to (I) pay federal income taxes at the highest marginal
rates of federal income taxation for the calendar year in which
the Gross-Up Payment is to be made, (II) pay applicable state and
local income taxes at the highest marginal rate of taxation for
the calendar year in which the Gross-Up Payment is to be made,
net of the maximum reduction in federal income taxes which could
be obtained from deduction of such state and local taxes and
(III) have otherwise allowable deductions for federal income tax
purposes at least equal to those disallowed because of the
increase of the Gross-Up Payment in your adjusted gross income.
(ii) Subject to the provisions of subparagraph (i) above, all
determinations required to be made under this paragraph (d),
including whether and when a Gross- Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by the
public accounting firm that is retained by the Company as of the
date immediately prior to the Change in Control (the "Accounting
Firm") which shall provide detailed supporting calculations both
to the Company and you within fifteen (15) business days of the
receipt of notice from the Company or you that there has been a
Payment, or such earlier time as is requested by the Company
(collectively, the "Determination"). In the event that the
Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting the Change in Control, you
may appoint another nationally recognized public accounting firm
to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne
solely by the Company and the Company shall enter into any
agreement requested by the Accounting Firm in connection with the
performance of the services hereunder. The Gross-Up Payment under
this paragraph (d) with respect to any Payments shall be made no
later than thirty (30) days following such Payment. If the
Accounting Firm determines that no Excise Tax is payable by you,
it shall furnish you with a written opinion to such effect, and
to the effect that failure to report the Excise Tax, if any, on
your applicable federal income tax return will not result in the
imposition of a negligence or similar penalty. The Determination
by the Accounting Firm shall be binding upon the Company and you.
<PAGE>
As a result of the uncertainty in the application of Section
4999 of the Code at the time of the Determination, it is possible
that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment") or Gross-Up
Payments are made by the Company which should not have been made
("Overpayment"), consistent with the calculations required to be
made hereunder. In the event that thereafter you are required to
make payment of any additional Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred
and any such Underpayment (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) shall be promptly
paid by the Company to or for your benefit. In the event the
amount of the Gross-Up Payment exceeds the amount necessary to
reimburse you for your Excise Tax, the Accounting Firm shall
determine the amount of the Overpayment that has been made and
any such Overpayment (together with interest at the rate provided
in Section 1274(b)(2) of the Code) shall be promptly paid by you
to or for the benefit of the Company. You shall cooperate, to the
extent his expenses are reimbursed by the Company, with any
reasonable requests by the Company in connection with any
contests or disputes with the Internal Revenue Service in
connection with the Excise Tax.
(e) Interest and Reimbursement of Expenses. If the Company fails
to make payment in full of the amounts provided for in paragraphs (c) and (d) of
this Section within ten days after they are due, the Company shall also pay you
interest on any unpaid amount at the prime rate of Chase Manhattan Bank, N.A. in
effect from time to time. If any contest or dispute shall arise under this
Section involving your termination of employment with the Company under this
Section or involving the failure or refusal of the Company to perform fully
under this Section in accordance with the terms hereof, the Company shall reim-
burse you, on a current basis, for all legal fees and expenses, if any, incurred
by you in connection with such contest or dispute (regardless of the result
thereof), together with interest in an amount equal to the prime rate of Chase
Manhattan Bank, N.A. in effect from time to time, such interest to accrue from
the date the Company receives your statement for such fees and expenses through
the date of payment thereof, regardless of whether or not your claim is upheld
by a court of competent jurisdiction; provided, however, you shall be required
to repay any such amounts to the Company to the extent that a court issues a
final and non-appealable order setting forth the determination that the position
taken by you was frivolous or advanced by you in bad faith.
8. Non-competition.
It is agreed that during your term of employment under this
Agreement and for a period of two years thereafter you will not, without the
prior written approval of the Board of Directors of the Company, become an
officer, employee, agent, limited or general partner, director, member or
shareholder of any business enterprise in competition with the Company or any
subsidiary of the Company, as the business of the Company or any such subsidiary
may be constituted during such term of employment, or at the expiration of such
term or period; provided, however, that the foregoing shall not require you to
terminate or alter the nature or extent of your relationships with Mohawk
Hospital Equipment, Inc. as they existed on the date of this Agreement, or any
successor of such corporation. Notwithstanding the preceding sentence, you shall
not be prohibited from owning less than five (5%) percent of the outstanding
equity of any publicly traded business enterprise.
<PAGE>
9. Non-disclosure.
You shall not, at any time during or following your term of
employment under this Agreement, disclose or use, except in the course of your
employment or consultation arrangements with the Company in the pursuit of the
business or interests of the Company or any of its subsidiaries or affiliates,
any confidential information or proprietary data of the Company or any of its
subsidiaries or affiliates, whether such information or proprietary data is in
your memory or memorialized in writing or other physical terms.
10. Conflicts.
Any paragraph, sentence, phrase or other provision of this
Agreement which is in conflict with any applicable statute, rule or other law
shall be deemed, if possible, to be modified or altered to conform thereto or,
if not possible, to be omitted herefrom. The invalidity of any portion of this
Agreement shall not affect the force and effect of the remaining valid portions
hereof. Section and paragraph headings are included in this Agreement for
convenience only and are not intended to affect in any way the meaning or
interpretation of this Agreement.
11. Beneficiaries.
Wherever this Agreement provides for the written designation of a
beneficiary or beneficiaries by yourself, you shall have the right to revoke
such designation and to redesignate a beneficiary or beneficiaries by written
notice to the Company to such effect.
12. Governing Law.
This Agreement is governed by and is to be construed and enforced
in accordance with the laws of the State of New York.
13. Miscellaneous.
This Agreement constitutes the entire understanding between you
and the Company relating to your employment with the Company and supersedes and
cancels all prior written and oral understandings and agreements with respect to
such matters, other than with respect to the deferred compensation account under
Section 4(b). This Agreement shall be binding upon, and shall inure to the
benefit of you and the Company, your heirs, executors and administrators and the
Company's successors.
<PAGE>
If the foregoing correctly sets forth the understanding between
you and the Company, please execute and return the enclosed copy of this letter.
CONMED CORPORATION
By: _____________________
Agreed and accepted as of the date first above written:
- ------------------------------
Eugene R. Corasanti
STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
OF CONMED CORPORATION
The Stock Option Plan for Non-Employee Directors of CONMED
Corporation (this "Plan") is established to attract and retain highly qualified
individuals who are not current or former employees of CONMED Corporation (the
"Company") as members of the Board of Directors of the Company and to enable
them to increase their ownership in the common stock, par value $0.01 per share,
of the Company (the "Company's Common Stock"). This Plan will be beneficial to
the Company and its stockholders because it will allow these directors to have a
greater personal financial stake in the Company through the ownership of the
Company's Common Stock, in addition to underscoring their common interest with
stockholders in increasing the long-term value of the Company's Common Stock.
1. ELIGIBILITY
All members of the Company's Board of Directors who are not
current or former employees of the Company or any of its subsidiaries
("Non-Employee Directors") are eligible to participate in this Plan.
2. SHARES AVAILABLE
(a) Number of Shares Available. Stock options may be granted
under this Plan to purchase up to a maximum of 50,000 shares of the Company's
Common Stock, subject to adjustment, as hereinafter provided. Shares issuable
under this Plan may be authorized but unissued shares or treasury shares. If any
stock option granted under this Plan expires or otherwise terminates without
having been exercised, the shares subject to the unexercised portion of such
stock option shall continue to be available for the granting of stock options
under this Plan.
(b) Recapitalization Adjustment. In the event of a
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation, rights offering, or any other change in the
corporate structure or shares of the Company, adjustments in the number and kind
of shares authorized by this Plan, in the number and kind of shares covered by,
and in the option price of outstanding stock options under, this Plan shall be
made if, and in the same manner as, such adjustments are made to stock options
issued under the Company's then current stock option plans.
3. ANNUAL GRANT OF NONQUALIFIED STOCK OPTIONS
Each year on the first business day following the Company's
Annual Meeting of Stockholders, each individual elected, reelected or continuing
as a Non-Employee Director shall automatically receive stock options covering
1,000 shares of the Company's Common Stock. If the Company's Common Stock is not
listed for quotation on the Nasdaq National Market on any such date a grant
would otherwise be awarded, then such grant shall be made the next day
thereafter that the Company's Common Stock is so listed on Nasdaq National
Market or any national securities exchange or inter-dealer automated quotation
system.
4. OPTION PRICE
The price of each stock option granted under this Plan shall be
the Fair Market Value (as defined below) on the date of grant of such option.
For purposes of this Plan, "Fair Market Value" shall mean, as of any date, (i)
if the Company's Common Stock is listed or admitted to unlisted trading
<PAGE>
privileges on any national securities exchange or is not so listed or admitted
but transactions in the Company's Common Stock are reported on the Nasdaq
National Market, the mean between the reported high and low sale prices of the
Company's Common Stock on such exchange or by the Nasdaq National Market as of
such date (or, if no such shares were traded on such date, as of the next
preceding day on which there was such a trade); or (ii) if the Company's Common
Stock is not so listed or admitted to unlisted trading privileges or reported on
the Nasdaq National Market, and bid and asked prices therefor in the
over-the-counter market are reported by the National Association of Securities
Dealers, Inc. or the National Quotation Bureau, Inc. (or any comparable
reporting service), the mean of the closing bid and ask prices of the Company's
Common Stock as of such date, as so reported; or (iii) if the Company's Common
Stock is not so listed or reported, such value as the Board of Directors of the
Company determines in good faith in the exercise of its reasonable discretion.
5. OPTION PERIOD
A stock option granted under this Plan shall become exercisable
one year after date of grant and shall expire ten years after date of grant (the
"Option Period").
6. PAYMENT
The stock option price shall be paid in cash in U.S. dollars at
the time the stock option is exercised.
7. TERMINATION OF SERVICE
Upon termination of service as a Non-Employee Director (other
than for reasons of retirement, disability or death), all stock options of such
optionee shall terminate immediately. If an optionee's service is terminated by
reason of disability or retirement with the consent of the Board of Directors
(other than the optionee), such optionee's stock options shall be exercisable at
any time prior to the expiration date of the stock option or within 90 days
after the date of such termination, whichever is the shorter period. If an
optionee's service is terminated as a result of such optionee's death, such
optionee's stock options shall be exercisable by the person or persons to whom
those rights pass by will or by the laws of descent and distribution at any time
prior to the expiration date of the stock option or within 90 days after the
date of such death, whichever is the shorter period.
8. ADMINISTRATION AND AMENDMENT OF THIS PLAN
This Plan shall be administered by the Board of Directors of
CONMED Corporation. This Plan may be terminated or suspended by the Board of
Directors as they deem advisable. The Board of Directors may amend this Plan
from time to time in any respect the Board of Directors may deem to be in the
best interests of the Company; provided, however, that (a) no such amendment
shall be effective without approval of the shareholders of the Company, if
shareholder approval of the amendment is then required pursuant to Rule 16b-3
under the Securities Exchange Act of 1934 (the "Exchange Act"), or the
applicable rules of any securities exchange or consolidated reporting system,
and (b) to the extent prohibited by Rule 16b-3(c)(2)(ii)(B) under the Exchange
Act, this Plan may not be amended more than once every six months unless
necessary to comply with the Internal Revenue Code of 1986, as amended. A stock
option may not be granted under this Plan after May 23, 2005, but stock options
granted prior to that date shall continue to become exercisable and may be
exercised according to their terms.
<PAGE>
9. NONTRANSFERABILITY
No stock option granted under this Plan is transferable other
than by will or the laws of descent and distribution. During the optionee's
lifetime, a stock option may only be exercised by the optionee or the optionee's
guardian or legal representative.
10. COMPLIANCE WITH SEC REGULATIONS
It is the Company's intent that this Plan comply in all respects
with Rule 16b-3 under the Exchange Act, and any regulations promulgated
thereunder. If any provision of this Plan is later found not to be in compliance
with Rule 16b-3 under the Exchange Act, the provision shall be deemed null and
void. All grants of stock options under this Plan shall be executed in
accordance with the requirements of Rule 16b-3 under the Exchange Act.
11. GOVERNMENTAL COMPLIANCE
Each grant under this Plan shall be subject to the requirement
that if at any time the Board of Directors shall determine that the listing,
registration or qualification of any shares issuable or deliverable thereunder
upon any securities exchange or under any federal or state law, or the consent
or approval of any governmental regulatory body, is necessary or desirable as a
condition thereof, or in connection therewith, no such grant may be exercised or
shares issued or delivered unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Board of Directors.
12. MISCELLANEOUS
Except as provided in this Plan, no Non-Employee Director shall
have any claim or right to be granted a stock option under this Plan. Neither
this Plan nor any action thereunder shall be construed as giving any director
any right to be retained in the service of the Company.
13. GOVERNING LAW
This Plan and all rights and obligations under this Plan shall be
construed in accordance with and governed by the laws of the State of New York.
14. EFFECTIVE DATE
This Plan shall be effective May 23, 1995 or such later date as
stockholder approval is obtained.
AMENDMENT TO THE COMPANY'S
1992 STOCK OPTION PLAN
The amendment amends Section 2 of the 1992 Stock Option Plan to
read in its entirety as follows:
2. STOCK
Options may be granted under the Plan to purchase
up to a maximum of 2,000,000 shares of the Company's common
stock, par value $.01 per share ("Common Stock"), in the
aggregate and 800,000 shares of Common Stock for any participant,
subject to adjustment as hereinafter provided. Shares issuable
under the Plan may be authorized but unissued shares or
reacquired shares, and the Company may purchase shares required
for this purpose, from time to time, if it deems such purchases
to be advisable. If any option granted under the Plan expires or
otherwise terminates without having been exercised, the shares
subject to the unexercised portion of such option shall continue
to be available for the granting of options under the Plan.
Language deleted by the amendment has been crossed out and
language added by the amendment has been underlined. The rest of the 1992 Stock
Option Plan, which was approved by shareholders in 1992, will remain unchanged.
EXHIBIT 11
Computation of Weighed Average Number of Shares of Common Stock
<TABLE>
<CAPTION>
Year Ended December
------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Shares outstanding at beginning of period ........... 9,027 9,057 11,000
Weighted average shares issued ...................... 5 1,460 3,045
Incremental shares of common stock outstanding
giving effect to stock options and warrant ....... 592 1,096 451
------ ------ ------
Weighted average shares for earnings per share ...... 9,624 11,613 14,496
====== ====== ======
</TABLE>
EXHIBIT 21
Subsidiaries of CONMED Corporation
Name State of Incorporation
---- ----------------------
Aspen Laboratories, Inc. Colorado
Consolidated Medical Equipment International, Inc. New York
CONMED Andover Medical, Inc. New York
Birtcher Medical Systems, Inc. California
NDM, Inc. New York
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-23514, 33-49422 and 33-49526) of CONMED
Corporation of our report dated February 7, 1997 appearing on page F-1 of the
1996 Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Syracuse, New York
March 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 20,173
<SECURITIES> 0
<RECEIVABLES> 26,836
<ALLOWANCES> (500)
<INVENTORY> 23,187
<CURRENT-ASSETS> 71,828
<PP&E> 43,852
<DEPRECIATION> (17,394)
<TOTAL-ASSETS> 170,083
<CURRENT-LIABILITIES> 5,754
<BONDS> 0
0
0
<COMMON> 150
<OTHER-SE> 158,485
<TOTAL-LIABILITY-AND-EQUITY> 170,083
<SALES> 125,630
<TOTAL-REVENUES> 125,630
<CGS> 65,393
<TOTAL-COSTS> 99,966
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 217
<INCOME-PRETAX> 25,447
<INCOME-TAX> 9,161
<INCOME-CONTINUING> 16,286
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,286
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 0
</TABLE>
