SEC Filing | CONMED

1 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, 1997 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 $340,769,693 based upon the average bid and asked prices of stock, which was $23.50 on February 12, 1998. The number of shares of the Registrant's $0.01 par value common stock outstanding as of February 12, 1998 was 15,061,538. DOCUMENTS FROM WHICH INFORMATION IS INCORPORATED BY REFERENCE CONMED Corporation's Current Report on Form 8-K/A filed February 17, 1998 is incorporated by reference into Part II. Portions of the Definitive Proxy Statement, scheduled to be mailed on or about April 3, 1998 for the annual meeting of stockholders to be held May 19, 1998, are incorporated by reference into Part III. 2 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 2 3 PART I CONMED CORPORATION Item 1: Business FORWARD LOOKING STATEMENTS This Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1997 ("Form 10-K") contains certain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to CONMED Corporation ("CONMED" or the "Company") that is based on the beliefs of the management of the Company, as well as assumptions made by and information currently available to the management of the Company. When used in this Form 10-K, the words "estimate," "project," "believe," "anticipate," "intend," "expect" and similar expressions are intended to identify forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors, including those identified under the caption "Item 1: Business -- Risk Factors" and elsewhere in this Form 10-K that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; changes in customer preferences; competition; changes in technology; the integration of any acquisitions, including the Linvatec Acquisition (as defined herein); changes in business strategy; the indebtedness of the Company; quality of management, business abilities and judgment of the Company's personnel; the availability, terms and deployment of capital; and various other factors referenced in this Form 10-K. See "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 1: Business." Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. GENERAL The Company is a leading developer, manufacturer and supplier of a broad range of medical instruments and systems used in surgical and other medical procedures. The Company's product offerings include electrosurgical systems, electrocardiogram ("ECG") electrodes and accessories, surgical suction instruments, intravenous ("IV") therapy accessories and wound care products. In addition, through its recent acquisition of Linvatec Corporation ("Linvatec"), the Company has broadened its product offerings to include arthroscopic surgery devices and products, powered surgical instruments and imaging products for minimally-invasive surgery. The Company's products are used in a variety of clinical settings, such as operating rooms, surgery centers, physicians' offices and critical care areas of hospitals. On a pro forma basis after giving effect to the Company's acquisition of Linvatec (the "Linvatec Acquisition"), approximately 75% of the Company's revenues in 1997 were derived from the sale of single-use, disposable products. In addition, on a pro forma basis after giving effect to the Linvatec Acquisition, approximately 22% of the Company's revenues in 1997 were derived from sales outside of the United States. The Company has used strategic business acquisitions to broaden its product offerings, increase its market share in certain product lines and realize economies of scale. During the last five years, the Company has completed seven business acquisitions, including the recent acquisition of Linvatec. The completed acquisitions, together with internal growth, have resulted in a compound annual growth rate in net sales of 27% between 1993 and 1997 (57% on a pro forma basis after giving effect to the Linvatec Acquisition). On December 31, 1997, the Company acquired Linvatec and certain related assets from Bristol-Myers Squibb Company ("BMS"). The Company expects the Linvatec Acquisition to provide significant strategic benefits, including providing the Company with expanded product lines, enhanced technological capabilities and increased access to international markets. In addition, the Company has identified opportunities to generate efficiencies in manufacturing and overhead functions resulting from the Linvatec Acquisition, which it believes could generate annual cost savings beyond those reflected in the Company's pro forma financial statements. See "Unaudited Pro Forma Consolidated Financial Information" in the Company's Current Report on Form 8-K/A filed February 17, 1998. On a pro forma basis after giving effect to the Linvatec Acquisition, the Company's net sales for 1997 were $327.4 million. The Company was founded in 1970 by Eugene R. Corasanti, the Company's Chairman of the Board, Chief Executive Officer and President. The Company's principal offices are located at 310 Broad Street, Utica, New York 13501, and the Company's telephone number is (315) 797-8375. INDUSTRY The number of surgical procedures performed in the United States is increasing. According to SMG Marketing Group, the total number of U.S. surgical procedures was approximately 32 million in 1996, and, according to SMG Marketing Group, is expected to increase to 36 million in 2001. In addition, the number of outpatient surgical procedures performed in the United States increased at a compound annual growth rate of 7% from 16 million in 1991 to 20 million in 1995 and, according to SMG Marketing Group, is projected to grow at a compound annual growth rate of 6% to 29 million in 2001. This growth in surgical procedures reflects demographic trends, such as the aging of the population, and technological advancements which result in safer and less invasive surgical procedures. These less invasive surgical procedures are increasingly being performed in outpatient surgical centers and physician offices rather than in hospitals. According to SMG Marketing Group, outpatient surgery centers and physician offices represented 15% and 10%, respectively, of the total surgeries performed in 1996, and, according to SMG Marketing Group, are projected to increase to 19% and 15%, respectively, in 2001. 3 4 In response to rising health care costs, managed care companies and other payors have placed pressures on health care providers to reduce costs. As a result, health care providers have focused on the high cost areas such as surgery, both operative and recovery. To reduce costs, health care providers use minimally-invasive techniques, which generally reduce patient trauma, recovery time and ultimately the length of hospitalization. According to Dorland's Biomedical, the total number of minimally-invasive surgical procedures performed in the United States increased at a compound annual growth rate of 14%, from 1.8 million in 1990 to an estimated 3.9 million in 1996. In addition, health care providers are increasingly purchasing single-use, disposable products, which reduce the costs associated with sterilizing surgical instruments and products following surgery. The single-use nature of disposable products lowers the risk of incorrectly sterilized instruments spreading infection into the patient and increasing the cost of post-operative care. Furthermore, in the United States, the pressure on health care providers to contain costs has altered their purchasing patterns for general surgical instruments and disposable medical products. Many health care providers have entered into comprehensive purchasing contracts with fewer suppliers, who offer a broader array of products at lower prices. In addition, many health care providers have aligned themselves with group purchasing organizations ("GPOs"). GPOs aggregate the purchasing volume of its members in order to negotiate competitive pricing with suppliers, including manufacturers of surgical products. The Company believes that these trends will favor entities that offer a broad product portfolio. The Company believes that foreign markets offer growth opportunities for manufacturers of surgical products. As economic conditions improve in developing countries, expenditures on health care are expected to rise; according to Dorland's Biomedical, expenditures on surgical products in developing countries increased 15% from $14 billion in 1995 to $16 billion in 1996 and are projected to grow at a compounded growth rate of 17% to $65 billion in 2005. COMPETITIVE STRENGTHS The Company attributes its strong position in certain markets to the following competitive factors: LEADING MARKET POSITION IN KEY PRODUCT AREAS. The Company is a leading provider of arthroscopic surgery devices, electrosurgical systems, powered surgical instruments and ECG electrodes. The Company's product breadth has enhanced its ability to market to hospitals, surgery centers, GPOs and other customers, particularly as institutions seek to reduce costs and minimize the number of suppliers. In addition, many of the Company's products are sold under leading brand names, including CONMED(R), Linvatec(R), Aspen Labs(R) and Hall(R) Surgical. BROAD PRODUCT OFFERING IN KEY PRODUCT AREAS. The Company offers a broad product line in its key product areas. For example, the Company offers a complete set of the electrosurgical products a surgeon requires for most electrosurgery procedures, including pencils, ground pads, generators and related disposables. The Company's product offerings have enabled it to meet a wide range of customer requirements and preferences. In addition, the Company's customers are increasingly dealing with fewer vendors and demanding a broader product offering from vendors in order to reduce administrative costs. MARKETING AND DISTRIBUTION NETWORK. The Company's national sales force consists of approximately 170 sales representatives who seek to maintain close relationships with end-users. The Company's sales representatives are trained and educated in the applications for the products they sell and call directly on hospital departments, outpatient surgery centers and physician offices. In January 1997, CONMED realigned its 90 person sales force to provide the full range of CONMED's products to each salesperson, thereby permitting them to focus greater attention on accounts and eliminating duplicative calling efforts. Linvatec's 80 person sales force and 13 service associates will continue their focus on the Company's arthroscopic products calling on orthopedic surgeons. In addition, in connection with the Linvatec Acquisition, the Company entered into agreements with Zimmer Inc. ("Zimmer"), a subsidiary of BMS, pursuant to which Zimmer has agreed to continue to distribute certain of Linvatec's products for periods ranging from six months to three years. The Company also maintains distributor relationships domestically and in numerous countries worldwide. 4 5 VERTICALLY-INTEGRATED MANUFACTURING. The Company manufactures most of its products. The Company's vertically integrated manufacturing process have allowed it to provide quality products, react to changes in demand and generate manufacturing efficiencies, including purchasing raw materials used in a variety of disposable products in bulk. The Company believes that its manufacturing capabilities allow it to contain costs, control quality control and maintain security of proprietary processes. The Company continually evaluates its manufacturing processes with the objective of increasing automation, streamlining production and enhancing efficiency in order to achieve cost savings. RESEARCH AND DEVELOPMENT CAPABILITIES. Both CONMED and Linvatec have utilized their research and development capabilities to introduce new products, product enhancements and new technologies. On a pro forma basis after giving effect to the Linvatec Acquisition, research and development expenditures were $11.3 million in 1997. Recent new product introductions include Universal Plus(R) suction and irrigation systems, TroGARD(R) Finesse(TM) trocars, the Apex(R) irrigation system, BioScrew(R) bioresorbable interference screws, autoclavable imaging cameras and MicroChoice(R) powered handpieces. INTEGRATING ACQUISITIONS. Since 1993, the Company has completed seven acquisitions and is in the process of integrating the recently-completed Linvatec Acquisition. These acquisitions have enabled the Company to broaden its product categories, expand its sales and distribution capabilities and increase its international presence. The Company's experienced management team has demonstrated an historical ability to identify complementary acquisitions and integrate acquired companies into the Company's operations. BUSINESS STRATEGY The Company intends to implement the following business strategies: REALIZE MANUFACTURING AND OPERATING EFFICIENCIES. The Company expects to continue to review opportunities for consolidating product lines and streamlining production. The Company believes its vertically integrated manufacturing process should produce further opportunities to reduce overhead and increase operating efficiencies and capacity utilization. INCREASE INTERNATIONAL SALES. The Company believes there are significant sales opportunities for its surgical products outside the United States. The Linvatec Acquisition increased the Company's access to international markets. The Company intends to seek to expand its international presence and increase its penetration in international markets by utilizing Linvatec's relationships with foreign surgeons, hospitals and third-party payers, as well as foreign distributors. The Company also intends to utilize Linvatec's sales relationships to introduce Linvatec's customers to CONMED's products. PROVIDE BROAD PRODUCT OFFERING IN KEY PRODUCT AREAS. As a result of competitive pressures in the health care industry, many health care providers have aligned themselves with GPOs, which are increasingly dealing with fewer vendors and demanding a broader product offering from their vendors in order to reduce administrative costs. The Company believes that its broad product line is a positive factor in the Company's efforts to meet such demands. In addition, the Company has a corporate sales department that markets the Company's broad product offering to GPOs. INTRODUCE NEW PRODUCTS AND PRODUCT ENHANCEMENTS. The Company's research and development program is focused on the development of new surgical products, as well as the enhancement of existing products. In addition to its own research and development, the Company benefits from the dialogue and suggestions for product innovations from its relationships with surgeons and other users of the Company's products. PURSUE STRATEGIC ACQUISITIONS. The Company believes that strategic acquisitions represent a cost-effective means of broadening its product line. The Company has historically targeted companies with proven technologies, established brand names and a significant portion of sales from single-use, disposable products. Since 1993, the Company has completed seven acquisitions, expanding its product line to include surgical suction instruments, wound care products and most recently arthroscopic products and powered surgical instruments. The Credit Facility contains certain restrictive covenants which will affect, and in many respects significantly limit or prohibit, among other things, the ability of the Company to engage in mergers and acquisitions. These covenants may prevent the Company from pursuing acquisitions, which would result in lower levels of growth for the Company in the future. 5 6 RISK FACTORS Investors should carefully consider the specific factors set forth below as well as the other information included or incorporated by reference in this Form 10-K. See "Item 1: Business -- Forward Looking Statements" relating to certain forward-looking statements in this Form 10-K. The Credit Facility contains certain restrictive covenants which will affect, and in many respects significantly limit or prohibit, among other things, the ability of the Company to engage in mergers and acquisitions. These covenants may prevent the Company from pursuing acquisitions, which would result in lower levels of growth for the Company in the future. SIGNIFICANT LEVERAGE AND DEBT SERVICE The Company has indebtedness which is substantial in relation to its shareholders' equity, as well as interest and debt service requirements that are significant compared to its cash flow from operations. As of December 31, 1997, the Company had $365.0 million of debt outstanding, which represented 69.2% of total capitalization. In addition, on December 31, 1997, the Company had approximately $85.0 million available for borrowing under the revolving portion of the Company's principal bank credit agreement (the "Credit Facility"). The degree to which the Company is leveraged could have important consequences to investors, including but not limited to the following: (i) a substantial portion of the Company's cash flow from operations must be dedicated to debt service and will not be available for operations, capital expenditures, acquisitions and other purposes; (ii) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired; and (iii) certain of the Company's borrowings, including its borrowings under the Credit Facility, are and will continue to be at variable rates of interest, which exposes the Company to the risk of increased interest rates. The Company's ability to satisfy its obligations will depend upon the Company's future operating performance, which will be affected by the Company's ability to effectively integrate acquired businesses, including Linvatec, with the Company's operations and by prevailing economic conditions and financial, business and other factors, many of which are beyond the Company's control. See "-- Ability to Integrate Linvatec" below. There can be no assurance that the Company's operating results will be sufficient for the Company to meet its obligations. If the Company is unable to service its indebtedness, it will be forced to adopt an alternative strategy that may include actions such as forgoing acquisitions, reducing or delaying capital expenditures, selling assets, restructuring or refinancing its indebtedness or seeking additional equity capital. There can be no assurance that any of these strategies could be implemented on terms acceptable to the Company, if at all. See "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." ABILITY TO INTEGRATE LINVATEC The Company's success is dependent in part upon its ability to effectively integrate Linvatec with the Company's operations. In the Linvatec Acquisition, which represents the Company's largest acquisition to date, the Company acquired products not previously manufactured or sold by the Company and substantially increased its international presence. The Company has entered into arrangements with Zimmer for distribution of the Company's small bone, large bone and specialty powered instruments in the United States. The integration and consolidation of the Linvatec Acquisition will require substantial management time and other resources and may pose risks with respect to production, sales, customer service and market share. While the Company believes that it has sufficient management and other resources to accomplish the integration of the Linvatec Acquisition, there can be no assurance in this regard or that the Company will not experience difficulties with customers, suppliers, personnel or others. In addition, there can be no assurance that the Company will be able to achieve any cost savings from the Linvatec Acquisition. Although the Company believes that the Linvatec Acquisition will enhance the competitive position and business prospects of the Company, there can be no assurance that such benefits will be realized, that the distribution arrangements with Zimmer will be sufficient and not be terminated or that the combination of CONMED and Linvatec will be more successful than both such companies would have been if they had remained independent. See "Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations -- General" and "Item 1: Business -- Strategy." As a result of the Linvatec Acquisition, the Company's international sales increased from 14% of total 1997 sales to 22% of total 1997 sales on a pro forma basis. The Company has entered into distribution and transitional agreements with respect to Linvatec's international business with affiliates of BMS, the former parent of Linvatec. See "Item 1: Business -- Marketing." The Company intends to replace such transitional services with its own operations and other distribution arrangements. There can be no assurance that the transitional services will be sufficient to maintain the Company's international business acquired in the Linvatec Acquisition, that the Company will be able to successfully replace the transitional services and distribution arrangements provided by BMS affiliates with its own services and arrangements or that the Company will be able to expand its international business during or following the transition. 6 7 EFFECTS OF ACQUISITIONS GENERALLY An important element of the Company's business strategy has been to expand through acquisitions and the Company may seek to pursue acquisitions in the future. Most recently, in July 1997, the Company acquired a surgical suction instrument and tubing product line from Davol (the "Davol Acquisition") and, in December 1997, acquired Linvatec. The success of the Company is dependent in part upon its ability to effectively integrate acquired operations with the Company's operations. While the Company believes that it has sufficient management and other resources to accomplish the integration of its past and future acquisitions, there can be no assurance in this regard or that the Company will not experience difficulties with customers, suppliers, personnel or others. In addition, there can be no assurance that the Company will be able to identify and make acquisitions on acceptable terms or that the Company will be able to obtain financing for such acquisitions on acceptable terms. In addition, the financial performance of the Company is now and will continue to be subject to various risks associated with the acquisition of businesses, including the financial effects associated with the integration of such businesses. The Credit Facility contains certain restrictive covenants which will affect, and in many respects significantly limit or prohibit, among other things, the ability of the Company to engage in mergers and acquisitions. These covenants may prevent the Company from pursuing acquisitions, which would result in lower levels of growth for the Company in the future. LIMITATIONS IMPOSED BY CERTAIN INDEBTEDNESS The Credit Facility contains certain restrictive covenants which will affect, and in many respects significantly limit or prohibit, among other things, the ability of CONMED and its subsidiaries to incur indebtedness, make prepayments of certain indebtedness, make investments, engage in transactions with affiliates, sell assets, engage in mergers and acquisitions and realize important elements of its business strategy. The Credit Facility also requires the Company to meet certain financial ratios and tests. These covenants may prevent the Company from integrating its acquired businesses, pursuing acquisitions, significantly limit the operating and financial flexibility of the Company and limit its ability to respond to changes in its business or competitive activities. The ability of the Company to comply with such provisions may be affected by events beyond its control. In the event of any default under the Credit Facility, the Credit Facility leaders could elect to declare all amounts borrowed under the Credit Facility, together with accrued interest, to be due and payable. If the Company were unable to repay such borrowings, the lenders thereunder could proceed against the collateral securing the Credit Facility, which consists of substantially all of the property and assets of CONMED and its subsidiaries. SIGNIFICANT COMPETITION AND OTHER MARKET CONSIDERATIONS The market for the Company's products is highly competitive. Many of these competitors offer a range of products in areas other than those in which the Company competes, which may make such competitors more attractive to GPOs, hospitals and others. In addition, many of the Company's competitors are larger and have greater financial resources than the Company and offer a range of products broader than the Company's. 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. Some of the companies with which the Company now competes or may compete in the future have or may have more extensive research, marketing and manufacturing capabilities and significantly greater technical and personnel resources than the Company, and may be better positioned to continue to improve their technology in order to compete in an evolving industry. See "Item 1: Business -- Competition." Demand for and use of the Company's products may fluctuate as a result of changes in surgeon preferences, the introduction of new 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 recent years, the health care industry has undergone significant change driven by various efforts to reduce costs, including efforts at national health care reform, trends toward managed care, cuts in Medicare, consolidation of health care distribution companies and collective purchasing arrangements by office-based health care practitioners. There can be no assurance that demand for the Company's products will not be adversely affected by such fluctuations and trends. PATENTS AND PROPRIETARY TECHNOLOGY Much of the technology used in the markets in which the Company competes is covered by patents. The Company has numerous U.S. patents and corresponding foreign patents on products expiring at various dates from 1998 through 2015 and has additional patent applications pending. See "Item 1: Business -- Research and Development Activities." Although the Company does not rely solely on its patents to maintain its competitive position, the loss of the Company's patents could reduce the value of the related products and any related competitive advantage. Competitors may also be able to design around the Company's patents and effectively compete with the Company's products. In addition, the cost to prosecute infringements of the Company's patents or the cost to defend the Company against patent infringement actions by others could be substantial. There can be no assurance that pending patent applications will result in issued patents, that patents issued to or licensed by the Company will not be challenged by competitors or that such patents will be found to be valid or sufficiently broad to protect the Company's technology or provide the Company with a competitive advantage. 7 8 GOVERNMENT REGULATION OF PRODUCTS All of the Company's products are classified as medical devices subject to regulation by the Food and Drug Administration (the "FDA"). As a manufacturer of medical devices, the Company's manufacturing processes and facilities are subject to on-site inspection and continuing review by the FDA to insure compliance with "Good Manufacturing Practices," as defined by the FDA. Failure to comply with applicable requirements can result in fines, recall or seizure of products, total or partial suspension of production, withdrawal of existing product approvals or clearances, refusal to approve or clear new applications or notices and criminal prosecution. Many of the Company's products are also subject to industry-set standards. Foreign sales are also subject to substantial government regulation. For example, the Company's European Community sales are subject to government regulations known as the "CE" mark certification. Although a majority of the Company's products have received "CE" mark certification and the Company believes its products meet all applicable requirements for "CE" mark certification, there can be no assurance that all of the Company's products will receive a "CE" mark certification prior to the date that such certification is required to continue to market such products. The Company is subject to product recall. The Company's product lines have experienced a number of product recalls. The Company has completed actions to close all these recalls except one which the Company is currently addressing. See "Item 1: Business -- Government Regulation." Although no recall or production matter has had a material adverse effect on the Company's financial condition, there can be no assurance to this effect in the future. RISKS RELATING TO INTERNATIONAL OPERATIONS A portion of the Company's operations are conducted outside the United States, with 22% of the Company's pro forma 1997 net sales constituting foreign sales. As a result of its international operations, the Company is subject to risks associated with operating in foreign countries, including devaluations and fluctuations in currency exchange rates, imposition of limitations on conversions of foreign currencies into dollars or remittance of dividends and other payments by foreign subsidiaries, imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries, trade barriers, political risks, including political instability, hyperinflation in certain foreign countries and imposition or increase of investment and other restrictions by foreign governments. There can be no assurance that such risks will not have a material adverse effect on the Company's business and results of operations. RISK OF PRODUCT LIABILITY ACTIONS The nature of the Company's products as medical devices and today's litigious environment in the United States should be regarded as potential risks that could significantly and adversely affect the Company's financial condition and results of operations. The Company maintains insurance to protect against claims associated with the use of its products, but there can be no assurance that its insurance coverage would adequately cover the amount or nature of any claim asserted against the Company. See "Item 3: Legal Proceedings." ENVIRONMENTAL MATTERS The Company's operations are subject to various environmental laws and regulations governing among other things, air emissions, wastewater discharges, hazardous substances and waste disposal. Certain environmental laws can impose liability for the entire cost of environmental remediation upon current or former property owners and operators without regard to fault. While the Company does not believe that the present costs of environmental compliance and remediation are material, there can be no assurance that future compliance or remedial obligations could not have a material adverse effect on the Company's financial condition or results of operations. See "Item 1: Business--Legal Proceedings." SURGERY PRODUCTS The Company is a leading developer, manufacturer and supplier of a broad range of medical instruments and systems used in surgical and other medical procedures. The Company's surgery products include arthroscopic surgery devices and products, electrosurgical systems, powered surgical instruments and, to a lesser extent, surgical suction instruments and imaging products used in minimally invasive surgery. These products are sold to hospitals, outpatient surgery centers and physician offices primarily in the United States. Additionally, the Company provides repairs and services for its surgical products. On a pro forma basis after giving effect to the Linvatec Acquisition, surgical products represented 82% of 1997 sales. 8 9 ARTHROSCOPIC SURGERY DEVICES AND PRODUCTS As a result of the Linvatec Acquisition, the Company offers a broad line of devices and products for use in arthroscopic surgery. On a pro forma basis after giving effect to the Linvatec Acquisition, net sales attributable to arthroscopy products represented 33% of the Company's 1997 net sales. Arthroscopy refers to diagnostic and therapeutic surgical procedures performed on joints with the use of minimally-invasive endoscopes and related instruments. Minimally-invasive arthroscopy procedures enable surgical repairs to be completed with less trauma to the patient, resulting in shorter recovery times and cost savings. Approximately 75% of all arthroscopy is performed on knee joints, although arthroscopic procedures are increasingly being done on smaller joints and shoulders. The Company's arthroscopy products include arthroscopes, reconstructive systems, tissue repair sets, fluid management systems, imaging products, implants and related disposable products. It is the Company's ordinary practice to transfer some of these products, such as arthroscopic resection shavers, to customers at no charge and benefits by obtaining customers' disposables business. The Company has benefited from the introduction of new products and new technologies in the arthroscopic area, such as bioresorbable screws, "push-in" suture anchors and Apex(R) resection shavers. ARTHROSCOPIC SURGERY DEVICES AND PRODUCTS

9 10

ELECTROSURGICAL SYSTEMS During 1995, 1996 and 1997 and for pro forma 1997, net sales attributable to electrosurgery products represented 53%, 49%, 45% and 19%, respectively, of the Company's net sales. 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 general dermatologic, thoracic, orthopedic, urologic, neurosurgical, gynecological, laparoscopic, arthroscopic and other endoscopic procedures. The Company's electrosurgical products include electrosurgical pencils, ground pads, generators, the argon-beam coagulation system, ABC(R), and related disposable products. ABC(R) 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(R) over traditional electrosurgical coagulation in certain clinical situations, including open-heart, liver, spleen and trauma surgery.

10 11 POWERED INSTRUMENTS As a result of the Linvatec Acquisition, the Company offers a broad line of powered instruments. On a pro forma basis after giving effect to the Linvatec Acquisition, net sales attributable to powered instruments represented 25% of the Company's 1997 net sales. Powered instruments are used to perform orthopedic, arthroscopic and other surgical procedures, such as cutting, drilling or reaming and are driven by electric, battery or pneumatic power. Each instrument consists of one or more handpieces and related accessories as well as disposable and limited reuse items (e.g., burs, saw blades, drills and reamers). Powered instruments are generally categorized as either small bone, large bone or specialty powered instruments. The Company's line of powered instruments are sold principally under the Hall(R) Surgical brand name, for use in orthopedic, oral/maxillofacial, podiatric, plastic and to a limited extent, neurological and thoracic surgeries. Large bone powered instruments and specialty powered instruments are sold primarily to hospitals while small bone powered instruments are sold to hospitals, outpatient facilities and physician offices. Linvatec has devoted substantial resources to developing a new technology base for small bone instruments that can be easily adapted and modified for new procedures. In 1996, Linvatec introduced its first product line using this new technology, MicroChoice(R).

OTHER GENERAL SURGICAL PRODUCTS The Company's other general surgical products include a variety of products used in surgical settings. On a pro forma basis after giving effect to the Linvatec Acquisition, other general surgical products represented 5% of the Company's 1997 net sales.

11 12 PATIENT CARE PRODUCTS During 1995, 1996 and 1997 and for pro forma 1997, net sales attributable to patient care products represented 44%, 48%, 43% and 18%, respectively, of the Company's net sales. The Company manufactures a variety of patient care products for use in monitoring cardiac rhythms, wound care management and IV therapy. These products include ECG electrodes and cables, wound dressings and catheter stabilization dressings. These products are sold to hospitals, outpatient surgery centers and physician offices primarily in the United States. The majority of the Company's sales in this category are derived from the sale of ECG electrodes. Although wound management and intravenous therapy product sales are comparatively small, the application of these products in the operating room complements the Company's surgery business.

MARKETING CONMED markets its products domestically through a direct sales and marketing force of approximately 90 persons. Linvatec markets its arthroscopy products domestically principally through a direct sales force of approximately 80 sales representatives and 13 service associates. Both the CONMED and Linvatec sales forces will continue to be separately maintained by the Company. Linvatec historically marketed its powered instruments domestically through Zimmer, a subsidiary of BMS specializing in orthopedic implant products. In connection with the Linvatec Acquisition, Zimmer agreed to continue distribution of the Company's large bone powered instruments in the United States for three years. Additionally, Zimmer has agreed to distribute all brands of the Company's small bone and specialty powered instruments in the United States for up to one year while the Company establishes a domestic sales force to sell these particular products to physicians and hospitals. Prior to January 1, 1997, CONMED's domestic sales force was principally structured into two groups, Electrosurgical Systems and Patient Care, with each group responsible for selling only the products in its category. While this structure had been effective in maintaining business associated with recent acquisitions, it was not efficient as CONMED had multiple sales people calling on individual customers. Accordingly, effective January 1, 1997, the two groups were combined into one sales force where each territory manager now markets both product lines. The Company believes that this new structure permits greater attention to accounts and facilitates focused selling of CONMED's products. CONMED has located its salespeople in key metropolitan areas. They are supervised and supported by district managers and regional managers. Home office sales and marketing management provide the overall direction for the sales of the Company's products. Each CONMED sales person is compensated with a combination of salary and commission. For hospital inventory management purposes, at the hospitals' request, some products are sold to hospitals through distributors. The sales force is required to work closely with distributors where applicable and to maintain close relationships with end-users. Domestically, CONMED's products are sold through local, regional and national hospital distributors and directly to hospitals. 12 13 Each Linvatec sales representative has a defined geographic territory and is compensated on a commission basis. This direct sales force covers virtually every state in the United States. Linvatec's global marketing effort is managed from Largo, Florida, where a product management team provides strategic product direction. Additional marketing support functions such as new business planning, market development and other marketing services are also based in Largo. Internationally, CONMED's products have historically been sold primarily through distributors in over 60 countries. Linvatec historically distributed both arthroscopy and powered instruments products, depending on the country, either directly through Zimmer or through distributors affiliated with Zimmer. In connection with the Linvatec Acquisition, Zimmer has agreed to continue to distribute Linvatec's arthroscopic and powered instrument products in Japan and certain Eastern European countries for up to three years. Zimmer will also continue to distribute Linvatec's large bone powered instruments in eight countries where it has an established direct sales force. Zimmer has also agreed to direct the distribution of the Linvatec product line for up to six months in all other areas of the world while the Company transitions to its own distribution methodology. In general, the Company plans to contract with the same independent country distributors who now sell the Linvatec line on Zimmer's behalf, although in certain countries, such as the United Kingdom, Germany, Italy, Canada, Korea and Australia, the Company may establish its own direct sales force. The Company focuses on keeping its salespeople highly trained and educated in the applications for its products. CONMED's salespeople call on hospitals, outpatient surgery centers and physician offices. Linvatec's salespeople call on orthopedic surgeons and hospital surgery departments. The Company also has a corporate sales department that is responsible for interacting with GPOs. The Company believes that it has contracts with most such organizations and that the lack of any individual group purchasing contract will not adversely impact the Company's competitiveness in the marketplace. The sale of the Company's products are accompanied by initial and ongoing in-service training of the end user. The Company requires that its sales force possess the ability to train doctors and nursing staff on the techniques needed to take full advantage of the Company's products. 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 During the three years, 1995, 1996 and 1997 and for pro forma 1997, the Company spent approximately $2.8 million, $3.0 million, $3.0 million and $11.3 million, respectively, for research and development. The Company's research and development department consists of approximately 94 employees, including 59 employees as a result of the recent Linvatec Acquisition. The Company's research and development programs focus on the development of new products, as well as the enhancement of existing products with the latest technology and updated designs. The Company is continually seeking to develop new technologies to improve durability, performance and usability of existing products. In addition to its own research and development, the Company receives new product and technology disclosures, especially in procedure-specific areas, from surgeons, inventors and operating room personnel. For disclosures that the Company deems promising from a clinical and commercial perspective, the Company seeks to obtain rights to these ideas by negotiating agreements, which typically compensate the originator of the idea through royalty payments based on a percentage of net sales of licensed products. The Company has rights to numerous U.S. patents and corresponding foreign patents, covering a wide range of its products. The Company owns a majority of these patents and has licensed rights to the remainder, both on an exclusive and non-exclusive basis. In addition, certain Linvatec patents are currently licensed to third parties on a non-exclusive basis. Due to technological advancements, the Company does not rely on its patents to maintain its competitive position, and believes that development of new products and improvement of existing ones is and will continue to be more important than patent protection in maintaining its competitive position. 13 14 COMPETITION The markets for the Company's surgical systems products and patient care products are highly competitive, and many of the Company's competitors are substantially larger and stronger financially than the Company. However, the Company does not believe that any one competitor competes with the Company across all its product lines. Major competitors of the Company include Valleylab (a subsidiary of United States Surgical Corporation), Minnesota Mining and Manufacturing Company, Smith & Nephew plc and Stryker Corporation. The Company believes that product design, development and improvement, customer acceptance, marketing strategy, customer service and price are critical elements to compete in its industry. Other alternatives, such as medical procedures or pharmaceuticals, could at some point prove to be interchangeable alternatives to the Company's products. GOVERNMENT REGULATION All the Company's products are classified as medical devices subject to regulation by the FDA. The Company's new products require FDA clearance under a procedure known as 510(k) premarketing notification. A 510(k) premarketing notification clearance indicates FDA agreement with an applicant's determination that the product for which clearance has been sought is substantially equivalent to another medical device that was on the market prior to 1976 or that has received 510(k) premarketing notification clearance. Some products have been continuously produced, marketed and sold since May 1976 and require no 510(k) premarketing clearance. The Company's products are all either Class I or Class II products with the FDA, meaning that the Company's products must meet certain FDA standards and are subject to the 510(k) premarketing notification clearance discussed above, but are not required to be approved by the FDA. FDA clearance is subject to continual review, and later discovery of previously unknown problems may result in restrictions on a product's marketing or withdrawal of the product from the market. The Company has a quality control/regulatory compliance group of 34 employees that is tasked with assuring that all of the Company's products comply with design specifications and relevant government regulations. The Company and substantially all of its products are subject to the provisions of the Federal Food, Drug and Cosmetic Act of 1938, as amended by the Medical Device Amendments of 1976, and the Safe Medical Device Act of 1990, as amended in 1992. 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. Although a majority of the Company's products have received "CE" mark certification and the Company believes its products meet all applicable requirements for "CE" mark certification, there can be no assurances that all of the Company's products will receive a "CE" mark certification prior to the date that such certification is required to continue to market such products. The Company believes that its products currently meet applicable standards for the countries in which they are marketed. As a manufacturer of medical devices, the Company's manufacturing processes and facilities are subject to periodic on-site inspections and continuing review by the FDA to insure compliance with "Good Manufacturing Practices." Many of the Company's products are subject to industry-set standards. Industry standards relating to the Company's products are generally formulated by committees of the Association for the Advancement of Medical Instrumentation. The Company believes that its products presently meet applicable standards. The Company is subject to product recall. In March 1993, the Company voluntarily recalled certain lots of its TechSwitch(R) electrosurgical pencils due to a production matter which caused a small percentage of the pencils in the affected lots to function in an inconsistent manner. Since 1990, the Linvatec(R) and Hall(R) Surgical product lines have experienced 14 and 5 product recalls, respectively. Corrective actions were taken to address the causes of the recalls, and the Company has completed actions to close all these recalls except one which the Company is currently addressing. No recall or production matter has had a material effect on the Company's financial condition. Any change in existing federal, state or foreign laws or regulations, or in the interpretation or enforcement thereof, or the promulgation or any additional laws or regulations could have an adverse effect on the Company's financial condition or results of operations. EMPLOYEES As of December 31, 1997, the Company had 2,161 full-time employees, of whom 1,462 were in manufacturing, 94 were in research and development, and the balance were in sales, marketing, executive and administrative positions. These employees include 876 employees who joined the Company on December 31, 1997 as a result of the Linvatec Acquisition. None of the Company's employees are represented by a union, and the Company considers its employee relations to be excellent. The Company has never experienced any strikes or work stoppages. 14 15 Item 2. Properties FACILITIES The Company manufactures most of its products. Substantially all of the Company's property and assets are pledged as collateral under the Credit Facility. The following table provides information regarding the Company's facilities. The Company believes its facilities are adequate in terms of space and suitability for its needs over the next several years. The Company is currently in the process of moving one of its manufacturing operations from a leased facility in Lawrence, Kansas to a Company-owned facility in Utica, New York. The leased facility in Lawrence is approximately 100,000 square feet, and the lease may be terminated by the Company without cause upon 60 days' notice to the lessor.

MANUFACTURING The Company manufactures most of its products. The Company believes its vertically integrated manufacturing process allows it to provide quality products and generate manufacturing efficiencies, including by purchasing raw materials for its disposable products in bulk. The Company also believes that its manufacturing capabilities allow it to contain costs, control quality and maintain security of proprietary processes. The Company uses various manual and automated equipment for fabrication and assembly of its products and is continuing to further automate its facilities. 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 of unfilled orders is not significant to an understanding of the Company's business. 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. The Company does not expect that the resolution of any pending claims will have a material adverse effect on the Company's financial condition or results of operations. 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 $25,000,000 per incident and $25,000,000 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. The Company's operations are subject to a number of environmental laws and regulations governing, among other things, air emissions, wastewater discharges, the use, handling and disposal of hazardous substances and wastes, soil and groundwater remediation and employee health and safety. In some jurisdictions environmental requirements may be expected to become more stringent in the future. In the United States certain environmental laws can impose liability for the entire cost of site restoration upon each of the parties that may have contributed to conditions at the site regardless of fault or the lawfulness of the party's activities. The Company has contributed to investigation and remediation costs at certain sites, including a facility formerly operated by Birtcher and located in an area of regional groundwater contamination which has been designated as the San Gabriel Valley Superfund Site. See Note 6 to the Company's Financial Statements. While the Company does not believe that the present costs of environmental compliance and remediation are material, there can be no assurance that future compliance or remedial obligations could not have a material adverse effect on the Company's financial condition or results of operations. 15 16 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, 1997. 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 January 28, 1998, there were 1,471 registered holders of the Company's Common Stock and, in addition the Company has been notified that, on such date, there were approximately 7,700 accounts held in "street name", excluding Prudential accounts. The following table shows the high-low last sales prices for the years ended December 31, 1996 and 1997, as reported by the Nasdaq National Market System.

The Company did not pay cash dividends on its Common Stock during 1996 and 1997. The Credit Facility prohibits the payment of cash dividends on the Company's Common Stock. The Company's Board of Directors presently intends to retain future earnings to finance the development of the Company's business. 16 17 Item 6. Selected Financial Data FIVE - YEAR SUMMARY OF SELECTED FINANCIAL DATA (In thousands, except per share data)

- --------------- (1) Includes, based on the purchase method of accounting, the results of (i) CONMED Andover Medical, Inc., the subsidiary formed as a result of the acquisition of the business and certain assets of Medtronic Andover Medical, Inc., from July 1993; (ii) an ECG product line from Becton Dickinson Vascular Access, Inc. from November 1994; (iii) Birtcher Medical Systems, Inc. ("Birtcher") from March 1995; (iv) the IV controller product line acquired from Master Medical Corporation ("Master Medical") from May 1995; (v) NDM, Inc. ("NDM"), the subsidiary formed as a result of the product lines acquired from New Dimensions in Medicine, Inc., from February 1996; and (vi) the surgical suction product line acquired from the Davol subsidiary ("Davol") of C.R. Bard, Inc., from July 1997, in each such case from the date of acquisition. (2) Includes for 1993 a litigation charge of $5.0 million relating to a patent infringement case involving the Company's line of coated electrosurgical accessory blades and a product restructure charge of $0.7 million for the write-off of obsolete inventory. Includes for 1997 a $34.0 million non-cash acquisition charge for the writedown of all of the in-process research and development products (comprised of products in the development stage) acquired in the Linvatec Acquisition, $0.9 million of deferred financing fees resulting from refinancing the Company's loan agreements in connection with the Linvatec Acquisition, and $2.3 million for the closing of the Company's Dayton, Ohio manufacturing facility. (3) All share and per share amounts have been adjusted to give effect to the Company's three-for-two stock splits in the form of stock dividends paid on December 27, 1994 and November 30, 1995. (4) EBITDA represents earnings before interest expense, income taxes, depreciation and amortization, unusual items and inventory adjustments pursuant to purchase accounting. EBITDA is included herein because certain investors consider it to be a useful measure of a company's ability to service its debt; however, EBITDA does not represent cash flow from operations, as defined in generally accepted accounting principles, and should not be considered in isolation or as a substitute for net income or cash flow from operations or as a measure of profitability or liquidity. (5) The ratio of earnings to fixed charges is calculated by dividing fixed charges into income from operations before income taxes and extraordinary items plus fixed charges. Fixed charges include interest expense, amortization of debt issuance cost and the estimated interest component of rent expense. In 1993 and 1997, the Company had a deficiency of earnings to cover fixed charges of $1,755,000 and $11,381,000, respectively. 17 18 (6) Linvatec is included in the Historical Balance Sheet Data as of December 31, 1997, its date of acquisition, after a one-time non-cash acquisition charge of $34.0 million. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with Selected Historical Financial Information (Item 6) and the consolidated financial statements of CONMED and Linvatec, which are included elsewhere or incorporated by reference in this Form 10-K. GENERAL The Company is a leading developer, manufacturer and supplier of a broad range of medical instruments and systems used in surgical and other medical procedures. The Company's net sales have increased approximately 158% from $53.6 million in 1993 to $138.3 million in 1997 primarily as a result of the Company's acquisitions of the businesses and product lines described below. In July 1993, the Company acquired the business and certain assets of Medtronic Andover Medical, Inc., a manufacturer of ECG monitoring and diagnostic electrodes and ECG cables and lead wires, for a cash purchase price of approximately $21.8 million plus the assumption of approximately $1.2 million of liabilities. In November 1994, the Company purchased the assets associated with a product line involving the manufacture and sale of disposable ECG electrodes from Becton Dickinson Vascular Access, Inc. for approximately $2.0 million. These acquisitions expanded the ECG product offering of the Company and have given the Company the additional market share necessary to become a leading supplier of ECG disposables to the domestic ECG disposables industry. In March 1995, the Company acquired Birtcher for approximately 1.6 million shares of the Company's common stock in a transaction valued at approximately $21.2 million. With the Birtcher acquisition, the Company added the argon beam coagulation technology to its existing lines of electrosurgical products and strengthened the Company's position as a leading supplier of electrosurgical systems to the medical industry. In May 1995, the Company acquired the business and certain assets and liabilities of Master Medical for a cash purchase price of approximately $9.5 million plus the assumption of net liabilities 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. In February 1996, the Company acquired substantially all the business and certain assets of 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. On July 1, 1997, the Company completed the acquisition of a surgical suction instrument and tubing product line from Davol for a cash purchase price of $24.0 million. This 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. On December 31, 1997, the Company acquired Linvatec and other related assets from BMS for a cash purchase price of $370.0 million plus the issuance of a warrant to purchase 1.0 million shares of the Company's common stock plus the assumption of net liabilities of approximately $16.6 million. The Linvatec Acquisition is being accounted for using the purchase method of accounting. Accordingly, the results of operations of Linvatec are included in the consolidated results of the Company from the date of acquisition. Goodwill associated with the Linvatec Acquisition is being amortized on a straight-line basis over a 40-year period. Linvatec is a leading supplier of minimally-invasive surgical products for arthroscopic surgery, as well as a leader in the powered surgical instrument market. The allocations of the purchase price for the Davol Acquisition and the Linvatec Acquisition are based on management's preliminary estimates; it is possible that re-allocations will be required as additional information 18 19 becomes available. Management does not believe that such re-allocations will have a material effect on the Company's results of operations or financial position. The Company has identified measures required to enable its systems to be Year 2000 compliant. The cost of such measures is not expected to be significant. From time to time, the Company explores acquisition opportunities and conducts discussions and negotiations regarding acquisition proposals. There are no current acquisition proposals pending and there can be no assurance that any future acquisitions will result from discussions and negotiations. The Credit Facility significantly limits the ability of the Company to pursue acquisitions that have not been approved by the lenders thereunder. See "Risk Factors -- Limitation Imposed by Certain Indebtedness." CONMED RESULTS OF OPERATIONS The following table presents, as a percent of net sales, certain categories included in CONMED's consolidated statements of income for the periods indicated:

YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 Sales for 1997 were $138.3 million, an increase of $12.7 million, or 10.1%, compared to sales of $125.6 million in 1996. The increase was primarily a result of the Davol product line acquisition effective July 1, 1997, and the NDM acquisition that was reflected in 1996 results only from February 23, 1996, the date of acquisition. Offsetting the incremental sales volume associated with the acquisitions was the effect of realignment of CONMED's domestic sales force effective January 1, 1997, the effect of discontinuing certain end of quarter dealer incentives and lower pricing relative to ECG electrode sales. Prior to 1997, CONMED maintained separate sales forces, each of which sold only a portion of CONMED's product offerings. With the January 1, 1997 realignment, each of CONMED's territory managers became responsible for selling its entire product line. While management believes that this change has enhanced CONMED's sales efforts, management believes that sales for the first six months of 1997 were negatively impacted by this change due to training and transition issues. Additionally, during the second quarter of 1997, CONMED announced that it would immediately discontinue certain end of quarter dealer incentives that had previously been offered. Management believes that the termination of such dealer incentives had a negative effect on CONMED's sales in 1997 by as much as $2.0 million. 19 20 Cost of sales increased to $74.2 million in 1997, an increase of $8.8 million, or 13.5%, compared to cost of sales of $65.4 million in 1996. CONMED's gross margin percentage was 46.3% in 1997 as compared to 47.9% in 1996. Factors adversely impacting the gross margin percentage in 1997 include the Davol product line, which currently has a lower gross margin percentage than CONMED's overall gross margin percentage, and the effects of lower pricing on ECG electrodes. Selling and administrative expenses increased to $35.3 million in 1997, an increase of $3.7 million, or 11.6%, compared to selling and administrative expenses of $31.6 million in 1996. As a percent of sales, selling and administrative expenses increased to 25.5% in 1997 from 25.2% in 1996. Selling and administrative expenses for the first two quarters of 1997 averaged 28.1% of net sales and were adversely impacted by incremental costs associated with CONMED's realignment of its domestic sales force which was completed in the second quarter of 1997. Selling and administrative expense for the last two quarters of 1997 declined to an average of 24.4% of net sales reflecting the completion of the sales force realignment and economies of scale resulting from the Davol product line acquisition effective July 1, 1997. Research and development expense was $3.0 million in each of 1997 and 1996. CONMED continues to conduct research and development activities in all of its product lines, with a particular emphasis on products for minimally invasive surgery. In 1997, CONMED recorded $37.2 million of unusual items, including a $34.0 million non-cash acquisition charge for the write-down of all of the in-process research and development products (comprised of products in the development stage) acquired in the Linvatec Acquisition, $0.9 million of deferred financing fees resulting from the refinancing of the Company's loan agreements in connection with the Linvatec Acquisition and a $2.3 million charge for the closing of CONMED's Dayton, Ohio manufacturing facility. In 1997, CONMED had net interest income of $0.8 million, compared to net interest expense of $0.2 million in 1996. CONMED repaid all then-outstanding balances under a predecessor credit agreement in 1996 following the completion of CONMED's offering of 2,998,000 shares of common stock. No further borrowings were made under any CONMED credit facilities until December 31, 1997, when $365.0 million was borrowed under the Credit Facility in connection with the Linvatec Acquisition. As a result of the unusual items, CONMED recognized an income tax benefit of $3.6 million in 1997. CONMED's effective tax rate for 1996 was 36.0% YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 29, 1995 Sales for 1996 were $125.6 million, an increase of 26.2% compared to sales of $99.6 million in 1995. The increase was 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 $65.4 million in 1996 as compared to $52.4 million in 1995. CONMED'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 inclusion of the NDM product line which generally have lower gross margin percentages than CONMED's overall gross margin percentage. Selling and administrative expenses increased to $31.6 million in 1996 as compared to $25.6 million 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. Research and development expense was $3.0 million in 1996 as compared to $2.8 million in 1995. Net interest expense was $0.2 million in 1996 as compared to $2.0 million in 1995. In connection with the 1995 acquisitions of Birtcher and Master Medical, CONMED borrowed approximately $23.0 million bringing aggregate 1995 20 21 borrowing outstanding under its credit agreement to $32.3 million. While an additional $32.7 million was borrowed in connection with the February 1996 acquisition of NDM, all then-existing indebtedness of CONMED under its credit agreement was repaid in March 1996 following CONMED's offering of 2,998,000 shares of common stock. CONMED's effective tax rate for 1996 was 36.0% as compared to 35.2% in 1995. LINVATEC YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996 Net sales for 1997 were $228.4 million, an increase of $9.5 million, or 4.3%, compared to net sales of $218.9 million in 1996. This increase relates primarily to increased sales of arthroscopic imaging products both domestically and internationally, and increased sales of Linvatec's other arthroscopic products in its overseas markets. Offsetting the above volume increases were slight price declines related primarily to Linvatec's disposable products. Cost of goods sold was $89.1 million in 1997, an increase of $6.1 million, or 7.4%, compared to cost of goods sold of $83.0 million in 1996. Linvatec's gross margin percentage was 61.0% in 1997 as compared to 62.1% in 1996. The decrease in gross margin percentage from 1996 to 1997 was caused primarily by the effects of unfavorable foreign exchange and price declines on Linvatec's disposable products. Selling and administrative expenses were $92.0 million in 1997, an increase of $7.3 million, or 8.7%, compared to selling and administrative expenses of $84.7 million in 1996. As a percentage of net sales, 1997 selling and administrative expenses were 40.3% as compared to 38.7% in 1996. This increase relates primarily to incremental expense associated with Linvatec's worldwide marketing efforts. Research and development expense was $9.2 million in 1997, as compared with research and development expense of $8.3 million in 1996, a $0.9 million, or 10.8% increase. In 1997, research and development expense increased primarily as a result of an acquisition in August 1996. In 1996 and 1997, Linvatec was accounted for as a division of Zimmer. Linvatec's Statement of Net Sales and Direct Operating Expenses does not include interest expense or income tax provision in either period. YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995 Net sales for 1996 were $218.9 million, an increase of $0.2 million compared to sales of $218.7 million in 1995. Primary factors impacting this sales increase included favorable international sales growth offset partially by price declines on Linvatec's powered instrument product line. Cost of goods sold was $83.0 million in 1996, an increase of $1.4 million, or 1.7%, compared to cost of goods sold of $81.6 million in 1995. Linvatec's gross margin percentage was 62.1% in 1996 as compared to 62.7% in 1995. The decline in gross margin percentage was due to price declines on Linvatec's powered instrument product line and the impact of foreign exchange. Selling and administrative expenses were $84.7 million in 1996, an increase of $6.0 million, or 7.6%, compared to selling and administrative expenses of $78.7 million in 1995. As a percentage of net sales, 1996 selling and administrative expenses were 38.7% in 1996 as compared to 36.0% in 1995. The increase related primarily to increased marketing efforts, including the expansion of physician consulting arrangements. Research and development expense was $8.3 million in 1996, as compared with research and development expense of $8.0 million in 1995, a $0.3 million, or 3.8% increase. In 1996, research and development expense increased primarily as a result of an acquisition in August 1996. In 1995 and 1996, Linvatec was accounted for as a division of Zimmer. Linvatec's Statement of Net Sales and Direct Operating Expenses does not include interest expense or income tax provision in either period. 21 22 LIQUIDITY AND CAPITAL RESOURCES The Company's sources of liquidity are cash flows from operations and borrowings under its $100 million revolving portion of the Credit Facility, of which $85 million was available for borrowing on December 31, 1997. The Company's cash flow from operations for the years 1995, 1996 and 1997 was $5.1 million, $25.9 million and $31.8 million, respectively. Working capital amounted to $91.3 million at December 31, 1997. At December 31, 1997, the Company had $85 million available under the revolving portion of the Credit Facility. The revolving portion of the Credit Facility expires on December 30, 2002. On December 31, 1997, the Company borrowed the $350 million in term loans available under the Credit Facility. Of the term loans, $210 million will be repayable over a five-year period, commencing March 31, 1998 and $140 million will be repayable over a seven-year period, commencing March 31, 1998. The Credit Facility is collateralized by all the Company's personal property. The Credit Facility contains covenants and restrictions which, among other things, require maintenance of certain working capital levels and financial ratios, prohibit dividend payments and restrict the incurrence of indebtedness and certain other activities, including acquisitions and dispositions. The Company is also required to make mandatory prepayments from net cash proceeds from any issue of equity and asset sales and also from any excess cash flow, as defined. One of the covenants under the Credit Facility requires the Company to complete by June 30, 1998 a senior subordinated note offering that will generate at least $125 million of gross proceeds. Such proceeds are required to be applied to reduce amounts outstanding under the term loans under the Credit Facility. Any repayments of amounts due under the term loans permanently reduce the term loans under the Credit Facility. The Credit Facility (including the term loans and the revolving credit facility) is guaranteed (the "Subsidiary Guarantees") on a secured basis by all of the Company's subsidiaries (the "Subsidiary Guarantors"). The Subsidiary Guarantees provide that each Subsidiary Guarantor will fully and unconditionally guarantee the Company's obligations under the Credit Facility on a joint and several basis. Each Subsidiary Guarantor is wholly-owned by the Company. Under the Credit Facility, the Company's subsidiaries are subject to the same covenants and restrictions that apply to the Company (except that the Subsidiary Guarantors are permitted to make dividend payments and distributions, including cash dividend payments, to the Company or another Subsidiary Guarantor) and all of the subsidiaries' personal property is pledged as collateral to secure the Credit Facility. Prior to the credit agreement outlined above, the Company's credit facility consisted of a $60.0 million secured revolving line of credit which was to expire in March 2001. There were no borrowings against this facility at December 31, 1996. The Company's cash flow used in investing activities for the years 1995, 1996 and 1997 was $14.7 million, $36.6 million and $403.5 million, respectively. Acquisitions of businesses and product lines totalled $9.5 million in 1995, $31.7 million in 1996 and $395.3 million in 1997, with the balance of investing activities in each year attributed to purchases of property, plant and equipment. The Company believes that its sources of liquidity set forth above will be sufficient to fund its working capital requirements, capital expenditures and required debt service for the foreseeable future. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Not applicable. 22 23 Item 8. Financial Statements and Supplementary Data The Company's 1997 Financial Statements, together with the report thereon of Price Waterhouse LLP dated February 10, 1998, are included elsewhere herein. The Financial Statements of the Linvatec Business Unit, together with the report thereon of Price Waterhouse LLP dated January 23, 1998, are incorporated by reference herein from the Company's Current Report on Form 8-K/A filed on February 17, 1998. 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. 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 3, 1998 for the annual meeting of shareholders to be held on May 19, 1998. 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 3, 1998 for the annual meeting of shareholders to be held on May 19, 1998. 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 3, 1998 for the annual meeting of shareholders to be held on May 19, 1998. 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 3, 1998 for the annual meeting of shareholders to be held on May 19, 1998. 23 24 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Index to Financial Statements: (a)(1) List of Financial Statements CONMED Corporation Report of Independent Accountants Consolidated Balance Sheets at December 1996 and 1997 Consolidated Statements of Income for the Years Ended December 1995, 1996 and 1997 Consolidated Statements of Shareholders' Equity for the Years Ended December 1995, 1996 and 1997 Consolidated Statements of Cash Flows for the Years Ended December 1995, 1996 and 1997 Notes to Consolidated Financial Statements Linvatec Business Unit (a division of Zimmer, Inc., a wholly owned subsidiary of Bristol-Myers Squibb Company) Report of Independent Accountants* Statement of Net Assets Acquired and Liabilities Assumed as of December 31, 1997 and 1996* Statement of Net Sales and Direct Operating Expenses for the Years Ended December 31, 1995, 1996 and 1997* Notes to Statements of Net Assets Acquired and Liabilities Assumed and of Net Sales and Direct Operating Expenses* (2) List of Financial Statement Schedules CONMED Corporation Valuation and Qualifying Accounts (Schedule VIII) Pro Forma Financial Statements giving effect to the acquisition of Linvatec Corporation.* 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 page 43 below are filed as part of this Form 10-K. - ----------- * Incorporated by reference from Exhibit 99.1 of the Company's Current Report on Form 8-K/A filed on February 17, 1998. (b) Reports on Form 8-K (1) On January 8, 1998, the Company filed a report on Form 8-K regarding the acquisition from Bristol-Myers Squibb of Linvatec Corporation on December 31, 1997. (2) On February 17, 1998, the Company filed Form 8-K/A which amended the report on Form 8-K filed on January 8, 1998, which included the financial statements of the Linvatec Business Unit and the pro forma financial statements with respect to the acquisition of Linvatec Corporation. 24 25 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 February 19, 1998 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.

25 26 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 24 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, 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 10, 1998 F-1 27 CONMED CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 1996 AND 1997 (IN THOUSANDS EXCEPT SHARE AMOUNTS)

See notes to consolidated financial statements. F-2 28 CONMED CORPORATION CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 1995, 1996 AND 1997 (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

See notes to consolidated financial statements. F-3 29 CONMED CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 1995, 1996 AND 1997 (IN THOUSANDS)

See notes to consolidated financial statements. F-4 30 CONMED CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 1995, 1996 AND 1997 (IN THOUSANDS)

Supplemental non-cash investing and financing activities: As more fully described in Note 2, 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, and in a 1997 acquisition issued warrants for the purchase of 1,000,000 common shares with a value of $10,625,000. See notes to consolidated financial statements. F-5 31 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 a leading developer, manufacturer and supplier of a range of medical instruments and systems used in surgical and other medical procedures. The Company's product offerings include electrosurgical systems, electrocardiogram ("ECG") electrodes and accessories, surgical suction instruments, intravenous ("IV") therapy accessories and wound care products. Through its acquisition of Linvatec Corporation (Note 2), the Company has expanded its arthroscopic surgery product line and broadened its product offerings to include powered surgical instruments and imaging products for minimally invasive surgery. The Company's products are used in a variety of clinical settings, such as operating rooms, surgery centers, physicians' offices and critical care areas of hospitals. 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. Goodwill Goodwill is amortized over periods ranging from 13 to 40 years. Accumulated amortization of goodwill amounted to $4,074,000 and $6,468,000 at December 1996 and 1997, respectively. When events and circumstances so indicate, the Company will assess the recoverability of its goodwill based upon cash flow forecasts (undiscounted and without interest). No impairment losses have been recognized in any of the periods presented. F-6 32 CONMED CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Earnings (loss) per share In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share. This standard requires presentation of basic earnings per share ("EPS"), computed based on the weighted average number of common shares outstanding for the period, and diluted EPS, which gives effect to all dilutive potential shares outstanding (i.e., options and warrants) during the period. Previously presented EPS amounts have been restated to reflect the method of computation required by SFAS No. 128. Income used in the EPS calculation is net income (loss) for each year. Shares used in the calculation of basic and diluted EPS were (in thousands):

The 1997 calculation of diluted EPS excluded the effect of dilutive potential securities aggregating 230,000 shares because to give effect thereto would have been antidilutive given the net loss for the year. The shares used in the calculation of dilutive EPS exclude warrants and options to purchase shares where the exercise price was greater than the average market price of common shares for the year. Such shares aggregated 7,500, 218,000 and 1,395,000 at December 31, 1995, 1996 and 1997, respectively. 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. NOTE 2 -- BUSINESS ACQUISITIONS 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. The acquisition was accounted for using the purchase method. 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. 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 the assumption of $500,000 of net liabilities. The acquisition was accounted for using the purchase method. 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 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 net liabilities. The acquisition is being accounted for using the purchase method. Accordingly, the results of operations of the acquired business are included in the consolidated results of the Company from the date of acquisition. Goodwill F-7 33 CONMED CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) associated with the acquisition is being amortized on a straight-line basis over a 40-year period. On July 1, 1997, the Company completed the acquisition of a product line from Davol, Inc., a subsidiary of C.R. Bard, Inc., for a cash purchase price of $24,000,000. This acquisition is being accounted for using the purchase method. Accordingly, the results of operations of the acquired product line 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. On December 31, 1997, the Company acquired the business and certain assets of Linvatec Corporation, a wholly-owned subsidiary of Bristol-Myers Squibb Company, for a cash purchase price of $370,000,000 (Note 5) and the assumption of $16,608,000 of liabilities. Bristol-Myers Squibb Company also received a warrant to purchase 1,000,000 shares of the Company's common stock at $34.23 per share. This warrant expires December 31, 2007, and was valued at $10,625,000. This acquisition is being accounted for using the purchase method. The allocation of purchase price resulted in identifiable intangible assets, including patents and technology ($9,500,000), trademarks and tradenames ($96,000,000) and customer relationships ($97,000,000), aggregating $204,000,000, which will be amortized over periods from 5 to 40 years. Goodwill associated with the Linvatec acquisition approximated $70,000,000 and will be amortized on a straight-line basis over a 40-year period. Additionally, a portion of the purchase price was allocated to purchased in-process research and development ("R&D"). Purchased in-process R&D includes the value of products in the development stage and not considered to have reached technological feasibility. In accordance with applicable accounting rules, purchased in-process R&D is required to be expensed. Accordingly, $34,000,000 of the acquisition cost was expensed on December 31, 1997. As the acquisition was not consummated until December 31, 1997, the Company's consolidated results of operations for 1997 do not include any Linvatec results of operations. In connection with the Linvatec acquisition, the Company entered into agreements with Zimmer, Inc., a wholly-owned subsidiary of Bristol-Myers Squibb Company, pursuant to which Zimmer has agreed to distribute certain of Linvatec's products for periods ranging from six months to three years. The allocation of the purchase price for the Davol and Linvatec acquisitions are based on management's preliminary estimates. It is possible that re-allocation will be required as additional information becomes available. Management does not believe that such re-allocations will have a material effect on the Company's financial position or results of operations. On an unaudited pro forma basis, assuming the NDM, Davol and Linvatec 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):

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. F-8 34 CONMED CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3 -- INVENTORIES The components of inventory are as follows (in thousands):

NOTE 4 -- PROPERTY, PLANT AND EQUIPMENT Details of property, plant and equipment are as follows (in thousands):

Rental expense on operating leases was approximately $445,000, $327,000 and $489,000 for the years ended December 1995, 1996 and 1997, respectively. The aggregate future minimum lease commitments for operating leases at December 31, 1997 are as follows: Year ending December 31 (in thousands): 1998........................................... $ 2,581 1999........................................... 2,011 2000........................................... 2,030 2001........................................... 2,100 2002........................................... 2,149 Thereafter..................................... 14,267 ------- $25,138 =======

NOTE 5 -- LONG-TERM DEBT On December 30, 1997, in connection with the Linvatec acquisition (Note 2), the Company entered into a credit agreement with several banks providing for a $450,000,000 credit facility. The $450,000,000 credit facility is comprised of three sub-facilities: (i) a $210,000,000 five-year term loan with quarterly principal repayments; (ii) a $140,000,000 seven-year term loan with quarterly principal repayments; and (iii) a $100,000,000 revolving credit facility. The revolving credit facility expires on December 30, 2002. During the commitment period, the Company is obligated to pay a fee of .25% per annum on the unused portion of the revolving credit facility. At December 31, 1997, $210,000,000 was borrowed under the five-year term loan facility, $140,000,000 was borrowed under the seven-year term loan facility, and $15,000,000 was borrowed under the revolving credit facility. The interest rates at December 31, 1997 were 7.97%, 8.22% and 7.97% for the five-year term loan, the seven year term loan and the revolving credit facility, respectively. The term debt and revolving credit facility are collateralized F-9 35 CONMED CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) by all the Company's personal property. The agreement contains covenants and restrictions which, among other things, requires maintenance of certain working capital levels and financial ratios, prohibit dividend payments and restrict the incurrence of indebtedness and certain other activities, including acquisitions and dispositions. The Company is also required to make mandatory prepayments from net cash proceeds from any issue of equity and asset sales and also from any excess cash flow, as defined. Mandatory prepayments will first be applied to the prepayment of the term loans and then to reduce borrowings under the revolving credit facility. A covenant under the credit facility requires the Company to complete by June 30, 1998, a senior subordinated note offering that will generate at least $125 million of gross proceeds, which are required to be applied to reduce amounts under the term loans. Upon completion of this transaction, the interest rate on amounts borrowed under the credit facility will be reduced by .25%. The scheduled maturities of long-term debt outstanding at December 31, 1997 are as follows: 1998 -- $11,000,000; 1999 -- $36,000,000; 2000 -- $51,000,000; 2001 -- $56,000,000; 2002 -- $76,000,000; thereafter -- $135,000,000. The credit facility (including the term loans and the revolving credit facility) is guaranteed (the "Subsidiary Guarantees") on a secured basis by all of the Company's subsidiaries (the "Subsidiary Guarantors"). The Subsidiary Guarantees provide that each Subsidiary Guarantor will fully and unconditionally guarantee the Company's obligations under the credit facility on a joint and several basis. Each Subsidiary Guarantor is wholly-owned by the Company. Separate financial statements and other disclosures concerning the Subsidiary Guarantors are not presented because management has determined such financial statements and other disclosures are not material to investors. The combined condensed financial information of the Company's Subsidiary Guarantors is as follows (in thousands):
DECEMBER 31, -------------------- 1996 1997 ------- -------- Current assets.................................................. $ 4,733 $ 54,799 Non-current assets.............................................. 43,459 327,751 Current liabilities............................................. 1,407 15,339 Non-current liabilities......................................... 5,907 345,826

YEAR ENDED DECEMBER -------------------------------- 1997 1996 1997 ------- ------- -------- Revenues............................................. $46,574 $53,015 $ 51,376 Operating Income (Loss).............................. 14,425 16,731 (16,452) Net Income (Loss).................................... 9,244 10,708 (10,529)
Prior to the Company's entry into the credit agreement outlined above, the Company's credit facility consisted of a $60,000,000 secured revolving line of credit which was to expire in March 2001. There were no borrowings against this facility at December 31, 1996. NOTE 6 -- LEASES AND OTHER LONG-TERM LIABILITIES Upon the Company's acquisition of Birtcher (Note 2), use of certain manufacturing and administrative facilities previously occupied by Birtcher was discontinued. A liability was established in connection with the purchase accounting for the Birtcher acquisition representing the aggregate future rental payments net of committed sublease income at the date of acquisition. F-10 36 CONMED CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Future minimum rental commitments, net of sublease income, for such leases at December 31, 1997 are as follows (in thousands):
MINIMUM MINIMUM RENTAL RENTAL PAYMENTS INCOME NET -------- ------- ------ 1998................................................... $1,474 $ 453 $1,021 1999................................................... 1,534 590 944 2000................................................... 1,081 395 686 ------ ------ ------ $4,089 $1,438 $2,651 ====== ====== ======
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 7 -- FEDERAL AND STATE INCOME TAXES The provision for income taxes consists of the following (in thousands):
1995 1996 1997 ------ ------ -------- Current tax expense: Federal.............................................. $4,493 $6,398 $ 6,677 State................................................ 356 311 492 ------ ------ -------- 4,849 6,709 7,169 Deferred income tax expense (benefit).................. 1,051 2,452 (10,809) ------ ------ -------- Provision (benefit) for income taxes................. $5,900 $9,161 $ (3,640) ====== ====== ========
A reconciliation between income taxes computed at the statutory federal rate and the provision for income taxes follows (in thousands):
1995 1996 1997 ------ ------ ------- Tax provision at statutory rate based on income before taxes................................................. $5,817 $8,906 $(3,747) Foreign sales corporation............................... (285) (318) (300) State taxes............................................. 234 202 313 Nondeductible intangible amortization................... 168 280 224 Other, net.............................................. (34) 91 (130) ------ ------ ------- $5,900 $9,161 $(3,640) ====== ====== =======
F-11 37 CONMED CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effects of the significant temporary differences which comprise the deferred tax assets and liabilities at December 1996 and 1997 are as follows (in thousands):
1996 1997 ------- ------- Assets: Receivables.................................................... $ 177 $ 315 Inventory...................................................... 352 518 Deferred compensation.......................................... 361 432 Employee benefits.............................................. 218 210 Other.......................................................... 439 682 Leases......................................................... 1,183 928 Goodwill and intangible assets................................. 892 12,168 Birtcher net operating losses.................................. 5,529 5,105 Valuation allowance for deferred tax assets.................... (5,417) (5,105) ------- -------- 3,734 15,253 ------- -------- Liabilities: Depreciation................................................... 1,261 1,745 Interest charge DISC........................................... 84 57 Other.......................................................... 517 770 ------- -------- 1,862 2,572 ------- -------- $ 1,872 $12,681 ======= ========
Birtcher net operating losses are subject to certain limitations and expire over the period 2008 to 2010. Management has established a valuation allowance of $5,105,000 to reflect the uncertainty of realizing the benefit of certain of these carry forwards. Further utilization of Birtcher operating loss carry forwards will serve to decrease goodwill associated with the Birtcher acquisition. NOTE 8 -- SHAREHOLDERS' EQUITY The shareholders have 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, 1997, no preferred stock had been issued. In March 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 Linvatec acquisition (Note 2), the Company issued to Bristol-Myers Squibb Company a ten-year warrant to purchase 1.0 million shares of the Company's common stock at a price of $34.23 per share. During 1997, the Company authorized the repurchase of up to $30,000,000 of its common stock in the open market or in private transactions. The Company repurchased 25,000 shares of common stock in 1997 at an aggregate price of $419,000. The new credit agreement (Note 5) prohibits future repurchases of common stock during its term. The Company has reserved shares of common stock for issuance to employees and directors under three Stock Option Plans (the "Plans"). The option price on all outstanding options is equal to the estimated fair F-12 38 CONMED CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. The following is a summary of incentive stock option activity under the Plans (in thousands except per share amounts):
WEIGHTED- NUMBER AVERAGE OF EXERCISE SHARES PRICE ------ --------- Outstanding at December 1994..................................... 1,254 $ 7.16 Granted during 1995............................................ 251 19.79 Forfeited...................................................... (12) 8.67 Exercised...................................................... (253) 5.13 ----- ------ Outstanding at December 1995..................................... 1,240 10.12 Granted during 1996............................................ 197 23.07 Forfeited...................................................... (10) 8.10 Exercised...................................................... (292) 4.14 ----- ------ Outstanding at December 1996..................................... 1,135 13.92 Granted during 1997............................................ 153 22.99 Forfeited...................................................... (10) 10.09 Exercised...................................................... (73) 9.01 ----- ------ Outstanding at December 1997 1,205 $ 15.39 ===== ====== Exercisable: December 1995.................................................. 922 $ 6.42 December 1996.................................................. 559 9.96 December 1997.................................................. 690 11.51
At December 31, 1997, the number of stock options outstanding with exercise prices less than $10, between $10 and $20, and greater than $20 were 174,000, 701,000 and 330,000, respectively. The weighted average price per share and remaining life for options in these categories were $5.64 and 5 years, $12.62 and 7 years, and $26.46 and 9 years, respectively. The number of shares exercisable at December 31, 1997 and the related weighted average price per share for options in these categories were 155,000 shares at $5.64, 462,000 shares at $11.15 and 73,000 shares at $26.21, respectively. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 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 No. 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. Pro forma information regarding net income (loss) and earnings (loss) per share is required by SFAS No. 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. The weighted average fair value of options granted in 1995, 1996 and 1997 was $10.25, $12.95 and $11.87, respectively. The fair value of these options was estimated at the date of grant using a Black-Scholes options pricing model with the following weighted-average assumptions for F-13 39 CONMED CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) options granted in 1995, 1996 and 1997, respectively: Risk-free interest rates of 6.02%, 6.45% and 5.96%; volatility factors of the expected market price of the Company's common stock of 51.09%, 54.31% and 51.31%; a weighted-average expected life of the option of five years; and that no dividends would be paid on common stock. For purposes of the pro-forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows (in thousands, except for earnings per share information):
1995 1996 1997 ------- ------- -------- Net earnings (loss) -- as reported................... $10,863 $16,286 $ (7,065) Net earnings (loss) -- pro forma..................... 10,389 15,299 (7,427) EPS -- as reported: Basic.............................................. 1.03 1.16 (0.47) Diluted............................................ 0.94 1.12 (0.47) EPS -- pro-forma: Basic.............................................. 0.99 1.09 (0.50) Diluted............................................ 0.89 1.06 (0.50)
The pro-forma disclosures include only options granted after January 1, 1995. NOTE 9 -- MAJOR CUSTOMERS AND EXPORT SALES The Company uses medical supply distributors to distribute products to their end users (Note 1). Sales to one distributor totaled 14.5% and 15.3% of the Company's sales in 1996 and 1997, respectively. Sales to another distributor totaled 12.3% and 12.2% of the Company's sales in 1995 and 1996, respectively. Sales outside of the United States accounted for approximately 15.5% of the Company's total sales in 1995, 14.5% in 1996 and 12.9% in 1997. NOTE 10 -- 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 1995, 1996 and 1997 included the following components (in thousands):
1995 1996 1997 ----- ----- ------ Service cost -- benefits earned during the period......... $ 758 $ 766 $ 925 Interest cost on projected benefit obligation............. 353 402 436 Actual gain on plan assets................................ (959) (442) (655) Net amortization and deferral............................. 685 138 304 ----- ----- ------ Net pension cost........................................ $ 837 $ 864 $1,010 ===== ===== ======
F-14 40 CONMED CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth the plan's funded status and amounts recognized in the Company's consolidated balance sheets at December 1996 and 1997 (in thousands):
1996 1997 ------ ------ Actuarial present value of accumulated benefit obligation Vested benefits.................................................. $4,057 $5,083 Non-vested benefits.............................................. 241 274 ------ ------ Accumulated benefits obligations................................. 4,298 5,357 Additional amounts related to projected pay increases............ 1,814 2,136 ------ ------ Projected benefit obligations for service rendered to date......... 6,112 7,493 Plan assets at fair value, consisting of debt and equity securities....................................................... 4,405 5,962 ------ ------ Plan benefit obligations in excess of plan assets.................. 1,707 1,531 Unrecognized net obligation at December 1986 being recognized over 25 years......................................................... (76) (72) Unrecognized prior service cost.................................... (195) (184) Unrecognized net loss from past experience different from that assumed.......................................................... (827) (806) ------ ------ Accrued pension cost recognized in the balance sheet............. $ 609 $ 469 ====== ======
For 1995, 1996 and 1997, 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%. 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. NOTE 12 -- UNUSUAL ITEMS The unusual items for the year ended December 31, 1997 consist of the following (in thousands): Write-off of purchased in-process R&D (Note 2)............................. $34,000 Facility consolidations.................................................... 2,328 Write-off of deferred financing costs (Notes 2 and 5)...................... 914 ------- $37,242 =======

During the first quarter of 1997, the company recorded a charge of $2,328,000 related to the closure of the Company's Dayton, Ohio manufacturing facility. Operations of the Dayton facility, which were acquired in connection with the 1996 acquisition of NDM (Note 2), were transferred to the Company's Utica and Rome, New York facilities. The components of the charge consisted primarily of costs associated with employee severance and termination, and the impairment of the carrying value of fixed assets. F-15 41 CONMED CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 13 -- SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data for 1996 and 1997 are as follows (in thousands, except per share amounts):
THREE MONTHS ENDED ---------------------------------------------- MARCH JUNE SEPTEMBER DECEMBER ------- ------- --------- -------- 1996 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: Basic................................... 0.29 0.28 0.27 0.32 Diluted................................. 0.26 0.28 0.27 0.31

MARCH JUNE SEPTEMBER DECEMBER ------- ------- --------- -------- 1997 Net sales................................. $31,472 $30,707 $38,581 $ 37,510 Gross profit.............................. 14,997 14,448 16,980 17,625 Unusual item.............................. 2,328 -- -- 34,914 Net income (loss)......................... 2,460 3,473 4,518 (17,516) Earnings (loss) per share: Basic................................... 0.16 0.23 0.30 (1.17) Diluted................................. 0.16 0.23 0.30 (1.17)
F-16 42 SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
COLUMN C ----------------------------- ADDITIONS COLUMN B ----------------------------- ------------ (1) COLUMN E COLUMN A BALANCE AT CHARGED TO (2) COLUMN D -------------- - ----------------------------- BEGINNING OF COSTS AND CHARGED TO ---------- BALANCE AT END DESCRIPTION PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD - ----------------------------- ------------ ---------- -------------- ---------- -------------- 1997 Allowance for bad debts.... $ 500 $887 $1,808 $ (487) $2,708 Inventory reserves......... $ 462 $277 $6,672 $7,411 Deferred tax asset valuation allowance..... $5,417 $ (312) $5,105 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 asset valuation allowance..... $5,417 $5,417
F-17 43 EXHIBIT INDEX
Exhibit No. Description of Instrument Page Number - ----------- ------------------------- ----------- 2.1 - 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). 2.2 - 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. 2.3 - Purchase Agreement, dated as of May 28, 1997, by and between Davol, Inc. and CONMED Corporation -- incorporated by reference to Exhibit 2 in the Company's Current Report on Form 8-K, filed on July 11, 1997. 2.4 - Stock and Asset Purchase Agreement dated as of November 26, 1997, between Bristol-Myers Squibb company and CONMED Corporation, as amended by an amendment dated as of December 31, 1997 - incorporated herein by reference to Exhibit 2.1(a) in the Company's Current Report on Form 8-K, filed on January 8, 1998. 2.5 - Amendment dated as of December 31, 1997, between Bristol-Myers Squibb Company and CONMED Corporation, to the Stock and Asset Purchase Agreement, dated as of November 26, 1997 between Bristol-Myers Squibb company and CONMED - incorporated herein by reference to Exhibit 2.1(b) in the Company's Current Report on Form 8-K, filed on January 8, 1998. 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 - incorporated herein by reference to the exhibit in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 4.1 - See Exhibit 3.1. 4.2 - See Exhibit 3.2. 4.3 - Warrant, dated as of December 31, 1997, issued to Bristol-Myers Squibb Company - incorporated herein by reference to Exhibit 4.1 in the Company's Current Report on Form 8-K, filed on January 8, 1998. 4.4 - Credit Agreement, dated as of December 29, 1997, among CONMED Corporation, the several banks and other financial institutions of entities from time to time parties to the Agreement, Chase Securities Inc., Salomon Brothers Holding Company, Inc, and The Chase Manhattan Bank - incorporated herein by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K, filed on January 8, 1998. 4.5 - Guarantee and Collateral Agreement, dated as of December 31, 1997, made by CONMED Corporation and certain of its subsidiaries in favor of The Chase Manhattan Bank - incorporated herein by reference to Exhibit 10.2 in the Company's Current Report on Form 8-K filed on January 8, 1998. 10.1 - Employment Agreement between the Company and Eugene R. Corasanti, dated December 16, 1996 - incorporated herein by reference to the exhibit in the Company's Annual Report on Form 10-K for the year ended December 31, 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 - incorporated herein by reference to the exhibit in the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
44 Exhibit Index
Exhibit No. Description of Instrument Page Number - ----------- ------------------------- ----------- 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 - incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 10.6 - Amendment to 1992 Stock Option Plan - incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. 10.7 - See 4.4. 10.8 - See 4.5. 10.9 - Transition and Distribution Services Agreement, dated December 31, 1997, among Zimmer, Inc., Linvatec Corporation and CONMED Corporation. 10.10 - Distribution Agreement, dated December 31, 1997, among Zimmer, Inc., Linvatec Corporation and CONMED Corporation. 11 - Statement re: Computation of Per Share Earnings. 12 - Statement re: Computation of Ratios of Earnings to Fixed Charges. 21 - Subsidiaries of the Registrant. 23 - Consent, dated February 23, 1998, of Price Waterhouse LLP, independent auditors for CONMED Corporation. 27 - Financial Data Schedule 99.1 - The Registrant's Current Report on Form 8-K/A filed on February 17, 1998 (incorporated herein by reference thereto.)

1 EXHIBIT 10.9 - ------------ ================================================================================ TRANSITION AND DISTRIBUTION SERVICES AGREEMENT Dated as of December 31, 1997 Among ZIMMER, INC., LINVATEC CORPORATION AND CONMED CORPORATION ================================================================================ 2 TABLE OF CONTENTS ARTICLE I Definitions SECTION 1.1. Definitions ................................................ 1 SECTION 1.2. Interpretation and Schedules ............................... 3 ARTICLE II Appointment as Exclusive Distributor SECTION 2.1. Appointment of Zimmer as Exclusive Distributor ............. 4 SECTION 2.2. Transfer Price ............................................. 4 SECTION 2.3. Repurchase of Inventory .................................... 4 SECTION 2.4. Handling of Inventory ...................................... 5 SECTION 2.5. U.S. Arthroscopy ........................................... 5 ARTICLE III Other Services from Zimmer SECTION 3.1. Marketing .................................................. 5 SECTION 3.2. Supply of Products ......................................... 5 SECTION 3.3. Product Pricing ............................................ 5 SECTION 3.4. Regulatory ................................................. 5 SECTION 3.5. Purchase of Demonstration Equipment ........................ 6 SECTION 3.7. Product Literature; Exhibits, Trade Shows, Etc.; Videotapes 6 ARTICLE IV U.S. Transition Services SECTION 4.1 Convention; Commissions and Administrative Fees of Group Purchasing Contracts ....................................... 7 3 2 ARTICLE V Other Linvatec Obligations SECTION 5.1. Warranties and Return ...................................... 8 SECTION 5.2. Information; Technical and Regulatory Support .............. 8 SECTION 5.3. Insurance .................................................. 8 ARTICLE VI Miscellaneous SECTION 6.1. Intellectual Property ...................................... 9 SECTION 6.2. Further Assurances ......................................... 9 SECTION 6.3. Indemnity .................................................. 9 SECTION 6.4. Confidentiality ............................................ 10 SECTION 6.5. Exclusive Appointment ...................................... 11 SECTION 6.6. Amendments ................................................. 11 SECTION 6.7. Notices .................................................... 11 SECTION 6.8. Counterparts ............................................... 13 SECTION 6.9. Entire Agreement ........................................... 13 SECTION 6.10. Severability ............................................... 13 SECTION 6.11. Governing Law .............................................. 13 SECTION 6.12. Assignment ................................................. 13 SECTION 6.13. Term and Termination ....................................... 13 SECTION 6.14. Performance of Zimmer Obligations .......................... 15 SECTION 6.15. Force Majeure .............................................. 15 SECTION 6.16. Limitation of Liability .................................... 15 SECTION 6.17. Restrictions on Solicitation and Hiring .................... 16 SECTION 6.18. Arbitration ................................................ 17 4 TRANSITION AND DISTRIBUTION SERVICES AGREEMENT, dated as of December 31, 1997 (the "Agreement"), among LINVATEC CORPORATION, a Florida corporation ("Linvatec"), CONMED CORPORATION, a New York corporation ("Buyer"), and ZIMMER, INC., a Delaware corporation ("Zimmer"). WHEREAS the Bristol-Myers Squibb Company ("Seller") and Buyer have entered into a Stock and Asset Purchase Agreement dated as of November 26, 1997, as amended by the Amendment dated as of December 31, 1997 (the "Stock Purchase Agreement"); WHEREAS Zimmer and Linvatec are entering into a Distribution Agreement dated the date hereof (the "Distribution Agreement") with respect to the distribution of Linvatec's Hall(R) Surgical branded large bone products, small bone/specialty products and all products manufactured by or for Linvatec in certain markets; WHEREAS it is a condition to the consummation of the transactions contemplated by the Stock Purchase Agreement that the parties execute and deliver this Agreement; WHEREAS Linvatec wishes during the term of this Agreement (a) to appoint Zimmer as the exclusive distributor of Products in certain markets during the applicable Term and (b) to have certain other services performed by Zimmer for Linvatec in connection with such distribution; and WHEREAS Zimmer wishes to accept such appointment and perform such services through its worldwide distribution network. NOW, THEREFORE, the parties agree as follows: ARTICLE I Definitions 5 2 SECTION 1.1. Definitions. (a) Capitalized terms used but not defined herein shall have meanings set forth in the Stock Purchase Agreement. (b) For purposes of this Agreement, the following terms shall have the following meanings: "Affiliate" means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; and for the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Arthroscopy Products" means all products manufactured by or for Linvatec at any time during the applicable Term other than the Hall(R) Surgical branded products manufactured by or for Linvatec at any time during the applicable Term. "Arthroscopy U.S. Distributors" means the distributors of Arthroscopy Products in the United States listed on Schedule 1(a). "Direct Markets" means the countries set forth on Schedule 1(b). "Distributors" means the Persons with which Zimmer has entered into a distribution agreement with respect to the Products in the Markets. "Global Marketing Services" means, with respect to any Product in any Market, market research, competitive analysis, product training, new product development and development of opinion leaders. "Large Bone Products" means all Hall(R) Surgical branded large bone product lines, including revision instrumentation, adaptors and couplers and vacuum hoses manufactured by or for Linvatec at any time during the applicable Term but not including any large bone product being manufactured by Linvatec on behalf of Zimmer under the Manufacturing Agreement dated the date hereof between Linvatec and Zimmer (e.g., acetabular reamers) and any other large bone product that may be manufactured by Linvatec on behalf of Zimmer on an original equipment manufacturer (OEM) basis from time to time. "Linvatec Products" means all products manufactured by or for Linvatec at any time during the applicable Term. 6 3 "Local Marketing Services" means, with respect to any Market, customer service, sales support, support of individual local surgeons, participation or sponsorship of medical society or other medical organization meetings and participation in medical symposia, workshops, exhibits and trade shows, in each case consistent with Zimmer's past practice in such Market. Such services include providing the administrative and logistical support necessary for sponsorship or participation in such meetings, exhibits and such similar events. "Markets" means the United States and the countries in the Direct Markets and Transition Markets. "Person" means any individual, firm, corporation, partnership, limited liability company, trust, joint venture, governmental entity or other entity. "Products" means (i) with respect to the Direct Markets and United States, the Small Bone/Specialty Products and Arthroscopy Products and (ii) with respect to the Transition Markets, the Linvatec Products. "Product Category" means (i) with respect to the Direct Markets and the United States, the Small Bone/Specialty Products category and (ii) with respect to the Transition Markets, the Large Bone Products, the Small Bone/Specialty Products and the Arthroscopy Products categories. "Small Bone/Specialty Products" means all Hall(R) Surgical branded small bone and specialty product lines manufactured by or for Linvatec at any time during the applicable Term. "Term" means (i) with respect to Small Bone/Specialty Products in the United States, the period from and including the date hereof to and including the date twelve months from the date hereof, unless terminated prior to such time pursuant to the terms set forth in Section 6.13; (ii) with respect to (A) Small Bone/Specialty Products and Arthroscopy Products in the Direct Markets and (B) Large Bone Products, Small Bone/Specialty Products and Arthroscopy Products in the Transition Markets, the period from and including the date hereof to and including the date six months from the date hereof, unless terminated prior to such time pursuant to the terms set forth in Section 6.13; and (iii) with respect to Arthroscopy Products in the U.S., the period from and including the date hereof to and including the date twelve months from the date hereof, unless terminated prior to such time pursuant to the terms set forth in Section 6.13. "Transition Markets" means the countries set forth on Schedule 1(c). 7 4 (b) The following terms have the meanings set forth in the Sections listed below: Term Section ---- ------- Actual Non-U.S. Inventory Amount 2.2(b) Agreement Preamble Buyer Preamble Closing Date Non-U.S. Inventory Amount 2.2(b) Commissions 4.1(b) Confidential Linvatec Information 6.4(b) Confidential Zimmer Information 6.4(a) Distribution Agreement Preamble Force Majeure Event 6.15 indemnified party 6.3(b) Linvatec Preamble Product Literature 3.7(a) Seller Preamble Stock Purchase Agreement Preamble Third Party Claim 6.3(b) Transfer Prices 2.2(a) Transition Distributor Agreement 6.13(i) Zimmer Preamble SECTION 1.2. Interpretation and Schedules. (a) The headings contained in this Agreement, in any Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All references to the term "including" shall be deemed to be followed by "without limitation". (b) All Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized term used in any Schedule but not otherwise defined therein, shall have the meaning as defined in this Agreement. 8 5 ARTICLE II Appointment as Exclusive Distributor SECTION 2.1. Appointment of Zimmer as Exclusive Distributor. (a) During the applicable Term, Linvatec hereby appoints Zimmer, and Zimmer hereby accepts the appointment, as Linvatec's exclusive distributor of the Linvatec Products in the Transition Markets of the Small Bone/Specialty Products and Arthroscopy Products in the Direct Markets, of the Small Bone/Specialty Products in the U.S. and of the Arthroscopy Products with respect to the accounts listed on Schedule 2.1(a) and any new accounts developed by the Arthroscopy U.S. Distributors in geographic proximity to their current accounts (to the extent such new accounts are not already covered by the direct sales force of Linvatec). (b) It is acknowledged and agreed that Zimmer shall perform its obligations as exclusive distributor of the Products in the relevant Markets, in its sole discretion through a direct sales force, Distributors or a combination of a direct sales force and Distributors. SECTION 2.2. Transfer Price. (a) During the applicable Term, Linvatec agrees to sell the Products, including any new Products, to Zimmer for sale in the Markets and Zimmer agrees to buy the Products, including any new Products, from Linvatec, for Zimmer's own account, at the transfer prices (the "Transfer Prices") set forth on Schedule 2.2(a). (b) Zimmer shall pay Linvatec the full amount of the transfer prices applicable to each shipment of Products ordered by Zimmer (other than Non-U.S. Inventory) within 45 calendar days after receipt of the invoice. On the Closing Date, Zimmer shall pay to Linvatec $15,795,000 (the "Closing Date Non-U.S. Inventory Amount"), which represents the estimated full amount of the transfer prices for the Non-U.S. Inventory being distributed under this Agreement and under the Distribution Agreement. If it is determined under Section 2.3(b) of the Stock and Asset Purchase Agreement that the Estimated Non-U.S. Inventory Purchase Price exceeds or is less than the Non-U.S. Inventory Purchase Price, then the difference between the Closing Date Non-U.S. Inventory Amount and the amount of the transfer prices due under this Agreement and the Distribution Agreement with respect to Non-U.S. Inventory as calculated based on the Non-U.S. Inventory Purchase Price that is binding on Seller and Buyer under Section 2.3 of the Stock Purchase Agreement plus the applicable percentage mark-up for such Non-U.S. Inventory included in the Transfer Prices under this Agreement and the Distribution Agreement (such amount, the "Actual Non-U.S. Inventory Amount") shall be paid to Zimmer by Linvatec (if the Closing Date Non-U.S. 9 6 Inventory Amount exceeds the Actual Non-U.S. Inventory Amount) or paid to Linvatec by Zimmer (if the Closing Date Non-U.S. Inventory Amount is less than the Actual Non-U.S. Inventory Amount), as the case may be . The amount of any such difference shall be paid by Zimmer or Linvatec, as the case may be, on the date that the related adjustment is paid under Section 2.3(b) of the Stock and Asset Purchase Agreement. All payments of transfers prices by Zimmer to Linvatec shall be in U.S. dollars. SECTION 2.3. Repurchase of Inventory. Upon expiration or termination of the Term with respect to any Product Category in any Market, Linvatec shall repurchase Zimmer's inventory of Products in such Product Category in such Market within 60 calendar days of such expiration or termination at the transfer prices applicable to such inventory, net of reserves for obsolete and slow-moving goods (as determined in accordance with Zimmer's accounting policies), plus freight charges and expenses (and with respect to Markets other than the United States, duty and customs charges and expenses). Delivery of such inventory returned to Linvatec shall be F.O.B. the storage location of such inventory. In the event Linvatec defaults in its obligations to repurchase Zimmer's inventory of Products, without prejudice to any of Zimmer's other remedies, Zimmer shall be entitled to sell such inventory in any manner it deems appropriate. In any case, after expiration or termination of the applicable Term, Zimmer shall be entitled to sell any Products for which it has accepted firm orders, consistent with past practice. SECTION 2.4. Handling of Inventory. Zimmer shall not, and shall cause the Distributors not to, alter or tamper with any labels, descriptive marks, packing, promotional materials, bottles or containers in which or with which the Products are supplied, or make any modification of the Products except as required for compliance with local law or otherwise consistent with past practice. Zimmer shall permit Linvatec at reasonable times to enter any one of the warehouses at which the Products are stored for purposes of inspection, sampling or testing of the Products. SECTION 2.5. U.S. Arthroscopy. During the applicable Term, Zimmer and Linvatec shall cooperate to continue the distribution arrangement as it exists as of the date hereof with respect to distribution of the Arthroscopy Products by certain Distributors in the United States or as it will exist upon execution of a letter agreement substantially in the form attached hereto as Exhibit 2.5 with each such Distributor; provided that Linvatec shall terminate any direct distribution contracts between Linvatec and any of Zimmer's Distributors in the United States other than such letter agreements. 10 7 ARTICLE III Other Services from Zimmer SECTION 3.1. Marketing. (a) It is acknowledged and agreed that in the Markets other than the United States., Linvatec shall provide all Global Marketing Services, and Zimmer shall provide all Local Marketing Services in such Markets. Linvatec shall cooperate with Zimmer in connection with the Local Marketing Services, in each case consistent with past practice. It is acknowledged and agreed that in the United States, Linvatec shall provide for (i) all Global Marketing Services and (ii) on a national level, participation or sponsorship of medical society or other medical organization meetings and participation in medical symposia, workshops, exhibits and trade shows, in each case consistent with past practice, and Zimmer shall provide Local Marketing Services, except the services referred to in Section 3.1(a)(ii), consistent with past practice. Each party shall bear its own costs and expenses in providing such services. (b) Furthermore, Zimmer shall consult with Linvatec periodically as reasonably requested by Linvatec regarding activities of third-party competition and such other facts and data relating to the distribution of Products hereunder as may reasonably be requested by Linvatec, provided that such consultation does not unreasonably disrupt the normal operations of Zimmer. SECTION 3.2. Supply of Products. Linvatec agrees to supply Zimmer and the Distributors, as applicable, Products consistent with past practice. With respect to Products delivered to the warehouses of Zimmer, Linvatec shall be responsible for delivery of the Products F.O.B. the source plant of the Products. Zimmer shall pay all costs and expenses associated with such delivery, including shipping, freight, insurance, transfer taxes, duty and customs expenses. Title and risk of loss to the Products shall pass to Zimmer upon delivery to Zimmer at the source plant of the Products. SECTION 3.3. Product Pricing. Zimmer shall determine prices for Products in the Markets in its sole discretion. SECTION 3.4. Regulatory. Zimmer and Linvatec shall cooperate (i) to maintain and obtain any necessary registrations of the Products with local health or other regulatory authorities of the Markets other than the U.S. that may be required under applicable law in such Markets and (ii) to comply with all other regulatory requirements in the such Markets. Linvatec shall be responsible for all Product registration and regulatory compliance in the United States, CE marking in Europe and local language 11 8 labeling in all the Markets and such other compliance matters as are consistent with past practice. SECTION 3.5. Purchase of Demonstration Equipment. Linvatec shall sell to Zimmer or the Distributors at standard cost demonstration Products from time to time during the applicable Term ordered by Zimmer or the Distributors, consistent with past practice. SECTION 3.6. Repairs. (a) In the United States, Linvatec shall make available repair services for Linvatec Products. In Markets other than the United States, Zimmer will make available repair services to all customers in such Markets for Products at Zimmer's current service centers or at service centers that Linvatec may be notified of in writing from time to time, and such services shall be substantially similar to the repair services provided by Zimmer immediately prior to the date hereof (e.g., with similar turn around times and covering the same geographic areas); provided that Linvatec will continue to make available repair services outside the United States in certain Markets consistent with past practice and further provided that Linvatec shall make repairs for Linvatec Products to the extent Linvatec establishes repair facilities in the Markets other than the United States. Linvatec shall provide repair services for Linvatec Products to Zimmer at the transfer prices set forth on Schedule 3.6(a) for repair services in the United States and outside the United States. During the applicable Term, Linvatec shall sell to Zimmer replacement parts for Products for use in Zimmer's repair services in Markets outside the United States at the transfer prices set forth on Schedule 3.6(a) applicable to such Product in such Market sold to Zimmer by Linvatec. Linvatec shall be responsible for delivery of such parts F.O.B. the source plant of such parts. Zimmer shall pay all costs and expenses associated with such delivery, including shipping, freight, insurance, transfer taxes, duty and customs expenses. In its sole discretion, Zimmer may change or add a location of a service center, or consolidate service centers; provided, that after such change or consolidation, repair turn around times and geographical areas covered by Zimmer's service centers are substantially the same as exist on the date hereof. (b) During the applicable Term and for six months thereafter, in the event Linvatec discontinues the manufacture of any of the Products, Linvatec shall continue, for a period of time after such discontinuance consistent with past practice, to make available to Zimmer repair services and replacement parts for such discontinued Products on the terms set forth in Section 3.6 (a), to the extent reasonably anticipated by Linvatec to be necessary to service such discontinued Products previously supplied by Linvatec pursuant to the terms of this Agreement. SECTION 3.7. Product Literature; Exhibits, Trade Shows, Etc.; Videotapes. (a) Product Literature. With respect to the Products, Linvatec shall from 12 9 time to time furnish to Zimmer, at Linvatec's expense, in reasonable quantities, literature, catalogs and technical brochures in English (collectively, "Product Literature") for the Markets. Zimmer shall arrange reprinting of local language literature, catalogs and technical brochures, as necessary, as well as provide local language translation services, as necessary, in each case at its own expense. Linvatec shall cooperate with Zimmer with respect to such reprinting or translation efforts. During the Term, Zimmer shall provide Product Literature distribution services for the Large Bone Products and Small Bone/Specialty Bone Products. Zimmer shall provide Product Literature distribution services for all other Linvatec Products consistent with past practice, until such Product Literature is transferred from its New Jersey location to Linvatec. After such transfer, Linvatec will be responsible for distribution of such Product Literature. (b) Exhibits, Trade Shows, Etc. Linvatec shall cooperate with Zimmer to provide necessary personnel for the exhibits, trade shows, meetings and other activities in connection with Zimmer's Local Marketing Services, as well as the technical information and other services reasonably requested by Zimmer. (c) Videotapes. Linvatec will provide English language videotapes with respect to Products or the Linvatec business to Zimmer, consistent with past practice. ARTICLE IV U.S. Transition Services SECTION 4.1. Convention; Commissions and Administrative Fees of Group Purchasing Contracts. In the United States, Zimmer shall provide the following services: (a) Convention. Zimmer shall provide Linvatec services and incur out-of-pocket expenses associated therewith in connection with the American Academy of Orthopedic Surgeons Convention necessary for Linvatec's participation in such convention, including rental of floor space, build-out of displays, storage and shipment of such displays and provision of products and samples. Zimmer shall issue an invoice to Linvatec for all charges, costs and out-of-pocket expenses applicable to Linvatec associated with such convention. Within 30 calendar days of receipt of such invoice, Linvatec shall pay Zimmer the full amount set forth on such invoice; (b) Commissions. Linvatec shall reimburse Zimmer in full for all commissions on sales of Products in the U.S. by the Distributors of Arthroscopy 13 10 Products that are paid by Zimmer on behalf of Linvatec to such Distributors (the "Commissions"). Zimmer shall issue an invoice to Linvatec for all such Commissions. Within 5 business days of receipt of such invoice, Linvatec shall pay Zimmer the full amount set forth on such invoice; and (c) Administrative Fees of Group Purchasing Contracts. Linvatec shall reimburse Zimmer in full for the administration fees on group purchasing contracts paid by Zimmer on behalf of Linvatec. Zimmer shall issue an invoice to Linvatec for such administrative fees. Within 5 business days of receipt of such invoice, Linvatec shall pay Zimmer the full amount set forth on such invoice. ARTICLE V Other Linvatec Obligations SECTION 5.1. Warranties and Return. (a) Linvatec shall warrant the Products in accordance with Linvatec's standard worldwide warranty in effect from time to time; provided, however, that Linvatec shall not change the terms of the Product warranties in effect at the Closing Date with respect to Products sold in any Market if such change would render Zimmer unable to sell Products in such Market in accordance with applicable law or regulation or commercial custom. Zimmer will deliver, consistent with past practice, to Linvatec a statement setting forth the types and quantities of Products sold by it in each Market showing the serial numbers of the Products, if any, and all other information required in order to permit Linvatec's warranty to be honored. (b) Linvatec shall accept all returns of defective Products that are returned in a reasonable amount of time and credit Zimmer for such returns. Linvatec shall pay all costs and expenses associated with such return, including shipping, freight, insurance, transfer taxes, duty and customs expenses. (c) Zimmer shall not have any reimbursement obligation for Products (whether sold before, on or after the Closing Date) which are returned pursuant to a Product warranty or guarantee. If a Product returned pursuant to a Product warranty or guarantee results in a credit against an accounts receivable maintained by Zimmer with respect to a Product sold by Zimmer prior to the Closing Date, Linvatec shall reimburse Zimmer for the price paid by Zimmer to Linvatec for such Product. (d) During the applicable Term, in the event Products sold by Zimmer are returned by a customer directly to Linvatec, Linvatec shall notify Zimmer of such return within 5 calendar days. After the applicable Term, Zimmer shall continue to be 14 11 responsible for all refunds or the costs of any exchange of Products sold by it prior to the Closing Date that are not covered by a warranty or guarantee of Linvatec. SECTION 5.2. Information; Technical and Regulatory Support. Linvatec shall make available on a timely basis to Zimmer all information that Zimmer reasonably requests to perform Zimmer's obligations hereunder. Linvatec shall provide to Zimmer, at Linvatec's expense, such regulatory and technical assistance as Zimmer may reasonably request for the promotion, sale and servicing of the Products. SECTION 5.3. Insurance. Linvatec shall at all times from the date hereof to the last to end of the Terms maintain, at no cost to Zimmer, annual product liability insurance covering all Products supplied by Linvatec pursuant to the terms of this Agreement with aggregate annual coverage of at least $25,000,000 (which policy shall name Zimmer as an additional insured and shall cover all claims incurred or arising out of or relating to events that occurred during the period from the date hereof to the last to end of the Terms). ARTICLE VI Miscellaneous SECTION 6.1. Intellectual Property. During the applicable Term, Linvatec hereby grants to Zimmer a nonexclusive license to use the Intellectual Property to the extent necessary to satisfy its obligations under this Agreement. SECTION 6.2. Further Assurances. The parties agree to execute and deliver all such documents and instruments and shall take all such further other actions as may be reasonably necessary or desirable to consummate the transactions contemplated hereby. SECTION 6.3. Indemnity. (a) Product Liability. Linvatec shall indemnify Zimmer, its Affiliates (including Seller) and each of their respective officers, directors, employees, stockholders, agents and representatives against and hold them harmless from any loss, liability, claim, damage or expense (including reasonable legal fees and expenses) suffered or incurred by any such indemnified party for any claims arising from or in connection with the design, manufacture or use of the Products sold by Zimmer during the applicable Term, including claims for injury or death to any Person or damage to property, except to the extent that such claims and expenses result from the gross negligence of Zimmer. 15 12 (b) Procedures Relating to Indemnification for Third Party Claims. In order for a party (the "indemnified party") to be entitled to any indemnification provided for under Section 6.3(a) in respect of, arising out of or involving a claim or demand made by any Person against the indemnified party (a "Third Party Claim"), such indemnified party must notify the indemnifying party in writing, and in reasonable detail, of the Third Party Claim within 30 calendar days after receipt by such indemnified party of written notice of the Third Party Claim; provided, however, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the indemnifying party shall have been actually prejudiced as a result of such failure (except that the indemnifying party shall not be liable for any expenses incurred during the period in which the indemnified party failed to give such notice). Thereafter, the indemnified party shall deliver to the indemnifying party, promptly after the indemnified party's receipt thereof, copies of all notices and documents (including court papers) received by the indemnified party relating to the Third Party Claim. If a Third Party Claim is made against an indemnified party, the indemnifying party shall be entitled to participate in the defense thereof and, if it so chooses and acknowledges its obligation to indemnify the indemnified party therefor, to assume the defense thereof with counsel selected by the indemnifying party; provided that such counsel is not reasonably objected to by the indemnified party. Should the indemnifying party so elect to assume the defense of a Third Party Claim, the indemnifying party shall not be liable to the indemnified party for legal fees and expenses subsequently incurred by the indemnified party for separate counsel in connection with the defense thereof. If the indemnifying party assumes such defense, the indemnified party shall have the right to participate in the defense thereof and to employ counsel (not reasonably objected to by the indemnifying party), at its own expense, separate from the counsel employed by the indemnifying party, it being understood that the indemnifying party shall control such defense. The indemnifying party shall be liable for the fees and expenses of counsel employed by the indemnified party for any period during which the indemnifying party has failed to assume the defense thereof (other than during the period prior to the time the indemnified party shall have given notice of the Third Party Claim as provided above). If the indemnifying party so elects to assume the defense of any Third Party Claim, all of the indemnified parties shall cooperate with the indemnifying party in the defense or prosecution thereof, subject to the other party's confidentiality obligations under this Agreement. Such cooperation shall include the retention and (upon the indemnifying party's request) the provision to the indemnifying party of records and information which are reasonably relevant to such Third Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Whether or not the indemnifying party 16 13 shall have assumed the defense of a Third Party Claim, the indemnified party shall not admit any liability with respect to, or settle, compromise or discharge, such Third Party Claim without the indemnifying party's prior written consent (which consent shall not be unreasonably withheld). SECTION 6.4. Confidentiality. (a) Linvatec and Buyer agree that each of them shall keep confidential and not disclose to any third party, except as it is necessary in carrying out the purpose of this Agreement, during the period from the date hereof and to the last to end of the Terms and for three years thereafter the terms of this Agreement or any information of a proprietary nature relating to the business or operations of Zimmer or its Affiliates, including technology, specifications, product information, data, inventions, processes, know-how, trade secrets and information disclosed pursuant hereto (together, "Confidential Zimmer Information") furnished to Buyer or Linvatec by Zimmer in connection with this Agreement, except Confidential Zimmer Information that: (i) at the time of disclosure is in the public domain or publicly known or available (other than as a result of a disclosure directly or indirectly by Linvatec or Buyer or any of their Affiliates in violation of the terms of any confidentiality agreement involving Linvatec or Buyer or any of their Affiliates on the one hand and Zimmer or any of its Affiliates on the other hand); (ii) was available to Linvatec or Buyer on a non-confidential basis from a third party; provided that the Confidential Zimmer Information was not obtained by such third party from Linvatec or Buyer or their Affiliates; or (iii) Linvatec or Buyer derives independently of such furnishment of Confidential Zimmer Information. In the event that Linvatec or Buyer become legally compelled (by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process or otherwise) to disclose any of the Confidential Zimmer Information, Linvatec or Buyer shall provide the counsel of Zimmer with prompt written notice of such requirement so that Zimmer may seek a protective order or other appropriate remedy and/or waive compliance with the terms of this agreement. In the event that such protective order or other remedy is not obtained, or that Zimmer waives compliance with the provisions hereof, Linvatec or Buyer agrees to furnish only that portion of the Confidential Zimmer Information which Linvatec or Buyer is advised by opinion of counsel is legally required and to exercise best efforts to obtain assurance that confidential treatment will be accorded such Confidential Zimmer Information. 17 14 (b) Zimmer agrees that it shall keep confidential and not disclose to any third party, except as it is necessary in carrying out the purpose of this Agreement, during the period from the date hereof and to the last to end of the Terms and for three years thereafter the terms of this Agreement or any information of a proprietary nature relating to Linvatec's business or operations, including technology, specifications, product information, data, inventions, processes, know-how, trade secrets and information disclosed pursuant hereto (together, "Confidential Linvatec Information") furnished to Zimmer by Linvatec in connection with this Agreement, except Confidential Linvatec Information that: (i) at the time of disclosure is in the public domain or publicly known or available (other than as a result of a disclosure directly or indirectly by Zimmer or any of its Affiliates in violation of the terms of any confidentiality agreement involving Linvatec or Buyer or any of their Affiliates on the one hand and Zimmer or any of its Affiliates on the other hand); (ii) was available to Zimmer on a non-confidential basis from a third party; provided that the Confidential Linvatec Information was not obtained by such third party from Zimmer or its Affiliates; or (iii) Zimmer derives independently of such furnishment of Confidential Linvatec Information. In the event that Zimmer becomes legally compelled (by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process or otherwise) to disclose any of the Confidential Linvatec Information, Zimmer shall provide the counsel of Linvatec with prompt written notice of such requirement so that Linvatec may seek a protective order or other appropriate remedy and/or waive compliance with the terms of this agreement. In the event that such protective order or other remedy is not obtained, or that Linvatec waives compliance with the provisions hereof, Zimmer agrees to furnish only that portion of the Confidential Linvatec Information which Zimmer is advised by opinion of counsel is legally required and to exercise best efforts to obtain assurance that confidential treatment will be accorded such Confidential Linvatec Information. SECTION 6.5. Exclusive Appointment. During the applicable Term in the relevant Markets, Linvatec shall not appoint any distributor or agent (or similar entity) other than Zimmer or supply Products to any Person other than Zimmer or the Distributors whether for use or resale. 18 15 SECTION 6.6. Amendments. No amendment to this Agreement shall be effective unless it shall be in writing and signed by the party against whom enforcement is sought. SECTION 6.7. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given when delivered personally or sent by prepaid telex, cable or telecopy, or sent, postage prepaid, by registered, certified or express mail (return receipt requested) or reputable overnight courier service and shall be deemed given when so delivered by hand, telexed, cabled or telecopied, or if mailed, 3 calendar days after mailing (one business day in the case of express mail or overnight courier service) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Linvatec, Linvatec Corporation 11311 Concept Boulevard Largo, FL 33773 Attention: President with a copy to: CONMED Corporation 310 Broad Street Utica, NY 13501 Attention: General Counsel (ii) if to Buyer, CONMED Corporation 310 Broad Street Utica, NY 13501 Attention: General Counsel (iii) if to Zimmer, Zimmer, Inc. 345 East Main Street 19 16 Warsaw, IN 46581 Attention: General Counsel with a copy to: Bristol-Myers Squibb Company 345 Park Avenue New York, New York 10154 Attention: General Counsel and a copy to: Cravath, Swaine & Moore 825 Eighth Avenue New York, New York 10019-7415 Attention: Susan Webster, Esq. SECTION 6.8. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other parties. Counterparts may be delivered by facsimile. SECTION 6.9. Entire Agreement. This Agreement, together with the Stock Purchase Agreement, contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings. Nothing in this Agreement shall be deemed to amend, modify or in any way affect the Stock Purchase Agreement. SECTION 6.10. Severability. If any provision of this Agreement (or any portion thereof) or the application of any such provision (or any portion thereof) to any Person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof (or the remaining portion thereof) or the application of such provision to any other Persons or circumstances. SECTION 6.11. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed entirely within such state. 20 17 SECTION 6.12. Assignment. Neither party may assign its rights or obligations under this Agreement to any party without the prior written consent of the other party; provided, however, that either party may assign its rights or obligations under this Agreement to a wholly owned subsidiary or an Affiliate of such party. SECTION 6.13. Term and Termination. (a) Linvatec's rights of termination pursuant to this Section shall be exercisable (i) only with respect to an entire Product Category and not with respect to each Product and (ii) only with respect to an entire country and not with respect to any subdivision thereof. (b) During the period from and including the date hereof to and including the date one month from the date hereof, Linvatec shall have the right to terminate, upon 15 days prior written notice, the rights and obligations pursuant to Articles II and III (except for those rights and obligations which refer to periods thereafter) with respect to Small Bone/Specialty Products and Arthroscopy Products in the Direct Markets and all Products Categories in the Transition Markets. (c) During the remainder of the Term applicable to the Small Bone/Specialty Products and Arthroscopy Products in the Direct Markets and all Products Categories in the Transition Markets referred to in this paragraph (c) following the one month period referred to in paragraph (b) of this Section, Linvatec shall have the right to terminate, upon 60 days prior written notice, the rights and obligations pursuant to Articles II and III (except for those rights and obligations which refer to periods thereafter). (d) During the period from and including the date hereof to the end of the Term of the Small Bone/Specialty Products in the U.S., Linvatec shall have the right to terminate, upon 90 days prior written notice, the rights and obligations pursuant to Articles II and III (except for those rights and obligations which refer to periods thereafter) with respect to Small Bone/Specialty Products in the U.S. (e) During the period from and including the date hereof to the end of the Term of the Arthroscopy Products in the U.S., Linvatec shall have the right to terminate, upon 90 days prior written notice, the rights and obligations pursuant to Articles II and III (except for those rights and obligations which refer to periods thereafter) with respect to the Arthroscopy Products in the U.S. (f) Shortly before and a reasonable time after the expiration or termination of the Term with respect to any Product Category in any Market, Zimmer shall cooperate with Linvatec in connection with the transfer of the distribution function from Zimmer to Linvatec or to such entities as Linvatec shall designate in the Markets, including 21 18 transferring (i) all artwork and sales literature used exclusively in connection with the sale of the Products in such terminated or expired Market, (ii) the applicable customer lists in Zimmer's possession that relate solely to the sale of Products in the Markets and (iii) the necessary licenses, permits and registrations to Linvatec or an entity designated by Linvatec; provided, however, Zimmer will not be obligated to assign all or any part of the distributor agreements with Zimmer's distributors in the U.S. and Canada. (g) Upon the end of the Term with respect to any Product Category in any Market, Linvatec shall purchase all demonstration Products with respect to such Product Category in such Market then owned by Zimmer at net book value (determined in accordance with Zimmer's accounting policies) of such Products. (h) At any time prior to the end of all applicable Terms, at Linvatec's request, Zimmer shall transfer to Linvatec, in its then "AS IS, WHERE IS WITH ALL FAULTS" condition, any repair equipment then used by Zimmer to repair Products distributed by Zimmer hereunder, except repair equipment in Japan and any other repair equipment required to fulfill Zimmer's obligations pursuant to the Distribution Agreement. Linvatec will bear the full cost of any such transfer. Linvatec acknowledges and agrees that Zimmer shall have no liability whatsoever to Linvatec arising from possession of such repair equipment. Linvatec further acknowledges that no repair equipment may be available for transfer at the time of Linvatec's request. (i) Effective upon the end of the applicable Term in the Transition Markets, Zimmer shall assign to Linvatec all or part of each distributor agreement relating to the sale of Products in the Transition Markets (a "Transition Distributor Agreement"), to the extent each such distributor agreement relates to the distribution of Products and to the extent each such Transition Distributor Agreement is assignable without consent of the other party; provided that Zimmer shall not be required to give up any benefit relating to distribution of products other than Products in connections therewith. Zimmer and Linvatec shall jointly cooperate in attempting to obtain the agreement of the other party to each applicable Transition Distributor Agreement to consent to assignment, without payment of any amounts to such other party in respect of such assignment, of all or part of the applicable Transition Distributor Agreement to Linvatec (with respect only to agreements requiring such consent as a condition to assignment); provided that such cooperation shall not include any requirement of Zimmer to commence litigation or offer or grant any accommodation (financial or otherwise) to any third party. Zimmer and Linvatec will jointly cooperate to eliminate any liability of either Zimmer or Linvatec in respect of Transition Distributor Agreements for which it is not possible to obtain the agreement of the other party to consent to assignment without payment of any amounts. Such cooperation by Linvatec will include (i) enabling Zimmer to perform its obligations 22 19 (relating to Products) with respect to such Transition Distributor Agreements and (ii) repurchasing any Products previously sold to distributors. (j) Except as otherwise set forth above, the rights and obligations pursuant to Articles II and III shall terminate and expire on the last day of the applicable Term except for those rights and obligations which refer to periods thereafter. SECTION 6.14. Performance of Zimmer Obligations. Linvatec acknowledges and agrees that Zimmer may perform its obligations under this Agreement through one or more of its subsidiaries, Distributors and Affiliates of Zimmer, including the Seller Entities, consistent with past practice in connection with the International Business and the Domestic Hall Surgical Business. SECTION 6.15. Force Majeure. In case performance of any terms or provisions hereof shall be delayed or prevented, in whole or in part, because of or related to compliance with any law, decree, request or order of any governmental agency or authority, either local, state, federal or foreign, or because of riots, war, public disturbance, strike, lockout, fire, explosion, storm, flood, acts of God, accidents of navigation, breakdown or failure of transportation or of transportation, manufacturing, distribution, storage or processing facilities, or for any other reason which is not within the control of the party whose performance is interfered with and which by the exercise of reasonable diligence such party is unable to prevent (each, a "Force Majeure Event"), the party so suffering may at its option suspend deliveries or receipts or discontinue performance of services during the period such cause continues, and no liability shall attach against either party on account thereof. If a Force Majeure Event occurs, Linvatec may apportion its available supply of Products among its customers on an equitable basis without incurring liability for failure to perform this Agreement. No party shall be excused from performance if such party fails to use reasonable diligence to remedy the situation and remove the cause and effect of the Force Majeure Event in an adequate manner and with reasonable dispatch; provided, however, that nothing contained herein shall require the settlement of strikes or labor controversies by acceding to the demands of the opposing party or parties. Notwithstanding the foregoing, Zimmer shall not be relieved of the obligation to pay for Products title to which have passed to Zimmer. SECTION 6.16. Limitation of Liability. None of the parties hereto (or its Affiliates) or its respective directors, officers, employees or agents shall be liable to the other for indirect, consequential or punitive damages in connection with the performance of this Agreement, even if it has been advised of the possibility of such damages, and each party hereby waives any claim for such damages, including any claim for property damage or lost profits, whether arising in contract, tort or otherwise. 23 20 SECTION 6.17. Restrictions on Solicitation and Hiring. (a) From the date hereof to and including the second anniversary of this Agreement, in the United States and Canada, Buyer and Linvatec shall not, directly or indirectly, solicit for employment, solicit to be a distributor or hire (i) any employee of Zimmer or its Affiliates (other than pursuant to Section 9.14 of the Stock Purchase Agreement) or (ii) any Distributor in the U.S. and Canada, whether or not such Person would commit a breach of his, her or its contract of service in leaving such employment or of such Person's distribution agreement with any Person (except that solicitations for employment by general advertisements in periodicals of broad circulation shall not constitute a breach of this sentence). (b) From the date hereof to and including the second anniversary of this Agreement, in the United States and Canada, Zimmer shall not, directly or indirectly, solicit for employment, solicit to be a distributor or hire (i) any employee of Buyer, Linvatec or its Affiliates or (ii) any of Linvatec's or Buyer's exclusive distributors in the U.S. and Canada, whether or not such Person would commit a breach of his, her or its contract of service in leaving such employment or of such Person's distribution agreement with any Person (except that solicitations for employment by general advertisements in periodicals of broad circulation shall not constitute a breach of this sentence). 24 21 SECTION 6.18. Arbitration. Any dispute between the parties hereto shall be subject to binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association in a mutually agreeable, neutral location. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above. CONMED CORPORATION, (a signatory only with respect to Section 6.4 and 6.17) by /s/ Joseph J. Corasanti ----------------------- Name: Joseph J. Corasanti Title: Vice President -- Legal Affairs LINVATEC CORPORATION, by /s/ George P. Kempsell ----------------------- Name: George P. Kempsell Title: President ZIMMER, INC., by /s/ David Zabor ----------------------- Name: David Zabor Title: Senior Vice President

1 EXHIBIT 10.10 - ------------- DISTRIBUTION AGREEMENT Dated as of December 31, 1997 Among ZIMMER, INC., LINVATEC CORPORATION AND CONMED CORPORATION 2 TABLE OF CONTENTS ARTICLE I Definitions SECTION 1.1. Definitions......................................................1 SECTION 1.2. Interpretation and Schedules.....................................3 ARTICLE II Appointment as Exclusive Distributor SECTION 2.1. Appointment of Zimmer as Exclusive Distributor...................4 SECTION 2.2. Transfer Price...................................................4 SECTION 2.3. Repurchase of Inventory..........................................4 SECTION 2.4. Handling of Inventory............................................4 SECTION 2.5. Performance Standards............................................5 SECTION 2.6. Renewal of the Term..............................................5 ARTICLE III Other Services from Zimmer SECTION 3.1. Marketing........................................................6 SECTION 3.2. Product Literature; Exhibits, Trade Shows, Etc.; Videotapes......6 SECTION 3.3. Supply of Products...............................................6 SECTION 3.4. Product Pricing..................................................7 SECTION 3.5. Regulatory.......................................................7 SECTION 3.6. Repairs..........................................................7 SECTION 3.7. Purchase of Demonstration Equipment..............................7 ARTICLE IV Other Linvatec Obligations SECTION 4.1. Warranties and Return............................................8 SECTION 4.2. Information; Technical and Regulatory Support....................8 SECTION 4.3. Insurance........................................................8 3 2 ARTICLE V Miscellaneous SECTION 5.1. Intellectual Property............................................9 SECTION 5.2. Further Assurances...............................................9 SECTION 5.3. Indemnity........................................................9 SECTION 5.4. Confidentiality.................................................10 SECTION 5.5. Exclusive Appointment...........................................11 SECTION 5.6. Amendments......................................................12 SECTION 5.7. Notices.........................................................12 SECTION 5.8. Counterparts....................................................13 SECTION 5.9. Entire Agreement................................................13 SECTION 5.10. Severability...................................................13 SECTION 5.11. Governing Law..................................................13 SECTION 5.12. Assignment.....................................................13 SECTION 5.13. Term and Termination...........................................13 SECTION 5.14. Performance of Zimmer Obligations..............................15 SECTION 5.15. Force Majeure..................................................15 SECTION 5.16. Limitation of Liability........................................15 SECTION 5.17. Arbitration....................................................16 4 DISTRIBUTION AGREEMENT, dated as of December 31, 1997 (the "Agreement"), among LINVATEC CORPORATION, a Florida corporation ("Linvatec"), ZIMMER, INC., a Delaware corporation ("Zimmer") and CONMED CORPORATION, a New York corporation ("Buyer"). WHEREAS the Bristol-Myers Squibb Company ("Seller") and Buyer have entered into a Stock and Asset Purchase Agreement dated as of November 26, 1997, as amended by the Amendment dated as of December 31, 1997 (the "Stock Purchase Agreement"); WHEREAS, Zimmer and Linvatec have entered into a Transition and Distribution Services Agreement dated as of the date hereof (the "Transition and Distribution Services Agreement") to provide for certain sales and distribution of Linvatec's products that are not covered by this Agreement and certain transition services; WHEREAS it is a condition to the consummation of the transactions contemplated by the Stock Purchase Agreement that the parties execute and deliver this Agreement; WHEREAS Linvatec wishes during the applicable term of this Agreement (a) to appoint Zimmer as the exclusive distributor of Linvatec's Hall(R) Surgical branded large bone product lines in the U.S. and certain other Markets, (b) to appoint Zimmer as the exclusive distributor in Japan and the CEE Markets of all products manufactured by or for Linvatec and (c) to have certain other services performed by Zimmer for Linvatec in connection with such distributions; and WHEREAS Zimmer wishes to accept such appointment and perform such services through its worldwide distribution network. NOW, THEREFORE, the parties agree as follows: ARTICLE I Definitions SECTION 1.1. Definitions. (a) Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Stock Purchase Agreement: 5 2 "Affiliate" means, with respect to any specified person, any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person; and for the purposes of this definition, "control" when used with respect to any specified person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Arthroscopy Products" means all products manufactured by or for Linvatec at any time during the applicable Term other than the Hall(R) Surgical branded products manufactured by or for Linvatec at any time during the applicable Term. "CEE Markets" means the countries and territories set forth on Schedule 1(a). "Direct Markets" means the countries or territories set forth on Schedule 1(b). "Distributors" means the Persons with which Zimmer has entered into a distribution agreement with respect to the Products in the Markets at any time during the applicable Term. "Global Marketing Services" means, with respect to any Product in any Market, market research, competitive analysis, product training, new product development and development of opinion leaders. "Large Bone Products" means all Hall(R) Surgical branded large bone product lines, including revision instrumentation, adaptors and couplers and vacuum hoses manufactured by or for Linvatec at any time during the applicable Term but not including any large bone products being manufactured by Linvatec on behalf of Zimmer under the Manufacturing Agreement dated the date hereof between Linvatec and Zimmer (e.g., acetabular reamers) or any other large bone products that may be manufactured by Linvatec on behalf of Zimmer on an original equipment manufacturer (OEM) basis from time to time. "Linvatec Products" means all products manufactured by or for Linvatec at any time during the applicable Term. "Local Marketing Services" means, with respect to any Market, customer service, sales support, support of individual local surgeons, participation or sponsorship of medical society or other medical organization meetings and participation in medical symposia, workshops, exhibits and trade shows, in each case consistent with Zimmer's 6 3 past practice in such Market. Such services include providing the administrative and logistical support necessary for sponsorship or participation in such meetings, exhibits and such similar events. "Markets" means the United States, Japan and the countries in the CEE Markets and Direct Markets. "Person" means any individual, firm, corporation, partnership, limited liability company, trust, joint venture, governmental entity or other entity. "Products" means (i) with respect to the United States and Direct Markets, Large Bone Products and (ii) with respect to Japan and CEE Markets, Linvatec Products. "Product Category" means (i) with respect to the United States and Direct Markets, the Large Bone Products category and (ii) with respect to Japan and the CEE Markets, the Large Bone Products, the Small Bone/Specialty Products and the Arthroscopy Products categories. "Small Bone/Specialty Products" means all Hall(R) Surgical branded small bone and specialty product lines manufactured by or for Linvatec at any time during the applicable Term. "Term" means (a) with respect to (i) Large Bone Products in the U.S., Japan and CEE Markets and (ii) Small Bone/Specialty Products and Arthroscopy Products in Japan and the CEE Markets, the period from and including the date hereof to and including the date three years from the date hereof, unless terminated prior to such time pursuant to the terms set forth in Section 5.13; and (b) with respect to Large Bone Products in the Direct Markets, the period from and including the date hereof to and including the date two years from the date hereof, unless terminated prior to such time pursuant to the terms set forth in Section 5.13. (b) The following terms have the meanings set forth in the Sections listed below: Term Section ---- ------- Agreement Preamble Buyer Preamble Confidential Linvatec Information 5.4(b) Confidential Zimmer Information 5.4(a) Force Majeure Event 5.15 indemnified party 5.3(b) 7 4 Linvatec Preamble New Transfer Prices 2.6 Performance Standards 2.5 Product Literature 3.2(a) Renewal Term 2.6 Seller Preamble Statement 3.1(b) Stock Purchase Agreement Preamble Third Party Claim 5.3(b) Transition and Distribution Services Agreement Preamble Zimmer Preamble SECTION 1.2. Interpretation and Schedules. (a) The headings contained in this Agreement, in any Schedule hereto and in the table of contents to this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All references to the term "including" shall be deemed to be followed by "without limitation". (b) All Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized term used in any Schedule but not otherwise defined therein, shall have the meaning as defined in this Agreement. ARTICLE II Appointment as Exclusive Distributor SECTION 2.1. Appointment of Zimmer as Exclusive Distributor. (a) Linvatec hereby appoints Zimmer, and Zimmer hereby accepts the appointment, as Linvatec's exclusive distributor during the applicable Term of (i) the Large Bone Products in the Markets and (ii) the Small Bone/Specialty Products and the Arthroscopy Products in Japan and the CEE Markets. (b) It is acknowledged and agreed that Zimmer shall perform its obligations as exclusive distributor pursuant to Section 2.1(a) in its sole discretion through a direct sales force, Distributors or a combination of a direct sales force and Distributors. SECTION 2.2. Transfer Price. (a) During the applicable Term, Linvatec agrees to sell the Products to Zimmer for sale in the applicable Markets, and Zimmer 8 5 agrees to buy the Products from Linvatec for Zimmer's own account, at the transfer prices set forth on Schedule 2.2(a). (b) Zimmer shall pay Linvatec the full amount of the transfer prices applicable to each shipment of Products ordered by Zimmer (other than the Non-U.S. Inventory) within 45 calendar days after receipt of the invoice. Payment of the transfer prices for the Non-U.S. Inventory being distributed under this Agreement shall be made pursuant to Section 2.2(b) of the Transition and Distribution Services Agreement. All payments of transfers prices by Zimmer to Linvatec shall be in U.S. dollars. SECTION 2.3. Repurchase of Inventory. Upon expiration or termination of the Term with respect to any Product Category in any Market, Linvatec shall repurchase Zimmer's inventory of Products in such Product Category in such Market within 60 calendar days of such expiration or termination at the transfer prices applicable to such inventory, net of reserves for obsolete and slow-moving goods (as determined in accordance with Zimmer's accounting policies), plus freight charges and expenses (and with respect to Markets other than the United States, duty and customs charges and expenses). Delivery of such inventory returned to Linvatec shall be F.O.B. the storage location of such inventory. In the event Linvatec defaults in its obligations to repurchase Zimmer's inventory of Products, without prejudice to any of Zimmer's other remedies, Zimmer shall be entitled to sell such inventory in any manner it deems appropriate. In any case, after expiration or termination of the applicable Term, Zimmer shall be entitled to sell any Products for which it has accepted firm orders, consistent with past practice. SECTION 2.4. Handling of Inventory. Zimmer shall not, and shall cause the Distributors not to, alter or tamper with any labels, descriptive marks, packing, promotional materials, bottles or containers in which or with which the Products are supplied, or make any modification of the Products except as required for compliance with local law or otherwise consistent with past practice. Zimmer shall permit Linvatec at reasonable times to enter any one of the warehouses at which the Products are stored for purposes of inspection, sampling or testing of the Products. 9 6 SECTION 2.5. Performance Standards. In the event that Zimmer does not maintain aggregate sales for the Large Bone Products in the U.S. and Linvatec Products in Japan in the amounts indicated next to each of the years as set forth in the chart below (the "Performance Standards"), Linvatec shall have the right to terminate pursuant to Section 5.13(f); provided that a failure to meet the performance standards set forth in the chart below resulting from reasons beyond the control of Zimmer shall not be deemed a breach of the Performance Standards: United States Japan(1) - -------------------------------------------------------------------------------- Year Aggregate Zimmer Year Aggregate Zimmer Sales of Products Sales of Products - -------------------------------------------------------------------------------- 1998 Same as sales in 1998 6% increase in 1997 based on the sales over the sales Statement for 1997 in 1997 stated in the Statement for 1997 - -------------------------------------------------------------------------------- 1999 10% increase in 1999 6% increase in sales over the sales sales over the sales in 1997 stated in in 1998 stated in the Statement for the Statement for 1997 1998 - -------------------------------------------------------------------------------- SECTION 2.6. Renewal of the Term. (a) With respect to all the Markets except the Direct Markets, at any time one year before the end of the applicable Term, Zimmer and Linvatec shall negotiate in good faith the renewal term (the "Renewal Term") for this Agreement and any modifications to the transfer prices (the "New Transfer Prices") set forth in this Agreement. If the parties hereto do not reach agreement on the Renewal Term and the New Transfer Prices on or prior to the date one year before the end of the applicable Term, this Agreement shall automatically expire upon the end of the applicable Term. (b) With respect to the Direct Markets, at any time six months before the end of the applicable Term, Zimmer and Linvatec shall negotiate in good faith the Renewal Term and any modifications to the New Transfer Prices. If the parties hereto do not reach agreement on the Renewal Term and the New Transfer Prices on or prior to the date six months before the end of the applicable Term, this Agreement shall automatically expire upon the end of the applicable Term. - ---------- (1) Aggregate sales of Products calculated based on sales to customers by Zimmer in Yen. 10 7 ARTICLE III Other Services from Zimmer SECTION 3.1. Marketing. (a) It is acknowledged and agreed that in the Markets other than the United States, Linvatec shall provide all Global Marketing Services, and Zimmer shall provide all Local Marketing Services. Linvatec shall cooperate with Zimmer in connection with the Local Marketing Services, in each case consistent with past practice. It is acknowledged and agreed that in the U.S., Linvatec shall provide for (i) all Global Marketing Services and (ii) on a national level, participation or sponsorship of medical society or other medical organization meetings and participation in medical symposia, workshops, exhibits and trade shows, in each case consistent with past practice. Zimmer shall provide Local Marketing Services, except the services referred to in Section 3.1(a)(ii), consistent with past practice. Each party shall bear its own costs and expenses in providing such services. (b) Zimmer shall provide to Linvatec within 90 calendar days of June 30 and December 31 each calendar year a semi-annual statement (a "Statement") of its Product sales for the Markets during the previous six months. In addition, Zimmer shall provide Linvatec with a Statement for the twelve month period ending December 31, 1997. Furthermore, Zimmer shall consult with Linvatec periodically as reasonably requested by Linvatec regarding activities of third-party competition and such other facts and data relating to the distribution of Products hereunder as may reasonably be requested by Linvatec, provided that such consultation does not unreasonably disrupt the normal operations of Zimmer. SECTION 3.2. Product Literature; Exhibits, Trade Shows, Etc.; Videotapes. (a) Product Literature. With respect to the Products, Linvatec shall from time to time furnish to Zimmer, at Linvatec's expense, in reasonable quantities, literature, catalogs and technical brochures in English (collectively, "Product Literature") for the Markets. Zimmer shall arrange reprinting of local language literature, catalogs and technical brochures, as necessary, as well as provide local language translation services, as necessary, in each case at its own expense. Linvatec shall cooperate with Zimmer with respect to such reprinting or translation efforts. Zimmer shall provide Product Literature distribution services for the Products in the Markets. (b) Exhibits, Trade Shows, Etc. Linvatec shall cooperate with Zimmer to provide necessary personnel for the exhibits, trade shows, meetings and other activities in 11 8 connection with Zimmer's Local Marketing Services, as well as the technical information and other services reasonably requested by Zimmer. (c) Videotapes. Linvatec will provide English language videotapes with respect to Products or the Linvatec business to Zimmer, consistent with past practice. Linvatec shall cooperate with Zimmer in providing local language translation of such videotapes, at Zimmer's expense, as Zimmer deems necessary or desirable. SECTION 3.3. Supply of Products. Linvatec agrees to supply Zimmer and the Distributors, as applicable, Products consistent with past practices; provided that with respect to Products delivered to the warehouses of Zimmer, Linvatec shall be responsible for delivery of the Products F.O.B. the source plant of the Products. Zimmer shall pay all costs and expenses associated with such delivery, including shipping, freight, insurance, transfer taxes, duty and customs expenses. Title and risk of loss to the Products shall pass to Zimmer upon delivery to Zimmer at the source plant of the Products. SECTION 3.4. Product Pricing. Zimmer shall determine prices for Products in the Markets in its sole discretion. SECTION 3.5. Regulatory. Zimmer and Linvatec shall cooperate (a) to maintain and obtain any necessary registrations of the Products with local health or other regulatory authorities of the Markets other than the U.S. that may be required under applicable law in such Markets and (b) to comply with all other regulatory requirements in the such Markets, in each case consistent with past practice. Linvatec shall be responsible for all Product registration and regulatory compliance in the United States, CE marking in Europe, local language labeling in all the Markets and such other compliance matters as are consistent with past practice. SECTION 3.6. Repairs. (a) In the United States, Linvatec shall make available repair services for Linvatec Products. In Japan, Zimmer will make available repair services to all customers at prices that it shall determine in its sole discretion from time to time; provided that Linvatec will continue to make available repair services outside the United States in certain Markets consistent with past practice and further provided that Linvatec shall make repairs for Linvatec Products to the extent Linvatec establishes repair facilities in the Markets other than the United States and Japan, in each case at prices that it shall determine in its sole discretion from time to time. During the applicable Term, Linvatec shall sell to Zimmer repair replacement parts for Products for use in Zimmer's repair services in Markets outside the United States at the transfer prices set forth on Schedule 2.2(a) applicable to such Product in such Market at the time such repair replacement parts are bought. Linvatec shall be responsible for delivery of such parts F.O.B. the source plant of such parts. Zimmer shall pay all costs and expenses 12 9 associated with such delivery, including shipping, freight, insurance, transfer taxes, duty and customs expenses. Title and risk of loss to the repair and replacement parts for the Products shall pass to Zimmer upon delivery to Zimmer at the source plant of such repair or replacement parts. (b) During the applicable Term and for six months thereafter, in the event Linvatec discontinues the manufacture of any of the Products, Linvatec shall continue, for a period of time after such discontinuance, consistent with past practice, to make available to Zimmer repair services and replacement parts for such discontinued Products on the terms set forth in Section 3.6(a), to the extent reasonably anticipated by Linvatec to be necessary to service such discontinued Products previously supplied by Linvatec pursuant to the terms of this Agreement. SECTION 3.7. Purchase of Demonstration Equipment. Linvatec shall sell to Zimmer or the Distributors at standard cost demonstration equipment for Products from time to time during the applicable Term as reasonably ordered by Zimmer or the Distributors, consistent with past practice. ARTICLE IV Other Linvatec Obligations SECTION 4.1. Warranties and Return. (a) Linvatec shall warrant the Products in accordance with Linvatec's standard worldwide warranty in effect from time to time; provided, however, that Linvatec shall not change the terms of the Product warranties in effect at the date hereof with respect to Products sold in any Market if such change would render Zimmer unable to sell Products in such Market in accordance with applicable law or regulation or commercial custom. Zimmer will deliver to Linvatec not later than the last day of each month a statement setting forth the types and quantities of Products sold by it in each Market during the preceding month and showing the serial numbers of the Products, if any, and all other information required in order to permit Linvatec's warranty to be honored. (b) Linvatec shall accept all returns of defective Products that are returned in a reasonable amount of time and credit Zimmer for such returns. Zimmer shall pay all costs and expenses associated with such return, including shipping, freight, insurance, transfer taxes, duty and customs expenses. Linvatec shall promptly reimburse Zimmer for any such costs or expenses incurred by Zimmer within 45 calendar days of receiving an invoice therefor. Title and risk of loss to such returned defective Products shall pass to Zimmer upon delivery to Linvatec at the location from which such defective Products are shipped. 13 10 (c) Zimmer shall not have any reimbursement obligation for Products (whether sold before, on or after the date hereof) which are returned pursuant to a Product warranty or guarantee. If a Product returned pursuant to a Product warranty or guarantee results in a credit against an accounts receivable maintained by Zimmer with respect to a Product sold by Zimmer prior to the date hereof, Linvatec shall reimburse Zimmer for the price paid by Zimmer to Linvatec for such Product. (d) During the applicable Term, in the event Products sold by Zimmer are returned by a customer directly to Linvatec, Linvatec shall notify Zimmer of such return within 5 calendar days. After the applicable Term, Zimmer shall continue to be responsible for all refunds or the costs of any exchange of Products sold by it prior to the date hereof that are not covered by a warranty or guarantee of Linvatec or otherwise expressly required to be paid by Linvatec under this Agreement. SECTION 4.2. Information; Technical and Regulatory Support. Linvatec shall make available on a timely basis to Zimmer all information that Zimmer reasonably requests to perform Zimmer's obligations hereunder. Linvatec shall provide to Zimmer, at Linvatec's expense, such regulatory and technical assistance as Zimmer may reasonably request for the promotion, sale and servicing of the Products. SECTION 4.3. Insurance. Linvatec shall at all times from the date hereof to the last to end of the Terms maintain, at no cost to Zimmer, annual product liability insurance covering all Products supplied by Linvatec pursuant to the terms of this Agreement with aggregate annual coverage of at least $25,000,000 (which policy shall name Zimmer as an additional insured and shall cover all claims incurred or arising out of or relating to events that occurred during the period from the date hereof to the last to end of the Terms). ARTICLE V Miscellaneous SECTION 5.1. Intellectual Property. During the applicable Term, Linvatec hereby grants to Zimmer a nonexclusive license to use the Intellectual Property to the extent necessary to satisfy its obligations under this Agreement. SECTION 5.2. Further Assurances. The parties agree to execute and deliver all such documents and instruments and shall take all such further other actions as may be reasonably necessary or desirable to consummate the transactions contemplated hereby. 14 11 SECTION 5.3. Indemnity. (a) Product Liability. Linvatec shall indemnify Zimmer, its Affiliates (including Seller) and each of their respective officers, directors, employees, stockholders, agents and representatives against and hold them harmless from any loss, liability, claim, damage or expense (including reasonable legal fees and expenses) suffered or incurred by any such indemnified party for any Third party claims arising from or in connection with the design, manufacture or use of the Products sold by Zimmer during the applicable Term, including claims for injury or death to any person or damage to property, except to the extent that such claims and expenses result from the gross negligence of Zimmer. (b) Procedures Relating to Indemnification for Third Party Claims. In order for a party (the "indemnified party") to be entitled to any indemnification provided for under Section 5.3(a) in respect of, arising out of or involving a claim or demand made by any person against the indemnified party (a "Third Party Claim"), such indemnified party must notify the indemnifying party in writing, and in reasonable detail, of the Third Party Claim within 30 calendar days after receipt by such indemnified party of written notice of the Third Party Claim; provided, however, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the indemnifying party shall have been actually prejudiced as a result of such failure (except that the indemnifying party shall not be liable for any expenses incurred during the period in which the indemnified party failed to give such notice). Thereafter, the indemnified party shall deliver to the indemnifying party, promptly after the indemnified party's receipt thereof, copies of all notices and documents (including court papers) received by the indemnified party relating to the Third Party Claim. If a Third Party Claim is made against an indemnified party, the indemnifying party shall be entitled to participate in the defense thereof and, if it so chooses and acknowledges its obligation to indemnify the indemnified party therefor, to assume the defense thereof with counsel selected by the indemnifying party; provided that such counsel is not reasonably objected to by the indemnified party. Should the indemnifying party so elect to assume the defense of a Third Party Claim, the indemnifying party shall not be liable to the indemnified party for legal fees and expenses subsequently incurred by the indemnified party for separate counsel in connection with the defense thereof. If the indemnifying party assumes such defense, the indemnified party shall have the right to participate in the defense thereof and to employ counsel (not reasonably objected to by the indemnifying party), at its own expense, separate from the counsel employed by the indemnifying party, it being understood that the indemnifying party shall control such defense. The indemnifying party shall be liable for the fees and expenses of counsel employed by the indemnified party for any period during which the indemnifying party has failed to assume the defense thereof (other than during the period prior to the time the indemnified party shall have given notice of the Third Party Claim as provided above). 15 12 If the indemnifying party so elects to assume the defense of any Third Party Claim, all of the indemnified parties shall cooperate with the indemnifying party in the defense or prosecution thereof, subject to the other party's confidentiality obligations under this Agreement. Such cooperation shall include the retention and (upon the indemnifying party's request) the provision to the indemnifying party of records and information which are reasonably relevant to such Third Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Whether or not the indemnifying party shall have assumed the defense of a Third Party Claim, the indemnified party shall not admit any liability with respect to, or settle, compromise or discharge, such Third Party Claim without the indemnifying party's prior written consent (which consent shall not be unreasonably withheld). SECTION 5.4. Confidentiality. (a) Linvatec and Buyer agree that each of them shall keep confidential and not disclose to any third party, except as it is necessary in carrying out the purpose of this Agreement, during the period from the date hereof and to the last to end of the Terms and for three years thereafter the terms of this Agreement or any information of a proprietary nature relating to the business or operations of Zimmer or its Affiliates, including technology, specifications, product information, data, inventions, processes, know-how, trade secrets and information disclosed pursuant hereto (together, "Confidential Zimmer Information") furnished to Buyer or Linvatec by Zimmer in connection with this Agreement, except Confidential Zimmer Information that: (i) at the time of disclosure is in the public domain or publicly known or available (other than as a result of a disclosure directly or indirectly by Linvatec or Buyer or any of their Affiliates in violation of the terms of any confidentiality agreement involving Linvatec or Buyer or any of their Affiliates on the one hand and Zimmer or any of its Affiliates on the other hand); (ii) was available to Linvatec or Buyer on a non-confidential basis from a third party; provided that the Confidential Zimmer Information was not obtained by such third party from Linvatec or Buyer or their Affiliates; or (iii) Linvatec or Buyer derives independently of such furnishment of Confidential Zimmer Information. In the event that Linvatec or Buyer become legally compelled (by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process or otherwise) to disclose any of the Confidential Zimmer Information, Linvatec or Buyer shall provide the counsel of Zimmer with prompt written notice of such requirement so that Zimmer may seek a protective order or other appropriate remedy 16 13 and/or waive compliance with the terms of this agreement. In the event that such protective order or other remedy is not obtained, or that Zimmer waives compliance with the provisions hereof, Linvatec or Buyer agrees to furnish only that portion of the Confidential Zimmer Information which Linvatec or Buyer is advised by opinion of counsel is legally required and to exercise best efforts to obtain assurance that confidential treatment will be accorded such Confidential Zimmer Information. (b) Zimmer agrees that it shall keep confidential and not disclose to any third party, except as it is necessary in carrying out the purpose of this Agreement, during the period from the date hereof and to the last to end of the Terms and for three years thereafter the terms of this Agreement or any information of a proprietary nature relating to Linvatec's business or operations, including technology, specifications, product information, data, inventions, processes, know-how, trade secrets and information disclosed pursuant hereto (together, "Confidential Linvatec Information") furnished to Zimmer by Linvatec in connection with this Agreement, except Confidential Linvatec Information that: (i) at the time of disclosure is in the public domain or publicly known or available (other than as a result of a disclosure directly or indirectly by Zimmer or any of its Affiliates in violation of the terms of any confidentiality agreement involving Linvatec or Buyer or any of their Affiliates on the one hand and Zimmer or any of its Affiliates on the other hand); (ii) was available to Zimmer on a non-confidential basis from a third party; provided that the Confidential Linvatec Information was not obtained by such third party from Zimmer or its Affiliates; or (iii) Zimmer derives independently of such furnishment of Confidential Linvatec Information. In the event that Zimmer becomes legally compelled (by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process or otherwise) to disclose any of the Confidential Linvatec Information, Zimmer shall provide the counsel of Linvatec with prompt written notice of such requirement so that Linvatec may seek a protective order or other appropriate remedy and/or waive compliance with the terms of this agreement. In the event that such protective order or other remedy is not obtained, or that Linvatec waives compliance with the provisions hereof, Zimmer agrees to furnish only that portion of the Confidential Linvatec Information which Zimmer is advised by opinion of counsel is legally required and to exercise best efforts to obtain assurance that confidential treatment will be accorded such Confidential Linvatec Information. 17 14 SECTION 5.5. Exclusive Appointment. During the applicable Term, in the relevant Markets, Linvatec shall not appoint any distributor or agent (or similar entity) other than Zimmer or supply Products to any Person other than Zimmer or the Distributors whether for use or resale. SECTION 5.6. Amendments. No amendment to this Agreement shall be effective unless it shall be in writing and signed by the party against whom enforcement is sought. SECTION 5.7. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given when delivered personally or sent by prepaid telex, cable or telecopy, or sent, postage prepaid, by registered, certified or express mail (return receipt requested) or reputable overnight courier service and shall be deemed given when so delivered by hand, telexed, cabled or telecopied, or if mailed, 3 calendar days after mailing (one business day in the case of express mail or overnight courier service) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (i) if to Linvatec, Linvatec Corporation 11311 Concept Boulevard Largo, FL 33773 Attention: President with a copy to: CONMED Corporation 310 Broad Street Utica, NY 13501 Attention: General Counsel (ii) if to Buyer, CONMED Corporation 310 Broad Street Utica, NY 13501 Attention: General Counsel 18 15 (iii) if to Zimmer, Zimmer, Inc. 345 East Main Street Warsaw, IN 46581 Attention: General Counsel with a copy to: Bristol-Myers Squibb Company 345 Park Avenue New York, New York 10154 Attention: General Counsel and a copy to: Cravath, Swaine & Moore 825 Eighth Avenue New York, New York 10019-7415 Attention: Susan Webster, Esq. SECTION 5.8. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other parties. Counterparts may be delivered by facsimile. SECTION 5.9. Entire Agreement. This Agreement, together with the Stock Purchase Agreement, contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings. Nothing in this Agreement shall be deemed to amend, modify or in any way affect the Stock Purchase Agreement. SECTION 5.10. Severability. If any provision of this Agreement (or any portion thereof) or the application of any such provision (or any portion thereof) to any person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof (or the remaining portion thereof) or the application of such provision to any other persons or circumstances. 19 16 SECTION 5.11. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed entirely within such state. SECTION 5.12. Assignment. Neither party may assign its rights or obligations under this Agreement to any party without the prior written consent of the other party; provided, however, that either party may assign its rights or obligations under this Agreement to a wholly owned subsidiary or an Affiliate of such party. SECTION 5.13. Term and Termination. (a) This Agreement may be terminated (i) by either Zimmer or Linvatec (A) upon the commencement by any party of an involuntary proceeding or the filing by any party of an involuntary petition seeking (1) liquidation, reorganization or other relief in respect of such party or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (2) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such party for a substantial part of their assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered, (B) if such other party shall (1) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (2) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in the preceding clause (A), (3) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such party for a substantial part of its assets, (4) file an answer admitting the material allegations of a petition filed against it in any such proceedings, (5) make a general assignment for the benefit of creditors or (6) take any action for the purpose of effecting any of the foregoing; or (ii) by either Zimmer or Linvatec if the other party (or by Zimmer if Buyer) is in material breach of any provision of this Agreement (the failure by Zimmer to satisfy the performance standards set forth in Section 2.5 in the relevant Market required for any year being deemed by the parties hereto a material breach of this Agreement by Zimmer unless Linvatec is in material breach of this Agreement at such time); provided, however, that in the case of clause (i), the Agreement shall automatically terminate upon the occurrence of any event specified therein and in the case of clause (ii) (A) the party seeking to terminate this Agreement shall notify such other party in writing of such breach (a "Notice of Breach"), (B) such other party shall have 30 days from the receipt of such Notice of Breach to commence remedying such breach and (C) if such party does not commence remedying such breach within such 30 days or if, at the end of such 30 day period, it is not reasonably likely that such breach is capable of being cured within 60 days thereafter, the party seeking to terminate this Agreement may terminate this Agreement with respect to any Product Category (and not with respect to a Product) or any Market (and not with respect to any 20 17 subdivision thereof) with respect to which the other party is in breach at any time thereafter by giving such other party, (1) in the case of the Large Bone Products category in the United States and Large Bone Products, Small Bone/Specialty Products and Arthroscopy Products categories in the CEE Markets and Japan, three months written notice of such termination and (2) in the case of the Large Bone Products category in the Direct Markets, three months written notice of such termination, in each case unless such breach shall have been cured prior to the receipt of such written notice by such other party; and provided, further, however, that in the case of clause (ii), if Zimmer is only in material breach under Section 2.5 as described in the parenthetical in clause (ii) with respect to either the United States or Japan but not both, Linvatec may only terminate this Agreement with respect to distribution in the United States or Japan, whichever it is in breach with respect to. (b) Shortly before and a reasonable time after the expiration or termination of the Term with respect to any Market, Zimmer shall cooperate with Linvatec in connection with the transfer of the distribution function from Zimmer to Linvatec or to such entities as Linvatec shall designate in the Markets, including transferring (i) all artwork and sales literature used exclusively in connection with the sale of the Products in such terminated or expired Market, (ii) the applicable customer lists in Zimmer's possession that relate solely to the sale of Products in the Markets and (iii) the necessary licenses, permits and registrations, to Linvatec or an entity designated by Linvatec; provided, however, that Zimmer will not be obligated to assign all or any part of the distributor agreements with Zimmer's distributors in the U.S. and Canada. (c) Upon the end of the Term in any Market, Linvatec shall purchase all demonstration Products in such Market then owned by Zimmer at the net book value (determined in accordance with Zimmer's accounting policies) of such Products. (d) Except as otherwise set forth above, the rights and obligations pursuant to Articles II and III shall terminate and expire on the last day of the applicable Term except for those rights and obligations which refer to periods thereafter. SECTION 5.14. Performance of Zimmer Obligations. Linvatec acknowledges and agrees that Zimmer may perform its obligations under this Agreement through one or more of its subsidiaries, Distributors and Affiliates. SECTION 5.15. Force Majeure. In case performance of any terms or provisions hereof shall be delayed or prevented, in whole or in part, because of or related to compliance with any law, decree, request or order of any governmental agency or authority, either local, state, federal or foreign, or because of riots, war, public disturbance, strike, lockout, fire, explosion, storm, flood, acts of God, accidents of navigation, breakdown or failure of transportation or of transportation, manufacturing, 21 18 distribution, storage or processing facilities, or for any other reason which is not within the control of the party whose performance is interfered with and which by the exercise of reasonable diligence such party is unable to prevent (each, a "Force Majeure Event"), the party so suffering may at its option suspend deliveries or receipts or discontinue performance of services during the period such cause continues, and no liability shall attach against either party on account thereof. If a Force Majeure Event occurs, Linvatec may apportion its available supply of Products among its customers on an equitable basis without incurring liability for failure to perform this Agreement. No party shall be excused from performance if such party fails to use reasonable diligence to remedy the situation and remove the cause and effect of the Force Majeure Event in an adequate manner and with reasonable dispatch; provided, however, that nothing contained herein shall require the settlement of strikes or labor controversies by acceding to the demands of the opposing party or parties. Notwithstanding the foregoing, Zimmer shall not be relieved of the obligation to pay for Products title to which have passed to Zimmer. SECTION 5.16. Limitation of Liability. None of the parties hereto (or its Affiliates) or its respective directors, officers, employees or agents shall be liable to the other for indirect, consequential or punitive damages in connection with the performance of this Agreement, even if it has been advised of the possibility of such damages, and each party hereby waives any claim for such damages, including any claim for property damage or lost profits, whether arising in contract, tort or otherwise. 22 19 SECTION 5.17. Arbitration. Any dispute between the parties hereto shall be subject to binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association in a mutually agreeable, neutral location. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above. CONMED CORPORATION (a signatory only with respect to Section 5.4), by /s/ Joseph J. Corasanti ---------------------------------- Name: Joseph J. Corasanti Title: Vice President -- Legal Affairs LINVATEC CORPORATION, by /s/ George P. Kempsell ---------------------------------- Name: George P. Kempsell Title: President ZIMMER, INC., by /s/ David Zabor ---------------------------------- Name: David Zabor Title: Senior Vice President

1 EXHIBIT 11 Computation of Weighted Average Number of Shares of Common Stock
Year Ended December ------------------------ 1995 1996 1997 ---- ---- ---- Shares outstanding at beginning of period........ 9,057 11,000 14,989 Weighted average shares issued................... 1,460 3,045 8 Incremental shares of common stock outstanding giving effect to stock options and warrant.... 1,096 451 230 ------ ------ ------ Weighted average shares for earnings per share... 11,613 14,496 15,227 ====== ====== ======

1 EXHIBIT 12 CONMED Corporation Statement Showing Computations of Ratio of Earnings to Fixed Charges
1993 1994 1995 1996 1997 Net Income $ (1,396) $ 5,416 $ 10,863 $16,286 $ (7,065) Provision (benefit) for income taxes (719) 2,890 5,900 9,161 (3,640) --------------------------------------------------------------------- Income (loss) before income taxes (2,115) 8,306 16,763 25,447 (10,705) Interest (income) expense, net 214 628 1,991 217 (823) Income loss from operations (1,901) 8,934 18,754 25,664 (11,528) Portion of rentals deemed representative of interest factor 146 146 146 108 147 --------------------------------------------------------------------- Earnings before income taxes and fixed charges $(1,756) $ 9,080 $ 18,900 $25,772 $(11,381) ===================================================================== Fixed Charges interest expense $ 214 $ 628 $ 1,991 $ 217 $ -- Portion of rentals deemed representative of interest factor 146 146 146 108 147 --------------------------------------------------------------------- $ 360 $ 774 $ 2,137 $ 325 $ 147 =====================================================================

1 EXHIBIT 21 Subsidiaries of the Registrant 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 Envision Medical Corporation California Linvatec Corporation Florida NDM, Inc. New York

1 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 10, 1998 appearing on page F-1 of the 1997 Annual Report on Form 10-K. PRICE WATERHOUSE LLP Syracuse, New York February 23, 1998

5 YEAR DEC-31-1997 DEC-31-1997 13,452 0 49,896 (2,708) 57,915 121,884 80,663 (21,268) 561,637 30,607 0 0 0 151 162,585 561,637 138,270 138,270 74,220 149,798 0 0 (823) (10,705) (3,640) (7,065) 0 0 0 (7,065) (0.47) (0.47)