AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20,JULY 24, 2001
REGISTRATION NO. 333-333-63386
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
WILSON GREATBATCH TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 3692 16-1531026
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
--------------------------
10,000 WEHRLE DRIVE
CLARENCE, NEW YORK 14031
(716) 759-6901
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
EDWARD F. VOBORIL
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
WILSON GREATBATCH TECHNOLOGIES, INC.
10,000 WEHRLE DRIVE
CLARENCE, NEW YORK 14031
(716) 759-6901
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
------------------------------
COPIES TO:
STEVEN D. RUBIN, ESQ. STEPHEN E. OLDER, ESQ.
WEIL, GOTSHAL & MANGES LLP EDWARD D. SOPHER, ESQ.
700 LOUISIANA, SUITE 1600 AKIN, GUMP, STRAUSS, HAUER & FELD,
L.L.P.
HOUSTON, TEXAS 77002 L.L.P.
(713) 546-5000 590 MADISON AVENUE
(713) 546-5000
NEW YORK, NEW YORK 10022
(212) 872-1000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________________
If delivery of this prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED (1) PER SHARE (2) OFFERING PRICE (2) REGISTRATION FEE
Common Stock, par value $.001 per share..... 6,900,000 shares $28.94 $199,686,000 $49,922
(1) Includes 900,000 shares of common stock that the underwriters may purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) under the Securities Act of 1933 based upon the
average of the high and low sale prices for the common stock included on the
New York Stock Exchange on June 18, 2001.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED JUNE 20, 2001
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective.EXPLANATORY NOTE
This prospectus is not an offer
to sell securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
6,000,000 Shares
[LOGO]
Wilson Greatbatch Technologies
Common Stock
-----------
We are selling 2,000,000 shares of our common stock and the selling
stockholders are selling 4,000,000 shares of common stock.
Our common stock is listed on The New York Stock Exchange under the symbol
"GB." The last reported sale price on June 18, 2001 was $28.82 per share.
The underwriters have an option to purchase a maximum of 900,000 additional
shares from the selling stockholders to cover over-allotments of shares.
Investing in our common stock involves risk. See "Risk Factors" on page 8.
Underwriting Proceeds to Proceeds to
Price to Discounts and Wilson Greatbatch Selling
Public Commissions Technologies Stockholders
------------------- ------------------- ------------------- -------------------
Per Share............... $ $ $ $
Total................... $ $ $ $
Delivery of the shares, in book-entry form only, will be made on or about
, 2001.
Neither the Securities and Exchange Commission nor any state securities
commission has determined whether this prospectus is truthful or complete. Any
representationAmendment No. 2 to the contrary is a criminal offense.
Credit Suisse First Boston Morgan Stanley Dean Witter
Banc of America Securities LLC U.S. Bancorp Piper Jaffray
The date of this prospectus is , 2001.
MEDICAL PRODUCTS
COMPONENTS FOR IMPLANTABLE DEVICES
[Photograph of Feedthrough]
FEEDTHROUGHS
HIGHLY DURABLE SEAL
MULTIFUNCTIONAL
[Photograph of Precision Components]
PRECISION COMPONENTS
HIGH LEVEL OF MANUFACTURING PRECISION
BROAD MANUFACTURING FLEXIBILITY
[Close-up Photograph of Electrode Tip]
ELECTRODE TIPS
PRECISION QUALITY COATED SURFACE
CUSTOMIZED OFFERING OF SURFACES AND TIPS
[Diagram of ICD showing location
of components]
[Photograph of a Capacitor]
CAPACITORS IMPLANTABLE CARDIOVERTER
PROPRIETARY TECHNOLOGY DEFIBRILLATOR SHOWING COMPONENTS
ENABLES COMPONENT SIZE REDUCTION OF UP TO 50% FROM WILSON GREATBATCH
ALLOWS A WIDE RANGE OF CUSTOM CONFIGURATIONS TECHNOLOGIES, INC.
[Photograph of four Implantable Power Sources]
IMPLANTABLE POWER SOURCES
INDUSTRY STANDARD
PROPRIETARY TECHNOLOGIES
DECADES OF IMPLANT EXPERIENCE WITH SUPPORTIVE LIFE TEST DATA
COMMERCIAL PRODUCTS
HIGH PERFORMANCE, SAFE AND RELIABLE PRIMARY POWER SUPPLIES . . .
[Photograph of various power sources]
. . . SPECIFICALLY DESIGNED FOR THE MOST DEMANDING APPLICATIONS
[Photographs of a space shuttle, oceanographic exploration and a drilling rig]
[Logo]
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TABLE OF CONTENTS
PAGE
--------
PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 8
FORWARD LOOKING STATEMENTS............ 17
USE OF PROCEEDS....................... 18
COMMON STOCK PRICE RANGES AND
DIVIDENDS........................... 18
CAPITALIZATION........................ 19
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 22
BUSINESS.............................. 35
PAGE
--------
MANAGEMENT............................ 48
RELATED PARTY TRANSACTIONS............ 55
PRINCIPAL AND SELLING STOCKHOLDERS.... 59
DESCRIPTION OF CAPITAL STOCK.......... 63
SHARES ELIGIBLE FOR FUTURE SALE....... 66
UNDERWRITING.......................... 67
NOTICE TO CANADIAN RESIDENTS.......... 70
LEGAL MATTERS......................... 71
EXPERTS............................... 71
WHERE YOU CAN FIND MORE INFORMATION... 72
INDEX TO FINANCIAL STATEMENTS......... F-1
--------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
i
PROSPECTUS SUMMARY
YOU SHOULD READ THIS SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION
REGARDING US AND THE COMMON STOCK BEING SOLD IN THIS OFFERING AND OUR HISTORICAL
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO THE HISTORICAL CONSOLIDATED
FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION TO PURCHASE ADDITIONAL SHARES OF OUR COMMON
STOCK FROM THE SELLING STOCKHOLDERS AND ALL COMMON STOCK FIGURES REFLECT A
ONE-FOR-THREE REVERSE STOCK SPLIT THAT OCCURRED IN MAY 2000 AND A THREE-FOR-FIVE
REVERSE STOCK SPLIT THAT OCCURRED IN AUGUST 2000.
WILSON GREATBATCH TECHNOLOGIES, INC.
OUR BUSINESS
We are a leading developer and manufacturer of power sources, feedthroughs
and wet tantalum capacitors used in implantable medical devices. We also develop
and manufacture other components used in implantable medical devices. We believe
that we are a preferred supplier of power sources and components because we
offer technologically advanced, highly reliable and long lasting products for
implantable medical devices. Through continuous technological innovation and
improvements, we have enabled our customers to continually develop and introduce
implantable medical devices that are progressively smaller, longer lasting, more
efficient and more functional. Our customers include leading implantable medical
device manufacturers such as Guidant, St. Jude Medical and Medtronic, the three
largest manufacturers of pacemakers and implantable cardioverter defibrillators,
or ICDs, based on revenues. We leverage our core competencies in technology and
manufacturing to develop and produce power sources for commercial applications
that demand high performance and reliability, including aerospace, oil and gas
exploration and oceanographic equipment.
Our history, market leadership and reputation for quality and technological
innovation in the implantable medical device industry began with Mr. Wilson
Greatbatch, who patented the implantable pacemaker in 1962 and founded our
company in 1970. We continue to develop pioneering technology used in
implantable medical devices and other demanding commercial applications. As of
June 1, 2001, we employed 182 scientists, engineers and technicians. To remain a
leader in developing new technology, we also maintain close relationships with a
number of research organizations, clinicians and other industry professionals.
Since 1970, our company has received 348 patents worldwide, and as of June 1,
2001, we held 148 active patents.
We work closely with our customers to enable them to develop innovative
medical devices that utilize our specially designed, proprietary power sources
and components. We believe that our proprietary technology, close customer
relationships, market leadership and dedication to quality provide us with
significant competitive advantages and create a barrier to entry.
STRATEGY
Our objective is to enhance our position as a leading developer and
manufacturer of power sources and other components for implantable medical
devices. We intend to:
- expand our proprietary technology portfolio through continuous
technological innovation and continue to focus our research, development
and engineering efforts on pioneering power sources and advanced
components for implantable medical devices;
- enhance our position as an integrated component supplier to the
implantable medical device industry by broadening our product line to
include a more comprehensive range of power sources and components;
1
- continue to collaborate with our customers to jointly develop new
technologies that enable them to develop and market increasingly more
effective and technologically innovative products; and
- enter into strategic alliances and make selective acquisitions that
complement our core competencies in technology and manufacturing for both
implantable medical devices and other demanding commercial applications.
IMPLANTABLE MEDICAL DEVICE INDUSTRY
An implantable medical device is an instrument that is surgically inserted
into the body to provide diagnosis or therapy. The market for our implantable
power sources and components benefits directly from the growth of the
implantable medical device industry. The largest and fastest growing segment of
the implantable medical device market is cardiac rhythm management, which
includes devices such as pacemakers and ICDs. Pacemakers treat bradycardia, a
condition that occurs when a patient has an abnormally slow heartbeat, by
stimulating the heart with regular electrical pulses. ICDs treat tachycardia, a
condition that occurs when a patient has a rapid and irregular heartbeat, by
delivering concentrated and timed electrical energy to the heart to restore a
normal heart rate.
The use of implantable medical devices has grown as advances in technology
have enabled the treatment of a wider range of conditions. As the size of
implantable medical devices has become smaller, implantation has become less
invasive, making the use of these devices more attractive to patients and
surgeons. Emerging applications, such as the treatment of congestive heart
failure and atrial fibrillation, a condition associated with an unsynchronized
motion of the atrium that produces an irregular heartbeat, increased ease of
implantation and the general aging of the population are expected to drive the
growth of the implantable medical device industry. Cardiovascular Device Update,
a Biomedical Business International monthly publication that is independent of
our company, estimates that revenues from pacemakers sold worldwide increased
from $2.2 billion in 1995 to $3.0 billion in 2000, representing a compound
annual growth rate of 6.4%. According to the publication, growth in the
worldwide pacemaker market may begin to accelerate in the next few years as
several new niche applications for pacemakers are beginning to emerge.
Cardiovascular Device Update also estimates that revenues from ICDs sold
worldwide increased from $625 million in 1995 to $1.75 billion in 2000,
representing a compound annual growth rate of 22.8%. Cardiovascular Device
Update believes the worldwide ICD market will grow at an average annual growth
rate of 18-20% in the next three to five years. The faster growth predicted for
the ICD market is based on continued penetration of existing clinical
indications and anticipated expansion into new indications.
As a leading developer and manufacturer of power sources and other
components for implantable medical devices, we believe that our company will
continue to be well positioned to meet the requirements of manufacturers of
these products.
2
PRODUCTS
We currently manufacture and market 23 models of pacemaker batteries and 19
models of ICD batteries as well as numerous other components for our customers
in the implantable medical device industry. Our commercial power sources are
used in aerospace, oil and gas exploration and oceanographic equipment. The
following table provides information about our principal products:
PRODUCT DESCRIPTION USED IN PRINCIPAL PRODUCT ATTRIBUTES
- ------- ----------- ------- ----------------------------
MEDICAL:
Implantable power sources Batteries for implantable Pacemakers, ICDs, left High reliability and
medical devices ventricular assistant predictability
devices, neurostimulators, Long service life
drug pumps and hearing Customized configuration
assist devices Light weight
Compact and less intrusive
Capacitors Store energy generated by a ICDs Stores more energy per unit
battery before delivery to volume (energy density) than
the heart other existing technologies
Customized configuration
Medical components:
Feedthroughs Allow electrical signals to Pacemakers, ICDs, left Ceramic to metal seal is
be brought from inside an ventricular assistant substantially more durable
implantable medical device devices, neurostimulators, than traditional seals
to an electrode drug pumps and hearing Multifunctional
assist devices
Electrodes Deliver electric signal Pacemakers and ICDs High quality coated surface
from the feedthrough to a Flexible in utilizing any
body part undergoing combination of biocompatible
stimulation coating surfaces
Customized offering of
surfaces and tips
Precision components Machined and molded parts Pacemakers, ICDs and drug High level of manufacturing
for implantable medical pumps precision
devices Broad manufacturing
flexibility
COMMERCIAL:
Commercial power sources Batteries for demanding Aerospace, oil and gas Long-life dependability
commercial applications exploration and High energy density
oceanographic equipment
OUR INITIAL PUBLIC OFFERING
In October 2000, we completed our initial public offering. We sold 5,750,000
shares of common stock at a price of $16.00 per share and received net proceeds
of $84.0 million. All net proceeds were used to prepay a portion of our senior
debt. Our common stock is listed on The New York Stock Exchange under the symbol
"GB."
RECENT DEVELOPMENTS
SIERRA ACQUISITION
On June 18, 2001, we acquired the Sierra-KD Components Division, or Sierra,
of Maxwell Technologies, Inc. Sierra, located in Carson City, Nevada, is a
leading developer and manufacturer of electromagnetic interference filters and
capacitors for implantable medical devices. Electromagnetic
3
interference, or EMI, is any undesirable emission or disturbance generated by
products such as cell phones and two-way pagers. EMI may cause an undesirable
response, malfunctioning or degradation in the performance of electronic
equipment including medical devices.
We acquired Sierra for approximately $49.0 million in cash and certain
assumed liabilities. During the fiscal year ended December 31, 2000 and three
months ended March 31, 2001, Sierra generated revenues of approximately $13.7
million and approximately $5.3 million, respectively. The acquisition is
expected to be neutral to slightly accretive to our 2001 earnings per share,
inclusive of goodwill amortization, and accretive thereafter.
The addition of Sierra's patented EMI filtering products and technology
broadens the product line we offer our customers and solidifies our position as
a leading provider of enabling technologies to the manufacturers of implantable
medical devices. Sierra holds several key patents relative to its differentiated
EMI filtering technology.
Sierra is currently one of our component customers and we both share a
similar medical device customer base. The vertical integration of Sierra
represents an opportunity to increase our importance to these customers and
positions us to participate in the growing demand for EMI protection on medical
devices. The U.S. Food and Drug Administration, or FDA, is focusing on issues
created by EMI. Currently, labels for new pacemakers and ICDs must disclose the
level of EMI protection. We expect that over time the majority of implantable
electronic medical devices will possess EMI protection.
Similar to us, Sierra has leveraged its technology and manufacturing
expertise to provide high quality, precision components to provide components
for commercial applications that demand high performance and reliability,
including aerospace, oil and gas exploration and telecommunications equipment.
AMENDED CREDIT FACILITY
In conjunction with the acquisition of Sierra, we amended our existing
$60.0 million credit facility with a consortium of banks by increasing the total
size of the facility to $100.0 million. The amended facility consists of an
$80.0 million term loan and a $20.0 million revolving line of credit. Both the
term loan and the revolving line of credit have a term of five years, maturing
in July 2006. We used proceeds from the amended facility to finance the
acquisition of Sierra.
EARNINGS OUTLOOK
On June 19, 2001, we announced that we were raising our previous guidance on
estimated revenues and earnings per share, or EPS, for the second quarter of
fiscal year 2001. We announced that we estimate second quarter revenues will
exceed $30 million and are comfortable with the high end of the current research
analyst EPS expectations of $0.13. In addition, we announced that we remain
comfortable with the current research analyst consensus estimates for the third
and fourth quarters of fiscal year 2001.
4
THE OFFERING
Common stock offered by us......................... 2,000,000 shares
Common stock offered by the selling stockholders... 4,000,000 shares
Common stock to be outstanding after this
offering........................................... 20,712,967 shares
Use of proceeds.................................... We plan to use the net proceeds from this
offering for general corporate purposes, which
may include the repayment of debt and future
acquisitions. We will not receive any proceeds
from the sale of common stock by the selling
stockholders.
NYSE symbol........................................ GB
------------------------
The outstanding share information is based on our shares outstanding as of
June 1, 2001. This information excludes 632,583 shares of common stock issuable
upon exercise of outstanding stock options at a weighted average exercise price
of $10.22 per share and an aggregate of 1,036,496 shares of common stock that
were available for future issuance under our stock option plans as of June 1,
2001.
Affiliates of Credit Suisse First Boston Corporation, one of the lead
managing underwriters for this offering, are selling shares in this offering.
------------------------
Our facilities are located in greater Buffalo, New York, Canton,
Massachusetts and Columbia, Maryland. Our principal executive offices are
located at 10,000 Wehrle Drive, Clarence, New York 14031. Our telephone number
at that location is (716) 759-6901. Our Internet address is WWW.GREATBATCH.COM.
5
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table provides summary consolidated financial data which has
been derived from the historical financial information of our company and Sierra
included elsewhere in this prospectus. You should read the summary consolidated
financial data set forth below in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and with the
consolidated financial statements and related notes of our company and Sierra
appearing elsewhere in this prospectus.
The unaudited pro forma consolidated statement of operations data for the
year ended December 29, 2000 and for the three months ended March 30, 2001 gives
effect to the following events as if each had occurred on January 1, 2000:
- the acquisition of Sierra in June 2001;
- the amendment of our credit facility in June 2001; and
- the effect of our initial public offering and repayment of indebtedness in
October 2000.
The unaudited pro forma as adjusted consolidated balance sheet data as of
March 30, 2001 gives effect to the following events as if each had occurred on
March 30, 2001:
- the acquisition of Sierra in June 2001;
- the amendment of our credit facility in June 2001; and
- the receipt and application as described under "Use of Proceeds" of the
estimated net proceeds to us from this offering assuming a price of $28.82
per share, the last reported sale price on The New York Stock Exchange on
June 18, 2001.
The unaudited pro forma consolidated statement of operations data and the
pro forma as adjusted consolidated balance sheet data do not purport to
represent what our results of operations actually would have been had these
events occurred on the dates indicated, nor are they intended to project our
results of operations for any future period or date.
6
PRO FORMA
THREE
THREE MONTHS ENDED (1) MONTHS
FISCAL YEAR (1) PRO FORMA ---------------------- ENDED
--------------------------------------- FISCAL YEAR MARCH 31, MARCH 30, MARCH 30,
1998 (2) 1999 2000 (3) 2000 2000 2001 2001
--------- ------------ ------------ ------------ ---------- --------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenues................... $77,361 $79,235 $97,790 $108,381 $23,176 $29,571 $ 33,566
Cost of goods sold............... 36,454 41,057 55,446 62,935 12,936 15,560 18,213
------- ------- ------- -------- ------- ------- --------
Gross profit..................... 40,907 38,178 42,344 45,446 10,240 14,011 15,353
Selling, general and
administrative................. 11,484 9,880 11,473 14,779 2,624 3,780 4,296
Research, development and
engineering.................... 12,190 9,339 9,941 10,191 2,520 3,188 3,327
Intangible amortization (4)...... 5,197 6,510 6,530 8,594 1,627 1,639 2,155
------- ------- ------- -------- ------- ------- --------
12,036 12,449 14,400 11,882 3,469 5,404 5,575
Interest expense................. 10,572 13,420 12,958 7,873 3,985 712 1,646
Other expense (income)........... 364 1,343 (189) (189) 61 59 59
------- ------- ------- -------- ------- ------- --------
Income (loss) before income
taxes.......................... 1,100 (2,314) 1,631 4,198 (577) 4,633 3,870
Income tax expense (benefit)..... 410 (605) 611 1,553 (184) 1,714 1,432
------- ------- ------- -------- ------- ------- --------
Income (loss) before loss on
retirement of debt and
cumulative effect of accounting
change (5)..................... 690 (1,709) 1,020 $ 2,645 (393) 2,919 $ 2,438
======== ========
Extraordinary loss on retirement
of debt (6).................... -- -- (1,568) -- (2,994)
Cumulative effect of accounting
change (7)..................... -- (563) -- -- --
------- ------- ------- ------- -------
Net income (loss)................ $ 690 $(2,272) $ (548) $ (393) $ (75)
======= ======= ======= ======= =======
Basic earnings (loss) per share
(8):
Income (loss) from continuing
operations................... $ 0.07 $ (0.14) $ 0.07 $ 0.15 $ (0.03) $ 0.16 $ 0.13
Net income (loss).............. $ 0.07 $ (0.18) $ (0.04) N/A $ (0.03) $ (0.00) $ N/A
Diluted earnings (loss) per share
(8):
Income (loss) from continuing
operations................... $ 0.06 $ (0.14) $ 0.07 $ 0.14 $ (0.03) $ 0.15 $ 0.13
Net income (loss).............. $ 0.06 $ (0.18) $ (0.04) N/A $ (0.03) $ (0.00) $ N/A
Weighted average shares
outstanding (8):
Basic.......................... 10,461 12,491 14,167 18,198 12,616 18,713 18,713
Diluted........................ 10,677 12,491 14,434 18,465 12,616 19,059 19,059
AT MARCH 30, 2001
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 253 $ 48 $ 52,718
Total assets................................................ 184,407 233,284 285,954
Long-term obligations....................................... 35,916 76,916 76,916
Total stockholders' equity.................................. 135,770 135,770 188,440
- ----------------------------------
(1) Our fiscal year ends on the closest Friday to December 31. Accordingly, our
fiscal year will periodically contain more or less than 365 days. For
example, fiscal 1998 ended on January 1, 1999, fiscal 1999 ended on
December 31, 1999 and fiscal 2000 ended on December 29, 2000. Our fiscal
quarters are three-month periods that end on the Friday closest to the end
of the applicable calendar quarter.
(2) In August 1998, we acquired the assets and liabilities of Hittman Materials
and Medical Components, Inc., or Hittman. These figures include the results
of operations of Hittman from August 8, 1998 to January 1, 1999.
(3) In August 2000, we acquired all of the capital stock of Battery
Engineering, Inc., or BEI. These figures include the results of operations
of BEI from August 4, 2000 to December 29, 2000.
(4) We have not included the potential impact of a proposed new accounting
standard regarding the treatment of goodwill as this standard has not yet
been issued.
(5) The pro forma net income for fiscal year 2000 does not include an expense,
net of tax, of $5.5 million as a result of the early extinguishment of debt.
(6) Fiscal year 2000 and the three months ended March 30, 2001 include an
extraordinary loss for the extinguishment of debt of $1.6 million and
$3.0 million, respectively, as a result of our prepayment of a portion of
our former credit facility and the repurchase of our senior subordinated
notes.
(7) Fiscal year 1999 includes the cumulative effect of an accounting change as a
result of adopting a new accounting rule for the treatment of start-up
activities.
(8) We calculate basic earnings per share by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the
period. We calculate diluted earnings (loss) per share by adjusting for
common stock equivalents, which consist of stock options. During fiscal year
1999 and the three months ended March 31, 2000, there were options to
purchase approximately 246,000 and 222,000 shares of common stock,
respectively, that were not included in the computation of diluted earnings
per share because to do so would be antidilutive for those periods. Diluted
earnings per share for all other periods includes the potentially dilutive
effect of stock options.
7
RISK FACTORS
BEFORE YOU INVEST IN OUR COMMON STOCK, YOU SHOULD UNDERSTAND THE HIGH DEGREE
OF RISK INVOLVED. YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISKS AND OTHER
INFORMATION IN THIS PROSPECTUS, INCLUDING OUR HISTORICAL CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES, BEFORE YOU DECIDE TO PURCHASE SHARES OF OUR COMMON
STOCK. THE FOLLOWING RISKS AND UNCERTAINTIES ARE NOT THE ONLY ONES WE FACE.
HOWEVER, THESE ARE THE RISKS OUR MANAGEMENT BELIEVES ARE MATERIAL. IF ANY OF THE
FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION AND OPERATING
RESULTS COULD BE ADVERSELY AFFECTED. AS A RESULT, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE AND YOU COULD LOSE PART OR ALL OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE DEPEND HEAVILY ON A LIMITED NUMBER OF CUSTOMERS, AND IF WE LOSE ANY OF
THEM, WE WOULD LOSE A SUBSTANTIAL PORTION OF OUR REVENUES.
A substantial portion of our business in 2000 was conducted with a limited
number of customers, including Guidant, St. Jude Medical, Medtronic, Biotronik
and Sulzer Intermedics, which was acquired by Guidant in 1999. In 2000, Guidant
accounted for approximately 34% of our revenues and St. Jude Medical accounted
for approximately 31% of our revenues. As a result, we depend heavily on
revenues from Guidant and St. Jude Medical. Our supply agreements, particularly
with our large customers, might not be renewed in the future after they expire,
including our power source supply agreement with Guidant, which expires on
December 31, 2001, and our supply agreement with St. Jude Medical, which expires
on December 31, 2003. Our supply agreements with St. Jude Medical, Medtronic,
Biotronik and Guidant do not require any minimum purchase levels. Sierra also
depends on a limited number of customers. In 2000, Guidant accounted for
approximately 39% of Sierra's total sales. Sierra has not entered into a supply
agreement with Guidant. The loss of any large customer for any reason could harm
the business, financial condition and results of operations of our company or
Sierra.
IF WE DO NOT RESPOND TO CHANGES IN TECHNOLOGY, OUR PRODUCTS MAY BECOME
OBSOLETE AND WE MAY EXPERIENCE REDUCED SALES AND A LOSS OF CUSTOMERS, WHICH
WOULD NEGATIVELY AFFECT OUR REVENUES.
We sell our products to customers in several industries that are
characterized by rapid technological changes, frequent new product introductions
and evolving industry standards. For example, in 1998, an industry-wide design
change in ICDs occurred, resulting in new ICDs using one battery instead of two.
Primarily as a result of this design change, our implantable power source
revenues decreased 19% in 1999 compared to 1998. Without the timely introduction
of new products and enhancements, our products and services will likely become
technologically obsolete over time and we may lose a number of our customers. In
addition, other new products introduced by our customers may require fewer of
our power sources or components. We dedicate a significant amount of resources
to the development of our power sources and other products and technologies and
we would be harmed if we did not meet customer requirements and expectations.
Our inability, for technological or other reasons, to successfully develop and
introduce new and innovative power sources and other products could cause our
business to suffer. If this occurs, our revenues and operating results would
suffer.
IF WE ARE UNABLE TO SUCCESSFULLY MARKET OUR CURRENT OR FUTURE PRODUCTS, OUR
BUSINESS WILL BE HARMED.
The market for our power sources, components and other products has been
growing in recent years. If the market for our products does not grow as rapidly
as forecasted by industry experts, our revenues could be less than expected. In
addition, it is difficult to predict the rate at which the market for our
products will grow or at which new and increased competition will result in
market saturation. Slower growth in the pacemaker and ICD markets in particular
would negatively impact our revenues. In addition, we face the risk that our
products will lose widespread market acceptance. We cannot
8
assure you that our customers will continue to utilize the products we offer or
that a market will develop for our future products. We may at times determine
that it is not technically or economically feasible for us to manufacture future
products and we may not be successful in developing or marketing them.
Additionally, new technologies that we develop may not be rapidly accepted
because of industry-specific factors, including the need for regulatory
clearance, entrenched patterns of clinical practice and uncertainty over third
party reimbursement. If this occurs, our business will be harmed.
WE ARE SUBJECT TO PRICING PRESSURES FROM CUSTOMERS, WHICH COULD HARM OUR
OPERATING RESULTS.
We have made price concessions to some of our large customers in recent
years and we expect customer pressure for pricing concessions will continue.
Further, price concessions or reductions may cause our operating results to
suffer. In addition, any delay or failure by a large customer to make payments
due to us also could harm our operating results or financial condition.
WE RELY ON THIRD PARTY SUPPLIERS FOR RAW MATERIALS, KEY PRODUCTS AND
SUBCOMPONENTS AND IF WE ARE UNABLE TO OBTAIN THESE MATERIALS, PRODUCTS AND
SUBCOMPONENTS ON A TIMELY BASIS OR ON TERMS ACCEPTABLE TO US, OUR ABILITY TO
MANUFACTURE PRODUCTS WILL SUFFER.
Our business depends on a continuous supply of raw materials. The principal
raw materials used in our business include lithium, iodine, plastics, cases,
lids, glass, screens, tantalum, platinum, ruthenium, gallium trichloride,
tantalum pellets and vanadium pentoxide. Raw materials needed for our business
are susceptible to fluctuations due to transportation, government regulations,
price controls, economic climate or other unforeseen circumstances. In recent
months, increasing global demand for some of the raw materials we need for our
business, including platinum, gallium trichloride and tantalum, has caused the
prices of these materials to increase significantly. In addition, there are a
limited number of worldwide suppliers of the lithium needed to manufacture our
products. We cannot assure you that we will be able to continue to procure raw
materials critical to our business or to procure them at acceptable price
levels.
We rely on third party manufacturers to supply many of our raw materials.
For example, we rely on FMC to supply us with lithium for our power sources and
HC Starck to supply us with tantalum powder and wire for capacitors.
Manufacturing problems may occur with these and other outside sources, as a
supplier may fail to develop and supply products and subcomponents to us on a
timely basis, or may supply us with products and subcomponents that do not meet
our quality, quantity and cost requirements. If any of these problems occur, we
may be unable to obtain substitute sources of these products and subcomponents
on a timely basis or on terms acceptable to us, which could harm our ability to
manufacture our own products and components profitably or on time. In addition,
to the extent the processes that our suppliers use to manufacture products and
subcomponents are proprietary, we may be unable to obtain comparable
subcomponents from alternative suppliers.
AMORTIZATION OF OUR INTANGIBLE ASSETS, WHICH REPRESENT A SIGNIFICANT PORTION
OF OUR TOTAL ASSETS, WILL ADVERSELY IMPACT OUR NET INCOME AND WE MAY NEVER
REALIZE THE FULL VALUE OF OUR INTANGIBLE ASSETS.
As of December 29, 2000, we had $104.4 million of net intangible assets,
representing 57% of our total assets and 77% of our stockholders' equity. These
intangible assets consist primarily of goodwill arising from our acquisition of
Hittman and our trademarks and patented technology. We expect to incur
amortization expenses relating to these intangible assets of $6.6 million in
2001 and if a proposed accounting standard does not take effect, $5.6 million in
2002. These expenses will reduce our future earnings or increase our future
losses. We may not receive the recorded value for our intangible assets if we
sell or liquidate our business or assets. The material concentration of
intangible assets increases the risk of a large charge to earnings in the event
that the recoverability of these intangible assets are impaired, and in the
event of such a charge to earnings, the market price of our common stock could
be adversely affected.
9
QUALITY PROBLEMS WITH OUR POWER SOURCES AND OTHER PRODUCTS COULD HARM OUR
REPUTATION FOR PRODUCING HIGH QUALITY PRODUCTS AND ERODE OUR COMPETITIVE
ADVANTAGE.
Our power sources and other products are held to high quality standards. In
the event that our power sources and other products fail to meet these
standards, our reputation for producing high quality power sources and other
products could be harmed, which would damage our competitive advantage.
OUR OPERATING RESULTS MAY FLUCTUATE, WHICH MAY MAKE IT DIFFICULT TO FORECAST
OUR FUTURE PERFORMANCE AND MAY RESULT IN VOLATILITY IN OUR STOCK PRICE.
Our operating results have fluctuated in the past and are likely to
fluctuate significantly from quarter to quarter due to a variety of factors,
including:
- the fixed nature of a substantial percentage of our costs, which results
in our operations being particularly sensitive to fluctuations in revenue;
- changes in the relative portion of our revenue represented by our various
products and customers, which could result in reductions in our profits if
the relative portion of our revenue represented by lower margin products
increases;
- timing of orders placed by our principal customers who account for a
significant portion of our revenues; and
- increased costs of raw materials or supplies.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS, OUR BUSINESS COULD BE ADVERSELY AFFECTED.
We rely on a combination of patents, licenses, trade secrets and know-how to
establish and protect our proprietary rights to our technologies and products.
As of June 1, 2001, we held 148 active patents. We cannot guarantee that the
steps we have taken or will take to protect our proprietary rights will be
adequate to deter misappropriation of our intellectual property. In addition to
seeking formal patent protection whenever possible, we attempt to protect our
proprietary rights and trade secrets by entering into confidentiality and
non-compete agreements with employees, consultants and third parties with which
we do business. However, these agreements can be breached and, if they are,
there may not be an adequate remedy available to us and we may be unable to
prevent the unauthorized disclosure or use of our technical knowledge, practices
or procedures. If our trade secrets become known, we may lose our competitive
advantages.
In addition, we may not be able to detect unauthorized use of our
intellectual property and take appropriate steps to enforce our rights. If third
parties infringe or misappropriate our patents or other proprietary rights, our
business could be seriously harmed. We may be required to spend significant
resources to monitor our intellectual property rights, we may not be able to
detect infringement of these rights and we may lose our competitive advantages
associated with our intellectual property rights before we do so. In addition,
competitors may design around our technology or develop competing technologies
that do not infringe on our proprietary rights.
WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY CLAIMS, WHICH COULD BE COSTLY AND
TIME CONSUMING AND COULD DIVERT OUR MANAGEMENT AND KEY PERSONNEL FROM OUR
BUSINESS OPERATIONS.
In producing our power sources and other components for implantable medical
devices, third parties may claim that we are infringing their intellectual
property rights and we may be found to have infringed those intellectual
property rights. While we do not believe that any of our products infringe the
intellectual property rights of third parties, we may be unaware of intellectual
property rights of others that may be used in our technology and products. In
addition, third parties may claim that our patents have been improperly granted
and may seek to invalidate our existing or future patents.
10
Although we do not believe that any of our active patents should be subject to
invalidation, if any claim for invalidation prevailed, the result could be
greatly expanded opportunities for third parties to manufacture and sell
products which compete with our products. We also typically do not receive
significant indemnification from parties which license technology to us against
third party claims of intellectual property infringement. Any litigation or
other challenges regarding our patents or other intellectual property could be
costly and time consuming and could divert our management and key personnel from
our business operations. The complexity of the technology involved in producing
our power sources and other components for implantable medical devices, and the
uncertainty of intellectual property litigation increase these risks. Claims of
intellectual property infringement might also require us to enter into costly
royalty or license agreements. However, we may not be able to obtain royalty or
license agreements on terms acceptable to us, or at all. We also may be subject
to significant damages or injunctions against development and sale of our
products. Infringement claims, even if not substantiated, could result in
significant legal and other costs and may be a distraction to management.
IF WE BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS, OUR EARNINGS AND FINANCIAL
CONDITION COULD SUFFER.
The manufacture and sale of our products expose us to potential product
liability claims and product recalls, including those which may arise from
misuse or malfunction of, or design flaws in, our products or use of our
products with components or systems not manufactured or sold by us. Provisions
contained in our agreements with key customers attempting to limit our damages,
including provisions to limit damages to liability for gross negligence, may not
be enforceable in all instances or may otherwise fail to protect us from
liability for damages. Product liability claims or product recalls, regardless
of their ultimate outcome, could require us to spend significant time and money
in litigation or otherwise or require us to pay significant damages. The
occurrence of product liability claims or product recalls could cause our
earnings and financial condition to suffer.
We carry product liability insurance coverage which is limited in scope and
amount. Our management believes that our insurance coverage is adequate given
the risks we face. We cannot assure you that we will be able to maintain this
insurance or to do so at reasonable cost and on reasonable terms. We also cannot
assure you that this insurance will be adequate to protect us against a product
liability claim that arises in the future.
WE ARE DEPENDENT UPON OUR SENIOR MANAGEMENT TEAM AND KEY PERSONNEL AND THE
LOSS OF ANY OF THEM COULD SIGNIFICANTLY HARM US.
Our future performance depends to a significant degree upon the continued
contributions of our senior management team and key technical personnel. Our
products are highly technical in nature. In general, only highly qualified and
trained scientists have the necessary skills to develop our power sources and
other products. The loss or unavailability to us of any member of our senior
management team or a key technical employee could significantly harm us. We face
intense competition for these professionals from our competitors, our customers
and other companies operating in our industry. To the extent that the services
of members of our senior management team and key technical personnel would be
unavailable to us for any reason, we would be required to hire other personnel
to manage and operate our company and to develop our products and technology. We
cannot assure you that we would be able to locate or employ such qualified
personnel on acceptable terms.
WE MAY NOT BE ABLE TO ATTRACT, TRAIN AND RETAIN A SUFFICIENT NUMBER OF
QUALIFIED PROFESSIONALS TO MAINTAIN AND GROW OUR BUSINESS.
Our success will depend in large part upon our ability to attract, train,
retain and motivate highly-skilled employees and management. There is currently
aggressive competition for employees who have experience in technology and
engineering that is used in manufacturing and producing power sources and other
components for implantable medical devices. We compete intensely with other
companies to
11
recruit and hire from this limited pool. The industries in which we compete for
employees are characterized by high levels of employee attrition. Although we
believe we offer competitive salaries and benefits, we may have to increase
spending in order to retain personnel. In 1999, we temporarily reduced salaries
company-wide by 10% and later restored salaries to their original levels. In
connection with these salary reductions, we implemented various measures to
retain our existing employees, including granting stock options to all of our
salaried employees to compensate for the temporary 10% reduction in salaries. If
a number of our employees resign from our company to join or form a competitor,
the loss of these employees and any resulting loss of existing or potential
clients to a competitor could harm our business, financial condition and results
of operations. Any inability to attract, train, retain and motivate employees
and management would cause our business, financial condition and results of
operations to suffer.
WE MAY MAKE ACQUISITIONS THAT COULD SUBJECT US TO A NUMBER OF OPERATIONAL
RISKS AND WE MAY NOT BE SUCCESSFUL IN INTEGRATING COMPANIES WE ACQUIRE INTO OUR
EXISTING OPERATIONS.
We have made and in the future expect to make selective acquisitions that
complement our core competencies in technology and manufacturing to enable us to
manufacture and sell additional products to our existing customers and to expand
our business into related markets. However, implementation of our acquisition
strategy entails a number of risks, including:
- inaccurate assessments of undisclosed liabilities;
- diversion of our management's attention from our core businesses;
- potential loss of key employees or customers of the acquired businesses;
- difficulties in integrating the operations and products of an acquired
business or in realizing projected efficiencies and cost savings; and
- increases in our indebtedness and a limitation in our ability to access
additional capital when needed.
IF WE ARE NOT SUCCESSFUL IN MAKING ACQUISITIONS TO EXPAND AND DEVELOP OUR
BUSINESS, OUR FINANCIAL RESULTS MAY SUFFER.
A component of our strategy is to make selective acquisitions that
complement our core competencies in technology and manufacturing to enable us to
manufacture and sell additional products to our existing customers and to expand
our business into related markets. For example, in August 1998 we acquired
Hittman, a medical components manufacturer, in August 2000 we acquired BEI, a
small specialty battery manufacturer, and in June 2001 we acquired Sierra, a
leading developer and manufacturer of EMI filters and capacitors for implantable
medical devices. Our continued growth will depend on our ability to identify and
acquire companies that complement or enhance our business on acceptable terms.
We may not be able to identify or complete future acquisitions. Some of the
risks that we may encounter include expenses associated with, and difficulties
in identifying, potential targets, the costs associated with incomplete
acquisitions and higher prices for acquired companies because of competition for
attractive acquisition targets. Our failure to acquire additional companies
could cause our financial results to suffer.
WE MAY FACE COMPETITION FROM ONE OF OUR PRINCIPAL CUSTOMERS THAT COULD HARM
OUR BUSINESS AND WE MAY BE UNABLE TO COMPETE SUCCESSFULLY AGAINST NEW ENTRANTS
AND ESTABLISHED COMPANIES WITH GREATER RESOURCES.
Competition in connection with the manufacturing of power sources for
implantable medical devices may intensify in the future. One or more of our
customers that manufactures implantable medical devices may undertake additional
vertical integration initiatives and begin to manufacture some or all of their
power source needs. Although Medtronic manufactures its own lithium batteries
for its
12
pacemakers and ICDs, to date, to our knowledge, Medtronic has not sold batteries
to third parties. In 1999, Medtronic introduced a new ICD that reduced the
number of batteries from two to one and caused us to lose some unit volume in
1999 and 2000. If Medtronic were to begin selling power sources for implantable
medical devices to third parties, our revenues could be harmed. As the
implantable medical device industry continues to consolidate, this risk will
intensify. Many of our potential implantable power source and component
competitors, which include some of our customers, have greater name recognition,
longer operating histories, larger customer bases, longer customer relationships
and greater financial, technical, personnel and marketing resources than our
company.
The market for commercial power sources is competitive, fragmented and
subject to rapid technological change. Many other commercial power source
suppliers are larger and have greater financial, operational, personnel, sales,
technical and marketing resources than our company. These and other companies
may develop products that are superior to ours, which could cause our results of
operations to suffer.
ACCIDENTS AT ONE OF OUR FACILITIES COULD DELAY PRODUCTION AND ADVERSELY
AFFECT OUR OPERATIONS.
Our business involves complex manufacturing processes and hazardous
materials that can be dangerous to our employees. Although we employ safety
procedures in the design and operation of our facilities and we have not
experienced any serious accidents or deaths, there is a risk that an accident or
death could occur in one of our facilities. Any accident, such as a chemical
spill, could result in significant manufacturing delays or claims for damages
resulting from injuries, which would harm our operations and financial
condition. The potential liability resulting from any such accident or death, to
the extent not covered by insurance, could cause our business to suffer. Any
disruption of operations at any of our facilities could harm our business.
WE INTEND TO EXPAND INTO NEW MARKETS AND OUR PROPOSED EXPANSION PLANS MAY
NOT BE SUCCESSFUL.
We intend to expand into new markets through the development of new product
applications based on our existing component technologies. These efforts have
required, and will continue to require, us to make substantial investments,
including significant research, development and engineering expenditures and
capital expenditures for new, expanded or improved manufacturing facilities. We
cannot assure you that we will be able to successfully manage expansion into new
markets and products or that these efforts will not have an adverse impact on
our business. Specific risks in connection with expanding into new markets
include the inability to transfer our quality standards into new products, the
failure of customers in new markets to accept our products and price
competition.
OUR FAILURE TO OBTAIN LICENSES FROM THIRD PARTIES FOR NEW TECHNOLOGIES OR
THE LOSS OF THESE LICENSES COULD IMPAIR OUR ABILITY TO DESIGN AND MANUFACTURE
NEW PRODUCTS.
We occasionally license technologies from third parties rather than
depending exclusively on our own proprietary technology and developments. For
example, we license wet tantalum technology from the Evans Capacitor Company to
produce our capacitors. Our ability to license new technologies from third
parties is and will continue to be critical to our ability to offer new and
improved products. We cannot assure you that we will be able to continue to
identify new technologies developed by others and even if we are able to
identify new technologies, we may not be able to negotiate licenses on favorable
terms, or at all. Additionally, we could lose rights granted under licenses for
reasons beyond our control. For example, the licensor could lose patent
protection for a number of reasons, including invalidity of the licensed patent.
13
RISKS RELATED TO OUR INDUSTRY
WE AND OUR CUSTOMERS ARE SUBJECT TO VARIOUS POLITICAL, ECONOMIC AND
REGULATORY CHANGES IN THE HEALTHCARE INDUSTRY WHICH COULD FORCE US TO MAKE
MODIFICATIONS TO HOW WE DEVELOP AND PRICE OUR PRODUCTS.
The healthcare industry is highly regulated and is influenced by changing
political, economic and regulatory factors. Several of our product lines are
subject to international, federal, state and local health and safety, packaging
and product content regulations. In addition, implantable medical device
products produced by our healthcare customers are subject to regulation by the
FDA and similar international agencies. These regulations govern a wide variety
of product activities from design and development to labeling, manufacturing,
promotion, sales and distribution. Compliance with these regulations may be time
consuming, burdensome and expensive and could negatively affect our customers'
abilities to sell their products, which in turn would adversely affect our
ability to sell our products. This may result in higher than anticipated costs
or lower than anticipated revenues.
These regulations are also complex, change frequently and have tended to
become more stringent over time. Federal and state legislatures have
periodically considered programs to reform or amend the U.S. healthcare system
at both the federal and state levels. In addition, these regulations may contain
proposals to increase governmental involvement in healthcare, lower
reimbursement rates or otherwise change the environment in which healthcare
industry participants operate. We may be required to incur significant expenses
to comply with these regulations or remedy past violations of these regulations.
Any failure by our company to comply with applicable government regulations
could also result in cessation of portions or all of our operations, impositions
of fines and restrictions on our ability to carry on or expand our operations.
In addition, because many of our products are sold into regulated industries, we
must comply with additional regulations in marketing our products.
OUR BUSINESS IS SUBJECT TO ENVIRONMENTAL REGULATIONS THAT COULD BE COSTLY
FOR OUR COMPANY TO COMPLY WITH.
Federal, state and local regulations impose various environmental controls
on the manufacturing, transportation, storage, use and disposal of power sources
and components and hazardous chemicals and other materials used in and hazardous
waste produced by the manufacturing of power sources and components. We cannot
assure you that conditions relating to our historical operations which may
require expenditures for clean-up will not arise in the future or that changes
in environmental laws and regulations will not impose costly compliance
requirements on us or otherwise subject us to future liabilities. We also cannot
assure you that additional or modified regulations relating to the manufacture,
transportation, storage, use and disposal of materials used to manufacture our
power sources and components or restricting disposal of power sources will not
be imposed. In addition, we cannot predict the effect that additional or
modified regulations may have on us or our customers.
CONSOLIDATION IN THE HEALTHCARE INDUSTRY COULD HAVE AN ADVERSE EFFECT ON OUR
REVENUES AND RESULTS OF OPERATIONS.
Many healthcare industry companies are consolidating to create new companies
with greater market power. As the healthcare industry consolidates, competition
to provide products and services to industry participants will become more
intense. These industry participants may try to use their market power to
negotiate price concessions or reductions for our products. If we are forced to
reduce our prices because of consolidation in the healthcare industry, our
revenues would decrease and our results of operations would suffer.
14
OUR BUSINESS IS INDIRECTLY SUBJECT TO HEALTHCARE INDUSTRY COST CONTAINMENT
MEASURES THAT COULD RESULT IN REDUCED SALES OF OUR PRODUCTS.
Our healthcare customers rely on third party payors, such as government
programs and private health insurance plans, to reimburse some or all of the
cost of the procedures in which our products are used. The continuing efforts of
government, insurance companies and other payors of healthcare costs to contain
or reduce those costs could lead to patients being unable to obtain approval for
payment from these third party payors. If that occurred, sales of implantable
medical devices may decline significantly, and our customers may reduce or
eliminate purchases of our products. The cost containment measures that
healthcare providers are instituting, both in the United States and
internationally, could harm our ability to operate profitably.
OUR COMMERCIAL POWER SOURCE REVENUES ARE DEPENDENT ON CONDITIONS IN THE OIL
AND NATURAL GAS INDUSTRY, WHICH HISTORICALLY HAVE BEEN VOLATILE.
Sales of our commercial power sources depend to a great extent upon the
condition of the oil and gas industry and, specifically, the exploration and
production expenditures of oil and gas companies. In the past, oil and natural
gas prices have been volatile and the oil and gas exploration and production
industry has been cyclical, and it is likely that oil and natural gas prices
will continue to fluctuate in the future. The current and anticipated prices of
oil and natural gas influence the oil and gas exploration and production
business and are affected by a variety of political and economic factors beyond
our control, including worldwide demand for oil and natural gas, worldwide and
domestic supplies of oil and natural gas, the ability of the Organization of
Petroleum Exporting Countries, or OPEC, to set and maintain production levels
and pricing, the level of production of non-OPEC countries, the price and
availability of alternative fuels, political stability in oil producing regions
and the policies of the various governments regarding exploration and
development of their oil and natural gas reserves. An adverse change in the oil
and gas exploration and production industry or a reduction in the exploration
and production expenditures of oil and gas companies could cause our revenues
from commercial power sources to suffer.
RISKS RELATED TO THIS OFFERING
THE POSSIBLE VOLATILITY OF OUR STOCK PRICE COULD ADVERSELY AFFECT OUR
STOCKHOLDERS.
Securities markets worldwide have recently experienced significant price and
volume fluctuations and the market prices of the securities of technology
companies have been especially volatile. This market volatility, as well as
general economic, market or political conditions, could reduce the market price
of our common stock in spite of our operating performance. In addition, our
operating results could be below the expectations of public market analysts and
investors, and in response, the market price of our common stock could decrease
significantly. Investors may be unable to resell their shares of our common
stock at or above the offering price. In the past, companies that have
experienced volatility in the market price of their stock have been the object
of securities class action litigation. If we were to become the object of
securities class action litigation, we may face substantial costs and our
management's attention and resources may be diverted, which could harm our
business.
DLJ MERCHANT BANKING PARTNERS II, L.P. AND SOME OF ITS AFFILIATES ARE PARTY
TO STOCKHOLDERS AGREEMENTS WHICH ENABLE THEM TO EXERT SIGNIFICANT INFLUENCE OVER
US AND THEY MAY HAVE INTERESTS THAT CONFLICT WITH THOSE OF OTHER STOCKHOLDERS,
INCLUDING PURCHASERS IN THIS OFFERING.
DLJ Merchant Banking Partners II, L.P. and some of its affiliates, which we
refer to collectively as DLJ Merchant Banking, have substantial control over our
company and may have different interests than those of other holders of our
common stock. Prior to this offering, DLJ Merchant Banking held 54.7% of our
outstanding common stock and after this offering, these entities will
beneficially own approximately 32.0%, or 28.1% if the underwriters exercise
their over-allotment option in full, of our
15
outstanding common stock. As a result of its stock ownership and related
contractual rights, DLJ Merchant Banking has significant control over our
business policies and affairs, including the power to:
- nominate all but one member of our Board of Directors and elect our
directors; and
- appoint new management.
The parties to the stockholders agreements have agreed to vote in favor of
DLJ Merchant Banking's director nominees. The directors elected by DLJ Merchant
Banking have the ability to control decisions affecting the business and
management of our company, including our capital structure. This includes the
issuance of additional capital stock, the implementation of stock repurchase
programs and the declaration of dividends.
The general partners of each of the entities comprising DLJ Merchant Banking
are affiliates or employees of Credit Suisse First Boston Corporation, one of
the managing underwriters of this offering.
FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE.
Sales of a substantial number of shares of common stock after this offering,
or the perception that these sales could occur, could adversely affect the
market price of our common stock and could impair our ability to raise capital
through the sale of additional equity securities. Immediately after this
offering, affiliates and holders of "restricted securities," as defined in
Rule 144 under the Securities Act, will own 8,919,997 shares, representing
approximately 43.1% of our outstanding shares of common stock, or if the
underwriters exercise their over-allotment option in full, 8,019,997 shares,
representing approximately 38.7%, of our outstanding shares of common stock. A
decision by these persons to sell shares of common stock could adversely affect
the trading price of our common stock. Our executive officers, directors, the
selling stockholders and some of our existing stockholders and key employees
have entered into the lock-up agreements described in "Underwriting."
WE HAVE VARIOUS MECHANISMS IN PLACE TO DISCOURAGE TAKEOVER ATTEMPTS, WHICH
MAY REDUCE OR ELIMINATE YOUR ABILITY TO SELL YOUR SHARES FOR A PREMIUM IN A
CHANGE OF CONTROL TRANSACTION.
Various provisions of our restated certificate of incorporation and bylaws
and in Delaware corporate law may discourage, delay or prevent a change in
control or takeover attempt of our company by a third party which is opposed to
by our management and Board of Directors. Public stockholders who might desire
to participate in such a transaction may not have the opportunity to do so.
These anti-takeover provisions could substantially impede the ability of public
stockholders to benefit from a change of control or change in our management and
Board of Directors. These provisions include:
- authorizing the issuance of "blank check" preferred stock that could be
issued by our Board of Directors to increase the number of outstanding
shares and thwart a takeover attempt;
- limiting who may call special meetings of our stockholders; and
- establishing advance notice requirements for nominations of candidates for
election to our Board of Directors or for proposing matters that can be
acted upon by our stockholders at stockholder meetings.
ABSENCE OF DIVIDENDS COULD REDUCE OUR ATTRACTIVENESS TO INVESTORS.
Some investors favor companies that pay dividends, particularly in market
downturns. We currently intend to retain any future earnings for funding growth
and, therefore we do not currently anticipate paying cash dividends on our
common stock in the foreseeable future. Because we may not pay dividends, your
return on this investment likely depends on your ability to sell our stock for a
profit.
16
FORWARD LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934. We have based these
forward-looking statements on our current expectations, which are subject to
known and unknown risks, uncertainties and assumptions. They include statements
relating to:
- future revenues, expenses and profitability;
- the future development and expected growth of our business and the
implantable medical device industry;
- our ability to successfully execute our business model and our business
strategy;
- our ability to identify trends within the industries for implantable
medical devices, medical components and commercial power sources and to
offer products and services that meet the changing needs of those markets;
- projected capital expenditures; and
- trends in government regulation.
You can identify forward-looking statements by terminology such as "may,"
"will," "should," "could," "expects," "intends," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential" or "continue" or the negative
of these terms or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially from those suggested
by these forward-looking statements. In evaluating these statements, you should
carefully consider the risks outlined under "Risk Factors." All forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements and risk factors
contained throughout this prospectus. We are under no duty to update any of the
forward-looking statements after the date of this prospectus or to conform these
statements to actual results.
In this prospectus, we rely on and refer to information and statistics
regarding the implantable medical device industry. We obtained this information
and statistics from third party sources. We believe that these sources are
reliable, but we have not independently verified them.
17
USE OF PROCEEDS
We will receive proceeds from this offering, assuming an offering price of
$28.82 per share, the last reported sale price on The New York Stock Exchange on
June 18, 2001, and after deducting underwriting discounts and commissions and
estimated offering expenses of $5.0 million payable by us, of approximately
$52.7 million.
We plan to use the net proceeds of this offering for general corporate
purposes, which may include the repayment of debt and future acquisitions,
although we currently have no commitments to acquire additional businesses.
We will not receive any proceeds from the sale of common stock by the
selling stockholders.
COMMON STOCK PRICE RANGES AND DIVIDENDS
Our common stock began trading on The New York Stock Exchange on
September 29, 2000 under the symbol "GB." The following table sets forth for the
fiscal quarters indicated below the high and low closing prices per share for
our common stock as reported on the NYSE Composite Tape.
HIGH LOW
--------------- ---------------
2000
Third Quarter (from September 29, 2000).................... $ 22.88 $ 22.88
Fourth Quarter............................................. 29.88 21.75
2001
First Quarter.............................................. $ 27.75 $ 18.99
Second Quarter (through June 18, 2001)..................... 32.50 17.46
We do not intend to pay cash dividends in the foreseeable future. We
currently intend to retain any earnings to further develop and grow our business
and to reduce our indebtedness. We are a holding company and are dependent on
distributions from our subsidiaries to meet our cash requirements. The terms of
the amended credit agreement governing our credit facility limit the ability of
our subsidiaries to make distributions to us and consequently limit our ability
to pay dividends on our common stock.
18
CAPITALIZATION
The following table sets forth our cash and capitalization as of March 30,
2001 on an actual basis, an unaudited pro forma basis and on an unaudited pro
forma as adjusted basis. Our pro forma capitalization gives effect to our
acquisition of Sierra and our amended credit facility. Our pro forma as adjusted
capitalization gives effect to the pro forma capitalization and the sale by us
of the 2,000,000 shares of our common stock offered by this prospectus at an
assumed offering price of $28.82 per share, the last reported sale price on The
New York Stock Exchange on June 18, 2001, and after deducting underwriting
discounts and commissions and estimated offering expenses of $5.0 million
payable by us as if this offering had occurred on March 30, 2001. This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
accompanying notes included elsewhere in this prospectus.
AS OF MARCH 30, 2001
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
Cash and cash equivalents........................... $ 253 $ 48 $ 52,718
======== ======== ========
Debt:
Credit facility (1):
Term loan....................................... $ 35,000 $ 80,000 $ 80,000
Revolving line of credit........................ 500 2,500 2,500
-------- -------- --------
Total debt.................................... 35,500 82,500 82,500
-------- -------- --------
Stockholders' equity:
Preferred stock, $.001 par value, 100,000,000
shares authorized and none outstanding.......... -- -- --
Common stock, $.001 par value; 100,000,000 shares
authorized; 18,974,028 shares issued and
18,712,967 shares outstanding (actual);
18,974,028 shares issued and 18,712,967 shares
outstanding (pro forma); 20,974,028 shares
issued and 20,712,967 shares outstanding (pro
forma as adjusted).............................. 19 19 21
Capital in excess of par value.................... 157,537 157,537 210,205
Retained deficit.................................. (17,607) (17,607) (17,607)
Treasury stock, at cost (261,061 shares, actual,
pro forma and pro forma as adjusted)............ (4,179) (4,179) (4,179)
-------- -------- --------
Total stockholders' equity.................... 135,770 135,770 188,440
-------- -------- --------
Total capitalization........................ $171,270 $218,270 $270,940
======== ======== ========
- ------------------------
(1) We amended our existing credit facility with a consortium of banks in
June 2001. The amended facility consists of an $80.0 million term loan and a
$20.0 million revolving line of credit. We used proceeds from the amended
facility to finance our acquisition of Sierra.
19
SELECTED CONSOLIDATED FINANCIAL DATA
The following table provides selected financial data of our company for the
periods indicated. You should read the selected consolidated financial data set
forth below in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and with our consolidated
financial statements and related notes appearing elsewhere in this prospectus.
The consolidated statement of operations data for the years ended January 1,
1999, December 31, 1999 and December 29, 2000 and the consolidated balance sheet
data at December 31, 1999 and December 29, 2000 have been derived from our
financial statements and related notes appearing elsewhere in this prospectus
which have been audited by Deloitte & Touche LLP, independent auditors. The
statement of operations data for the year ended December 31, 1996, the period
from January 1, 1997 to July 10, 1997 and the period from July 11, 1997 to
January 2, 1998 and the balance sheet data at December 31, 1996, January 2, 1998
and January 1, 1999 have been derived from our audited financial statements and
related notes not included in this prospectus which have been audited by
Deloitte & Touche LLP, independent auditors. The consolidated statement of
operations data for the three months ended March 31, 2000 and March 30, 2001 and
the consolidated balance sheet data at March 30, 2001 are unaudited but, in the
opinion of management, include all adjustments, consisting of normal, recurring
adjustments, necessary for a fair presentation of our results for these interim
periods. The results of operations for the three months ended March 30, 2001 are
not necessarily indicative of results to be expected for the entire year or for
any period.
WILSON GREATBATCH WILSON GREATBATCH TECHNOLOGIES, INC.
LTD. (1) ---------------------------------------------------------
---------------------------
JANUARY 1, JULY 11, YEAR ENDED (2)
YEAR ENDED 1997 TO 1997 TO -------------------------------------------
DECEMBER 31, JULY 10, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 29,
1996 1997 1998 1999 (3) 1999 2000 (4)
------------- ----------- ----------- ----------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenues.................... $51,390 $30,468 $ 27,193 $ 77,361 $ 79,235 $ 97,790
Cost of goods sold................ 26,070 14,922 12,241 36,454 41,057 55,446
------- ------- -------- -------- -------- --------
Gross profit...................... 25,320 15,546 14,952 40,907 38,178 42,344
Selling, general and
administrative.................. 10,356 6,729 5,412 11,484 9,880 11,473
Research, development and
engineering..................... 7,951 4,400 4,619 12,190 9,339 9,941
Intangible amortization........... -- -- 1,810 5,197 6,510 6,530
Transaction related expenses...... -- 11,097 -- -- -- --
Write-off of purchased in-process
research, development and
engineering..................... -- -- 23,779 -- -- --
------- ------- -------- -------- -------- --------
7,013 (6,680) (20,668) 12,036 12,449 14,400
Interest expense.................. 388 252 4,128 10,572 13,420 12,958
Other expense (income)............ (124) (117) 74 364 1,343 (189)
------- ------- -------- -------- -------- --------
Income (loss) before income
taxes........................... 6,749 (6,815) (24,870) 1,100 (2,314) 1,631
Income tax expense (benefit)
(5)............................. 157 1,053 (9,468) 410 (605) 611
------- ------- -------- -------- -------- --------
Income (loss) before loss on
retirement of debt and
cumulative effect of accounting
change.......................... 6,592 (7,868) (15,402) 690 (1,709) 1,020
Extraordinary loss on retirement
of debt (6)..................... -- -- -- -- -- (1,568)
Cumulative effect of accounting
change (7)...................... -- -- -- -- (563) --
------- ------- -------- -------- -------- --------
Net income (loss)................. $ 6,592 $(7,868) $(15,402) $ 690 $ (2,272) $ (548)
======= ======= ======== ======== ======== ========
Basic earnings (loss) per share
(8)
Income (loss) from continuing
operations.................... $ 732 $ (874) $ (1.74) $ 0.07 $ (0.14) $ 0.07
Net income (loss)............... $ 732 $ (874) $ (1.74) $ 0.07 $ (0.18) $ (0.04)
Diluted earnings (loss) per share
(8)
Income (loss) from continuing
operations.................... $ 732 $ (874) $ (1.74) $ 0.06 $ (0.14) $ 0.07
Net income (loss)............... $ 732 $ (874) $ (1.74) $ 0.06 $ (0.18) $ (0.04)
Weighted average shares
outstanding (8):
Basic........................... 9 9 8,855 10,461 12,491 14,167
Diluted......................... 9 9 8,855 10,677 12,491 14,434
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents......... $ 54 $ N/A $ 2,319 $ 4,140 $ 3,863 $ 16
Total assets...................... 32,462 N/A 111,709 194,390 189,779 181,647
Long-term obligations............. 5,150 N/A 72,714 129,563 127,623 30,951
Total stockholders' equity........ 16,914 N/A 28,239 45,595 46,407 135,834
WILSON GREATBATCH TECHNOLOGIES, INC.
-----------------------
THREE MONTHS
ENDED (2)
-----------------------
MARCH 31, MARCH 30,
2000 2001
---------- ----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total revenues.................... $ 23,176 $ 29,571
Cost of goods sold................ 12,936 15,560
-------- --------
Gross profit...................... 10,240 14,011
Selling, general and
administrative.................. 2,624 3,780
Research, development and
engineering..................... 2,520 3,188
Intangible amortization........... 1,627 1,639
Transaction related expenses...... -- --
Write-off of purchased in-process
research, development and
engineering..................... -- --
-------- --------
3,469 5,404
Interest expense.................. 3,985 712
Other expense (income)............ 61 59
-------- --------
Income (loss) before income
taxes........................... (577) 4,633
Income tax expense (benefit)
(5)............................. (184) 1,714
-------- --------
Income (loss) before loss on
retirement of debt and
cumulative effect of accounting
change.......................... (393) 2,919
Extraordinary loss on retirement
of debt (6)..................... -- (2,994)
Cumulative effect of accounting
change (7)...................... -- --
-------- --------
Net income (loss)................. $ (393) $ (75)
======== ========
Basic earnings (loss) per share
(8)
Income (loss) from continuing
operations.................... $ (0.03) $ 0.16
Net income (loss)............... $ (0.03) $ (0.00)
Diluted earnings (loss) per share
(8)
Income (loss) from continuing
operations.................... $ (0.03) $ 0.15
Net income (loss)............... $ (0.03) $ (0.00)
Weighted average shares
outstanding (8):
Basic........................... 12,616 18,713
Diluted......................... 12,616 19,059
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents......... $ 2,474 $ 253
Total assets...................... 187,782 184,407
Long-term obligations............. 123,067 35,916
Total stockholders' equity........ 45,980 135,770
20
- ----------------------------------
(1) The financial data for periods prior to July 11, 1997 relate to Wilson
Greatbatch Ltd., our predecessor.
(2) Our fiscal year ends on the closest Friday to December 31. Accordingly, our
fiscal year will periodically contain more or less than 365 days. For
example, fiscal 1998 ended on January 1, 1999, fiscal 1999 ended on
December 31, 1999 and fiscal 2000 ended on December 29, 2000. Our fiscal
quarters are three-month periods that end on the Friday closest to the end
of the applicable calendar quarter.
(3) In August 1998, we acquired the assets and liabilities of Hittman. These
figures include the results of operations of Hittman from August 8, 1998 to
January 1, 1999.
(4) In August 2000, we acquired all of the capital stock of BEI. These figures
include the results of operations of BEI from August 4, 2000 to
December 29, 2000.
(5) Wilson Greatbatch Ltd., our predecessor, incurred minimal state taxes as a
former subchapter S corporation. The federal and state taxes for the period
from January 1, 1997 to July 10, 1997 are directly attributable to our
acquisition of our predecessor in July 1997.
(6) Fiscal year 2000 and the three months ended March 30, 2001 include an
extraordinary loss for the extinguishment of debt of $1.6 million and
$3.0 million, respectively, as a result of our prepayment of a portion of
our former credit facility and the repurchase of our senior subordinated
notes.
(7) Fiscal year 1999 includes the cumulative effect of an accounting change as a
result of adopting a new accounting rule for the treatment of start-up
activities.
(8) We calculate basic earnings per share by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the
period. We calculate diluted earnings (loss) per share by adjusting for
common stock equivalents, which consist of stock options. During the period
from July 11, 1997 to January 2, 1998, the year ended December 31, 1999 and
the three month period ended March 31, 2000, there were options to purchase
approximately 0, 246,000 and 222,000 shares of common stock, respectively,
that were not included in the computation of diluted earnings per share
because to do so would be antidilutive for those periods. Diluted earnings
per share for all other periods include the potentially dilutive effect of
stock options.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS
AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND
ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS, UNCERTAINTIES
AND ASSUMPTIONS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF FACTORS,
INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a leading developer and manufacturer of power sources, feedthroughs
and wet tantalum capacitors used in implantable medical devices. We also develop
and manufacture other components used in implantable medical devices. We
leverage our core competencies in technology and manufacturing to develop and
produce power sources for commercial applications that demand high performance
and reliability. These applications include aerospace, oil and gas exploration
and oceanographic equipment.
In July 1997, DLJ Merchant Banking and members of our management formed our
company to acquire Wilson Greatbatch Ltd. from relatives of its founder,
Mr. Wilson Greatbatch, in a leveraged buyout transaction. In the leveraged
buyout transaction, DLJ Merchant Banking and its affiliates initially acquired
approximately 86% of our outstanding common stock. In connection with the
leveraged buyout, we issued $25.0 million principal amount of 13% senior
subordinated notes, entered into a $10.0 million revolving line of credit and
incurred $50.0 million of senior Term A and Term B loans. Affiliates of DLJ
Merchant Banking originally purchased $22.5 million of the principal amount of
the notes and led a syndicate of financial institutions in extending us the line
of credit and term loans. The leveraged buyout generated $82.9 million in
intangible assets, of which approximately $6.1 million was allocated to
goodwill. In connection with the leveraged buyout, we recorded a one time
write-off of $23.8 million of purchased in-process research and development
costs.
In August 1998, we acquired Hittman, a medical components manufacturer, for
$71.8 million. At the time of the acquisition, we paid $69.0 million. A portion
of the consideration was contingent upon Hittman achieving financial targets
after the acquisition. Some of these targets were achieved in 1998 and we
subsequently paid $2.8 million to the former owner of Hittman. In connection
with our acquisition of Hittman, we borrowed an additional $60.0 million of Term
A and Term B loans and increased our revolving line of credit up to a maximum of
$20.0 million. We recorded the Hittman acquisition using the purchase method of
accounting. The excess of the purchase price over the fair value of the net
assets that we acquired was $67.7 million, of which $17.4 million was allocated
to identifiable intangible assets and $50.3 million was allocated to goodwill.
Sales by Hittman of $8.8 million are reflected in our 1998 results.
In August 2000, we acquired all of the capital stock of BEI, a small
specialty battery manufacturer, from Hitachi-Maxell, Ltd. in exchange for
339,856 shares of our common stock and the assumption of approximately
$2.7 million of indebtedness. The acquisition was accounted for as a purchase.
The excess of the purchase price over the fair value of the net assets that we
acquired was $0.8 million, all of which was allocated to goodwill. Sales by BEI
of $4.0 million are reflected in our 2000 results.
In October 2000, we completed our initial public offering. We sold 5,750,000
shares of common stock at a price of $16.00 per share and received net proceeds
of $84.0 million. All of the net proceeds were used to prepay a portion of our
senior debt.
On January 12, 2001, we consummated a $60.0 million credit facility
consisting of a $40.0 million term loan and a $20.0 million revolving line of
credit. The proceeds from the $40.0 million term loan
22
were used to pay off the Term A facility, Term B facility and the senior
subordinated notes that were outstanding as of December 29, 2000, plus accrued
interest and a call premium. We amended the new credit facility, which has a
term of five years, in June 2001 as described below. Interest is payable monthly
on any outstanding prime rate loans and upon the contractual maturity for the
London Interbank Offered Rate, or LIBOR, based loans. The interest rate charged
is, at our option, based on either prime or LIBOR plus or minus an interest rate
modifier. At current leverage levels, the applicable interest rates for both the
term loan and the revolving line of credit are prime less 1.0% or LIBOR plus
1.25%, at our option.
In June 2001, we acquired Sierra, a leading developer and manufacturer of
EMI filters and capacitors for implantable medical devices, for approximately
$49.0 million in cash and certain assumed liabilities. The acquisition was
accounted for as a purchase. The excess of the purchase price over the fair
value of the net assets that we acquired will be allocated to identifiable
intangible assets and to goodwill.
In conjunction with our acquisition of Sierra, we amended our existing
$60.0 million credit facility with a consortium of banks by increasing the total
size of the facility to $100.0 million. The amended facility consists of an
$80.0 million term loan and a $20.0 million revolving line of credit. Both the
term loan and the revolving line of credit have a term of five years, maturing
in July 2006. We used proceeds from the amended facility to finance the
acquisition of Sierra.
A brief description follows of the more significant projects which comprise
the 1997 purchased in-process research and development costs. Each description
addresses the status as of the acquisition date and the current status of each
project.
CAPACITORS
The objective of this project was to develop new capacitor technology to
facilitate a significant reduction in the size of ICDs by significantly
improving the energy density.
Capacitor project expenditures, at the time of the leveraged buyout, totaled
$2.6 million with additional expenditures of $2.0 million anticipated through
completion of the project. We expected development efforts to be completed by
mid-1998 and projected first year revenues of $1.4 million. We deemed the
technical risks associated with this project to be moderate, as the technology
was similar to our battery technology, and the commercialization risks we viewed
as low, since we were working with the same customers as for our power source
business.
Development efforts for the first generation capacitors continued through
the third quarter of 1999. Revenues in 1999 were $2.3 million. Total development
costs through the end of 1999 (including operating losses as this project
transitioned to product line status) were $10.8 million. In addition,
approximately $8.2 million in capital expenditures were incurred. The revisions
of our original timeline and cost estimates resulted from the difficulty in
manufacturing capacitors to customer specifications, which became more stringent
than those originally envisioned.
NEXT GENERATION ICD
The objective of this project was to develop several proprietary process
improvements to reduce the size of the ICD battery, while at the same time
delivering more energy density than the products sold at the time.
At the time of the leveraged buyout, $0.1 million had been expended on this
project with additional expenditures of $0.4 million anticipated through
completion. We expected development efforts to be completed by the end of 1997.
First year revenues of $6.4 million were projected to begin in 1998. We deemed
the technical and commercialization risks to be low since the technology,
end-user applications and customer base were familiar to us.
23
Development efforts were completed by December 1997 with a total cost of
$0.5 million. First year revenues were $6.4 million.
GREATBATCH SCIENTIFIC
The objective of this project was to develop battery-powered surgical
devices which were magnetic resonance imaging, or MRI, compatible, in order to
develop a new product line, a new customer base and a new outlet for our
already-existing batteries.
At the time of the leveraged buyout, we had expended $2.0 million on this
project with additional expenditures of $1.7 million anticipated through
completion. We expected to ship the first instruments in the third quarter of
1998. First year revenues of $4.6 million were projected to begin in 1998. We
viewed the technical risk as moderate, as we had not produced a wide variety of
surgical devices, and the commercialization risk as high. We intended to
outsource much of the production and to initiate distribution to a completely
new customer base.
In order to focus our efforts on integrating the Hittman acquisition and
bringing our capacitor project into full production, we sold the Greatbatch
Scientific operation to an unrelated medical device company in August 1998 in
exchange for stock of the acquiror. Greatbatch Scientific had no further impact
on our sales or operating costs after August 1998.
Sales from July 1997 through August 1998 were less than $0.1 million.
LITHIUM ION PRODUCTS
The objective of this project was to develop and manufacture rechargeable
lithium ion batteries suitable for use in implantable medical devices.
At the time of the leveraged buyout, $0.5 million had been expended on this
project, which was expected to be completed by the end of 1997. First year
revenues of $0.9 million were projected to begin in 1998. We viewed the
technical risk as moderate as we had not previously developed multi-use
batteries. We viewed the commercialization risk as moderate because we would be
targeting a new customer base.
We completed development efforts on the first generation of rechargeable
lithium ion cell in the second quarter of 2000 and are now designing custom
cells and packs for specific customer applications. Sales revenue has not yet
begun. However, non-refundable engineering fees, which are recorded as an offset
to development expenses, have approximated $2.6 million since the leveraged
buyout. Development costs since the leveraged buyout have totaled $5.8 million.
We have revised our original timelines and cost estimates due to delays in the
development phase of this project. Some of the customers for this project are
themselves development-stage enterprises.
FISCAL YEAR AND FISCAL QUARTERS
Our fiscal year ends on the closest Friday to December 31. Accordingly, our
fiscal year will periodically contain more or less than 365 days. For example,
fiscal 1998 ended on January 1, 1999, fiscal 1999 ended on December 31, 1999 and
fiscal 2000 ended on December 29, 2000. Our fiscal quarters are three-month
periods that end on the Friday closest to the end of the applicable calendar
quarter.
REVENUE AND EXPENSE COMPONENTS
REVENUES
We derive revenues from the sale of medical and commercial products. Our
medical revenues consist of sales of implantable power sources, capacitors and
components. Our commercial revenues
24
consist of sales of commercial power sources. A substantial part of our business
is conducted with a limited number of customers. Guidant accounted for
approximately 34% of our revenues and St. Jude Medical accounted for
approximately 31% of our revenues in 2000. We have entered into long-term supply
agreements ranging from two to ten years with most of our large customers. Our
supply agreements with St. Jude Medical, Medtronic, Biotronik and Guidant do not
require that our customers maintain any minimum purchase levels.
Our implantable power source revenues are derived from sales of batteries
for pacemakers, ICDs and other implantable medical devices. The majority of our
implantable power source customers contract with us to develop custom batteries
to fit their product specifications. We are the sole provider of these products
to many of our customers. We also record royalties as implantable power source
revenues for licenses we have granted to others for the manufacture of batteries
using designs and processes patented by us. These revenues are recognized based
on the reported number of units sold. Since January 2, 1998, royalties have
accounted for approximately 2.7% to 3.3% of our aggregate annual revenues.
Currently, Medtronic is our sole source of royalty fees. Although our license
agreement with Medtronic has no termination date, the patents from which we
receive royalty payments from Medtronic expired in all material respects in
January 2001. Therefore, in the absence of new patents, we do not expect to
receive any significant royalties to record as implantable power source revenues
for production and sales.
Our capacitor revenues are derived from sales of our wet tantalum
capacitors, which we developed for use in ICDs. In 1999 and 2000, we incurred
start-up costs related to our capacitor operations of $5.7 million. We began
selling our new wet tantalum capacitors commercially in the fourth quarter of
1999. We expect to enter into long term agreements of more than one year with
our capacitor customers and add new customers in an effort to increase our
capacitor revenues. Although there can be no assurance, we believe that our
revenues in 2001 from capacitor sales will grow at a higher rate than sales of
our other medical products and that our capacitor program will become profitable
in 2001.
Our components revenues are derived from sales of feedthroughs, electrodes
and other precision components principally used in pacemakers and ICDs. We also
sell our components for use in other implantable medical devices, such as left
ventricular assist devices, hearing assist devices, drug pumps, neurostimulators
and other medical applications.
Our commercial power source revenues are primarily derived from sales of
batteries for use in oil and gas exploration, including recovery equipment,
pipeline inspection gauges, down-hole pressure measurement systems and seismic
surveying equipment. We also supply batteries to NASA for its space shuttle
program and other similarly-demanding commercial applications.
For each of our products, we recognize revenue when the products are
shipped. We do not give warranties to our customers for our products and to
date, returns have been immaterial. In addition to product and royalty revenues,
we also receive cash flows from cost reimbursements for research, development
and engineering conducted on behalf of some of our customers. We record these
cost reimbursements as an offset to research, development and engineering costs.
We recognize cost reimbursements upon achieving related milestones. The cost
reimbursement charged to customers represents actual costs incurred by us in the
design and testing of prototypes built to customer specifications. This cost
reimbursement does not include a mark-up. Price concessions have not
significantly affected revenues in the historical periods presented.
EXPENSES
Cost of goods sold includes materials, labor and other manufacturing costs
associated with the products we sell. We have included start-up costs associated
with the production of our capacitors in cost of goods sold. As a result, costs
associated with capacitors prior to the fourth quarter of 1999,
25
when we began to commercially offer these products, were substantially in excess
of revenue generated from capacitor sales.
Selling, general and administrative expenses include salaries, facility
costs and patent-related expenses.
Research, development and engineering expenses include costs associated with
the design, development, testing, deployment and enhancement of our products. We
record cost reimbursements as an offset to research, development and engineering
expenses.
Other expenses primarily include amortization of intangible assets and
interest expense. Amortization of intangible assets is primarily related to the
leveraged buyout and our acquisition of Hittman. Interest expense is primarily
related to indebtedness we assumed in connection with these transactions.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
which the listed amounts bear to total revenues:
FIRST THREE
FISCAL YEAR MONTHS OF
------------------------------------ ----------------------
1998 1999 2000 2000 2001
-------- -------- -------- -------- --------
Revenues:
Implantable power sources........................ 65.1% 51.1% 42.2% 45.4% 38.0%
Capacitors....................................... 0.1 2.9 12.9 14.2 11.8
Medical components............................... 18.1 33.4 30.6 30.4 26.6
----- ----- ----- ----- -----
Total medical revenues........................... 83.3 87.4 85.7 90.0 76.4
Commercial power sources........................... 16.7 12.6 14.3 10.0 23.6
----- ----- ----- ----- -----
Total revenues..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Income statement data as a percentage of revenues:
Gross profit..................................... 52.9% 48.2% 43.3% 44.2% 47.4%
Net income (loss)................................ 0.9 (2.9) (0.6) (0.4) (0.1)
FIRST QUARTER OF 2001 COMPARED TO FIRST QUARTER OF 2000
REVENUES
Total revenues for the quarter ended March 30, 2001 were $29.6 million, a
$6.4 million, or 28%, increase from $23.2 million for the first quarter of 2000.
This increase was primarily due to the inclusion of revenues in the first
quarter of 2001 of BEI, which we acquired in August 2000.
MEDICAL. Total medical revenues for the first quarter of 2001 were
$22.6 million, a $1.7 million, or 8%, increase from $20.8 million for the first
quarter of 2000. Implantable power source revenues for the quarter ended
March 30, 2001 were $11.2 million, an increase of $0.7 million, or 7%, from
$10.5 million for the quarter ended March 31, 2000. This increase was primarily
due to our customers' increased current demand for ICD batteries versus the
first quarter of 2000 and orders in anticipation of new product launches later
this year. This increase was offset by a decline in sales of pacemaker batteries
due to an unusually high order from one of our customers in the first quarter of
2000. Capacitor revenues for the quarter ended March 30, 2001 were
$3.5 million, an increase of $0.2 million, or 6%, from $3.3 million for the
first quarter of 2000. This increase was tempered by planned improvements in our
capacitor technology in 2000, which reduced the number of capacitors per ICD to
three from four in the first quarter of 2001. Sales of medical components were
$7.9 million for the
26
quarter ended March 30, 2001, an increase of $0.8 million, or 12%, from
$7.0 million in the first quarter of 2000. The increase was primarily due to our
qualifying additional components for sale with existing and new customers.
COMMERCIAL. Commercial power sources revenues for the quarter ended
March 30, 2001 were $7.0 million, an increase of $4.7 million, or 200%, from
$2.3 million for the first quarter of 2000. The increase was primarily due to
the inclusion of BEI sales in the first quarter of 2001, the continuing recovery
in the oil and gas exploration business and certain price increases.
GROSS PROFIT
Gross profit for the quarter ended March 30, 2001 was $14.0 million, an
increase of $3.8 million, or 37%, from $10.2 million for the first quarter of
2000. As a percentage of total revenues, gross profit for the first quarter of
2001 increased to 47% from 44% for the first quarter of 2000. The increase in
gross profit as a percentage of sales was primarily due to a higher percentage
of total revenues from products which have traditionally been more profitable,
such as batteries for ICDs, and the presence of significant capacitor start-up
costs during the first quarter of 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the quarter ended
March 30, 2001 were $3.8 million, an increase of $1.2 million, or 44%, from
$2.6 million for the first quarter of 2000. As a percentage of total revenues,
selling, general and administrative expenses were 13% in the first quarter of
2001, as compared to 11% for the first quarter of 2000. The increase in selling,
general and administrative expenses was primarily due to the inclusion of costs
associated with BEI in 2001, the administrative costs associated with our status
as a public company and training costs associated with a new quality initiative
in the first quarter of 2001.
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES
Research, development and engineering expenses for the quarter ended
March 30, 2001 were $3.2 million, an increase of $0.7 million, or 27%, from
$2.5 million in the first quarter of 2000. As a percentage of total revenues,
research, development and engineering expenses were 11% for both the first
quarter of 2001 and 2000. Payments received from customers for the development
of proprietary battery models are recorded as an offset to research, development
and engineering expenses.
OTHER EXPENSES
Intangible amortization was $1.6 million for both the first quarter of 2001
and 2000. Interest expense was $0.7 million for the quarter ended March 30,
2001, a decrease of $3.3 million, or 82%, from $4.0 million in the first quarter
of 2000. The decrease was primarily attributable to the use of $84.0 million in
net proceeds from our September 2000 initial public offering to pay down debt,
lower interest rates generally in the first quarter of 2001 as compared to the
first quarter of 2000 and a more favorable interest rate structure in our new
credit agreement consummated in January 2001 than had been in our previous
credit agreement.
PROVISION FOR INCOME TAXES
Our effective tax rate was 37% for the quarter ended March 30, 2001 and 32%
for the quarter ended March 31, 2000. Our effective tax rate increased due to an
increase in state taxes, a decrease in utilizable New York State tax credits and
the acquisition of BEI, a Massachusetts taxpayer. Our effective tax rate of 37%
differs from the federal statutory rate of 35% due to the effect of state taxes.
27
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS
Income from continuing operations was $2.9 million for the first quarter of
2001 compared to a loss of $0.4 million for the first quarter of 2000. The
increase was due primarily to the increase in operating income in 2001 as
compared to 2000. Diluted earnings per share from continuing operations for the
first quarter of 2001 were $0.15 versus ($0.03) for the first quarter of 2000.
EXTRAORDINARY LOSS
In the quarter ended March 30, 2001, we had an extraordinary loss of
$3.0 million, net of taxes, with no comparable amount for the first quarter of
2000. The loss was associated with the restructuring of our long-term debt and
the related write-off of deferred financing fees and loan discounts associated
with our long-term debt. Also included in the loss was the payment of
$1.7 million, before taxes, as a call premium to the holders of our subordinated
debt.
NET LOSS
Our net loss in the first quarter of 2001 narrowed to ($0.1) million from a
net loss of ($0.4) million in the first quarter of 2000. The reduction in net
loss was primarily due to an increase in operating income in 2001 relative to
2000, offset by the extraordinary loss of $3.0 million, net of taxes, in the
first quarter of 2001. Diluted loss per share was ($0.00) in the first quarter
of 2001 and ($0.03) in the first quarter of 2000.
FISCAL 2000 COMPARED TO FISCAL 1999
REVENUES
Total revenues for 2000 were $97.8 million, an $18.6 million, or 23%,
increase from $79.2 million for 1999. The growth in revenues was primarily due
to sales of our line of wet tantalum capacitors, which were launched
commercially in the fourth quarter of 1999, and the inclusion of revenues from
BEI since its acquisition in August 2000.
MEDICAL. Total medical revenues for 2000 were $83.8 million, a
$14.6 million, or 21%, increase from $69.2 million for 1999. Implantable power
source revenues for 2000 were $41.3 million, a $0.8 million, or 2%, increase
from $40.5 million for 1999. This increase was primarily due to higher pacemaker
battery sales as a result of an increase in pacemaker device sales by our
customers, both foreign and domestic. This increase was partially offset due to
an industry-wide design change in ICDs that resulted in ICDs using one battery
instead of two. This conversion began in mid-1999 and was substantially complete
by the third quarter of 2000. Capacitor revenues for 2000 were $12.6 million, a
$10.3 million increase from $2.3 million for 1999. This increase was primarily
due to initial commercial sales of our new wet tantalum capacitors beginning in
the fourth quarter of 1999. Medical components revenues for 2000 were
$29.9 million, a $3.5 million, or 13%, increase from $26.4 million for 1999.
This increase was primarily due to the sale of a greater number of implantable
medical devices by our customers, as well as our sales of a broader range of
components in 2000 when compared with 1999.
COMMERCIAL. Commercial power sources revenues increased 40% to
$14.0 million compared to $10.0 million for 1999. The higher revenues were
primarily related to the inclusion of revenues from the BEI acquisition that was
completed in August 2000.
GROSS PROFIT
Gross profit for 2000 was $42.3 million, a $4.2 million, or 11%, increase
from $38.2 million for 1999. As a percentage of total revenues, gross profit for
2000 declined to 43.3% from 48.2% for 1999. This decrease was primarily due to a
lower percentage of total revenues from established product lines such as
implantable power sources, with no accompanying start-up costs, versus a higher
percentage of
28
total revenues from newer products, with accompanying high start-up costs, such
as capacitors. In addition, sales of lower margin products, such as medical
components and commercial power sources, have increased at a faster rate than
have sales of historically higher margin implantable power sources.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for 2000 were $11.5 million, a
$1.6 million, or 16%, increase from $9.9 million in 1999. The increase in
selling, general and administrative expenses was primarily due to the inclusion
of such expenses from BEI since its acquisition in August 2000, wage increases
in 2000 as compared to wage decreases in 1999 and the accrual of incentive
compensation in 2000 whereas there were no such accruals in 1999. As a
percentage of total revenues, selling, general and administrative expenses were
11.8% and 12.5% in 2000 and 1999, respectively. The increase in total revenues
mitigated the increase in selling, general and administrative expenses as a
percentage of revenues.
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES
We remain committed to investing in the development of new products and in
enhancing the performance of our existing products. Research, development and
engineering expenses for 2000 were $9.9 million, a $0.6 million, or 6%, increase
from $9.3 million for 1999. Payments received from customers for the development
of proprietary battery models are recorded as an offset to research, development
and engineering expenses. Such payments totaled $3.2 million and $2.5 million in
2000 and 1999, respectively. As a percentage of total revenues, research,
development and engineering expenses before such payments for 2000 declined to
13.4% from 15.0% for 1999. This decrease was primarily due to the rapid growth
in capacitor sales and the growth in revenues of products that historically have
not required significant research, development and engineering expenses, such as
medical components and commercial power sources. Major areas of development are
rechargeable lithium ion batteries and new battery systems for advanced ICD
applications.
OTHER OPERATING EXPENSES
Intangible amortization was $6.5 million for 2000 and 1999. Interest expense
for 2000 was $13.0 million, a decrease of $0.5 million, or 3%, from
$13.4 million for 1999. This decrease was due to the use of net proceeds from
our initial public offering to prepay $84.0 million of our senior debt.
Miscellaneous income of $0.2 million in 2000 compares with miscellaneous expense
of $1.3 million in 1999. In 2000, we sold interest rate cap agreements, which
were no longer needed due to the prepayment of our senior debt, for a gain of
$0.2 million. In 1999, we wrote down by $0.9 million the carrying value of our
investment in an unaffiliated company.
PROVISION FOR INCOME TAXES
Our effective tax rate increased to 37% for 2000 from 26% for 1999. This
increase was primarily due to the decrease in state tax credits available to us
for 2000 as compared to 1999.
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS
Income from continuing operations was $1.0 million for 2000 compared to a
loss of $1.7 million for 1999. The increase was due primarily to the increase in
operating income in 2000 as compared to 1999. In addition, interest charges in
2000 were less than those for 1999, due to the prepayment of $84.0 million in
senior debt from the proceeds of our initial public offering. Diluted earnings
per share from continuing operations for 2000 were $0.07 versus ($0.14) for
1999.
29
EXTRAORDINARY LOSS
In addition to the $84.0 million prepayment of our senior debt with the net
proceeds of our initial public offering, we redeemed a portion of our
subordinated debt. These two transactions resulted in an extraordinary charge,
net of tax, of $1.6 million in 2000. The charge relates to the write-off of fees
and other expenses incurred to establish the original debt financing.
NET LOSS
Our net loss for 2000 narrowed to ($0.5) million from a net loss of ($2.3)
million in 1999. The reduction in net loss was primarily due to an increase in
operating income and a reduction in interest expense. The net loss per share was
($0.04) for 2000, assuming dilution, and ($0.18) for 1999.
FISCAL 1999 COMPARED TO FISCAL 1998
REVENUES
Total revenues for 1999 were $79.2 million, a $1.9 million, or 2%, increase
from $77.4 million for 1998.
MEDICAL. Total medical revenues for 1999 were $69.2 million, a
$4.7 million, or 7%, increase from $64.5 million for 1998. Implantable power
source revenues for 1999 were $40.5 million, a $9.9 million, or 20%, decrease
from $50.3 million for 1998. This decrease was primarily due to a 1999
industry-wide design change in ICDs that reduced the number of batteries from
two to one and the loss of market share by our ICD battery customers as a result
of the introduction of a new ICD by Medtronic. Medtronic manufactured its own
power sources for this ICD. This decrease was also due to a reduction in
pacemaker battery demand resulting from Guidant's acquisition and subsequent
closure of operations of Sulzer Intermedics, which previously purchased
batteries from us. This decrease was partially offset by the successful launch
of a new pacemaker by one of our customers and increased demand and orders from
one of our customers that secured a government contract for pacemakers.
Capacitor revenues for 1999 were $2.3 million, a $2.2 million increase from
$0.1 million for 1998. This increase resulted primarily because we began selling
our new wet tantalum capacitors commercially in the fourth quarter of 1999.
Medical components revenues for 1999 were $26.4 million, a $12.4 million, or
89%, increase from $14.0 million for 1998. This increase was primarily due to
the inclusion of a full year of operations from our Hittman acquisition and the
sale of a greater number of implantable medical devices by our customers.
COMMERCIAL. Commercial power source revenues for 1999 were $10.0 million, a
$2.9 million, or 22%, decrease from $12.9 million for 1998. This decrease was
primarily due to continued weakness in the oil and gas industry.
GROSS PROFIT
Gross profit for 1999 was $38.2 million, a $2.7 million, or 7%, decrease
from $40.9 million for 1998. As a percentage of revenues, gross profit for 1999
declined to 48% from 53% in 1998. The decrease in implantable power source gross
profit amounted to 9% of revenue, while capacitor start-up costs totaled 6% of
revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for 1999 were $9.9 million, a
$1.6 million, or 14%, decrease from $11.5 million for 1998. As a percentage of
revenues, selling, general and administrative expenses for 1999 declined to 12%
from 15% in 1998. These decreases were due to a temporary reduction in salaries,
the deferral of annual merit increases, a reduction in incentive compensation, a
general cutback in discretionary expenses and a reduction in the number of our
employees.
30
The temporary reduction in salaries was in effect from April 1999 through
December 1999 and reduced selling, general and administrative expenses by
$0.3 million in 1999. The reduction in incentive compensation, including both
management bonuses and broad-based profit sharing, reduced expenses by
$1.0 million compared to 1998. Discretionary expenses in 1999 were $0.3 million
lower than in 1998. Three employees accounted for in selling, general and
administrative expenses were terminated as part of the 1999 cost reductions,
with total cost savings of less than $0.1 million, net of severance benefits.
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES
Research, development and engineering expenses for 1999 were $9.3 million, a
$2.9 million, or 23%, decrease from $12.2 million for 1998. As a percentage of
total revenues, research, development and engineering expenses in 1999 declined
to 12% from 16% in 1998. Beginning in 1999, as we anticipated achieving
production volumes of our capacitors, we accounted for costs associated with our
capacitor program as cost of goods sold, selling, general and administrative
expenses and research, development and engineering expenses. In prior years,
these costs were recognized only as research, development and engineering
expenses. This had the effect of lowering research, development and engineering
expenses in 1999 by $1.4 million as compared to 1998. In addition, in 1999, we
had no research, development and engineering expenses for Greatbatch Scientific,
one of our product lines, which we sold in 1998. The amount of the decrease in
research, development and engineering expenses resulting from the sale of
Greatbatch Scientific was $0.8 million. Greatbatch Scientific was a developer of
battery-powered surgical tools that were magnetic resonance imaging, or MRI,
compatible and incurred $0.8 million in research, development and engineering
expenses in 1998.
Costs were also reduced in 1999 for the same programs as were discussed
above under the caption "Selling, general and administrative expenses." The
temporary reduction in salaries reduced costs in 1999 by $0.3 million. The
reduction in incentive compensation reduced expenses by $0.6 million. Four
employees accounted for in research, development and engineering expenses were
terminated as part of the 1999 cost reductions, with total cost savings of
$0.1 million, net of severance benefits. Non-refundable engineering fees, which
serve to offset expenses, declined by $0.3 million in 1999 compared to 1998.
OTHER OPERATING EXPENSES
Intangible amortization expense for 1999 was $6.5 million, an increase of
$1.3 million, or 25%, from $5.2 million in 1998. This increase was primarily due
to incurring a full year of amortization of intangible assets associated with
the Hittman acquisition in 1998. Interest expense was $13.4 million in 1999, an
increase of $2.8 million, or 27%, from $10.6 million in 1998. This increase was
due to the combination of a full year of interest expense in 1999 related to the
1998 acquisition of Hittman and higher interest rates in 1999 as compared to
1998. Other expense was $1.3 million in 1999, an increase of $0.9 million from
$0.4 million in 1998. The increase resulted primarily from a write down of our
investment in an unaffiliated company that we acquired in conjunction with our
sale of Greatbatch Scientific.
PROVISION FOR INCOME TAXES
Our effective tax rate declined to 26% in 1999 from 37% in 1998. Our
recapture of federal alternative minimum tax credits at a 20% tax rate resulted
in a rate differential of 15% from the federal statutory rate. We also benefited
from state tax credits.
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Loss from continuing operations was $1.7 million for 1999 compared to income
of $0.7 million for 1998. The decrease was due primarily to an increase in cost
of goods sold and higher other expenses in 1999 as compared to 1998. Diluted
earnings per share from continuing operations for 1999 were ($0.14) versus $0.06
for 1998.
31
NET INCOME (LOSS)
Net loss was ($2.3) million for 1999, a $3.0 million decrease from net
income of $0.7 million for 1998. This decrease was primarily due to an increase
in cost of goods sold and higher other expenses, as described above, as well as
the nonrecurring cumulative effect of an accounting change which resulted in a
charge of $0.6 million, net of taxes. The net loss per share was ($0.18) in
1999, compared with net income per share of $0.06 in 1998, both assuming
dilution.
LIQUIDITY AND CAPITAL RESOURCES
We strengthened our financial position in 2000 through the successful
completion of our initial public offering. All of the net proceeds from the
initial public offering were used to pay down a portion of our senior debt. We
used the proceeds from a private sale of our stock prior to consummation of the
IPO to pay off the debt we assumed in conjunction with our purchase of BEI. We
also redeemed $5.0 million of our 13% senior subordinated notes. As a
consequence, our debt to equity ratio fell to 25% at December 29, 2000 as
compared to 287% at December 31, 1999. We further enhanced our financial
position in the first quarter of 2001 through the consummation of a new credit
facility. The net proceeds from a new $40.0 million term loan were used to pay
off all previously existing senior and subordinated debt.
LIQUIDITY
At March 30, 2001, we had $0.3 million of cash and cash equivalents. Cash
provided by operating activities in the first quarter of 2001 was $2.5 million
compared to $4.6 million in the first quarter of 2000. The decrease in cash
provided by operating activities in the first quarter of 2001 as compared to
that of 2000 was primarily due to increases in accounts receivable and
inventories, necessitated by the first quarter 2001 sales level and anticipated
customer demand. As of December 29, 2000, we had minimal cash and cash
equivalents due to the prepayments of our debt. Cash provided by operating
activities in 2000 was $18.2 million compared to $9.0 million and $9.1 million
in 1999 and 1998, respectively. The increase in cash provided by operating
activities in 2000 when compared to 1999 was primarily due to an increase in
operating income, the receipt of refunds from state tax credits and
previously-paid income taxes and a reduction in net operating assets. Cash
provided by operating activities declined in 1999 as from 1998 levels primarily
due to a net loss in 1999 compared to net income of $0.7 million in 1998, offset
by higher non-cash charges in 1999.
Net cash used in investing activities was $2.5 million in the first quarter
of 2001 and $2.2 million in the first quarter of 2000. Capital expenditures were
$1.6 million and $1.9 million for the first quarters of 2001 and 2000,
respectively. Cash used in investing activities was $3.4 million, $8.8 million
and $83.4 million for 2000, 1999 and 1998, respectively. Capital expenditures
were $4.5 million, $8.5 million and $6.2 million for 2000, 1999 and 1998,
respectively. Our acquisition of Hittman significantly impacted cash used in
investing activities in 1998.
Cash provided by financing activities was $0.2 million in the first quarter
of 2001, compared with cash used in financing activities of $3.8 million in
2000. In January 2001, we used $40.0 million of proceeds from a new term loan
and cash generated by operating activities to pay off the remaining
$15.2 million of our senior debt, and the remaining $18.3 million of our 13%
senior subordinated notes. We also prepaid $5.0 million of the new term loan by
March 30, 2001. Cash used in financing activities in the first quarter of 2000
was primarily the result of debt repayments. Cash used in financing activities
was $18.6 million and $0.4 million in 2000 and 1999, respectively, compared with
cash provided by financing activities of $76.1 million in 1998. In 2000, we used
the proceeds from our initial public offering and cash generated by operating
activities to prepay or make regularly scheduled payments of $94.8 million on
our senior debt, including our revolving line of credit. We redeemed
$5.0 million of our 13% subordinated notes and purchased $2.0 million of our
common stock, which we currently hold as treasury shares, from the holder of the
redeemed notes. The stock was valued at the initial public offering price of
$16.00 per share. In 2000, we also sold $3.0 million of our stock to the
32
previous owner of BEI and used these proceeds to pay off the $2.7 million in
debt we assumed in the BEI acquisition. Cash provided by financing activities in
1999 and 1998 was primarily the result of transactions related to our
acquisition of Hittman and debt repayments.
We believe that cash generated from operations and proceeds from this
offering will be sufficient to meet our working capital needs and planned
capital expenditures for the near term. Capital expenditures for 2001 are
expected to be approximately $8.2 million, of which approximately $2.9 million
will be for capital supporting new product development. Should suitable
investment opportunities arise during the second half of fiscal 2001, we believe
that our earnings, cash flows and balance sheet will permit us to obtain
additional debt or equity capital, if necessary. There can be no assurance,
however, that additional financing will be available to us or, if available,
that it can be obtained on a timely basis or on terms acceptable to us.
CAPITAL STRUCTURE
Our capital structure consists of interest-bearing debt and equity.
Interest-bearing debt as a percentage of our total capitalization increased to
21% at March 30, 2001 compared to 20% at December 29, 2000. Our long-term debt
at March 30, 2001 consisted of $35.0 million in a term note and $0.5 million in
borrowings under our revolving line of credit. Interest-bearing debt as a
percentage of our total capitalization decreased to 20% at December 29, 2000
compared to 74% at December 31, 1999, primarily due to the use of the net
proceeds from our initial public offering to pay down a portion of our senior
debt. Our long-term debt at December 29, 2000 consisted of subordinated notes
and senior debt. Senior debt was comprised of Term A and Term B loans and a
$20.0 million revolving line of credit.
In January 2001, we entered into a $60.0 million credit facility consisting
of a $40.0 million term loan and a $20.0 million revolving line of credit. Both
the term loan and the revolving line of credit have a term of five years and
mature on January 1, 2006. The new credit agreement is secured by our accounts
receivable and inventories and requires us to comply with various quarterly
financial covenants related to EBITDA, as it is defined in the credit agreement,
and ratios of leverage, interest and fixed charges as they relate to EBITDA.
Both the term loan and revolving line of credit bear interest at a rate that
varies with our level of leverage. At current leverage levels, the applicable
interest rates for both the term loan and the revolving line of credit are prime
less 1.0% or LIBOR plus 1.25%, at our option. At June 1, 2001, the weighted
average interest rate for the term loan was 5.34% and there was nothing
outstanding under the revolving line of credit.
We used the proceeds from the new term loan to pay off the remaining senior
debt and the senior subordinated notes that were outstanding as of December 29,
2000, plus accrued interest and a call premium. At that date, there was
$18.3 million principal amount outstanding under our 13% senior subordinated
notes, $6.2 million outstanding under our Term A loan facility and $9.0 million
outstanding under our Term B loan facility. There were no amounts outstanding
under the revolving line of credit. At December 29, 2000, the weighted average
interest rate for our Term A loans was 10.3% and the weighted average interest
rate for our Term B loans was 10.5%. Associated with this debt prepayment was an
extraordinary charge recorded in the first quarter of 2001 in the amount of
$3.0 million, net of tax.
In June 2001, in conjunction with our acquisition of Sierra, we amended our
existing $60.0 million credit facility with a consortium of banks by increasing
the total size of the facility to $100.0 million. The amended facility consists
of an $80.0 million term loan and a $20.0 million revolving line of credit. Both
the term loan and the revolving line of credit have a term of five years,
maturing in July 2006. We used the amended facility to finance the acquisition
of Sierra. At current leverage levels, the applicable interest rates for both
the term loan and the revolving line of credit are prime, or LIBOR plus 2.125%,
at our option.
33
INFLATION
We do not believe that inflation has had a significant effect on our
operations to date.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Under the amended credit facility, both the term loan and any borrowings
under the line of credit bear interest at fluctuating market rates. An analysis
of the impact on our interest rate sensitive financial instruments of a
hypothetical 10% change in short-term interest rates shows an impact on expected
2001 earnings of approximately $0.5 million of higher or lower earnings,
depending on whether short-term rates rise or fall by 10%. The discussion and
the estimated amounts referred to above include forward-looking statements of
market risk which involve certain assumptions as to market interest rates.
Actual future market conditions may differ materially from such assumptions.
Accordingly, the forward-looking statements should not be considered projections
of future events by our company.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issuedRegistration Statement of Financial Accounting Standards, or SFAS, No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June 2000, the FASB issued
SFAS No. 138, which amends certain provisions of SFAS No. 133 to clarify four
areas causing difficulties in implementation. The amendment included expanding
the normal purchase and sale exemption for supply contracts, permitting the
offsetting of certain intercompany foreign currency derivatives and thus
reducing the number of third party derivatives, permitting hedge accounting for
foreign-currency denominated assets and liabilities and redefining interest rate
risk to reduce sources of ineffectiveness. SFAS No. 133, as amended, establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
Under SFAS No. 133, certain contracts that were not formerly considered
derivatives may now meet the definition of a derivative. We adopted SFAS
No. 133 effective December 30, 2000, which was the first day of fiscal 2001. We
do not expect the adoption of SFAS No. 133 to have a significant impact on our
consolidated financial position, results of operations or cash flows.
PROPOSED ACCOUNTING STANDARD
In February 2001, the FASB released a revised exposure draft for a proposed
SFAS, "Business Combinations and Intangible Assets--Accounting for Goodwill."
The proposed standards would, among other things:
- prohibit the use of the pooling-of-interests method of accounting for
business combinations;
- require that goodwill not be amortized in any circumstance; and
- require that goodwill be tested for impairment annually or when events or
circumstances occur between annual tests indicating that goodwill of a
reporting unit might be impaired.
The FASB plans to simultaneously issue two Statements on business
combinations and goodwill and intangible assets. One of those Statements will
incorporate its decisions related to accounting and reporting for a business
combination (the Statement on business combinations). The other Statement will
incorporate its decisions on the accounting for goodwill and other purchased
intangible assets subsequent to an acquisition (the Statement on goodwill and
intangible assets). The FASB expects to vote on both Statements in late
June 2001 and issue the Statements in the second half of July 2001. The proposed
standards would take full effect in fiscal 2002. The provisions of any final
standards could differ from those reflected in the exposure draft. As a result,
the actual application of any final standard could result in different effects
than those described above. We have not tested goodwill for impairment under the
proposed standards.
34
BUSINESS
OVERVIEW
We are a leading developer and manufacturer of power sources, feedthroughs
and wet tantalum capacitors used in implantable medical devices. We also develop
and manufacture other components used in implantable medical devices, and we
believe that we are a preferred supplier of power sources and components. We
offer technologically advanced, highly reliable and long lasting products for
implantable medical devices and enable our customers to introduce implantable
medical devices that are progressively smaller, longer lasting, more efficient
and more functional. We leverage our core competencies in technology and
manufacturing to develop and produce power sources for commercial applications
that demand high performance and reliability, including aerospace, oil and gas
exploration and oceanographic equipment. Our customers utilize our specially
designed proprietary power sources and components in their products. We believe
that our proprietary technology, close customer relationships, market leadership
and dedication to quality provide us with significant competitive advantages
over our competitors and create a barrier to entry for potential market
entrants.
Mr. Wilson Greatbatch patented the implantable pacemaker in 1962. In 1970,
Mr. Greatbatch founded Wilson Greatbatch Ltd., our predecessor. In July 1997,
DLJ Merchant Banking led a leveraged buyout of Wilson Greatbatch Ltd. Our
company was incorporated in connection with the 1997 leveraged buyout to acquire
Wilson Greatbatch Ltd., which is now our wholly-owned subsidiary. We acquired
Hittman Materials and Medical Components, Inc., now Greatbatch-Hittman, Inc., in
August 1998 to expand and complement our product lines. Hittman, a medical
components manufacturer, produces feedthroughs and electrode components for
implantable medical devices. Feedthroughs are among the most critical components
used in implantable medical devices and both feedthroughs and electrodes are key
component technologies.
IMPLANTABLE MEDICAL DEVICE INDUSTRY
OVERVIEW
The following table sets forth the main categories of battery-powered
implantable medical devices and the principal illness or symptom treated by each
device:
DEVICE PRINCIPAL ILLNESS OR SYMPTOM
- ------ ----------------------------
Pacemakers.............................................. Abnormally slow heartbeat
Implantable Cardiac Defibrillators (ICDs)............... Rapid and irregular
heartbeat
Left ventricular assist devices......................... Heart failure
Hearing assist devices.................................. Hearing loss
Neurostimulators........................................ Tremors or chronic pain
Drug pumps.............................................. Diabetes or chronic pain
The implantable medical device industry is expected to grow primarily as a
result of:
- advances in medical technology that will allow physicians to use
implantable medical devices as a substitute for, or in conjunction with,
prescription drugs, to treat a wider range of heart diseases, such as
atrial fibrillation and congestive heart failure;
- increased use of recently developed implantable medical devices, including
left ventricular assist devices, hearing assist devices, neurostimulators
and drug pumps;
- expansion of indications, or uses, for implantable medical devices;
- the aging population, which is expected to require an increasing number of
pacemakers, ICDs and other implantable medical devices;
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- a combination of smaller, lighter, more efficient and more functional
devices and longer-lasting power sources which will be easier for
physicians to implant and will be less intrusive to recipients; and
- increased market penetration beyond the United States and other developed
countries.
Cardiovascular Device Update has predicted that ICD revenues will grow
faster than pacemaker revenues in the next three to five years. The faster
growth predicted for the ICD market is based on continued penetration of
existing clinical indications and anticipated expansion into new indications.
MARKET OPPORTUNITY
The market for our power sources and components benefits directly from the
growth of the implantable medical device industry. Manufacturers are dependent
on advances in power sources and component technology to make their devices
smaller, longer lasting, more efficient and more functional. In addition,
manufacturers of implantable medical devices must be approved by the FDA, and
have significant exposure to product liability claims and damages. To minimize
risk and facilitate the FDA approval process, which can be lengthy,
manufacturers of implantable medical devices generally require the highest
quality, most reliable power sources and components available from proven
suppliers. As a result, manufacturers generally enter into long-term contracts
with their suppliers and often collaborate with them on power source and
component development. We believe that our proprietary technology, close
customer relationships, market leadership and dedication to quality provide us
with significant competitive advantages over our competitors and create a
barrier to entry for potential market entrants.
STRATEGY
Our objective is to enhance our position as a leading developer and
manufacturer of power sources and other components for implantable medical
devices. We intend to:
- EXPAND OUR PROPRIETARY TECHNOLOGY PORTFOLIO THROUGH CONTINUOUS
TECHNOLOGICAL INNOVATION AND CONTINUE TO FOCUS OUR RESEARCH, DEVELOPMENT
AND ENGINEERING EFFORTS ON PIONEERING POWER SOURCES AND ADVANCED
COMPONENTS FOR IMPLANTABLE MEDICAL DEVICES. We commit substantial
resources to research, development and engineering and believe that this
commitment has enabled us to be at the forefront of the new technologies
that are expected to drive the growth of the implantable medical device
market in the foreseeable future. In 1999, we introduced a line of
capacitors utilizing proprietary wet tantalum technology. Our innovative
use of this technology enables us to produce capacitors that are
significantly smaller than those currently used and offer improved
electrical performance. We believe that our focus on technology has led to
strong relationships with our customers and provides us significant
advantages in maintaining our continued leadership within our markets.
- ENHANCE OUR POSITION AS AN INTEGRATED COMPONENT SUPPLIER TO THE
IMPLANTABLE MEDICAL DEVICE INDUSTRY BY BROADENING OUR PRODUCT LINE TO
INCLUDE A MORE COMPREHENSIVE RANGE OF POWER SOURCES AND COMPONENTS. We
believe that there is a significant opportunity to provide our customers
with substantially all of the key components for their products, other
than microelectronics. Our position as a leading manufacturer of
implantable medical device components allows us to provide a broader range
of product components than any of our competitors. As a result of our 1998
acquisition of Hittman and the internal expansion of our components
business, we are able to provide a major implantable medical device
manufacturer with most of the components used in its pacemakers. Our
acquisition of Sierra in June 2001 added EMI filters and capacitors to our
product line, further enhancing our position as a provider of enabling
technologies to manufacturers of implantable medical devices. We intend to
continue to expand our product
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line. We believe that our customers value the benefits of a stable,
reliable, quality-driven supplier which is able to provide a broad range
of components to meet their product requirements.
- CONTINUE TO COLLABORATE WITH OUR CUSTOMERS TO JOINTLY DEVELOP NEW
TECHNOLOGIES THAT ENABLE THEM TO DEVELOP AND MARKET INCREASINGLY MORE
EFFECTIVE AND TECHNOLOGICALLY INNOVATIVE PRODUCTS. Our close relationships
with our customers give us significant advantages in anticipating and
meeting their requirements and needs. We intend to continue to work
closely with our customers to develop innovative medical devices that
utilize our specially designed, proprietary power sources and components.
We are currently collaborating with two leading manufacturers of ICDs to
incorporate customized configurations of our new capacitors into their
most advanced product programs. We believe that by integrating our
development efforts with those of our customers, we can continue to create
innovative and technologically superior products and strengthen our
position as a single source supplier.
- ENTER INTO STRATEGIC ALLIANCES AND MAKE SELECTIVE ACQUISITIONS THAT
COMPLEMENT OUR CORE COMPETENCIES IN TECHNOLOGY AND MANUFACTURING FOR BOTH
IMPLANTABLE MEDICAL DEVICES AND OTHER DEMANDING COMMERCIAL APPLICATIONS.
We regularly review strategic opportunities to acquire or license
technologies. Through our 1998 acquisition of Hittman, we added two key
component technologies, feedthroughs and electrodes, to our product
offerings. In June 2001, we added EMI filters and capacitors to our
product line by acquiring Sierra. We are currently working with strategic
partners to develop rechargeable battery systems and technology for
automatic external defibrillators. We believe that strategic alliances and
selective acquisitions will enable us to accelerate the development of new
technologies and grow our leading market share position.
PRODUCTS
We design and manufacture a variety of power sources, capacitors and
components, such as feedthroughs, electrodes and precision components for
implantable medical devices. Our technology is also used in a number of
demanding commercial applications, including aerospace, oil and gas exploration
and oceanographic equipment. The table set forth on page 3 of this prospectus
provides more detailed information about our principal products.
IMPLANTABLE POWER SOURCES
The power sources that we produce are batteries. A battery is an
electrochemical device that stores energy and releases it in the form of
electricity. To generate an electrical current, electrons are first released
from one part of the battery, called the anode or negative electrode. This flow
of electrons, known as a current, travels to a load or device outside the
battery. After powering the device, the electron flow reenters another part of
the battery, called the cathode or positive electrode. As electrons flow from
the anode to the device being powered by the battery, ions released from the
anode cross through an electrolyte, which consists of one or more chemical
compounds that facilitate the flow of ions to the cathode. The ions react with
the cathode in order to complete the circuit. Separators are typically used
inside the battery as electrical insulators to divide the anode and the cathode
to prevent mechanical contact between them, which would result in the rapid
depletion of the battery cell.
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The following diagram illustrates the battery process described in the
paragraph above:
[BATTERY PROCESS DIAGRAM]
From the late 1950s to the early 1970s, implantable medical devices, such as
pacemakers, were powered by zinc/mercuric oxide batteries. These batteries
typically lasted two to three years, often failed without warning, were large
and bulky and generated hydrogen gas, making it impossible to seal the battery.
In the early 1970s, we introduced lithium/iodine batteries as power sources for
pacemakers. Lithium batteries manufactured by us and manufactured by others
under license from us are now a principal power source for pacemakers. Pacemaker
batteries utilizing our technology last approximately six years and provide high
reliability and predictability. In the mid 1980s, we introduced lithium/silver
vanadium batteries for powering ICDs. These batteries provide the higher power
levels required by an ICD with a high degree of reliability and at least a five
year battery life. Our lithium/silver vanadium oxide batteries have become a
principal power source of ICDs.
In 1996, we introduced a lighter weight titanium-encased lithium/carbon
monofluoride battery as the next generation pacemaker battery. These batteries
offer improved pacemaker performance in several areas, including:
- pacemaker weight reduction of up to 25%;
- improved electrical performance, which is more suitable for use with the
latest pacemaker microelectronics; and
- 10-15% longer battery life than comparable products.
In 1996, we introduced a new process for cathode manufacturing that enabled
the production of significantly thinner cathodes than previously possible. As a
result of this new cathode manufacturing process and other design improvements,
our newest generation of ICD batteries is the thinnest commercially available
and is up to 50% thinner than many existing models. Over the past few years, the
decrease in battery size has contributed significantly to decreases in the size
of ICDs, making these devices easier to implant.
CAPACITORS
Capacitors, which are used in ICDs, perform the critical function of storing
electrical pulses before delivery to the heart. An ICD typically has two
capacitors. Historically, ICDs utilized aluminum-based
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capacitors. In the fourth quarter of 1999, we introduced wet tantalum hybrid
capacitors commercially for use in ICDs, which provide a number of advantages
over aluminum-based capacitors. Our wet tantalum hybrid capacitors, which
combine liquid electrolytes and ruthenium oxide cathode material with a tantalum
anode component, provide a unique combination of high voltage and high energy
storage capacity. This combination enables energy density not achievable with
competing technologies. Our capacitors can be manufactured in many sizes and
shapes to meet the specific needs of our customers.
To produce our capacitors, we have licensed wet tantalum technology from the
Evans Capacitor Company. We are the exclusive licensee for implantable medical
applications of this technology. We have also developed our own portfolio of
patents and patent applications covering improvements that we have made to
Evans' capacitor technology. We believe that we are the only supplier of wet
tantalum capacitors for the implantable medical device industry. In 1997, we
entered into an agreement with a major ICD manufacturer to use our capacitor
technology in their next generation of ICDs which was launched in the first
quarter of 2000.
MEDICAL COMPONENTS
We manufacture feedthroughs, electrodes and other precision components that
are utilized in implantable medical devices. Feedthroughs and electrodes are
critical components of these devices that deliver electrical energy to the
heart.
FEEDTHROUGHS. Feedthroughs are components that transmit electrical signals
from inside an implantable medical device to the electrodes that transmit the
signals to the body. Feedthroughs consist of an outer metallic structure called
a flange, an electrical insulator made of ceramic or glass material, and wire
connectors called poles that carry electrical signals from within the device.
Our feedthroughs use a ceramic to metal seal that is substantially more durable
than a traditional glass to metal seal. We also manufacture a feedthrough that
includes a filtering capacitor that can filter out electromagnetic interference,
such as signals from other implantable medical devices or cellular phones.
We design and manufacture 35 types of feedthroughs. Each of our feedthroughs
is designed specifically for a particular customer device. We are often the sole
source of feedthroughs for our customers. In 2000, approximately 95% of our
feedthroughs were used in pacemakers and ICDs, with the balance used primarily
in left ventricular assist devices, hearing assist devices, drug pumps and
neurostimulators. We are currently working with a number of medical device
manufacturers to develop hermetic feedthroughs for the next generation of
implantable medical devices and applications, including neurostimulators, middle
ear devices and muscle stimulation devices.
ELECTRODES. Electrodes are components used in pacemakers and ICDs that
deliver the electrical signal from the feedthrough to the heart to restore its
normal rhythm. By coating the electrode with chemical compounds, we can enhance
its electrical properties and therefore better deliver energy to the heart. Some
electrode tips are designed to contain medication, such as steroids, to prevent
scarring of the heart tissue following electrode implantation.
We design and manufacture a variety of coated electrodes, some of which have
tips that can contain medication. We believe that our experience with physical
deposition processes, such as sputtering and powder metallurgic techniques, has
enabled us to produce high quality coated surfaces utilizing almost any
combination of biocompatible coating surfaces.
PRECISION COMPONENTS. We design and manufacture miniature precision
components and subassemblies primarily for pacemaker and ICD manufacturers. Our
precision components are machined or molded to adhere to tolerances up to one
ten-thousandth of an inch. To manufacture precision components, we typically use
various alloys of stainless steel, platinum, titanium, aluminum and brass, as
well as plastics and composites. We also are the exclusive supplier of a
critical drug pump
39
subassembly for a manufacturer of implantable drug pumps. Although our primary
focus is to develop and manufacture precision components for implantable medical
devices, we also serve the general medical equipment market and the aerospace
industry.
COMMERCIAL POWER SOURCES
We have developed specialized power source technologies that are functional
in high temperatures or under high shock and vibration. The majority of the
commercial power sources that we sell are used in oil and gas exploration,
including recovery equipment, pipeline inspection gauges, down-hole pressure
measurement systems and seismic surveying equipment. We also supply power
sources to NASA for its space shuttle program. In addition, our commercial power
sources have been used for emergency position locating beacons and locator
transmitters, classified governmental uses, electronic circuit breakers for
industrial applications, weather balloon instrumentation, electricity
transmission cable lighting detectors, wear monitors for train cables and
scientific equipment used in Antarctica.
PRODUCT LINES UNDER DEVELOPMENT
RECHARGEABLE LITHIUM ION BATTERIES. We are currently developing a line of
rechargeable lithium ion batteries that is expected to broaden and complement
our current lines of lithium batteries. A number of new medical devices require
rechargeable batteries, including:
- LEFT VENTRICULAR ASSIST DEVICES that are being developed to treat heart
failure use external and internal batteries as power sources, both of
which must be rechargeable. We are developing lithium ion rechargeable
technology to produce lighter batteries with increased power and longer
life.
- IMPLANTABLE HEARING ASSIST DEVICES that are used to treat patients who
cannot use conventional hearing aids. These batteries are compact and are
capable of providing low levels of current with infrequent recharging.
- NEUROSTIMULATORS AND DRUG PUMPS that are used for indications such as
tremors, diabetes and chronic pain. Since these devices are sometimes
implanted in young patients, the use of our rechargeable battery
technology with extended device life should reduce the number of
replacement implants needed throughout the life of the patient.
IMPLANTABLE PUMP TECHNOLOGY. We have developed proprietary technology that
has applications in implantable devices that are designed to deliver small
quantities of drugs or other fluids to a patient. Several of our technologies
are critical to these devices, including the power source, the feedthroughs and
the pumping mechanism that moves the fluid. Currently, one of our customers has
regulatory approval in Europe for a device that utilizes our implantable pump
technology and has recently filed with the FDA for regulatory approval in the
United States.
RESEARCH, DEVELOPMENT AND ENGINEERING
Our position as a leading developer and manufacturer of power sources for
implantable medical devices is largely the result of our long history of
technological innovation. We invest substantial resources in research,
development and engineering. Our scientists, engineers and technicians focus on
improving existing products, expanding the use of our products and developing
new products. In addition to our internal technology and product development
efforts, we maintain close relationships with leading research organizations,
including Alfred University, Clarkson University, the Jet Propulsion Laboratory,
the applied physics department of Johns Hopkins University, NASA,
Sandia-National Laboratories, the State University of New York at Buffalo and
Villanova University. These relationships include funding research efforts,
licensing researchers' technology and assisting in building prototypes.
40
Our research, development and engineering team is responsible for a number of
pioneering developments in the implantable medical device industry including:
DATE COMMERCIAL INTRODUCTION INDUSTRY IMPACT
---- ----------------------- ---------------
1972 First lithium anode battery Industry standard for pacemakers
1974 First ceramic-to-metal seal for Industry standard for hermetic sealing
implantable devices of devices
1980 First oxyhalide/interhalogen batteries Enabled commercial batteries to perform
at lower temperatures with very high
energy density
1981 First implantable pump capable of Enabled implantable drug delivery system
passing bubbles
1987 First implantable lithium/silver Enabled commercial viability for ICDs
vanadium oxide battery
1996 First titanium-encased lithium/carbon Enabled weight reduction and improved
monofluoride pacemaker batteries electrical performance for advanced
microelectronics
1999 First wet tantalum capacitors Enabled smaller sizes of ICDs and
increased design flexibility
PATENTS AND PROPRIETARY TECHNOLOGY
We rely on a combination of patents, licenses, trade secrets and know-how to
establish and protect our proprietary rights to our technologies and products.
To date, we have been granted 166 U.S. patents and 182 foreign patents. We also
have 155 U.S. and 184 foreign pending patent applications at various stages of
approval. During the past three years, we have received 49 new U.S. patents, of
which 23 were received in 2000. Corresponding foreign patents have been issued
or are expected to be issued in the near future. Often, a single product is
protected by several patents covering various aspects of the design. We believe
this provides broad protection of the concepts employed. The following table
provides a breakdown of our patents as of June 1, 2001 by product type:
NUMBER OF NUMBER OF
PRODUCT PATENTS GRANTED ACTIVE PATENTS
- ------- --------------- --------------
Batteries -- Pacemakers.......................... 181 19
Batteries -- ICDs................................ 90 78
Capacitors....................................... 7 7
Feedthroughs..................................... 2 2
Pumps............................................ 9 9
Batteries -- Commercial.......................... 22 13
Batteries -- Rechargeable........................ 8 8
Batteries -- Lithium/carbon monofluoride......... 5 5
Other products................................... 24 7
--- ---
Total............................................ 348 148
=== ===
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The following table sets forth the expiration dates of our material patents
as of June 1, 2001:
DESCRIPTION OF PATENT EXPIRATION DATE
- --------------------- ---------------
Defibrillator cell design................................... May 2006
Defibrillator cell design................................... May 2006
Serpentine electrode design for prismatic cell.............. May 2011
Butterfly electrode assembly................................ September 2011
Butterfly electrode assembly................................ September 2011
Multiplate electrode design connected by bridge............. September 2011
Insulating upper bag for increased cell reliability......... May 2012
Halogenated polymer fiber separator for electrochemical
cell...................................................... October 2013
Sheet cathode............................................... November 2013
Sheet cathode............................................... November 2013
High shock and vibration resistant cell design.............. February 2015
Aqueous blended electrode material.......................... March 2015
Carbonate electrolyte additives for defibrillator cells..... March 2015
Separator insert for oxyhalide cell......................... February 2016
Dual connection tab current collector for carbon
monofluoride cells........................................ July 2016
Hermetic seal using a single close ball..................... October 2016
Improved electrolyte/cathode ratio for carbon monofluoride
cells..................................................... November 2016
Ultrasonically coated substrate for use in a capacitor and
method of manufacture..................................... May 2017
Hermetically sealed wet tantalum capacitor.................. May 2017
Separator for use in carbon monofluoride cells.............. June 2017
Electrode edge design for increased energy density for
carbon monofluoride cells................................. August 2017
Insulating upper bag for increased cell reliability......... April 2018
In addition, we are also a party to several license agreements with third
parties pursuant to which we have obtained, on varying terms, the exclusive or
non-exclusive rights to patents held by third parties. We have also granted
rights in our own patents to others under license agreements. We used three
material patents that expired in January 2001 in connection with our production
of pacemaker batteries. The primary impact on our business as a result of the
expiration of these patents is the termination of the related royalties paid by
Medtronic. Otherwise, we expect the impact of the expiration of these patents on
our product line to be immaterial.
We license the basic capacitor technology used in our defibrillator
capacitors from Evans Capacitor Company. The license extends throughout the
lives of the related patents, which expire in 2010, 2013 and 2014. The license
can be cancelled if we default under the license agreement and fail to cure the
default. A cancellation of the license would seriously impair our ability to
produce our entire line of capacitors. We license the anode technology we use in
our rechargeable lithium ion batteries from AT&T. The license extends throughout
the lives of the related patents, one of which expired in 2000 and one of which
will expire in 2002. The license can be cancelled if we default under the
license agreement and fail to cure the default. A cancellation of the license
may impair our ability to produce our entire line of rechargeable lithium ion
batteries. We do not expect the expiration of the license, as a result of the
expiration of the patents underlying it, to have a material effect on any of our
product lines.
It is our policy to require our executive and technical employees,
consultants and other parties to execute confidentiality agreements. These
agreements prohibit disclosure of confidential information to third parties
except in specified circumstances. In the case of employees and consultants, the
42
agreements generally provide that all confidential information relating to our
business is the exclusive property of our company.
MANUFACTURING AND QUALITY CONTROL
Our principal manufacturing facilities are in Clarence, New York,
Cheektowaga, New York, Canton, Massachusetts and Columbia, Maryland. Our three
New York manufacturing facilities produce implantable power sources, capacitors,
commercial power sources and components. Our Canton, Massachusetts facility
produces commercial power sources. Our Columbia, Maryland facility produces
feedthroughs, electrodes and other components. We test our implantable power
sources at our Wheatfield, New York facility.
In 1999 and 2000, we modernized our facilities and a number of our
manufacturing lines, processes and equipment. These manufacturing improvements
have enabled us to increase the quality and service life of our power sources
and other components and increase our manufacturing capacity. Key resources that
allow us to manufacture subassemblies include a full model shop, a precious
metals machining area, injection molding equipment and a Class 10,000 clean
room.
We primarily manufacture small lot sizes, as most customer orders range from
a few hundred to thousands of units. As a result, our ability to remain flexible
is an important factor in maintaining high levels of productivity. Each of our
production teams receives assistance from a manufacturing support team, which
typically consists of representatives from our quality control, engineering,
manufacturing, materials and procurement departments.
Our quality system is based upon an ISO documentation system and is driven
by a master validation plan that requires rigorous testing and validation of all
new processes or process changes that directly impact our products. Our New York
facilities are ISO-9001 certified, which requires compliance with regulations
regarding quality systems of product design, supplier control, manufacturing
processes and management review. This certification can only be achieved after
completion of an audit conducted by an independent authority. Our New York
facilities are audited by the British Standards Institute and are also certified
by the British Standards Institute to the more rigorous EN-46001 standard that
is usually reserved for manufacturers of medical devices. Our Columbia, Maryland
facility is ISO-9002 certified and is audited by TUV Rheinland of North America,
an independent auditing firm that specializes in evaluating ISO quality
standards. Our Canton, Massachusetts facility is ISO-9001 and ISO-14001
certified and is audited by NSAI (National Standards Authority of Ireland),
which operates under the National Standards Authority of Ireland Act 1996 on
behalf of the Minister of Enterprise, Trade and Employment. To maintain
certification, all facilities must be reexamined every six months by their
respective certifying bodies.
SALES AND MARKETING
We utilize a combination of direct and indirect sales methods, depending on
the particular product. In 2000, approximately 70% of our products were sold in
the United States.
We market and sell our implantable power sources and capacitors directly to
manufacturers of implantable medical devices. The majority of our implantable
power source customers contract with us to develop custom batteries or
capacitors to fit their specific product specifications. As a result, we have
established close working relationships between our internal program managers
and our customers. We market our power source products and technologies at
industry meetings and trade shows, including CardioStim and North American
Society of Pacing and Electrophysiology, or NASPE.
We sell feedthroughs, electrodes and other precision components directly to
manufacturers. Internal sales managers support all activity, and involve
engineers and materials professionals in the sales process to address customer
requests appropriately. As in the implantable power source and
43
capacitor sales process, we have established relationships directly with leading
manufacturers of implantable medical devices. We market our precision
components, feedthroughs and electrodes by participating in the annual Medical
Design and Manufacturing trade show and by producing printed and electronic
marketing materials for distribution to prospective customers.
We sell our commercial power sources either directly to the end user,
directly to manufacturers that incorporate our products into other devices for
resale, or to distributors who sell our products to manufacturers and end users.
Our sales managers are trained to assist our customers in selecting appropriate
battery chemistries and configurations. We market our commercial power sources
at various technical trade meetings, including the annual Petroleum Offshore
Technology Conference and Offshore Europe. We also place print advertisements in
relevant trade publications.
Firm backlog orders at December 29, 2000 and December 31, 1999 were
$29.7 million and $16.2 million, respectively. Most of these orders were
expected to be shipped within one year. The $13.5 million increase was primarily
due to backlog from our new line of wet tantalum capacitors and from BEI, which
we acquired in August 2000.
CUSTOMERS
Our products are designed to provide reliable, long lasting solutions that
meet the evolving requirements and needs of our customers and the end users of
their products. Our medical products customers include leading implantable
medical device manufacturers such as Guidant, St. Jude Medical and Medtronic. In
2000, Guidant accounted for approximately 34% of our revenues and St. Jude
Medical accounted for approximately 31% of our revenues. Our commercial products
customers are primarily companies involved in the aerospace, oil and gas
exploration and oceanographic industries.
In February 1999, we entered into a power source supply agreement with
Guidant. Pursuant to the agreement, Guidant purchases power sources from us for
use in its implantable medical devices. Guidant also separately purchases
components from us for use in its implantable medical devices. Our power source
supply agreement with Guidant expires on December 31, 2001 and can be renewed
for additional one year periods upon mutual agreement.
In April 1997, we entered into a supply agreement with St. Jude Medical. In
accordance with this agreement, we are the primary supplier of many components
used in their pacemakers and ICDs, except for microprocessors and capacitors. We
will also be the exclusive supplier of batteries to St. Jude Medical. This
agreement was renegotiated in July 2000 and expires on December 31, 2003, with
the ability of St. Jude to extend the agreement for two one-year extensions.
In March 1976, we entered into a technology transfer agreement and license
agreement with Medtronic. Our license agreement provides Medtronic with the
nonexclusive right to use our proprietary technology to manufacture its own
batteries. The license agreement allows Medtronic to manufacture lithium/iodine
or lithium/halide batteries, but does not permit Medtronic to manufacture
batteries using our new titanium lithium/carbon monofluoride technology. In
accordance with the license agreement, Medtronic pays us a royalty for each
battery produced by it for use in each medical device that it sells. At the time
we entered into the license agreement with Medtronic, there were a number of
competing battery technologies. Our management believed that licensing our
proprietary technology to Medtronic, which was the industry leader at that time,
would help make our technology the industry standard. Our license agreement does
not terminate so long as Medtronic uses any of our patented technology. However,
in the absence of new patents, we do not expect to receive significant royalties
from Medtronic for production and sales after January 2001.
In July 1991, we entered into a defibrillator battery supply agreement with
Medtronic. In accordance with the agreement, we provide Medtronic with
lithium/silver vanadium oxide batteries for their ICDs. Our supply agreement
with Medtronic expires on July 31, 2001.
44
SUPPLIERS AND RAW MATERIALS
Lithium, iodine and metal cases are the most significant raw materials that
we use to manufacture our batteries. In the past, we have not experienced any
significant interruptions or delays in obtaining raw materials. We seek to
minimize inventory levels, which provides us with a reduced risk of
obsolescence. Minimizing our inventory levels also enables us to stock materials
based on firm order requirements, rather than forecasts and anticipated sales.
However, we maintain minimum safety stock levels of critical raw materials. We
seek to improve our supply purchase pricing by using bulk purchases, precious
metal pool buys and blanket orders and by entering into long-term contracts.
Annual minimum purchase levels under these contracts have historically been well
below our expected annual usage, and therefore present little risk of liability.
We have long standing relationships with most of our significant suppliers
and have conducted business with them for an average of 13 years. Our supply
agreements typically have three year terms. Our significant suppliers of raw
materials and components accounted for approximately 31% of our purchases in
2000. We believe that there are alternative suppliers or substitute products
available for each of the materials we purchase, at competitive prices. Our
material supply agreements may be terminated prior to their scheduled expiration
dates if there is a material breach by us that remains uncured.
COMPETITION
We currently supply implantable power sources, capacitors, feedthroughs,
electrodes and precision components to the implantable medical device market.
Our existing or potential competitors include:
- leading implantable medical device manufacturers, such as Guidant, St.
Jude Medical and Medtronic, which have vertically integrated operations or
may become vertically integrated in the future; and
- smaller companies that concentrate on niche markets.
Medtronic produces power sources for use in implantable medical devices that
it manufactures. However, to our knowledge Medtronic does not sell power sources
to third parties. Our company and Medtronic are the two major manufacturers of
power sources for implantable medical devices. We also compete in the intensely
competitive commercial power source market. Our principal competitors in this
market are Eagle-Picher Industries and ECO-Tracer. While we believe that the
industry perceives our products to be of the highest quality, there are
suppliers whose products are perceived to be of comparable quality. Moreover,
the commercial power source market is subject to volatility in oil and gas
exploration activity. When oil and gas exploration activity has slowed, a number
of our competitors have historically reduced battery prices to maintain or gain
market share. Quality and technology are the principal bases upon which we
compete in both the implantable medical devices market and the commercial power
sources market.
GOVERNMENT REGULATION
Except as described below, our business is not subject to direct
governmental regulation other than the laws and regulations generally applicable
to businesses in the jurisdictions in which we operate, including those federal,
state and local environmental laws and regulations governing the emission,
discharge, use, storage and disposal of hazardous materials and the remediation
of contamination associated with the release of these materials at our
facilities and at off-site disposal locations. Our research, development and
engineering activities involve the controlled use of, and our products contain,
small amounts of hazardous materials. Liabilities associated with hazardous
material releases arise principally under the Comprehensive Environmental
Response, Compensation and Liability Act and analogous state laws which impose
strict, joint and several liability on owners and operators of
45
contaminated facilities and parties that arrange for the off-site disposal of
hazardous materials. We are not aware of any material noncompliance with the
environmental laws currently applicable to our business and we are not subject
to any material claim for liability with respect to contamination at any company
facility or any off-site location. We cannot assure you, however, that we will
not be subject to such environmental liabilities in the future as a result of
historic or current operations.
As a component manufacturer, our products are not subject to FDA pre-market
approval. However, the FDA and related state and foreign governmental agencies
regulate many of our customers' products as medical devices. In many cases, the
FDA must approve those products prior to commercialization. In addition, because
some of the products produced by our engineered components division may be
considered finished medical devices, some of the operations within that division
are subject to FDA inspection and must comply with current good manufacturing
practices (CGMP) requirements.
RECRUITING AND TRAINING
We dedicate significant resources to our recruiting efforts. Our internal
recruiting efforts primarily focus on supplying quality personnel to our
business. We also seek to meet our hiring needs through outside sources. We
believe that a strong human resources and recruiting effort is necessary to
expand our current employee base and maintain our high employee retention rates.
We have established a number of programs that are designed to challenge and
motivate our employees and we encourage our employees to be proactive in
contributing ideas and regularly survey them to collect feedback on ways that
our business and operations can be improved.
We provide an intensive training program to our new employees which is
designed to educate them on safety, quality, our business strategy and the
methodologies and technical competencies that are required for our business and
our corporate culture. Our safety training programs focus on such areas as basic
industrial safety practices and emergency response procedures to deal with fires
or chemical spills. All of our employees are required to participate in a
specialized training program that is designed to provide an understanding of our
quality objectives. We also have formal, mandatory training for all of our
employees in their core competencies on an annual basis. We offer our employees
a tuition reimbursement program and encourage them to continue their education
at local colleges. Many of our professionals attend seminars on topics that are
related to our corporate objectives and strategies. We believe that
comprehensive training is necessary to ensure that our employees work in a
uniform and consistent manner and that best practices are effectively utilized.
EMPLOYEES
As of June 1, 2001, we had 898 employees, including 182 research,
development and engineering personnel, 535 manufacturing personnel and 181
support personnel. We also employ a number of temporary employees to assist us
with various projects and service functions. Our employees are not represented
by any union and, except for certain executive officers of our company and our
subsidiaries, are retained on an at-will basis. We believe that we have a good
relationship with our employees.
PROPERTIES
Our executive offices are located in Clarence, New York. The building that
houses our executive offices also contains warehouse operations, a variety of
support services and capacity for light manufacturing or laboratory space.
46
The following table sets forth information, as of June 1, 2001, about all of
our principal manufacturing or testing facilities:
LOCATION SQ. FT. OWN/LEASE USE
- -------- -------- --------- ---
Clarence, NY(1).................... 70,453 Own Battery manufacturing, development
Clarence, NY(2).................... 20,800 Own Machining and assembly of components
Clarence, NY(2).................... 18,550 Lease Machining and assembly of components
Clarence, NY....................... 45,305 Lease Offices and warehouse
Wheatfield, NY..................... 2,600 Lease Battery testing
Cheektowaga, NY.................... 23,812 Lease Capacitor manufacturing
Canton, MA(1)...................... 32,000 Own Battery manufacturing, development
Columbia, MD....................... 30,000 Lease Feedthroughs, electrodes and
components manufacturing
- ------------------------
(1) Commercial power sources revenues are generated from these facilities.
(2) We own and rent space in part of the same facility.
We believe these facilities are adequate for our current and foreseeable
purposes and that additional space will be available when needed.
LEGAL PROCEEDINGS
We are involved in various lawsuits and claims incidental to our business.
In the opinion of our management, the ultimate liabilities, if any, resulting
from these lawsuits and claims will not materially affect our financial position
or results of operations.
47
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Our directors, executive officers and certain key employees, and their
respective ages and positions as of June 1, 2001, are as follows:
NAME AGE POSITION
- ---- -------- --------
Edward F. Voboril........... 58 President, Chief Executive Officer and Chairman of the
Board
Larry T. DeAngelo........... 54 Senior Vice President, Administration and Secretary
Curtis F. Holmes, Ph.D...... 58 Group Vice President, Components and President,
Greatbatch-Hittman, Inc.
Arthur J. Lalonde........... 46 Senior Vice President, Finance
Richard W. Mott............. 42 Executive Vice President and Chief Operating Officer
Susan M. Bratton............ 44 Vice President, Corporate Quality
Ernest J. Norman............ 55 Director, Investor Relations and Corporate
Communications and Assistant Secretary
Robert C. Rusin............. 42 General Manager, Implantable Power Sources Division
Peter E. Samek.............. 48 Vice President, Corporate Development
Esther S. Takeuchi, Ph.D.... 47 Vice President, Research and Development
Steven J. Ebel.............. 43 General Manager, Electrochem Division
Ricky S. Kline.............. 46 General Manager, Implantable Capacitor Division
Robert E. Rich, Jr.......... 60 Director
Douglas E. Rogers........... 46 Director
Bill R. Sanford............. 57 Director
Henry Wendt................. 67 Director
David M. Wittels............ 36 Director
EDWARD F. VOBORIL has served as President and Chief Executive Officer of our
company and our predecessor since December 1990. Mr. Voboril became Chairman of
our Board of Directors in July 1997. Mr. Voboril's career spans over 25 years in
the medical device industry. Prior to joining our predecessor in 1990,
Mr. Voboril was Vice President and General Manager of the Biomedical Division of
PPG Industries. He was previously Vice President and General Manager of the
Medical Electronics Division of Honeywell, which was acquired by PPG in 1986.
Mr. Voboril currently serves on the board of directors of Analogic Corporation,
an electronics company. Mr. Voboril served as President of the Health Care
Industries Association of Western New York from July 1995 to July 1998 and
currently serves as a member of the board of directors of Adva Med.
LARRY T. DEANGELO has served as our Senior Vice President, Administration
since December 2000 and as Secretary since July 1997. Mr. DeAngelo also served
as Vice President, Administration of our company and our predecessor from
November 1991 to December 2000. Prior to joining our predecessor, Mr. DeAngelo
was the Director of International Human Resources of Rockwell International
Corporation. Mr. DeAngelo is currently a member of the Payment and Health Care
Delivery Committee of Adva Med and chairman of the operating board for the
Buffalo Hearing and Speech Center.
CURTIS F. HOLMES, PH.D. has served as our Group Vice President, Components
since May 2001 and as President of our subsidiary, Greatbatch-Hittman, Inc.,
since January 2000. Dr. Holmes served as Senior Vice President and Chief
Operating Officer of Greatbatch-Hittman, Inc. from July 1999 to December 1999
and as our Senior Vice President from January 1999 to July 1999. From
November 1980 to January 1999, Dr. Holmes served as our Vice President,
Technology.
ARTHUR J. LALONDE has served as our Senior Vice President, Finance since
December 2000. Mr. Lalonde previously served as Vice President, Finance and
Treasurer since July 1997. Mr. Lalonde
48
served as the Controller of our predecessor from August 1988 to July 1997.
Mr. Lalonde is a Certified Public Accountant and a member of the New York State
Society of Certified Public Accountants and the American Institute of Certified
Public Accountants. Mr. Lalonde is also a member of the Investments Committee of
HealthNow NY, Inc., the local Blue Cross/Blue Shield affiliate.
RICHARD W. MOTT has served as our Executive Vice President and Chief
Operating Officer since December 2000. From August 1998 to December 2000,
Mr. Mott served as our Group Vice President. Mr. Mott served as our Vice
President, Batteries from July 1997 to August 1998 and previously served as the
Vice President, Batteries of our predecessor from September 1993 to
December 1996 and from November 1997 to July 1997. Mr. Mott also served as Vice
President and General Manager of Greatbatch Scientific from December 1996 to
August 1998. Mr. Mott serves as a director of The Health Industries Association
of Western New York and as a member of the Investment Committee of the Alfred
University Board of Trustees.
SUSAN M. BRATTON has served as our Vice President, Corporate Quality since
March 2001. Ms. Bratton served as the General Manager, Electrochem from
July 1998 to March 2001 and previously served as the Director of Procurement for
our company and our predecessor from June 1991 to July 1998. Ms. Bratton has
held various positions with us since 1976.
ERNEST J. NORMAN has served as our Director, Investor Relations and
Corporate Communications and Assistant Secretary since August 2000. Prior to
joining our company, Mr. Norman was a member of the law firm of Watson, Bennett,
Colligan, Johnson & Schechter, L.L.P. from December 1998 to August 2000. He
previously served as General Counsel and Corporate Secretary of Trico Products
Corporation and as Vice President, General Counsel and Assistant Corporate
Secretary at Goldome Bank. Mr. Norman is currently a member of the Public
Affairs Coordinating Council of Adva Med. Mr. Norman is licensed to practice law
in the State of New York and the District of Columbia.
ROBERT C. RUSIN has served as our General Manager, Implantable Power Sources
Division since May 2001. Mr Rusin served as the General Manager, Engineered
Components Division from December 2000 to May 2001 and previously served as Vice
President, Corporate Quality from July 1999 to November 2000. From August 1998
to July 1999, Mr. Rusin served as President and Chief Operating Officer of
BioVector, Inc. From January 1997 to August 1998, Mr. Rusin served as Director,
Sales and Distribution, of Greatbatch Scientific and previously served as
Director, Greatbatch Surgical Products for our predecessor from January 1995 to
January 1997.
PETER E. SAMEK has served as our Vice President, Corporate Development since
January 2001. Prior to joining our company, Mr. Samek served from November 1998
to August 2000 as Director of Corporate Business Development of the Eastman
Kodak Corporation and from October 1993 to November 1998 as Managing Director,
Equity Investments of Manning & Napier Advisors, Inc. of Rochester, New York.
ESTHER S. TAKEUCHI, PH.D. has served as our Vice President, Research and
Development since May 1999. Dr. Takeuchi served as our Director of
Electrochemical Research from July 1997 to May 1999 and previously served as
Director of Electrochemical Research of our predecessor from August 1991 to
July 1997. The Electrochemical Society Inc. conferred the Battery Division
Technology Award upon Dr. Takeuchi in 1995 and in 1998, the Western New York
Section of the American Chemical Society presented Dr. Takeuchi with the 68th
Jacob F. Schoellkopf Medal. Dr. Takeuchi was elected a Fellow of the American
Institute for Medical and Biological Engineering in 1999.
STEVEN J. EBEL has served as our General Manager, Electrochem Division since
May 2001 and served as the General Manager, Implantable Power Source Division
from July 1998 to May 2001. From September 1996 to July 1998, Mr. Ebel served as
our General Manager, Electrochem Battery Division and from August 1994 to
September 1996, he was our Director of Program Management and Product
Development. Mr. Ebel has held various positions with our company since 1983.
49
RICKY S. KLINE has served as our General Manager, Capacitor Division since
December 2000. He served as our Director of Capacitor Operations from
February 2000 through November 2000. Mr. Kline served as General Manager of our
Engineered Components Division from April 1999 to February 2000. He has held
various Director positions for our company from 1989 to 1999.
ROBERT E. RICH, JR. has served as a director since July 1997. Mr. Rich has
served as President of Rich Products Corporation, a frozen foods manufacturer,
since 1978. Mr. Rich is Chairman of the board of directors of the Grocery
Manufacturers of America, Inc.
DOUGLAS E. ROGERS has served as a director since July 1997. Since
January 1997, Mr. Rogers has served as Managing Director of Global Health Care
Partners, a unit of DLJ Merchant Banking specializing in private equity
investment in health care businesses worldwide. Mr. Rogers previously served as
head of U.S. Investment Banking at Baring Brothers and as a Senior Vice
President at Lehman Brothers. Mr. Rogers serves on the board of directors of
Charles River Laboratories Corp. and Computerized Medical Systems, Inc.
BILL R. SANFORD has served as a director since November 2000. Mr. Sanford is
the founder, and since August 2000 has been the Chairman, of Symark LLC, a
technology commercialization and business development company. From April 1987
to August 2000, Mr. Sanford was Chairman of the Board, President and Chief
Executive Officer of STERIS Corporation, a provider of infection and
contamination prevention and reduction systems to the healthcare, scientific and
other markets. Mr. Sanford serves on the board of KeyCorp N.A. Mr. Sanford is
also Chairman of NorTech, the Northeast Ohio Regional Technology Coalition, Vice
Chairman of the Edison Biotechnology Center and a Fellow of the American
Institute for Medical and Biological Engineering.
HENRY WENDT has served as a director since July 1997. From January 1997
until January 2001, Mr. Wendt has served as Chairman of Global Health Care
Partners, a unit of DLJ Merchant Banking specializing in private equity
investment in healthcare businesses worldwide. Mr. Wendt retired as Chairman of
SmithKline Beecham p.l.c. in 1994 after completing a career of nearly 40 years
in the pharmaceutical, healthcare products and services industries. Mr. Wendt is
Chairman of the Board of Computerized Medical Systems, Inc., and serves on the
board of directors of Charles River Laboratories Corp., The Egypt Investment
Company and West Marine, Inc., and also is a Trustee of the Trilateral
Commission and Trustee Emeritus of the American Enterprise Institute.
DAVID M. WITTELS has served as a director since July 1997. Mr. Wittels has
been a Managing Director of DLJ Merchant Banking, Inc. since January 2001. For
the past five years, Mr. Wittels has held various positions with DLJ Merchant
Banking, Inc. He serves on the boards of AKI Holding Corp., AKI Inc., Mueller
Holdings (N.A.), Inc., Advanstar, Inc., Advanstar Communications, Inc., Ziff
Davis Holdings Inc. and Ziff Davis Media Inc.
In accordance with the stockholders agreements described below, all of the
parties to the stockholders agreements have agreed to cause our Chief Executive
Officer, presently Mr. Voboril, to be a member of our Board of Directors. DLJ
Merchant Banking nominated Messrs. Rich, Rogers, Wendt and Wittels to be
directors.
BOARD OF DIRECTORS
Our directors are elected annually to serve until the next annual meeting of
stockholders or until their successors are duly elected and qualified. Our Board
of Directors elects our executive officers annually to serve until the next
annual meeting of the Board of Directors, or until their successors are duly
elected and qualified, or until their earlier death, resignation,
disqualification or removal from office.
50
BOARD COMMITTEES
Our Board of Directors has established a Compensation Committee, which
consists of Messrs. Wendt and Wittels. The Compensation Committee makes
recommendations to the Board of Directors with respect to our general and
specific compensation policies and administers our 1997 and 1998 stock option
plans.
The Board of Directors has established an Audit Committee, which consists of
Messrs. Sanford and Rich. The Board of Directors intends to name one additional
independent director to the Audit Committee during 2001, as required by the
rules of the New York Stock Exchange. The Audit Committee reviews and reports to
the Board of Directors on the scope and results of audits by our independent
auditors and recommends a firm of certified independent public accountants to
serve as our independent auditors, subject to nomination by the Board of
Directors and approval by the stockholders. The Audit Committee also discusses
with the independent auditors the matters required to be discussed by auditing
standards and reviews the independence of the auditors. Membership on the Audit
Committee is restricted to directors who are independent of management and free
from any relationship that, in the opinion of the Board of Directors, would
interfere with the exercise of independent judgment as a committee member.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Throughout 2000, Messrs. Wendt and Wittels served on our Compensation
Committee. Also, prior to our initial public offering, Lawrence A. Maciariello,
a former director, and Mr. Voboril served on our Compensation Committee.
Mr. Voboril served as our President, Chief Executive Officer and Chairman of the
Board during 2000. In November 1997, we issued a loan to Mr. Voboril in the
amount of $570,000, in connection with his purchase of shares of our common
stock, which was repaid in full at the time of our initial public offering.
Mr. Wittels is a Managing Director of DLJ Merchant Banking, Inc. and from
June 1997 to July 1997, prior to our acquisition of Wilson Greatbatch Ltd., he
served as our President.
COMPENSATION OF DIRECTORS
Since the completion of our initial public offering, we have paid directors
who are not full-time employees of our company, DLJ Merchant Banking or any of
their affiliates compensation which consists of a $10,000 annual retainer and a
$1,000 per meeting fee for attendance at meetings of our Board of Directors or
any committee of which the director is a member. Directors entitled to receive
the $10,000 annual retainer have an option to receive some or all of that amount
in shares of our common stock, instead of cash, at the closing price per share
on the last trading day of the calendar year for which the retainer is payable.
Directors are required to hold any shares received pursuant to such an election
for at least six months after they receive them. In addition, all directors are
reimbursed for travel expenses and other out-of-pocket costs incurred in
connection with their attendance at meetings.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation for
the years ended December 29, 2000 and December 31, 1999 earned by our President,
Chief Executive Officer and Chairman, and our four other most highly compensated
executive officers as of December 29, 2000. In this prospectus, we refer to
these individuals as our named executive officers.
51
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------------- ------------------------------------------
AWARDS PAYOUTS
---------- ----------
OTHER SECURITIES
ANNUAL UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(3) OPTIONS PAYOUTS(4) COMPENSATION(5)
- --------------------------- -------- -------- -------- ---------------- ---------- ---------- ----------------
Edward F. Voboril............. 2000 $315,000 $105,000(1) $33,582 21,040 $ -- $ 20,625
President, Chief Executive 1999 271,500 253,078(2) -- 40,940 -- 23,297
Officer and Chairman
Larry T. DeAngelo............. 2000 150,335 30,600(1) -- 5,580 78,816 10,830
Senior Vice President, 1999 128,571 36,924(2) -- 6,487 179,410 18,435
Administration and Secretary
Curtis F. Holmes, Ph.D........ 2000 184,401 45,700(1) 4,041 7,880 80,738 164,868
President, Greatbatch-Hittman, 1999 147,166 38,373(2) 37,967 8,935 184,050 185,655
Inc.
Richard W. Mott............... 2000 161,308 41,000(1) 8,885 7,880 85,864 10,465
Executive Vice President and 1999 138,332 39,740(2) -- 8,855 179,410 18,652
Chief Operating Officer
Esther S. Takeuchi, Ph.D...... 2000 118,377 25,000(1) -- 1,380 -- 7,959
Vice President, Research and 1999 105,580 14,500(2) -- 4,307 -- 17,203
Development
- ------------------------------
(1) Represents amounts accrued in fiscal 2000 which were paid in fiscal 2001.
(2) Represents payments we made in fiscal 1999 for bonuses earned in prior
years.
(3) Includes $33,582 of tuition expenses for Mr. Voboril in 2000, $4,041 of
tuition expenses for Dr. Holmes in 2000 and reimbursement of $31,397 of
relocation expenses for Dr. Holmes in 1999. In addition, $8,885 was paid to
Mr. Mott for unused vacation time. No other annual compensation is reported
for the named executive officers because perquisites and personal benefits
otherwise did not exceed the lesser of $50,000 and 10% of the total annual
salary and bonus reported for these named executive officers.
(4) Represents payments we made in fiscal 1999 and fiscal year 2000 pursuant to
our long term compensation plan, which was terminated in 1997. The final
payment under the plan was paid in 2001.
(5) Represents payments in fiscal 2000 of term life insurance premiums of $8,167
for Mr. Voboril and $1,134 for Mr. DeAngelo; our matching contributions to
the 401(k) plan of $3,360 for Mr. Voboril, $2,744 for Mr. DeAngelo, $3,360
for Dr. Holmes, $2,923 for Mr. Mott and $2,267 for Dr. Takeuchi; our
contributions under the ESOP plan of $8,000 for Mr. Voboril, $6,429 for
Mr. DeAngelo, $7,358 for Dr. Holmes; $6,917 for Mr. Mott and $5,279 for
Dr. Takeuchi, which contributions represent 533, 429, 491, 461 and 352
shares of our common stock, respectively; cash profit sharing distributions
of $1,098 for Mr. Voboril, $523 for Mr. DeAngelo, $649 for Dr. Holmes, $625
for Mr. Mott and $413 for Dr. Takeuchi; and a payout of $153,501 to
Dr. Holmes made in fiscal 2000 in respect of stock appreciation rights
granted in prior years.
STOCK OPTION GRANTS
The following table sets forth the stock options we granted during the
fiscal year ended December 29, 2000 to each of the named executive officers,
including the potential realizable value over the ten-year term of the options,
based on assumed rates of stock appreciation of 5% and 10%, compounded annually.
These assumed rates of appreciation are mandated by the rules of the Securities
and Exchange Commission and do not represent our estimate of future stock price
performance. Actual gains, if any, on stock option exercises will be dependent
on the future performance of our common stock.
52
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------- VALUE AT ASSUMED
PERCENTAGE RATES OF STOCK PRICE
NUMBER OF OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS EXERCISE OPTIONS TERM
UNDERLYING GRANTED IN PRICE ---------------------
NAME OPTIONS GRANTED FISCAL 2000 ($/SHARE) EXPIRATION DATE 5% 10%
- ---- --------------- ----------- --------- --------------- --------- ---------
Edward F. Voboril........... 21,040 25.2% $15.00 January 1, 2010 $514,079 $818,585
Larry T. DeAngelo........... 5,580 6.7 15.00 January 1, 2010 136,338 217,096
Curtis F. Holmes, Ph.D...... 7,880 9.4 15.00 January 1, 2010 192,535 306,580
Richard W. Mott............. 7,880 9.4 15.00 January 1, 2010 192,535 306,580
Esther S. Takeuchi, Ph.D.... 1,380 1.7 15.00 January 1, 2010 33,718 53,690
FISCAL YEAR END OPTION VALUES
The table below provides information about the number and value of options
held by the named executive officers at December 29, 2000. The values of
in-the-money options have been calculated on the basis of a valuation of $28.25
per share, the closing price per share of our common stock on December 29, 2000,
less the applicable exercise price.
YEAR END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 29, 2000 DECEMBER 29, 2000
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
Edward F. Voboril............................. 66,541 85,539 $1,306,539 $1,637,321
Larry T. DeAngelo............................. 24,846 28,281 519,963 600,762
Curtis F. Holmes, Ph.D........................ 26,623 30,993 552,626 647,976
Richard W. Mott............................... 27,863 31,612 569,057 656,192
Esther S. Takeuchi, Ph.D...................... 8,137 8,150 173,486 148,316
EMPLOYMENT AGREEMENT
On July 9, 1997, we entered into an employment agreement with Mr. Voboril,
our President, Chief Executive Officer and Chairman. The agreement currently
expires on June 30, 2001 and automatically extends for additional one year
periods until we or Mr. Voboril gives notice to terminate not less than
12 months prior to the proposed termination date. We currently pay Mr. Voboril
$340,000 per year and our Compensation Committee, along with our Board of
Directors, has the right to increase Mr. Voboril's salary. Under the agreement,
Mr. Voboril is entitled to a bonus equal to 75% of his current base salary if
our company achieves financial targets set by our Board of Directors and
reflected in our annual budget.
If we terminate Mr. Voboril's employment without cause or if Mr. Voboril
terminates his employment for good reason, we have agreed to pay to Mr. Voboril
the greater of $285,000 or his current annual base salary and a bonus for the
year of termination equal to a percentage of his base salary. If we terminate
his employment without cause within six months before, or twelve months after, a
change in control of our company, we will pay Mr. Voboril an amount equal to his
current annual salary and a bonus equal to 75% of his current base salary and
all performance stock options held by Mr. Voboril will automatically vest and he
will have the right to exercise all unexercised options.
If we terminate Mr. Voboril's employment for cause or if Mr. Voboril
terminates his employment without good reason, we will pay him his accrued base
salary and other compensation that has accrued as of the termination date.
However, we will not pay Mr. Voboril an annual bonus if we terminate his
53
employment with cause, and any stock options granted to Mr. Voboril that have
not vested will be forfeited and canceled. If we terminate Mr. Voboril for
cause, we may, at our election, purchase all of his shares and vested stock
options at the lesser of the shares' cost or fair market value.
So long as Mr. Voboril is not terminated without cause, he has agreed not to
compete, directly or indirectly, against us during his employment and for two
years after his employment ends. In addition, Mr. Voboril has agreed not to
solicit any of our employees for two years after his employment ends.
We have not entered into employment agreements with our other named
executive officers.
STOCK PLANS
We have two stock option plans that provide for the issuance of nonqualified
and incentive stock options to our key employees and key employees of our
subsidiaries. The terms of our 1997 stock option plan and 1998 stock option plan
are substantially the same and both plans are administered by our Compensation
Committee. Our 1997 stock option plan authorizes the issuance of options to
acquire up to 480,000 shares of our common stock and our 1998 stock option plan
authorizes the issuance of options to acquire up to 1,220,000 shares of our
common stock. Options granted under our 1997 and 1998 stock option plans
generally vest over a three to five year period and the vesting period can be
accelerated depending upon the achievement by our company of performance
standards, including earnings targets. Options expire 10 years from the date of
the grant, except that incentive stock options granted to key employees expire
five years from the date of grant. Options are granted with exercise prices
equal to the fair market value of our common stock on the date of the grant.
Options generally are non-transferable, other than by will or the laws of
descent and distribution and are exercisable only by the grantee while the
grantee is alive. Both of our stock option plans contain a change in control
provision. If a change in control of our company occurs, at the discretion of
our Compensation Committee, each option granted under our stock option plans may
be terminated. If this occurs, we are to pay each optionholder an amount equal
to the difference between the fair market value of each share and the exercise
price per share. This amount would be payable upon the closing of a transaction
that results in a change in control.
As of June 1, 2001, 632,583 shares of our common stock were issuable upon
exercise of outstanding stock options, subject in some cases to vesting
conditions, and 1,036,496 options were available for future grants under our
1997 and 1998 stock option plans. The weighted average remaining contractual
life of granted options is seven years. The average weighted exercise price per
share of the options outstanding as of June 1, 2001 was $10.22.
INCENTIVE COMPENSATION PLANS
We sponsor various incentive compensation programs, which provide for the
payment of cash to key employees based upon achievement of specific earnings
goals before incentive compensation expense.
EMPLOYEE STOCK OWNERSHIP PLAN
We sponsor an employee stock ownership plan, or ESOP, and related trust as a
long-term benefit for substantially all of our employees. There are two
components to contributions under the ESOP. The first component is a defined
contribution pension plan whose annual contribution equals 5% of each employee's
compensation. Contributions to the ESOP are in the form of our common stock. The
second component is a discretionary profit sharing contribution determined by
the Board of Directors. This profit sharing contribution is also contributed to
the ESOP in the form of shares of our common stock. The ESOP is subject to
contribution limitations and vesting requirements.
54
RELATED PARTY TRANSACTIONS
We describe below some of the transactions we have entered into with parties
that are related to our company. We believe that each of the transactions
described below was on terms no less favorable to us than we could have obtained
from unrelated parties.
SALES OF COMMON STOCK TO MANAGEMENT
In August 1998, we sold 2,849,384 shares of our common stock to DLJ Merchant
Banking for an aggregate purchase price of $14,246,919. At that time we also
sold the following number of shares of common stock for the following purchase
price to some of our current and former executive officers:
NUMBER OF SHARES PURCHASE PRICE
---------------- --------------
Edward F. Voboril.............................. 60,822 $304,110
Tim H. Belstadt................................ 20,000 99,999
Larry T. DeAngelo.............................. 27,316 136,381
Curtis F. Holmes, Ph.D......................... 28,597 142,986
Arthur J. Lalonde.............................. 20,299 101,493
Richard W. Mott................................ 6,000 30,000
Susan M. Bratton............................... 16,000 80,001
------- --------
Total...................................... 179,034 $894,970
In September 1999, we sold 50,000 shares of our common stock for an
aggregate purchase price of $750,000 to Fred Hittman, who at that time was
serving as President of Greatbatch-Hittman, Inc.
REGISTRATION AND ANTI-DILUTION AGREEMENT
We entered into a registration and anti-dilution agreement with DLJ
Investment Partners, L.P., DLJ Investment Funding, Inc., DLJ First ESC L.L.C.
and Donaldson, Lufkin & Jenrette Securities Corporation, all of which are
entities affiliated with DLJ Merchant Banking, and The Northwestern Mutual Life
Insurance Company in July 1997. The agreement provides for adjustments to the
number of shares held by the purchasers to prevent dilution from issuance of
shares for less than fair market price. If we propose to register any common
stock under the Securities Act, either for our own account or for the account of
other securityholders, the purchasing parties are entitled to include their
shares in the registration. In addition, parties holding more than 25% of the
securities entitled to registration may require us to prepare and file a
registration statement under the Securities Act at any time after our initial
public offering, which was completed in October 2000. We are not obligated to
effect more than two of these demand registrations. The managing underwriter of
the offering has the right to limit the number of shares in any registration
relating to the agreement if the underwriter believes that the success of the
offering would be materially and adversely affected because of its size or kind.
In the event of a demand registration request, if more than half of the
securities entitled to registration are excluded by the managing underwriter,
the holders of the registration rights are to be given an additional demand
registration.
AMENDED AND RESTATED CREDIT AGREEMENT
We entered into a credit agreement with a syndicate of financial
institutions led by DLJ Capital Funding, Inc. on July 10, 1997. DLJ Capital
Funding, Inc. is an affiliate of DLJ Merchant Banking and Credit Suisse First
Boston Corporation. The parties to the credit agreement amended and restated it
on August 7, 1998 to provide for up to a secured credit facility including term
loans and a revolving credit facility up to a maximum of $130.0 million. In
connection with the credit agreement, we paid the
55
following amounts to affiliates of DLJ Merchant Banking in the periods indicated
for interest and various fees, including commitment, waiver and amendment and
debt financing fees:
YEAR INTEREST PAID FEES PAID
- ---- ------------- ----------
1998................................................. $52,246 $1,709,189
1999................................................. -- --
2000................................................. -- --
In October 2000, we used the net proceeds of our initial public offering to
prepay $34.4 million of our Term A loans and $49.6 million of our Term B loans.
As of January 12, 2001, we entered into a $60.0 million credit facility which
consists of a $40.0 million term loan and a $20.0 million revolving line of
credit. We used the proceeds from the $40.0 million term loan to pay off the
Term A facility, Term B facility and the senior subordinated notes that were
outstanding as of December 29, 2000, plus accrued interest and a call premium.
The new credit facility has a term of five years and matures on January 1, 2006.
Interest is payable monthly on any outstanding prime rate loans and upon the
contractual maturity for LIBOR-based loans. The interest rate charged is, at our
option, based on either the prime rate or LIBOR plus or minus an interest rate
modifier. The applicable interest rates for both the term loan and the revolving
line of credit are currently prime less 1.0% or LIBOR plus 1.25%, at our option.
STOCKHOLDERS AGREEMENTS
In July 1997, we entered into three separate stockholders agreements with
DLJ Merchant Banking and other parties, including members of our management who
participated in the leveraged buyout and are stockholders of our company. The
terms of the three stockholders agreements are substantially the same. In the
agreements, the parties agreed to elect the Board of Directors, transfer
securities governed by the agreements and conduct and participate in
registrations of securities governed by the agreements according to the terms of
the agreements. The stockholders agreements prohibit most transfers of
securities governed by the agreements unless the proposed transferor offers to
include in the proposed transfer the other parties' pro rata share of securities
subject to the agreement, or the transfer is made in connection with a party's
exercise of its right of participation in such a transfer or DLJ Merchant
Banking's exercise of its right of forced sale under the agreements. Most
transfer restrictions under the stockholders agreements terminated upon the
consummation of our initial public offering in October 2000, or, in the case of
the management stockholders agreement, will terminate one year after that date.
The stockholders agreements will survive the closing of this offering. The
agreements provide that the parties to the agreements and our company will take
all action required to cause the Board of Directors to consist of seven
directors, one of whom shall be the Chief Executive Officer. So long as they
collectively beneficially own at least 3% of the fully-diluted shares of our
common stock, members of the Greatbatch family, who are the former controlling
stockholders of our company, have the right to nominate one director to the
Board of Directors. DLJ Merchant Banking has the right to nominate all other
members of the Board of Directors. The parties to the stockholders agreements
have agreed to vote in favor of nominees selected by DLJ Merchant Banking and,
if applicable, the Greatbatch family nominee. The members of the Board of
Directors elected pursuant to the agreements include Mr. Voboril, our President
and Chief Executive Officer, and Messrs. Rich, Rogers, Wendt and Wittels, each
of whom was nominated by DLJ Merchant Banking.
All the stockholders party to the stockholders agreements agree to vote
their shares in elections of directors in accordance with the terms of the
stockholders agreements. Therefore, each party may be deemed to share beneficial
ownership of all shares subject to each stockholders agreement to which it is a
party. Entities affiliated with DLJ Merchant Banking II, L.P. are party to all
three stockholders agreements and consequently may be deemed to beneficially own
the aggregate of all 12,329,608 shares subject to the three agreements. This
number includes all of the 10,228,206 shares of common stock
56
held directly by the entities affiliated with DLJ Merchant Banking II, L.P.
Members of our management are party to two of the three agreements, the
stockholders agreement dated as of July 16, 1997 and the management stockholders
agreement dated as of July 10, 1997, and consequently may be deemed to
beneficially own the aggregate of all 11,844,522 shares subject to those two
agreements, in addition to the shares held by them directly.
In August 1999, we entered into a stockholders agreement, which is described
below, with Fred Hittman and DLJ Merchant Banking. Under the agreement, a DLJ
Merchant Banking entity has the power to direct the voting, in some respects, of
all of Mr. Hittman's 50,533 shares of common stock. Therefore, DLJ Merchant
Banking may be deemed to share beneficial ownership of those shares. In
August 2000, in connection with our acquisition of BEI, we entered into a
stockholders agreement with Hitachi-Maxell, Inc. and DLJ Merchant Banking. Under
the agreement, a DLJ Merchant Banking entity has the power to direct the voting,
in some respects, of all of Hitachi-Maxell, Inc.'s 539,856 shares of common
stock. Therefore, DLJ Merchant Banking may be deemed to share beneficial
ownership of those shares, some of which are being sold in this offering.
Holders of an aggregate of 12,919,997 shares of our common stock are party
to the five stockholders agreements. After this offering, holders of an
aggregate of 8,919,997 shares of our common stock will be party to these
stockholders agreements. Subject to pro rata and underwriter exceptions, if we
propose to file a registration statement relating to an offering of any of its
equity securities, the parties to the stockholders agreements have the right to
have their shares of common stock registered and sold as part of the offering.
DLJ FINANCIAL ADVISORY AGREEMENT AND OTHER FEES
On July 10, 1997, we appointed Donaldson, Lufkin & Jenrette Securities
Corporation, or DLJ, to act as our exclusive financial advisor with respect to
reviewing and analyzing financial alternatives for our company. Under the
agreement, DLJ's successor, Credit Suisse First Boston Corporation, or CSFB,
assists us from time to time in analyzing our operations and historical
performance as well as our future prospects, with a view to meeting our long
term strategic objectives. The agreement expires in August 2005. In accordance
with this agreement, we pay CSFB $100,000 annually and as further compensation,
CSFB has the right to act as our exclusive financial advisor and sole managing
underwriter for any underwritten public offering of our stock and other
financial transactions consummated by our company during the engagement period.
CSFB is an affiliate of DLJ Merchant Banking and is the book-running manager for
this offering.
DLJ, whose corporate parent was recently acquired by Credit Suisse Group, of
which CSFB is an indirect subsidiary, was a joint book-running manager in our
initial public offering and received fees of approximately $2.0 million, and
DLJDIRECT Inc., an affiliate of DLJ and CSFB (now known as CSFBDIRECT Inc.), was
an underwriter and received fees of approximately $0.1 million. We also paid a
premium of approximately $1.7 million to DLJ Investment Partners and other
investors for prepayment of our 13% senior subordinated notes. CFSB is acting as
a managing underwriter in this offering and will receive the fees and expense
reimbursement described under "Underwriting" for its services.
HITTMAN AGREEMENTS
In August 1998, we purchased all of the outstanding capital stock of Hittman
from Fred Hittman, the sole shareholder, for $71.8 million. Fred Hittman
subsequently served as the President of our subsidiary Greatbatch-Hittman, Inc.
until his retirement on December 31, 1999. We paid $69.0 million of the purchase
price at the time of the acquisition and an additional $2.8 million after
Hittman achieved financial targets in 1998. We paid DLJ a fee of approximately
$2.8 million for acting as our financial advisor in connection with the
acquisition, for its underwriting fee and for a bond consent fee.
We lease our Columbia, Maryland facility from Mr. Hittman under an agreement
that expires in 2006. In accordance with the agreement, we made payments to
Mr. Hittman of $83,655 for the period
57
from August 8, 1998 to the end of fiscal 1998, $210,600 in 1999 and $210,600 in
2000. The annual rental payment under the lease is $210,600 until 2003, at which
time it increases annually until the termination of the lease. The average
annual rental payment throughout the term of the lease is $219,600. In addition,
we have an option to purchase the leased property for the agreed fair market
value at the time when the lease expires.
In August 1999, we entered into a stockholders agreement with Fred Hittman,
then President of Greatbatch-Hittman, Inc., and DLJ Merchant Banking. In the
agreement, we and Fred Hittman agreed to elect our Board of Directors and
conduct and participate in registrations of securities governed by the
agreements according to the terms of the agreement. Most transfer restrictions
under the stockholders agreement terminated upon the consummation of our initial
public offering. The stockholders agreement will survive the closing of this
offering. The stockholders agreement provides that Fred Hittman will take all
action within his power required to cause our Board of Directors to include all
of the directors designated by DLJ Partners II or its successor in interest.
Therefore, because an entity affiliated with DLJ Merchant Banking II, L.P. has
the power to direct the voting of Mr. Hittman's shares in this respect, the
entities affiliated with DLJ Merchant Banking II, L.P. may be deemed to share
beneficial ownership of all of Mr. Hittman's 50,533 shares that are subject to
the stockholders agreement. However, because Mr. Hittman does not have the power
to direct the voting of shares owned by the entities affiliated with DLJ
Merchant Banking II, L.P. under the terms of the stockholders agreement,
Mr. Hittman does not share voting power with respect to those shares and
consequently is not deemed to beneficially own any of such shares as a result of
the stockholders agreement. Mr. Hittman is a selling stockholder in this
offering.
GREATBATCH LEASE AGREEMENT
We lease approximately 18,550 square feet at one of our Clarence, New York
facilities from Warren Greatbatch, as trustee under an irrevocable trust
agreement for the benefit of Ericka D. Chadbourne, who is the niece of Lawrence
A. Maciariello, a former director. Warren D. Greatbatch is the brother-in-law of
Mr. Maciariello. In accordance with the lease agreement, which will expire on
March 31, 2018, we made payments to the trust of $86,400 per year in each of
fiscal 1998, 1999 and 2000. This lease provides that the rental rate is to be
adjusted in 2003, 2008 and 2013 to reflect the fair market rental value at that
time. Ericka D. Chadbourne, Warren D. Greatbatch and Lawrence A. Maciariello are
selling stockholders in this offering.
58
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
our common stock as of June 1, 2001, and as adjusted to reflect the sale of
shares of our common stock offered by us and the selling stockholders in this
offering, by:
- each person or group of affiliated persons that we know beneficially owns
more than 5% of our outstanding shares of common stock;
- each of our directors and named executive officers;
- all of our directors and executive officers as a group; and
- each selling stockholder.
We determined beneficial ownership in accordance with the rules of the
Securities and Exchange Commission, which generally require inclusion of shares
over which a person has voting or investment power. Shares of common stock
issuable pursuant to options held by a person that are currently exercisable or
exercisable within 60 days of June 1, 2001 are considered outstanding for that
person, but not when computing the percentage ownership of each other person.
NUMBER OF
SHARES
BENEFICIALLY NUMBER OF NUMBER OF SHARES
OWNED SHARES BENEFICIALLY
BEFORE BEING OWNED AFTER
NAME OF BENEFICIAL OWNER OFFERING OFFERED OFFERING
- ------------------------ ------------------------------------- ---------------------------- ----------------
DLJ Merchant Banking Related
Entities (1)
DLJ Merchant Banking Partners II,
L.P............................ 5,810,983 2,039,611 3,771,372
DLJ Merchant Banking Partners II-
A, L.P......................... 231,420 81,227 150,193
DLJ Offshore Partners II, C.V.... 285,753 100,297 185,456
DLJ Diversified Partners, L.P.... 339,736 119,244 220,492
DLJ Diversified Partners-A,
L.P............................ 126,166 44,283 81,883
DLJ Millennium Partners, L.P..... 93,957 32,978 60,979
DLJ Millennium Partners-A,
L.P............................ 18,325 6,432 11,893
DLJMB Funding II, Inc............ 1,031,710 362,122 669,588
DLJ Investment Partners, L.P..... 350,550 123,040 227,510
DLJ Investment Funding, Inc...... 49,953 17,533 32,420
UK Investment Plan 1997
Partners....................... 153,747 53,964 99,783
DLJ EAB Partners, L.P............ 26,090 9,157 16,933
DLJ First ESC, L.P............... 1,709,816 600,132 1,109,684
Subtotal (1)(2)................ 10,228,206 3,590,020 6,638,184
John Hancock Financial
Services, Inc. (3)............. 951,510 -- 951,510
John Hancock Place
P. O. Box 111
Boston, Massachusetts 02117
Edward F. Voboril (4)(5)......... 254,772 -- 254,772
Larry T. DeAngelo (4)(6)......... 109,339 -- 109,339
Curtis F. Holmes, Ph.D. (4)(7)... 115,078 -- 115,078
Richard W. Mott (4)(8)........... 90,318 -- 90,318
Robert E. Rich, Jr. (4)(9)....... 20,075 -- 20,075
Esther S. Takeuchi, Ph.D.
(4)(10)........................ 10,136 -- 10,136
Douglas E. Rogers (11)........... -- --
Bill R. Sanford.................. 30,000 -- 30,000
PERCENTAGE OF
COMMON STOCK
OUTSTANDING
------------------------------
BEFORE AFTER
NAME OF BENEFICIAL OWNER OFFERING OFFERING
- ------------------------ ------------- --------
DLJ Merchant Banking Related
Entities (1)
DLJ Merchant Banking Partners II,
L.P............................ 31.1% 18.2%
DLJ Merchant Banking Partners II-
A, L.P......................... 1.2 *
DLJ Offshore Partners II, C.V.... 1.5 *
DLJ Diversified Partners, L.P.... 1.8 1.1
DLJ Diversified Partners-A,
L.P............................ * *
DLJ Millennium Partners, L.P..... * *
DLJ Millennium Partners-A,
L.P............................ * *
DLJMB Funding II, Inc............ 5.5 3.2
DLJ Investment Partners, L.P..... 1.9 1.1
DLJ Investment Funding, Inc...... * *
UK Investment Plan 1997
Partners....................... * *
DLJ EAB Partners, L.P............ * *
DLJ First ESC, L.P............... 9.1 5.4
Subtotal (1)(2)................ 54.7 32.0
John Hancock Financial
Services, Inc. (3)............. 5.1 4.6
John Hancock Place
P. O. Box 111
Boston, Massachusetts 02117
Edward F. Voboril (4)(5)......... 1.4 1.2
Larry T. DeAngelo (4)(6)......... * *
Curtis F. Holmes, Ph.D. (4)(7)... * *
Richard W. Mott (4)(8)........... * *
Robert E. Rich, Jr. (4)(9)....... * *
Esther S. Takeuchi, Ph.D.
(4)(10)........................ * *
Douglas E. Rogers (11)........... * *
Bill R. Sanford.................. * *
59
NUMBER OF
SHARES
BENEFICIALLY NUMBER OF NUMBER OF SHARES
OWNED SHARES BENEFICIALLY
BEFORE BEING OWNED AFTER
NAME OF BENEFICIAL OWNER OFFERING OFFERED OFFERING
- ------------------------ ------------------------------------- ---------------------------- ----------------
Henry Wendt (11)................. -- -- --
David M. Wittels (11)............ -- -- --
All directors and executive
officers as a group (14
persons)
(2)(4)(5)(6)(7)(8)(9)(10)(11)(12).. 771,034 -- 771,034
Evelyn Belstadt (13)............. 3,999 1,404 2,595
Jack Belstadt.................... 4,239 1,488 2,751
Karianne Belstadt (13)........... 3,999 1,404 2,595
Ricky Belstadt................... 3,999 1,404 2,595
Tim H. Belstadt (13)............. 45,513 15,975 29,538
Jack Belstadt Family Trust....... 36,000 12,636 23,364
Ricky Belstadt Family Trust...... 25,999 9,125 16,874
Tim Belstadt Family Trust........ 67,999 23,867 44,132
Ashton B. Carter................. 1,700 597 1,103
Ericka D. Chadbourne............. 29,233 10,261 18,972
John M. Deutch................... 3,099 1,088 2,011
East Hill Foundation............. 99,999 35,099 64,900
Joseph C. Falcone................ 9,999 877 9,122
John T. Fordyce.................. 200 70 130
Christine A. Frysz............... 2,791 980 1,811
Greatbatch 1998 Trust for
Children (Jenny Dulian)........ 63,999 22,463 41,536
Greatbatch 1998 Trust for
Children (Kenneth Dulian)...... 63,999 22,463 41,536
Ami A. Greatbatch................ 81,550 28,623 52,927
The John Greatbatch Trust........ 19,999 7,020 12,979
Kenneth A. and Sharon H.
Greatbatch..................... 75,886 9,086 66,800
Michele A. Greatbatch............ 55,887 4,904 50,983
Warren D. Greatbatch............. 261,551 91,802 169,749
Robert W. Hammell................ 3,859 1,354 2,505
Hitachi Maxell, Ltd.............. 539,856 70,199 469,657
Fred Hittman (14)................ 50,533 17,737 32,796
Paul G. Kaminski................. 3,099 1,088 2,011
James E. Maciariello............. 1,999 702 1,297
Lawrence A. and Anne K.
Maciariello (15)............... 55,887 11,758 44,129
Lawrence A. Maciariello, Jr. and
Darla G. Maciariello........... 1,999 702 1,297
Rachel Lee Maciariello........... 1,999 702 1,297
Lois H. Mott..................... 1,999 123 1,876
Robert T. Mott................... 6,000 351 5,649
William J. Perry................. 3,099 351 2,748
Michele R. Schmidt............... 288 101 187
John P. White.................... 3,099 1,088 2,011
Irving B. Yoskowitz.............. 3,099 1,088 2,011
PERCENTAGE OF
COMMON STOCK
OUTSTANDING
------------------------------
BEFORE AFTER
NAME OF BENEFICIAL OWNER OFFERING OFFERING
- ------------------------ ------------- --------
Henry Wendt (11)................. * *
David M. Wittels (11)............ * *
All directors and executive
officers as a group (14
persons)
(2)(4)(5)(6)(7)(8)(9)(10)(11)(12).. 4.1 3.7
Evelyn Belstadt (13)............. * *
Jack Belstadt.................... * *
Karianne Belstadt (13)........... * *
Ricky Belstadt................... * *
Tim H. Belstadt (13)............. * *
Jack Belstadt Family Trust....... * *
Ricky Belstadt Family Trust...... * *
Tim Belstadt Family Trust........ * *
Ashton B. Carter................. * *
Ericka D. Chadbourne............. * *
John M. Deutch................... * *
East Hill Foundation............. * *
Joseph C. Falcone................ * *
John T. Fordyce.................. * *
Christine A. Frysz............... * *
Greatbatch 1998 Trust for
Children (Jenny Dulian)........ * *
Greatbatch 1998 Trust for
Children (Kenneth Dulian)...... * *
Ami A. Greatbatch................ * *
The John Greatbatch Trust........ * *
Kenneth A. and Sharon H.
Greatbatch..................... * *
Michele A. Greatbatch............ * *
Warren D. Greatbatch............. 1.4 *
Robert W. Hammell................ * *
Hitachi Maxell, Ltd.............. 2.9 2.3
Fred Hittman (14)................ * *
Paul G. Kaminski................. * *
James E. Maciariello............. * *
Lawrence A. and Anne K.
Maciariello (15)............... * *
Lawrence A. Maciariello, Jr. and
Darla G. Maciariello........... * *
Rachel Lee Maciariello........... * *
Lois H. Mott..................... * *
Robert T. Mott................... * *
William J. Perry................. * *
Michele R. Schmidt............... * *
John P. White.................... * *
Irving B. Yoskowitz.............. * *
- --------------------------
* Less than 1%
(1) Consists of shares held directly by DLJ Merchant Banking Partners II, L.P.
and the related investors named below. The number of shares and percentages
set forth opposite each entity under this heading and the
60
subtotal of those numbers and percentages reflect record ownership and not
beneficial ownership. The following related investors have been aggregated
for beneficial ownership purposes: DLJ Merchant Banking Partners II, L.P.;
DLJ Merchant Banking Partners II-A, L.P.; DLJ Offshore Partners II, C.V.;
DLJ Diversified Partners, L.P.; DLJ Diversified Partners-A, L.P.; DLJ
Millennium Partners, L.P.; DLJ Millennium Partners-A, L.P.; DLJMB Funding
II, Inc.; DLJ Investment Partners, L.P.; DLJ Investment Funding, Inc.; UK
Investment Plan 1997 Partners; DLJ EAB Partners, L.P.; and DLJ First ESC,
L.P. The address for each of the entities related to DLJ Merchant Banking
Partners is 277 Park Avenue, New York, New York 10172. Credit Suisse First
Boston, a Swiss bank, filed a Schedule 13G dated February 14, 2001
reporting ownership of a majority of the voting stock of Credit Suisse
First Boston, Inc., which in turn owns all of the voting stock of Credit
Suisse First Boston (USA), Inc. (formerly Donaldson Lufkin &
Jenrette, Inc.), or CSFB-USA. DLJ Merchant Banking Partners II, L.P. and
the related entities named above are direct and indirect subsidiaries of
CSFB-USA and merchant banking funds advised by subsidiaries of CSFB-USA.
(2) Voting power with respect to shares covered by stockholders agreements
entered into in July 1997, August 1999 and August 2000 is shared with the
other parties to the stockholders agreements. Therefore, the various
entities affiliated with CSFB-USA and Messrs. Rogers, Wendt and Wittels
each may be deemed to beneficially own all of the 12,920,565 shares of
common stock with respect to which voting power is shared pursuant to the
stockholders agreements. Such 12,920,565 shares consist of the 12,330,176
shares that are subject to the three stockholders agreements entered into
in July 1997, including the 10,228,206 shares held directly by the entities
affiliated with CSFB-USA and the shares held directly by Messrs. Voboril,
DeAngelo, Holmes, Mott and Rich and Dr. Takeuchi; the 50,533 shares held
directly by Fred Hittman that are subject to the stockholders agreement
entered into in August 1999; and the 539,856 shares held directly by
Hitachi-Maxell, Ltd. that are subject to the stockholders agreement entered
into in August 2000. In addition, the other parties to the stockholders
agreement dated as of July 16, 1997, who, under the agreement, share voting
power with respect to the shares owned by the entities affiliated with
CSFB-USA, may be deemed to beneficially own the 10,228,206 shares of common
stock held by the entities affiliated with CSFB-USA, which is equivalent to
54.7% of the common stock outstanding before this offering and 32.0% of the
common stock outstanding after this offering. Those other parties, each of
whom disclaims beneficial ownership of such shares held by the entities
affiliated with CSFB-USA, include the following persons: Tim H. Belstadt,
Susan M. Bratton, Larry T. DeAngelo, Curtis F. Holmes, Arthur J. Lalonde,
Richard W. Mott, Edward F. Voboril, Jack A. Belstadt, Richard J. Boos,
William H. Bruns, Curtis A. Cashmore, William D.K. Clark, Steven J. Ebel,
Douglas P. Eberhard, Gayle E. Fairchild, Stuart S. Ferguson, John T.
Fordyce, Frank J. Forkl, Jr., Dominick J. Frustaci, Christine A. Frysz,
Richard M. Garlapow, Robert W. Hammell, Robert C. Jackson, Ricky S. Kline,
Randolph A. Leising, Bruce E. Meyer, Charles L. Mozeko, Barry C.
Muffoletto, Michael R. Nowaczyk, William M. Paulot, Joseph M. Probst,
Michael F. Pyszczek, Janice E. Remigio, Robert C. Rusin, Gary J. Sfeir,
Robert W. Siegler, Joseph E. Spaulding, Esther S. Takeuchi, Mark Visbisky,
Gary R. Whitcher and Robert C. Weigand. The various entities affiliated
with CSFB-USA disclaim beneficial ownership of the shares held by these
individuals.
(3) John Hancock Financial Services, Inc., John Hancock Life Insurance Company,
John Hancock Subsidiaries, Inc., The Berkeley Financial Group, Inc. and
John Hancock Advisors, Inc. filed a Schedule 13G dated February 12, 2001.
In this Schedule 13G, John Hancock Financial Services, Inc. reported that
it is the ultimate parent company of John Hancock Advisors, Inc., which has
direct beneficial ownership of the reported shares.
(4) Voting power with respect to the shares covered by stockholders agreements
entered into in July 1997 is shared with the other parties to the
stockholders agreements. Therefore, Messrs. Voboril, DeAngelo, Holmes, Mott
and Rich and Dr. Takeuchi each may be deemed to beneficially own all of the
11,844,522 shares of common stock with respect to which voting power is
shared pursuant to the stockholders agreements. Messrs. Voboril, DeAngelo,
Holmes, Mott and Rich and Dr. Takeuchi disclaim beneficial ownership of
such shares, other than the 254,772 shares, 109,339 shares, 115,078 shares,
90,318 shares, 20,075 shares and 10,136 shares held directly by
Messrs. Voboril, DeAngelo, Holmes, Mott and Rich and Dr. Takeuchi,
respectively.
(5) Includes 42,000 shares of common stock held by Mr. Voboril's spouse as a
trustee of a trust for the benefit of Mr. Voboril's family members and
66,541 shares Mr. Voboril has the right to acquire pursuant to options
exercisable within 60 days after June 1, 2001. Including such shares,
Mr. Voboril directly holds 254,772 shares
61
of common stock, which is equivalent to 1.4% of the common stock
outstanding before this offering and 1.2% of the common stock outstanding
after this offering.
(6) Includes 24,846 shares Mr. DeAngelo has the right to acquire pursuant to
options exercisable within 60 days after June 1, 2001. Including such
shares, Mr. DeAngelo directly holds 109,339 shares of common stock, which
is equivalent to less than 1% of the common stock outstanding before and
after this offering.
(7) Includes 13,334 shares of common stock held by Dr. Holmes's spouse as the
trustee of a trust for the benefit of Dr. Holmes's family members and
26,623 shares Dr. Holmes has the right to acquire pursuant to options
exercisable within 60 days after June 1, 2001. Including such shares,
Dr. Holmes directly holds 115,078 shares of common stock, which is
equivalent to less than 1% of the common stock outstanding before and after
this offering.
(8) Includes 866 shares held by Mr. Mott as trustee of the Sarah E. Mott Trust,
866 shares held by Mr. Mott as trustee of the Lindsay Mott Trust, 866
shares held by Mr. Mott as trustee of the Rachel Mott Trust and 27,863
shares Mr. Mott has the right to acquire pursuant to options exercisable
within 60 days after June 1, 2001. Including such shares, Mr. Mott directly
holds 90,318 shares of common stock, which is equivalent to less than 1% of
the common stock outstanding before and after this offering.
(9) Mr. Rich directly holds 20,075 shares of common stock, which is equivalent
to less than 1% of the common stock outstanding before and after this
offering.
(10) Includes 8,137 shares Dr. Takeuchi has the right to acquire pursuant to
options exercisable within 60 days after June 1, 2001. Including such
shares, Dr. Takeuchi directly holds 10,136 shares of common stock, which is
equivalent to less than 1% of the common stock outstanding before and after
this offering.
(11) Consists of shares held by entities affiliated with CSFB-USA, all of which
are funds managed by DLJ Merchant Banking. Messrs. Rogers, Wendt and
Wittels are officers of DLJ Merchant Banking. Shares shown for Messrs.
Rogers, Wendt and Wittels exclude shares shown as held by entities
affiliated with CSFB-USA, as to which they disclaim beneficial ownership.
(12) All directors and executive officers as a group may be deemed to
beneficially own an aggregate of 10,999,249 shares of common stock before
this offering, which is equivalent to 58.8% of the common stock outstanding
before this offering and may be deemed to beneficially own an aggregate of
7,409,225 shares of common stock after this offering, which is equivalent
to 35.8% of the common stock outstanding after this offering.
(13) Evelyn Belstadt is the spouse and Karianne Belstadt is the daughter of Tim
H. Belstadt, who served as a Vice President of our company until
December 31, 1998.
(14) Mr. Hittman served as the President of Greatbatch-Hittman, Inc. until
December 31, 1999.
(15) Mr. Maciariello served as a member of our Board of Directors until May 18,
2000.
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DESCRIPTION OF CAPITAL STOCK
Immediately following the consummation of this offering, the authorized
capital stock of our company will consist of 100,000,000 shares of common stock,
par value $.001 per share, and 100,000,000 shares of preferred stock, par value
$.001 per share, the rights and preferences of which may be established from
time to time by our Board of Directors. As of June 1, 2001, there were
18,712,967 shares of common stock outstanding that were held of record by
approximately 117 registered stockholders. Upon completion of this offering,
there will be 20,712,967 outstanding shares of common stock, no outstanding
shares of preferred stock and options to purchase 632,583 shares of common
stock.
The following discussion summarizes the material provisions of our capital
stock and the anti-takeover provisions that are contained in our certificate of
incorporation and bylaws. This summary is qualified by our restated certificate
of incorporation and bylaws, copies of which have been filed as exhibits to the
registration statement of which this prospectus is a part.
Our restated certificate of incorporation and bylaws contain provisions,
such as the authorization of "blank check" preferred stock, limiting who may
call special meetings of our stockholders and advance notice procedures that are
required for stockholders to nominate candidates for election to our Board of
Directors or propose matters to be acted upon at stockholder meetings, which are
intended to enhance the likelihood of continuity and stability in the
composition of our Board of Directors. "Blank check" preferred stock could be
issued by our Board of Directors, without the delay that would be required to
obtain stockholder approval, to increase the number of outstanding shares and
thwart a takeover attempt. Limitations on who may call special meetings of our
stockholders make it difficult for minority stockholders to call special
meetings in which a new Board of Directors could be elected, among other things.
Advance notice requirements for nominations of candidates for election to our
Board of Directors or to propose matters to be acted upon by stockholders at
stockholder meetings make it more difficult for stockholders to nominate new
directors or submit stockholder proposals to be acted upon at stockholder
meetings. These provisions may have the effect of delaying, deferring or
preventing a future takeover or change in control of our company, unless such
takeover or change in control is approved by our Board of Directors.
COMMON STOCK
Holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Because holders of common stock do
not have cumulative voting rights, the holders of a majority of the shares of
common stock can elect all of the members of our Board of Directors. Subject to
preferences of any preferred stock that may be issued in the future, the holders
of common stock are entitled to receive dividends as may be declared by our
Board of Directors. The common stock is entitled to receive pro rata all of the
assets of our company available for distribution to our stockholders. There are
no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and non-assessable.
Our common stock is listed on The New York Stock Exchange under the symbol
"GB."
PREFERRED STOCK
Our Board of Directors will be authorized, without further action by our
stockholders, to issue shares of preferred stock in one or more series. The
Board will have discretion to determine the rights, preferences, privileges and
limitations of each series, including voting rights, dividend rights, conversion
rights, redemption privileges and liquidation preferences. Satisfaction of any
dividend preference of outstanding shares of preferred stock would reduce the
amount of funds available for the payment of dividends on shares of common
stock. In some circumstances, the issuance of shares of preferred stock may
render more difficult or tend to discourage a merger, tender offer or proxy
contest, the
63
assumption of control by a holder of a large block of our securities or the
removal of incumbent management. We have no current intention to issue any
shares of preferred stock.
OPTIONS
As of June 1, 2001, options to purchase a total of 632,583 shares of our
common stock were outstanding, and options to acquire up to 1,036,496 shares of
common stock may be available for future issuance under our existing stock
option plans. The average weighted exercise price per share of the options
outstanding as of June 1, 2001 was $10.22.
REGISTRATION RIGHTS
After this offering, the holders of 8,919,997 shares of our common stock
will be entitled to registration rights. If we propose to register any of our
securities under the Securities Act, either for our own account or for the
account of other security holders exercising registration rights, these holders
are entitled to notice of registration and are entitled to include shares of
common stock, subject to pro rata and underwriting exceptions. Additionally,
some of our stockholders have demand registration rights pursuant to which they
may require us on up to two occasions, to file a registration statement under
the Securities Act at our expense. The registration rights are subject to the
right of the underwriters of an offering to limit the number of shares included
in the registration and our right not to effect a required registration within
180 days following an offering of our securities pursuant to a registration
statement in connection with an underwritten public offering, including this
offering. If more than half of the securities entitled to demand registration
are excluded by the underwriters, the holders of demand registration rights are
to be given an additional demand registration right. These registration rights
are also subject to our right not to effect a requested registration, for no
more than one 120-day period during any calendar year, if our Board of Directors
determines in good faith to delay the filing to allow our company to include
financial statements in the registration statement or if our Board of Directors
reasonably determines that effectiveness of the registration statement or an
offering would materially adversely affect a pending or proposed acquisition,
merger or other significant corporate transaction.
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS
Our restated certificate of incorporation limits the liability of directors
to the fullest extent permitted by Delaware law. The effect of these provisions
is to eliminate the rights of our company and our stockholders, through
stockholders' derivative suits on behalf of our company, to recover monetary
damages against a director for breach of fiduciary duty as a director, including
breaches resulting from grossly negligent behavior. However, our directors will
be personally liable to us and our stockholders for monetary damages if they
acted in bad faith, knowingly or intentionally violated the law, authorized
illegal dividends or redemptions or derived an improper benefit from their
actions as directors. In addition, our restated certificate of incorporation
provides that we will indemnify our directors and officers to the fullest extent
permitted by Delaware law. We have entered indemnification agreements with our
current directors and executive officers. We also maintain directors and
officers insurance.
DELAWARE ANTI-TAKEOVER LAW
We are subject to Section 203 of the Delaware General Corporation law which
regulates corporate acquisitions. This law provides that specified persons who,
together with affiliates and associates, own, or within three years did own, 15%
or more of the outstanding voting stock of a corporation may not engage in
business combinations with the corporation for a period of three years after the
date on which the person became an interested stockholder. The law does not
include interested stockholders prior to the time our common stock became listed
on The New York Stock Exchange. The law defines the term "business combination"
to include mergers, asset sales and other transactions in which the
64
interested stockholder receives or could receive a financial benefit on other
than a pro rata basis with other stockholders. This provision has an
anti-takeover effect with respect to transactions not approved in advance by our
Board of Directors, including discouraging takeover attempts that might result
in a premium over the market price for the shares of our common stock. With
approval of our stockholders, we could amend our certificate of incorporation in
the future to avoid the restrictions imposed by this anti-takeover law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Mellon Investor
Services, L.L.C.
65
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have 20,712,967 outstanding shares
of common stock and outstanding options to purchase 632,583 shares of our common
stock, assuming no exercise of the underwriters' over-allotment option and no
additional option grants or exercises after June 1, 2001. We expect that the
6,000,000 shares to be sold in this offering, plus any shares sold upon exercise
of the underwriters' over-allotment option, together with the 5,750,000 shares
we issued in our initial public offering, will be freely tradable without
restriction under the Securities Act, unless purchased by our "affiliates," as
that term is defined in Rule 144 under the Securities Act. The remaining
8,919,997 shares outstanding and 632,583 shares subject to outstanding options
are "restricted securities" within the meaning of Rule 144 under the Securities
Act. Restricted securities may be sold in the public market only if the sale is
registered or if it qualifies for an exemption from registration, such as under
Rule 144 or Rule 144(k) promulgated under the Securities Act, which are
summarized below.
LOCK-UP AGREEMENTS
Our executive officers, directors, the selling stockholders and some of our
existing stockholders and key employees have entered into the lock-up agreements
described in "Underwriting."
RULE 144
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted securities for at least one year would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately 207,130 shares immediately after this offering; and
- the average weekly trading volume of our common stock on The New York
Stock Exchange during the four calendar weeks preceding the filing of a
notice(No. 333-63386) on
Form 144 with respect to the sale.
Sales under Rule 144 are also subject to requirements with respect to manner
of sale, notice and the availability of current public information about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, may sell these
shares without complying with the manner of sale, public information, volume
limitation or notice requirements of Rule 144.
REGISTRATION RIGHTS
After this offering, the holders of approximately 8,919,997 shares of common
stock will be entitled to rights with respect to registration of these shares
under the Securities Act. Registration of these shares under the Securities Act
would result in these shares, except for shares purchased by affiliates of our
company, becoming freely tradable without restriction under the Securities Act
immediately on the effective date of this offering.
STOCK OPTIONS
We have filed a registration statement under the Securities Act covering all
shares of common stock subject to outstanding stock options and common stock
issuable under our stock option plans. Shares of common stock registered under
any registration statement will, subject to Rule 144 volume limitations
applicable to affiliates and the lock-up agreements described in "Underwriting,"
be available for sale in the open market.
66
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2001, we and the selling stockholders have agreed
to sell to the underwriters named below, for whom Credit Suisse First Boston
Corporation, Morgan Stanley & Co. Incorporated, Banc of America Securities LLC
and U.S. Bancorp Piper Jaffray Inc. are acting as representatives, the following
respective numbers of shares of common stock:
NUMBER OF
UNDERWRITER SHARES
- ----------- ----------
Credit Suisse First Boston Corporation......................
Morgan Stanley & Co. Incorporated...........................
Banc of America Securities LLC..............................
U.S. Bancorp Piper Jaffray Inc..............................
----------
Total...................................................
==========
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering may be terminated.
The selling stockholders have granted to the underwriters a 30-day option to
purchase on a pro rata basis up to an aggregate of 900,000 additional
outstanding shares from the selling stockholders at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a selling concession of $ per share.
The underwriters and selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
representatives may change the public offering price and concession and discount
to broker/dealers.
The following table summarizes the compensation and estimated expenses we
and the selling stockholders will pay:
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
Underwriting Discounts and Commissions
payable by us......................... $ $ $ $
Expenses payable by us.................. $ $ $ $
Underwriting Discounts and Commissions
payable by the selling stockholders... $ $ $ $
Expenses payable by the selling
stockholders.......................... $ -- $ -- $ -- $ --
Credit Suisse First Boston Corporation, one of the underwriters, may be
deemed to be our affiliate. The offering, therefore, is being conducted in
accordance with the applicable provisions of Rule 2720 of the National
Association of Securities Dealers, Inc.'s Conduct Rules.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to
67
make any offer, sale, pledge, disposition or filing, without the prior written
consent of Credit Suisse First Boston Corporation for a period of 90 days after
the date of this prospectus, except issuances pursuant to the exercise of
employee stock options outstanding on the date hereof or pursuant to our
dividend reinvestment plan.
Our officers and directors, the selling stockholders and some of our
existing stockholders and key employees have agreed that they will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or indirectly,
any shares of our common stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock, enter into a transaction that
would have the same effect, or enter into any swap, hedge or other arrangement
that transfers, in whole or in part, any of the economic consequences of
ownership of our common stock, whether any of these transactions are to be
settled by delivery of our common stock or other securities, in cash or
otherwise, or publicly disclose the intention to make any offer, sale, pledge or
disposition, or to enter into any transaction, swap, hedge or other arrangement,
without, in each case, the prior written consent of Credit Suisse First Boston
Corporation for a period of 90 days after the date of this prospectus.
We and the selling stockholders have agreed to indemnify the underwriters
against liabilities under the Securities Act, or contribute to payments that the
underwriters may be required to make in that respect.
Our common stock is listed on The New York Stock Exchange under the symbol
"GB."
DLJ Merchant Banking Partners II, L.P., DLJ Merchant Banking Partners II-A,
L.P., DLJ Offshore Partners II, C.V., DLJ Diversified Partners, L.P., DLJ
Diversified Partners-A, L.P., DLJ Millennium Partners, L.P., DLJ Millennium
Partners-A, L.P., DLJMB Funding II, Inc., DLJ Investment Partners, L.P., DLJ
Investment Funding, Inc., UK Investment Plan 1997 Partners, DLJ EAB Partners,
L.P. and DLJ First ESC, L.P., each of which is an affiliate of Credit Suisse
First Boston Corporation, are stockholders of our company.
In addition, DLJ Merchant Banking Partners II, L.P. and its affiliates have
the right to nominate a majority of the members of our Board of Directors. DLJ
Capital Funding, Inc. acted as syndication agent and was a lender under our
former bank credit facility. Prior to this offering, Credit Suisse First Boston
Corporation and its affiliates owned an aggregate of approximately 54.7% of the
issued and outstanding shares of our common stock.
In connection with the offering, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not
greater than the number of shares that they may purchase in the
over-allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may close out any short position by either
exercising their over-allotment option and/or purchasing shares in the
open market.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at
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which they may purchase shares through the over-allotment option. If the
underwriters sell more shares than could be covered by the over-allotment
option--a naked short position--the position can only be closed out by
buying shares in the open market. A naked short position is more likely to
be created if the underwriters are concerned that there could be downward
pressure on the price of the shares in the open market after pricing that
could adversely affect investors who purchase in the offering.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may have the effect of raising or maintaining the market price of our common
stock or preventing or retarding a decline in the market price of the common
stock. As a result, the price of our common stock may be higher than the price
that might otherwise exist in the open market. These transactions may be
effected on The New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format will be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make Internet distributions on the same
basis as other allocations. Credit Suisse First Boston Corporation may effect an
online distribution through its affiliate, CSFBDIRECT Inc., an online broker
dealer, as a selling group member.
69
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
stockholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of common stock are made. Any resale
of the common stock in Canada must be made under applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made under available statutory exemptions or under a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the common
stock.
REPRESENTATIONS OF PURCHASERS
By purchasing common stock in Canada and accepting a purchase confirmation,
a purchaser is representing to us, the selling stockholders and the dealer from
whom the purchase confirmation is received that:
- the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under those securities laws,
- where required by law, the purchaser is purchasing as principal and not as
agent, and
- the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein and the selling stockholders may be located outside of Canada and, as a
result, it may not be possible for Canadian purchasers to effect service of
process within Canada upon the issuer or such persons. All or a substantial
portion of the assets of the issuer and such persons may be located outside of
Canada and, as a result, it may not be possible to satisfy a judgment against
the issuer or such persons in Canada or to enforce a judgment obtained in
Canadian courts against such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the SECURITIES ACT (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within 10 days of the sale of any common
stock acquired by the purchaser in this offering. The report must be in the form
attached to British Columbia Securities Commission Blanket Order BOR #95/17, a
copy of which may be obtained from us. Only one report must be filed for common
stock acquired on the same date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and
70
about the eligibility of the common stock for investment by the purchaser under
relevant Canadian legislation.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by this
prospectus will be passed on for us by Weil, Gotshal & Manges LLP, Houston,
Texas. Certain legal matters relating to the common stock offered by this
prospectus will be passed on for the underwriters by Akin, Gump, Strauss,
Hauer & Feld, L.L.P., New York, New York.
EXPERTS
The consolidated balance sheetsS-1 of Wilson Greatbatch Technologies, Inc. and
subsidiary as of December 31, 1999 and December 29, 2000 and the consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 29, 2000 included in this prospectus
and the related financial statement schedule included elsewhere in the
registration statement of which this prospectus is a part have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein and elsewhere in this prospectus (which report expresses an unqualified
opinion and includes an explanatory paragraph referring to a change in method of
accounting for costs of start-up activities), and are included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of Sierra-KD Components Division at December 31, 2000 andbeing filed for the year then ended, as set forth in their report. We have included these financial
statements in this prospectus and elsewhere in this registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed withsole
purpose of adding Exhibit 1.1, the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act relatingof Underwriting Agreement, to the
common stock
being sold in this offering. This prospectus constitutes a part of that
registration statement. This prospectus does not contain all of the information
set forth in the registration statement and the exhibits and schedules to the
registration statement because some parts have been omitted in accordance with
the rules and regulations of the Commission. For further information about us
and the common stock being sold in this offering, you should refer to the
registration statement and the exhibits and schedules filed as a part of the
registration statement. Statements contained in this prospectus regarding the
contents of any agreement, contract or other document referred to are not
necessarily complete. Reference is made in each instance to the copy of the
contract or document filed as an exhibit to the registration statement. Each
statement is qualified by reference to the exhibit. The registration statement,
including related exhibits and schedules, may be inspected without charge at the
Commission's principal office in Washington, D.C. Copies of all or any part of
the registration statement may be obtained after payment of fees prescribed by
the Commission from:
- the Commission's Public Reference Room at the Commission's principal
office, 450 Fifth Street, N.W., Washington, D.C. 20549; or
- the Commission's regional offices in: New York, located at 7 World Trade
Center, Suite 1300, New York, New York 10048; or Chicago, located at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661.
You may obtain information regarding the operation of the Public Reference
Room by calling the Commission at 1-800-SEC-0330. The Commission maintains a web
site that contains reports, proxy and information statements and other
information regarding registrants, including us, that file electronically with
the Commission. The address of the web site is WWW.SEC.GOV.
We furnish holders of our common stock with annual reports containing
audited financial statements certified by an independent public accounting firm
and quarterly reports containing unaudited condensed financial information for
the first three quarters of each fiscal year. We also furnish other reports as
we may determine or as may be required by law.
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INDEX TO FINANCIAL STATEMENTS
PRO FORMA FINANCIAL STATEMENTS:
Unaudited Pro Forma As Adjusted Consolidated Financial
Information............................................... F-2
Unaudited Pro Forma As Adjusted Consolidated Balance Sheet
as of March 30, 2001...................................... F-3
Unaudited Pro Forma As Adjusted Consolidated Statement of
Operations for the year ended December 29, 2000........... F-4
Unaudited Pro Forma As Adjusted Consolidated Statement of
Operations for the three months ended March 30, 2001...... F-5
WILSON GREATBATCH TECHNOLOGIES, INC. AND SUBSIDIARY:
Independent Auditors' Report................................ F-6
Consolidated Balance Sheets as of December 31, 1999 and
December 29, 2000......................................... F-7
Consolidated Statements of Operations for the years ended
January 1, 1999, December 31, 1999 and December 29,
2000...................................................... F-8
Consolidated Statements of Stockholders' Equity for the
years ended January 1, 1999, December 31, 1999 and
December 29, 2000......................................... F-9
Consolidated Statements of Cash Flows for the years ended
January 1, 1999, December 31, 1999 and December 29,
2000...................................................... F-10
Notes to Consolidated Financial Statements for the years
ended January 1, 1999, December 31, 1999 and December 29,
2000...................................................... F-11
SIERRA-KD COMPONENTS DIVISION:
Report of Ernst & Young LLP, Independent Auditors........... F-28
Balance Sheets as of December 31, 2000 (Audited) and
March 31, 2001 (Unaudited)................................ F-29
Statements of Operations for the year ended December 31,
2000 (Audited) and three months ended March 31, 2000 and
2001 (Unaudited).......................................... F-30
Statements of Division Equity for the year ended
December 31, 2000 (Audited) and the three months ended
March 31, 2001 (Unaudited)................................ F-31
Statements of Cash Flows for the year ended December 31,
2000 (Audited) and three months ended March 31, 2000 and
2001 (Unaudited).......................................... F-32
Notes to Financial Statements............................... F-33
F-1
UNAUDITED PRO FORMA AS ADJUSTED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma as adjusted consolidated financial
information has been derived from the historical financial information of Wilson
Greatbatch Technologies, Inc. (WGT) and the Sierra-KD Components Division
(Sierra) included elsewhere in this prospectus. The unaudited pro forma
consolidated statement of operations data for the year ended December 29, 2000
and for the three months ended March 30, 2001 gives effect to the following
events as if each had occurred on January 1, 2000:
- the acquisition of Sierra in June 2001;
- the amendment of our credit agreement in June 2001; and
- the effect of our initial public offering and repayment of indebtedness in
October 2000.
The unaudited pro forma as adjusted consolidated balance sheet data as of
March 30, 2001 gives effect to the following events as if each had occurred on
March 30, 2001:
- the acquisition of Sierra in June 2001;
- the amendment of our credit agreement in June 2001; and
- the receipt and application as described under "Use of Proceeds" of the
estimated net proceeds to us from this offering assuming a price of $28.82
per share, the last reported sale price on the New York Stock Exchange on
June 18, 2001.
The unaudited pro forma as adjusted consolidated financial information does
not purport to represent what WGT's results of operations actually would have
been had these events occurred on the dates indicated, nor are they intended to
project WGT's results of operations for any future period or date. The unaudited
pro forma as adjusted consolidated financial information should be read in
conjunction with the historical consolidated financial statements appearing
elsewhere in this prospectus.
F-2
UNAUDITED PRO FORMA AS ADJUSTED CONSOLIDATED BALANCE SHEET
AS OF MARCH 30, 2001
(IN THOUSANDS)
HISTORICAL
-----------------------------
WILSON
GREATBATCH PRO FORMA OFFERING PRO FORMA
TECHNOLOGIES, INC. SIERRA ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------------ -------- ----------- ---------- ----------- -----------
CURRENT ASSETS:
Cash and cash equivalents........ $ 253 $ 448 $ (653)(1) $ 48 $52,670(3) $ 52,718
Accounts receivable, net......... 15,377 3,498 (4,816)(1) 14,059 -- 14,059
Inventories...................... 15,948 4,771 -- 20,719 -- 20,719
Prepaid expenses and other
assets......................... 930 54 -- 984 -- 984
Refundable income taxes.......... 279 -- -- 279 -- 279
Deferred tax asset............... 1,863 -- -- 1,863 -- 1,863
-------- ------- ------- -------- ------- --------
Total current assets............. 34,650 8,771 (5,469) 37,952 52,670 90,622
PROPERTY, PLANT AND EQUIPMENT,
NET.............................. 36,640 2,834 -- 39,474 -- 39,474
INTANGIBLE ASSETS, NET............. 102,347 -- 42,676 (1)(2) 145,023 -- 145,023
DEFERRED TAX ASSET................. 8,800 -- -- 8,800 -- 8,800
OTHER ASSETS....................... 1,970 65 -- 2,035 -- 2,035
-------- ------- ------- -------- ------- --------
TOTAL ASSETS....................... $184,407 $11,670 $37,207 $233,284 $52,670 $285,954
======== ======= ======= ======== ======= ========
CURRENT LIABILITIES:
Accounts payable................. $ 3,277 $ 2,661 $(1,318) $ 4,620 $ -- $ 4,620
Accrued liabilities.............. 9,429 534 -- 9,963 -- 9,963
Due to affiliates................ -- 2,095 (2,095)(1) -- -- --
Current maturities of long-term
obligations.................... 15 -- 6,000 (2) 6,015 -- 6,015
-------- ------- ------- -------- ------- --------
Total current liabilities........ 12,721 5,290 2,587 20,598 -- 20,598
LONG-TERM OBLIGATIONS.............. 35,916 -- 41,000 (2) 76,916 -- 76,916
-------- ------- ------- -------- ------- --------
Total liabilities................ 48,637 5,290 43,587 97,514 -- 97,514
-------- ------- ------- -------- ------- --------
STOCKHOLDERS' EQUITY:
Common stock..................... 19 -- -- 19 2 (3) 21
Division equity.................. -- 6,380 (6,380)(1) -- -- --
Capital in excess of par value... 157,537 -- -- 157,537 52,668 (3) 210,205
Retained deficit................. (17,607) -- -- (17,607) -- (17,607)
-------- ------- ------- -------- ------- --------
Subtotal......................... 139,949 6,380 (6,380) 139,949 52,670 192,619
Less treasury stock, at cost..... (4,179) -- -- (4,179) -- (4,179)
-------- ------- ------- -------- ------- --------
Total stockholders' equity....... 135,770 6,380 (6,380) 135,770 52,670 188,440
-------- ------- ------- -------- ------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY........................... $184,407 $11,670 $37,207 $233,284 $52,670 $285,954
======== ======= ======= ======== ======= ========
- ------------------------------
(1) To record the purchase of substantially all of the assets of Sierra for
$49.0 million in cash, less liabilities assumed. The transaction excluded
cash, accounts receivable and intercompany accounts. We have also eliminated
intercompany accounts receivable and accounts payable in the amount of
$1,318,000. The excess of the purchase price over the fair value of the net
assets that we acquired will be allocated to identifiable intangible assets
and to goodwill. Such amounts are based on preliminary asset allocations and
are subject to final allocation adjustments.
(2) To record borrowings of $47.0 million under WGT's amended credit facility
for the purchase of Sierra and a loan origination fee to an unrelated party
of $1.4 million incurred related to the borrowings of $47.0 million.
(3) To record assumed proceeds from the sale of 2,000,000 shares of WGT common
stock less estimated underwriting fees and offering expenses of
$5.0 million. The assumption of offering proceeds is permitted as we expect
to have a firm commitment from our underwriters upon execution of the
underwriting agreement.
F-3
UNAUDITED PRO FORMA AS ADJUSTED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 29, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL
-----------------------------
WILSON SIERRA IPO
GREATBATCH PRO FORMA PRO FORMA
TECHNOLOGIES, INC. SIERRA ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------------ -------- ----------- ----------- ----------
REVENUES............................... $97,790 $13,691 $(3,100)(1) $ -- $108,381
COST OF GOODS SOLD..................... 55,446 10,589 (3,100)(1) -- 62,935
------- ------- ------- ------- --------
GROSS PROFIT........................... 42,344 3,102 -- -- 45,446
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................. 11,473 3,306 -- -- 14,779
RESEARCH, DEVELOPMENT AND ENGINEERING
COSTS, NET........................... 9,941 250 -- -- 10,191
INTANGIBLE AMORTIZATION................ 6,530 -- 2,064 (2) -- 8,594
------- ------- ------- ------- --------
14,400 (454) (2,064) -- 11,882
INTEREST EXPENSE....................... 12,958 21 3,783 (3) (8,889)(5) 7,873
OTHER (INCOME) EXPENSE................. (189) -- -- -- (189)
------- ------- ------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS................... 1,631 (475) (5,847) 8,889 4,198
INCOME TAX EXPENSE (BENEFIT) (4)....... 611 (166) (2,163) 3,271 1,553
------- ------- ------- ------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS
(CONTINUING OPERATIONS).............. $ 1,020 $ (309) $(3,684) $ 5,618 $ 2,645
======= ======= ======= ======= ========
BASIC EARNINGS PER SHARE
Income from continuing operations.... $ 0.07 $ 0.15
DILUTED EARNINGS PER SHARE
Income from continuing operations.... $ 0.07 $ 0.14
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic................................ 14,167 18,198
Diluted.............................. 14,434 18,465
- --------------------------
(1) To eliminate intercompany sales.
(2) To record the amortization of intangible assets and goodwill acquired as a
result of the purchase price allocation of Sierra. For pro forma purposes,
identifiable intangible assets and goodwill are amortized over 20 years.
Such amounts are based on preliminary asset allocations and are subject to
final allocation adjustments. We have not included the potential impact of
the new accounting standard regarding the treatment of goodwill as this
standard has not yet been issued.
(3) To record interest expense at an effective interest rate of 8.5% for amounts
borrowed under the amended credit facility used to finance the Sierra
acquisition.
(4) Reflects an income tax (benefit) expense at expected effective rates.
(5) Adjusts interest expense to reflect what would have been expensed if the
initial public offering that was completed on October 4, 2000 had occurred
on January 1, 2000. This would result in interest on debt of approximately
$3.7 million at an effective rate of approximately 8.5% rather than that
which was historically recorded.
F-4
UNAUDITED PRO FORMA AS ADJUSTED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
HISTORICAL
-----------------------------
WILSON SIERRA IPO
GREATBATCH PRO FORMA PRO FORMA
TECHNOLOGIES, INC. SIERRA ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------------ -------- ----------- ----------- ----------
REVENUES................................ $29,571 $ 5,295 $(1,300)(1) $ -- $33,566
COST OF GOODS SOLD...................... 15,560 3,953 (1,300)(1) -- 18,213
------- ------- ------- ---- -------
GROSS PROFIT............................ 14,011 1,342 -- -- 15,353
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 3,780 516 -- -- 4,296
RESEARCH, DEVELOPMENT AND ENGINEERING
COSTS, NET............................ 3,188 139 -- -- 3,327
INTANGIBLE AMORTIZATION................. 1,639 -- 516 (2) -- 2,155
------- ------- ------- ---- -------
5,404 687 (516) -- 5,575
INTEREST EXPENSE........................ 712 (1) 846 (3) 89 (5) 1,646
OTHER (INCOME) EXPENSE.................. 59 -- -- -- 59
------- ------- ------- ---- -------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS.................... 4,633 688 (1,362) (89) 3,870
INCOME TAX EXPENSE (BENEFIT)............ 1,714 241 (504)(4) (19)(4) 1,432
------- ------- ------- ---- -------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS
(CONTINUING OPERATIONS)............... $ 2,919 $ 447 $ (858) $(70) $ 2,438
======= ======= ======= ==== =======
BASIC EARNINGS PER SHARE
Income from continuing operations..... $ 0.16 $ 0.13
DILUTED EARNINGS PER SHARE
Income from continuing operations..... $ 0.15 $ 0.13
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic................................. 18,713 18,713
Diluted............................... 19,059 19,059
- --------------------------
(1) To eliminate intercompany sales.
(2) To record the amortization of intangible assets acquired as a result of the
purchase price allocation of Sierra. For pro forma purposes, identifiable
intangible assets and goodwill are amortized over 20 years. Such amounts are
based on preliminary asset allocations and are subject to final allocation
adjustments. We have not included the potential impact of the new accounting
standard regarding the treatment of goodwill as this standard has not yet
been issued.
(3) To record interest expense at an effective interest rate of 8.5% for amounts
borrowed under the amended credit facility used to finance the Sierra
acquisition.
(4) Reflects an income tax (benefit) expense at expected effective rates.
(5) Adjusts interest expense to reflect what would have been expensed if the
initial public offering that was completed on October 4, 2000 had occurred
on January 1, 2000. This would result in interest on debt of approximately
$0.5 million at an effective rate of approximately 8.5% rather than that
which was historically recorded.
F-5
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Wilson Greatbatch Technologies, Inc.
Clarence, New York
We have audited the accompanying consolidated balance sheets of Wilson
Greatbatch Technologies, Inc. and subsidiary (the "Company") as of December 31,
1999 and December 29, 2000, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 29, 2000. Our audits also included the financial
statement schedule listed in the Index at Item 16(B). These financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Wilson Greatbatch
Technologies, Inc. and subsidiary as of December 31, 1999 and December 29, 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended December 29, 2000, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 1999,
the Company changed its method of accounting for costs of start-up activities.
DELOITTE & TOUCHE LLP
Buffalo, New York
January 24, 2001
F-6
WILSON GREATBATCH TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 31, DECEMBER 29, MARCH 30,
1999 2000 2001
------------ ------------ -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 3,863 $ 16 $ 253
Accounts receivable, net of allowance for doubtful
accounts of $219, $319 and $364 as of December 31,
1999, December 29, 2000 and March 30, 2001,
respectively......................................... 11,016 12,977 15,377
Inventories............................................ 13,583 13,643 15,948
Prepaid expenses and other assets...................... 868 819 930
Refundable income taxes................................ 2,520 623 279
Deferred tax asset..................................... 1,520 1,863 1,863
-------- -------- --------
Total current assets................................. 33,370 29,941 34,650
PROPERTY, PLANT AND EQUIPMENT, NET....................... 33,557 36,625 36,640
INTANGIBLE ASSETS, NET................................... 112,902 104,395 102,347
DEFERRED TAX ASSET....................................... 7,828 8,800 8,800
OTHER ASSETS............................................. 2,122 1,886 1,970
-------- -------- --------
TOTAL ASSETS............................................. $189,779 $181,647 $184,407
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................... $ 2,385 $ 2,365 $ 3,277
Accrued liabilities.................................... 7,139 9,480 9,429
Current maturities of long-term obligations............ 6,225 3,017 15
-------- -------- --------
Total current liabilities............................ 15,749 14,862 12,721
LONG-TERM OBLIGATIONS.................................... 126,988 30,951 35,916
DEFERRED COMPENSATION.................................... 635 -- --
-------- -------- --------
Total liabilities.................................... 143,372 45,813 48,637
COMMITMENTS AND CONTINGENCIES (NOTE 13)
STOCKHOLDERS' EQUITY:
Common stock........................................... 12 19 19
Subscribed common stock................................ 1,684 -- --
Capital in excess of par value......................... 63,488 157,526 157,537
Retained deficit....................................... (16,984) (17,532) (17,607)
-------- -------- --------
Subtotal............................................. 48,200 140,013 139,949
Less treasury stock, at cost........................... (109) (4,179) (4,179)
Less subscribed common stock receivable................ (1,684) -- --
-------- -------- --------
Total stockholders' equity........................... 46,407 135,834 135,770
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $189,779 $181,647 $184,407
======== ======== ========
See notes to consolidated financial statements.
F-7
WILSON GREATBATCH TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEARS ENDED THREE MONTHS ENDED
---------------------------------------- -------------------------
JANUARY 1, DECEMBER 31, DECEMBER 29, MARCH 31, MARCH 30,
1999 1999 2000 2000 2001
---------- ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
REVENUES................................ $77,361 $79,235 $97,790 $23,176 $29,571
COST OF GOODS SOLD...................... 36,454 41,057 55,446 12,936 15,560
------- ------- ------- ------- -------
GROSS PROFIT............................ 40,907 38,178 42,344 10,240 14,011
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 11,484 9,880 11,473 2,624 3,780
RESEARCH, DEVELOPMENT AND ENGINEERING
COSTS, NET............................ 12,190 9,339 9,941 2,520 3,188
INTANGIBLE AMORTIZATION................. 5,197 6,510 6,530 1,627 1,639
------- ------- ------- ------- -------
12,036 12,449 14,400 3,469 5,404
INTEREST EXPENSE........................ 10,572 13,420 12,958 3,985 712
OTHER EXPENSE (INCOME).................. 364 1,343 (189) 61 59
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES,
EXTRAORDINARY LOSS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE........... 1,100 (2,314) 1,631 (577) 4,633
INCOME TAX EXPENSE (BENEFIT)............ 410 (605) 611 (184) 1,714
------- ------- ------- ------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS
AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGE................................ 690 (1,709) 1,020 (393) 2,919
EXTRAORDINARY LOSS ON RETIREMENT OF
DEBT, NET OF TAX...................... -- -- (1,568) -- (2,994)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
NET OF TAX............................ -- (563) -- -- --
------- ------- ------- ------- -------
NET INCOME (LOSS)....................... $ 690 $(2,272) $ (548) $ (393) $ (75)
======= ======= ======= ======= =======
BASIC EARNINGS (LOSS) PER SHARE
Income (loss) from continuing
operations.......................... $ 0.07 $ (0.14) $ 0.07 $ (0.03) $ 0.16
Extraordinary loss on retirement of
debt................................ -- -- (0.11) (0.00) (0.16)
Cumulative effect of accounting
change.............................. -- (0.04) -- -- --
------- ------- ------- ------- -------
Net income (loss)..................... $ 0.07 $ (0.18) $ (0.04) $ (0.03) $ (0.00)
======= ======= ======= ======= =======
DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) from continuing
operations.......................... $ 0.06 $ (0.14) $ 0.07 $ (0.03) $ 0.15
Extraordinary loss on retirement of
debt................................ -- -- (0.11) (0.00) (0.15)
Cumulative effect of accounting
change.............................. -- (0.04) -- -- --
------- ------- ------- ------- -------
Net income (loss)..................... $ 0.06 $ (0.18) $ (0.04) $ (0.03) $ (0.00)
======= ======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic................................. 10,461 12,491 14,167 12,616 18,713
Diluted............................... 10,677 12,491 14,434 12,616 19,059
See notes to consolidated financial statements.
F-8
WILSON GREATBATCH TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS EXCEPT SHARES)
SUBSCRIBED CAPITAL
COMMON STOCK COMMON STOCK IN EXCESS RETAINED TREASURY STOCK
--------------------- ------------------- OF PAR EARNINGS -------------------
SHARES AMOUNT SHARES AMOUNT VALUE (DEFICIT) SHARES AMOUNT
---------- -------- -------- -------- --------- --------- -------- --------
BALANCE, JANUARY 2, 1998......... 8,728,262 $ 9 336,800 $1,684 $ 43,632 $(15,402) -- $ --
Shares issued in connection
with the financing of
Greatbatch-Hittman........... 3,300,000 3 -- -- 16,497 -- -- --
Shares contributed to Employee
Stock Ownership Plan......... 25,231 -- -- -- 126 -- -- --
Exercise of stock options...... 7,960 -- -- -- 40 -- -- --
Net income..................... -- -- -- -- -- 690 -- --
---------- --- -------- ------ -------- -------- ------- ------
BALANCE, JANUARY 1, 1999......... 12,061,453 12 336,800 1,684 60,295 (14,712) -- --
Common stock issued............ 66,537 -- -- -- 998 -- -- --
Common stock acquired for
treasury..................... -- -- -- -- -- -- 7,285 109
Shares contributed to Employee
Stock Ownership Plan......... 139,470 -- -- -- 2,092 -- -- --
Exercise of stock options...... 20,668 -- -- -- 103 -- -- --
Net loss....................... -- -- -- -- -- (2,272) -- --
---------- --- -------- ------ -------- -------- ------- ------
BALANCE, DECEMBER 31, 1999....... 12,288,128 12 336,800 1,684 63,488 (16,984) 7,285 109
Common stock issued............ 5,950,000 6 -- -- 86,401 -- -- --
Common stock acquired for
treasury..................... -- -- -- -- -- -- 265,746 4,250
Shares contributed to Employee
Stock Ownership Plan......... 57,038 -- -- -- 856 -- (11,970) (180)
Shares issued to acquire
Battery Engineering, Inc..... 339,856 1 -- -- 5,097 -- -- --
Purchase and cancel fractional
shares....................... (70) -- -- -- (1) -- -- --
Settlement of common stock
subscriptions................ 336,800 -- (336,800) (1,684) 1,684 -- -- --
Exercise of stock options...... 47 -- -- -- 1 -- -- --
Net loss....................... -- -- -- -- -- (548) -- --
---------- --- -------- ------ -------- -------- ------- ------
BALANCE, DECEMBER 29, 2000....... 18,971,799 $19 -- $ -- $157,526 $(17,532) 261,061 $4,179
========== === ======== ====== ======== ======== ======= ======
SUBSCRIBED
COMMON
STOCK
RECEIVABLE
----------
BALANCE, JANUARY 2, 1998......... $1,684
Shares issued in connection
with the financing of
Greatbatch-Hittman........... --
Shares contributed to Employee
Stock Ownership Plan......... --
Exercise of stock options...... --
Net income..................... --
------
BALANCE, JANUARY 1, 1999......... 1,684
Common stock issued............ --
Common stock acquired for
treasury..................... --
Shares contributed to Employee
Stock Ownership Plan......... --
Exercise of stock options...... --
Net loss....................... --
------
BALANCE, DECEMBER 31, 1999....... 1,684
Common stock issued............ --
Common stock acquired for
treasury..................... --
Shares contributed to Employee
Stock Ownership Plan......... --
Shares issued to acquire
Battery Engineering, Inc..... --
Purchase and cancel fractional
shares....................... --
Settlement of common stock
subscriptions................ (1,684)
Exercise of stock options...... --
Net loss....................... --
------
BALANCE, DECEMBER 29, 2000....... $ --
======
See notes to consolidated financial statements.
F-9
WILSON GREATBATCH TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEARS ENDED THREE MONTHS ENDED
---------------------------------------- -------------------------
JANUARY 1, DECEMBER 31, DECEMBER 29, MARCH 31, MARCH 30,
1999 1999 2000 2000 2001
---------- ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $ 690 $(2,272) $ (548) $ (393) $ (75)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities, net of
acquisitions:
Depreciation and amortization.................... 9,190 11,363 12,102 3,115 3,222
Extraordinary loss on retirement of debt......... -- -- 2,407 -- 3,019
Amortization of deferred financing costs......... 699 972 907 232 30
Deferred income taxes............................ (907) 1,309 (369) -- --
Loss on disposal of assets....................... 194 146 68 -- 26
Valuation loss on investment held at cost........ -- 859 -- -- --
Cumulative effect of accounting change........... -- 939 -- -- --
Reserve for disposal of property................. 300 -- -- -- --
Changes in operating assets and liabilities:
Accounts receivable.............................. (4,223) 947 (1,018) 556 (2,400)
Inventories...................................... (629) (292) 914 (1,134) (2,305)
Prepaid expenses and other assets................ (57) (663) 2,144 (454) (220)
Accounts payable................................. (103) 251 (128) 253 912
Accrued liabilities.............................. 4,809 (2,741) 1,536 2,336 248
Income taxes..................................... (910) (1,826) 145 120 29
-------- ------- -------- ------- --------
Net cash provided by operating activities...... 9,053 8,992 18,160 4,631 2,486
-------- ------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment..... (6,207) (8,452) (4,528) (1,918) (1,552)
Proceeds from sale of property, plant and
equipment...................................... 80 5 4 -- --
Increase in intangible assets.................... (1,741) (570) (417) (267) (940)
(Increase) decrease in other long term assets.... (2,569) 170 -- -- --
Cash provided in acquisition of subsidiary....... -- -- 1,583 -- --
Acquisition of subsidiary, net of cash
acquired....................................... (72,938) -- -- -- --
-------- ------- -------- ------- --------
Net cash used in investing activities.......... (83,375) (8,847) (3,358) (2,185) (2,492)
-------- ------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under line of credit,
net............................................ (700) 4,300 (4,300) (2,150) 500
Proceeds from long-term debt..................... 61,853 -- -- -- 40,000
Scheduled payments of long-term debt............. (775) -- (4,456) (1,650) (3)
Prepayments of long-term debt.................... (775) (2,950) (93,735) -- (40,265)
Acquisition earnout payment...................... -- (2,764) -- -- --
Purchase of treasury stock....................... -- (109) (2,565) (35) --
Expenses related to initial public offering...... -- -- (2,153) -- --
Issuance of common stock......................... 16,540 1,101 88,560 -- 11
-------- ------- -------- ------- --------
Net cash provided by (used in) financing
activities................................... 76,143 (422) (18,649) (3,835) 243
-------- ------- -------- ------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. 1,821 (277) (3,847) (1,389) 237
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR.......................................... 2,319 4,140 3,863 3,863 16
-------- ------- -------- ------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR............. $ 4,140 $ 3,863 $ 16 $ 2,474 $ 253
======== ======= ======== ======= ========
See notes to consolidated financial statements.
F-10
WILSON GREATBATCH TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 1, 1999, DECEMBER 31, 1999 AND DECEMBER 29, 2000
1. DESCRIPTION OF BUSINESS
THE ENTITY--The consolidated financial statements include the accounts of
Wilson Greatbatch Technologies, Inc., a holding company, and its wholly-owned
subsidiary Wilson Greatbatch Ltd. (collectively, the "Company"). The Company is
comprised of its operating companies, Wilson Greatbatch Ltd. and its
wholly-owned subsidiaries, Greatbatch-Hittman, Inc. ("Hittman") and Battery
Engineering, Inc. ("BEI"). All significant intercompany balances and
transactions have been eliminated.
NATURE OF OPERATIONS--The Company operates in two reportable
segments-medical and commercial power sources. The medical segment designs and
manufactures power sources, capacitors and components used in implantable
medical devices. The commercial power sources segment designs and manufactures
non-medical power sources for use in aerospace, oil and gas exploration and
oceanographic equipment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING CHANGE--In 1999, the Company adopted Statement of Position 98-5,
"Reporting the Costs of Start-Up Activities." This statement required that
start-up costs, including organization costs, capitalized by the Company prior
to January 2, 1999, be written off and any future start-up costs be expensed as
incurred. The total amount of deferred start-up costs reported as a cumulative
effect of change in accounting principle was $939,000, net of tax benefits of
$376,000.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents consist of cash and
highly liquid, short-term investments with maturities of three months or less.
INVENTORIES--Inventories include raw materials, work-in-process and finished
goods and are stated at the lower of cost (as determined by the first-in,
first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment is carried at
cost. Depreciation is computed primarily by the straight-line method over the
estimated useful lives of the assets, which are as follows: buildings and
building improvements 7-40 years; machinery and equipment 3-10 years; office
equipment 3-10 years; and leasehold improvements over the remaining lives of the
improvements or the lease term, if less.
The cost of repairs and maintenance is charged to expense as incurred.
Renewals and betterments are capitalized. Upon retirement or sale of an asset,
its cost and related accumulated depreciation or amortization are removed from
the accounts and any gain or loss is recorded in income or expense. The Company
continually reviews plant and equipment to determine that the carrying values
have not been impaired.
INTANGIBLE ASSETS--Intangible assets include goodwill and other identifiable
intangible assets, which were derived in connection with the Company's
acquisition of the Predecessor (Wilson Greatbatch Ltd.) in 1997, Hittman and
BEI. Goodwill represents the excess of the purchase price over the fair value of
the net assets acquired. Goodwill is being amortized on a straight-line basis
over 15 to 40 years. Other identifiable intangible assets are being amortized on
a straight-line basis over their estimated useful lives as follows: trademark
and names, 40 years; patented technology, 12 years; assembled workforce,
10-12 years; and other intangibles, 3-10 years. Deferred financing costs are
amortized using the effective yield method over the life of the underlying debt.
The Company continually reviews these intangible assets for potential impairment
by assessing significant decreases in the market value, a significant change in
the extent or manner in which an asset is used or a significant adverse change
in the business climate. The Company measures expected future cash flows and
F-11
compares them to the carrying amount of the asset to determine whether any
impairment loss is to be recognized.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The fair value of financial instruments
is determined by reference to various market data and other valuation
techniques, as appropriate. Unless otherwise disclosed, the fair value of cash
and cash equivalents approximates their recorded values due to the nature of the
instruments. The floating rate debt carrying value approximates the fair value
based on the floating interest rate resetting on a regular basis. The fixed rate
long-term debt carrying value approximates fair value.
The fair value of the interest rate cap agreements are estimated by
obtaining quotes from brokers and represents the cash requirement if the
existing contract has been settled at year end. The notional amount, fair value
and carrying amount of the Company's interest rate cap agreements were
approximately $54.1 million and $79.1 million; $196,000 and $515,300; and
$254,500 and $229,100, as of January 1, 1999 and December 31, 1999,
respectively. In the fourth quarter of 2000, the Company terminated two of its
three interest rate cap agreements. As a result, a gain was recorded and
included in ordinary income for the year ended December 29, 2000. The other
interest rate cap agreement expired in December 2000 resulting in no gain or
loss. At December 29, 2000, the Company was not party to any interest rate cap
agreements.
CONCENTRATION OF CREDIT RISK--Financial instruments which potentially
subject the Company to concentration of credit risk consist principally of trade
receivables. A significant portion of the Company's sales are to customers in
the medical industry, and, as such, the Company is directly affected by the
condition of that industry. However, the credit risk associated with trade
receivables is minimal due to the Company's stable customer base and ongoing
control procedures, which monitor the creditworthiness of customers.
DERIVATIVE FINANCIAL INSTRUMENTS--The Company has only limited involvement
with derivative financial instruments and does not enter into financial
instruments for trading purposes. Interest rate cap agreements have been used to
reduce the potential impact of increases in interest rates on floating-rate
long-term debt. Premiums paid for purchased interest rate cap agreements are
amortized over the terms of the caps and recognized as interest expense.
Unamortized premiums are included in other assets in the consolidated balance
sheets. Amounts receivable under interest rate cap agreements are accrued as a
reduction of interest expense. At December 29, 2000, the interest rate cap
agreements to which the Company had been a party had either expired or been
sold.
STOCK OPTION PLAN--The Company accounts for stock-based compensation in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. As permitted in that Standard, the
Company has chosen to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES, and related interpretations. Prior to its Initial
Public Offering in September 2000, there was no readily available market for the
Company's stock. In the absence of a "regular, active public market," the fair
market value of the common stock had been determined by the Board of Directors,
via independent valuations.
INCOME TAXES--The Company provides for income taxes using the liability
method whereby deferred tax liabilities and assets are recognized based on
temporary differences between the financial reporting and tax basis of assets
and liabilities using the anticipated tax rate when taxes are expected to be
paid or reversed.
REVENUE RECOGNITION--Revenues are recognized when the products are shipped
to customers.
RESEARCH, DEVELOPMENT AND ENGINEERING COSTS--Research, development and
engineering costs are expensed as incurred. The Company recognizes cost
reimbursements from customers for whom the Company designs products upon
achieving milestones related to designing batteries and capacitors for
F-12
their products. The cost reimbursements charged to customers represent actual
costs incurred by the Company in the design and testing of prototypes built to
customer specifications. This cost reimbursement includes no mark-up and is
recorded as an offset to research, development and engineering costs.
Net research, development and engineering costs for 1998, 1999 and 2000 are
as follows (dollars in thousands):
1998 1999 2000
-------- -------- --------
Research, development and engineering costs...... $15,580 $11,885 $13,101
Less cost reimbursements......................... (3,390) (2,546) (3,160)
------- ------- -------
Research, development and engineering costs,
net............................................ $12,190 $ 9,339 $ 9,941
======= ======= =======
EARNINGS (LOSS) PER SHARE--Basic earnings per share is calculated by
dividing net income (loss) by the average number of shares outstanding during
the period. Diluted earnings per share is calculated by adjusting for common
stock equivalents, which consist of stock options. There were approximately
0.2 million stock options that were not included in the computation of diluted
earnings per share for 1999 because to do so would have been antidilutive.
Diluted earnings per share for 1998 and 2000 include the potentially dilutive
effect of stock options. All shares held in the Employee Stock Ownership Plan
("ESOP") are considered outstanding for both basic and diluted earnings (loss)
per share calculations.
COMPREHENSIVE INCOME--Comprehensive income includes all changes in
stockholders' equity during a period except those resulting from investments by
owners and distribution to owners. For all periods presented, the Company's only
component of comprehensive income is its net income (loss) for those periods.
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
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS--SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, is effective for all fiscal years beginning
after June 15, 2000. SFAS 133, as amended, establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. Under SFAS 133, certain
contracts that were not formerly considered derivatives may now meet the
definition of a derivative. The Company will adopt SFAS 133 effective
December 30, 2000 (first quarter of 2001). Management does not expect the
adoption of SFAS 133 to have a significant impact on the consolidated financial
position, results of operations, or cash flows of the Company.
FINANCIAL STATEMENT YEAR END--The Company's year end is the closest Friday
to December 31. Fiscal 1998, 1999 and 2000 included 52 weeks.
F-13
SUPPLEMENTAL CASH FLOW INFORMATION:
1998 1999 2000
-------- -------- --------
(IN THOUSANDS)
Cash paid during the year for:
Interest........................................ $9,150 $13,790 $12,883
Income taxes.................................... 1,482 186 122
Noncash investing and financing activities:
Common stock issued for acquisition............. $ -- $ -- $ 5,098
Common stock contributed to ESOP................ 126 2,092 1,036
Settlement of subscribed common stock
receivable.................................... -- -- 1,684
RECLASSIFICATIONS--Certain reclassifications were made to the prior years'
financial statements to conform with the current year presentation. None of the
reclassifications affected net (loss) income or stockholders' equity.
3. ACQUISITIONS
On August 4, 2000, Wilson Greatbatch Ltd. acquired all of the capital stock
of BEI, a small specialty battery manufacturer, in exchange for 339,856 shares
($5,098,000) of Company common stock and the assumption of approximately
$2.7 million of indebtedness.
The acquisition was recorded under the purchase method of accounting and
accordingly, the results of the operations of BEI have been included in the
consolidated financial statements from the date of acquisition. The purchase
price has been allocated to assets acquired and liabilities assumed based on the
fair value at the date of acquisition. Liabilities assumed in this acquisition
were $3,946,000. The excess of the acquisition cost over fair value of the net
assets acquired was approximately $0.8 million which was allocated to goodwill.
On August 7, 1998, Wilson Greatbatch Ltd. acquired all of the issued and
outstanding shares of Hittman for a total purchase price of $71.8 million. Of
the total purchase price, $69.0 million was paid in cash at the date of
acquisition. The remaining purchase price was contingent upon Hittman achieving
certain financial targets in 1998 and 1999. Approximately $2.8 million of the
contingent consideration was incurred in 1998, paid in 1999, and allocated to
the purchase price. There is no additional contingent consideration to be
incurred.
The acquisition was recorded under the purchase method of accounting and
accordingly, the results of the operations of Hittman have been included in the
consolidated financial statements from the date of acquisition. The purchase
price has been allocated to assets acquired and liabilities assumed based on the
fair value at the date of acquisition. Liabilities assumed in this acquisition
were $1,034,000. The excess of the purchase price over fair value of the net
assets acquired was approximately $67.7 million, of which $17.4 million was
allocated to identifiable intangible assets and $50.3 million was allocated to
goodwill.
F-14
4. INVENTORIES
Inventories consisted of the following (dollars in thousands):
DECEMBER 31, DECEMBER 29, MARCH 30,
1999 2000 2001
------------ ------------ -----------
(UNAUDITED)
Raw material............................. $ 7,099 $ 7,302 $ 7,947
Work-in-process.......................... 5,089 4,941 5,951
Finished goods........................... 1,395 1,400 2,050
------- ------- -------
Total.................................... $13,583 $13,643 $15,948
======= ======= =======
5. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the following (dollars in
thousands):
DECEMBER 31, DECEMBER 29,
1999 2000
------------ ------------
Land and land improvements.......................... $ 2,227 $ 3,316
Buildings and building improvements................. 5,226 6,799
Leasehold improvements.............................. 2,243 2,837
Machinery and equipment............................. 26,153 32,610
Furniture and fixtures.............................. 1,628 1,742
Computers and information technology................ 2,259 2,569
Other............................................... 2,863 678
------- --------
42,599 50,551
Less accumulated depreciation....................... (9,042) (13,926)
------- --------
Total............................................... $33,557 $ 36,625
======= ========
Depreciation expense for 1998, 1999 and 2000 was approximately $3,532,000,
$4,240,000 and $4,943,000, respectively.
F-15
6. INTANGIBLE ASSETS, NET
Intangible assets consisted of the following (dollars in thousands):
DECEMBER 31, DECEMBER 29,
1999 2000
------------ ------------
Goodwill, net of accumulated amortization of $2,229
and $3,803........................................ $ 53,944 $ 54,948
Trademark and names, net of accumulated amortization
of $1,685 and $2,426.............................. 27,975 27,234
Patented technology, net of accumulated amortization
of $2,824 and $3,952.............................. 10,606 9,478
License agreement, net of accumulated amortization
of $2,579 and $3,459.............................. 3,611 988
Assembled workforce, net of accumulated amortization
of $1,468 and $2,103.............................. 5,912 5,277
Noncompete/employment agreement, net of accumulated
amortization of $1,400 and $2,333................. 4,200 3,267
Unpatented proprietary technology, net of
accumulated amortization of $976 and $1,611....... 2,224 1,589
Patent licenses, net of accumulated amortization of
$312 and $313..................................... 295 367
Deferred financing costs, net of accumulated
amortization of $1,746 and $4,405................. 3,906 1,247
Interest rate cap agreements........................ 229 --
-------- --------
Total............................................... $112,902 $104,395
======== ========
During 2000, a review of underlying data by management resulted in a
reclassification of cost and accumulated amortization from license agreement to
goodwill. This reclassification did not impact amortization expense for any
years presented.
7. ACCRUED LIABILITIES
Accrued liabilities consisted of the following (dollars in thousands):
DECEMBER 31, DECEMBER 29,
1999 2000
------------ ------------
Salaries and benefits............................... $3,832 $4,901
Profit sharing...................................... 1,105 2,456
Interest............................................ 931 163
Other............................................... 1,271 1,960
------ ------
Total............................................... $7,139 $9,480
====== ======
F-16
8. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following (dollars in thousands):
DECEMBER 31, DECEMBER 29, MARCH 30,
1999 2000 2001
------------ ------------ -----------
(UNAUDITED)
Long-term Debt:
New $40.0 million term loan............................ $ -- $ -- $35,000
New $20.0 million revolving line of credit............. -- -- 500
Term A Facility, $50.0 million. This credit facility
was refinanced in its entirety on January 12, 2001.
See below............................................ 46,250 6,247 --
Term B Facility, $60.0 million. This credit facility
was refinanced in its entirety on January 12, 2001.
See below............................................ 59,250 9,018 --
Revolving Credit Facility, up to $20.0 million. This
credit facility was refinanced in its entirety on
January 12, 2001. See below.......................... 4,300 -- --
Senior Subordinated Notes, principal amount of Notes of
$25.0 million. These notes were refinanced in their
entirety on January 12, 2001. See below.............. 22,602 18,337 --
-------- ------- -------
Total long-term debt................................. 132,402 33,602 35,500
Other long-term obligations............................ 811 366 431
-------- ------- -------
Total long-term obligations.......................... 133,213 33,968 35,931
Less current maturities of long-term obligations....... (6,225) (3,017) (15)
-------- ------- -------
Long-term obligations.................................. $126,988 $30,951 $35,916
======== ======= =======
In July 1997, the Company entered into a Credit Agreement with various
financial institutions providing a maximum of $60.0 million in senior,
first-secured financing. In August 1998, this agreement was amended and restated
to facilitate the Hittman acquisition, and the maximum senior, first secured
financing was increased to $130.0 million (the "Agreement"). The Agreement
provided for two term facilities ("Term A Facility" and "Term B Facility") and a
revolving credit facility ("Revolving Facility"). No gain or loss was recorded
as a result of the amended and restated Agreement.
Also, in July 1997, the Company issued $25.0 million, 13% Senior
Subordinated Notes (the "Senior Subordinated Notes") to various affiliates of
the former Donaldson, Lufkin & Jenrette ("DLJ") and third parties and received
$25.0 million related to the issuance. At maturity, July 1, 2007, the entire
principal amount of the Senior Subordinated Notes, $25.0 million, will be
payable to the holders of the Senior Subordinated Notes. At the date of
inception, the Company recorded $21,811,688 as its obligation due to lenders and
$3,188,312 for shares issued to the lenders. The difference between the face
amount of the Senior Subordinated Notes and the recorded book value is amortized
under the effective yield method and will be charged to interest expense over
the term of the Senior Subordinated Notes. The effect of this transaction
resulted in an effective interest rate of 14.3% in 1998, 1999 and 2000. Payments
are subordinated to amounts due under the Agreement. In connection with the
issuance of the Senior Subordinated Notes, the Company issued 637,663 shares to
the holders of the Senior Subordinated Notes.
The Revolving Facility included the availability to the Company of up to
$20.0 million in the form of either revolving loans, swing-line loans, or
letters of credit. The swing-line loans and letters of credit were not to exceed
$2.0 million and $5.0 million, respectively. The Revolving Facility was due
September 30, 2004. There was no balance outstanding at December 29, 2000.
F-17
In October 2000, using the net proceeds from its Initial Public Offering,
the Company prepaid $34.4 million of its Term A Facility and $49.6 million of
its Term B Facility. Also in October 2000, the Company repurchased $5.0 million
of its Senior Subordinated Notes and purchased for its Treasury 127,532 shares
of common stock from the noteholder. As a result of the prepayment and
repurchase transactions, an extraordinary loss for the extinguishment of debt
was recorded in the fourth quarter of 2000 in the amount of $1.6 million, net of
tax.
Subsequent to December 29, 2000, the Company consummated a new
$60.0 million credit facility ("New Credit Facility") which was effective
January 12, 2001. The New Credit Facility consists of a $40.0 million Term Loan
and a $20.0 million revolving line of credit. The proceeds from the
$40.0 million Term Loan were used to pay off the Term A Facility, Term B
Facility and the Senior Subordinated Notes that were outstanding as of
December 29, 2000, plus accrued interest and a call premium. The New Credit
Facility has a term of five years and matures on January 1, 2006. Interest is
payable monthly on any outstanding prime rate loans and upon the contractual
maturity for LIBOR-based loans. The interest rate charged is, at the Company's
option, based on either prime or LIBOR plus or minus an interest rate modifier
("Applicable Margin"). At current leverage levels, the applicable interest rates
for both the Term Loan and the revolving line of credit are prime less 1.0% or
LIBOR plus 1.25%, at the Company's option.
As a result of the payoff of debt in 2001, there will be an extraordinary
loss for the extinguishment of debt recorded in the first quarter of 2001 in the
amount of $3.0 million, net of tax.
The following maturity schedule is based on the New Credit Facility (dollars
in thousands):
2001........................................................ $ 3,000
2002........................................................ 5,500
2003........................................................ 7,500
2004........................................................ 9,500
2005........................................................ 11,500
Thereafter.................................................. 3,000
--------
Total....................................................... $ 40,000
========
9. INCENTIVE COMPENSATION AND EMPLOYEE BENEFIT PLANS
INCENTIVE COMPENSATION PLANS--The Company sponsors various incentive
compensation programs, which provide for the payment of cash to key employees
based upon achievement of specific earnings goals before incentive compensation
expense.
EMPLOYEE STOCK OWNERSHIP PLAN--The Company sponsors a non-leveraged Employee
Stock Ownership Plan ("ESOP") and related trust as a long-term benefit for
substantially all of its employees as defined in the plan documents. Under the
ESOP, there are two components to ESOP contributions. The first component is a
defined contribution pension plan whose annual contribution equals five percent
of each employee's compensation. Contributions to the ESOP are in the form of
Company stock. The second component is a discretionary profit sharing
contribution as determined by the Board of Directors. This profit sharing
contribution is to be contributed to the ESOP in the form of Company stock. The
ESOP is subject to contribution limitations and vesting requirements as defined
in the plan.
Compensation cost under the two components of the ESOP recognized by the
Company was approximately $2.1 million in 1998, $1.1 million in 1999 and
$1.9 million in 2000. As of December 29, 2000, the Company had contributed
237,211 shares under the ESOP and 67,040 committed-to-be released shares under
the ESOP, which equals the number of shares to settle the liability based on the
closing market price of the shares at December 29, 2000.
F-18
SAVINGS PLAN--The Company sponsors a defined contribution 401(k) plan, which
covers substantially all of its employees. The plan provides for the deferral of
employee compensation under Section 401(k) and a Company match. Net pension
costs related to this defined contribution pension plan were approximately
$477,500, $429,000 and $468,000 in 1998, 1999 and 2000, respectively.
Total costs to the Company for all of the above plans were approximately
$4,118,000, $1,946,000 and $3,367,000 in 1998, 1999 and 2000, respectively.
10. STOCK OPTION PLANS
The Company has two stock option plans which provide for the issuance of
nonqualified and incentive stock options to employees of the Company. The
Company's 1997 Stock Option Plan ("1997 Plan") authorizes the issuance of
options to purchase up to 480,000 shares of common stock of the Company. The
stock options generally vest over a five-year period and may vary depending upon
the achievement of earnings targets. The stock options expire 10 years from the
date of the grant. Stock options are granted at exercise prices equal to the
fair market value of the Company's common stock at the date of the grant.
The Company's 1998 Stock Option Plan ("1998 Plan") authorizes the issuance
of nonqualified and incentive stock options to purchase up to 1,220,000 shares
of common stock of the Company, subject to the terms of the plan. The stock
options vest over a three-to-five-year period and may vary depending upon the
achievement of earnings targets. The stock options expire 10 years from the date
of the grant. Stock options are granted at exercise prices equal to the fair
value of the Company's common stock at the date of the grant.
As of December 29, 2000, options for 1,080,642 shares were available for
future grants under the two plans. The weighted average remaining contractual
life is seven years.
The fair value of stock options granted subsequent to the Company's Initial
Public Offering on September 29, 2000 was the closing stock price on the date of
grant. The Compensation Committee of the Board of Directors had determined the
fair value of the stock options granted prior to September 29, 2000. In the
absence of a "regular, active public market," and based in part on independent
valuations of the Company's stock as of December 31, 1998 and 1999 and
consideration of comparable companies, the fair value of the common stock
underlying stock options granted in 1998 was estimated to be $5.00 per share.
The fair value of the common stock underlying stock options granted in 1999 was
estimated to be $15.00 per share.
F-19
A summary of the transactions under the 1997 Plan and 1998 Plan for 1998,
1999 and 2000 follows:
WEIGHTED
OPTION AVERAGE
ACTIVITY EXERCISE PRICE
-------- --------------
Balance at January 2, 1998............................ 423,600 $ 5.00
Options granted..................................... 57,307 5.00
Options exercised................................... (7,960) 5.00
Options forfeited................................... (17,040) 5.00
-------
Balance at January 1, 1999............................ 455,907 $ 5.00
Options granted..................................... 138,457 15.00
Options exercised................................... (20,668) 5.00
Options forfeited................................... (63,439) 5.75
-------
Balance at December 31, 1999.......................... 510,257 $ 7.60
Options granted..................................... 83,472 15.49
Options exercised................................... (47) 15.00
Options forfeited................................... (2,997) 15.00
-------
Balance at December 29, 2000.......................... 590,685 $ 8.70
-------
Options exercisable at:
January 1, 1999..................................... 137,412 $ 5.00
December 31, 1999................................... 133,325 7.05
December 29, 2000................................... 245,759 7.66
Of the options outstanding as of December 29, 2000, 376,466 options were at
an exercise price of $5.00, 211,048 options were at a range of exercise prices
of $15.00 to $16.00, and 3,171 options were at an exercise price of $26.00. The
exercise prices of outstanding options approximated their weighted average
exercise prices.
No compensation cost has been recognized in the financial statements because
the option exercise price was equal to the estimated fair market value of the
underlying stock on the date of grant. The weighted average grant date fair
value of options granted was $1.31 in 1998, $5.45 for 1999 and $9.06 for 2000.
The Company has determined the pro forma information as if the Company had
accounted for stock options granted under the fair value method of SFAS 123. The
binomial option pricing model was used with the following weighted average
assumptions: risk-free interest rates of 4.37%, 6.55% and 6.37% in 1998, 1999
and 2000, respectively; no dividend yield; expected common stock market price
volatility factor of effectively zero in 1998 and 1999 and 48% in 2000; and a
weighted average expected life of the options of seven years. As prescribed by
SFAS 123, pro forma net income (loss), basic and diluted earnings (loss) per
share would have been $600,000, $0.06, $0.06; $(2,975,000), $(0.24), $(0.24);
and $(1,365,000), $(0.10), $(0.10) for 1998, 1999 and 2000, respectively. These
pro forma calculations assume the common stock is freely tradable for all years
presented and, as such, the impact is not necessarily indicative of the effects
on reported net income of future years.
F-20
11. INCOME TAXES
The components of income tax expense (benefit) attributable to continuing
operations for 1998, 1999 and 2000, consisted of the following (dollars in
thousands):
1998 1999 2000
-------- -------- --------
Federal:
Current.............................................. $580 $ (702) $ --
Deferred............................................. (129) 685 411
---- ------ ----
451 (17) 411
---- ------ ----
State:
Current.............................................. 142 (1,588) 41
Deferred............................................. (183) 1,000 159
---- ------ ----
(41) (588) 200
---- ------ ----
Income tax expense (benefit)......................... $410 $ (605) $611
==== ====== ====
The net deferred tax asset includes the following (dollars in thousands):
DECEMBER 31, DECEMBER 29,
1999 2000
------------ ------------
Deferred tax asset -- current....................... $1,520 $ 1,863
Deferred tax asset -- non current................... 7,828 8,800
------ -------
Net deferred tax asset.............................. $9,348 $10,663
====== =======
The tax effect of major temporary differences that give rise to the
Company's net deferred tax asset are as follows (dollars in thousands):
DECEMBER 31, DECEMBER 29,
1999 2000
------------ ------------
Amortization of intangible assets................... $7,249 $ 6,714
Allowance for obsolete inventory and Uniform
Capitalization.................................... 687 683
Accrued liabilities and deferred compensation....... 751 1,335
Depreciation........................................ (1,507) (2,115)
Restructuring reserves.............................. 153 113
Tax credits......................................... 559 1,287
Net operating loss carryforwards.................... 1,430 2,646
Other............................................... 26 --
------ -------
Net deferred tax asset.............................. $9,348 $10,663
====== =======
In assessing the reliability of deferred tax assets, management considers,
within each taxing jurisdiction, whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the Initial Public Offering and simultaneous reduction of indebtedness and
interest expense, as well as projections for future taxable income over the
years in which the deferred assets are deductible, management believes it is
more likely than not that the Company will realize the benefits of these
deductible differences at December 29, 2000. Accordingly, no valuation allowance
has been recorded.
F-21
The net deferred tax asset of $7,249,000 at December 31, 1999 and $6,714,000
at December 29, 2000 ascribed to the amortization of intangible assets is
primarily attributable to the 1997 expensing of purchased in-process research,
development and engineering costs.
The provision for income taxes differs in each of the years from the federal
statutory rate due to the following:
1998 1999 2000
-------- -------- --------
Statutory rate...................................... 35% 35% 35%
State taxes......................................... 15 (30) (2)
Federal and state tax credits....................... (14) 20 --
Other............................................... 1 1 4
--- --- ---
Effective tax rate.................................. 37% 26% 37%
=== === ===
12. CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of common stock, $.001 par value per share. There are no preferred shares
outstanding. Under the terms of the New Credit Facility, the Company may pay
dividends in an amount up to 50% of net income. Holders of common stock have one
vote per share.
On September 29, 2000, the Company conducted its Initial Public Offering.
Together with the underwriters' over-allotment, the Company issued 5,750,000
shares in October 2000 and realized proceeds of approximately $84.0 million, net
of issuance costs.
Subscribed common stock receivable consisted of promissory notes, bearing
interest at 6.4% (the "Applicable Federal Rate" at the time the notes were
issued) extended by the Company to management stockholders to facilitate the
purchase of 336,800 shares of common stock. In connection with the Initial
Public Offering, the management stockholders tendered to the Company the
requisite number of shares of common stock at $16.00 per share to satisfy, in
full, the outstanding promissory notes.
13. COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal actions arising in the normal course
of business. The Company does not believe that any such pending activities
should have a material adverse effect on its results of operations or financial
position.
The Company is a party to various license agreements through 2003 to
manufacture and sell components for use in medical implants and various
commercial applications.
OPERATING LEASES--The Company is a party to various operating lease
agreements for office and manufacturing space. The Company incurred operating
lease expense of $621,000, $807,000 and $834,000 for 1998, 1999 and 2000,
respectively. Included in this amount is $83,655, $211,000 and $211,000 paid in
1998, 1999 and 2000, respectively to a related party under a non-cancelable
operating lease which expires in 2006.
If all lease extension options are exercised as expected by Company
management, minimum future annual operating lease payments over the next five
years for the Company are $789,000 in 2001; $790,000 in 2002; $568,000 in 2003;
$501,000 in 2004; and $517,000 in 2005.
F-22
14. BUSINESS SEGMENT INFORMATION
The Company operates its business in two reportable segments: medical and
commercial power sources. The medical segment designs and manufactures power
sources, capacitors and components used in implantable medical devices, which
are instruments that are surgically inserted into the body to provide diagnosis
or therapy. The commercial power sources segment designs and manufactures
non-medical power sources for use in aerospace, oil and gas exploration and
oceanographic equipment.
The Company's medical segment includes three product lines that have been
aggregated because they share similar economic characteristics and similarities
in the areas of products, production processes, types of customers, methods of
distribution and regulatory environment. The three product lines are implantable
power sources, capacitors and medical components.
The reportable segments are separately managed, and their performance is
evaluated based on income from operations. Management defines segment income
from operations as gross profit less costs and expenses attributable to segment
specific selling, general and administrative and research, development and
engineering. Non-segment specific selling, general and administrative expenses,
research, development and engineering expenses, interest expense, intangible
amortization and non-recurring items are not allocated to reportable segments.
Certain items of income previously classified as unallocated were assigned to
reportable segments in 2000. Segment income from operations in 1998 and 1999 has
been restated to conform to this revised allocation. Revenues from transactions
between the two segments are not significant. The accounting policies of the
segments are the same as those described in Note 2.
F-23
An analysis and reconciliation of the Company's business segment information
to the respective information in the consolidated financial statements is as
follows (dollars in thousands):
THREE THREE
MONTHS MONTHS
ENDED ENDED
MARCH 31, MARCH 30,
1998 1999 2000 2000 2001
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
Revenues:
Medical.................................. $64,449 $69,224 $83,789 $20,846 $22,582
Commercial power sources................. 12,912 10,011 14,001 2,330 6,989
------- ------- ------- ------- -------
Total revenues........................... $77,361 $79,235 $97,790 $23,176 $29,571
======= ======= ======= ======= =======
Segment income from operations:
Medical.................................. $28,937 $29,006 $30,005 $ 7,499 $ 8,415
Commercial power sources................. 4,303 2,711 3,494 604 2,578
------- ------- ------- ------- -------
Total segment income from operations..... 33,240 31,717 33,499 8,103 10,993
Unallocated.............................. (32,140) (34,031) (31,868) (8,680) (6,360)
------- ------- ------- ------- -------
Income (loss) before income taxes and
extraordinary loss..................... $ 1,100 $(2,314) $ 1,631 $ (577) $ 4,633
======= ======= ======= ======= =======
Depreciation and amortization:
Medical.................................. $ 2,585 $ 3,699 $ 4,826
Commercial power sources................. 290 301 377
------- ------- -------
Total depreciation included in segment
income from operations................. 2,875 4,000 5,203
Unallocated depreciation and
amortization........................... 6,315 7,363 6,899
------- ------- -------
Total depreciation and amortization...... $ 9,190 $11,363 $12,102
======= ======= =======
Expenditures for tangible long-lived
assets, excluding acquisitions:
Medical.................................. $ 2,129 $ 6,700 $ 4,061
Commercial power sources................. 136 72 82
------- ------- -------
Total reportable segments................ 2,265 6,772 4,143
Unallocated long-lived tangible assets... 3,942 1,680 385
------- ------- -------
Total expenditures....................... $ 6,207 $ 8,452 $ 4,528
======= ======= =======
DECEMBER 31, DECEMBER 29,
1999 2000
------------ ------------
Identifiable assets, net
Medical................................................... $ 42,236 $ 44,320
Commercial power sources.................................. 5,068 9,673
-------- --------
Total reportable segments................................. 47,304 53,993
Unallocated assets........................................ 142,475 127,654
-------- --------
Total assets.............................................. $189,779 $181,647
======== ========
F-24
Net revenues by geographic area are presented by attributing revenues from
external customers based on where the products are sold. All dollars are in
thousands.
1998 1999 2000
-------- -------- --------
Revenues by geographic area:
United States.................................. $60,917 $58,644 $68,179
Foreign countries.............................. 16,444 20,591 29,611
------- ------- -------
Consolidated revenues.......................... $77,361 $79,235 $97,790
======= ======= =======
DECEMBER 31, DECEMBER 29,
1999 2000
------------ ------------
Long-lived assets:
United States..................................... $156,409 $151,706
Foreign countries................................. -- --
-------- --------
Consolidated long-lived assets.................... $156,409 $151,706
======== ========
Two customers accounted for approximately 36%, 64% and 65% of sales for
1998, 1999 and 2000, respectively. Two customers accounted for approximately 62%
and 52% of the outstanding accounts receivable as of December 31, 1999 and
December 29, 2000, respectively.
15. INVESTMENT
In August 1998, the Company sold the assets of a product line,
Greatbatch-Scientific, to a third party in exchange for shares of stock of the
third party. Greatbatch-Scientific sales were not significant to the
consolidated financial statements. As a result of this transaction, the Company
recorded the shares of stock acquired as an investment carried at cost, which
approximated $2.4 million. Cost of the assets sold approximated fair value and
accordingly, no gain or loss was recorded in the accompanying consolidated
financial statements as of the date of sale. The investment is included in other
assets on the consolidated balance sheet. The cost method is used to account for
the Company's investment because the Company does not have the ability to
exercise significant influence over the investee's operating and financial
policies. Management intends for this investment to be long-term. During 1999,
an $859,000 impairment of this investment was recorded. The write-down of the
investment represented an other than temporary decline and was based upon the
Company's monitoring of this investment and other publicly available
information. As of December 29, 2000, the Company has concluded that no change
in the carrying value of this investment is warranted.
16. RESTRUCTURING
In October 1998, management of the Company initiated a plan to restructure
Engineered Components ("EC"), a product line of the Company's medical segment.
EC ceased the production of non-medical products to concentrate on its core
customer base. The restructuring is not expected to
F-25
significantly impact future operations. A total of $825,000 in restructuring
costs was charged to operations in fiscal 1998. Such restructuring costs
included the following (dollars in thousands):
Asset Impairment Charges:
Estimated unsaleable inventory............................ $350
Losses from the planned disposal of equipment............. 300
----
$650
====
Other Restructuring Costs:
Losses on equipment leases................................ $100
Severance pay and benefits to employees................... 75
----
$175
====
Approximately $49,000 for terminated EC employees and $5,000 for lease exit
costs were paid in 1998. The future cash liability at January 1, 1999
approximated $26,000 for terminated EC employees and $95,000 for lease exit
costs. Approximately $121,000, including all severance and benefits, was paid in
cash, in 1999. In addition, approximately $80,000 of inventory was disposed of.
The remaining assets are anticipated to be disposed of during the first half of
2001.
17. RELATED PARTY TRANSACTIONS
The Company had amounts due from related parties of $1,684,000 at
December 31, 1999. Amounts due from related parties were composed of notes
receivable from executive officers and key employees in connection with their
purchase in 1997 of shares of the Company's common stock. In connection with the
Initial Public Offering, the management stockholders tendered to the Company the
requisite number of shares of common stock at $16.00 per share to satisfy, in
full, the outstanding promissory notes. (See Note 12).
The Company may from time to time enter into other investment banking
relationships with DLJ or one of its affiliates pursuant to which DLJ or its
affiliates will receive customary fees and will be entitled to reimbursement of
reasonable disbursements and out-of-pocket expenses incurred in connection
therewith. The Company expects that any such arrangement will include provisions
for the indemnification of DLJ against liability, including liabilities under
the federal securities laws.
DLJ received approximately $2.8 million related to its capacity as a
financial advisor to the Company in connection with the Hittman acquisition, for
a syndication fee and a bond consent fee.
The Company is a party to an operating lease to a related party under a
non-cancelable operating lease which expires in 2006 (see Note 13). The Company
believes the rental amount to be reflective of arms-length, market-based rates
for similar structures.
F-26
18. QUARTERLY SALES AND EARNINGS DATA--UNAUDITED
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1999
Revenues................................... $20,496 $17,822 $19,621 $21,296
Gross profit............................... 10,472 8,461 9,759 9,486
Loss before cumulative effect of accounting
change................................... (47) (867) (52) (743)
Net (loss) income.......................... (610)(a) (867) (52) (743)
Loss per share before cumulative effect of
accounting change -- basic............... -- (0.07) -- (0.06)
Loss per share before cumulative effect of
accounting change -- diluted............. -- (0.07) -- (0.06)
Earnings (loss) per share -- basic (b)..... (0.05) (0.07) -- (0.06)
Earnings (loss) per share -- diluted (b)... (0.05) (0.07) -- (0.06)
2000
Revenues................................... $23,176 $23,408 $23,256 $27,950
Gross profit............................... 10,240 9,959 9,726 12,419
(Loss) income before extraordinary loss.... (393) (383) (860) 2,656
Net (loss) income.......................... (393) (383) (860) 1,088(c)
Earnings (loss) per share before
extraordinary loss- basic................ (0.03) (0.03) (0.07) 0.14
Earnings (loss) per share before
extraordinary loss -- diluted............ (0.03) (0.03) (0.07) 0.14
Earnings (loss) per share -- basic (b)..... (0.03) (0.03) (0.07) 0.06
Earnings (loss) per share -- diluted (b)... (0.03) (0.03) (0.07) 0.06
- ------------------------
(a) Amount includes the cumulative effect of an accounting change of $563,000,
net of tax.
(b) Per share data has been restated for all periods to reflect a one-for-three
reverse stock split effective May 18, 2000 and a three-for-five reverse
stock split effective August 15, 2000.
(c) Amount includes an extraordinary loss for the extinguishment of debt in the
amount of $1,568,000, net of tax.
19. SUBSEQUENT EVENTS AFTER ISSUANCE (UNAUDITED)
On June 18, 2001, the Company completed the acquisition of substantially all
of the assets of Sierra, a developer and manufacturer of electromagnetic
interference filters and capacitors for implantable medical devices for
$49.0 million in cash and certain assumed liabilities. The acquisition will be
accounted for as a purchase. In conjunction with the acquisition of Sierra, the
Company amended its existing $60.0 million credit facility with a consortium of
banks by increasing the total size of the facility to $100.0 million. The
amended facility consists of an $80.0 million term loan and a $20.0 million
revolving line of credit. Both the term loan and the revolving line of credit
have a term of five years, maturing in July 2006.
F-27
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Sierra--KD Components Division
We have audited the accompanying balance sheet of Sierra--KD Components
Division (a division of Maxwell Technologies, Inc.) as of December 31, 2000, and
the related statements of operations, division equity and cash flows for the
year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sierra--KD Components
Division (a division of Maxwell Technologies, Inc.) at December 31, 2000, and
the results of its operations and its cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States.
/S/ ERNST & YOUNG LLP
San Diego, California
May 25, 2001
F-28
SIERRA--KD COMPONENTS DIVISION
BALANCE SHEETS
DECEMBER 31, MARCH 31,
2000 2001
------------ -----------
(UNAUDITED)
ASSETS
Current assets:
Cash...................................................... $ 78,077 $ 448,121
Accounts receivable, net of allowance for doubtful
accounts of $113,511 and $124,516, respectively......... 2,439,800 3,498,332
Inventories, net.......................................... 4,349,189 4,770,706
Other current assets...................................... 70,828 54,001
---------- -----------
Total current assets........................................ 6,937,894 8,771,160
Property and equipment, net................................. 2,841,540 2,833,754
Other assets................................................ 67,030 65,446
---------- -----------
Total assets................................................ $9,846,464 $11,670,360
========== ===========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable.......................................... $2,543,996 $ 2,661,374
Accrued expenses and compensation......................... 477,186 533,557
Due to affiliates......................................... 892,226 2,095,174
---------- -----------
Total current liabilities................................... 3,913,408 5,290,105
Division equity:
Net contribution from Maxwell............................. 2,059,000 2,059,000
Accumulated division income............................... 3,874,056 4,321,255
---------- -----------
Total division equity....................................... 5,933,056 6,380,255
---------- -----------
Total liabilities and division equity....................... $9,846,464 $11,670,360
========== ===========
SEE ACCOMPANYING NOTES.
F-29
SIERRA--KD COMPONENTS DIVISION
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -----------------------
2000 2000 2001
------------ ---------- ----------
(UNAUDITED)
Net sales............................................... $13,690,893 $3,407,959 $5,294,896
Cost of sales........................................... 10,589,042 2,502,154 3,952,818
----------- ---------- ----------
Gross profit............................................ 3,101,851 905,805 1,342,078
Operating expenses:
Sales and marketing................................... 1,163,680 307,522 258,882
General and administrative............................ 2,142,850 550,640 257,626
Research and development.............................. 249,590 54,481 138,873
----------- ---------- ----------
3,556,120 912,643 655,381
----------- ---------- ----------
Income (loss) from operations........................... (454,269) (6,838) 686,697
Interest expense and other, net......................... (21,205) (6,540) 1,502
----------- ---------- ----------
Income (loss) before income taxes....................... (475,474) (13,378) 688,199
Income tax provision (benefit).......................... (166,000) (4,682) 241,000
----------- ---------- ----------
Net income (loss)....................................... $ (309,474) $ (8,696) $ 447,199
=========== ========== ==========
SEE ACCOMPANYING NOTES.
F-30
SIERRA--KD COMPONENTS DIVISION
STATEMENT OF DIVISION EQUITY
YEAR ENDED DECEMBER 31, 2000 AND THE THREE
MONTHS ENDED MARCH 31, 2001 (UNAUDITED)
NET
CONTRIBUTION ACCUMULATED
FROM DIVISION
MAXWELL INCOME
------------ -----------
Balance at January 1, 2000.................................. $ -- $4,183,530
Conversion of intercompany payable to equity.............. 2,059,000 --
Net and comprehensive loss................................ -- (309,474)
---------- ----------
Balance at December 31, 2000................................ 2,059,000 3,874,056
Net and comprehensive income (unaudited).................. -- 447,199
---------- ----------
Balance at March 31, 2001 (unaudited)....................... $2,059,000 $4,321,255
========== ==========
SEE ACCOMPANYING NOTES.
F-31
SIERRA--KD COMPONENTS DIVISION
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -----------------------
2000 2000 2001
------------ --------- -----------
(UNAUDITED)
OPERATING ACTIVITIES
Net income (loss)........................................ $ (309,474) $ (8,696) $ 447,199
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations:
Depreciation and amortization.......................... 471,307 115,576 133,861
Changes in operating assets and liabilities:
Accounts receivable.................................. (983,646) (354,734) (1,058,533)
Inventories.......................................... (1,369,311) 303,751 (421,519)
Other current assets................................. 28,748 (16,623) 16,827
Accounts payable..................................... 1,852,261 (307,738) 117,378
Accrued expenses and compensation.................... (22,301) 452,161 112,591
----------- --------- -----------
Net cash provided by (used in) operating activities...... (332,416) 183,697 (652,196)
INVESTING ACTIVITIES
Other assets............................................. 198,938 3,511 1,584
Purchases of property and equipment...................... (772,491) (173,697) (126,073)
----------- --------- -----------
Net cash used in investing activities.................... (573,553) (170,186) (124,489)
FINANCING ACTIVITIES
Payments on short-term debt.............................. (160,761) (3,541) --
Net advances from (payments to) affiliates............... 531,794 (372,798) 740,239
----------- --------- -----------
Net cash provided by (used in) financing activities...... 371,033 (376,339) 740,239
----------- --------- -----------
Net decrease in cash..................................... (534,936) (362,828) (36,446)
Cash at beginning of period.............................. 613,013 613,013 484,567
----------- --------- -----------
Cash at end of period.................................... $ 78,077 $ 250,185 $ 448,121
=========== ========= ===========
SUPPLEMENTAL CASH FLOW ACTIVITIES:
Interest paid............................................ $ 22,598 $ 5,275 $ --
=========== ========= ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING:
Conversion of intercompany payable to equity............. $ 2,059,000 $ -- $ --
=========== ========= ===========
SEE ACCOMPANYING NOTES.
F-32
SIERRA--KD COMPONENTS DIVISION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE
MONTHS ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Sierra--KD Components Division (the "Company") manufactures, designs and
sells ceramic filter capacitors, integrates such filters with wire feedthroughs
and designs, manufactures and markets ceramic capacitors for military, aerospace
and commercial applications. The Company is a division of Maxwell
Technologies, Inc. ("Maxwell").
The divisional statement of operations for the year ended December 31, 2000
includes all revenue and expenses directly attributable to the Company,
including a corporate allocation for payroll and benefit administration and
information technology services provided to the Company. All of the allocations
reflected in the 2000 financial statements are based on assumptions that
management believes are reasonable under the circumstances. However, these
allocations and estimates are not necessarily indicative of the costs that would
have resulted if the Company had been operated on a stand-alone basis.
INTERIM FINANCIAL INFORMATION
The financial information at March 31, 2001 and for the three months ended
March 31, 2000 and 2001 is unaudited but, in the opinion of management, has been
prepared on the same basis as the annual financial statements and includes all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of the financial position at such
date and the operating results and cash flow for such periods. Results for the
three months ended March 31, 2001 are not necessarily indicative of the results
to be expected for any subsequent period.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is depreciated using the
straight-line method over the estimated useful lives of the related assets,
generally three to five years. Building and building improvements are stated at
cost and amortized using the straight-line method over the estimated useful
lives of the assets generally seven to twenty-seven years.
REVENUE RECOGNITION
The Company derives its revenue from the sale of manufactured products. Such
revenue is typically recognized upon shipment of the products.
IMPAIRMENT OF LONG-LIVED ASSETS
Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS, requires the Company to review the carrying
amount of long-lived assets, including goodwill, to determine whether any
indicators of impairment are present. Should an impairment exist, the
F-33
SIERRA--KD COMPONENTS DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE
MONTHS ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
impairment loss would be measured based on the excess of the carrying value of
the asset over the asset's fair value or discounted estimates of future cash
flows. The Company has not identified any such impairment losses for the year
ended December 31, 2000.
INCOME TAXES
Through March 31, 2001, the Company was not a separate taxable entity for
federal, state, or local income tax purposes, and its operations were included
in the tax returns of Maxwell. The Company has recognized income taxes under the
liability method. Deferred income taxes are recognized for differences between
the financial statement and tax basis of assets and liabilities at enacted
statutory tax rates in effect for the years in which the differences are
expected to reverse. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. In
addition, valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized.
COMPREHENSIVE LOSS
The Company has adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME, which
establishes standards for reporting comprehensive income (loss) and its
components in the financial statements. To date, the Company's comprehensive
income (loss) has equaled its net income (loss).
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect amounts reported in the financial
statements and accompanying notes. Accordingly, actual results could differ from
those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, including cash
and accounts receivable approximate fair value because of their short
maturities.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
REVENUE RECOGNITION IN FINANCIAL STATEMENTS. SAB No. 101 provides guidance in
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB No. 101 was implemented in the fourth quarter of 2000.
The adoption of SAB No. 101 has had no impact on the Company's financial
statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which the Company
adopted on January 1, 2001. SFAS No. 133 sets forth a comprehensive and
consistent standard for the recognition of derivatives and hedging activities.
SFAS No. 133 did not have an impact on the Company's results of operations or
F-34
SIERRA--KD COMPONENTS DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE
MONTHS ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
financial condition when adopted as the Company currently holds no derivative
financial instruments and does not engage in hedging activities.
2. INVENTORIES
Inventories consist of the following:
DECEMBER 31, MARCH 31,
2000 2001
------------ -----------
(UNAUDITED)
Raw materials....................................... $1,171,206 $1,711,372
Work-in-process..................................... 2,258,950 1,742,206
Finished goods...................................... 1,172,246 1,585,342
---------- ----------
4,602,402 5,038,920
Less reserve for obsolescence....................... (253,213) (268,214)
---------- ----------
$4,349,189 $4,770,706
========== ==========
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31, MARCH 31,
2000 2001
------------ -----------
(UNAUDITED)
Manufacturing equipment............................. $3,670,627 $3,709,463
Land and buildings.................................. 1,702,690 1,702,690
Computer equipment.................................. 427,229 435,527
Furniture and fixtures.............................. 315,505 315,505
Construction-in-progress............................ 120,859 199,798
---------- ----------
6,236,910 6,362,983
Less accumulated depreciation....................... (3,395,370) (3,529,229)
---------- ----------
$2,841,540 $2,833,754
========== ==========
Depreciation expense was $465,346, $113,743 and $133,861 for the year ended
December 31, 2000 and three months ended March 31, 2000 and 2001, respectively.
4. SIGNIFICANT CUSTOMERS
The Company had one customer that accounted for approximately 39% of total
sales during fiscal 2000. Accounts receivable from this customer totaled
$463,110 at December 31, 2000. No other customer had sales in excess of 10% of
total sales.
F-35
SIERRA--KD COMPONENTS DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE
MONTHS ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)
5. INCOME TAXES
The net loss incurred for the year ended December 31, 2000 is attributable
to the operations of the Company as a division of Maxwell and were included in
the income tax returns filed by Maxwell.
Deferred income taxes are recognized for differences between the financial
statements and tax basis of assets and liabilities at enacted statutory tax
rates in effect for the years in which the differences are expected to reverse.
The effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date. In addition, valuation allowances
are established when necessary to reduce deferred tax assets to the amount
expected to be realized.
The provision (benefit) for income taxes shown in the accompanying statement
of operations for the year ended December 31, 2000 consist of the following:
Current:
Federal and state........................................... $(534,000)
Deferred:
Federal and state......................................... 368,000
---------
Total....................................................... $(166,000)
=========
The effective rate of the fiscal 2000 income tax benefit approximates the
federal tax rate of 35%.
Significant components of the Company's deferred tax assets and liabilities
as of December 31, 2000 are as follows:
Deferred tax assets:
Reserves.................................................. $155,000
Accrued vacation and other................................ 83,000
--------
Total deferred tax assets................................... 238,000
Deferred tax liabilities:
Depreciation.............................................. (102,000)
--------
Net deferred tax assets..................................... $136,000
========
The net deferred assets are included in the balance sheet under the caption
due to affiliates. The provision/benefit for income taxes during the interim
periods is based on the estimated effective tax rates for the year.
6. RELATED PARTY TRANSACTIONS
FUNDING
The Company's net cash requirements are funded by Maxwell through cash
advances, which are not subject to formal financing arrangements and do not bear
interest. Net financing provided by Maxwell to the Company in 2000 was
approximately $532,000. Amounts due to Maxwell from these
F-36
SIERRA--KD COMPONENTS DIVISION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 2001 AND FOR THE THREE
MONTHS ENDED MARCH 31, 2000 AND 2001 IS UNAUDITED)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
advances are included in the balance sheet under the caption due to affiliates.
Included within the due to affiliates caption are amounts charged by Maxwell for
corporate services. Approximately $2.1 million of amounts due to Maxwell were
converted to equity of the Company during fiscal 2000.
CORPORATE SERVICES
In accordance with the SAB No. 55, corporate expense allocations have been
reflected in these financial statements. These include payroll and benefits
administration and information technology services. Allocations and charges were
based on either a direct cost pass-through for incremental corporate
administration, finance and management costs or a percentage allocation of costs
for other services provided based on factors such as headcount and relative
expenditure levels. Such allocations and charges totaled approximately $158,702,
$43,227 and $18,910 for the year ended December 31, 2000 and for the three
months ended March 31, 2000 and 2001, respectively. Management believes that the
basis used for allocating corporate services is reasonable. However, the terms
of these transactions may differ from those that would have resulted form
transactions among unrelated parties.
7. SUBSEQUENT EVENT (UNAUDITED)
On June 18, 2001, Maxwell consummated an agreement with Wilson Greatbatch
Technologies, Inc. ("WGT") to sell the business and certain assets of Sierra-KD
Components Division for $49.0 million less liabilities assumed by WGT.
F-37
[LOGO]Registration Statement.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
common stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fees.
SEC registration fee........................................ $ 49,922
NASD filing fee............................................. 20,469
New York Stock Exchange listing fee......................... 29,500
Printing and engraving...................................... 500,000
Legal fees and expenses..................................... 600,000
Accounting fees and expenses................................ 400,000
Transfer agent fees......................................... 1,000
Miscellaneous expenses...................................... 199,109
----------
Total................................................... $1,800,000
==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, or the DGCL, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise), against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnify any such
person serving in any such capacity who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred in connection with the defense or settlement of such action
or suit if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
Our restated certificate of incorporation provides that indemnification
shall be to the fullest extent permitted by the DGCL for all current or former
directors or officers of our company.
As permitted by the DGCL, the certificate of incorporation provides that
directors of our company shall have no personal liability to our company or our
stockholders for monetary damages for breach of
II-1
fiduciary duty as a director, except (1) for any breach of the director's duty
of loyalty to our company or our stockholders, (2) for acts or omissions not in
good faith or which involve intentional misconduct or knowing violation of law,
(3) under Section 174 of the DGCL or (4) for any transaction from which a
director derived an improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
We have not sold any securities within the past three years which were not
registered under the Securities Act, except as set forth below.
In March 1998, we issued 25,231 shares of our common stock, for an aggregate
purchase price of $126,153, to the Trustees of the Wilson Greatbatch Ltd. Equity
Plus Plan Stock Bonus Plan as a bonus to the plan members. The securities were
issued in a transaction exempt from Section 5 of the Securities Act pursuant to
Rue 701 under the Securities Act.
In April 1998, we issued 120 shares of our common stock, for an aggregate
purchase price of $600, to John T. Fordyce upon his exercise of a stock option.
The securities were issued in a transaction exempt from Section 5 of the
Securities Act pursuant to Rule 701 under the Securities Act.
In July 1998, we issued 1,920 shares of our common stock, for an aggregate
purchase price of $9,600, to Stuart Scott Ferguson upon his exercise of a stock
option. The securities were issued in a transaction exempt from Section 5 of the
Securities Act pursuant to Rule 701 under the Securities Act.
In August 1998, we issued 480 shares of our common stock, for an aggregate
purchase price of $2,400, upon the exercise of stock options. The securities
were issued in a transaction exempt from Section 5 of the Securities Act
pursuant to Rule 701 under the Securities Act. We issued 240 shares to Jack
Belstadt and 240 shares to Charles Mozeko.
In August 1998, we issued 3,231,014 shares of our common stock for an
aggregate purchase price of $16,619,616. We issued 2,849,384 shares to DLJ
Merchant Banking and its affiliates. We issued 100,000 shares to East Hill
Foundation and 201,630 shares to members of our management and other key
personnel who participated in the leveraged buyout and their affiliates. We
issued 80,000 shares to former shareholders of Wilson Greatbatch Ltd. who
participated in the leveraged buyout and their affiliates. The securities were
issued in a private placement in reliance on Section 4(2) of the Securities Act.
In August 1998, we issued 2,080 shares of our common stock, for an aggregate
purchase price of $10,400, upon the exercise of stock options. The securities
were issued in a transaction exempt from Section 5 of the Securities Act
pursuant to Rule 701 under the Securities Act. We issued 240 shares to Robert W.
Siegler, 240 shares to Richard M. Garlapow and 1,600 shares to Gary Sfeir.
In August 1998, we issued 68,985 shares of our common stock, for an
aggregate purchase price of $344,925, to The Northwestern Mutual Life Insurance
Company. The securities were issued in a private placement in reliance on
Section 4(2) of the Securities Act.
In November 1998, we issued 3,360 shares of our common stock, for an
aggregate purchase price of $16,800, to Robert C. Rusin upon his exercise of
stock options. The securities were issued in a transaction exempt from
Section 5 of the Securities Act pursuant to Rule 701 under the Securities Act.
In March 1999, we issued 10,761 shares of our common stock, for an aggregate
purchase price of $53,805, upon the exercise of stock options. The securities
were issued in a transaction exempt from Section 5 of the Securities Act
pursuant to Rule 701 under the Securities Act. We issued 1,448 shares to Gary
Whitcher and 9,313 shares to Tim H. Belstadt.
In April 1999, we issued 4,363 shares of our common stock, for an aggregate
purchase price of $21,816, upon the exercise of stock options. The securities
were issued in a transaction exempt from
II-2
Section 5 of the Securities Act pursuant to Rule 701 under the Securities Act.
We issued 251 shares to Gayle Fairchild, 251 shares to William Bruns and 3,861
shares to Robert W. Hammell.
In May 1999, we issued 3,356 shares of our common stock, for an aggregate
purchase price of $16,782, to Robert C. Jackson upon the exercise of stock
options. The securities were issued in a transaction exempt from Section 5 of
the Securities Act pursuant to Rule 701 under the Securities Act.
In August 1999, we issued 139,471 shares of our common stock, for an
aggregate purchase price of $2,092,050, to the Trustees of the Wilson
Greatbatch Ltd. Equity Plus Plan Stock Bonus Plan for our annual retirement plan
contribution. The securities were issued in a transaction exempt from Section 5
of the Securities Act pursuant to Rule 701 under the Securities Act.
In September 1999, we issued 50,000 shares of our common stock, for an
aggregate purchase price of $750,000, to Fred Hittman. The securities were
issued in a private placement in reliance on Section 4(2) of the Securities Act.
In September 1999, we issued 2,188 shares of our common stock, for an
aggregate purchase price of $32,823, to Christine A. Frysz upon her exercise of
stock options. The securities were issued in a transaction exempt from
Section 5 of the Securities Act pursuant to Rule 701 under the Securities Act.
In December 1999, we issued 16,537 shares of our common stock, for an
aggregate purchase price of $293,679, to members of our management and other key
personnel who had terminated their employment. The securities were issued in a
private placement in reliance on Section 4(2) of the Securities Act.
In August 2000, we issued 339,856 shares of our common stock to
Hitachi-Maxell, Ltd. in exchange for all of the capital stock of Battery
Engineering, Inc. The securities were issued in reliance on Section 4(2) of the
Securities Act.
In August 2000, we issued 200,000 shares of our common stock, for an
aggregate purchase price of $3,000,006, to Hitachi-Maxell, Ltd. The securities
were issued in a private placement in reliance on Section 4(2) of the Securities
Act.
In August 2000, we issued 57,037 shares of our common stock, for an
aggregate purchase price of $855,560, to the Trustees of the Wilson
Greatbatch Ltd. Equity Plus Plan Money Purchase Plan for our annual retirement
plan contribution. The securities were issued in a transaction exempt from
Section 5 of the Securities Act pursuant to Rule 701 under the Securities Act.
No underwriters were involved in connection with any transaction set forth
above. As noted above, the issuances of the securities described above were
deemed to be exempt from registration pursuant to Section 4(2) of the Securities
Act and Regulation D promulgated thereunder as a transaction by an issuer not
involving a public offering. In all of these transactions, the recipients of
securities represented their intention to acquire the securities for investment
purposes only and not with a view to, or for sale in connection with, any
distribution thereof and appropriate legends were affixed to the securities
issued.
II-3
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to our
registration statement on Form S-1 (File No. 333-37554))
3.2 Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 to our registration statement on Form S-1 (File
No. 333-37554))
5.1** Opinion of Weil, Gotshal & Manges LLP
10.1 1997 Stock Option Plan (including form of "standard" option
agreement and form of "special" option agreement)
(incorporated by reference to Exhibit 10.1 to our
registration statement on Form S-1 (File No. 333-37554))
10.2 1998 Stock Option Plan (including form of "standard" option
agreement, form of "special" option agreement and form of
"non-standard" option agreement) (incorporated by reference
to Exhibit 10.2 to our registration statement on Form S-1
(File No. 333-37554))
10.3 Wilson Greatbatch Ltd. Equity Plus Plan Money Purchase Plan
(incorporated by reference to Exhibit 10.3 to our
registration statement on Form S-1 (File No. 333-37554))
10.4 Wilson Greatbatch Ltd. Equity Plus Plan Stock Bonus Plan
(incorporated by reference to Exhibit 10.4 to our
registration statement on Form S-1 (File No. 333-37554))
10.5 Employment Agreement, dated as of July 9, 1997, between
Wilson Greatbatch Ltd. and Edward F. Voboril (incorporated
by reference to Exhibit 10.5 to our registration statement
on Form S-1 (File No. 333-37554))
10.6 Registration and Anti-Dilution Agreement, dated as of July
10, 1997, among Wilson Greatbatch Technologies, Inc., DLJ
Investment Partners, L.P., DLJ Investment Funding, Inc., DLJ
First ESC L.L.C., The Northwestern Mutual Life Insurance
Company and Donaldson, Lufkin & Jenrette Securities
Corporation (incorporated by reference to Exhibit 10.7 to
our registration statement on Form S-1 (File No. 333-37554))
10.7 Stockholders Agreement, dated as of July 16, 1997, among
Wilson Greatbatch Technologies, Inc., DLJ Merchant Banking
Partners II, L.P., DLJMB Funding II, Inc., DLJ Merchant
Banking Partners II-A, L.P., DLJ Diversified Partners, L.P.,
DLJ Diversified Partners-A, L.P., DLJ Millennium Partners,
L.P., DLJ First ESC L.L.C., DLJ Offshore Partners II, C.V.,
DLJ EAB Partners, L.P., U.K. Investment Plan 1997 Partners,
and the other holders of common stock of Wilson Greatbatch
Technologies Inc. party thereto (incorporated by reference
to Exhibit 10.12 to our registration statement on Form S-1
(File No. 333-37554))
10.8 Amendment No. 1 to Stockholders Agreement, dated as of
October 31, 1997, among Wilson Greatbatch Technologies,
Inc., DLJ Merchant Banking Partners II, L.P., DLJMB Funding
II, Inc., DLJ Merchant Banking Partners II-A, L.P., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A,
L.P., DLJ Millennium Partners, L.P., DLJ First ESC L.L.C.,
DLJ Offshore Partners II, C.V., DLJ EAB Partners, L.P., U.K.
Investment Plan 1997 Partners, and the other holders of
common stock of Wilson Greatbatch Technologies, Inc. party
thereto (incorporated by reference to Exhibit 10.1210.13 to our
registration statement on Form S-1 (File No. 333-37554))
10.8 Amendment No. 1 to333-37554))
II-4
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
10.9 Management Stockholders Agreement, dated as of October 31,July 10,
1997, among Wilson Greatbatch Technologies, Inc., DLJ
Merchant Banking Partners II, L.P., DLJMB Funding II, Inc.,
DLJ Merchant Banking Partners II-A, L.P., DLJ Diversified
Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ
Millennium Partners, L.P., DLJ First ESC L.L.C., DLJ
Offshore Partners II, C.V., DLJ EAB Partners, L.P., U.K.
Investment Plan 1997 Partners, and the other holders of
common stock of Wilson Greatbatch Technologies, Inc. party
thereto (incorporated by reference to Exhibit 10.1310.14 to our
registration statement on Form S-1 (File No. 333-37554))
10.10 Subordinated Note Holders Stockholders Agreement, dated as
of July 10, 1997, among Wilson Greatbatch Technologies,
Inc., DLJ Merchant Banking Partners II, L.P., DLJMB Funding
II, Inc., DLJ Merchant Banking Partners II-A, L.P., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A,
L.P., DLJ Millennium Partners, L.P., DLJ First ESC L.L.C.,
DLJ Offshore Partners II, C.V., DLJ EAB Partners, L.P., U.K.
Investment Plan 1997 Partners, DLJ Investment Partners,
L.P., DLJ Investment Funding, Inc., The Northwestern Mutual
Life Insurance Company and Donaldson, Lufkin & Jenrette
Securities Corporation (incorporated by reference to Exhibit
10.15 to our registration statement on Form S-1 (File No.
333-37554))
10.11+ Supply Agreement (SVO Batteries), dated as of July 31, 1991,
between Wilson Greatbatch Ltd. and Medtronic Inc.
(incorporated by reference to Exhibit 10.16 to our
registration statement on Form S-1 (File No. 333-37554))
10.12+ Amendment No. 1 to the Supply Agreement (SVO Batteries),
dated as of June 3, 1996, between Wilson Greatbatch Ltd. and
Medtronic Inc. (incorporated by reference to Exhibit 10.17
to our registration statement on Form S-1 (File No.
333-37554))
10.13+ Amendment No. 2 to the Supply Agreement (SVO Batteries),
dated as of March 24, 1997, between Wilson Greatbatch Ltd.
And Medtronic Inc. (incorporated by reference to Exhibit
10.18 to our registration statement on Form S-1 (File No.
333-37554))
10.14+ Amendment No. 3 to the Supply Agreement (SVO Batteries),
dated as of July 22, 1999, between Wilson Greatbatch Ltd.
and Medtronic Inc. (incorporated by reference to Exhibit
10.19 to our registration statement on Form S-1 (File No.
333-37554))
10.15+ Supply Agreement, dated as of February 1, 1999, among Wilson
Greatbatch Ltd. and Guidant/CRM (incorporated by reference
to Exhibit 10.20 to our registration statement on Form S-1
(File No. 333-37554))
10.16+ Agreement, dated as of April 16, 1997, between Wilson
Greatbatch Ltd. and Pacesetter, Inc., a St. Jude Medical
Company (incorporated by reference to Exhibit 10.21 to our
registration statement on Form S-1 (File No. 333-37554))
10.17+ License Agreement, dated August 8, 1996, between Wilson
Greatbatch Ltd. and Evans Capacitor Company (incorporated by
reference to Exhibit 10.22 to our registration statement on
Form S-1 (File No. 333-37554))
10.18+ Supplier Partnering Agreement, dated as of June 1, 2000,
between Wilson Greatbatch Ltd. and Pacesetter, Inc., a St.
Jude Medical Company (incorporated by reference to Exhibit
10.23 to our registration statement on Form S-1 (File No.
333-37554))
10.19 License Agreement, dated March 16, 1976, between Wilson
Greatbatch Ltd. and Medtronic Inc. (incorporated by
reference to Exhibit 10.24 to our registration statement on
Form S-1 (File No. 333-37554))
10.20 Amendment No. 1 to License Agreement, dated July 20, 1976,
between Wilson Greatbatch Ltd. and Medtronic Inc.
(incorporated by reference to Exhibit 10.25 to our
registration statement on Form S-1 (File No. 333-37554))
II-4II-5
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
10.9 Management10.21 Stockholders Agreement, dated as of August 23, 1999, among
Wilson Greatbatch Technologies, Inc., DLJ Merchant Banking
Partners II, L.P., DLJMB Funding II, Inc., DLJ Merchant
Banking Partners II-A, L.P., DLJ Diversified Partners, L.P.,
DLJ Diversified Partners-A, L.P., DLJ Millennium Partners,
L.P., DLJ First ESC L.P., DLJ Offshore Partners II, C.V.,
DLJ EAB Partners, L.P., UK Investment Plan 1997 Partners and
Fred Hittman (incorporated by reference to Exhibit 10.26 to
our registration statement on Form S-1 (File No. 333-37554))
10.22 Stock Purchase Agreement, dated as of July 31, 2000, among
Wilson Greatbatch Technologies, Inc., Battery Engineering,
Inc. and Hitachi-Maxell, Ltd. (incorporated by reference to
Exhibit 10.31 to our registration statement on Form S-1
(File No. 333-37554))
10.23 Stockholders Agreement, dated as of August 7, 2000, among
Wilson Greatbatch Technologies, Inc., Hitachi-Maxell, Ltd.,
DLJ Merchant Banking Partners II, L.P., DLJMB Funding II,
Inc., DLJ Merchant Banking Partners II-A, L.P., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A,
L.P., DLJ Millennium Partners, L.P., DLJ First ESC L.P., DLJ
Offshore Partners II, C.V., DLJ EAB Partners, L.P. and UK
Investment Plan 1997 Partners (incorporated by reference to
Exhibit 10.32 to our registration statement on Form S-1
(File No. 333-37554))
10.24 Subscription Agreement, dated as of August 7, 2000, between
Wilson Greatbatch Technologies, Inc. and Hitachi-Maxell,
Ltd. (incorporated by reference to Exhibit 10.33 to our
registration statement on Form S-1 (File No. 333-37554))
10.25 Non-Compete Agreement, dated as of August 7, 2000, between
Wilson Greatbatch Technologies, Inc. and Hitachi-Maxell,
Ltd. (incorporated by reference to Exhibit 10.34 to our
registration statement on Form S-1 (File No. 333-37554))
10.26** Amended and Restated Credit Agreement, dated as of June 15,
2001, among Wilson Greatbatch Ltd., the lenders party
thereto and Manufacturers and Traders Trust Company, as
Administrative Agent
10.27 Asset Purchase Agreement, dated as of June 18, 2001, among
Wilson Greatbatch Technologies, Inc., GB Acquisition
Co., Inc., Maxwell Technologies, Inc. and Maxwell Electronic
Components Group, Inc. (incorporated by reference to
Exhibit 10.1 to our current report on Form 8-K filed
June 19, 2001)
21.1** List of Subsidiaries
23.1** Consent of Deloitte & Touche LLP
23.2** Consent of Ernst & Young LLP, Independent Auditors
23.3** Consent of Weil, Gotshal & Manges LLP (included in Exhibit
5.1)
24.1** Power of Attorney
- ------------------------
* Filed herewith.
** Previously filed.
+ Portions of the exhibit have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Clarence, New York, on July 24, 2001.
WILSON GREATBATCH TECHNOLOGIES, INC.
By: /s/ LARRY T. DEANGELO
-----------------------------------------
Larry T. DeAngelo
Senior Vice President, Administration and
Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated:
NAME TITLE DATE
---- ----- ----
* President, Chief Executive Officer and
------------------------------------ Chairman of the Board (principal July 24, 2001
Edward F. Voboril executive officer)
* Senior Vice President, Finance
------------------------------------ (principal financial and accounting July 24, 2001
Arthur J. Lalonde officer)
*
------------------------------------ Director July 24, 2001
Robert E. Rich, Jr.
------------------------------------ Director
Douglas E. Rogers
*
------------------------------------ Director July 24, 2001
Bill R. Sanford
*
------------------------------------ Director July 24, 2001
Henry Wendt
*
------------------------------------ Director July 24, 2001
David M. Wittels
The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 2 pursuant to the Power of Attorney executed by the above-named
directors and officers of the Registrant and previously filed with the
Securities and Exchange Commission on behalf of such directors and officers.
*By: /s/ LARRY T. DEANGELO
--------------------------------------
Larry T. DeAngelo
ATTORNEY-IN-FACT
II-8
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to our
registration statement on Form S-1 (File No. 333-37554))
3.2 Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 to our registration statement on Form S-1 (File
No. 333-37554))
5.1** Opinion of Weil, Gotshal & Manges LLP
10.1 1997 Stock Option Plan (including form of "standard" option
agreement and form of "special" option agreement)
(incorporated by reference to Exhibit 10.1 to our
registration statement on Form S-1 (File No. 333-37554))
10.2 1998 Stock Option Plan (including form of "standard" option
agreement, form of "special" option agreement and form of
"non-standard" option agreement) (incorporated by reference
to Exhibit 10.2 to our registration statement on Form S-1
(File No. 333-37554))
10.3 Wilson Greatbatch Ltd. Equity Plus Plan Money Purchase Plan
(incorporated by reference to Exhibit 10.3 to our
registration statement on Form S-1 (File No. 333-37554))
10.4 Wilson Greatbatch Ltd. Equity Plus Plan Stock Bonus Plan
(incorporated by reference to Exhibit 10.4 to our
registration statement on Form S-1 (File No. 333-37554))
10.5 Employment Agreement, dated as of July 9, 1997, between
Wilson Greatbatch Ltd. and Edward F. Voboril (incorporated
by reference to Exhibit 10.5 to our registration statement
on Form S-1 (File No. 333-37554))
10.6 Registration and Anti-Dilution Agreement, dated as of July
10, 1997, among Wilson Greatbatch Technologies, Inc., DLJ
Investment Partners, L.P., DLJ Investment Funding, Inc., DLJ
First ESC L.L.C., The Northwestern Mutual Life Insurance
Company and Donaldson, Lufkin & Jenrette Securities
Corporation (incorporated by reference to Exhibit 10.7 to
our registration statement on Form S-1 (File No. 333-37554))
10.7 Stockholders Agreement, dated as of July 10,16, 1997, among
Wilson Greatbatch Technologies, Inc., DLJ Merchant Banking
Partners II, L.P., DLJMB Funding II, Inc., DLJ Merchant
Banking Partners II-A, L.P., DLJ Diversified Partners, L.P.,
DLJ Diversified Partners-A, L.P., DLJ Millennium Partners,
L.P., DLJ First ESC L.L.C., DLJ Offshore Partners II, C.V.,
DLJ EAB Partners, L.P., U.K. Investment Plan 1997 Partners,
and the other holders of common stock of Wilson Greatbatch
Technologies Inc. party thereto (incorporated by reference
to Exhibit 10.1410.12 to our registration statement on Form S-1
(File No. 333-37554))
10.10 Subordinated Note Holders10.8 Amendment No. 1 to Stockholders Agreement, dated as of
July 10, 1997, among Wilson Greatbatch Technologies,
Inc., DLJ Merchant Banking Partners II, L.P., DLJMB Funding
II, Inc., DLJ Merchant Banking Partners II-A, L.P., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A,
L.P., DLJ Millennium Partners, L.P., DLJ First ESC L.L.C.,
DLJ Offshore Partners II, C.V., DLJ EAB Partners, L.P., U.K.
Investment Plan 1997 Partners, DLJ Investment Partners,
L.P., DLJ Investment Funding, Inc., The Northwestern Mutual
Life Insurance Company and Donaldson, Lufkin & Jenrette
Securities Corporation (incorporated by reference to Exhibit
10.15 to our registration statement on Form S-1 (File No.
333-37554))
10.11+ Supply Agreement (SVO Batteries), dated as of JulyOctober 31, 1991,
between Wilson Greatbatch Ltd. and Medtronic Inc.
(incorporated by reference to Exhibit 10.16 to our
registration statement on Form S-1 (File No. 333-37554))
10.12+ Amendment No. 1 to the Supply Agreement (SVO Batteries),
dated as of June 3, 1996, between Wilson Greatbatch Ltd. and
Medtronic Inc. (incorporated by reference to Exhibit 10.17
to our registration statement on Form S-1 (File No.
333-37554))
10.13+ Amendment No. 2 to the Supply Agreement (SVO Batteries),
dated as of March 24, 1997, between Wilson Greatbatch Ltd.
And Medtronic Inc. (incorporated by reference to Exhibit
10.18 to our registration statement on Form S-1 (File No.
333-37554))
10.14+ Amendment No. 3 to the Supply Agreement (SVO Batteries),
dated as of July 22, 1999, between Wilson Greatbatch Ltd.
and Medtronic Inc. (incorporated by reference to Exhibit
10.19 to our registration statement on Form S-1 (File No.
333-37554))
10.15+ Supply Agreement, dated as of February 1, 1999, among Wilson
Greatbatch Ltd. and Guidant/CRM (incorporated by reference
to Exhibit 10.20 to our registration statement on Form S-1
(File No. 333-37554))
10.16+ Agreement, dated as of April 16, 1997, between Wilson
Greatbatch Ltd. and Pacesetter, Inc., a St. Jude Medical
Company (incorporated by reference to Exhibit 10.21 to our
registration statement on Form S-1 (File No. 333-37554))
10.17+ License Agreement, dated August 8, 1996, between Wilson
Greatbatch Ltd. and Evans Capacitor Company (incorporated by
reference to Exhibit 10.22 to our registration statement on
Form S-1 (File No. 333-37554))
10.18+ Supplier Partnering Agreement, dated as of June 1, 2000,
between Wilson Greatbatch Ltd. and Pacesetter, Inc., a St.
Jude Medical Company (incorporated by reference to Exhibit
10.23 to our registration statement on Form S-1 (File No.
333-37554))
10.19 License Agreement, dated March 16, 1976, between Wilson
Greatbatch Ltd. and Medtronic Inc. (incorporated by
reference to Exhibit 10.24 to our registration statement on
Form S-1 (File No. 333-37554))
10.20 Amendment No. 1 to License Agreement, dated July 20, 1976,
between Wilson Greatbatch Ltd. and Medtronic Inc.
(incorporated by reference to Exhibit 10.25 to our
registration statement on Form S-1 (File No. 333-37554))
II-5
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
10.21 Stockholders Agreement, dated as of August 23, 1999, among
Wilson Greatbatch Technologies, Inc., DLJ Merchant Banking
Partners II, L.P., DLJMB Funding II, Inc., DLJ Merchant
Banking Partners II-A, L.P., DLJ Diversified Partners, L.P.,
DLJ Diversified Partners-A, L.P., DLJ Millennium Partners,
L.P., DLJ First ESC L.P., DLJ Offshore Partners II, C.V.,
DLJ EAB Partners, L.P., UK Investment Plan 1997 Partners and
Fred Hittman (incorporated by reference to Exhibit 10.26 to
our registration statement on Form S-1 (File No. 333-37554))
10.22 Stock Purchase Agreement, dated as of July 31, 2000, among
Wilson Greatbatch Technologies, Inc., Battery Engineering,
Inc. and Hitachi-Maxell, Ltd. (incorporated by reference to
Exhibit 10.31 to our registration statement on Form S-1
(File No. 333-37554))
10.23 Stockholders Agreement, dated as of August 7, 2000, among
Wilson Greatbatch Technologies, Inc., Hitachi-Maxell, Ltd.,
DLJ Merchant Banking Partners II, L.P., DLJMB Funding II,
Inc., DLJ Merchant Banking Partners II-A, L.P., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A,
L.P., DLJ Millennium Partners, L.P., DLJ First ESC L.P., DLJ
Offshore Partners II, C.V., DLJ EAB Partners, L.P. and UK
Investment Plan 1997 Partners (incorporated by reference to
Exhibit 10.32 to our registration statement on Form S-1
(File No. 333-37554))
10.24 Subscription Agreement, dated as of August 7, 2000, between
Wilson Greatbatch Technologies, Inc. and Hitachi-Maxell,
Ltd. (incorporated by reference to Exhibit 10.33 to our
registration statement on Form S-1 (File No. 333-37554))
10.25 Non-Compete Agreement, dated as of August 7, 2000, between
Wilson Greatbatch Technologies, Inc. and Hitachi-Maxell,
Ltd. (incorporated by reference to Exhibit 10.34 to our
registration statement on Form S-1 (File No. 333-37554))
10.26** Amended and Restated Credit Agreement, dated as of June 15,
2001, among Wilson Greatbatch Ltd., the lenders party
thereto and Manufacturers and Traders Trust Company, as
Administrative Agent
10.27 Asset Purchase Agreement, dated as of June 18, 2001, among
Wilson Greatbatch Technologies, Inc., GB Acquisition
Co., Inc., Maxwell Technologies, Inc. and Maxwell Electronic
Components Group, Inc. (incorporated by reference to
Exhibit 10.1 to our current report on Form 8-K filed
June 19, 2001)
21.1** List of Subsidiaries
23.1** Consent of Deloitte & Touche LLP
23.2** Consent of Ernst & Young LLP, Independent Auditors
23.3** Consent of Weil, Gotshal & Manges LLP (included in Exhibit
5.1)
24.1** Power of Attorney (included on signature page)
- ------------------------
* To be filed by amendment.
** Filed herewith.
+ Portions of the exhibit have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
(B) FINANCIAL STATEMENT SCHEDULES
PAGE
NUMBER DESCRIPTION
- --------------------- -----------
S-1 Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or the
notes thereto.
II-6
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in Item 14, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) To provide to the underwriter(s) at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter(s) to permit prompt delivery to each
purchaser.
(c) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(d) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Clarence, New York, on
June 20, 2001.
WILSON GREATBATCH TECHNOLOGIES, INC.
By: /s/ EDWARD F. VOBORIL
-----------------------------------------
Edward F. Voboril
President, Chief Executive Officer and
Chairman of the Board
POWER OF ATTORNEY
The undersigned directors and officers of Wilson Greatbatch
Technologies, Inc. ("WGT") do hereby constitute and appoint Edward F. Voboril,
Larry T. DeAngelo and Arthur J. Lalonde, and each of them, with full power of
substitution, our true and lawful attorneys-in-fact and agents to do any and all
acts and things in our name and behalf in our capacities as directors and
officers, and to execute any and all instruments for us and in our names in the
capacities indicated below which such person may deem necessary or advisable to
enable WGT to comply with the Securities Act of 1933, as amended (the "Act") and
any rules, regulations and requirements of the Securities and Exchange
Commission in connection with this registration statement, including
specifically, but not limited to, power and authority to sign for us, or any of
us, in the capacities indicated below and any and all amendments (including
pre-effective and post-effective amendments or any other registration statement
filed pursuant to the provision of Rule 462(b) under the Act) hereto; and we do
hereby ratify and confirm all that such person or persons shall do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
NAME TITLE DATE
---- ----- ----
/s/ EDWARD F. VOBORIL President, Chief Executive Officer and
------------------------------------ Chairman of the Board (principal June 20, 2001
Edward F. Voboril executive officer)
/s/ ARTHUR J. LALONDE Senior Vice President, Finance
------------------------------------ (principal financial and accounting June 20, 2001
Arthur J. Lalonde officer)
/s/ ROBERT E. RICH, JR.
------------------------------------ Director June 20, 2001
Robert E. Rich, Jr.
------------------------------------ Director June 20, 2001
Douglas E. Rogers
/s/ BILL R. SANFORD
------------------------------------ Director June 20, 2001
Bill R. Sanford
II-8
NAME TITLE DATE
---- ----- ----
/s/ HENRY WENDT
------------------------------------ Director June 20, 2001
Henry Wendt
/s/ DAVID M. WITTELS
------------------------------------ Director June 20, 2001
David M. Wittels
II-9
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
COL. C
ADDITIONS
-----------------------
COL. B CHARGED
BALANCE AT CHARGED TO OTHER COL. D COL. E
COL. A BEGINNING TO COSTS ACCOUNTS-- DEDUCTIONS-- BALANCE AT
DESCRIPTION OF PERIOD & EXPENSES DESCRIBE DESCRIBE(1) END OF PERIOD
- ----------- ---------- ---------- ---------- ------------ -------------
FISCAL YEAR 1998
Allowance for doubtful accounts........ $ 123 $ 111 $ -- $ (37) $ 197
Valuation allowances for inventory..... 349 1,024 223(2) (222) 1,374
FISCAL YEAR 1999
Allowance for doubtful accounts........ 197 179 -- (157) 219
Valuation allowances for inventory..... 1,374 1,689 -- (2,119) 944
FISCAL YEAR 2000
Allowance for doubtful accounts........ 219 106 -- (6) 319
Valuation allowances for inventory..... 944 1,810 -- (1,333) 1,421
- --------------------------
(1) Accounts written off, net of collections on accounts receivable previously
written off.
(2) Business acquisition during 1998.
S-1
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to our
registration statement on Form S-1 (File No. 333-37554))
3.2 Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 to our registration statement on Form S-1 (File
No. 333-37554))
5.1** Opinion of Weil, Gotshal & Manges LLP
10.1 1997 Stock Option Plan (including form of "standard" option
agreement and form of "special" option agreement)
(incorporated by reference to Exhibit 10.1 to our
registration statement on Form S-1 (File No. 333-37554))
10.2 1998 Stock Option Plan (including form of "standard" option
agreement, form of "special" option agreement and form of
"non-standard" option agreement) (incorporated by reference
to Exhibit 10.2 to our registration statement on Form S-1
(File No. 333-37554))
10.3 Wilson Greatbatch Ltd. Equity Plus Plan Money Purchase Plan
(incorporated by reference to Exhibit 10.3 to our
registration statement on Form S-1 (File No. 333-37554))
10.4 Wilson Greatbatch Ltd. Equity Plus Plan Stock Bonus Plan
(incorporated by reference to Exhibit 10.4 to our
registration statement on Form S-1 (File No. 333-37554))
10.5 Employment Agreement, dated as of July 9, 1997, between
Wilson Greatbatch Ltd. and Edward F. Voboril (incorporated
by reference to Exhibit 10.5 to our registration statement
on Form S-1 (File No. 333-37554))
10.6 Registration and Anti-Dilution Agreement, dated as of July
10, 1997, among Wilson Greatbatch Technologies, Inc., DLJ
Investment Partners, L.P., DLJ Investment Funding, Inc., DLJ
First ESC L.L.C., The Northwestern Mutual Life Insurance
Company and Donaldson, Lufkin & Jenrette Securities
Corporation (incorporated by reference to Exhibit 10.7 to
our registration statement on Form S-1 (File No. 333-37554))
10.7 Stockholders Agreement, dated as of July 16, 1997, among Wilson Greatbatch Technologies,
Inc., DLJ Merchant Banking Partners II, L.P., DLJMB Funding
II, Inc., DLJ Merchant Banking Partners II-A, L.P., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A,
L.P., DLJ Millennium Partners, L.P., DLJ First ESC L.L.C.,
DLJ Offshore Partners II, C.V., DLJ EAB Partners, L.P., U.K.
Investment Plan 1997 Partners, and the other holders of
common stock of Wilson Greatbatch Technologies, Inc. party
thereto (incorporated by reference to Exhibit 10.1210.13 to our
registration statement on Form S-1 (File No. 333-37554))
10.8 Amendment No. 1 to10.9 Management Stockholders Agreement, dated as of October 31,July 10,
1997, among Wilson Greatbatch Technologies, Inc., DLJ
Merchant Banking Partners II, L.P., DLJMB Funding II, Inc.,
DLJ Merchant Banking Partners II-A, L.P., DLJ Diversified
Partners, L.P., DLJ Diversified Partners-A, L.P., DLJ
Millennium Partners, L.P., DLJ First ESC L.L.C., DLJ
Offshore Partners II, C.V., DLJ EAB Partners, L.P., U.K.
Investment Plan 1997 Partners, and the other holders of
common stock of Wilson Greatbatch Technologies, Inc. party
thereto (incorporated by reference to Exhibit 10.13 to our
registration statement on Form S-1 (File No. 333-37554))
10.9 Management10.14 to our
registration statement on Form S-1 (File No. 333-37554))
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
10.10 Subordinated Note Holders Stockholders Agreement, dated as
of July 10, 1997, among Wilson Greatbatch Technologies,
Inc., DLJ Merchant Banking Partners II, L.P., DLJMB Funding
II, Inc., DLJ Merchant Banking Partners II-A, L.P., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A,
L.P., DLJ Millennium Partners, L.P., DLJ First ESC L.L.C.,
DLJ Offshore Partners II, C.V., DLJ EAB Partners, L.P., U.K.
Investment Plan 1997 Partners, and the other holders of
common stock of Wilson Greatbatch Technologies, Inc. party
thereto (incorporated by reference to Exhibit 10.14 to our
registration statement on Form S-1 (File No. 333-37554))
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
10.10 Subordinated Note Holders Stockholders Agreement, dated as
of July 10, 1997, among Wilson Greatbatch Technologies,
Inc., DLJ Merchant Banking Partners II, L.P., DLJMB Funding
II, Inc., DLJ Merchant Banking Partners II-A, L.P., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A,
L.P., DLJ Millennium Partners, L.P., DLJ First ESC L.L.C.,
DLJ Offshore Partners II, C.V., DLJ EAB Partners, L.P., U.K.
Investment Plan 1997 Partners, DLJ Investment Partners,
L.P., DLJ Investment Funding, Inc., The Northwestern Mutual
Life Insurance Company and Donaldson, Lufkin & Jenrette
Securities Corporation (incorporated by reference to Exhibit
10.15 to our registration statement on Form S-1 (File No.
333-37554))
10.11+ Supply Agreement (SVO Batteries), dated as of July 31, 1991,
between Wilson Greatbatch Ltd. and Medtronic Inc.
(incorporated by reference to Exhibit 10.16 to our
registration statement on Form S-1 (File No. 333-37554))
10.12+ Amendment No. 1 to the Supply Agreement (SVO Batteries),
dated as of June 3, 1996, between Wilson Greatbatch Ltd. and
Medtronic Inc. (incorporated by reference to Exhibit 10.17
to our registration statement on Form S-1 (File No.
333-37554))
10.13+ Amendment No. 2 to the Supply Agreement (SVO Batteries),
dated as of March 24, 1997, between Wilson Greatbatch Ltd.
And Medtronic Inc. (incorporated by reference to Exhibit
10.18 to our registration statement on Form S-1 (File No.
333-37554))
10.14+ Amendment No. 3 to the Supply Agreement (SVO Batteries),
dated as of July 22, 1999, between Wilson Greatbatch Ltd.
and Medtronic Inc. (incorporated by reference to Exhibit
10.19 to our registration statement on Form S-1 (File No.
333-37554))
10.15+ Supply Agreement, dated as of February 1, 1999, among Wilson
Greatbatch Ltd. and Guidant/CRM (incorporated by reference
to Exhibit 10.20 to our registration statement on Form S-1
(File No. 333-37554))
10.16+ Agreement, dated as of April 16, 1997, between Wilson
Greatbatch Ltd. and Pacesetter, Inc., a St. Jude Medical
Company (incorporated by reference to Exhibit 10.21 to our
registration statement on Form S-1 (File No. 333-37554))
10.17+ License Agreement, dated August 8, 1996, between Wilson
Greatbatch Ltd. and Evans Capacitor Company (incorporated by
reference to Exhibit 10.22 to our registration statement on
Form S-1 (File No. 333-37554))
10.18+ Supplier Partnering Agreement, dated as of June 1, 2000,
between Wilson Greatbatch Ltd. and Pacesetter, Inc., a St.
Jude Medical Company (incorporated by reference to Exhibit
10.23 to our registration statement on Form S-1 (File No.
333-37554))
10.19 License Agreement, dated March 16, 1976, between Wilson
Greatbatch Ltd. and Medtronic Inc. (incorporated by
reference to Exhibit 10.24 to our registration statement on
Form S-1 (File No. 333-37554))
10.20 Amendment No. 1 to License Agreement, dated July 20, 1976,
between Wilson Greatbatch Ltd. and Medtronic Inc.
(incorporated by reference to Exhibit 10.25 to our
registration statement on Form S-1 (File No. 333-37554))
10.21 Stockholders Agreement, dated as of August 23, 1999, among
Wilson Greatbatch Technologies, Inc., DLJ Merchant Banking
Partners II, L.P., DLJMB Funding II, Inc., DLJ Merchant
Banking Partners II-A, L.P., DLJ Diversified Partners, L.P.,
DLJ Diversified Partners-A, L.P., DLJ Millennium Partners,
L.P., DLJ First ESC L.P., DLJ Offshore Partners II, C.V.,
DLJ EAB Partners, L.P., UK Investment Plan 1997 Partners and
Fred Hittman (incorporated by reference to Exhibit 10.26 to
our registration statement on Form S-1 (File No. 333-37554))
10.22 Stock Purchase Agreement, dated as of July 31, 2000, among
Wilson Greatbatch Technologies, Inc., Battery Engineering,
Inc. and Hitachi-Maxell, Ltd. (incorporated by reference to
Exhibit 10.31 to our registration statement on Form S-1
(File No. 333-37554))
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
10.23 Stockholders Agreement, dated as of August 7, 2000, among
Wilson Greatbatch Technologies, Inc., Hitachi-Maxell, Ltd.,
DLJ Merchant Banking Partners II, L.P., DLJMB Funding II,
Inc., DLJ Merchant Banking Partners II-A, L.P., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A,
L.P., DLJ Millennium Partners, L.P., DLJ First ESC L.P., DLJ
Offshore Partners II, C.V., DLJ EAB Partners, L.P., UK Investment Plan 1997 Partners and
Fred Hittman (incorporated by reference to Exhibit 10.26 to
our registration statement on Form S-1 (File No. 333-37554))
10.22 Stock Purchase Agreement, dated as of July 31, 2000, among
Wilson Greatbatch Technologies, Inc., Battery Engineering,
Inc. and Hitachi-Maxell, Ltd. (incorporated by reference to
Exhibit 10.31 to our registration statement on Form S-1
(File No. 333-37554))
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
10.23 Stockholders Agreement, dated as of August 7, 2000, among
Wilson Greatbatch Technologies, Inc., Hitachi-Maxell, Ltd.,
DLJ Merchant Banking Partners II, L.P., DLJMB Funding II,
Inc., DLJ Merchant Banking Partners II-A, L.P., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A,
L.P., DLJ Millennium Partners, L.P., DLJ First ESC L.P., DLJ
Offshore Partners II, C.V., DLJ EAB Partners, L.P. and UK
Investment Plan 1997 Partners (incorporated by reference to
Exhibit 10.32 to our registration statement on Form S-1
(File No. 333-37554))
10.24 Subscription Agreement, dated as of August 7, 2000, between
Wilson Greatbatch Technologies, Inc. and Hitachi-Maxell,
Ltd. (incorporated by reference to Exhibit 10.33 to our
registration statement on Form S-1 (File No. 333-37554))
10.25 Non-Compete Agreement, dated as of August 7, 2000, between
Wilson Greatbatch Technologies, Inc. and Hitachi-Maxell,
Ltd. (incorporated by reference to Exhibit 10.3310.34 to our
registration statement on Form S-1 (File No. 333-37554))
10.25 Non-Compete10.26** Amended and Restated Credit Agreement, dated as of August 7, 2000, betweenJune 15,
2001, among Wilson Greatbatch Ltd., the lenders party
thereto and Manufacturers and Traders Trust Company, as
Administrative Agent
10.27 Asset Purchase Agreement, dated as of June 18, 2001, among
Wilson Greatbatch Technologies, Inc., GB Acquisition
Co., Inc., Maxwell Technologies, Inc. and Hitachi-Maxell,
Ltd.Maxwell Electronic
Components Group, Inc. (incorporated by reference to
Exhibit 10.34 to our
registration statement on Form S-1 (File No. 333-37554))
10.26** Amended and Restated Credit Agreement, dated as of June 15,
2001, among Wilson Greatbatch Ltd., the lenders party
thereto and Manufacturers and Traders Trust Company, as
Administrative Agent
10.27 Asset Purchase Agreement, dated as of June 18, 2001, among
Wilson Greatbatch Technologies, Inc., GB Acquisition
Co., Inc., Maxwell Technologies, Inc. and Maxwell Electronic
Components Group, Inc. (incorporated by reference to
Exhibit 10.1 to our current report on Form 8-K filed
June 19, 2001)
21.1** List of Subsidiaries
23.1** Consent of Deloitte & Touche LLP
23.2** Consent of Ernst & Young LLP, Independent Auditors
23.3** Consent of Weil, Gotshal & Manges LLP (included in Exhibit
5.1)
24.1** Power of Attorney (included on signature page)
- ------------------------
* To be filed by amendment.Filed herewith.
** Filed herewith.Previously filed.
+ Portions of the exhibit have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.