Filed pursuant to Rule 424(b)(3)
File No. 333-142400
Prospectus
$197,782,000
Greatbatch, Inc.
2 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2013 AND
SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF
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On March 28, 2007 and April 2, 2007, we issued and sold $197,782,000
aggregate principal amount of our 2 1/4% Convertible Subordinated Debentures due
2013, which we refer to as the "debentures", in two separate private offerings
to persons believed to be "qualified institutional purchasers" under Rule 144A
promulgated under the Securities Act, or "accredited investors" under Regulation
D promulgated pursuant to the Securities Act in transactions exempt from the
registration requirements of the Securities Act. Holders of our 2 1/4%
Convertible Subordinated Debentures due 2013, issued under an indenture between
us and Manufacturers and Traders Trust Company dated May 28, 2003, which we
refer to as the "2003 debentures", exchanged $117,782,000 of the 2003 debentures
for an equivalent principal amount of the debentures and such holders and other
purchasers purchased an additional $80,000,000 aggregate principal amount of the
debentures. Selling securityholders will use this prospectus to resell the
debentures and the shares of our common stock issuable upon conversion of the
debentures. The debentures mature on June 15, 2013, unless earlier converted,
redeemed or repurchased.
Interest on the debentures is payable on June 15 and December 15 of each
year beginning on June 15, 2007. The debentures are convertible by holders into
shares of our common stock at an initial conversion price of approximately
$34.70 per share (subject to adjustment in certain events) upon the occurrence
of certain events specified in the indenture. The debentures contain provisions
known as net share settlement, which require that, upon conversion of the
debentures, we will pay holders in cash for up to the principal amount of the
converted debentures. Any amounts in excess of this cash amount will be settled
in shares of our common stock, or, at our option, in cash. At any time prior to
June 15, 2013, we may make an irrevocable physical settlement election to
provide, upon conversion of outstanding debentures, in lieu of providing cash
and shares, shares of our common stock equal to the conversion rate for each
$1,000 principal amount of debentures converted and the amount of any cash in
lieu of fractional shares. The terms of our senior credit facility restrict our
ability to pay cash on conversion of the debentures.
Beginning with the six-month interest period commencing June 15, 2012, we
will pay additional contingent interest during any six-month interest period if
the trading price of the debentures for each of the five trading days
immediately preceding the first day of the interest period equals or exceeds
120% of the principal amount of the debentures.
Beginning June 20, 2012 and prior to maturity, we may redeem any of the
debentures at a redemption price of 100% of their principal amount, plus accrued
interest. Holders of the debentures may require us to repurchase their
debentures at any time prior to their maturity following a fundamental change at
a repurchase price of 100% of their principal amount, plus accrued interest.
The debentures are subordinated in right of payment to all of our senior
indebtedness, including our senior credit facility entered into on May 22, 2007
with the financial institutions identified therein as lenders and Manufacturers
and Traders Trust Company, as administrative agent, which we refer to as the
"new senior credit facility," and effectively subordinated to all debts and
other liabilities of our subsidiaries. As of March 30, 2007, after giving effect
to our new senior credit facility as if it had been in place on March 30, 2007,
we had no indebtedness outstanding under our new senior credit facility and the
ability to incur $235 million in additional debt under the facility. As of March
30, 2007, our subsidiaries had $51.5 million of other liabilities outstanding.
The debentures rank pari passu with the 2003 debentures.
------------------------
For U.S. federal income tax purposes, the debentures are subject to U.S.
federal income tax rules applicable to contingent payment debt instruments. See
"Certain United States Federal Income Tax Considerations" beginning on page 42.
Our common stock is listed on The New York Stock Exchange under the symbol
"GB." On June 4, 2007, the last reported sale price of our common stock was
$30.40 per share.
For a more detailed description of the debentures, see "Description of
Debentures" beginning on page 19.
Investing in the debentures and our common stock issuable upon conversion
of the debentures involves risks. See "Risk Factors" on page 5.
------------------------
We are filing the registration statement of which this prospectus is a part
pursuant to contractual obligations. We will not receive any of the proceeds
from the sale by the selling securityholders of the debentures or the common
stock issuable upon conversion of the debentures.
------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------
The date of this prospectus is June 7, 2007.
TABLE OF CONTENTS
Page
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SUMMARY 1
RISK FACTORS 5
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 15
USE OF PROCEEDS 15
PRICE RANGE OF COMMON STOCK 16
RATIO OF EARNINGS TO FIXED CHARGES 17
DESCRIPTION OF DEBENTURES 18
DESCRIPTION OF OTHER INDEBTEDNESS 35
DESCRIPTION OF CAPITAL STOCK 37
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS 41
SELLING STOCKHOLDERS 46
PLAN OF DISTRIBUTION 50
LEGAL MATTERS 52
EXPERTS 52
WHERE YOU CAN FIND MORE INFORMATION 52
INCORPORATION OF DOCUMENTS BY REFERENCE 52
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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 or make representations that are different. This document may only
be used where it is legal to sell these securities. The information in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or any sale of the securities.
---------
As used in this prospectus, " Greatbatch," "company," "we," "our," "ours"
and "us" refer to Greatbatch, Inc., except where the context otherwise requires
or as otherwise indicated.
---------
i
SUMMARY
This summary contains basic information about us and this offering. Because
it is a summary, it does not contain all of the information that you should
consider before investing in the debentures or the common stock issuable upon
conversion of the debentures. You should read this entire prospectus and the
documents we have incorporated by reference carefully, including the section
entitled "Risk Factors" and our financial statements and the notes thereto
incorporated by reference into this prospectus before making an investment
decision. We have a 52 or 53 week fiscal year that ends on the Friday closest to
December 31. The fiscal years ended December 29, 2006, December 30, 2005 and
December 31, 2004, included 52 weeks. For 52 week years, each quarter contains
13 weeks. For 53 week years, the first, second and third quarters each have 13
weeks and the fourth quarter has 14 weeks.
Greatbatch
We are a leading developer and manufacturer of batteries, capacitors,
feedthroughs, enclosures, and other components used in implantable medical
devices, or IMDs, through our Implantable Medical Components, or IMC, business.
We offer technologically advanced, highly reliable and long lasting products and
services for IMDs and enable our customers to introduce IMDs that are
progressively smaller, longer lasting, more efficient and more functional. We
also leverage our core competencies in technology and manufacturing through our
Electrochem Commercial Power, or ECP, business to develop and produce cells and
battery packs for commercial applications that demand high performance and
reliability, including oil and gas exploration, pipeline inspection, telematics,
oceanographic equipment, seismic, communication, military and aerospace
applications.
We were incorporated in Delaware in 1997 in connection with a leveraged
buyout of Wilson Greatbatch Ltd., which was founded in 1970 and is now our
wholly owned subsidiary. Our principal executive offices are located at 9645
Wehrle Drive, Clarence, New York 14031, and our telephone number is (716)
759-6901. We maintain a worldwide web site at www.greatbatch.com. The reference
to our web site does not constitute incorporation by reference of the
information contained at the web site.
Recent Developments
On May 22, 2007, Greatbatch Ltd., our indirect wholly owned subsidiary,
entered into the new senior credit facility. The new senior credit facility is
guaranteed by Greatbatch, WGL Intermediate Holdings, Inc., Greatbatch Ltd.'s
direct parent, Greatbatch Ltd.'s U.S. subsidiaries and those foreign
subsidiaries of Greatbatch Ltd. as designated by Greatbatch Ltd. from time to
time or as required under the new senior credit facility. The new senior credit
facility replaces the three-year $50 million Second Amended and Restated Credit
Agreement, dated as of May 31, 2005, by and among Greatbatch Ltd., the lenders
party thereto and Manufacturers and Traders Trust Company, as administrative
agent.
The new senior credit facility provides for a new $235 million secured
revolving credit facility with a letter of credit subfacility in an aggregate
amount equal to $15 million and a swingline subfacility in an aggregate amount
equal to $15 million. The new senior credit facility has an initial maturity
date of May 22, 2012 and permits one extension by Greatbatch Ltd. to April 1,
2013, provided, that no default or event of default has occurred and is
continuing on the date of the extension and Greatbatch Ltd. has paid an
extension fee to the lenders. The new senior credit facility also contains an
increase provision that would make up to an additional $100 million available
for borrowing provided the increased portion could be fully syndicated at a
later date among existing or new lenders.
1
THE OFFERING
Debentures Offered $197,782,000 aggregate principal amount of 2 1/4%
Convertible Subordinated Debentures due 2013.
Maturity Date June 15, 2013
Interest 2 1/4% per annum on the principal amount, from March 28,
2007 payable semi-annually in arrears in cash on June 15 and
December 15 of each year, beginning June 15, 2007.
Contingent Beginning with the six-month interest period commencing June
Interest 15, 2012, we will pay additional contingent interest during
any six-month interest period if the trading price of the
debentures for each of the five trading days immediately
preceding the first day of the applicable six-month interest
period equals or exceeds 120% of the principal amount of
debentures. During any interest period when contingent
interest shall be payable, the contingent interest payable
per $1,000 principal amount of debentures will equal 0.25%
of the average trading price of $1,000 principal amount of
debentures during the five trading days immediately
preceding the first day of the applicable six-month interest
period.
Conversion Holders of debentures may convert the debentures into shares
of our common stock at a conversion rate of 28.8219 shares
per $1,000 principal amount of debentures (a conversion
price of approximately $34.70), subject to adjustment, prior
to the close of business on the final maturity date only
under the following circumstances:
o during any fiscal quarter commencing after June 30,
2007 if the closing sale price of our common stock
exceeds 150% of the conversion price for at least 20
trading days in the 30 consecutive trading day period
ending on the last trading day of the preceding fiscal
quarter;
o during the five business days after any five
consecutive trading day period in which the trading
price per $1,000 principal amount of debentures for
each day of that period was less than 98% of the
product of the closing sale price of our common stock
and the number of shares issuable upon conversion of
$1,000 principal amount of the debentures;
o if the debentures have been called for redemption;
o upon the occurrence of specified corporate events
described under "Description of Debentures Conversion
of Debentures- Conversion Upon Specified Corporate
Transactions";
o upon the occurrence or approval by our Board of
Directors of a fundamental change described under
"Description of Debentures - Conversion of Debentures -
Conversion Upon a Fundamental Change"; or
o at any time during the period beginning 60 days prior
to, but excluding, June 15, 2013.
If the debentures are converted upon occurrence or approval
by our Board of Directors of a fundamental change, as
described below opposite the caption "Make Whole Premium
Upon a Fundamental Change," we will also pay a make whole
premium.
Payment Upon Upon conversion, we will deliver to holders in respect of
Conversion each $1,000 principal amount of debentures being converted:
o cash in an amount equal to the lesser of (1) $1,000 and
(2) the conversion value of the debentures to be
converted; and,
2
o if the conversion value is greater than $1,000, a
number of shares of our common stock equal to the sum
of the daily share amounts for each of the 20 trading
days during the conversion reference period, subject to
our right to deliver cash in lieu of all or a portion
of such shares.
Our ability to make cash payments on conversion of the
debentures is restricted by the new senior credit facility.
See "Description of Other Indebtedness - New Senior Credit
Facility - Covenants."
In no event shall the aggregate number of shares per $1,000
principal amount of debentures exceed 37.0219.
At any time prior to June 15, 2013, we may make an
irrevocable election to provide, upon conversion of the
outstanding debentures, in lieu of providing cash and
shares, shares of our common stock equal to the conversion
rate for each $1,000 principal amount of the debentures
converted (and cash in lieu of fractional shares).
Make Whole If a holder of the debentures elects to convert its
Premium Upon a debentures upon the occurrence of a change of control, in
Fundamental Change certain circumstances, the conversion rate will be increased
by an additional number of shares of our common stock. The
amount of such increase, otherwise referred to as the "make
whole premium," if any, will be based on the stock price and
the effective date for such change of control. A description
of how the make whole premium will be determined and a table
showing the make whole premium that would apply at various
stock prices and change of control effective dates is set
forth on pages 24 and 25 of this prospectus. No make whole
premium will be paid if the relevant stock price is less
than $26.98 per share or greater than $90.00 per share
(subject to adjustment). Additionally, in no event shall the
aggregate number of shares per $1,000 principal amount of
debentures exceed 37.0219.
Subordination The debentures will be subordinated to all of our existing
and future senior indebtedness, including our new senior
credit facility, and are effectively subordinated to all
debt and other liabilities of our subsidiaries. As of March
30, 2007, after giving effect to our new senior credit
facility as if it had been in place on March 30, 2007, we
had no indebtedness outstanding under our new senior credit
facility and the ability to incur $235 million in additional
debt under the facility. As of March 30, 2007, our
subsidiaries had $51.5 million of other liabilities
outstanding. Neither we nor any of our subsidiaries are
prohibited from incurring debt, including senior
indebtedness, under the indenture.
Sinking Fund None.
Optional We may redeem any of the debentures beginning June 20, 2012
Redemption and prior to maturity, by giving holders of debentures at
least 30 days' notice. We may redeem the debentures either
in whole or in part at a redemption price equal to 100% of
their principal amount, plus accrued and unpaid interest,
including contingent interest, if any, to, but excluding,
the redemption date.
Fundamental If a fundamental change (as described under "Description of
Change Debentures-Redemption at Option of the Holder Upon
Fundamental Change") occurs prior to maturity, holders of
debentures may require us to purchase all or part of their
debentures at a redemption price equal to 100% of their
principal amount, plus accrued and unpaid interest,
including contingent interest, if any, to, but excluding,
the redemption date.
Use of Proceeds We will not receive any of the proceeds from the sale by the
selling securityholders of the debentures or the common
stock issuable upon conversion of the debentures.
Registration We have filed a registration statement, of which this
Rights prospectus is a part, pursuant to a registration rights
agreement with the initial purchasers of the debentures. We
have also agreed to use our reasonable best efforts to have
the registration statement declared effective by June 26,
2007 and to use our reasonable best efforts to keep the
shelf registration statement effective until the earliest of
the following has occurred:
o all of the securities covered by this registration
statement have been sold;
o the expiration of the applicable holding period with
respect to the debentures and the common stock issuable
upon conversion of the debentures under Rule 144(k)
under the Securities Act, or any successor provision;
3
o all securities covered by this registration statement
have been sold to the public pursuant to Rule 144 (or
any similar provision then in force, but not Rule 144A)
under the Securities Act;
and as a result of the event or circumstance described in
any of the above, the legend with respect to transfer
restrictions under the indenture is removed or removable in
accordance with the terms of the indenture or such legend,
as the case may be.
U.S. Federal The debentures will be characterized as contingent payment
Income Taxation debt instruments for U.S. federal income tax purposes, and
will be subject to U.S. federal income tax rules applicable
to contingent payment debt instruments. Based on that
treatment, holders of the debentures generally will be
required to accrue interest income on the debentures in the
manner described in this prospectus, regardless of whether
the holder uses the cash or accrual method of tax
accounting. Holders of debentures will be required, in
general, to include interest in income based on the rate at
which we would issue a noncontingent, nonconvertible,
fixed-rate debt instrument with terms and conditions
otherwise similar to those of the debentures, which rate
will exceed the stated interest on the debentures.
Accordingly, holders will be required to include interest in
taxable income in excess of the stated interest on the
debentures. Furthermore, upon a sale, purchase by us at
their option, exchange, conversion or redemption of the
debentures, holders will recognize gain or loss equal to the
difference between their amount realized and their adjusted
tax basis in the debentures. The amount realized by holders
will include the fair market value of any common stock they
receive. Any gain on a sale, purchase by us at their option,
exchange, conversion or redemption of the debentures will be
treated as ordinary interest income. Holders should consult
their tax advisers as to the U.S. federal, state, local or
other tax consequences, as well as any foreign tax
consequences, of acquiring, owning and disposing of the
debentures. See "Certain United States Federal Income Tax
Considerations."
New York Stock "GB"
Exchange Symbol
4
RISK FACTORS
You should carefully consider and evaluate all of the information in or
incorporated by reference in this prospectus, including the risk factors listed
below. Any of these risks could materially and adversely affect our business,
results of operations and financial condition, which in turn could materially
and adversely affect the market price of the debentures offered by this
prospectus and the trading price of our common stock into which the debentures
may be converted.
Keep these risk factors in mind when you read forward-looking statements
contained elsewhere or incorporated by reference in this prospectus.
Risks Related To Our Business
We depend heavily on a limited number of customers, and if we lose any of them
or they reduce their business with us, we would lose a substantial portion of
our revenues.
A substantial portion of our business is conducted with a limited number of
customers, including Biotronik, Boston Scientific, Medtronic, the Sorin Group
and St. Jude Medical. In 2006, Boston Scientific, Medtronic and St. Jude Medical
collectively accounted for approximately 67% of our revenues. Our supply
agreements with these customers might not be renewed. Furthermore, many of our
supply agreements do not contain minimum purchase level requirements and
therefore there is no guaranteed source of revenue that we can depend upon under
these agreements. The loss of any large customer or a reduction of business with
that customer for any reason would harm our business, financial condition and
results of operations.
If we do not respond to changes in technology, our products may become obsolete
and we may experience a loss of customers and lower 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. 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 significant number of our customers. In
addition, other new products introduced by our customers may require fewer of
our batteries or components. We dedicate a significant amount of resources to
the development of our 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 products could result in a loss of customers and lower revenues.
If we are unable to successfully market our current or future products, our
business will be harmed and our revenues and operating results will be reduced.
The market for our medical 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, ICD and CRT markets in particular would negatively impact our
revenues. In addition, we face the risk that our products will lose widespread
market acceptance. Our customers may not continue to utilize the products we
offer and a market may not develop for our future products. We may at times
determine that it is not technically or economically feasible for us to continue
to manufacture certain 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 and
our revenues and operating results will be negatively affected.
We are subject to pricing pressures from customers, which could harm operating
results.
We have given price reductions to some of our large customers in recent
years and we expect customer pressure for pricing reductions will continue.
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
would harm our operating results and 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, tantalum, platinum,
ruthenium, gallium trichloride, tantalum pellets, vanadium pentoxide, iridium,
5
and titanium. Raw materials needed for our business are susceptible to
fluctuations due to transportation, government regulations, price controls,
economic climate or other unforeseen circumstances. Increasing global demand for
some of the raw materials we need for our business, including platinum, iridium,
gallium trichloride, tantalum, and titanium has caused the prices of these
materials to increase significantly. In addition, there are a limited number of
worldwide suppliers of several raw materials needed to manufacture our products,
including lithium, gallium trichloride, carbon monofluoride, and tantalum. We
may not 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.
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 for 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.
We may never realize the full value of our intangible assets, which represent a
significant portion of our total assets.
At March 30, 2007, we had $210.4 million of net intangible assets,
representing 33% of our total assets. These intangible assets consist primarily
of goodwill, trademarks, tradenames and patented technology arising from our
acquisitions. Goodwill and other intangible assets with indefinite lives are not
amortized but are tested annually or upon the occurrence of certain events that
indicate that the assets may be impaired. We may not receive the recorded value
for our intangible assets if we sell or liquidate our business or assets. In
addition, 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 is impaired, and in the event of such a charge to earnings,
the market price of our common stock could be adversely affected. In addition,
intangible assets with definite lives, which represent $27.1 million of our net
intangible assets at March 30, 2007, will continue to be amortized. We incurred
total amortization expenses relating to these intangible assets of $0.9 million
in the first quarter of 2007. These expenses will reduce our future earnings or
increase our future losses.
Quality problems with our products could harm our reputation for producing high
quality products, erode our competitive advantage and result in claims against
us.
Our products are held to high quality and performance standards. In the
event that our products fail to meet these standards, our reputation for
producing high quality products could be harmed, which would damage our
competitive advantage and could result in lower revenues. Product quality or
performance issues may also result in product liability or other legal claims
against us, which could harm our operating results or financial condition.
Quality problems with our products could result in warranty claims and
additional costs.
We allow customers to return defective or damaged products for credit,
replacement, or exchange. We generally warrant that our products will meet
customer specifications and will be free from defects in materials and
workmanship. Additionally, we carry a safety stock of inventory for our
customers which may be impacted by warranty claims. We accrue for our exposure
to warranty claims based upon recent historical experience and other specific
information as it becomes available. However, such reserves may not be adequate
to cover future warranty claims and additional warranty costs and/or inventory
write-offs may be incurred which could harm our operating results or financial
condition.
If we become subject to product liability claims, our operating results and
financial condition could suffer.
The manufacturing and sale of our products expose us to potential product
liability claims and product recalls, including those that may arise from
failure to meet product specifications, 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. Many of our products are components and function in
interaction with our customers' medical devices. For example, our batteries are
produced to meet various electrical performance, longevity and other
specifications, but the actual performance of those products is dependent on how
they are in fact utilized as part of the customers' devices over the lifetime of
the products. Product performance and device interaction from time to time have
been, and may in the future be, different than expected for a number of reasons.
Consequently, it is possible that customers may experience problems with their
medical devices that could require device recall or other corrective action,
where our batteries met the specification at delivery, and for reasons that are
not related primarily or at all to any failure by our product to perform in
accordance with specifications. It is possible that our customers (or end-users)
may in the future assert that our products caused or contributed to device
failure where our product was not the primary cause of the device performance
issue. Even if these assertions do not lead to product liability or contract
claims, they could harm our reputation and our customer relationships.
6
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 require us to pay significant
damages. The occurrence of product liability claims or product recalls could
adversely affect our operating results and financial condition.
We carry product liability insurance coverage that is limited in scope and
amount. We may not be able to maintain this insurance or to do so at a
reasonable cost or on reasonable terms. This insurance may not be adequate to
protect us against a product liability claim that arises in the future.
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 but not limited to the following:
o the fixed nature of a substantial percentage of our costs, which
results in our operations being particularly sensitive to
fluctuations in revenue;
o 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;
o timing of orders placed by our principal customers who account
for a significant portion of our revenues; and
o 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 December 29, 2006, we held 329 active U.S. patents. However, the
steps we have taken or will take to protect our proprietary rights may not 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.
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 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 batteries and other components for IMDs, third parties may
claim that we are infringing on their intellectual property rights, and we may
be found to have infringed those intellectual property rights. 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. If
any claim for invalidation prevailed, the result could be greatly expanded
opportunities for third parties to manufacture and sell products that compete
with our products and our revenues from any related license agreements would
decrease accordingly. 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 IMDs, and the uncertainty of intellectual
property litigation increases 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.
7
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 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, customers and 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 may not 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
employees 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. We compete intensely with other companies to 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
attract, train and retain personnel.
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 expect to make in the future 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. Implementation of our acquisition strategy
entails a number of risks, including:
o inaccurate assessments of potential liabilities associated with
the acquired businesses;
o the existence of unknown and/or undisclosed liabilities
associated with the acquired businesses;
o diversion of our management's attention from our core businesses;
o potential loss of key employees or customers of the acquired
businesses;
o difficulties in integrating the operations and products of an
acquired business or in realizing projected revenue growth,
efficiencies and cost savings; and
o 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 operating results may suffer.
A component of our strategy is to make 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. 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 unsuccessful acquisitions and higher prices for acquired
companies because of competition for attractive acquisition targets. Our failure
to acquire additional companies could cause our operating results to suffer.
We may face competition from our principal medical 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 our products may
intensify in the future. One or more of our customers may undertake additional
vertical integration initiatives and begin to manufacture some or all of their
components that we currently supply them which could cause our operating results
to suffer.
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 result in lower
revenues and operating results.
8
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, 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, which could harm our operating results.
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
may not be able to successfully manage expansion into new markets and products
and these efforts may harm our operating results. 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 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 and reduce our revenues.
We occasionally license technologies from third parties rather than
depending exclusively on our own proprietary technology and developments. For
example, we license a capacitor patent from another company. 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 may not 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.
Our international operations and sales are subject to a variety of risks and
costs that could adversely affect our profitability and operating results.
Our sales to countries outside the U.S., which accounted for 49% of net
sales for fiscal year 2006, and our Tijuana, Mexico operations are subject to
certain foreign country risks. Our international operations are, and will
continue to be, subject to a number of risks and potential costs, including:
o changes in foreign medical reimbursement programs and policies;
o changes in foreign regulatory requirements;
o local product preferences and product requirements;
o longer-term receivables than are typical in the U.S.;
o less protection of intellectual property in some countries
outside of the U.S.;
o trade protection measures and import and export licensing
requirements;
o work force instability;
o political and economic instability; and
o complex tax and cash management issues.
Our sales to countries outside of the U.S. are primarily to customers whose
corporate offices are located and headquartered in the U.S. All supply contracts
to customers outside the U.S. are denominated in U.S. dollars. We incur certain
expenses related to our Tijuana operations that are denominated in a foreign
currency. Historically, foreign currency fluctuations have not had a material
effect on our consolidated financial statements. However, fluctuations in
foreign currency exchange rates could have a significant negative impact on our
profitability and operating results if the volume of transactions denominated in
foreign currencies increases.
9
Risks Related To Our Industries
The health care industry is subject to various political, economic and
regulatory changes that could force us to modify 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, IMDs produced by our medical
customers are subject to regulation by the U.S. Food and Drug Administration and
similar governmental 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 batteries and
hazardous chemicals and other materials used in, and hazardous waste produced
by, the manufacturing of power sources and components. Conditions relating to
our historical operations may require expenditures for clean-up in the future
and changes in environmental laws and regulations may impose costly compliance
requirements on us or otherwise subject us to future liabilities. Additional or
modified regulations relating to the manufacture, transportation, storage, use
and disposal of materials used to manufacture our batteries and components or
restricting disposal of batteries may 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 result in greater competition and
reduce our IMC revenues and harm our business.
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 operating results would suffer.
Our IMC 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 IMDs 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 reduce our
revenues and harm our operating results.
Our ECP revenues are dependent on conditions in the oil and natural gas
industry, which historically have been volatile.
Sales of our commercial products 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, which comprise approximately
10% of ECP sales. 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 products to suffer.
10
Risks Related to the Debentures and the Common Stock
We are dependent on cash from our subsidiaries to service the debentures.
The debentures are obligations of Greatbatch, which is a holding company.
Because we derive substantially all of our revenues and earnings before
interest, taxes, depreciation and amortization, or EBITDA, from our operating
subsidiaries and do not have significant operations of our own, we are dependent
upon our subsidiaries to provide us with cash, in the form of dividends or
intercompany credits, loans or otherwise, to meet our obligations, including our
obligations under the debentures. Our subsidiaries will have no obligation to
pay any amounts due on the debentures or to make any funds available to us for
payment of the debentures, whether by dividends, loans, distributions or other
payments. As of March 30, 2007, our subsidiaries held 100% of our total assets,
which percentage gives effect to intercompany eliminations and excludes
investment in subsidiaries.
Our indebtedness must be serviced from our cash flow which could adversely
affect our business and our ability to make full payment on the debentures.
Our aggregate level of indebtedness increased in connection with the
private offering of our debentures. As of March 30, 2007, after giving effect to
the issuance and sale of the debentures and our new senior credit facility as if
it had been in place on March 30, 2007, we would have had $250 million of
outstanding indebtedness, consisting of the debentures and the 2003 debentures,
and would have had the ability to incur $235 million in additional debt under
the new senior credit facility. For the first quarter of 2007, our pro forma
interest expense on our pro forma outstanding indebtedness, which gives effect
to the issuance and sale of the debentures as if each had occurred at the
beginning of the first quarter of 2007, would have been $2.1 million, assuming
the indebtedness was outstanding for the entire quarter.
Our aggregate level of indebtedness poses risks to our business and could
have important consequences to investors, including the risks that:
o we could use a substantial portion of our consolidated cash flow
from operations to pay principal and interest on our debt,
thereby reducing the funds available for working capital, capital
expenditures and other general corporate purposes, including
executing our business strategy of diversifying our product
offerings in the implantable medical device market;
o insufficient cash flow from operations may force us to sell
assets, or seek additional capital, which we may be unable to do
at all or on terms favorable to us;
o our level of indebtedness may make us more vulnerable to economic
or industry downturns; and
o our debt service obligations increase our vulnerabilities to
competitive pressures, because many of our competitors are less
leveraged than we are.
Because the debentures are subordinated to our senior debt and effectively
subordinated to the debt and other liabilities of our subsidiaries, you may not
receive full payment on your debentures.
The debentures will be subordinated unsecured obligations of Greatbatch and
will be junior to all of our existing and future indebtedness, other than any
future indebtedness that expressly provides that it ranks equal with, or is
subordinated in right of payment to, the debentures. In addition, the debentures
rank pari passu with the 2003 debentures. As a result, upon any distribution to
our creditors in a bankruptcy, liquidation, reorganization or similar
proceeding, the holders of our senior debt will be entitled to be paid in full
before any payment will be made on the debentures. Holders of the debentures may
receive less ratably than holders of trade payables and holders of our other
indebtedness in any such proceeding. In any of these cases, holders of the
debentures may not be paid in full.
As of March 30, 2007, after giving effect to the issuance and sale of the
debentures and our new senior credit facility as if it had been in place on
March 30, 2007, there would have been no senior debt outstanding, $235 million
would have been available for borrowing under our new senior credit facility,
and $52,218,000 aggregate principal amount of the 2003 debentures were
outstanding. Holders of the 2003 debentures may require us to repurchase their
2003 debentures on June 15, 2010, at a repurchase price equal to 100% of their
principal amount plus accrued and unpaid interest, including contingent
interest, if any. The indenture governing the debentures does not restrict the
amount of indebtedness, including senior debt, that we may borrow in the future.
11
In addition, the debentures are effectively subordinated in right of
payment to all debt and other liabilities, including trade payables and other
accrued liabilities, of our subsidiaries. As of March 30, 2007, our subsidiaries
had total liabilities of approximately $51.5 million, excluding intercompany
liabilities.
We are prohibited from, and may not have the financial resources to, repurchase
the debentures upon a fundamental change, which would cause defaults under the
new senior credit facility and other indebtedness we may incur in the future.
The holders of the debentures may require us to repurchase all or portion
of their debentures upon a fundamental change as defined in the indenture for
the debentures. If a fundamental change were to occur, we may not have enough
funds to pay the repurchase price for all tendered debentures. We are prohibited
under our new senior credit facility, and may be prohibited under indebtedness
we may incur in the future, from purchasing any debentures prior to their stated
maturity. In such circumstances, we will be required to repay all of the
outstanding principal of, and pay any accrued and unpaid interest on,
indebtedness under the new senior credit facility and any such other future
indebtedness or to obtain the requisite consent from the lenders under the new
senior credit facility and the holders of any such other future indebtedness to
permit the repurchase of the debentures. If we are unable to repay all of such
indebtedness or are unable to obtain the necessary consents, we will be unable
to offer to repurchase the debentures, which would constitute an event of
default under the indenture for the debentures, which itself would also
constitute a default under the new senior credit facility and could constitute a
default under the terms of any future indebtedness that we may incur. In
addition, the events that constitute a fundamental change under the indenture
for the debentures may also be events of default under the new senior credit
facility or other indebtedness we may incur in the future. Our obligation to
offer to repurchase the debentures upon a fundamental change would not
necessarily afford holders of debentures protection in the event of a highly
leveraged transaction, reorganization, merger or similar transaction because
those transactions could be structured in a manner whereby they would not be
considered a "fundamental change" for purposes of the indenture for the
debentures.
No public market exists for the debentures, and the resale of the debentures is
subject to significant restrictions as well as uncertainties regarding the
existence of any trading market for the debentures.
Neither the debentures nor the shares of common stock issuable upon
conversion of the debentures have been registered under the Securities Act or
any state securities laws. As a result, until this registration statement is
declared effective by the SEC, they may only be offered or sold if an applicable
exemption from the registration requirements of the Securities Act and
applicable state laws applies to the circumstances of the sale.
The debentures are a new issue of securities for which there is currently
no public market. We do not intend to list the debentures on any national
securities exchange or automated quotation system. We cannot assure you that an
active or sustained trading market for the debentures will develop or that the
holders will be able to sell their debentures.
Moreover, even if the holders are able to sell their debentures, we cannot
assure you as to the price at which any sales will be made. Future trading
prices of the debentures will depend on many factors, including, among other
things, prevailing interest rates, our operating results, the price of our
common stock and the market for similar securities. Historically, the market for
convertible debt has been subject to disruptions that have caused volatility in
prices. It is possible that the market for the debentures will be subject to
disruptions which may have a negative effect on the holders of the debentures,
regardless of our prospects or financial performance.
Under the registration rights agreement applicable to the debentures, which
has been filed with the registration statement of which this prospectus is a
part, we are using our reasonable best efforts to have this shelf-registration
statement declared effective to register the debentures and the common stock
issuable upon the conversion of the debentures. However, we cannot assure you
that we will be successful in having this registration statement declared
effective.
The possible volatility of our common stock price could adversely affect the
ability of holders to resell the debentures or common stock issuable upon
conversion of the debentures.
Market prices of the securities of technology companies have been volatile
in the recent past. 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 or
prospects could be below the expectations of public market analysts and
investors, and in response, the market price of our common stock could decrease
significantly. For example, our stock price declined from a closing price of
$44.69 per share on January 13, 2004 to a closing price of $14.57 on August 13,
2004. Investors may be unable to resell their shares of our common stock
received upon conversion of the debentures at or above the conversion price. In
the past, companies that have experienced volatility in the market price of
their common 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.
The conditional conversion features of the debentures could result in holders of
debentures receiving less than the value of the common stock into which a
debenture is convertible.
12
The debentures are convertible into common stock only if specified
conditions are met. If the specific conditions for conversion are not met,
holders may not be able to receive the value of the common stock into which the
debentures would otherwise be convertible.
Conversion of the debentures will dilute the ownership interest of existing
stockholders, including holders who had previously converted their debentures.
The conversion of some or all of the debentures will dilute the ownership
interests of existing stockholders. Any sales in the public market of the common
stock issuable upon such conversion could adversely affect prevailing market
prices of our common stock. In addition, the existence of the debentures may
encourage short selling by market participants because the conversion of the
debentures could depress the price of our common stock.
Upon conversion of the debentures, we will pay a settlement amount consisting of
cash and, at our option, cash or shares of our common stock or a combination of
cash and shares of our common stock, if any, based upon a specified conversion
reference period and you may receive less proceeds than expected.
Generally, we will satisfy our conversion obligation to holders by paying
cash equal to the principal amount of a debenture and by delivering, at our
option, cash or shares of our common stock or a combination of cash and shares
of our common stock based on a daily conversion value calculated on a
proportionate basis for each day of the 20 trading-day conversion reference
period. Accordingly, upon conversion of a debenture, holders might not receive
any shares of our common stock, or they might receive fewer shares of common
stock relative to the conversion value of the debenture as of the conversion
date. In addition, because of the 20 trading-day conversion reference period,
settlement will be delayed until at least the 23rd trading day following the
related conversion date. See "Description of Debentures-Payment Upon
Conversion." Upon conversion of the debentures, you may receive less proceeds
than expected because the value of our common stock may decline (or not
appreciate as much as you may expect) between the conversion date and the day
the settlement amount of your debentures is determined.
There can be no assurance that we will have sufficient funds to satisfy our
conversion obligation. Further, the terms of existing and future financing or
other agreements relating to indebtedness, including senior debt may prohibit us
from satisfying our conversion obligation. The terms of our senior credit
facility restrict our ability to pay cash on conversion of the debentures. Our
failure to convert the debentures into cash or a combination of cash and shares
of our common stock upon exercise of a holder's conversion right in accordance
with the provisions of the indenture would constitute a default under the
indenture. In addition, a default under the indenture could lead to a default
under existing and future agreements governing our indebtedness. If, due to a
default, the repayment of related indebtedness were to be accelerated after any
applicable notice or grace periods, we may not have sufficient funds to repay
such indebtedness and the debentures.
The adjustment to the conversion rate for debentures converted in connection
with a specified corporate transaction may not adequately compensate you for any
lost value of your debentures as a result of such transaction.
In the event that a specified corporate transaction that constitutes a
designated event occurs or is anticipated to occur or an event occurs or is
anticipated to occur that would have been a fundamental change but is deemed not
to be a fundamental change because at least 95% of the consideration (excluding
cash payments for fractional shares) in the transaction or transactions
constituting a fundamental change consists of shares of common stock that are,
or upon issuance will be, traded on a U.S. national securities exchange or
approved for trading on an established automated over-the-counter trading market
in the U.S., under certain circumstances, we will increase the conversion rate
by a number of additional shares of our common stock for debentures converted in
connection with such fundamental change. The increase in the conversion rate
will be determined based on the date on which the specified corporate
transaction becomes effective and the price paid per share of our common stock
in such transaction, as described below under "Description of Debentures--Make
Whole Premium." The adjustment to the conversion rate for debentures converted
in connection with a fundamental change may not adequately compensate you for
any lost value of your debentures as a result of such transaction. In addition,
in no event will the total number of shares of common stock issuable upon
conversion as a result of this adjustment exceed 37.0219 per $1,000 principal
amount of debentures, subject to proportional adjustments.
Our obligation to increase the conversion rate in connection with any such
fundamental change transaction could be considered a penalty, in which case the
enforceability thereof would be subject to general principles of reasonableness
of economic remedies.
If you hold debentures, you are not entitled to any rights with respect to
our common stock, but you are subject to all changes made with respect to our
common stock.
If you hold debentures, you are not entitled to any rights with respect to
our common stock (including, without limitation, voting rights and rights to
receive any dividends or other distributions on our common stock), but you are
subject to all changes affecting the common stock. You will only be entitled to
rights on the common stock if and when we deliver shares of common stock to you
in exchange for your debentures and in limited cases under the anti-dilution
adjustments of the debentures. For example, in the event that an amendment is
proposed to our certificate of incorporation or by-laws requiring stockholder
approval and the record date for determining the stockholders of record entitled
to vote on the amendment occurs prior to delivery of the common stock, you will
not be entitled to vote on the amendment, although you will nevertheless be
subject to any changes in the powers, preferences or special rights of our
common stock.
13
Holders of debentures should consider the U.S. federal income tax consequences
of owning the debentures.
The debentures will be characterized as indebtedness for U.S. federal
income tax purposes. Accordingly, you will be required to include, in your
income, interest with respect to the debentures.
The debentures will be characterized as contingent payment debt instruments
for U.S. federal income tax purposes, and will be subject to U.S. federal income
tax rules applicable to contingent payment debt instruments. Under that
characterization and treatment, holders will be required to include amounts in
income, as ordinary income, in advance of your receipt of the cash or other
property attributable to the debentures. The amount of interest income required
to be included by holders in income for each year will be in excess of the
stated interest that is paid on the debentures. Holders will recognize gain or
loss on the sale, exchange or conversion of a debenture in an amount equal to
the difference between the amount realized, including the fair market value of
any of our common stock received, and their adjusted tax basis in the debenture.
Any gain recognized by holders on the sale, exchange or conversion of a
debenture generally will be treated as ordinary interest income. A discussion of
the U.S. federal income tax consequences of ownership of the debentures is
contained in this offering memorandum under the heading "Certain United States
Federal Income Tax Considerations."
The IRS may challenge our ability to claim interest deductions with respect to
the debentures.
Section 279 of the Internal Revenue Code disallows the deduction of
interest paid or accrued on certain convertible debt instruments if the
convertible debt is used, directly or indirectly, to finance a corporate
acquisition and certain other conditions are met. Although we do not currently
anticipate using the proceeds of this offering to finance any specific
acquisition, our ability to consummate strategic acquisitions is a component of
our operating strategy, and there is a possibility that a portion of the
proceeds from the offering could be used to finance a strategic corporate
acquisition in the future. Although we do not believe that Section 279 would
apply to disallow our interest deduction with respect to the debentures even if
we were to consummate such a strategic acquisition, there is no assurance that
Section 279 would not apply. If we were not entitled to deduct interest on the
debentures, our after-tax operating results could be adversely affected.
We have various mechanisms in place to discourage takeover attempts, which may
reduce or eliminate our stockholder's ability to sell their shares for a premium
in a change of control transaction.
Various provisions of our restated certificate of incorporation and bylaws
and of 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:
o 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;
o establishing a fixed size for our board of directors;
o requiring that only the board of directors may call special
meetings of our stockholders;
o mandatory specific procedures for stockholders to take any action
by written consent; and
o 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.
We also have a stockholder rights plan that provides for, among other
things, distributions to our stockholders upon an actual or prospective change
in control of our company. The plan has an anti-takeover effect because a
distribution under the plan may cause a substantial dilution to a person or a
group that attempts to acquire a substantial number of our shares of common
stock without the approval of our board of directors.
14
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus or incorporated by
reference in this prospectus and other written and oral statements made from
time to time by us and our representatives, are not statements of historical or
current fact. As such, they are "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. 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:
o future sales, expenses and profitability;
o the future development and expected growth of our business and
the IMD industry;
o our ability to execute our business model and our business
strategy;
o our ability to identify trends within the IMD, medical component,
and commercial power source industries and to offer products and
services that meet the changing needs of those markets;
o projected capital expenditures; and
o 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 and our
prospects generally, you should carefully consider the factors set forth below.
All forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by these cautionary factors and
to others contained throughout this report. We are under no duty to update any
of the forward-looking statements after the date of this report or to conform
these statements to actual results.
Although it is not possible to create a comprehensive list of all factors that
may cause actual results to differ from the results expressed or implied by our
forward-looking statements or that may affect our future results, some of these
factors include the following: dependence upon a limited number of customers,
product obsolescence, inability to market current or future products, pricing
pressure from customers, reliance on third party suppliers for raw materials,
products and subcomponents, fluctuating operating results, inability to maintain
high quality standards for our products, challenges to our intellectual property
rights, product liability claims, inability to successfully consummate and
integrate acquisitions, unsuccessful expansion into new markets, competition,
inability to obtain licenses to key technology, regulatory changes or
consolidation in the healthcare industry, and other risks and uncertainties that
arise from time to time and are described in our periodic filings with the
Securities and Exchange Commission and under "Risk Factors" beginning on page 5
of this prospectus.
USE OF PROCEEDS
The selling stockholders will receive all of the proceeds from the sale of
the debentures and the common stock issuable upon conversion of the debentures
offered by this prospectus. We will not receive any proceeds.
15
PRICE RANGE OF COMMON STOCK
Our common stock is listed on the New York Stock Exchange, or NYSE, under
the symbol "GB." Our common stock began trading on the NYSE on September 29,
2000 following our initial public offering.
The table below shows, for the periods indicated, the high and low reported
sale prices per share of our common stock on the NYSE.
Common Stock Price
-----------------------------
High Low
---- ---
Fiscal 2004
First Quarter $45.15 $34.60
Second Quarter 37.42 23.10
Third Quarter 27.10 14.41
Fourth Quarter 22.94 15.30
Fiscal 2005
First Quarter $22.43 $15.76
Second Quarter 25.19 17.30
Third Quarter 27.45 21.96
Fourth Quarter 30.40 24.03
Fiscal 2006
First Quarter $28.02 $20.49
Second Quarter 24.92 19.10
Third Quarter 25.24 20.36
Fourth Quarter 27.78 21.40
Fiscal 2007
First Quarter 30.05 25.04
As of June 4, 2007, there were approximately 237 holders of record of our
common stock.
16
RATIO OF EARNINGS TO FIXED CHARGES
Our ratios of earnings to fixed charges for each of the periods
indicated are as follows:
Quarter Ended Fiscal Year Ended
----------------------------------- -------------------------------------------------------------------------
March 30, March 30, March 31, Dec. 29, Dec. 29, Dec. 30, Dec. 31, Jan. 2, Jan. 3,
2007 Pro 2007 2006 2006 Pro 2006 2005 2004 2004 2003
Forma Forma
----------------------------------- -------------------------------------------------------------------------
6.1x 9.7x 8.7x 3.6x 5.5x 4.0x 5.9x 8.4x 6.2x
For purposes of determining the ratio of earnings to fixed charges,
earnings represent income from continuing operations plus fixed charges and
amortization of capitalized interest, less capitalized interest. Fixed charges
represent interest on indebtedness whether expensed or capitalized, deferred
financing fees amortization and estimated interest within rent expense.
17
DESCRIPTION OF DEBENTURES
The debentures were issued under an indenture dated March 28, 2007, between
Greatbatch, as issuer, and Manufacturers and Traders Trust Company, as trustee.
On April 2, 2007, the original indenture was supplemented and amended by a
supplemental indenture executed by us and the trustee. We refer to the
indenture, as modified by the supplemental indenture, as the indenture. We
issued the debentures to persons believed to be "qualified institutional
purchasers" under Rule 144A promulgated under the Securities Act, or "accredited
investors" under Regulation D promulgated pursuant to the Securities Act in
transactions exempt from the registration requirements of the Securities Act.
The debentures and the shares of common stock issuable upon conversion of the
debentures are also covered by a registration rights agreement. The original
indenture and the registration rights agreement were filed as exhibits to our
Form 8-K filed on March 29, 2007, and the supplemental indenture was filed as an
exhibit to our Form 8-K filed on April 4, 2007.
The following description is a summary of the material provisions of the
debentures, the indenture and the registration rights agreement. It does not
purport to be complete. This summary is subject to and is qualified by reference
to all the provisions of the indenture, including the definitions of certain
terms used in the indenture, and to all provisions of the registration rights
agreement. Wherever particular provisions or defined terms of the indenture or
form of debenture are referred to, these provisions or defined terms are
incorporated into this prospectus by reference. We urge you to read the
indenture because it, and not this description, defines the rights of a holder
of the debentures.
As used in this "Description of Debentures" section, references to "
Greatbatch," "we," "our" or "us" refer solely to Greatbatch and not to our
subsidiaries.
General
The debentures are general unsecured obligations of Greatbatch. Our payment
obligations under the debentures are subordinated to our senior indebtedness and
effectively subordinated to all debts and other liabilities of our subsidiaries
as described under "-Subordination of Debentures." The debentures will be
convertible into common stock as described under "-Conversion of Debentures."
On March 28, 2007, holders of the 2003 debentures, exchanged $50,000,000
aggregate principal amount of the 2003 debentures for an equivalent principal
amount of the debentures and such holders and other purchasers purchased an
additional $80,000,000 aggregate principal amount of the debentures in a private
offering.
The indenture permits us to, from time to time after the execution of the
original indenture, execute and deliver to the trustee for authentication
additional debentures, and the trustee shall authenticate and deliver those
additional debentures, if each of the following conditions are met:
o the additional debentures and the debentures issued under the
original indenture are dated as part of the same issue of debt
instruments for the purposes of U.S. federal income taxes;
o the additional debentures have the same CUSIP number as the
debentures issued under the original indenture; and
o the trustee receives certain opinions and certificates from our
counsel and us, respectively, that the issuance of the additional
debentures comply with the terms of the indenture.
On April 2, 2007, holders of the 2003 debentures exchanged $67,782,000
aggregate principal amount of the 2003 debentures for an equivalent principal
amount of additional debentures in a private offering, so that the aggregate
principal amount of the debentures equals $197,782,000. We entered into the
supplemental indenture in connection with the issuance of the additional
debentures.
The debentures have been issued only in denominations of $1,000 and
multiples of $1,000. The debentures will mature on June 15, 2013 unless earlier
converted, redeemed or repurchased.
The debentures are obligations of Greatbatch, which is a holding company.
Because we derive substantially all of our revenues from our operating
subsidiaries and do not have significant operations of our own, we are dependent
upon the ability of our subsidiaries to provide us with cash, in the form of
dividends or intercompany credits, loans or otherwise, to meet our obligations
under the debentures. Our subsidiaries will have no obligation to pay any
amounts due on the debentures or to make any funds available to us for payment
of the debentures upon maturity or upon a redemption or purchase of the
debentures as described below.
Holders of the debentures are not afforded protection under the indenture
in the event of a highly leveraged transaction or a change in control of us,
except to the extent described below under "-Redemption at Option of the Holder
Upon Fundamental Change."
18
The debentures bear interest at a rate of 2 1/4% per annum. Interest will
be calculated on the basis of a 360-day year consisting of twelve 30-day months
and will accrue from March 28, 2007, or from the most recent date to which
interest has been paid or duly provided for. We will pay contingent interest
under certain circumstances as described under "-Contingent Interest." We will
pay interest, including contingent interest, if any, on June 15 and December 15
of each year, beginning June 15, 2007, to record holders at the close of
business on the preceding June 1 and December 1, as the case may be. Interest
payable upon redemption or repurchase, including contingent interest, if any,
will be paid to the person to whom principal is payable, unless the redemption
date or repurchase date is an interest payment date. Payment of cash interest on
the debentures will include interest accrued through the day before the
applicable interest payment date or redemption date, as the case may be, except
as described under "-Redemption at Option of the Holder Upon Fundamental
Change."
The debentures are debt instruments that are subject to the contingent
payment debt regulations. Therefore, the debentures were issued with original
issue discount for U.S. federal income tax purposes, which we refer to as tax
original issue discount. In general, beneficial owners of the debentures will be
required to accrue interest income on the debentures for U.S. federal income tax
purposes in the manner described herein, regardless of whether such owners use
the cash or accrual method of tax accounting. Beneficial owners will be
required, in general, to accrue interest each year, as tax original issue
discount, based on the rate at which we would issue a noncontingent,
nonconvertible fixed-rate debt instrument with terms and conditions otherwise
similar to the debentures, rather than at a lower rate based on the accruals on
the debentures for non-tax purposes (i.e., in excess of the stated semi-annual
interest payments and any contingent interest payments). Accordingly, owners of
debentures will be required to include interest in taxable income in each year
in excess of the accruals on the debentures for non-tax purposes. Furthermore,
upon a sale, exchange or conversion of a debenture, holders of the debentures
will recognize gain or loss equal to the difference between the amount realized
by the holder and a holder's adjusted tax basis in the debenture. The amount
realized by the holder will include, in the case of a conversion, the fair
market value of the stock received. Any gain on a sale, exchange or conversion
of a debenture will be treated as ordinary interest income. Holders of the
debentures are expected to consult their own tax advisors as to the United
States federal, state, local or other tax consequences of acquiring, owning and
disposing of the debentures.
We are maintaining an office in the Borough of Manhattan, The City of New
York, where we will pay the principal and premium, if any, on the debentures and
a holder of debentures may present the debentures for conversion, registration
of transfer or exchange for other denominations, which shall initially be an
office or agency of the trustee. We may pay interest by check mailed to a
holder's address as it appears in the debenture register, provided that any
holder with an aggregate principal amount in excess of $2.0 million will be
paid, at their written election, by wire transfer of immediately available
funds.
However, payments to The Depository Trust Company, New York, New York,
which we refer to as DTC, will be made by wire transfer of immediately available
funds to the account of DTC or its nominee.
Conversion of Debentures
Holders of debentures may convert any of their debentures, in whole or in
part, into shares of our common stock prior to the close of business on the
final maturity date of the debentures, subject to prior redemption or repurchase
of the debentures, only under the following circumstances:
o upon satisfaction of a market price condition;
o upon satisfaction of a trading price condition;
o upon notice of redemption;
o upon specified corporate transactions;
o upon a fundamental change; or
o within 60 days of final maturity date.
The number of shares of common stock to be received upon conversion of the
debentures will be determined by multiplying the number of $1,000 principal
amount debentures converted by an individual holder by the conversion rate on
the date of conversion. The initial conversion rate for the debentures is
28.8219 shares of common stock per $1,000 principal amount of debentures,
subject to adjustment as described below, which represents an initial conversion
price of approximately $34.70 per share. If we call debentures for redemption, a
holder may convert the debentures only until the close of business on the
business day prior to the redemption date unless we fail to pay the redemption
price. If a holder submitted their debentures for redemption upon a fundamental
change, such holder may convert their debentures only if such holder withdraws
their redemption election. Similarly, if a holder exercises their option to
require us to redeem their debentures other than upon a fundamental change,
those debentures may be converted only if a holder withdraws their election to
19
exercise their option in accordance with the terms of the indenture. A holder
may convert their debentures in part so long as such part is $1,000 principal
amount or an integral multiple of $1,000. Upon conversion, a holder will not
receive any cash payment of interest, including contingent interest, if any,
unless such conversion occurs between a regular record date and the interest
payment date to which it relates. We will not issue fractional common shares
upon conversion of debentures. Instead, we will pay cash in lieu of fractional
shares based on the last reported sale price of the common stock on the trading
day prior to the conversion date. Our delivery to the holder of the full number
of shares of our common stock into which a debenture is convertible, together
with any cash payment for such holder's fractional shares, will be deemed to
satisfy our obligation to pay:
o the principal amount of the debenture; and
o accrued but unpaid interest, including contingent interest, if
any, and accrued tax original issue discount, attributable to the
period from the most recent interest payment date to the
conversion date.
As a result, accrued but unpaid interest, including contingent interest, if any,
and accrued tax original issue discount to the conversion date is deemed to be
paid in full rather than cancelled, extinguished or forfeited. For a discussion
of the tax treatment upon receipt of our common stock upon conversion, see
"Certain United States Federal Income Tax Considerations."
Notwithstanding the preceding paragraph, if debentures are converted after
a record date but prior to the next interest payment date, holders of such
debentures at the close of business on the record date will receive the
interest, including contingent interest, if any, payable on such debentures on
the corresponding interest payment date notwithstanding the conversion. Such
debentures, upon surrender for conversion, must be accompanied by funds equal to
the amount of interest, including contingent interest, if any, payable on the
debentures so converted; provided that no such payment need be made (1) if we
have specified a redemption date that is after a record date and prior to the
next interest payment date, (2) if we have specified a redemption date following
a fundamental change that is during such period or (3) to the extent of any
overdue interest or overdue contingent interest, if any overdue interest or
overdue contingent exists at the time of conversion with respect to such
debenture.
Conversion Upon Satisfaction of Market Price Condition
A holder of debentures may surrender debentures for conversion into our
common stock prior to the close of business on the maturity date during any
fiscal quarter commencing after June 30, 2007 if the closing sale price of our
common stock exceeds 150% of the conversion price for at least 20 trading days
in the 30 consecutive trading days ending on the last trading day of the
preceding fiscal quarter and that the debentures are not convertible pursuant to
the satisfaction of a market price condition prior to July 1, 2007.
The "closing sale price" of our common stock on any date means the closing
per share sale price (or if no closing sale price is reported, the average of
the bid and ask prices or, if more than one in either case, the average of the
average closing bid and the average closing ask prices) on such date as reported
in composite transactions for the principal United States securities exchange on
which our common stock is traded or, if our common stock is not listed on a
United States national or regional securities exchange, as reported by Nasdaq or
by the National Quotation Bureau Incorporated. In the absence of such a
quotation, we will determine the closing sale price on the basis we consider
appropriate. The "closing sale price" will be determined without reference to
extended or after hours trading. The "conversion price" as of any day will equal
$1,000 divided by the number of shares of common stock issuable upon conversion
of $1,000 principal amount of debentures.
Conversion Upon Satisfaction of Trading Price Condition
A holder of debentures may surrender debentures for conversion into our
common stock prior to maturity during the five business days immediately
following any five consecutive trading day period in which the trading price per
$1,000 principal amount of debentures (as determined following a request by a
holder of the debentures in accordance with the procedures described below) for
each day of such period was less than 98% of the product of the closing sale
price of our common stock and the number of shares issuable upon conversion of
$1,000 principal amount of the debentures (the "98% Trading Exception").
The "trading price" of the debentures on any date of determination means
the average of the secondary market bid quotations per $1,000 principal amount
of debentures obtained by the trustee for $10,000,000 principal amount of the
debentures at approximately 3:30 p.m., New York City time, on such determination
date from three independent nationally recognized securities dealers we select,
provided that if three such bids cannot reasonably be obtained by the trustee,
but two such bids are obtained, then the average of the two bids shall be used,
and if only one such bid can reasonably be obtained by the trustee, this one bid
shall be used. If the trustee cannot reasonably obtain at least one bid for
$10,000,000 principal amount of the debentures from a nationally recognized
securities dealer, then the trading price per $1,000 principal amount of the
debentures will be deemed to be less than 98% of the product of the "closing
sale price" of our common stock on such determination date and the number of
shares issuable upon conversion of $1,000 principal amount of the debentures.
20
The trustee does not have an obligation to determine the trading price of
the debentures unless we have requested such determination; and we do not have
any obligation to make such request unless a holder of debentures provides us
with reasonable evidence that the trading price per $1,000 principal amount of
the debentures would be less than 98% of the product of the closing sale price
of our common stock and the number of shares issuable upon conversion of $1,000
principal amount of the debentures; at which time, we shall instruct the trustee
to determine the trading price of the debentures beginning on the next trading
day and on each successive trading day until the trading price is greater than
or equal to 98% of the product of the closing sale price of our common stock and
the number of shares issuable upon conversion of $1,000 principal amount of the
debentures.
Conversion Upon Notice of Redemption
If we call debentures for redemption, a holder of debentures may convert
the debentures until the close of business on the business day immediately
preceding the redemption date, after which time such holder's right to convert
will expire unless we default in the payment of the redemption price.
Conversion Upon Specified Corporate Transactions
If we elect to:
o distribute to all holders of our common stock certain rights or
warrants; or
o distribute to all holders of our common stock, assets, debt
securities or rights to purchase our securities, which
distribution has a per share value exceeding 5% of the closing
sale price of our common stock on the day preceding the
declaration date for such distribution;
we must notify the holders of our debentures at least 20 days prior to the
ex-dividend date for such distribution. Once we have given such notice, the
holders of our debentures may surrender debentures for conversion at any time
until the earlier of the close of business on the business day prior to the
ex-dividend date or any announcement by us that such distribution will not take
place. No adjustment to the conversion price or a holders' ability to convert
will be made if a holder of debentures will otherwise participate in the
distribution without conversion.
In addition, if we are a party to a consolidation, merger, binding share
exchange or sale of all or substantially all of our assets, in each case
pursuant to which our common stock would be converted into cash, securities or
other property, a holder of debentures may surrender debentures for conversion
at any time from and after the date which is 15 days prior to the anticipated
effective date of the transaction until and including the date which is 15 days
after the actual date of such transaction. If we are a party to a consolidation,
merger, binding share exchange or sale of all or substantially all of our
assets, in each case pursuant to which our common stock is converted into cash,
securities, or other property, then at the effective time of the transaction, a
holder's right to convert a debenture into our common stock will be changed into
a right to convert it into the kind and amount of cash, securities and other
property which such holder would have received if such holder had converted
debentures immediately prior to the transaction. If the transaction also
constitutes a fundamental change, a holder of debentures can require us to
redeem all or a portion of their debentures as described under "Redemption At
Option of the Holder Upon Fundamental Change."
Conversion Upon a Fundamental Change
If any fundamental change occurs (as defined under "-Redemption at Option
of the Holder Upon Fundamental Change"), a holder of debentures may surrender
debentures for conversion into our common stock.
Conversion Within 60 Days of Final Maturity Date
A holder of debentures may surrender debentures for conversion into our
common stock at any time during the period beginning 60 days prior to, but
excluding, June 13, 2013.
Conversion Procedures
To convert debentures into common stock a holder of debentures must do the
following:
o complete and manually sign the conversion notice on the back of
the debenture or facsimile of the conversion notice and deliver
this notice to the conversion agent;
o surrender the debenture to the conversion agent;
21
o if required, furnish appropriate endorsements and transfer
documents;
o if required, pay all transfer or similar taxes; and
o if required, pay funds equal to interest payable on the next
interest payment date.
The date that each individual holder of debentures complies with these
requirements is the conversion date under the indenture. If an interest is a
beneficial interest in a global debenture, to convert, a holder must comply with
the last three requirements listed above and comply with the depositary's
procedures for converting a beneficial interest in a global debenture.
We will adjust the conversion rate if any of the following events occurs:
o we issue common stock as a dividend or distribution on our common
stock;
o we issue to all holders of common stock certain rights or
warrants to purchase our common stock;
o we subdivide or combine our common stock;
o we distribute to all holders of our common stock, shares of our
capital stock, evidences of indebtedness or assets, including
securities but excluding: rights or warrants specified above;
dividends or distributions specified above; and cash
distributions;
o If we distribute capital stock of, or similar equity interests
in, a subsidiary or other business unit of ours, then the
conversion rate will be adjusted based on the market value of the
securities so distributed relative to the market value of our
common stock, in each case based on the average closing sales
prices of those securities (where such closing prices are
available) for the 10 trading days commencing on and including
the fifth trading day after the date on which "ex-dividend
trading" commences for such distribution on the Nasdaq National
Market or such other national or regional exchange or market on
which the securities are then listed or quoted;
o we distribute cash, excluding any dividend or distribution in
connection with our liquidation, dissolution or winding up or any
quarterly cash dividend on our common stock to the extent that
the aggregate cash dividend per share of common stock in any
quarter does not exceed the greater of: the amount per share of
common stock of the next preceding quarterly cash dividend on the
common stock to the extent that the preceding quarterly dividend
did not require an adjustment of the conversion rate pursuant to
this clause, as adjusted to reflect subdivisions or combinations
of the common stock; and 1.25% of the average of the last
reported sale price of the common stock during the ten trading
days immediately prior to the declaration date of the dividend,
calculated at the time of each distribution.
If an adjustment is required to be made under this clause as a result of a
distribution that is a quarterly dividend, the adjustment would be based upon
the amount by which the distribution exceeds the amount of the quarterly cash
dividend permitted to be excluded pursuant to this clause. If an adjustment is
required to be made under this clause as a result of a distribution that is not
a quarterly dividend, the adjustment would be based upon the full amount of the
distribution;
o we or one of our subsidiaries makes a payment in respect of a
tender offer or exchange offer for our common stock to the extent
that the cash and value of any other consideration included in
the payment per share of common stock exceeds the closing sale
price per share of common stock on the trading day next
succeeding the last date on which tenders or exchanges may be
made pursuant to such tender or exchange offer; and
o someone other than us or one of our subsidiaries makes a payment
in respect of a tender offer or exchange offer in which, as of
the closing date of the offer, our board of directors is not
recommending rejection of the offer. The adjustment referred to
in this clause will only be made if:
o the tender offer or exchange offer is for an amount that
increases the offeror's ownership of common stock to more than
25% of the total shares of common stock outstanding; and
o the cash and value of any other consideration included in the
payment per share of common stock exceeds the closing sale price
per share of common stock on the business day next succeeding the
last date on which tenders or exchanges may be made pursuant to
the tender or exchange offer.
o However, the adjustment referred to in this clause will generally
not be made if as of the closing of the offer, the offering
documents disclose a plan or an intention to cause us to engage
in a consolidation or merger or a sale of all or substantially
all of our assets.
22
If the rights provided for in our stockholder rights agreement dated March
18, 2002 or in any future rights plan adopted by us have separated from our
common stock in accordance with the provisions of the applicable stockholder
rights agreement so that the holders of the debentures would not be entitled to
receive any rights in respect of the common stock issuable upon conversion of
the debentures, the conversion rate will be adjusted as if we distributed to all
holders of our common stock, evidences of indebtedness or assets as described
under the fourth bullet point above, subject to readjustment in the event of the
expiration, termination or redemption of the rights. In lieu of any such
adjustment, we may amend such applicable stockholder rights agreement to provide
that upon conversion of the debentures the holders will receive, in addition to
the common stock issuable upon such conversion, the rights which would have
attached to such shares of common stock if the rights had not become separated
from the common stock under such applicable stockholder rights agreement. See
"Description of Capital Stock Preferred Stock Stockholder Rights Plan."
In the event of:
o any reclassification of our common stock;
o a consolidation, merger or combination involving us; or
o a sale or conveyance to another person or entity of all
or substantially all of our property and assets;
in which holders of our common stock would be entitled to receive stock, other
securities, other property, assets or cash for their common stock, upon
conversion of their debentures, a holder of debentures will be entitled to
receive the same type of consideration which such holder would have been
entitled to receive if such holder had converted the debentures into our common
stock immediately prior to any of these events.
A holder of debentures may in certain situations be deemed to have received
a distribution subject to U.S. federal income tax as a dividend in the event of
any taxable distribution to holders of common stock or in certain other
situations requiring a conversion rate adjustment. See "Certain United States
Federal Tax Considerations."
We may, from time to time, increase the conversion rate if our board of
directors has made a determination that this increase would be in our best
interests. Any such determination by our board will be conclusive. In addition,
we may increase the conversion rate if our board of directors deems it advisable
to avoid or diminish any income tax to holders of common stock resulting from
any stock or rights distribution. See "Certain United States Federal Tax
Considerations."
We will not be required to make an adjustment in the conversion rate unless
the adjustment would require a change of at least 1% in the conversion rate.
However, we will carry forward any adjustments that are less than 1% of the
conversion rate. Except as described above in this section, we will not adjust
the conversion rate for any issuance of our common stock or convertible or
exchangeable securities or rights to purchase our common stock or convertible or
exchangeable securities.
Make Whole Premium
If you elect to convert your debentures upon the occurrence of a
fundamental change (as defined under "-Redemption at Option of the Holder Upon
Fundamental Change"), in certain circumstances described below, the conversion
rate will be increased by an additional number of shares of our common stock, or
the additional shares, as described below.
The number of additional shares by which the conversion rate will be
increased will be determined by reference to the table below, based on the date
on which the fundamental change occurs or becomes effective, or the effective
date, and the price paid per share of our common stock in the corporate
transaction. If the holders of our common stock receive only cash in the
corporate transaction, the stock price shall be the cash amount paid per share
of our common stock in connection with the corporate transaction. Otherwise, the
stock price shall be the volume weighted average price of our common stock over
the ten trading-day period ending on the trading day preceding the effective
date of the fundamental change.
The stock prices set forth in the first row of the table below (i.e.,
column headings) will be adjusted as of any date on which the conversion rate of
the debentures is otherwise adjusted. The adjusted stock prices will equal the
stock prices applicable immediately prior to such adjustment, multiplied by a
fraction, the numerator of which is the conversion rate immediately prior to the
adjustment giving rise to the closing sale price adjustment and the denominator
of which is the conversion rate as so adjusted. The number of additional shares
will be adjusted in the same manner as the conversion rate as set forth above.
23
The following table sets forth the hypothetical stock price and the number
of additional shares to be received per $1,000 principal amount of debentures:
Share Price
Effective Date $26.98 $30.00 $35.00 $40.00 $45.00 $50.00 $55.00 $60.00 $70.00 $80.00 $90.00
-------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
March 28, 2007 8.2 6.7 4.9 3.7 2.9 2.3 1.9 1.5 1.1 0.8 0.5
------------------------------- --------- -------- -------- --------- -------- -------- -------- --------- -------- -----------
June 15, 2007 8.2 6.7 4.9 3.7 2.8 2.2 1.8 1.5 1.0 0.7 0.5
------------------------------- --------- -------- -------- --------- -------- -------- -------- --------- -------- -----------
June 15, 2008 8.2 6.6 4.6 3.4 2.6 2.0 1.6 1.3 0.9 0.6 0.4
------------------------------- --------- -------- -------- --------- -------- -------- -------- --------- -------- -----------
June 15, 2009 7.7 6.0 4.1 2.9 2.1 1.6 1.3 1.0 0.6 0.4 0.3
------------------------------- --------- -------- -------- --------- -------- -------- -------- --------- -------- -----------
June 15, 2010 7.4 5.5 3.6 2.4 1.6 1.2 0.9 0.7 0.4 0.3 0.2
------------------------------- --------- -------- -------- --------- -------- -------- -------- --------- -------- -----------
June 15, 2011 7.0 4.8 2.7 1.6 1.0 0.6 0.4 0.3 0.2 0.1 0.1
------------------------------- --------- -------- -------- --------- -------- -------- -------- --------- -------- -----------
June 15, 2012 6.3 3.3 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------------------------------- --------- -------- -------- --------- -------- -------- -------- --------- -------- -----------
June 15, 2013 6.3 3.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
------------------------------- --------- -------- -------- --------- -------- -------- -------- --------- -------- -----------
In the event that the exact stock price and effective dates may not be set
forth on the table above, in which case:
o if the stock price on the effective date is between two stock
prices on the table or the actual effective date is between two
effective dates on the table, the adjustment to the conversion
rate will be determined by straight-line interpolation between
the make whole premium amounts set forth for the higher and lower
stock prices and the two effective dates, as applicable, based on
a 365-day year;
o if the stock price on the effective date equals or exceeds $90.00
per share (subject to adjustment), no adjustment of the
conversion rate will be made; and
o if the stock price on the effective date is less than $26.98 per
share (subject to adjustment), no adjustment of the conversion
rate will be made.
Notwithstanding anything discussed above, in no event will the total number
of shares of our common stock issuable upon conversion of the debentures exceed
37.0219 per $1,000 principal amount of debentures, other than on account of
proportional adjustments to the conversion rate as discussed above.
Our obligation to pay the make whole premium could be considered a penalty,
in which case the enforceability thereof would be subject to general principles
of reasonableness of economic remedies.
Payment Upon Conversion
In lieu of delivery of some or all of the shares of our common stock
otherwise issuable upon conversion of the debentures, at our option the holders
shall receive for each $1,000 principal amount of debentures being surrendered
for conversion (a) cash in an amount equal to the lesser of (1) $1,000 and (2)
the conversion value (as defined below); and, in addition to amounts distributed
pursuant to (a), (b) if the conversion value is greater than $1,000, a number of
shares of our common stock equal to the sum of the daily share amounts (as
defined below) for each of the 20 trading days during the conversion reference
period (as defined below, subject to our right to deliver cash in lieu of all or
a portion of those shares as discussed below).
In the event that we elect to pay cash in lieu of all or a portion of the
common stock offered issuable pursuant to the preceding paragraph, then on any
day prior to the first trading day of the applicable conversion reference
period, we may specify a percentage of the daily share amount that will be
settled in cash, or the cash percentage, and the amount of cash that we will
deliver in respect of each trading day in the applicable conversion reference
period will equal the product of: (1) the cash percentage, (2) the daily share
amount for such trading day and (3) the closing price of the common stock for
such trading day (provided that after the consummation of a fundamental change
in which the consideration is comprised entirely of cash, the amount used in
this clause (3) will be the cash price per share received by holders of our
common stock in such fundamental change). The number of shares deliverable in
respect of each trading day in the applicable conversion reference period will
be a percentage of the daily share amount equal to 100% minus the cash
percentage. If we do not specify a cash percentage by the start of the
applicable conversion reference period, we must settle 100% of the daily share
amount for each trading day in the applicable conversion reference period with
shares of our common stock; provided, however, that we will pay cash in lieu of
fractional shares otherwise issuable upon conversion of the debentures.
"Daily share amount," means, for each of the 20 trading days during the
conversion reference period (as defined below), a number of shares (but in no
event less than zero) equal to (i) the amount of (a) the volume weighted average
price (as defined below) for such trading day multiplied by the applicable
conversion rate (as defined below), less (b) $1,000; divided by (ii) the volume
weighted average price (as defined below) for such trading day multiplied by 20.
24
"Conversion rate" per $1,000 principal amount of debentures as of any day
means the result obtained by dividing (i) $1,000 by (ii) the then applicable
conversion price.
"Conversion value" means for each $1,000 principal amount of debentures,
the average of the product of (1) the applicable conversion rate and (2) the
average of the daily volume weighted average prices of our common stock for the
20 consecutive trading days during the conversion reference period (as defined
below).
"Conversion reference period" with respect to debentures converted during
the 60 days prior to but excluding, any change in control payment date or the
maturity date of the debentures, the 20 consecutive trading days beginning on
the third trading day following the relevant change in control payment date or
maturity date and in all other instances, the twenty consecutive trading days
beginning on the third trading day following the date of the conversion.
"Trading price" of the debentures means the average of the secondary bid
quotations per $1,000 principal amount of debentures obtained for $10,000,
principal amounts of debentures at a specified time.
"Volume weighted average price" per share of our common stock on any
trading day means such price as displayed on Bloomberg (or any successor
service) page "GB EQUITY VAP" in respect of the period from 9:30 a.m. to 4:00
p.m., New York City time, on such trading day; or, if such price is not
available, the volume weighted average price means the market value per share of
common stock on such day as determined by a nationally recognized independent
investment banking firm retained by us for this purpose.
Our ability to make cash payments on conversion of the debentures is
restricted by the new senior credit facility. See "Description of Other
Indebtedness - New Senior Credit Facility - Covenants."
At any time prior to June 15, 2013, we may make an irrevocable physical
settlement election to provide, upon conversion of outstanding debentures, in
lieu of providing cash and shares as described in this section "-Payment Upon
Conversion", shares of our common stock equal to the conversion rate for each
$1,000 principal amount of debentures converted and the amount of any cash in
lieu of fractional shares. You will be informed if we make an irrevocable
physical settlement election. We may irrevocably waive our right to make an
irrevocable physical settlement election at any time, so long as we have not
previously made an irrevocable physical settlement election.
Contingent Interest
Beginning with the six-month interest period commencing June 15, 2012, we
will pay contingent interest to the holders of debentures if the trading price
of the debentures, as defined above, for each of the five trading days
immediately preceding the first day of the applicable six-month period equals
120% or more of the principal amount of the debentures.
During any period when contingent interest shall be payable, the contingent
interest payable per $1,000 principal amount of debentures will equal 0.25% of
the average trading price of $1,000 principal amount of debentures during the
five trading days immediately preceding the first day of the applicable
six-month interest period.
We will notify the holders upon determination that they will be entitled to
receive contingent interest during a six-month interest period.
Optional Redemption by Greatbatch
Beginning June 20, 2012, we may redeem the debentures in whole or in part
at a redemption price equal to 100% of the principal amount of debentures being
redeemed and accrued and unpaid interest, including contingent interest, if any,
to, but excluding, the redemption date. If the redemption date is an interest
payment date, interest, including contingent interest, if any, shall be paid on
such interest payment date to the record holder on the relevant record date. We
are required to give notice of redemption by mail to holders not more than 60
but not less than 30 days prior to the redemption date.
If less than all of the outstanding debentures are to be redeemed, the
trustee will select the debentures to be redeemed in principal amounts of $1,000
or multiples of $1,000 by lot, pro rata or by another method the trustee
considers fair and appropriate. If a portion of a holder's debentures is
selected for partial redemption and such holder converts a portion of their
debentures, the converted portion will be deemed to be of the portion selected
for redemption.
We may not redeem the debentures if we have failed to pay any interest on
the debentures and such failure to pay is continuing. We will notify the holders
if we redeem the debentures.
25
Redemption at Option of the Holder Upon Fundamental Change
If a fundamental change of Greatbatch occurs at any time prior to the
maturity of the debentures, holders of our debentures may require us to redeem
their debentures, in whole or in part, on a redemption date that is 30 days
after the date of our notice of the fundamental change. The debentures will be
redeemable in integral multiples of $1,000 principal amount.
We will redeem the debentures at a price equal to 100% of the principal
amount to be redeemed, plus accrued and unpaid interest, including contingent
interest, if any, to, but excluding, the redemption date, unless the redemption
date falls after a record date and on or prior the corresponding interest
payment date, in which case we will pay the full amount of accrued and unpaid
interest payment, including contingent interest, if any, on such interest
payment date to the holder of record at the close of business on the
corresponding record date.
We will mail to all record holders a notice of a fundamental change within
10 days after it has occurred. We are also required to deliver to the trustee a
copy of the fundamental change notice. If a debenture holder elects to redeem
debentures, such holder must deliver to us or our designated agent, on or before
the redemption date specified in our fundamental change notice, a redemption
notice and any debentures to be redeemed, duly endorsed for transfer. We will
promptly pay the redemption price for debentures surrendered for redemption
following the redemption date.
A fundamental change will be deemed to have occurred if any of the
following occurs after March 5, 2007:
o any "person" (as defined below) or "group" (as defined below) is
or becomes the "beneficial owner" (as defined below), directly or
indirectly, of shares of our voting stock (as defined below)
representing 50% or more of the total voting power of all our
outstanding voting stock normally entitled to vote in the
election of our directors or has the power, directly or
indirectly, to elect a majority of the members of our board of
directors;
o we consolidate with, or merge with or into, another person or we
sell, assign, convey, transfer, lease or otherwise dispose of all
or substantially all of our assets, or any person consolidates
with, or merges with or into, us, in any such event other than
pursuant to a transaction in which the persons that "beneficially
owned" (as defined below), directly or indirectly, the shares of
our voting stock immediately prior to such transaction
"beneficially own" (as defined below), directly or indirectly,
shares of our voting stock representing at least a majority of
the total voting power of all outstanding voting stock of the
surviving or transferee person; or
o the holders of our capital stock approve any plan or proposal for
the liquidation or dissolution of us (whether or not otherwise in
compliance with the indenture); or
o shares of our common stock are neither listed for trading on a
U.S. national securities exchange nor approved for trading on an
established automated over-the-counter trading market in the
U.S.; or
o any time the "continuing directors" do not constitute a majority
of our board of directors. The indenture defines a continuing
director on any date of determination as any individual who on
March 28, 2007 was a member of our board of directors, together
with any directors whose election, or, solely to fill the vacancy
of a continuing director, appointment by our board of directors
or whose nomination for election by our stockholders is duly
approved by the vote of a majority of our directors on the board
of directors (or such lesser number comprising a majority of a
nominating committee if authority for such nominations or
elections has been delegated to a nominating committee whose
authority and composition have been approved by at least a
majority of the directors who were continuing directors at the
time such committee was formed) then still in office who were
either directors on March 28, 2007 or whose election, appointment
(in the case of a vacancy of a continuing director), or
nomination for election was previously approved by a majority of
the continuing directors, either by specific vote or by approval
of the proxy statement issued by us in which such individual is
named as a nominee for director).
However, a change in control will not be deemed to have occurred if in the
case of a merger or consolidation, at least 95% of the consideration (excluding
cash payments for fractional shares and cash payments pursuant to dissenters'
appraisal rights) in the merger or consolidation constituting the change in
control consists of common stock traded on a U.S. national securities exchange
or approved for trading on an established automated over-the-counter trading
market in the U.S. (or which will be so traded or quoted when issued or
exchanged in connection with such change in control) and as a result of such
transaction or transactions the debentures become convertible solely into such
common stock.
For purposes of this change in control definition:
26
o "person" and "group" have the meanings given to them for purposes
of Sections 13(d) and 14(d) of the Securities Exchange Act of
1934 as amended (the "Exchange Act") or any successor provisions,
and the term "group" includes any group acting for the purpose of
acquiring, holding or disposing of securities within the meaning
of Rule 13d-5(b)(1) under the Exchange Act, or any successor
provision;
o a "beneficial owner" will be determined in accordance with Rule
13d-3 under the Exchange Act, as in effect on the date of the
indenture, except that the number of shares of our voting stock
will be deemed to include, in addition to all outstanding shares
of our voting stock and unissued shares deemed to be held by the
"person" or "group" or other person with respect to which the
change in control determination is being made, all unissued
shares deemed to be held by all other persons;
o "beneficially own" and "beneficially owned" have meanings
correlative to that of beneficial owner;
o "unissued shares" means shares of voting stock not outstanding
that are subject to options, warrants, rights to purchase or
conversion privileges exercisable within 60 days of the date of
determination of a change in control; and
o "voting stock" means any class or classes of capital stock or
other interests then outstanding and normally entitled (without
regard to the occurrence of any contingency) to vote in the
election of the directors, managers or trustees.
The term "all or substantially all" as used in the definition of change in
control will likely be interpreted under applicable state law and will be
dependent upon particular facts and circumstances. There may be a degree of
uncertainty in interpreting this phrase. As a result, we cannot assure you how a
court would interpret this phrase under applicable law if you elect to exercise
your rights following the occurrence of a transaction which you believe
constitutes a transfer of "all or substantially all" of our assets.
We will comply with any applicable provisions of Rule 13e-4 and any other
tender offer rules under the Exchange Act, as amended, in the event of a
fundamental change.
These fundamental change redemption rights could discourage a potential
acquirer of Greatbatch. However, this fundamental change redemption feature is
not the result of management's knowledge of any specific effort to obtain
control of us by means of a merger, tender offer or solicitation, or part of a
plan by management to adopt a series of anti-takeover provisions. The term
"fundamental change" is limited to specified transactions and may not include
other events that might adversely affect our financial condition or business
operations. Our obligation to offer to redeem the debentures upon a fundamental
change would not necessarily afford a holder of our debentures protection in the
event of a highly leveraged transaction, reorganization, merger or similar
transaction involving us.
We may be unable to redeem the debentures in the event of a fundamental
change. If a fundamental change were to occur, we may not have enough funds to
pay the redemption price for all tendered debentures. Any future credit
agreements or other agreements relating to our indebtedness may contain
provisions prohibiting redemption of the debentures under certain circumstances,
or expressly prohibit our redemption of the debentures upon a fundamental change
or may provide that a fundamental change constitutes an event of default under
that agreement. If a fundamental change occurs at a time when we are prohibited
from purchasing or redeeming debentures, we could seek the consent of our
lenders to redeem the debentures or attempt to refinance this debt. If we do not
obtain consent, we would not be permitted to purchase or redeem the debentures.
Our failure to redeem tendered debentures would constitute an event of default
under the indenture, which might constitute a default under the terms of our
other indebtedness. If a fundamental change would constitute an event of default
under our senior indebtedness, the subordination provisions of the indenture
would restrict payments to the holders of debentures.
Subordination of Debentures
Payment on the debentures will, to the extent provided in the indenture, be
subordinated in right of payment to the prior payment in full of all of our
senior indebtedness. The debentures also are effectively subordinated to all
debt and other liabilities, including trade payables and lease obligations, if
any, of our subsidiaries. In addition, the debentures rank pari passu with the
2003 debentures of which $52,218,000 aggregate principal amount are outstanding.
Holders of the 2003 debentures may require us to repurchase their 2003
debentures on June 15, 2010, at a purchase price equal to 100% of their
principal amount plus accrued and unpaid interest, including contingent
interest, if any.
Upon any distribution of our assets upon any dissolution, winding up,
liquidation or reorganization, the payment of the principal of, or premium, if
any, interest, including contingent interest, if any, and liquidated damages, if
any, on the debentures will be subordinated in right of payment to the prior
payment in full in cash or other payment satisfactory to the holders of senior
indebtedness of all senior indebtedness. In the event of any acceleration of the
debentures because of an event of default, the holders of any outstanding senior
indebtedness would be entitled to payment in full in cash or other payment
satisfactory to the holders of senior indebtedness of all senior indebtedness
obligations before the holders of the debentures are entitled to receive any
payment or distribution. We are required under the indenture to promptly notify
27
holders of senior indebtedness, if payment of the debentures is accelerated
because of an event of default.
We may not make any payment on the debentures if:
o a default in the payment of designated senior indebtedness occurs
and is continuing beyond any applicable period of grace (called a
"payment default"); or
o a default other than a payment default on any designated senior
indebtedness occurs and is continuing that permits holders of
designated senior indebtedness to accelerate its maturity, or in
the case of a lease, a default occurs and is continuing that
permits the lessor to either terminate the lease or require us to
make an irrevocable offer to terminate the lease following an
event of default under the lease, and the trustee receives a
notice of such default (called "payment blockage notice") from us
or any other person permitted to give such notice under the
indenture (called a "non-payment default").
We may resume payments and distributions on the debentures:
o in case of a payment default, upon the date on which such default
is cured or waived or ceases to exist; and
o in case of a non-payment default, the earlier of the date on
which such nonpayment default is cured or waived or ceases to
exist or 179 days after the date on which the payment blockage
notice is received, if the maturity of the designated senior
indebtedness has not been accelerated, or in the case of any
lease, 179 days after notice is received if we have not received
notice that the lessor under such lease has exercised its right
to terminate the lease or require us to make an irrevocable offer
to terminate the lease following an event of default under the
lease.
No new period of payment blockage may be commenced pursuant to a payment
blockage notice unless 365 days have elapsed since the initial effectiveness of
the immediately prior payment blockage notice. No non-payment default that
existed or was continuing on the date of delivery of any payment blockage notice
shall be the basis for any later payment blockage notice.
If the trustee or any holder of the debentures receives any payment or
distribution of our assets in contravention of the subordination provisions on
the debentures before all senior indebtedness is paid in full in cash or other
payment satisfactory to holders of senior indebtedness, then such payment or
distribution will be held in trust for the benefit of holders of senior
indebtedness or their representatives to the extent necessary to make payment in
full cash or payment satisfactory to the holders of senior indebtedness of all
unpaid senior indebtedness.
Because of the subordination provisions discussed above, in the event of
our bankruptcy, dissolution or reorganization, holders of senior indebtedness
may receive more, ratably, and holders of the debentures may receive less,
ratably, than our other creditors. This subordination will not prevent the
occurrence of any event of default under the indenture.
The debentures are exclusively obligations of us. A substantial portion of
our operations are conducted through our subsidiaries. As a result, our cash
flow and our ability to service our debt, including the debentures, is dependent
upon the earnings of our subsidiaries. In addition, we are dependent on the
distribution of earnings, loans or other payments from our subsidiaries. In
addition, any payment of dividends, distributions, loans or advances by our
subsidiaries to us could be subject to statutory or contractual restrictions.
Payments to us by our subsidiaries will also be contingent upon our
subsidiaries' earnings and business considerations.
Our right to receive any assets of any of our subsidiaries upon their
liquidation or reorganization, and therefore the right of the holders to
participate in those assets, will be effectively subordinated to the claims of
that subsidiary's creditors, including trade creditors. In addition, even if we
were a creditor to any of our subsidiaries, our rights as a creditor would be
subordinate to any security interest in the assets of our subsidiaries and any
indebtedness of our subsidiaries senior to that held by us.
The term "senior indebtedness" is defined in the indenture and includes
principal, premium, interest, rent, fees, costs, expenses and other amounts
accrued or due on our existing or future indebtedness, as defined below, or any
existing or future indebtedness guaranteed or in effect guaranteed by us,
subject to certain exceptions. The term does not include:
o any indebtedness that by its express terms is not senior to the
debentures or is pari passu or junior to the debentures; or
o any indebtedness we owe to any of our majority-owned
subsidiaries; or
o the debentures.
The term "indebtedness" is also defined in the indenture and includes, in
general terms, our liabilities in respect of borrowed money, notes, bonds,
debentures, letters of credit, bank guarantees, bankers' acceptances, capital
and certain other leases, interest rate and foreign currency derivative
28
contracts or similar arrangements, guarantees and certain other obligations
described in the indenture, subject to certain exceptions. The term does not
include, for example, any account payable or other accrued current liability or
obligation incurred in the ordinary course of business in connection with the
obtaining of materials or services.
The term "designated senior indebtedness" is defined in the indenture and
includes, in general terms, our new senior credit facility (or any such future
senior credit facility) and any other senior indebtedness that by its terms
expressly provides that it is "designated senior indebtedness" for purposes of
the indenture. We have entered into a commitment letter and term sheet with
Manufacturers and Traders Trust Company, as administrative agent, providing for
a replacement senior secured facility to Greatbatch Ltd., our wholly owned
subsidiary, in the original principal amount of $235,000,000 (which may be
increased at our option to $335,000,000).
As of March 30, 2007, after giving effect to the issuance and sale of the
debentures, we had $250 million of indebtedness outstanding and our subsidiaries
had $51.5 million of other liabilities outstanding. Neither we nor our
subsidiaries are prohibited from incurring debt, including senior indebtedness,
under the indenture. We may from time to time incur additional debt, including
senior indebtedness. Our subsidiaries may also from time to time incur
additional debt and liabilities.
We are obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against certain losses, liabilities or expenses incurred
by the trustee in connection with its duties relating to the debentures. The
trustee's claims for these payments will generally be senior to those of
debenture holders in respect of all funds collected or held by the trustee.
Merger and Sale of Assets by Greatbatch
The indenture provides that we may not consolidate with or merge with or
into any other person or sell, convey, transfer or lease its properties and
assets substantially as an entirety to another person, unless among other items:
o we are the surviving person, or the resulting, surviving or
transferee person, if other than us is organized and existing
under the laws of the United States, any state thereof or the
District of Columbia;
o the successor person assumes all of our obligations under the
debentures and the indenture;
o after giving effect to such transaction, there is no event of
default, and no event which, after notice or passage of time or
both, would become an event of default; and
o we have delivered to the trustee an officers' certificate and an
opinion of counsel each stating that such consolidation, merger,
sale, conveyance, transfer or lease complies with these
requirements.
When such a person assumes our obligations in such circumstances, subject
to certain exceptions, we shall be discharged from all obligations under the
debentures and the indenture.
Events of Default; Notice and Waiver
The following will be events of default under the indenture:
o we fail to pay principal or premium, if any, when due upon
redemption, repurchase or otherwise on the debentures, whether or
not the payment is prohibited by subordination provisions;
o we fail to pay any interest, including contingent interest, if
any, and liquidated damages, if any, on the debentures, when due
and such failure continues for a period of 30 days, whether or
not the payment is prohibited by subordination provisions of the
indenture;
o we fail to provide notice of the occurrence of a fundamental
change on a timely basis;
o we fail to deliver all cash and any shares of common stock, if
any, required to be delivered upon conversion of a debenture;
o we fail to perform or observe any of the covenants in the
indenture for 60 days after written notice; provided that we will
have up to 120 days after receipt of a written notice to remedy,
or receive a waiver for, our failure to file annual or quarterly
reports in accordance with the Indenture or to comply with
Section 314(a)(1) of the Trust Indenture Act, so long as we elect
to pay the holders an extension fee within 60 days of the date of
notice of such failure; or
29
o certain events involving our bankruptcy, insolvency or
reorganization.
The trustee may withhold notice to the holders of the debentures of any
default, except defaults in payment of principal, premium, interest, including
contingent interest, if any, or liquidated damages, if any, on the debentures.
However, the trustee must consider it to be in the interest of the holders of
the debentures to withhold this notice.
If an event of default occurs and continues, the trustee or the holders of
at least 25% in principal amount of the outstanding debentures may declare the
principal, premium, if any, and accrued and unpaid interest, including
contingent interest, if any, and liquidated damages, if any, on the outstanding
debentures to be immediately due and payable. In case of certain events of
bankruptcy or insolvency involving us, the principal, premium, if any, and
accrued and unpaid interest, including contingent interest, if any, and
liquidated damages, if any, on the debentures will automatically become due and
payable. However, if we cure all defaults, except the nonpayment of principal,
premium, if any, interest, including contingent interest, if any, or liquidated
damages, if any, that became due as a result of the acceleration, and meet
certain other conditions, with certain exceptions, this declaration may be
cancelled and the holders of a majority of the principal amount of outstanding
debentures may waive these past defaults.
Payments of principal, premium, if any, or interest, including contingent
interest, if any, or liquidated damages, if any, on the debentures that are not
made when due will accrue interest at the annual rate of 1% above the then
applicable interest rate from the required payment date.
The holders of a majority of outstanding debentures will have the right to
direct the time, method and place of any proceedings for any remedy available to
the trustee, subject to limitations specified in the indenture.
No holder of the debentures may pursue any remedy under the indenture,
except in the case of a default in the payment of principal, premium, if any, or
interest, including contingent interest, if any, or liquidated damages, if any,
on the debentures, unless:
o the holder has given the trustee written notice of an event of
default;
o the holders of at least 25% in principal amount of outstanding
debentures make a written request, and offer reasonable
indemnity, to the trustee to pursue the remedy;
o the trustee does not receive an inconsistent direction from the
holders of a majority in principal amount of the debentures;
o the holder or holders have offered reasonable security or
indemnity to the trustee against any costs, liability or expense
of the trustee; and
o the trustee fails to comply with the request within 60 days after
receipt of the request and offer of indemnity.
Modification and Waiver
The consent of the holders of a majority in principal amount of the
outstanding debentures is required to modify or amend the indenture. However, a
modification or amendment requires the consent of the holder of each outstanding
debenture if it would:
o extend the fixed maturity of any debenture;
o reduce the rate or extend the time for payment of interest,
including contingent interest, if any, or liquidated damages, if
any, of any debenture;
o reduce the principal amount or premium of any debenture;
o reduce any amount payable upon redemption of any debenture;
o adversely change our obligation to redeem any debentures on a
redemption date;
o adversely change our obligation to redeem any debenture upon a
fundamental change;
o change the right of holders of debentures who have elected to
convert their debentures upon the occurrence of a fundamental
change to receive a make whole premium (as described in
"Description of Debentures - Make Whole Premium");
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o impair the right of a holder to institute suit for payment on any
debenture;
o change the currency in which any debenture is payable;
o impair the right of a holder to convert any debenture or reduce
the number of common shares or any other property receivable upon
conversion;
o adversely modify, in any material respect, the subordination
provisions of the indenture;
o reduce the quorum or voting requirements under the indenture;
o change any obligation of ours to maintain an office or agency in
the places and for the purposes specified in the indenture;
o subject to specified exceptions, modify certain of the provisions
of the indenture relating to modification or waiver of provisions
of the indenture; or
o reduce the percentage of debentures required for consent to any
modification of the indenture.
We are permitted to modify certain provisions of the indenture without the
consent of the holders of the debentures.
Form, Denomination and Registration
The debentures will be issued:
o in fully registered form;
o without interest coupons; and
o in denominations of $1,000 principal amount and integral
multiples of $1,000.
Global Debenture, Book-Entry Form
Debentures are evidenced by one or more global debentures. The global
debenture or debentures have been deposited with DTC and we have registered the
global debentures in the name of Cede & Co. as DTC's nominee. Except as set
forth below, a global debenture may be transferred, in whole or in part, only to
another nominee of DTC or to a successor of DTC or its nominee.
Beneficial interests in a global debenture may be held through
organizations that are participants in DTC (called "participants"). Transfers
between participants will be effected in the ordinary way in accordance with DTC
rules and will be settled in clearing house funds. The laws of some states
require that certain persons take physical delivery of securities in definitive
form. As a result, the ability to transfer beneficial interests in the global
debenture to such persons may be limited.
Beneficial interests in a global debenture held by DTC may be held only
through participants, or certain banks, brokers, dealers, trust companies and
other parties that clear through or maintain a custodial relationship with a
participant, either directly or indirectly (called "indirect participants"). So
long as Cede & Co., as the nominee of DTC, is the registered owner of a global
debenture, Cede & Co. for all purposes will be considered the sole holder of
such global debenture. Except as provided below, owners of beneficial interests
in a global debenture will:
o not be entitled to have certificates registered in their names;
o not receive physical delivery of certificates in definitive
registered form; and
o not be considered holders of the global debenture.
We will pay interest, including contingent interest, if any, on and the
redemption price and the repurchase price of a global debenture to Cede & Co.,
as the registered owner of the global debenture, by wire transfer of immediately
available funds on each interest payment date or the redemption or repurchase
date, as the case may be. Neither we, the trustee nor any paying agent will be
responsible or liable:
o for the records relating to, or payments made on account of,
beneficial ownership interests in a global debenture; or
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o for maintaining, supervising or reviewing any records relating to
the beneficial ownership interests.
Neither we, the trustee, registrar, paying agent nor conversion agent will
have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations. DTC has advised us that it will take any
action permitted to be taken by a holder of debentures, including the
presentation of debentures for conversion, only at the direction of one or more
participants to whose account with DTC interests in the global debenture are
credited, and only in respect of the principal amount of the debentures
represented by the global debenture as to which the participant or participants
has or have given such direction.
DTC has advised us that it is:
o a limited purpose trust company organized under the laws of the
State of New York, and a member of the Federal Reserve System;
o a "clearing corporation" within the meaning of the Uniform
Commercial Code; and
o a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act.
DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes to the accounts of its participants.
Participants include securities brokers, dealers, banks, trust companies and
clearing corporations and other organizations. Some of the participants or their
representatives, together with other entities, own DTC. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
DTC has agreed to the foregoing procedures to facilitate transfers of
interests in a global debenture among participants. However, DTC is under no
obligation to perform or continue to perform these procedures, and may
discontinue these procedures at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
us within 90 days, we will issue debentures in certificated form in exchange for
global debentures. In addition, we may at any time and in our sole discretion
determine not to have debentures represented by global debentures and in such
event will issue certificates in definitive form in exchange for the global
debentures.
Restrictions on Transfer, Legends
The debentures will be subject to transfer restrictions as described below
under "Transfer Restrictions" and certificates for the debentures will bear a
legend to this effect.
Registration Rights of the Debenture Holders
On March 28, 2007, we entered into a registration rights agreement with the
purchasers of the debentures that requires us, among other things, to file
within 30 days and to use our reasonable best efforts to cause to become
effective within 90 days after that date a shelf registration statement with the
SEC covering the resale of the debentures and the common stock issuable upon
conversion of the debentures. We have filed with the SEC a registration
statement, of which this prospectus is a part, to satisfy this obligation under
the registration rights agreement. A holder who sells debentures or common stock
pursuant to the registration statement generally will be required to be named as
a selling stockholder in this prospectus or a related prospectus supplement and
to deliver a prospectus to the subsequent purchasers, and will be bound by the
provisions of the registration rights agreement, which are applicable to that
holder (including certain indemnification provisions).
We will use our reasonable best efforts to keep the shelf registration
statement effective until the earlier of:
o all of the registrable securities have been sold pursuant to the
shelf registration statement or pursuant to Rule 144 under the
Securities Act or any similar provision then in force; or
o the expiration of the holding period with respect to the
registrable securities under Rule 144(k) under the Securities
Act, or any successor provision.
When we use the term "registrable securities" in this section, we are
referring to the debentures and the common stock issuable upon conversion of the
debentures until the earliest of:
o the effective registration under the Securities Act and the
resale of the registrable securities in accordance with the
registration statement;
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o the expiration of the holding period with respect to the
registrable securities under Rule 144(k) under the Securities
Act; and
o the sale of the registrable securities to the public pursuant to
Rule 144 under the Securities Act.
We may suspend the use of the prospectus under certain circumstances
relating to pending corporate developments, public filings with the SEC and
similar events. Any suspension period shall not:
o exceed 30 days in any three-month period; or
o an aggregate of 90 days for all periods in any 12-month period.
Notwithstanding the foregoing, we will be permitted to suspend the use of
the prospectus for up to 60 days in any 3-month period under certain
circumstances, relating to possible acquisitions, financings or other similar
transactions.
We will pay predetermined liquidated damages on any interest payment date
if the shelf registration statement is not timely filed or made effective or if
the prospectus included in the registration statement is unavailable for periods
in excess of those permitted above:
o on the debentures at an annual rate equal to 0.5% of the
aggregate principal amount of the debentures outstanding until
the registration statement is filed or made effective or during
the additional period the prospectus is unavailable; and
We will not pay liquidated damages with respect to debentures that have
been converted into common stock or the principal amount of debentures that have
been converted into common stock.
A holder who elects to sell registrable securities pursuant to the shelf
registration statement will be required to:
o be named as a selling stockholder in the related prospectus;
o deliver a prospectus to purchasers; and
o be subject to the provisions of the registration rights
agreement, including indemnification provisions.
Under the registration rights agreement we will:
o pay all expenses of the shelf registration statement;
o provide each registered holder copies of the prospectus;
o notify holders when the shelf registration statement has become
effective; and
o take other reasonable actions as are required to permit
unrestricted resales of the registrable securities in accordance
with the terms and conditions of the registration rights
agreement.
The plan of distribution of the shelf registration statement will permit
resales of registrable securities by selling security holders though brokers and
dealers.
We have given notice to all holders of the filing and will give notice of
the effectiveness of the shelf registration statement by issuing a press release
to Reuters Economic Services and Bloomberg Business News. We have included as
Annex A to this offering memorandum a form of notice and questionnaire to be
completed and delivered by a holder interested in selling its registrable
securities pursuant to the shelf registration statement. In order to be named as
a selling stockholder in the prospectus at the time of effectiveness of the
shelf registration statement, each holder must complete and deliver the
questionnaire to us on or prior to the tenth business day before the
effectiveness of the registration statement. Upon receipt of a completed
questionnaire after that time, together with any other information we may
reasonably request following the effectiveness, we will, within 15 business
days, file any amendments to the shelf registration statement or supplements to
the related prospectus as are necessary to permit each holder to deliver a
prospectus to purchasers of registrable securities, subject to our right to
suspend the use of the prospectus. We will pay the predetermined liquidated
damages described above to the holder if we fail to make the filing in the time
required or, if such filing is a post-effective amendment to the shelf
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registration statement required to be declared effective under the Securities
Act, if such amendment is not declared effective within 45 days of the filing.
If any holder does not complete and deliver a questionnaire or provide the other
information we may request, such a holder will not be named as a selling
stockholder in the prospectus and will not be permitted to sell registrable
securities pursuant to the shelf registration statement. This summary of the
registration rights agreement is not complete. This summary is subject to, and
is qualified in its entirety by reference to, all the provisions of the
registration rights agreement.
Rule 144A Information Request
We will furnish to the holders or beneficial holders of the debentures or
the underlying common stock and prospective purchasers, upon their request, the
information, if any, required under Rule 144A(d)(4) under the Securities Act
until such time as such securities are no longer "restricted securities" within
the meaning of Rule 144 under the Securities Act, assuming these securities have
not been owned by an affiliate of ours.
Information Concerning the Trustee
We have appointed Manufacturers and Traders Trust Company, the trustee
under the indenture, as paying agent, conversion agent, debenture registrar and
custodian for the debentures. The trustee is also the administrative agent and a
lender under the Second Amended and Restated Credit Agreement dated as of May
31, 2005, as amended, among our subsidiary, Greatbatch Ltd., and the lenders
party thereto. The trustee or its affiliates may also provide other services to
us in the ordinary course of their business.
The indenture contains certain limitations on the rights of the trustee, if
it or any of its affiliates is then our creditor, to obtain payment of claims in
certain cases or to realize on certain property received on any claim as
security or otherwise. The trustee and its affiliates will be permitted to
engage in other transactions with us. However, if the trustee or any affiliate
continues to have any conflicting interest and a default occurs with respect to
the debentures, the trustee must eliminate such conflict or resign.
Governing Law
The debentures and the indenture shall be governed by, and construed in
accordance with, the laws of the State of New York.
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DESCRIPTION OF OTHER INDEBTEDNESS
New Senior Credit Facility
General. On May 22, 2007, Greatbatch Ltd., our indirect wholly owned subsidiary,
entered into the new senior credit facility. The new senior credit facility is
guaranteed by Greatbatch, WGL Intermediate Holdings, Inc., Greatbatch Ltd.'s
direct parent, Greatbatch Ltd.'s U.S. subsidiaries and those foreign
subsidiaries of Greatbatch Ltd. as designated by Greatbatch Ltd. from time to
time or as required under the new senior credit facility. The new senior credit
facility replaces the three-year $50 million Second Amended and Restated Credit
Agreement, dated as of May 31, 2005, by and among Greatbatch Ltd., the lenders
party thereto and Manufacturers and Traders Trust Company, as administrative
agent. The new senior credit facility provides for a new $235 million secured
revolving credit facility with a letter of credit subfacility in an aggregate
amount equal to $15 million and a swingline subfacility in an aggregate amount
equal to $15 million. The new senior credit facility has an initial maturity
date of May 22, 2012 and permits one extension by Greatbatch Ltd. to April 1,
2013, provided, that no default or event of default has occurred and is
continuing on the date of the extension and Greatbatch Ltd. has paid an
extension fee to the lenders. The new senior credit facility also contains an
increase provision that would make up to an additional $100 million available
for borrowing provided the increased portion could be fully syndicated at a
later date among existing or new lenders.
Interest Rates; Fees. Loans (other than swing loans) under the new credit
facility will bear interest at Greatbatch Ltd.'s option either at: (i) the
higher of (a) Manufacturers and Traders Trust Company's prime rate in effect
from time to time and (b) the federal funds effective rate in effect from time
to time plus 0.5%, plus the applicable margin for such loans, which ranges
between 0.000% and (1.250%), based on the senior leverage ratio or (ii) the
applicable London interbank offered rate divided by a number equal to 1.00 minus
the maximum aggregate reserve requirement which is imposed on member banks of
the Federal Reserve System against "Euro-currency Liabilities" as defined in
Regulation D, plus the applicable margin for such loans, which ranges between
1.000% and 2.000%, based on the senior leverage ratio. Swing loans under the new
senior credit facility will bear interest at the higher of (a) Manufacturers and
Traders Trust Company's prime rate in effect from time to time and (b) the
federal funds effective rate in effect from time to time plus 0.5%, plus the
applicable margin for such loans, which ranges between 0.000% and (1.250%),
based on the senior leverage ratio. Greatbatch Ltd. pays a commitment fee,
quarterly in arrears, during the term of the new senior credit facility which
varies between 0.250% and 0.125% depending on its senior leverage ratio. The
commitment fee is currently set at 0.125% or $293,750 per annum payable
quarterly in arrears.
Collateral and Guarantees. The new senior credit facility is secured by liens on
all of the assets of our subsidiaries, other than real estate, our guarantee as
corporate parent and by guarantees of our other subsidiaries. The new senior
credit facility is also secured by a pledge of the capital stock of our
operating subsidiaries, other than Greatbatch Ltd., and a negative pledge on any
of our other assets.
Covenants. The terms of the new senior credit facility require us to comply with
various financial covenants, including maximum quarterly leverage and interest
coverage ratios, in relation to EBITDA. In addition, we agreed to covenants
that, among other things, limit our ability to incur additional indebtedness,
grant liens, sell and transfer assets, make loans or investments, engage in
mergers, consolidations or acquisitions, pay dividends or other distributions to
stockholders, redeem capital stock, make cash payments upon exercise of the 2003
debentures' put option and under the net share settlement feature of the
debentures, and engage in other matters customarily restricted in senior secured
credit facilities. These covenants are subject to qualifications and exceptions.
Events of Default. The new senior credit facility contains customary events of
default, including payment defaults, breach of representations and warranties,
covenant defaults, cross-defaults, certain events of bankruptcy and insolvency,
certain ERISA-related events, judgment defaults, failure of any guaranty or
security agreement supporting our obligations under the new senior credit
facility to be in full force and effect, and change of control transactions.
2003 Debentures
General. On May 28, 2003, we issued and sold $170,000,000 aggregate principal
amount of the 2003 debentures in a private offering to persons believed to be
"qualified institutional purchasers" under Rule 144A promulgated under the
Securities Act. On March 28, 2007 and April 2, 2007, holders of the 2003
debentures exchanged $117,782,000 of the 2003 debentures for an equivalent
amount of the debentures in two separate private offerings. Interest on the 2003
debentures is payable on June 15 and December 15 of each year, beginning
December 15, 2003. The 2003 debentures mature on June 15, 2013, unless earlier
converted, redeemed or repurchased. The 2003 debentures rank pari passu with the
debentures.
Interest. Beginning with the six-month interest period commencing June 15, 2010,
we will pay additional contingent interest during any six-month interest period
if the trading price of the 2003 debentures for each of the five trading days
immediately preceding the first day of the interest period equals or exceeds
120% of the principal amount of the 2003 debentures.
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Conversion. Holders may convert the 2003 debentures into shares of our common
stock at a conversion rate of 24.8219 shares per $1,000 principal amount of the
2003 debentures, subject to adjustment, before the close of business on June 15,
2013 only under the following circumstances: (1) during any fiscal quarter
commencing after July 4, 2003, if the closing sale price of our common stock
exceeds 120% of the conversion price for at least 20 trading days in the 30
consecutive trading day period ending on the last trading day of the preceding
fiscal quarter; (2) subject to certain exceptions, during the five business days
after any five consecutive trading day period in which the trading price per
$1,000 principal amount of the 2003 debentures for each day of such period was
less than 98% of the product of the closing sale price of our common stock and
the number of shares issuable upon conversion of $1,000 principal amount of the
2003 debentures; (3) if the 2003 debentures have been called for redemption; or
(4) upon the occurrence of certain corporate events.
Redemption. Beginning June 20, 2010, we may redeem any of the 2003 debentures at
a redemption price of 100% of their principal amount, plus accrued interest.
Holders of the 2003 debentures may require us to repurchase their 2003
debentures on June 15, 2010 or at any time prior to their maturity following a
fundamental change at a repurchase price of 100% of their principal amount, plus
accrued interest.
Repurchase. Holders of the 2003 debentures may require us to repurchase their
2003 debentures on June 15, 2010, at a repurchase price equal to 100% of their
principal amount plus accrued and unpaid interest, including contingent
interest, if any.
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DESCRIPTION OF CAPITAL STOCK
As of the date of this prospectus, our certificate of incorporation
authorizes us to issue 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. As
of June 4, 2007, 22,414,920 shares of common stock were outstanding and no
shares of preferred stock were outstanding.
Common Stock
Voting. Holders of our common stock are entitled to one vote per share on all
matters to be voted upon by our stockholders. Because holders of common stock do
not have cumulative voting rights, the holders of a majority of the shares of
our common stock can elect all of the members of our board of directors.
Dividends and Other Distributions. Subject to preferences of any preferred stock
that may be issued in the future, the holders of our common stock are entitled
to receive dividends as may be declared by our board of directors.
Distribution on Dissolution. Subject to any preferences of any preferred stock
that may be issued in the future, in the event of our liquidation, dissolution
or winding up, holders of our common stock are entitled to share ratably in the
assets remaining after payment of liabilities and the liquidation preferences of
any outstanding preferred stock.
Other Aspects of Our Common Stock. There are no redemption or sinking fund
provisions applicable to our common stock. All outstanding shares of our common
stock are fully paid and non-assessable.
Preferred Stock
Under our restated certificate of incorporation, our board of directors has
the authority, without further action by stockholders, to designate up to
100,000,000 shares of preferred stock in one or more series and to fix the
rights, preferences, privileges and limitations of each series, including voting
rights, dividend rights, conversion rights, redemption privilege and liquidation
preferences, any or all of which may be greater than the rights of the common
stock. 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 assumption of control by a holder of
a large block of our securities or the removal of incumbent management.
Stockholder Rights Plan. Each outstanding share of our common stock has attached
to it one preferred share purchase right, which we refer to as a right. Each
right, once exercisable, entitles the registered holder of our common stock to
purchase from us one one-hundredth of a share of Series A Junior Participating
Preferred Stock, which we refer to as participating preferred shares, at a price
of $160.00 per one one-hundredth of a participating preferred share, subject to
adjustment. Each one one-hundredth of a share of participating preferred shares
has designations and powers, preferences and rights, and the qualifications,
limitations and restrictions which make its value approximately equal to the
value of a share of our common stock. The description and terms of the rights
are set forth in a Stockholders Rights Agreement, dated as of March 18, 2002,
between us and Mellon Investor Services LLC, as rights agent.
Until the distribution date described below, we will not issue separate
certificates evidencing the rights. Until that date, the rights will be
evidenced, with respect to any common stock certificate, by that common stock
certificate. The rights, unless earlier redeemed by our board of directors, will
detach from the common stock and a distribution date will occur upon the earlier
of the following dates:
o the tenth day following a public announcement that an "acquiring
person," which may include an entity or group of affiliated or
associated persons, has acquired beneficial ownership of 15% or
more of the total of our outstanding common stock and any other
outstanding shares of our capital stock with voting rights
similar to our common stock, or
o the tenth business day following the commencement of, or the
first public announcement by any person or group of an intention
to commence, a tender offer that would result in any person or
entity, including a group of affiliated or associated persons,
acquiring beneficial ownership of 15% or more of our outstanding
common stock.
Our board of directors may postpone the distribution date by determining a later
distribution date before the time any person or group becomes an acquiring
person.
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The term "acquiring person" does not include us, any of our subsidiaries,
any of our or our subsidiaries' employee benefit plans or any entity holding our
common stock for or under any of our or our subsidiaries' employee benefit
plans. In addition, a person who would otherwise be an acquiring person will not
be considered an acquiring person if our board of directors determines in good
faith that such person inadvertently became the beneficial owner of 15% or more
of our common stock and such person divests itself, as promptly as practicable,
of beneficial ownership of a sufficient number of shares of our common stock so
that it would no longer otherwise qualify as an acquiring person.
In addition, except under limited circumstances, no person or entity shall
become an acquiring person as the result of any action or transaction approved
by our board of directors before such person or entity became an acquiring
person or by a reduction in the number of issued and outstanding shares of our
common stock in a transaction approved by our board of directors which, by
reducing the number of shares outstanding, increases the proportionate number of
shares beneficially owned by such person or entity to 15% or more of out
outstanding common stock.
The rights agreement provides that, until the distribution date, or earlier
redemption or expiration of the rights, the rights will be transferred only with
our common stock. The rights will be evidenced, with respect to any common stock
certificate outstanding as of April 30, 2002, by that common stock certificate
with a summary of the rights attached to it. Until the distribution date, or
earlier redemption, exchange or expiration of the rights, new common stock
certificates issued after April 30, 2002 will contain a legend incorporating the
rights agreement by reference. Until the distribution date, the surrender for
transfer of any certificates for common stock, even without a summary of the
rights attached to it, also will constitute the transfer of the rights
associated with the common stock represented by that certificate. As soon as
practicable after the distribution date, separate certificates evidencing the
rights will be mailed to holders of record of our common stock as of the close
of business on the distribution date, and the separate right certificates alone
will evidence the rights. Only our common stock issued before the distribution
date will be issued with rights.
The rights are not exercisable until the distribution date. The rights will
expire on March 18, 2012 unless the rights are earlier redeemed or exchanged by
us, in each case, as described below.
The exercise price payable for the participating preferred shares, and the
number of participating preferred shares or other securities or property
issuable, upon exercise of the rights, as well as the number of rights
outstanding, are subject to adjustment from time to time to prevent dilution in
the following circumstances:
o in the event of a stock dividend on, or a subdivision, split,
combination or consolidation of the participating preferred
shares,
o upon the grant to holders of our common stock of rights, options
or warrants to subscribe for or purchase common stock at a price,
or securities convertible into participating preferred shares
with a conversion price, less than the current market price of
the participating preferred shares, or
o upon the distribution to holders of our common stock of evidences
of indebtedness, cash, securities or assets, excluding regular
quarterly cash dividends not in excess of 150% of previous
regular quarterly cash dividends, dividends payable in common
stock or options, rights or warrants, other than those referred
to above.
The number of outstanding rights and the number of one one-hundredths of a
participating preferred share issuable upon exercise of each right are also
subject to adjustment in the event of a dividend or other distribution on the
common stock payable in common stock or subdivisions, consolidations or
combinations of our common stock occurring, in any of those cases, before the
distribution date.
Participating preferred shares purchasable upon exercise of the rights will
be non-redeemable and, unless otherwise provided in connection with the creation
of a subsequent series of preferred stock, will be subordinate to any other
series of our preferred stock. We may not issue the participating preferred
stock except upon the exercise of the rights.
Each share of participating preferred stock will receive the following
dividends, when, as and if declared by our board of directors:
o cash dividends in an amount per share (rounded to the nearest
cent) equal to 100 times the aggregate per share amount of all
cash dividends declared or paid on our common stock; and
o a preferential cash dividend, if any, in preference to the
holders of our common stock, on the first business day of each
quarter, which we refer to as a quarterly dividend payment date,
commencing on the first quarter following the first issuance of a
share of participating preferred stock, payable in an amount
equal to $.10 per share of participating preferred stock less the
per share amount of all cash dividends declared on the
participating preferred stock since the immediately preceding
quarterly payment date or, with respect to the first quarterly
dividend payment date, since the first issuance of any share or
fraction of a share of participating preferred stock.
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The preferential cash dividends will begin to accrue on outstanding shares
of our participating preferred stock from the quarterly dividend payment date
next preceding the date of issuance of any shares of participating preferred
stock. Any accrued but unpaid preferential dividends will cumulate but will not
bear interest. Preferential dividends paid on the shares of our participating
preferred stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares will be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding.
In addition, the holders of our participating preferred stock are entitled
to receive 100 times any non-cash dividends, other than dividends payable in
equity securities, declared on our common stock, in like kind. If there is a
liquidation, the holders of our participating preferred stock will be entitled
to receive, for each share of participating preferred stock, a payment in an
amount equal to the greater of the exercise price for the participating
preferred stock, plus any accrued and unpaid dividends and distributions in
respect of the participating preferred stock or 100 times the payment made per
share of our common stock.
Each share of participating preferred stock will have 100 votes, voting
together with our common stock. In the event of any merger, consolidation or
other transaction in which our common stock is exchanged, each share of
participating preferred stock will be entitled to receive 100 times the amount
received per share of common stock.
Unless the rights are earlier redeemed, in the event that a person or
entity becomes an acquiring person, each holder of record of a right, other than
rights beneficially owned by an acquiring person and certain of its affiliates,
associates and transferees, whose rights will thereupon become null and void,
will thereafter have the right to receive, upon payment of the exercise price
and in lieu of shares of participating preferred stock, that number of shares of
our common stock having a fair market value at the time of the transaction equal
to approximately two times the exercise price of the participating preferred
stock.
In addition, unless the rights are earlier redeemed or exchanged, in the
event that, after the time that a person or entity becomes an acquiring person,
we were to be acquired in a merger or other business combination in which any
shares of our common stock are changed into or exchanged for other securities or
assets or more than 50% of the assets or earning power of us and our
subsidiaries, taken as a whole, were to be sold or transferred in one or a
series of related transactions, each holder of record of a right, other than
rights beneficially owned by an acquiring person and certain of its affiliates,
associates and transferees, whose rights will thereupon become null and void,
will from and after such date have the right to receive, upon payment of the
exercise price, that number of shares of common stock of the acquiring company
having a fair market value at the time of such transaction equal to
approximately two times the exercise price of the participating preferred stock.
At any time after any person or entity becomes an acquiring person and
prior to the acquisition by such person or entity of 50% or more of our
outstanding capital stock entitled to vote, our board of directors may, at its
option, exchange all or part of the then outstanding and exercisable rights,
which will not include rights that have become null and void, at an exchange
ratio of one share of our common stock per right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date of the Stockholder Rights Agreement.
Fractions of shares of participating preferred stock, other than fractions
which are integral multiples of one one-hundredth of a share, may, at our
election, be evidenced by depositary receipts. We may also issue cash in lieu of
fractional shares which are not integral multiples of one one-hundredth of a
share.
At any time prior to the close of business on the tenth day after there has
been a public announcement that a person or entity has become an acquiring
person, we may redeem the rights in whole, but not in part, at a price of $.001
per right. Immediately upon the effective time of the action of our board of
directors authorizing redemption of the rights, the right to exercise the rights
will terminate and the only right of the holders of the rights will be to
receive the redemption price stated above.
For as long as the rights are then redeemable, we may, except with respect
to the amount of the redemption price, amend the rights in any manner, including
an amendment to extend the time period in which the rights may be redeemed. At
any time when the rights are not then redeemable, we may amend the rights in any
manner that does not materially adversely affect the interests of holders of the
rights as such.
Until a right is exercised, the holder of the right will not have any of
the rights of our stockholders, including, without limitation, the right to vote
or to receive dividends.
The rights have certain anti-takeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire us on terms
not approved by our board of directors. The rights should not interfere with any
merger or other business combination approved by the board of directors since
the rights may be amended to permit such an acquisition or they can be redeemed
by us at $.001 per right prior to the earliest of the time that a person or
group has acquired beneficial ownership of 15% or more of our common stock or
the final expiration date of the rights.
39
Limitation Of Liability Of Officers And Directors
Our 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 certificate of incorporation provides that we will
indemnify our directors and officers to the fullest extent permitted by Delaware
law. We have entered into indemnification agreements with our current directors
and executive officers. We also maintain directors and officers insurance.
Anti-Takeover Provisions
Delaware Law. We are governed by the provisions of Section 203 of the Delaware
General Corporation Law. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless before
the date that the person became an "interested stockholder," the board of
directors approved either the "business combination" or the transaction which
makes the person an "interested stockholder," or after the date that the person
became an "interested stockholder," the business combination is approved by our
board of directors and the vote of at least 66 2/3% of our outstanding voting
stock that is not owned by the "interested stockholder." Generally, a "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the stockholder. An "interested stockholder" is a person
who either owns 15% or more of our outstanding stock or, together with
affiliates and associates, owns or, within three prior years, did own, 15% or
more of our outstanding voting stock. The statute could have the effect of
delaying, deferring or preventing a change in our control.
Certificate of Incorporation and Bylaw Provisions. Our certificate of
incorporation authorizes the issuance of "blank check" preferred stock that
could be issued by our board of directors to increase the number of outstanding
shares in order to thwart a takeover attempt. Our bylaws provide that only our
board of directors may call special meetings of our stockholders and establishes
specific procedures for stockholders to take any action by written consent. In
addition, our bylaws establish 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. These and other
provisions contained in our restated certificate of incorporation and bylaws
could delay or discourage transactions involving an actual or potential change
in control of us or our management, including transactions in which stockholders
might otherwise receive a premium for their shares over then current prices.
Such provisions could also limit the ability of stockholders to remove current
management or approve transactions that stockholders may deem to be in their
best interests and could adversely affect the price of our common stock.
Transfer Agent And Registrar
The transfer agent and registrar for our common stock is Mellon Investor
Services LLC.
Quotation on The New York Stock Exchange
Our common stock is listed on The New York Stock Exchange under the symbol
"GB".
40
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material United States federal
income tax consequences of the exchange of the 2003 debentures for the
debentures, and the ownership and disposition of the debentures and the common
stock into which the debentures may be converted.
This discussion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), administrative pronouncements, judicial decisions and existing and
proposed Treasury regulations (the "Regulations"), changes to any of which
subsequent to the date of this prospectus may affect the tax consequences
described herein, possibly with retroactive effect.
This discussion does not address any aspect of state, local or foreign law,
or the U.S. federal estate, gift or alternative minimum tax consequences of (i)
the exchange of the 2003 debentures for the debentures, (ii) the ownership or
disposition of the debentures, or (iii) the ownership or disposition of our
common stock received upon a conversion of the debentures.
This discussion applies only to:
o the exchange by Greatbatch of the 2003 debentures for the
debentures;
o debentures purchased by those initial holders who purchase the
debentures at the issue price (as defined below);
o debentures held as capital assets within the meaning of section
1221 of the Code; and
o U.S. Holders (as defined below).
This discussion does not describe the United States federal income tax
consequence of the ownership or disposition of our common stock, except as
described below, nor does it describe all of the tax consequences that may be
relevant to a holder in light of its particular circumstances or to a holder
subject to special rules, including:
o a financial institution;
o an insurance company;
o a dealer in securities or foreign currencies;
o a trader in securities that elects to use the mark-to-market
method of accounting for its securities;
o a regulated investment company or real estate investment trust;
o a person holding debentures as part of a "straddle," "hedge",
"conversion," "constructive sale," or other integrated
transaction;
o a U.S. Holder (as defined below) whose functional currency is not
the U.S. dollar;
o a former citizen or individual resident of the United States;
o persons deemed to sell the debentures or common stock into which
the debentures are convertible under constructive sale rules;
o a partnership or other entity classified as a partnership for
United States federal income tax purposes; or
o a person subject to the alternative minimum tax.
As used herein, the term "U.S. Holder" means a beneficial owner of the 2003
debentures or the debentures that for United States federal income tax purposes
is:
o a citizen or individual resident of the United States;
o a corporation, or other entity taxable as a corporation for
United States federal income tax purposes, created or organized
in or under the laws of the United States or of any political
subdivision thereof; or
o an estate or trust the income of which is subject to United
States federal income taxation regardless of its source.
A Non-U.S. Holder is any beneficial owner of the 2003 debentures or the
debentures that is not a U.S. Holder. This discussion does not address any U.S.
federal, state, local, or foreign legal or income tax considerations with
respect to non-U.S. Holders.
Prospective purchasers of the debentures and participants in the exchange
of the 2003 debentures for the debentures should consult their tax advisers with
regard to the application of the United States federal income tax laws to their
particular situation as well as the tax consequences arising under the laws of
any state, local or foreign taxing jurisdiction. If a partnership or other
entity that is a "pass-through" for United States federal income tax purposes
holds a debenture, the tax treatment of a partner generally will depend on the
status of the partner and the activities of the partnership. If you are a
partner in a partnership holding a debenture, you are expected to consult your
own tax advisers.
41
Circular 230 Disclosure
Any tax statement made herein regarding any U.S. federal tax is not intended or
written to be used, and cannot be used, by any taxpayer for purposes of avoiding
any penalties. Any such statement herein is written in connection with the
marketing or promotion of the transaction to which the statement relates. Each
taxpayer should seek advice based on the taxpayer's particular circumstances
from an independent tax advisor.
Characterization of the Exchange
Under current Regulations, the exchange of the 2003 debentures for the
debentures will be treated as an "exchange" for U.S. federal income tax purposes
(a "Taxable Exchange") if, taking into account the differences between the terms
of the 2003 debentures and the debentures, there is deemed to be a "significant"
modification of the 2003 debentures within the meaning of Section 1.1001-3(e) of
the Regulations. In general, the Regulations provide that a modification of a
debt instrument is a significant modification if, based on all of the facts and
circumstances, the legal rights or obligations that are altered and the degree
to which they are altered are "economically significant." The Regulations
provide several bright line rules for determining whether there has been a
significant modification, as well as a "general significance rule." The bright
line rules require an analysis of changes affecting a debt instrument's yield,
the material deferment of payments under the instrument, changes in the obligor
or security, changes in the instrument's nature, and changes in accounting and
financial covenants. There is no authority directly on point on how to determine
whether there has been a significant modification affecting an instrument's
yield in the context of instruments to which the contingent debt Regulations
(discussed below) apply, and thus it is unclear whether this bright line test
would be met. In addition, though there is a lack of specific authority in this
context, the modifications to the 2003 debentures resulting from the exchange
for the debentures probably do not meet any of the tests for the remaining
bright line rules.
The Regulations also require that the exchange of the 2003 debentures for
the debentures be tested under a general significance rule to determine if there
has been a significant modification. Under this general rule, a modification is
significant if, based on all the facts and circumstances, the legal rights or
obligations being changed and the degree to which they are being changed are
economically significant. All modifications must be considered collectively. One
specific situation considered under the general significance rule is the
elimination of a put right. In the exchange of the 2003 debentures for the
debentures, the 2003 debentures contained a put right, the terms of which made
it likely to be exercised by the holder. This put right has been eliminated in
the debentures, effectively extending the term of the debt by three years. This
is likely an economically significant modification to the 2003 debentures.
Moreover, the effective extension of the term of the debt probably alters the
instrument's annual yield, another factor considered under the general
significance test. Finally, because the terms of the put right made it highly
likely to be exercised, resulting in conversion of the holder's interest into
cash prior to maturity, at which time the holder would have received our common
stock, the removal of that right is probably economically significant in itself.
Based on an analysis of the facts and circumstances, and taking into
consideration the economic differences between the terms of the 2003 debentures
and the debentures, we will take the position that the modifications to the 2003
debentures resulting from the exchange of the 2003 debentures for the debentures
will constitute a significant modification of the 2003 debentures, resulting in
a Taxable Exchange. This will have a significant impact on Greatbatch in 2007,
because we will be required to recognize significant income as a result of the
discharge of our indebtedness, in an amount equal to the difference between the
issue price of the 2003 debentures and the issue price of the debentures, as
determined under the Regulations.
Classification of the Debentures
Although not free from doubt, since we will treat the debentures as issued
in exchange for the 2003 debentures in a Taxable Exchange, Greatbatch will take
the position that all of the debentures were issued in exchange for money or
publicly traded property within the meaning of Section 1.1273-2 of the
Regulations. Debt instruments issued in exchange for money or publicly traded
property are subject to the Regulations governing contingent payment debt
instruments (the "contingent debt regulations"). Under the indenture governing
the debentures, Greatbatch agrees, and by acceptance of a beneficial interest in
a debenture each holder of a debenture will be deemed to have agreed, to treat
the debentures as indebtedness for U.S. federal income tax purposes that is
subject to the contingent debt regulations. Pursuant to the terms of the
indenture, Greatbatch and every holder agrees (in the absence of an
administrative determination or judicial ruling to the contrary) to be bound by
our application of the contingent debt regulations to the debentures, including
our determination of the projected payment schedule (as described below) and the
rate at which interest will be deemed to accrue on the debentures for U.S.
federal income tax purposes.
In 2002, the IRS issued Revenue Ruling 2002-31 and Notice 2002-36,
clarifying a number of uncertainties in the contingent debt regulations as well
as other provisions of the Code that might apply to the debentures, and
concluded that the instruments addressed in that published guidance were subject
to the contingent debt regulations. However, the applicability of Revenue Ruling
2002-31 to any particular instrument, such as the debentures, is uncertain. No
ruling has been sought from the IRS with respect to the tax treatment of the
debentures. The remainder of this discussion assumes that the debentures are
subject to the contingent debt regulations. Any treatment different from that
42
described herein could affect the amount, timing, character and treatment of
income, gain or loss in respect of an investment in the debentures. In
particular, a holder might be required to accrue interest income at a lower or
higher rate, might not recognize income, gain or loss on conversion of a
debenture into common stock and might recognize capital gain or loss on a
taxable disposition of a debenture. Holders should consult their tax advisers
regarding the tax treatment of the debentures.
Tax Consequences to U.S. Holders
Interest Accruals on the Debentures
Under the contingent debt regulations, a U.S. Holder, regardless of its
method of accounting for United States federal income tax purposes, is required
to accrue interest income on the debentures on a constant yield basis at an
assumed yield (the "comparable yield") determined at the time of issuance of the
debentures, subject to certain adjustments as described below. The comparable
yield is based on the yield at which we could issue a non-convertible,
fixed-rate debt instrument with no contingent payments, but with terms and
conditions otherwise similar to those of the debentures. We have determined the
comparable yield to be 8.45% compounded semi-annually, which is currently higher
than the stated yield of 2 1/4% per annum. Accordingly, in each year, U.S.
Holders will be required to include in income an amount of interest in excess of
the stated yield of the debentures.
Solely for purposes of determining the amount of interest income that a
U.S. Holder is required to accrue, we are required to construct a "projected
payment schedule" in respect of the debentures representing a series of payments
the amount and timing of which would produce a yield to maturity on the
debentures equal to the comparable yield. The projected payment schedule for the
debentures includes estimates for payments of interest (including contingent
interest and semi-annual interest payments) and an estimate for a payment at
maturity taking into account the conversion feature. U.S. Holders may obtain the
projected payment schedule by submitting a written request for it to us at
Greatbatch, Inc., 9645 Wehrle Drive, Clarence, New York 14031, Attention:
Treasurer.
Neither the comparable yield nor the projected payment schedule constitutes
a representation by us regarding the actual amount that will be paid on the
debentures or the value at any time of our common stock into which the
debentures may be converted. For United States federal income tax purposes, a
U.S. Holder is required to use the comparable yield and the projected payment
schedule established by us in determining interest accruals and adjustments in
respect of a debenture, unless such U.S. Holder timely discloses and justifies
the use of a different comparable yield and projected payment schedule to the
IRS.
Based on the comparable yield and the issue of the debentures, a U.S.
Holder of a debenture (regardless of its accounting method) will be required to
accrue as interest the sum of the daily portions of interest on the debentures
for each day in the taxable year on which the U.S. Holder held the debenture,
adjusted upward or downward to reflect the difference, if any, between the
actual and the projected amount of any contingent payments on the debentures (as
set forth below). The issue price of the debentures is the first price at which
a substantial amount of the debentures is sold to the public, excluding bond
houses, brokers or similar persons or organizations acting in the capacity as
underwriters, placement agents or wholesalers (the "issue price").
The daily portions of interest in respect of a debenture are determined by
allocating to each day in an accrual period the ratable portion of interest on
the debenture that accrues in the accrual period. The amount of interest on a
debenture that accrues in an accrual period is the product of the comparable
yield on the debenture (adjusted to reflect the length of the accrual period)
and the adjusted issue price of the debenture. The adjusted issue price of a
debenture at the beginning of the first accrual period equals its issue price.
For any accrual periods thereafter, the adjusted issue price will equal (x) the
sum of the issue price of the debenture and any interest previously accrued
thereon by a holder (disregarding any positive or negative adjustments, both as
defined below) minus (y) the amount of any projected payments on the debentures
for previous accrual periods.
In addition to the interest accrual discussed above, a U.S. Holder is
required to recognize interest income equal to the amount of the excess, if any,
of actual payments over projected payments (a "positive adjustment") in respect
of a debenture for a taxable year. For this purpose, the payments in a taxable
year include the fair market value of property received (including, as discussed
below, common stock received upon conversion of a debenture) in that year. If a
U.S. Holder receives actual payments that are less than the projected payments
in respect of a debenture for a taxable year, the U.S. Holder will incur a
"negative adjustment" equal to the amount of the difference. This negative
adjustment will (i) first reduce the amount of interest in respect of the
debenture that the U.S. Holder would otherwise be required to include in income
in the taxable year and (ii) to the extent of any excess, will give rise to an
ordinary loss equal to that portion of that excess that does not exceed the
excess of (x) the amount of all interest income previously included by the U.S.
Holder in respect of the debenture over (y) the total amount of the U.S.
Holder's negative adjustments treated as ordinary loss on the debenture in prior
taxable years. A negative adjustment is not subject to the 2% floor limitation
imposed on miscellaneous deductions under Section 67 of the Code. Any negative
adjustment in excess of the amounts described in (i) and (ii) will be carried
forward to offset future interest income accruals in respect of the debentures
or to reduce the amount realized on a sale, exchange, conversion or retirement
of the debentures.
43
Sale, Exchange or Conversion of the Debentures
Upon a sale or exchange of a debenture for cash or property, a U.S. Holder
generally will recognize gain or loss equal to the difference between the amount
realized on the sale or exchange and the holder's adjusted tax basis in the
debenture. A holder's adjusted tax basis in a debenture generally will be equal
to the holder's original purchase price for the debenture, increased by any
interest income previously accrued by the U.S. Holder (determined without regard
to any adjustments to interest accruals described above) and decreased by the
amount of any projected payments on the debenture for previous accrual periods.
The receipt of cash and common stock upon conversion of a debenture will be
treated as a contingent payment under the debentures. Under this treatment, a
conversion of a debenture into cash and common stock will also result in taxable
gain or loss to the U.S. Holder. For this purpose, the amount realized by a U.S.
Holder will equal the fair market value of the common stock received upon
conversion plus any cash received. A U.S. Holder generally will treat any
"positive adjustment" upon a conversion of the debentures as interest income and
any loss as ordinary loss to the extent of the excess of previous interest
inclusions over the total negative adjustments previously taken into account as
ordinary loss, and the balance as capital loss. The contingent payment
regulations extend this treatment to amounts received on a sale or exchange of
the debenture.
A U.S. Holder's tax basis in common stock received upon a conversion of a
debenture will equal the then current fair market value of the common stock. The
U.S. Holder's holding period for the common stock received will commence on the
day immediately following the date of conversion or repurchase.
Constructive Dividends
If at any time we make a distribution of property to our stockholders that
would be taxable to the stockholders as a dividend for United States federal
income tax purposes and, in accordance with the anti-dilution provisions of the
debentures, the conversion rate of the debentures is increased, such increase
may be deemed to be the payment of a taxable dividend to the U.S. Holders of the
debentures. For example, an increase in the conversion rate in the event of
distributions of our evidences of indebtedness or our assets will generally
result in deemed dividend treatment to U.S. Holders of the debentures. The tax
consequences of the receipt of a taxable distribution from Greatbatch are
described below under "---Dividends on Common Stock."
Dividends on Common Stock
If, after a U.S. Holder converts a debenture into our common stock, we make
distributions on our common stock, the distributions will constitute taxable
dividends for United States federal income tax purposes to the extent of our
current or accumulated earnings and profits as determined under Unite States
federal income tax principles. To the extent that the U.S. Holder receives
distributions on shares of common stock that would otherwise constitute
dividends for United States federal income tax purposes but that exceed our
current and accumulated earnings and profits, such distributions will be treated
first as a non-taxable return of capital reducing the holder's tax basis in the
shares of common stock. Any such distributions in excess of the U.S. Holder's
tax basis in the shares of common stock will generally be treated as capital
gain. Subject to applicable limitations, distributions on our common stock
constituting dividends paid to holders that are United States corporations will
qualify for the dividends received deduction, and dividends paid to
non-corporate holders will qualify for a reduced rate of taxation.
Sale or Disposition of Common Stock
A. U.S. Holder generally will recognize capital gain or loss on a sale or
exchange of our common stock. The U.S. Holder's gain or loss will equal the
difference between the proceeds received by the holder and the holder's tax
basis in the common stock, which will generally be the fair market value of the
common stock at the time of the conversion. The proceeds received by a U.S.
Holder will include the amount of any cash and the fair market value of any
other property received for the common stock. The gain or loss recognized by a
U.S. Holder on a sale or exchanged of common stock will be long-term capital
gain or loss if the holder's holding period for the common stock is more than
one year. Long-term capital gains realized by non-corporate taxpayers are
generally taxed at lower maximum marginal tax rate than the maximum marginal tax
rate applicable to ordinary income. The deductibility of net capital losses by
individuals and corporations is subject to limitations.
Backup Withholding and Information Reporting
Information returns may be filed with the IRS in connection with payments
on the debentures and payments of the proceeds of a sale or other disposition of
the debentures and the common stock into which the debentures are converted. A
U.S. Holder may be subject to United States backup withholding tax at the rates
specified in the Code on those payments if it fails to provide its taxpayer
identification number to the paying agent and comply with certain certification
procedures or otherwise establish an exemption from backup withholding. The
amount of any backup withholding from a payment will be allowed as a credit
against the holder's United States federal income tax liability and may entitle
the holder to a refund, provided that the required information is furnished to
the IRS.
44
SELLING STOCKHOLDERS
We issued the debentures to certain holders of the 2003 debentures, and
additional purchasers in a private placement. Holders of the 2003 debentures
exchanged $117,782,000 of the 2003 debentures for an equivalent principal amount
of the debentures, and holders of the 2003 debentures and additional purchasers
purchased $80,000,000 aggregate principal amount of debentures. We issued the
debentures on March 28, 2007 and April 2, 2007, to persons believed to be
"qualified institutional purchasers" under Rule 144A promulgated under the
Securities Act, or "accredited investors" under Regulation D promulgated
pursuant to the Securities Act in transactions exempt from the registration
requirements of the Securities Act. Selling securityholders, including their
transferees, pledgees, donees and successors, may from time to time offer and
sell pursuant to this prospectus any or all of the debentures and shares of
common stock into which the debentures are convertible pursuant to this
prospectus or any applicable prospectus supplement.
The table below sets forth the name of each selling securityholder, the
principal amount of debentures and shares of common stock beneficially owned by
each selling securityholder and the number of shares of common stock issuable
upon conversion of those debentures that may be offered from time to time under
this prospectus by the selling securityholders named in the table.
We have prepared the table below based on information given to us by those
selling securityholders who have supplied us with this information on or prior
to June 4, 2007 and we have not sought to verify such information. We expect
that we will update this table as we receive more information from holders of
the debentures who have not yet provided us with their information. We will
supplement or amend this prospectus to include additional selling
securityholders upon request and upon provision of all required information to
us. Information concerning the selling securityholders may change from time to
time and any changed information will be set forth in supplements to this
prospectus if and when necessary.
Because the selling securityholders may offer all or some portion of the
debentures and shares of common stock into which the debentures are convertible
listed below, we have assumed for purposes of this table that the selling
securityholders will sell all of the shares of common stock offered by this
prospectus pursuant to this prospectus. Accordingly, we cannot estimate the
amounts of debentures or shares of common stock that will be held by the selling
securityholders following the consummation of any such sales. In addition, the
selling securityholders listed in the table below may have acquired, sold or
transferred, in transactions exempt from the registration requirements of the
Securities Act, some or all of their debentures since the date on which they
provided to us the information presented in the table.
The number of shares of common stock issuable upon conversion of the
debentures shown in the table below assumes conversion of the full amount of
debentures held by each selling securityholder. The percentage of debentures
outstanding beneficially owned by each selling securityholder is based on
$197,782,000 aggregate principal amount of debentures outstanding. The number of
shares of common stock beneficially owned prior to the offering includes shares
of common stock into which the debentures may be convertible. The number of
shares of common stock that may be offered is based on a conversion rate of
28.8219 per $1,000 principal amount of debentures and a cash payment in lieu of
any fractional share. The percentage of common stock outstanding beneficially
owned and that may be offered by each selling securityholder is based on
22,414,920 shares of common stock outstanding on June 4, 2007. In addition, the
conversion rate and, therefore, the number of shares of common stock issuable
upon conversion of the debentures is subject to adjustment under certain
circumstances. Accordingly, the aggregate principal amount of debentures and the
number of shares of common stock into which the debentures are convertible may
increase or decrease.
Based upon information provided by the selling securityholders, none of the
selling securityholders nor any of their affiliates, officers, directors or
principal equity holders has held any position or office or has had any material
relationship with us within the past three years.
45
Common Stock Owned
Upon Completion of
the Offering
Principal
Amount of Shares of
Debentures Common Stock Conversion
Beneficially Percentage of Owned Prior Shares of
Owned and Debentures to the Common Stock Number of
Name of Beneficial Owner Offered (1) Outstanding Offering (2) Offered Shares Percentage
CNH CA Master Account, L.P. $32,800,000 16.6% 104,883 945,358 104,883 *
Oz Special Funding (OZMD), L.P. $14,823,000 7.5% - 427,227 - *
Highbridge International LLC $14,500,000 7.3% - 417,917 - *
Tenor Opportunity Master Fund,
Ltd. $14,100,000 7.1% - 406,388 - *
Peoples Benefit Life Insurance
Company Teamsters $9,000,000 4.6% - 259,397 - *
Vanguard Convertible Securities Fund,
Inc. $8,285,000 4.2% - 238,789 - *
Argentum Multi-Strategy Fund Ltd. -
Classic $7,210,000 3.6% - 207,805 - *
Argent Classic Convertible Arbitrage
Fund Ltd. $7,210,000 3.6% - 207,805 - *
Argent LowLev Convertible Arbitrage
Fund Ltd. $7,210,000 3.6% - 207,805 - *
Redbourn Partners Ltd. $7,000,000 3.5% - 201,753 - *
RCG Latitude Master Fund, Ltd. $6,120,000 3.1% - 176,390 - *
CSS, LLC $5,500,000 2.8% - 158,520 - *
TQA Master Fund Ltd. $4,691,000 2.4% - 135,203 - *
Virginia Retirement System $4,560,000 2.3% - 131,427 - *
Chrysler Corporation Master Retirement
Trust $4,540,000 2.3% - 130,851 - *
Highbridge Convertible
Arbitrage Master Fund Ltd. $3,500,000 1.8% - 100,876 - *
RCG PB, Ltd. $3,450,000 1.7% - 99,435 - *
Jefferies and Company, Inc. $3,222,000 1.6% - 92,864 - *
Bank of America Pension Plan $3,000,000 1.5% - 86,465 - *
Yield Strategies Fund I, L.P. $3,000,000 1.5% - 86,465 - *
National Bank of Canada - Tenor $2,900,000 1.5% - 83,583 - *
TQA Master Plus Fund Ltd. $2,689,000 1.4% - 77,502 - *
Delaware Public Employees Retirement
System $2,555,000 1.3% - 73,639 - *
National Railroad Retirement Investment
Trust $2,455,000 1.2% - 70,757 - *
Qwest Pension Trust $1,910,000 1.0% - 55,049 - *
46
Daimler Chrysler Corp. Emp #1
Pension Plan, dtd 4/1/89 $1,892,000 1.0% - 54,531 - *
Zurich Institutional Benchmarks
Master Fund $1,545,000 * - 44,529 - *
OCM Convertible Trust $1,445,000 * - 41,647 - *
Argent Classic Convertible Arbitrage
Fund L.P. $1,330,000 * - 38,333 - *
BP Amoco PLC Master Trust $1,284,000 * - 37,007 - *
Harvest Master Enhanced Ltd. $1,172,000 * - 33,779 - *
ACE Tempest Reinsurance Ltd. $1,015,000 - 29,254 - *
McMahan Securities Co. L.P. $964,000 * - 27,784 - *
Argent Classic Convertible Arbitrage
Fund II, L.P. $910,000 * - 26,227 - *
F.M. Kirby Foundation, Inc. $790,000 * - 22,769 - *
Delta Airlines Master Trust - CV $780,000 * - 22,481 - *
Partner Reinsurance Company Ltd. $780,000 * - 22,481 *
LDG Limited $733,000 * - 21,126 - *
Florida Power and Light Group
Inc. Employee Pension Plan $729,000 * - 21,011 - *
Harvest Offshore Investors Ltd. $703,000 * - 20,261 - *
UnumProvident Corporation $655,000 * - 18,878 - *
OCM Global Convertible Securities Fund $575,000 * - 16,572 - *
Delta Pilots Disability & Survivorship
Trust - CV $550,000 * - 15,852 - *
Xavex Convertible Arbitrage 10 Fund $480,000 * - 13,834 - *
Microsoft Capital Group, L.P. $455,000 * - 13,113 - *
Class C Trading Company, Ltd. $440,000 * - 12,681 - *
International Truck & Engine
Corporation Non-Contributory
Retirement Plan Trust $440,000 * - 12,681 - *
United Technologies Corporation Master
Retirement Trust $437,000 * - 12,595 - *
Xavex Convertible Arbitrage 5 $430,000 * - 12,393 - *
Constans Healthcare Convertible
Arbitrage Fund $400,000 * - 11,528 - *
Trust for the Defined Benefit Plans of
ICI American Holdings, Inc. $395,000 * - 11,384 - *
CASAM Argent Classic Convertible
Arbitrage Fund Limited $355,000 * - 10,231 - *
Harvest Capital L.P. $347,000 * - 10,001 - *
Rampart Enhanced Convertible
Investors, LLC $334,000 * - 9,626 - *
47
Qwest Occupational Health Trust $310,000 * - 8,934 - *
International Truck & Engine
Corporation Retiree Health Benefit
Trust $265,000 * - 7,637 - *
International Truck & Engine
Corporation Retirement Plan for
Salaried Employees Trust $240,000 * - 6,917 - *
Partners Group Alternative Strategies
PCC LTD $210,000 * - 6,052 - *
Xavex Convertible Arbitrage 2 Fund $200,000 * - 5,764 - *
Goldman Sachs & Co. Profit Sharing
Master Trust $177,000 * - 5,101 - *
Hotel Union & Hotel Industry of Hawaii
Pension Plan Master Trust $176,000 * - 5,072 - *
Lyxor Master Fund Ref: Argent/LowLev CB
c/o Argent $170,000 * - 4,899 - *
HFR CA Global Select Master Trust
Account $120,000 * - 3,458 - *
Absolute Strategies Fund $105,000 * - 3,026 - *
Veritas Credit Opportunities Fund Ltd. $75,000 * - 2,161 - *
Viacom Inc Pension Plan Master Trust $64,000 * - 1,844 - *
Franklin and Marshall College $45,000 * - 1,296 - *
Argent LowLev Convertible Arbitrage
Fund II, LLC $30,000 * - 864 - *
---------------------------------------
*Less than 1%
(1) The aggregate principal amount held by selling securityholders in this
prospectus is more than $197,782,000 because some of the selling securityholders
may have transferred debentures pursuant to Rule 144A or otherwise reduced their
positions prior to selling pursuant to the registration statement of which this
prospectus is a part. The maximum aggregate principal amount of debentures that
may be sold under this prospectus will not exceed $197,782,000.
(2) Shares in this column do not include the shares of common stock issuable
upon conversion of the debentures listed in the column to the right.
48
PLAN OF DISTRIBUTION
The selling securityholders and their transferees, pledgees, donees and
successors may sell the debentures and the underlying shares of common stock
directly to purchasers or through underwriters, broker-dealers or agents, who
may receive compensation in the form of discounts, concessions or commissions
from the selling securityholders or the purchasers. These discounts, concessions
or commissions as to any particular underwriter, broker-dealer or agent may be
in excess of those customary in the types of transactions involved. To our
knowledge, the selling securityholders have not entered into any agreement,
arrangement or understanding with any particular broker or market maker with
respect to the sale of the securities covered by this prospectus.
The debentures and the common stock may be sold in one or more transactions
at:
o fixed prices;
o prevailing market prices at the time of sale;
o prices related to the prevailing market prices;
o varying prices determined at the time of sale; or
o negotiated prices.
In the case of the common stock, these sales may be effected in
transactions:
o on any national securities exchange or quotation service on which
our common stock may be listed or quoted at the time of sale,
including the New York Stock Exchange;
o in the over-the-counter market;
o otherwise than on such exchanges or services or in the
over-the-counter market;
o through the writing of options, whether the options are listed on
an options exchange or otherwise; or
o through the settlement of short sales.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as agent on both sides of the trade.
In connection with the sale of the debentures and the underlying common
stock or otherwise, the selling securityholders may enter into hedging
transactions with broker-dealers or other financial institutions. These
broker-dealers or financial institutions may in turn engage in short sales of
the common stock in the course of hedging the positions they assume with the
selling securityholders. The selling securityholders may also sell the
debentures and the underlying common stock short and deliver these securities to
close out such short positions, or loan or pledge the debentures or the
underlying common stock to broker-dealers that in turn may sell these
securities.
Selling securityholders may not sell any, or may not sell all, of the
debentures and shares of common stock offered by them pursuant to this
prospectus. In addition we cannot assure holders that a selling securityholder
will not transfer, devise or gift the debentures and underlying shares of common
stock by other means not described in this prospectus. Moreover, any securities
covered by this prospectus that qualify for sale pursuant to Rule 144 or Rule
144A under the Securities Act may be sold thereunder, rather than pursuant to
this prospectus.
The aggregate proceeds to the selling securityholders from the sale of the
debentures or the underlying common stock offered pursuant to this prospectus
will be the purchase price of such securities less discounts and commissions, if
any. Each of the selling securityholders reserves the right to accept and,
together with their agents from time to time, reject, in whole or in part, any
proposed purchase of debentures or common stock to be made directly or through
their agents. We will not receive any of the proceeds from this offering.
Our common stock is listed for trading on the New York Stock Exchange. We
do not intend to list the debentures for trading on any national securities
exchange or automated quotation system and can give no assurance as to the
development of any trading market for the debentures.
49
In order to comply with the securities laws of some states, if applicable,
the debentures and the underlying common stock may be sold in these
jurisdictions only through registered or licensed brokers or dealers. In
addition, in some states the debentures may not be sold unless they have been
registered or qualified for sale or an exemption from registration or
qualification requirements is available and complied with.
The selling securityholders and any broker-dealers, agents or underwriters
that participate in the distribution of the debentures and the underlying common
stock may be deemed to be "underwriters" within the meaning of the Securities
Act. In this case, any profits realized by the selling securityholders and any
discounts, commissions or concessions received by these broker-dealers, agents
or underwriters may be deemed to be underwriting discounts or commissions under
the Securities Act. In addition, selling securityholders who are deemed to be
"underwriters" will be subject to the prospectus delivery requirements of the
Securities Act and may be subject to statutory liabilities, including, but not
limited to, liabilities under Sections 11, 12 and 17 of the Securities Act and
Rule 10b-5 under the Exchange Act.
The selling securityholders and any other persons participating in the
distribution of the debentures and the underlying common stock will be subject
to applicable provisions of the Exchange Act and the rules and regulations
thereunder. Regulation M of the Exchange Act may limit the timing of purchases
and sales of the debentures and underlying common stock by the selling
securityholders and any such other person. In addition, Regulation M may
restrict the ability of any person participating in the distribution to engage
in market-making activities with respect to the particular securities being
distributed for a period of up to five business days prior to the commencement
of the distribution. This may affect the marketability of the debentures and the
underlying common stock.
With respect to a particular offering of the debentures and the underlying
common stock, to the extent required, an accompanying prospectus supplement or,
if appropriate, a post-effective amendment to the registration statement, of
which this prospectus is a part, will set forth the following information:
o the specific debentures or common stock to be offered or sold;
o the names of selling securityholders;
o the respective purchase prices and public offering prices and
other material terms of the offering;
o the names of any participating agents, broker-dealers or
underwriters; and
o any applicable commissions, discounts, concessions and other
items constituting compensation from the selling securityholders.
We entered into the registration rights agreement for the benefit of the
holders of the debentures to register their debentures and the underlying common
stock under applicable federal and state securities laws under certain
circumstances and at certain times. The registration rights agreement provides
that we and the selling securityholders will indemnify each other and our
respective directors, officers and controlling persons against specific
liabilities in connection with the offer and sale of the debentures and
underlying common stock, including liabilities under the Securities Act, or will
be entitled to contribution in connection with those liabilities. We will pay
all of our expenses and specified expenses incurred by the selling
securityholders incidental to the registration, offering and sale of the
debentures and underlying common stock to the public, but each selling
securityholder will be responsible for the payment of commissions, concessions,
fees and discounts of underwriters, broker-dealers and agents.
We will use our reasonable best efforts to keep the registration statement,
of which this prospectus is a part, effective until the earlier of:
o the sale pursuant to the registration statement or pursuant to
Rule 144 under the Securities Act, of all of the securities
registered thereunder; or
o the expiration of the holding period under Rule 144(k) under the
Securities Act, or any successor provision.
We are permitted to suspend the use of this prospectus under specified
circumstances relating to pending corporate developments, public filings with
the SEC and similar events for a period not to exceed 30 days in any three-month
period, but not to exceed an aggregate of 90 days for all periods in any
12-month period. In addition, notwithstanding the foregoing, we are permitted to
suspend the use of this prospectus for up to 60 days in any three-month period
under certain circumstances relating to an acquisition or a probable acquisition
or financing, recapitalization, business combination or other similar
transaction. We will pay predetermined liquidated damages if this prospectus is
unavailable for periods in excess of those permitted as described above.
50
LEGAL MATTERS
The validity of the debentures and the shares of our common stock issuable
upon conversion of the debentures have been passed upon for us by Hodgson Russ
LLP, Buffalo, New York. Attorneys in Hodgson Russ LLP beneficially own an
aggregate of approximately 8,850 shares of our common stock.
EXPERTS
The consolidated financial statements, the related financial statement
schedule, and management's report on the effectiveness of internal control over
financial reporting incorporated in this prospectus by reference from our Annual
Report on Form 10-K have been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their reports, which are
incorporated herein by reference and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. Copies of these
reports, proxy statements and other information may be read and copied at the
SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You
may also call the SEC at 1-800-SEC-0330 for further information on the operation
of the Public Reference Room. The SEC maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants, including us, that file electronically with the SEC. The address of
the SEC's web site is www.sec.gov. The address of our web site is
www.greatbatch.com.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" our publicly filed
documents into this prospectus, which means that we may disclose material
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus and any
later information that we file with the SEC will automatically update and
supersede this information. We incorporate by reference into this prospectus (i)
the documents listed below, (ii) all documents filed by us pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act") after the date
of filing of this registration statement and prior to the effectiveness of this
registration statement, and (iii) any additional documents subsequently filed by
us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until this
offering is complete. This prospectus is part of a registration statement on
Form S-3 that we filed with the SEC and does not contain all of the information
set forth in the registration statement.
The following documents that we previously filed with the SEC are
incorporated by reference:
(1) our Annual Report on Form 10-K for the fiscal year ended December
29, 2006, which was filed on February 27, 2007;
(2) our Quarterly Report on Form 10-Q for the quarter ended March 30,
2007, which was filed on May 8, 2007;
(3) our Current Reports on Form 8-K dated February 28, 2007, March
19, 2007, March 22, 2007, March 28, 2007, April 2, 2007, April
28, 2007 and May 22, 2007; and
(4) our Tender Offer Statement on Schedule TO dated May 8, 2007, as
amended by amendment no. 1 dated May 30, 2007.
We will provide any person to whom a copy of this prospectus is delivered,
on written or oral request, a copy of any or all of the documents incorporated
by reference free of charge. We will not provide copies of the exhibits to those
documents unless we specifically incorporated by reference the exhibits in this
prospectus. You should direct any requests for documents to Greatbatch, Inc.,
9645 Wehrle Drive, Clarence, New York 14031, (716) 759-6901, Attention: Director
of Investor Relations.
51