Invacare 2007 Annual Report Download - page 85

INVACARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Long-Term Debt—Continued
covenant contained in three Note Purchase Agreements between the company and various institutional lenders
(the “Note Purchase Agreements”). The Note Purchase Agreements related to an aggregate principal amount of
$330 million in long-term debt of the company. The financial covenant limited the ratio of consolidated debt to
consolidated operating cash flow. The company believed the limit was exceeded as a result of borrowings by the
company in early October, 2006 under its $500 million credit facility dated January 14, 2005 with various banks
(the “Credit Facility”). The violation of the covenant under the Note Purchase Agreements also may have
constituted a default under both the Credit Facility and the company’s separate $100 million trade receivables
securitization facility (collectively, all of these loan facilities are referred to as the “Loan Facilities”). The
company obtained the necessary waivers of the covenants that were violated.
As part of the new financing, the company entered into a $400,000,000 senior secured credit facility
consisting of a $250,000,000 term loan facility and a $150,000,000 revolving credit facility. The company’s
obligations under the new senior secured credit facility are secured by substantially all of the company’s assets
and are guaranteed by its material domestic subsidiaries, with certain obligations also guaranteed by its material
foreign subsidiaries. Borrowings under the new senior secured credit facility will generally bear interest at
LIBOR plus a margin of 2.25%, including an initial facility fee of 0.50% per annum on the facility.
The company also completed the sale of $175,000,000 principal amount of its 9.75% Senior Notes due 2015
to qualified institutional buyers pursuant to Rule 144A and to non-U.S. persons outside the United States in
reliance on Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). The notes are
unsecured senior obligations of the company guaranteed by substantially all of the company’s domestic
subsidiaries, and pay interest at 9.75% per annum on each February 15 and August 15. The net proceeds to the
company from the offering of the notes, after deducting the initial purchasers’ discount and the estimated
offering expenses payable by the company, were approximately $167,000,000.
Also, as part of the refinancing, the company completed the sale of $135,000,000 principal amount of its
Convertible Senior Subordinated Debentures due 2027 to qualified institutional buyers pursuant to Rule 144A
under the Securities Act. The debentures are unsecured senior subordinated obligations of the company
guaranteed by substantially all of the company’s domestic subsidiaries, pay interest at 4.125% per annum on each
February 1 and August 1, and are convertible upon satisfaction of certain conditions into cash, common shares of
the company, or a combination of cash and common shares of the company, subject to certain conditions, and at
the company’s discretion. The company intends to settle any conversion with cash; therefore, no convertible debt
effect is included in the company’s weighted average shares outstanding for the purpose of determining the
company’s reported Net Earnings (loss) per Share – Assuming Dilution. The initial conversion rate is
40.3323 shares per $1,000 principal amount of debentures, which represents an initial conversion price of
approximately $24.79 per share. Holders of the debentures can not convert the debt to common stock unless the
company’s common stock price is at a level in excess of $32.23, a 30% premium to the conversion price for at
least 20 trading days during a period of 30 consecutive trading days preceding the date on which the notice of
conversion is given. The debentures are redeemable at the company’s option, subject to specified conditions, on
or after February 6, 2012 through and including February 1, 2017, and at the company’s option after February 1,
2017. On February 1, 2017 and 2022 and upon the occurrence of certain circumstances, holders have the right to
require the company to repurchase all or some of their debentures. The company evaluated the terms of the call,
redemption and conversion features under the applicable accounting literature, including SFAS 133, Accounting
for Derivative Instruments and Hedging Activities and EITF 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, and determined that the features did
not require separate accounting as derivatives. The net proceeds to the company from the offering of the
debentures, after deducting the initial purchasers’ discount and the estimated offering expenses payable by the
company, were approximately $132,300,000.
FS-21