Invacare 2013 Annual Report Download - page 31

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other things, certain financial covenants that require the Company to maintain a maximum leverage ratio (consolidated funded
indebtedness to consolidated EBITDA, as defined under the credit facility) of no greater than 4.75 to 1 for the first quarter of 2014
and gradually decreasing each quarter to 3.5 to 1 in the fourth quarter of 2014, and a minimum interest coverage ratio (consolidated
EBITDA to consolidated interest charges, as defined under the credit facility) of no less than 3.5 to 1. In calculating the leverage
ratio, the Company can only exclude cash restructuring charges up to a maximum of $20,000,000 from May 30, 2013 until the
agreement expires in 2015. If the Company is unsuccessful in meeting these covenants or other, financial or operating covenants
in its credit facility, it would result in a default which could trigger acceleration of, or the right to accelerate, the related debt.
Because of cross-default provisions in the agreements and instruments governing certain of the Company's indebtedness, a default
under the credit facility could result in a default under, and the acceleration of, certain other Company indebtedness. In addition,
the Company's lenders would be entitled to proceed against the collateral securing the indebtedness.
These covenants could materially and adversely affect the Company’s ability to finance its future operations or capital
needs. Furthermore, they may restrict the Company’s ability to conduct and expand its business and pursue its business strategies.
The Company’s ability to meet these financial ratios and financial condition tests can be affected by events beyond its control,
including changes in general economic and business conditions, or they can be affected by government enforcement actions, such
as, for example, adverse impacts from the FDA consent decree of injunction. If the Company were unsuccessful in meeting those,
or other, financial or operating covenants in its credit facility, it would result in a default which could trigger acceleration of, or
the right to accelerate, the related debt. The Company's ability to meet its liquidity needs will depend on many factors, including
the operating performance of the business, the Company's ability to successfully complete in a timely manner the third-party expert
certification audit and FDA inspection contemplated under the consent decree and receipt of the written notification from the FDA
permitting the Company to resume full operations, as well as the Company's continued compliance with the covenants under its
credit facility. Notwithstanding the Company's expectations, if the Company's operating results decline more than it currently
anticipates, or if the Company is unable to successfully complete the final consent decree-related third-party expert certification
audit and FDA inspection within the currently estimated time frame, the Company may be unable to comply with the financial
covenants, and its lenders could demand repayment of the amounts outstanding under the Company's credit facility.
As a result, continued compliance with the leverage covenant under the Company's credit facility is a high priority, which
means the Company remains focused on generating sufficient cash and managing its expenditures. The Company also may examine
alternatives such as raising additional capital through permitted asset sales. Such asset sales could be dilutive to the Company's
results. In addition, if necessary or advisable, the Company may seek to renegotiate its credit facility in order to remain in
compliance. The Company can make no assurances that under such circumstances its financing arrangements could be renegotiated,
or that alternative financing would be available on terms acceptable to the Company, if at all.
The Company also has an agreement with De Lage Landen, Inc. (“DLL”), a third party financing company, to provide the
majority of future lease financing to Invacare's North America customers. Either party could terminate this agreement with 180
days notice or 90 days notice by DLL upon the occurrence of certain events. Should this agreement be terminated, the Company's
borrowing under the credit agreement could increase.
The Company's capital expenditures could be higher than anticipated.
Unanticipated maintenance issues, changes in government regulations or significant investments in technology and new
product development could result in higher than anticipated capital expenditures, which could impact our debt, interest expense
and cash flows.
The Company’s Chairman of the Board of Directors and certain members of management own shares representing a
substantial percentage of the Company’s voting power and their interests may differ from other shareholders.
The Company has two classes of common stock. The Common Shares have one vote per share and the Class B Common
Shares have 10 votes per share. As of January 1, 2014, the Company’s chairman, Mr. A. Malachi Mixon, III, and certain members
of management beneficially owned (including the right to acquire) approximately 34% of the combined voting power of the
Company’s Common Shares and Class B Common Shares and could influence the outcome of a corporate transaction or other
matter submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of the
Company’s assets. They also will have the power to influence or make more difficult a change in control. The interests of Mr. Mixon
and his relatives may differ from the interests of the other shareholders, and they may take actions with which some shareholders
may disagree.