Invacare 2015 Annual Report Download - page 56

I-50
full control by an agent for the lenders of the company's cash receipts for application to the company's obligations under the
agreement.
If the company is unable to comply with the provisions in the Amended and Restated Credit Agreement, it could result in
a default, which could trigger acceleration of, or the right to accelerate, the related debt. Because of cross-default provisions in
its agreements and instruments governing certain of the company's indebtedness, a default under the Amended and Restated Credit
Agreement 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.
Based on the company's current expectations, the company believes that its cash balances, cash generated by operations and
available borrowing capacity under its Amended and Restated Credit Agreement should be sufficient to meet working capital
needs, capital requirements, and commitments for at least the next twelve months, including payments of $9,379,000 to settle tax
liabilities during the next twelve months. Notwithstanding the company's expectations, if the company's operating results decline
as the result of pressures on the business due to, for example, currency fluctuations or regulatory issues or the company's failure
to execute its business plans, the company may be unable to comply with its obligations under the Amended and Restated Credit
Agreement, and its lenders could demand repayment of the amounts outstanding under the company's credit facilities.
On February 23, 2016, the company issued $130,000,000 aggregate principal amount of 5.00% convertible senior notes due
2021 in a private offering. The notes bear interest at a rate of 5.00% per year payable semi-annually and will mature in February
2021, unless repurchased or converted in accordance with their terms prior to such date. Prior to August 15, 2020, the notes will
be convertible only upon satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close
of business on the second scheduled trading day immediately preceding the maturity date. Unless and until the company obtains
shareholder approval under applicable New York Stock Exchange rules, the notes will be convertible, subject to certain conditions,
into cash. If the company obtains such shareholder approval, the notes may be settled in cash, the company’s common shares or
a combination of cash and the company’s common shares, at the company’s election.
In connection with the offering of the notes, the company entered into privately negotiated convertible note hedge transactions
with two financial institutions (the “option counterparties”). These transactions cover, subject to customary anti-dilution
adjustments, the number of the company’s common shares that will initially underlie the notes, and are expected generally to
reduce the potential equity dilution, and/or offset any cash payments in excess of the principal amount due, as the case may be,
upon conversion of the notes. The company entered into separate, privately negotiated warrant transactions with the option
counterparties at a higher strike price relating to the same number of the company’s common shares, subject to customary anti-
dilution adjustments, pursuant to which the company will sell warrants to the option counterparties. The warrants could have a
dilutive effect on the company’s outstanding common shares and the company’s earnings per share to the extent that the price of
the company’s common shares exceeds the strike price of those warrants.
The net proceeds from the offering were approximately $124,800,000, after deducting fees and estimated offering expenses
payable by the company. Approximately $5,000,000 of the net proceeds from the offering was used to repurchase the company’s
common shares, and $13,520,000 of the net proceeds was used to pay the net cost of the convertible note hedge and warrant
transactions. The company intends to use the remaining net proceeds from the offering for working capital and general corporate
purposes, which may include funding portions of the company’s ongoing turnaround and addressing potential risks and
contingencies described in the “Risk Factors” contained in this Annual Report on Form 10-K. The net proceeds will allow the
company to invest in new products, people, marketing initiatives and working capital to transform the business and pursue growth.
See Subsequent Events in the Notes to the Consolidated Financial Statements for more information regarding the 5.00%
convertible senior notes due 2021 and the related convertible note hedge and warrant transactions.
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 the company'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 needs under the Amended and Restated Credit Agreement could increase.
While there is general concern in the company about the potential for rising interest rates, the company believes that its
exposure to interest rate fluctuations is manageable as the company has the ability to utilize swaps to exchange variable rate debt
for fixed rate debt, if needed, and the company expects that it will be able to absorb any modest rate increases in the months ahead
without any material impact on its liquidity or capital resources. For 2015 and 2014, the weighted average interest rate on all
borrowings, excluding capital leases, was 3.83% and 2.87%, respectively.